NaMo - Wrong person in the wrong party

India would be performing socially, politically, economically and humanely far better without the current set of rulers.

Generally in the recent years, India as a country is so divided. The credit goes to the current government of India. In this fast changing world of Social media, sensation is the new child on the block. A person who can sensationalize certain political happenings grab attention of the people. They gain publicity out of the act. In the ever competitive world of political leaders - every one is trying weird things which they might not do at the personal front.

Mahatma Gandhi very famously told - India lives in its villages. Even seventy years after Independence, it is very toweringly true. Instead of making a difference on the ground in villages - the ruling establishments are taming the people through the media. With every passing day - there is huge one-page Ads on every newspaper highlighting the so called achievements of Narendra Modi. On the ground here - nothing has changed. The political class has only become more crooked and selfish. Publicity as a policy strategy is bad. Ideal way - the schemes and programs of the government percolate enough into the lives of people and there is a natural inclination of masses. This appreciation leads to accumulation of votes during elections. It has reached a point where controlling all sections of the media and constantly propagating a narrative will get them votes. Whether to see if it works remains to be seen in this election.

The political topics that are being discussed in the so called mainstream media is mostly about trivial items. Real issues like lack of infrastructure (electricity, water, roads) and corruption still being daily problems for common man., they do not get prominently debated and solutions sought.  In fact lynching a man for beef-eating or attacking a Kashmiri shop owner in streets of UP is the news of the day. It is a law and order issue. Both the state and the central government are responsible to save the lives of all its citizens. No one can disagree with it. But the twist is - the people who are responsible to deal with this - would comply with the crime. First they speak for it or tacitly support it. A prominent person from the ruling party would pass unjustifiable (often not legal) opinions on them. This creates a sensation and division of the society. There is this new set of population that rebels against the mainstream thought and take a relative radical stand. This fuels discussion on social media and in live television for the day. The rulers get some publicity for their deviance from established norm. New comers to politics tend to navigate this way to make an accent on the political ladder in their party. Ideally people in saffron dresses need to be liked upon and trustable by every other living life. But nowadays, you see people in saffron behaving violently and having a sharp tongue particularly against people of other faith and vulnerable sections of the society.

Not a single day goes by, with the PM Narendra Modi blaming the previous Congress governments for everything that is bad in the country. He even blames Nehru. It is ok, if you do that for a year or two when you have a full majority government. If you do it in your 5th year - you are just being non-performing.The performance of the government is not up to the mark in general. The publicity is to cover them all. If there is real performance - there wouldn't be a real need for publicity. The ruling establishment believes they could manipulate the signals and get away, without underlying actions.

Narendra Modi as PM will be remembered for a long time for demonetization - making 85% of high denomination currency notes invalid overnight. The justification provided for that was to eliminate black money and punish the corrupt hoarders. At that time - it sounded logical and timely. Later on - it would turn out that most of the printed money where returned back to the RBI and it didn't make a big impact. To be clear - it was a bold step and the intention cannot be questioned. I believe it was done with right intentions. Where it miserably failed was - not being able to capitalize on that. The PM should have stick to lower denominations only. Now we have more 2000 rupee note in the market which didn't exist before the demonetization. There is more currency in circulation now than prior to demonetization. It would have been awesome chance to restrict the ATM withdrawal to 10K only. (No one stops you from going to a bank and withdrawing anything more than that). This would have put severe restrictions on cash operations. The big failure of demonetization by the BJP government - was not allowing that "crisis" to benefit the people in the "subsequent years".

The current government prides itself in calling Narendra Modi, a powerful Prime minister. If this was really the case - the GST would have been just a one tier structure say 8-10%, leaving all complexities out. A right move would have been to have a "NO GST" and "With GST of 10%" - that's it. Trying to have multiple tiers and adding few/removing few over these years was a reflection of poor implementations. A clean, simple procedure would have definitely helped in the roll out, and the PM could not even enforce that. With global oil prices being down for almost all the five years, the government coffers were very lavish to take bold financial measures. The public perception has changed from the "Government has no money" to "Government has all the money" and just couldn't do anything meaningful.

The PM should also be pinned down for the failure to change the system significantly on any domain that relates to common man. That is why they are not able to say - the next five years would be as glorious as the last five years. None of what they did has not affected the common man positively and more importantly significantly. A bold PM would have automated the grievance address system on Law and Order in the country by now. India would have a 911-equivalent phone number to call anything that is related to Law and Order / Police calls. Those would have made enormous difference to ordinary people's life. With almost everyone having access to a cell phone, all would have felt - they are just one phone call away to safety in case of a threat or an emergency.

The current government has been seriously undermining various institutions in the country like the RBI, Judiciary, CBI - the investigative agency and Election commission. The RBI governor resigned before his term could end because of too much political pressure from the PMO and its appointment of its own people as members of the board. The recent fight between the top brass of the CBI was pretty wide open. It is obvious the PMO put their people in the investigative agency and used them to target political opponents. There is always a CBI raid on the opposition, and some sensation news related to it. CBI raids on relatives of EPS, the Tamil Nadu CM was done just before the no confidence motion in parliament against the Central Government. They also clearly manipulate the Judiciary and how the cases come for hearing. When Jayalalitha was the Chief Minister of the state, the pending case against her in Supreme Court, for which she was initially convicted by a lower court and exonerated in high court (with some mathematical mistakes in calculation) did not see the light when she was in power or when she was seriously ill in the Apollo hospital. After her Death, O.Paneerselvam was made the CM and when he revolted against the inner circles of the party - Sasikala and her family. Sasikala was projected to be the CM herself and MLAs were moved to Koovathur resort for them to get the numbers in the floor of the assembly. The Central government then from nowhere woke up, took the case for hearing right away and convicted her before she could prove her number in the assembly. Their puppet state Governor was involved in delaying the process and played obediently in favor of the central government and against democratic rules of the state. It was pretty evident they control when the judicial case against the opponents are brought and used as political tool. Unfortunately the way judiciary operates in this country is like that.

The BJP government has been tacitly controlling the election commission to suit their agenda. When in school, we were all taught the by-election to constituencies happen within 6 months of either the MLA/MP is dead or suspended from operating as a representative of the people. In our state in Tamil Nadu,  in the last 3 years, we have seen multiple seats that are lying vacant without a elected member for more than 6 months. Just imagine about the people who are in those constituencies. Without a member representing them, it creates lot of ground difficulties. Election Commission not ordering by-elections in vacant constituency is a big crime because it is their only job. The only reason they do that was in favor of the state and central governments. The people of Tamil Nadu should have realized this already.

These kind of institutional management for political gains are always done by ruling parties. But never in the history of our country it has been done to this scale.

One thing that is both funny and makes me angry is - The court this week pronounced a verdict on a by-election in Tirupurankundram assembly constituency in Tamil Nadu. The verdict was - the election of the ruling MLA from that constituency has been declared invalid. This is because of Jayalalithaa's thumb impression was used instead of her signature in approving the party candidate who eventually won. And that thumb  impression was found to be not valid. The sad truth is - Jayalalithaa is dead already and the MLA is also dead. Its basically a classic case of "Operation Success but Patient Dead". It is sadly Judiciary succeeded and Democracy failed. What Angers me about this joke is - The Joke is on us, the people.

Making the institutions play for their tune has gone one step further. Now the BJP wants everyone to think they alone are synonymous with the military - if you are against them, then you are against the military. This is wicked thing. This is what happens when crooks are running the country.
The recent Pulwama attack - where an Indian Citizen became a suicide bomber to kill our own military personal is something really everyone in our country should think about. Blaming it 100% on Pakistan is propaganda and not intelligence. This is unlike the Mumbai attacks where everyone came from Pakistan. It was imported terror. We don't have control over it. But in this case, if one of our own citizen gets radicalized and bombs our army men - we need to find our why would this happen and make steps so that its not repeated. If training and explosives came from across the border in Pakistan - it really means - our border is porous. Make steps to tighten that. We have enough home work on our side to do on top of blaming Pakistan. The ruling party conveniently capitalized on the tragedy and it made it worse by surgical strike misadventure to convey to the people of India, their strong character. In the end, gave an opportunity to the Pakistan PM to become a noble statesman.

What is upsetting, lately the military is being used as a propaganda tool for their own political agenda.

The armed forces of India belong to the country. They represent the people of the country and not its current rulers. The democratic government merely have an impact on them when in power. They tend to give a perception that if you support the Army, then you support the ruling party is absurd. What is amazing is the current BJP government is pretty successful in propagating this idea so far. When emotions run high, the ploy may work. When reality catches up, people will figure out the difference. In the US, when the Iraq war happened and George Bush was President - They tried to do a similar propaganda where, if you hated the war, then you are against the troops. This made a big impact in mobilization of the people in support of the war for multiple years and also played a bigger role in his re-election to his second term as President. Only after the endless war effort and losing multiple US military personal, did the people of the country realize - war and support for military are unrelated. When the common good is lost - the trust is lost as well. Never before in our country was this kind of campaign done. The military was and is supreme entity in India - people valued it. It is just a armed group to save this country for people's common good - mostly dominated by poor sons of our soil.  Using them as political weapon to segregate society and impose political ideological is mischievous. It is possible - they might go to war to prolong their political ideology and continue with their ruling power. 

The way they have been operating so far, giving another five years to Narendra Modi, Amit Shah and its gang - is very scary. They don't even seem to be "Good People". 

The E- Commerce CRAP

The Indian government has stepped in more to regulate the ecommerce Industry. They are formulating procedures that would trim the ecommerce business. The intention they say is to protect the brick and mortar stores spread all over the country. However the whole thing is absurd.

This is one classic example of how the government usually behaves with complete lack of common sense. First they allowed foreign companies to run ecommerce ventures in the country. With more than a billion consumers and a improving middle-class, foreign and local investors have poured in tonnes of money as investment. With a high-inbound of cash into the business, the firm just doesn't know where to spend the money on. Because its all online - there is not even stores/parking expenses. All they need is warehouses and shipment centers. With competition also increasingly growing and with the intention of market dominance, these ecommerce firms use investor's money to offer irrational discounts on the products they sell in their platforms. So a product that has a cost price of Rs. 70/- and a selling price of Rs. 80/- in a outside shop, is being sold for say Rs. 50/- Who pays for the difference - its the investors money.

Every ecommerce firm tries to replicate Amazon.

Amazon has been a leader in the ecommerce space globally. With unlimited investor money looking for returns, mainly sourced from low-cost borrowing rates in developed countries - it became a ideal target. Business of Amazon has been expanding for a decade now exponentially and it is always considered the phoenix bird of the dotcom boom-bust era. The way the business model works - Amazon has reported loses every quarter for most of its lifetime. The shareholders did not gain much from their investment because of the lack of profit. All earnings were re-invested to grow the business. Jeff Bezos mindset is that, grow the business wide and high, the company will eventually be profitable. In late 2015/2016 is where Amazon reported a significant quarterly profit in a quarter since their inception. As soon this happened, investors started piling into the stocks and the share has risen from low double-digits to over $2000/- since then. Recently it has corrected to somewhere around 1500 bugs. On the business side, their ecommerce business has never yielded a significant profit in spite of their long life-span in the business. The reason is this - they do not sell the products for a "profit" in their platform. They sell a lot for a loss. The loss is compensated by the new investor money.

Internally within Amazon, these products are called C.R.A.P - acronym for "Cannot Realize A Profit".

To maintain the market dominance and rival the competitors in number of purchases/revenue, not a single day goes by without a strikingly discount-sale, that no other for-profit business would do. They would ship a 30-40 pound heavy dog-food bag to your house every week that costs $40. They would sell TVs to your house, the price would be lot less than what you would find in the nearest store and on top of that, they offer the shipping to be free. On top of that, if the TV is broken en-route, they would send a replacement. The cost the consumer pays is way less than all these that make it happen.

Consumer is god damn-happy he is getting the best deal and also it is all being door delivered. He saves on the effort and cost that takes him to go to the nearest store and do a pick-up himself. They deliver to the remotest of remote part of the country. All the consumer has to do - is stand-up from his sofa and open the door when Amazon delivery guy knocks in your door. This is absolutely good thing for the consumer. No question about that.

However for Amazon and its investors its a horrible deal.

What is amazing and mind-blowing, is the ecommerce firms are able to do this for so long and making Amazon's Jeff Bezos the richest person in the world.

One sad truth - Amazon has amazingly proved that such an illogical business model can work and prosper. Any company that does this will fail. Amazon will definitely fail as well.

The latest entry to this kind of business model is swiggy and Zomato. It is very hard to miss them on the Indian city streets these days. They have hired thousands of people who deliver food to customers who order using their mobile app. The prices are significantly low - sometimes its obvious it doesn't even add up for the expense on the food and the cost it takes to deliver it to the customer. Rs. 15/- breakfast for early users is common. For comparison - this same breakfast would cost at least Rs 50/- on the floor of the restaurant. These companies also lavishly shower money on their delivery boys. Apparently they earn more than Rs. 25,000/- a month. They operate like Amazon actually - first they offer unrealistic discount to get more people on the platform, buyout the competition, take a leader role in the industry - and it so turns up - they end up never raising prices to actual cost prices. They very well know as well its customers that customers will only be in the platform only until the discounts last. In a real-price structure the business would cease to exist. Once the prices are nominal or above nominal, the customers have no incentive to stick to the platform - either they would walk to restaurants themselves or would start cooking at home, which is lot cheaper. The biggest loser in this game when it gets over finally, is unfortunately the delivery boys. They have been delivering food for years. There is nothing to show for. They didn't acquire any skills or knowledge. Finally they don't have the lavish income too.

What is very amazing about Amazon, Swiggy, Zomato kind of companies is how long they survive? A early failure is good thing. They can be good ordinary companies that are serving customers well. They can't be these extra-ordinary companies which drives competition out. 

Decade of BOOOOM

One thing that the media in general does good is to celebrate anniversaries. The 10th anniversary of the 2008 financial crisis is no exception. Continuous coverage of what happened then and how it was all solved. CNBC basically did a reality show with so called saviors. They called in Henry Paulson, Tim Geithner and Ben Bernanke to give them a pat themselves, each other and how they understood the gravity of the problem and provided the right cure to the ailing economy. They faithfully paid respect to their respective spouses and made some biblical references - which made them look credible than what they actually are. In reality instead of solving a smaller crisis with real medicine, they sowed the seed for a bigger crisis and what they essentially did - was to take the economy back to its artificial highs.

Arguably the bigger culprit of the three was Ben "helicopter" Bernanke. The future would judge him as that one person who would take a nasty hit for his decision to bring the fed funds rate to zero percent and then additionally coming up with monetary experiments like QE. Actually what he did was the easiest of all - print some money and mask the problem instead of solving it. Janet Ellen was never able to raise the interest rate to pre-crisis level even after 8 years since the crisis. The current Fed chairman has raised it significantly but is still low at 2%. He may never be able to raise it the 4.5% that Ben brought it down from. So bottom line - The troubles Ben Bernanke created would never be solved until a bigger crisis hits. Instead of solving the smaller crisis - he blew up the scale of the crisis exponentially and let someone else in-charge to handle that.

Bring down the interest rate was the easiest thing. You don't have to be really smart person to do that. It is a universal truth that you lower the "cost" of money - the business is going to boom. The business would boom so long as the interest rates remains low. Interest rates have been low for 10 years. Even with the 2% now - it is still historic low. Raising interest rate is the hardest part. Usually the interest rates rise because the inflation is rising or to cool the economy from over-heating. With 10-years of low interest rates - the boom is everywhere. In the first decade of the 21st century the boom period were confined to dotcom (3% range) and then to housing (1%). However after the 2008 financial crisis - the boom is no longer confined to specific industries but in multiple industries. Forbes magazine recently called it the "Everything boom". We definitely know the tech-savvy Nasdaq is in 8000 range (5000 range in year 2000 caused the dotcom crash) is most likely in bubble. The housing prices getting back to well above the prices during the housing boom is probably in a bubble too.

Probably the newest bubble in the bond market is the biggest of all and would put the very government that had the authority to fix the last crisis, putting everything in jeopardy. Bond market would include student-load debt, auto-loan debt and credit card debt - all historically high in trillions.

The interest rate on the 10-yr US treasury is around the 2.96 mark now. With the fed going to raise interest in the last week of September - it is almost certain to hit 3% and probably going north after it. Just for an example, let's say you buy the 10-yr bond today for $100,000. The US treasury guarantees you an coupon payment of $3000 dollars every year. At the end of the 10-year term, you get your $100,000 back. With the government's its own CPI number stating that the year-over-year inflation is 2.6%, it is hard to understand why would anyone buy the 10-year bond that yield just 3%. On top of that - you pay tax on your capital gains on the $3000 earned in interest. The CPI is probably on an upward journey. So your coupon rate is not going to change. The inflation rate could rise to 4 or 5 percent or more during this 10-year term. Because of rising interest rates, the principal amount of $100,000 is going to fall in value in the ten-year period. It makes absolutely no financial sense to buy the US bond market whatsoever. There is never going to be shortages of US treasury that is coming to the market in the years to come - as the government is running and will continue to run trillion-dollar deficit budget. The Fed has promised Quantitative tightening - where it will sell the bonds it accumulated in the last 10 years. Bottom line there is going to be a sea of bonds coming to the market. Who is buying it now - Only the person who wants to lose money would buy the 10-year paper. If not - the buyer is propping up the bond market to favor the US treasury.

Ben Bernanke was referred to "Helicopter" Ben for his reference of throwing money from a helicopter to the economy. He is going to be identified as this person - who took the economy in a helicopter to the sky easily with QE and 0% interest rates - but never knew how to land it safely. There by - crashing the helicopter vis-a-vis the entire US economy. (He ejected with a parachute though)

After the financial crisis in September of 2008, Initially George Bush and then Obama - convinced the rest of the world that the crisis was universal and there needs to be coordinated effort from all Central Banks across the world to respond with easy money policy. This month, Subba Rao, the former RBI governor from 2008 to 2012 rightly pointed out that artificial prop up post-crisis, is the primary reason for the Inflation caused in run to the general elections which Congress lost miserably and the NPA problems which Indian banks, particularly public sector banks are facing now. Just as the hot water in the shower - the heat is not when you move the knob to red. It is usually after sometime - there is a lag effect.

The crisis in Turkey - is also distinctly similar. The Central Bank of turkey has raised interest rate to a whopping 24% today. When they try to analyze the reason for its current economic state - they pinpoint to the good old times - when the economy was booming. It is also almost always - unprecedented booms in country's lead to unprecedented corrections. If there isn't a correction - rulers of the country should only blame themselves.

The US market is in so big bubble, the investors are contemplating a scenario where there is never going to be a bear market. It is all going to be rosy from now on. With the longest bull market in history, it cannot be blamed on them - their memory has faded.
It is clear example of misallocation of resources at the time of boom. In that scale the boom in the western world is bigger and longest. The bust is where people realize what all went horribly wrong in the boom. That day will eventually hit the western world soon - and that would make the 2008 financial crisis look like a walk in the park - which Hank, Tim and Ben are now taking credit for solving.

There are some talks that - when the next crisis happens, the US government would continue to the prop up the stock market by buying stocks. For the record - Japan is already buying corporate bonds and stocks. If that happens on America - it will go on to be the day, USA disassociated itself from market economy because it is just broke. It would be no different from fascist or socialism where governments control companies and industries. To overcome a crisis - they will do whatever they can to mitigate the crisis in short-term. Stimulus checks and Quantitative easing in western capitalistic society were very unexpected until they happened. But I really doubt, if it will all work. Would they buy Apple or buy Amazon? Why not Blue Apron? Probably they will buy the Dow or may be Russel 2k only. Those would be desperate times.

I talk to people who started their working career post 2008 and are unaware of the nature of recessions. They keep asking me - how does a slowdown or a crisis look like. As has been always, financial crisis is like a beautiful women. It is very hard to describe to others on how it looks like. But when it comes, pretty much everyone recognize it.

Trade deficits and why it matters

Recently was shopping in one of the famous retail stores in California. There were these group of teens. The conversation was to this effect. Why should all the products in the store have to come from China? Why isn’t there anything that is made in the USA. Immediate came the reply from one of his friend that - it is child labour. I wondered what a stereotyped answer it was. It was a typical answer for a classic youngster growing up in the western countries. That is what the media and the thought process do it to you. America has an enormous trade deficit with the rest of the world - It is to its advantage whatsoever. Rather than a bad thing for the western world - in fact they should be thanking China and other Asian economies for sending them goods all through the year. It is a result of hard labour from their part. The western countries readily consume its fruits.

As said by one famous economist - America gives a bad name to capitalism while China gives good name to communism. Whatever may be the underlying economic principle of a country in operation - whether its capitalism, communism, fascism, monarchism, feudalism - everything revolves around one big parameter - there is a significant portion of the society that is "very productive". Usually in theory all systems work. Everything tries to achieve the maximum productive nature of the society. None of them are designed for failures. But the way it is preached and practiced (over a period of time) is what makes it fail. If communism can fail in Russia - capitalism can fail in western world , provided the spirit of the ideology is not followed. Communism did not fail Russia - the way it was practised made it fail.

There is an enormous trade deficit the western countries in general, and USA in particular have against developing Asian and some European economies. It is the difference between the import and export a nation has. More import than exports would increase the trade deficits. It adversely affects the long-term prospective nature of the country. It is not logical for a high importing country to be successful economically for a long time. The current US President Trump - acknowledges this anomaly unlike his predecessors. However the way to solve it by introducing tariffs is probably not the right way. USA has a trade deficit of $800 billion dollars a year. It is roughly a quarter of its annual budget. 

The way it all started - nations don't export for the sake of exporting. They export more of what they have and import of what, they don't have enough. That is the primary principle of exports. Ideally the export is not to send goods to other countries without the local economy not utilizing it but instead it is the surplus resource generated by the "productive" population - that is privileged to send it over to other nations that need it - so that we can import those we don't have or insufficient nature of it. Every exports results in a monetary advantage. No one would send products to a consumer without being paid for it. Unfortunately the payment made are usually the "new money". It is just like any other private sector employment. Employers hire workers for what they can "export" out of their daily work - so that at the end of the pay cycle they "import" salary. Exports has to be higher than the import for a productive employer/employee relation and hence productive employment. Any distortion in the set-up leads to a break-up of this relationship. The same principle applies to nations. It cannot be different.

The last couple of decades has seen clear malfunction in the trade deficit patterns of the world. The consuming nation like the western world - keeps consuming for ever. The exporting nations do the hard work for the rich nations. Because countries like the USA don't have anything much to offer to the world as goods and services - the exporting nation is unable to import sufficient amount of goods. There by resulting in the accumulation of reserves by the exporting nation. Even though USA spearheads in certain areas like internet and other technologies - the exports of that is not enough w.r.t the imports of other products resulting in trade deficits every year. On the other side - exporting nations have trade surplus. This accumulated reserves - usually called the forex reserves keep going higher and higher. This money is often visualized to be for the "rainy day" - when money flows outwards of poor & exporting  countries. But in fact - they end up owning more reserves than they actually need. With this reserves fast accumulating and sitting idle in the coffers of the exporting nation - is swindled back as investment money - again to those same nations that don't export enough. Recently we have seen trends where sale of critical pieces are being blocked in the US for fear of run over by foreign governments. Countries like China, which has enormous savings and very high forex reserves of multi-trillions would easily buy-out star companies like google, Microsoft with a fraction of the money. The US would definitely wouldn't like that to happen and put regulation so that they absolute take overs don't happen. In one sense - it might make sense, but it is a bad deal for those nations which has consumed less - and saved/exported enough over may years. They are not able to import enough nor make smart investments.

Going back to the child labour being in question - If it is true - the western countries and all exporting countries from China should feel them so privileged that Chinese children are doing them this great service, while their children are having cushy life with video games and recreation being bulk of the day-to-day activity. Let us not under estimate the hard work of the people who make products that the world needs. There shouldn't be any complains until we give export to serve these hard working kids. Savings come from hard work and under-consumption. Every investment made with the savings - are someone's hard-earned money. Taking advantage of that is both economically and morally bad. So instead of younger generation in the US blaming countries like China for their trade-deficit - they have to think about how to reverse that change. Having a truly free market capitalistic society would be the answer to it. Unfortunately western countries are not that anymore.

Contrast Capitalists

I recently visited a jewelry shop in my native town. Even though I have been there quite a few times - i observed some interesting thing. The shop was more than 100 years old. Its larger than most of its neighbors. I have heard about the quality products (gold and silver obviously) they offer. They have loyal customers who extend for generations. You see the cashier's place in the front - there is a person who is easily in his sixties - and you can guess he is the owner. The politeness and attention to details on everything happening around him cannot miss anyone's attention. Behind his chair is photos of this great grandfathers - at least six generation photos. A simple glance at them would reflect they 100 years they were in this business. Their traditional commitment to business and track record is impeccable. There is jewels all over the place. I am sure they pack everything everyday end of business, put it in an iron locker and next morning come again and put them all on display. There has to be some procedure like that to ensure the assets are all safe every single day. A careless mistake on a day, might ruin the whole business in one day.In India - it is very common to see family businesses like this that have been run for centuries. It is not only big entities - even small eateries are run over generations. Even though they had the might and intelligence to spread the business to other parts of the country - it was not a norm to do that. They often restricted themselves to their own cities and towns. They services their community with their needs. It is also very true that they employ people from successive generations. They provide livelihood to families. There is no corporate ascending ladder that you jump fast - it is a stable, slow, efficiently run businesses.

I was in a corporate meeting in my office today. There was a business proposal for a start-up company and someone was explaining the sales pitch to get some investors in. The way it works - you have some idea typically using the internet. You explain the idea to people with money. Make them invest some of their money into your firm. You use that as your seed funding and take your idea to the next level. During the presentations, I just saw something that caught my eye and left me completely mind boggling. Trying to show-case the new start-up in good limelight - they have introduced a notable silicon valley investor as a board member. The intention is to communicate that he is part of the board and his past qualification - it goes on to say investor who has made "successful exits". It left me wondering - why would someone exit his successful business? He should continue to run it, expand it and satisfy his customers. instead why would someone exit (sells) that too multiple times? Can someone be so good at so many businesses. As it turned out - he is just an investor who throws in money at prospective companies only to sell it to someone who can afford to pay more than you had invested. The investor cashes out of that business. In corporate financial sense - this is perfectly rational. The investor provides capital, flips it on a profit when things are good. Wonder - when things are good, why not stick to it and make it bigger? Probably the answer to it is - why take risks when you could sell it and take a handsome return. The whole mentality of buying / selling stocks in the open market has taken a step forward and crept into buying/selling "service" companies. People just do the flips - wonder if they are real businesses that help the society.

In the above two examples - we have seen both edges of capitalism in play. In corporate America - the usual rule is to start a business, take it to the next level where it can be sold. Move on to the next big idea. This is very prevalent in service based companies rather than manufacturing firms. The concept of customer loyalty is organization based. It is the corporate mentality of doing business. In western countries - it is also very common to keep expanding your business. You read business newspapers - every CEO would say they want to multiply the business by 10 times by next year or something similar. Needless to say - you need to talk like this to be a CEO.

It just turns out the whole mindset of an Indian business is completely different from their western counter parts. Ethics and culture are embedded into their business models. 

The biggest con - Bitcoin

As I write this post, its Aug 16th, 2017 the US market is open and trading mid-day and one bitcoin is trading around $4300. What a run it has had so far. The market share of bitcoin is around $70 billion USD. With the Dow and S&P hitting all time highs - giving handsome returns, wonder why investors would ride the bitcoin speculative wave, as everyone knows - it might be very risky. So far - the investor have been handsomely rewarded. How long could this last? Frankly no one knows!

There was a time long long ago - carts were pulled by horses or bulls. Some people contemplated the idea of operating a cart without an animal tied to it. The idea was stupid, it was thought then. The common sense was the cart wouldn't run without an animal in front of it, given what was reality at that time. History turned a new page, with the invention of mechanical motors that would operate a wheel rolling over again and again to cause forward motion. The automobile replaced carts/animals. Even though it was considered dumb at one point of time - humans then conceived that it could happen.

Is Bitcoin such a revolutionary idea that would change the world we live in on how people use money as medium of exchange?

Before we get into what it is going to be, lets see what it is now. Bitcoin as they say it is a "Digital currency". There are thousands of digital currencies on the internet.Not sure if bitcoin is any superior or inferior compared to others. There is also no guarantee this bitcoin is the best digital currency for next few years. They are being traded actively though. Bitcoin stands-out from the rest as most popular of the crypto-currencies. Even after you read multiple articles on digital currencies - it is very hard to get your head around it. Lot of things are more confusing. It is complex to the core. Something like currency should be lot simpler than that.

The biggest characteristics of bitcoin (or any digital currency for that matter) is its finite availability. It could rival to any fiat currency - that the government can print at will.

If there is an unlimited supply of bitcoin - there wouldn't be a market for it. Even though it sounds promising with respect to that fact - there is infinite number of digital currencies available over the same medium. With market forces determining the value or worth of each of them, its quite unstable.

Bitcoin is not used in day-to-day trade. Smart people would call it a financial asset rather than a currency. For now even people who own bitcoin do not consider/think them as as store of value that they plan to keep for their retirement. They think it just like any stock. They want to hold it until they think its a right price to sell. Unlike companies that have factories and machinery- bitcoin has nothing to back itself except the confidence of the bitcoin buyer. It is really a risky speculative trade. People are speculating the price of bitcoin and pushing it higher as more buyers step in than sellers.

Digital currencies would go down in history as the most successful marketing campaign that created lot of hype that would only result in an eventual and complete collapse.

In the 2000 dotcom bubble - many companies that were valued very heavily went to zero. In my opinion - bitcoin and other digital currency are no different. They will and have to go to zero. Investors would lose every bit in this speculative bubble. Of course some would make money. But the concept of digital money is fundamentally flawed.

The bitcoin endorsers use the word "Mining" that is intentionally distracting. I just checked the dictionary meaning of mining. It is digging up the earth for coal or other minerals like gold. Mining of minerals has always been an occupation since human beings first arrived on this earth. Some people took the effort to get some thing out the ground that was rare and attractive, sold it to someone who is willing to pay the price of it. This has happened generations after generations for centuries. Since the bitcoin community wants to equate the process of creating a new bitcoin - they smartly enough, borrowed a word from the real money - gold. Put in a word mining - to get the feeling to the public as though this is being "mined". They apparently "mine" bitcoins from multiple computers and by solving difficult mathematical problems - that is what they say. This is no replacement for mining something that is tangible like precious metals. Using the word mining is completely illogical for crypto assets.

The mere fact that its not being accepted to buy any significant purchase of merchandise like grocery, furniture or a hair-cut proves that its not a currency - at least yet. People exchange the bitcoins for dollar or Euro. Rather than the bitcoin itself - the dollar value behind the currency is what makes it attractive. There might be some one who is selling drugs online and would want to accept bitcoin for the convenience of being anonymous - that would at this stage be an exception and not an example. So far, the universal acceptance is not there. None of the central bankers have really backed this so far. With a large population in Africa, Asia and Latin America completely unaware of technology - a platform that offers digital currency is no where in the picture.

Gold has been a commodity all along human history. It has been elevated to money for centuries for its unique properties unlike any other metal on the periodic table. During the last bull run - it touched a high of $ 1900 for an ounce. If bitcoin can go until $4300 and possibly even more - When this bubble finally burst spectacularly- this money would flow back to the ultimate safe haven asset which is gold. It bitcoin can hit the numbers what it is now - there isn't an upper limit for gold. It could go up multiple times with ease from its current level of $1300/ounce.

What a mess?

Alan Greenspan, very famously told this about quantitative easing and zero percentage interest rate that - It was like urinating in the bed in the night. Until you wake up in the morning you don't realize what a mess you have created.

After the 2008 financial crisis - the US Fed announced to the world of the extra-ordinary measures needed to save the global economy from a 1930s style great depression by bringing down the federal funds rate to zero and buying back trillions in treasuries and mortgage bonds to support an ailing economy. We are almost nine years since and have not reached the 1% mark yet. The other Central banks of the world were no different and followed the US Fed with its quantitative easing programs.

If you can recollect what happened in 2007 - this is just before the bursting of the  US housing bubble - everything seems to be going great until one thing happened. The Fed started rising the funds rate aggressively.

It is no different now.

Its like an ailing patient on a ventilator. The patient is just fine until he is on the ventilator. The moment it is taken away - the patient is going to have complications. In medical terms - its called weaning. The patient is taken off the ventilator and the hope is he can live without it. But as soon as there is a complication - which includes unable to breathe and possibility of instant death, the patient is hooked back to the ventilator. That would be a apt description of how the US economic state is now. The 0.25% federal funds rate increase in December of 2015 and then again in December of 2016 were just token increases for the Fed to save its faces rather than for economic tightening. The patient being on ventilator for too long had become the biggest ailment than the initial disease.

With the employment numbers well under the Fed's target and inflation now creeping well above the 2% mark - also with the Dow Jones index hitting 21K - with historic consecutive winning sessions - an act not seen in last 30 years, it can be agreed that the economy is heating enough and warrants a rate hike.

If the Fed reacts, it will burst the monster bubble it created.

If the Fed doesn't react - the bubble would only get bigger and bigger, to cause a 1930 style great depression - which exactly the Fed is taking credit for saving the world from.

The bubble in the silicon valley is very obvious. If the Nasdaq 5k was a bubble in year 2000 - it is a bubble now too with Nasdaq lingering around the 6k mark. The fundamentals have not changed. The start-up environment in the silicon valley is so much heated up - it just doesn't make monetary sense. Recently Snapchat published what it thinks was its valuation of 24 billion dollars - and admitted that it may never be profitable. Any investor that is in sound mental health knows - not to throw a penny to it. If this is not a bubble what else is? Why would you want to invest money on a company which themselves say - it will only take in more money than giving it back. Who would take the loses from those transactions?

Company valuations, particularly start-up companies are simply ridiculous. There is no way - they are worth what they say they are. Investors are going to rush out of the silicon valley and no one will be spared. The party might just be over.

It is very striking that the Snapchat IPO and Dow hitting 21K on the same day - would be recollected in history as the peak moment for the whole big bubble.

For anyone who has lived through the 2003-2008, can easily re-collect the pain from the crash in the US housing prices. Proxy-government entities like Fannie Mae and Freddie Mac had loaded toxic mortgage backed securities with AAA ratings on unsure investors. It was the biggest piece of odourless crap ever assembled as investment material. When everything started collapsing the US government and treasury had to step in to save the market by buying these mortgage bonds - that no one would buy. In the process - the government only managed to increase its own debt. What wasn't good for the investor - was not good for the government. Except that it was left out in the open as the only buyer in the market. The house prices have retraced their path to the top now, thanks to the low lending rates. Now there are lot of hedge funds that have bought in to the real-estate hype and the result would be no different than what happened in 2007/2008. The mere scale of it might be much larger than 2008.

With the government and global Central banks stepping in to the bond market - the whole market is artificially priced. With all the risks mitigated by the policy makers, there isn't a free market for bonds. Why do you want to hold bonds when you could make a lot of money on a stock market running on steroids? In that case - the yields on the bonds fall dramatically and as is the case - the price of bond increases. Sovereign debt funds are squashed with bonds. What is really not priced in is the serious consequence of inflation that could have a lasting effect on bonds sold already. Just imagine the inflation reaches a 4% mark - why would you want to hold to a 10-year US treasury bond that yields 2.5 % or less.  Already the spread between the CPI and yield on the 10-year is bad. So whatever bursts the bubble - one market that is sure to get ruined is the bond market. With the patient in a ventilator for a decade- the bond market was never in fair play.

For the US Fed - It is damn if you and damned if you don't moment finally.

If the recessions in 2000 and again in 2008 were painful - the one that is getting formed in the horizon is bigger than both combined. The bigger the bubble, the bigger the consequences.

This cannot end well. Buckle up folks, it just may be dawn!