Author Archives: Lila

Asian Values On Display At Sathyam

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Just to counterbalance my earlier blog post about the “savings ethic” of Indians, I thought I should also add a post on the “scamming ethic” of Indians – which sometimes wears a pretty face: it’s all done for the family. To bad if the family sometimes sounds like its name is Corleone….or in this case…Ramalinga Raju.

Raju is the disgraced CEO of Sathyam computers, an infotech giant. Sathyam was cooking its books on an Enron-esque level and its unmasking has sent sent shock-waves through out India’s ” New Economy.” Here’s a recent post that tries to figure out whether the average Indian is as shocked or more innured to this kind of corruption than the media coverage lets on:

“The corporate malfeasance confessed to at Satyam has shocked the nation with words like “financial 26/11? and “India’s Enron” being used to describe this catastrophe for India Inc. Satyam has been subject to ritual humiliations like having their corporate ethics award withdrawn and being taken off stock indices. The economic pundits are baying for blood. On the board floor.

But what does the man in the street think of all this?

Let’s find out in this exclusive GB TV news report.

[Background music: Satyam Shivam Sundaram. Ishwar Satya Hain. Satya Hi Shiva Hain. Shiv Hi Sundar Hain. A haaa A haaaaaaa]

Samar is 16 years old and is in Class 11. This is what he had to say.

I don’t see what’s wrong in making a few untrue statements in the balance books. I mean come on dude. Everybody does that at school while doing lab reports. I mean how can one really get a straight line graph while plotting V vs I? It never happens. So you massage the data so that it “fits”. The teachers know it. The students know it. The teachers when they were students did it.

Mona is 33. She works in a cell center.

If you don’t have it, you pad it. Be they balance sheets or bra cups. That’s common knowledge. When prospective grooms come to our house, I always wear padded bras. My aunts told me to do so. Are they asking me to cheat? I don’t think so. And just to balance out that exaggeration, I also under-estimate. I say I am 25 years old.

And it’s not just the younger generation who are supportive of the management at Satyam.

Raghavan is 45. He works for the government.

[Angrily]

So what’s the crime here? Using shareholder money to buy shares in the company your son runs at outrageously elevated prices? I mean if you are dragged over the coals for looking after your family, what is a man to do? Apne to aapne hote hain. What next? Ban the Congress Party?

Lalaji is 65. He has run a grocery for 45 years now.

My dad always used to tell me “Before you decide to be Harishchandra, remember what happened to him. And let that serve as a warning.” I have always followed that dictum and every successful business has to. I keep a metal weight below my scales, I put small bits of stone in the rice, I adulterate the cooking oil. I have two ledger books.

It’s not just me. The dairy-boy who my wife buys milk from has more water than milk. The asli desi ghee I buy is hardly asli. Everyone is tampering with numbers and ratios. Thats how it always has been with dhanda-giri.

There is just one crime in business. Just one.

And that’s getting caught.”

More at Great Bong.

 Comment:

*Satyam means truth. And the lyrics in the quote are taken from a famous old Bollywood movie called Sathyam, Shivam, Sundaram  (which you could translate as “Truth, Goodness, and Beauty”)….

*Ghee is melted butter

*Harishchandra is a prince in classical Hindu literature who is renowned for his truthfulness and goes to extraordinary lengths to keep his word and keep his obligations.  Truth- speaking is almost universally posited as one of the two or three highest virtues in classical Indian texts (the others equal to it are equanimity and doing your duty).  Gandhi wrote an intellectual autobiography called “My Experiments with Truth” and the Indian state’s motto is Satyameve Jayate which is Sanskrit for the “Truth Always Triumphs.”

Waves of the Future…

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“It sounds like the plot of a pre-Daniel Craig Bond film: an internet tycoon invests part of his vast fortune to fund a fiefdom afloat in international waters. He is joined by the libertarian grandson of one the world’s most famous economic thinkers and advertises for like-minded citizens “who are dissatisfied with our current civilisation” to join him aboard his brave new world. However, this is not fiction. It is happening now and the group, called the Seasteading Institute, has just released the first detailed plans of what its utopian water world will look like. The first architectural stage is being financed by a $500,000 (£362,000) donation from Peter Thiel, billionaire co-founder of PayPal, the online payments system that was sold to eBay for $1.5 billion in 2002. More funding will follow, and the group hopes to start building a small-scale version off the coast of San Francisco this year.

The computer renderings of this new ocean dwelling, called ClubStead, show a colossal structure similar to an oil rig that weighs 12,000 tons and is supported on four pillars each with a diameter of 30ft. On board will be room for about 270 people to live, including 70 staff, complete with shops, offices and transport. There will also be a hotel and spa facilities.

Although it looks like a fixed structure, the facility will be movable. It will have thrusters powered by four diesel engines capable of moving the whole structure at a top speed of two knots and providing utility power on the platform itself.

The brains behind the project is Patri Friedman, grandson of Milton Friedman, the Nobel prize-winning economist. “If we can open up the ocean as a new frontier where different groups of people can go and set up their own countries and try different systems,” he says, “then the whole world can look at that, see what works and what doesn’t, and everyone can benefit. America was founded by pioneers who wanted to have a different society to reflect their political and religious values.”

More at Times Online.  (thanks to Lew Rockwell for the tip).

Trading: Nadeem Walayat On What to Accumulate

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“Q. Where to invest during 2009 ?

A. Strategy here rather than stock picks. The strategy is clear, to accumulate stocks with stop losses in the decimated long-term growth sectors, the mega-trend sectors remain as I pointed in the October article are the Energy sector, that’s crude oil and natural gas (hit fresh lows), Water and Agricultural Commodities, add to that Biotech, Health and Tech stocks. Continue to avoid the financials, they are insolvent. It appears the central banks are attempting to fiddle the books with regards proposed ‘changes’ to mark to market valuations so as to give the illusion of solvency. Yes financial stocks WILL soar, BUT like the penny stocks that they have become, they will exhibit much volatility where 50% gains one week could easily turn into a 50% loss the following week.

Again remember to use stop losses on ALL positions. i.e. you place the stop under the most significant low where the market cannot trade if you are right ! For you only get stopped out if you are wrong. The maximum for a stop on a stock is 20%, and you never move a stop against your position. ONLY in the direction of the position. It is such a strategy that turns a portfolio to cash during a bear market without seeing bull market profits turn into bear market losses.

Your Stealth Bull Market Accumulating Analyst.

 Nadeem Walayat

Comment:

I’ve followed Walayat’s commentary for some time now and I find him to be pretty useful. I agree with his assessment of the current pessimism about the market and the advice to sell into every rally. That might have been right until now, but about now is probably the time to begin to accumulate. Even if in a worst case scenario, we go down to 5000, the upside from there is a lot greater than the downside. If you aren’t prepared to take that pain, the other thing to do would be to nibble at dips and hold through without selling into the rises. Nibble again when it dips. That way if the rally is just another bear market rally, you won’t have too much pain until the bottom. And if it’s the beginning of something better, then you’ll not have lost out.

Today’s action, GLD and dollar index down, seems to bear him out. With stocks up, investment money (which is largely what’s holding up the ETF) flows out of gold into the market. The same for the dollar, which was at the favorable end of the risk averse trade until now, ever since it became clear that Europe and Asia were slowing down just as fast (or faster) than the US.

I still think the dollar uptrend is not broken..yet…

But I’ve nibbled on Aussi and Kiwi (up today) and may add to my positions. Like Walayat, I think you have to ignore fundamentals and just think of price – it simplifies things a great deal.

(BTW I am not a professional trader but I’ve been managing my own savings since 2004 with no worse results than some of the top professionals around – I beat Peter Schiff hands down last year (not hard to do – a Schiff portfolio would have been down more than half last year) and Bill Miller too  – and with better predictions of price levels than most of them. My worst point is I’m overly cautious, trade only with a very small part of my savings, and have lost out from holding my money in dollars – mainly because, for logistical reasons, I haven’t been able to put down roots anywhere I think is really safe. In other words, I’ve a good idea where things will go but usually fail to act – the Hamlet syndrome…)

“Managed” Economy, Managed Art..

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“Opinions may, reasonably, differ on Buffet. He may not be to be everyone’s taste.”

So begins an interesting piece in the Independent this morning on Buffet…not Warren, the investor, but Bernard the painter.

It turns out that Bernard and Warren may in fact have something in common – they are both products of the managerial economy. (Think I  blaspheme against Our Billionaire in Omaha? Check out Warren’s sweetheart deal buying a stake in Goldman Sachs. He paid half what ex-Goldman CEO and former Treasury Secretary Hank Paulson paid for the same stake when the public was footing the bill (5 grand versus 10). Back to Bernard:

“What is extraordinary, something with no parallel in the history of modern French art, is that a painter should have been once so admired, and remain admired abroad, but fall so utterly from critical grace in his homeland.

In 1955, he was chosen by 100 critics as the most impressive young painter in the world. In 1956, he was given a spread in Paris Match in which he was presented as the “young millionaire painter”.

Maurice Garnier is a Paris gallery owner and a friend of Buffet until the artist died in 1999. He still has exclusive rights to trade in Buffet paintings. M. Garnier believes it was Buffet’s lightning success and riches, just after the Second World War, which helped to turn the art establishment against him.

“He sold too well,” M. Garnier said. “He made a lot of money. He lived in an ostentatious way. The powers that be hated him for all that.” Buffet incurred, above all, the enmity of two of the great cultural figures of post-war France. The first was Picasso; the second was André Malraux, the writer who became President Charles de Gaulle’s minister for culture in 1959. Picasso would enter Paris galleries and stare at Buffet canvasses for hours, sometimes glaring in silent hatred, sometimes telling visitors how much he hated what he saw before him. Malraux also detested Buffet. M. Perier believes Picasso influenced Malraux, who knew little about art, but he says the culture minister’s motives for bad-mouthing Buffet were also partly political or art-political.

“Malraux was determined to re-establish the reputation of Paris as the art centre of the world,” M. Périer said. “He decided that the ‘abstract’ movement of the 1950s was the vehicle which would achieve that aim. Buffet was anything but an abstract painter. His success and his reputation threatened to muddle the argument that the future of art was abstract.”

Buffet also made another powerful enemy, or at least alienated someone who might have protected, and boosted, his career and reputation. In the 1950s, Buffet, then a homosexual, was the lover of Pierre Bergé, the man who later became the lover and business partner of the fashion designer Yves Saint Laurent. In 1958, Buffet had a spat with Bergé over his new friendship with the then debutant Yves Saint Laurent. Buffet took up instead with a young woman. Perier believes Berge would have reconciled the art establishment with Buffet if the young lovers had not fallen out. M. Garnier goes further and says Buffet attracted the enmity of several powerful gay figures in the art world because he switched his sexual orientation….”

More in The Independent about the spiteful vendetta to denigrate Bernard Buffet by arch rival Picasso and French cultural minister, Andre Malraux.

Comment:

In a previous article (“Portrait of the CIA as an Artist”), I wrote about how the ‘abstract art’ movement was purposely fostered by the intelligence community in the US.  The story of Bernard Buffett depicts another angle of that story and shows how the scheming and envious rivalry of one of the icons of modernity, Picasso, combined with state action (Malraux was the French minister for culture) perverted the course of art – as it recently did of banking.  The exaggerated worth of some artists at the expense of other artists that is a direct result of state intervention is surely as much an indictment of the state as the exaggerated worth of some businesses (financial) at the expense of others.

Obama Wants FDA Overhauled

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“President Barack Obama has said the US food safety system is a “public health hazard” and in need of an overhaul. He sounded the warning during his weekly radio and video address, as he appointed a new head of the federal Food and Drug Administration (FDA). New York Health Commissioner Margaret Hamburg has been named for the post.”

That’s from a BBC report about Obama’s new health czar.

 Comment:

Hat-tip to Sunni Maravillosa for the link. As she points out, calling the FDA “a public health hazard” has a certain libertarian appeal until you read on and find out that what Obama has in mind is an expansion of the funding (hasn’t he heard we’re in a financial meltdown?), an overhaul of the system (read, more bureaucracy), and coordination throughout (read, more centralization).

Here’s the money part:

“The president also announced he was creating a working group to co-ordinate food safety laws throughout government and advise him on how to update the legislation, which he said had not been touched since it was drafted a century ago.”

And who’s the new healthocrat? A bioterrorism expert, who was an assistant health secretary under President Bill Clinton….

We always knew that an Obama presidency would be Clinton – Episode III…

Please underline in your little diaries: bioterrorism, New York, and coordinate through out government.

Now, I know Ms. Hamburg has a very impressive resume (Harvard MD, neuroscience research at Rockefeller University and neuropharmacology research at the National Institute of Mental Health, Bethesda, MD, as well as AIDS research at NIH). She also has an interesting personal profile (bi-racial background). But the fact that she “initiated the nation’s first public-health bio-terrorism defense program” isn’t simply interesting to me – it’s disturbing.  I thought we were going to be ratcheting down the war-like posture with Obama. Why does the top health official in the country have to be someone intimately linked to the defense/intelligence complex?

What pressures would that put on her day-to-day policy recommendations? What is this preparing us for? I don’t know. I just worry about it.

Also this part from the NIH’s rather gushing biography:

“Hamburg sent healthcare workers to patients’ homes to help manage their drug regimen, and between 1992 and 1997, the TB rate for New York City fell by 46 percent, and by 86 percent for the most resistant strains…”

Those results sound good, but “help manage their drug regimen” doesn’t sound so good to me.  What if someone didn’t want to take the drug prescribed? Are they forced to?

More digging needed.

Ode to Enemies

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From Ali Eteraz, writer, scholar, and (former) lawyer-activist:

Ode to Enemies

I love my enemies,
with Neruda’s affection.
I cherish insults,
epithets
sarcasm;
I pray,
to be mocked
— abused —
its my redemption.
I love
all enemies,
not only the weak
ones who hate
because they’re empty,
but the heinous
also,
their hyena acidity
it makes me cackle,
it tickles,
it gives me laughter………

…

The best remedy
for ennui
is to offer my enemy
a plate full of me.”

Comment:

Indeed.

Pile on a big serving of yourself, folks, and shove  a plateful into the hungry mouths of the crooks and liars in power.

Read more of Ali’s observations at his website.

Don’t Nationalize, Says Only Pundit Who Has Nationalized a Bank…

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“People who should know better have been speculating publicly that the government might need to nationalize our largest banks. This irresponsible chatter is causing tremendous turmoil in financial markets. The Obama administration needs to make clear immediately that nationalization — government seizing control of ownership and operations of a company — is not a viable option.

Unlike the talking heads, I have actually nationalized a large bank. When I headed the Federal Deposit Insurance Corporation (FDIC) during the banking crisis of the 1980s, the FDIC recapitalized and took control of Continental Illinois Bank, which was then the country’s seventh largest bank…..”

William Isaac , who actually did nationalize a bank, says don’t do it, at the Wall Street Journal.

Comment:

Glad to see confirmation for my argument (I’m always a little nervous  – who wouldn’t be? – criticizing highly credentialed people like Paul Krugman).  But sometimes pundits, like emperors, really don’t have clothes and you have to call them on it.

Any one can see that Sweden is too different from the US to make a valid comparison.

Anyone can also see that nationalization doesn’t automatically get rid of the pain. It might (or might not) postpone it.  In fact, it’s likely to make it worse, in the opinion of many people with real world experience in banking and investment, not just theoretical expertise (which is all most economists have).

It’s also interesting to me that all those austerity measures which IMF experts thought were just fine for Asian and African countries are off the table in the US. That tells you how bogus these debates are. No one is even considering letting any of the banks go bust. The only possibilities on the table are how to give government money to them. The three options being debated are:

1.  Infuse capital on an ad hoc basis by applying certain tests to decide which and when (Obama administration), assuming the system to be fairly sound.

2. Infuse capital without  taking the banks over, by buying their bad assets at higher than market value or by insuring them, so they get cheap capital

3.  Infuse capital by taking the banks over, firing managers, transfering off the bad assets (where? to whom? how?),  recapitalizing them and then selling them back to the private sector.

Now, 3 is supposed to be so much better for tax payers than the other 2, but without access to details and transparency, there is no guarantee whatsoever that it will be. It would depend on what happened to those bad assets. In fact, the additional bureaucratic measures involved look to add their own additional burden.

The main issue, as I see it is, is monopoly and corruption. In the recent past, we’ve seen that taking-over or infusing capital into selected banks has taken place via other favored banks. There’s evidence (I’ve posted on this on Wachovia and others) that the rescues were actually used to funnel government money to the rescuer bank. I think the Lloyd’s-HBOS deal was something of that kind.

Not on the table at all is the simple free-market solution: let the banks go under.  Let them liquidate. If necessary, adjust laws and regulations to make the process as quick as possible so it doesn’t clog up the courts. Perhaps also adjust insurance requirements for a temporary period so that the impact on businesses is reduced.

There will be pain. But there’s going to be pain regardless of what proposal goes through. The bottom line is there was a party and now there’s a bill –  and no one wants to pay. But that’s not how the real world operates. Someone will pay.The only question is will it be the people who incurred the bill or the general public? The rest of the talk about “too big to fail” “the economy will collapse” etc. are all obfuscations, projections and self-serving hypotheticals….

Obama Considers National Guard to Police Mexican Border

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“President Barack Obama spoke out about the recent violence that has enveloped our neighbor to the south and has begun to spill over from Mexico into the United States. He admitted that he has been weighing the possibility of moving National Guard troops to the border in an effort to contain the violence but ruled out immediate military action.

“We’re going to examine whether and if National Guard deployments would make sense and under what circumstances,” said President Obama, “I think it’s unacceptable if you’ve got drug gangs crossing our borders and killing U.S. citizens.”

One thousand people have already died along the border in 2009 alone, and almost 6 thousand died in 2008. Phoenix, AZ has seen a huge uptick in violence, earning the dubious title of “kidnapping capital of America” while “rape trees” are being found in increasing numbers on the US side of the border…..”

More at Latina

 Comment:

OK. This calls for some Clintonian parsing.

“weighing the possibility” = it’s gonna happen

“ruled out immediate action” = let’s test the waters for now, but wait a bit before going all Wyatt Earp down there

On the positive side, the Sooth-Sayer-In-Chief did admit mundane reality into the thick fog of DC-speak when he conceded that for every drug sale northward, there was a gun sale southward.

Stocks Up, Dollar Down as Market Expects Investor Friendly Changes (Expanded)

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“The stock market has rallied the past three days for any number of reasons, chief among them it was due for at least a technical, “dead-cat” bounce after hitting 12-year lows on Monday. One fundamental factor in the rise is Wall Street’s increased expectation for at least some help from Washington D.C. on two issues: mark to market accounting and the uptick rule.On Thursday, the House Financial Services Committee held a , during which Robert Herz, the chairman of the Financial Accounting Standards Board (FASB), agreed provide more detailed guidelines on the controversial accounting practice within three weeks.”

More by Aaron Trask at Yahoo Finance

Comment:

Never make a public pronouncement. You’re sure to eat it. Having affirmed my short-term faith in the dollar (at least until its hits 90 or there abouts on the index),  I’ve had to second-guess myself.

The dollar’s taken a hit since yesterday and gold’s popped up a bit, part of that just the usual bounce after a leg down, but also because of several things:

1. The perception that the stock market may be due for a bit of a rebound (or, at least, a dead-cat bounce). That makes cash less attractive.

2. Signs of the revival of the uptick rule, which would require short-sellers to sell only on ticks up of the price and would probably prevent cascading short-selling…at least to an extent…

Signs also that mark-to-market may be in for some reexamination. Mark-to-market is seen by many banks as unfair, since it requires the mark down of perfectly sound assets to current (fire-sale) prices.  One alternative that’s been proposed is to go to a 3-month rolling average.  Again, that makes equities look more attractive than cash and is dollar-unfriendly.

3. The sale of the Swiss franc by the Swiss National Bank (SNB)to bring it down against the euro. That’s sparked fears of currency wars and simultaneous depreciation of all currencies, which in turns, reduces the dollar’s attractiveness as a safe-haven.

4. Increased flows into the gold ETF (GLD) to a record  1,041.53 tonnes, making it the 6th largest gold holding outfit in the world, overtaking the SNB. (I have to look up the flows and will add a link and a note here later)

5. Unexpected rise in consumer confidence from the preliminary March data.

6. Announcement by Citi (as well as JP Morgan Chase and Wells Fargo) that it’s showing profitability in 2009. (Why don’t they start paying us back then?)

But until gold shows conviction in going through resistance in the 930-940 band, I’ll stick bull-headedly to my belief that the dollar will chug on or at least bounce around 87-89 for a bit more before coming down.

Mind you, I’m not wedded to that opinion, and if I see signs of change I’ll start stock-loading food, buying up gold coins and foraging for wild roots in the backyard…I’ll let you know..