My Finance Times

Critical views on the US Auto Industry Bailout

Posted by: Chirag Jain on: November 20, 2008

WSJ asks and answers some important questions :

Will fewer companies look to insource into America if the federal government is willing to bail out their domestic competitors?

The answer :

The answer is an obvious yes. Ironically, proponents of a bailout say saving Detroit is necessary to protect the U.S. manufacturing base. But too many such bailouts could erode the number of manufacturers willing to invest here….

Will a U.S.-government bailout go ignored by policy makers abroad?

The answer :

No. A bailout will likely entrench and expand protectionist practices across the globe, and thus erode the foreign sales and competitiveness of U.S. multinationals. And that would reduce these companies’ U.S. employment, R&D and related activities. That would be bad for America…..

Will a federal bailout that politicizes American markets bolster foreign-investor demand for U.S. assets?

The answer :

Not likely. Instead, America runs the risk of creating the kind of “political-risk premium” that investors have long placed on other countries — and that would reduce demand for U.S. assets and thereby the value of the U.S. dollar.

Reduced foreign demand for U.S. assets would be troubling at any time. Its prospect is especially troubling now, when the federal government’s fiscal 2009 deficit is widely forecast to reach something near or exceeding $1 trillion — up from $456 billion last year. With net saving still near zero for U.S. households and falling profits for U.S. companies, financing that deficit will require attracting foreign capital.

Tough times lie ahead for Obama!!!

Posted by: Chirag Jain on: November 9, 2008

Kal’s cartoon in The Economist :

barack1

With once-in-a-century subprime crisis and global economic meltdown, we need a once-in-a-century president with different ideas, change! Yes, if Americans through full support behind him, the world is his, and no obstacle is too small. What is most important today is bringing back the faith

My Endorsement : John McCain

Posted by: Chirag Jain on: November 1, 2008

With all newspapers giving out their endorsements for Barack Obama, my view is that only taking an economic view, John McCain is a safe bet against the new-rising Senator (but soon to become President) Obama. It may now be inevitable that Barack Obama is going to be voted President, and that too by a large margin, but a small defence for for McCain :

Even though USA faces a budget deficit of $1 trillion, Obama has vowed to dole out another $1.32 trillion over the next decade to different tax credits, ‘middle-class’ tax cut benefits, and special exemption for seniors. His proposed income-based health-insurance subsidies and Medicaid elegibility will drill a hole to the tune of $1.63 trillion too!

Obama is going to fund/spend taxpayer dollars on 176 other programs, averaging out to $1.4 trillion over the next 10 years…

A Simple math reveals that these numbers mean approximately $4.3 trillion of increased spending, without adding to it the $1 trillion deficit already there.

But the million-dollar question : Who pays for such expenditure 10 years down the line?? Senator Obama has not pre-empted his voters or us about how he plans to fund these trillion dollar payments. How much ever he digs, the American taxpayer’s pockets are not going to yield $4.3 trillion.  Its going to be less, and there’s no doubt about it.

Coming back to his oratory skills and connecting with voters, he is the best at that! Who wouldn’t want to be a speaker like Barack Obama?
Vernon Smith opines that speaking well does not necessarily represent someone’s experience of handling economic situations like this….

He excels as a rhetorician — common to both the great and the least of past presidents — but performance cannot run on that fuel. Inevitably, I think his luster will fade even with his most ardent supporters as that reality sets in. We also have seen luster fade time after time with Republican presidents. The rhetoric of a smaller and less invasive government always leads to king-size performance disappointments.

Comments, votes, suggestions and your lovely opinions are always welcome!! Post them now..

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Chandrayaan: the opportunity cost for India’s poor

Posted by: Chirag Jain on: October 27, 2008

Chandrayaan has just been launched. News articles, stories and much more have spoken that India is sending a satellite to moon, on a shoe-string budget. The budget may be less in comparison to global projects, but $80 million on a project that does nothing to alleviate poverty, reduce deaths, and improve living conditions of destitutes in our streets in India???

But then I’m reminded that if India has to become advanced and developed, it must achieve technological superiority in addition to other financial strenghts, so such a spacecraft mission will bring in immense research, and insight into outer life. We’ll be free to analyse our own data, and should expect to benefit from this space launch.

But with inequality on the rise, poverty is becoming wide-spread, and who should not know more about it than India, which houses the most number of poor people in the world(among countries).

The graph on your left shows the income distribution among the population of the earth.

I’m still confused. What do you say?

Can we afford to spend $80 million (Rs. 3.86 billion) on improving technology, when the majority of us suffer from immense hardships?

Comments, votes, suggestions….keep them going!!

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A Commodity bubble is waiting to burst

Posted by: Chirag Jain on: October 24, 2008

The WSJ reviews another bubble bursting, just after the subprime one last year :

Credit markets have started to thaw, yet stocks and the larger economy keep sliding. What’s going on? Among the problems are the reality of recession and the uncertainty over Barack Obama’s policies. But the larger story is that the global economy is fast popping its latest monetary bubble, the one over the last 14 months in commodity prices and non-dollar currencies.

Its origin. Not decades ago, but this started in 2007, with Ben Bernanke in the top job as Chairman of Federal Reserve :

This is Ben Bernanke’s creation. The Fed chose to confront the credit crunch as if it were mainly a problem of too little liquidity, not fear of insolvency. To that end it flooded the economy with money, while taking short-term interest rates down to 2% from 5.25% in seven months. The panic only got worse, and this September’s stampede finally led the Treasury and Fed to address the solvency problem by supplying public capital and numerous guarantees to the financial system.

Understanding the chart on the right :

The Fed created a commodity bubble of record proportions, with oil doing a round trip in a single year from $70 up to $147 and back down to $69 yesterday. The dollar also plunged along the way against most global currencies, notably the euro, as the bottom chart illustrates.

The worst part definitely is that oil remained high throughout the year, compelling auto-makers to make huge investments in clean/alternative technology, only to realize oil slump back to $69, and SUVs again in demand.

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Warren Buffett: Be greedy when others are fearful

Posted by: Chirag Jain on: October 18, 2008

When all stockowners, mutual fund managers, and hedge funds are turning to cash instead of equities, Warren Buffett takes the contrarian view and says that such a time is fit for buying oversold stocks .  His view :

Be fearful when others are greedy, and be greedy when others are fearful.

The unemployment rate may be rising, and banks faltering by the dozen, recession hitting us from all angles, but Warren Buffett seems to put it straight:

So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

The Oracle of Omaha also makes a few points clear :

I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over…

Towards the end, Warren Buffett paints a good picture for the future:

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

Comments, Votes??

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Warren Buffett next Treasury Secretary?

Both presidential candidates are of the view that the world's richest man will be great to step into Paulson's shoes. But what do you say?

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