World to Become Better After Financial Crisis

 

People are at present focusing only on the immediate consequences of the Financial Crisis.

Lets look at the possibilities post the crisis.. May be 5-10 years later..

 

I think the world will be much better after this crisis... Every Crisis is end of a System and starting of a new system. What changes we expect to see in new system ?

 

The current crisis is the result of Leveraging Power given to Investors. For every $100  your have it was possible to invest upto $1000... 10 Times Leverage.

e.g.

If you have $10000 then you could easily buy a home worth $100000 ...

If you have $10000 then you could invest in  financial instruments like derivatives upto $100000

If you start a new business with $100000 , then investors were ready to value it immediately to $1million or sometimes even more..

Even corporate, builders were able to get such a leverage.

 

This 10x Leverage is the main reason for the crisis. Financial institutes either invested in Derivatives, Projects or Lend to people.  It has been good times and future growth looked secured, all the profits they earned was again invested with same leverage until few intelligent people started thinking that its too much and raised the alarm. Alarm sounded loud , that some big  institutes started freezing money and all the ones above them started falling like pack of cards.

 

What it meant ?

Above 10x formula meant that Richer can become Rich much faster then poorer can become richer. In addition richer has much higher leverage available to him then a poorer. This is very clear if you analyze the data.

 

What post Crisis ?

Post crisis Rich people will not be able to leverage their money so much. Actually millions of Rich people would have become Poorer by the end of the crisis and they will never be able to reach earlier levels in several decades without focusing on Real Business Value.

 

This 10x Leverage took interest of businesses and entrepreneurs out of the basic fundamental of offering Real Value to the customers. They were purely interested in putting something forward so that they get 10x immediate value, and then they were looking for the next thing that will give this value.. Even though this process created jobs but unhealthy ones.

 

So reversal of this trend means Richer will not become rich quickly , they will have to offer fundamental value in the market, do innovation and face stiff competition. Which means creation of much larger number of healthy jobs, focus on value creation and long term outlook.

 

This will be very healthy for the economy and will create much larger number of jobs and significant value creation with long term focus. Hence I think that the post crisis period will be quite look for hard working individuals.

 

I remember in one entrepreneur meet in Bangalore, I heard one guy saying "These investors can make so much quick money in Real estate and Stocks that unless these things do not come down , we have little opportunities to get respect for our work" ... At that time I did not give much thought to it, but I think this is what will happen now. Very soon investors will look for intelligent, capable teams that have ability to build real value rather then play marketing and financial games.

 

What it meant that the "Opportunities of Growth presented by Small Businesses" who did not had enough leverage, were not attractive enough for Investors and hence they were not given due respect.. Instead investors were telling them to hire some HiFi CEOs or Financial manager who can actually ensure that the investment provided by the Level 1 investor gets its 10x value (some wanted 100x) from level2 investors... and Level2 gets 10x form level 3...

 

This is what they call as exit strategy... This is the man reason why you will see that many startups in India were mainly  founded by Management Graduates with finance experience or CA .

 

So look for great time ahead and be happy that this world of financial gurus has come to an end.

 

 

 

 

World Wide Recession

All of you are aware of WWW but here is new term coined by me  WWR (World Wide Recession) ....

 

For several decades WWR will be remembered by you and your children... When you become very old, people will ask your , were you alive at WWR time ?

 

Each and every history and economics book will have chapters on WWR, People will compare markets and business against WWR ...

 

Is there any relation between WWW & WWR ?

Some people say Yes, WWW changed the world and brought WWR....

 

Some points put forward are :

 

-  WWW lead to complete world to come closer and learn how others make money, Specially hoe USA work, How people live and earn money in USA, specially how USA markets and exonomy work. All this helped countries worldwide to implement similar systems. Most companies tiedup with USA companies to get technology and operational knowhow...

 

- In turn companies and individuals started investing in USA markets or in international markets thru USA. All international companies come to USA to get financed, and so does all investors. It was easy and simple single point location. i remember when my bank were to transfer money from Mumbai to Singapore, it use to transfer it first to usa and then a usa bank use to route it to singapore 9even when singapore was one of the major financial center of asia)

 

- WWW has a major role in doing this. USA companies were happy to see such a large amount of cash flow , actually the amount of cash available was less then the amount of investment opportunities availabe. Also the type of investment options were limited. This is when financial institutions came out with many ideas to use this cash flow with risky mortages, derivatives, hedge funds and more..

 

- The rapid growth of USA and some countries where investments were routed did quite well. Financial institutes assumed that things will continue as it is and became more and more greedy.  Housing Market crisis in USA was related to this..

 

 

- Oil .. It is believed that when some Fund managers identified that if the world were to grow like think the oil will become short, they shifted large amount of money form their hedge funds to investment in Oil, which spiked Oil to such a high price that it became risk for the growing economies...

Indian Terrorism Taking Dangerous Turn

I like to write about something very Dangerous Social Developments taken place recently and very hot topic in News channels these days.

 

- Arrest of Hindu rights groups and senior Indian army officials in malegoan blasts.

- Also some other blasts taken recently near Masjid in Hyderabad and one other, where Indian mujhedeen and SImi did not take any responsibility are being assigned to Hindu rights group.

 

 

These 2 events are so dangerous that they can complete change the face of India in near future. I like to bring some facts before bringing the real points.

 

- Terrorism has been a big challenge to Indian government since several decades. Terrorists have killed several lakh people and displaced many others.

 

- Indian government has failed to control terrorism and rarely taken any strict steps against it.

 

- Congress that has been in power since independence, has been shying away to take any strong steps to keep terrorism away from India. Steps taken by Indra Gandhi against Khalistan/Sikh movement did gave very good results but similar steps were not taken against Muslim terrorism.

 

- Governments always tried to project that terrorism is grown and controlled in pakistan and there is nothing required to be done in India except monitoring and reactive actions.

 

- Border monitring and Internal reactive actions mostly failed and Terrorist groups were able to make inroads into India and involved Indian Youths and Muslim rights groups.

 

 

- USA 9/11 success of terrorism effected thoughts of several muslim youth. It gave them a impressions that terrorism is very powerful. If it can give such a big jolt to USA then it can certainly help them achieve their simple political aims. Its glorious and can be financially beneficial.

 

- This made it easier for terrorist organizations to spread wings, and involve youths. This means that now terrorist do not come to India , but they live and operate from India.

 

 

All this lead to following additional events recently:

 

- Indian people lost faith in Indian government in countering terrorism. There are several movies that shown what India should have actually done to counter terrorism and showed that indian government is idiot in not doing this.

 

- Indian Army  is having less then 1% muslims where as it should be 12% as per population average. Same is the case for Police in most states. This means that muslims are not involved in maintiang Indian security and harmony.

 

- Hindu Rights group observed that terrorists are attacking Hindu worship places like Temples, Religious cities. This was a direct challenge to Hindu rights groups.  None of the government steps have helped reduce terrorism.

 

- Even after the pakistan and kashmiro movement took downtrend, the terrorism instead of decreasing , actually increased.

 

- All this has encouraged Hindu Rights groups to give direct answer to the Muslim terrorists by creating anti muslim movement and doing blasts in Masjids and Muslim populated areas. 

 

- Involvement of Indian army officials show that, there is large rift in Indian army and they are not happy with the way government has been handling terrorism. Army is considered responsible for prevening Terrorism from penetrating into India. Army has been asking for actions on pakistan which indian government has not been permitting. Government has also prevented army several times from taking strong steps against terrorists in Kashmir. Several terrorists caught by arm were also release in different situations. All this probably has created rift that Government  "Choodiya phen ke bhathi hai" .

 

- Recent blasts that indian Hindu RIghts groups and Army is a startling revelation but a late one. Normally it is expected that such a thing should have happened long back

 

- A movie released recently called "Wednesday" show the frustration among a common man and what he can do to counter terrorism. He plants bomb to kill 4 major captured terrorists and he succeed in it. At last complete police department support his efforts and applaud his efforts. Several movies with similar concepts have comeearlier. THis clearly show that there is concensus among common people , police and army that they should kill terrorists and people supporting them

 

- Most people believe that Muslim groups governed thru masjid are supporting muslim terrorism. and hence Hindu groups to act against them is expected.

 

 

What is expected in future ?

 

- For Muslim population and groups , this is a dangerous news. THis ideally means that they if any blash happen in any Hindu target, similar attacks are assured in Muslim targets. Earlier Muslim groups have been arguing that muslim terrorism have never harmed them so they should not be against them but now they have to rethink, they will be the soft targets of Hindu groups and they cannot do anything but to alienate themselves form muslim terrorism. They will have to openly say as well as practice this.

 

- This will certainly help in muslim terrorism to loose their support among othe rmuslim groups. this will reduce the fast growth seen in terrorism.

 

- But before this happen, there are chances that there will be a war among Hindu & Muslim terrorism groups. THis means that muslim groups will conduct several blasts in hindu targets and same will be the respocne by the hindu groups. THis will be most dnagerous situation in India and lead to political unstability.

 

- It is expected that after this war common hindu and muslim people will strongly start opposing terrorism both Hindu & Muslims and sloly terrorism will subside. But I am not sure how long it will take. As per Indian situation such social changes can take decades.

 

 

 

 

 

 

Real Estate Prices to Fall Further in India post Diwali

Recent News flow has been suggesting that the Real Estate Prices will now stablize post diwali and Things will look upwards.

 

This is concluded by some real estate companies with claims that "RBI has cut Rates", "Banks are about to cut Interest Rates", Realestate company shares have already fallen a lot and further fall not expected. and stuff like that...

 

But I like to warn buyers that this is not expected to be true.

 

- Actually real estate prices have not fallen much as projected. The prices have fallen only in Suburbs and location where builders were quoting (only quoting not real sales) 5-6 times higher then normal expected prices.  Builders had started projects on large land and put up rates that were just like rates at the city center. At present Builders have only reduced rates on these projects. which is actuall not a price fall but just a new price quote.

 

- The price fall means that if average (average in a quater)  registered deals were being done at say Rs.5000 per sqft ... and this quater the average is Rs.4000/- then you can say that there is 20% price fall. In reality in many new projects that were launched there were no dealers done just price was quoted,, and now they are quoting low.. This is not what we can call a price fall.

 

- Many builders are projecting it as 20% price fall and saying that no further fall will happen, In reality they are making us fool. Obviously there is a price drop in real deals also but its not enough .

 

- Hence there is chance of a real price fall, Real Price fall is a Price Level at which the Buying Picks up and keeps growing atleast for a quater. At present there are no indications of this. Interest rates are comming down but now people are aware that its going to fall further in next few months so , people will wait.

 

- Also there is a huge dispute that has propped up in the Builders , before diwali all Builders has united for not to drop prices (except above artificial drop) and they were expecting sales to grow in diwali. But post diwali some builders have picked up argument (probably after seeing that there is not much sale in diwali) that the Real Price drop is necessary for the market to pickup.

 

- I believe that soon many builder will drop the rate and others will need to follow. This drop will be bigger and builders will offer low cost housing. Only if the demand grow significantly , people will start buying Real Estate shares. So even if builders do not make any profits  but have sales, they can make up for it in their stock prices..

 

- Also there is news that all Private Equity deals in projects is being re-negotiated . This means that all new project plans will be changes. Instead of comming up with premium homes, IT parks they will get converted into low cost housing. And Builders will be forced to reduce prices significantly to ensure quick sales.

 

 

- Today SBI dropped the PLR by .75% . This is obviously very good for the Real estate section but I think it will need to be substantiated with real fall in prices.

 

- So wait for Real Fall in Price and more fall in Interest Rates. Overall wait for a feeling that you are getting a great deal that you never saw in the past.. Once this feeling come go ahead and buy.

 

- I also like to tell you that the Actual Real Estate Projects are still to come and nearly 10 years down the line. These projects will be associated with huge infrastructure projects and they will be of as big scale as a city. ALso they will be more affordable. Hence you will need to change your home anyway after 10 years. So while buying you home just think of it as 10 years deal.. Do not end up buying a Premium home with large EMI thinking that its your onetime investment.  look for a home that is comfortable for you and near the place you work.