Financial Musings

Surely You Must be Joking Mr.Ahluwalia

2009-06-13T06:17:00.000-07:00

Published in Ind Economist June 2009

I have been genuinely surprised at the respect that MSA gets at various forums where he lectures on Economics, Energy, Infrastructure, Public Policy etc... Just beneath the surface, if people care to study his understanding of these topics, it would be easy to see that he pretty much knows nothing. & it's not entirely his fault - as Lord Desai recently said, we give our politicians and bureacrats far more respect than they deserve. & sooner rather than later, they start believeing in all the adulations.

Gold - Ending 100 Years of Solitude

2009-04-09T20:51:00.000-07:00

Published in the Industrial Economist April 2009

Explaining why the Nixon created paper dollar standard has to end sooner rather than later. & then, why the world would be better off reverting to a hard currency standard when we come around to accepting the above inevitable outcome.

The $787 Billion Stimulation of the Depression

2009-03-11T00:52:00.000-07:00

Published in Industrial Economist, Mar 2009

Explaining why the near $800b stimulus of Obama is going to do what Hoover & Roosevelt managed during the thirties i.e. convert a Recession into a Depression. The only good thing this plan is going to stimulate is going to be the price of Gold. & food. & Oil ofcourse.

Madoff, Madoff, Everywhere

2009-02-10T21:10:00.000-08:00

Published in the Industrial Economist, Feb 2009

Why the Madoff issue is not an isolated incident... there are a host of other Ponzi schemes operating around us such as the Fractional Reserve Banking System as I have explained. But the mother of all the Ponzi schemes has to be the "US Economy" itself. The next few years is going to be fun for people who can understand this.

US Economy: Dying from the Cure

2009-02-01T08:04:00.000-08:00

Published in Industrial Economist, Dec 2008

Why the stimulus (or in reality spending) package is going to result in the death of the US Dollar before Obama ends his term. The path to hyperinflation has been set in stone and people holding on to US Dollars/Bonds or any other dollar denominated asset are going to get wiped out.

US -- The Coming Greater Depression

2008-11-22T22:48:00.000-08:00

Published in the Industrial Economist Nov'2008

Why the current crisis in the US is going to be worse than the 1930's. As I have explained, the depression this time is going to be accompanied by Hyperinflation and the US is very likely to follow the route of the Weimar Republic over the next few years.

Also, the current strength in the dollar is a fleeting event unrelated to the fundamentals. The rationale is explained in the same magazine in the article The Last Gasp of a Waning Currency

Ron Paul, Bernanke, Central Bankers & Gold

2008-11-19T20:12:00.000-08:00

Youtube Video of Ron Paul questioning Bernanke on Gold

A very astonishing testimony by Bernanke where he states that the Central Bankers have never discussed the Gold standard or an alternative to the US Dollar. Either Bernanke is telling an outright lie or the Central Bankers of the world are one deer-caught-in-the-headlights community. My guess is it's the former, but who knows. Our own Dr.Reddy is clueless about basics and thinks inflation is caused by growth and suggests price controls as a way to manage Inflation. & now ofcourse, Reddy is on the global panel that is studying the crisis to recommend solutions -- tell me more about asking a fox to guard the henhouse.

The Reddy Years at the RBI - Running away from Greatness

2008-10-13T06:25:00.000-07:00

PUBLISHED IN THE "INDUSTRIAL ECONOMIST" - OCT 2008

The post-mortem of Dr.Reddy's performance by the mainstream media have been far too kind to him... I think his performance is very similar to that of Greenspan - Great while in office, while in reality he is a "disaster waiting to be discovered".

& to top it all, Reddy is viewed as a "Hawkish Governor" -- for a Central Banker who printed money till our forests ran out of trees (i.e. expanded M3 at annualized 20% in his tenure) and had real-interest rates that were negative by a few hundred basis points to be viewed as Hawkish is truly "Orwellian".

The Road to Perdition

2008-09-16T18:06:00.000-07:00

PUBLISHED IN MINT ON SEP 17, 2008

A short commentary on the recent events of Lehman bankruptcy and Merrill take-over by Bofa. Ultimately, the events of the last few weeks have signalled the definitve beginnings of what is going to be an extended Economic Depression for the US. Much similar to the 1930's with the added problem of skyrocketing consumer prices.

Inflation - Rocky Years Ahead

2008-09-07T21:48:00.000-07:00

PUBLISHED IN "INDUSTRIAL ECONOMIST" - AUG 2008

Explaining why Inflation is going to stay in double-digits for the foreseeable future. In fact, I find it surprising that Dr.Reddy is saying that "his analysis" indicates that inflation will moderate over the next 6 months.

Well, his "analysis" did not predict double-digit inflation, his "analysis" did not predict rising food and energy prices etc. So what is the reason why his "analysis" will be correct this time around when it has been consistently wrong all along?

A Case of Too Little, Too Late

2008-06-25T19:57:00.000-07:00

Published in Mint on June 26, 2008

Commentary on the recent Lending Rate and CRR hikes. Much too small and will not make a difference to the direction in which Consumer Prices are headed i.e. North. I am surprised that the RBI is not able to see the writing on the wall -- afterall they are literally "printing" it.

The Dollar's Dead Cat Bounce

2008-06-12T20:27:00.000-07:00

Published in Mint on June 13, 2008

Too much has been made out of the recent Dollar rally. Pronouncements such as the "Return to Goldilocks" and "King Dollar" have been made by the so-called-experts. But as I have explained, the Dollar is still the early stages of a long downward path.

A Farewell to Central Banking

2008-03-18T18:48:00.000-07:00

Published in Mint on Mar 19, 2008

Why there's much more to the event of Gold hitting $1000/ounce than just a new price level. I pretty much think this is the "Beginning of the End" of Central Banking as we understand today. Ofcourse it's going to be a fairly long drawn out event... perhaps something that will play out over the next decade or two.

Gold:Cheap at $1000/ounce

2008-03-16T18:19:00.000-07:00

Published in Business Line on Mar 17, 2008

Explains why the price of Gold has to go much higher from the benchmark of $1000 set last week. I have used a Greenspan quote - a fairly large one - to explain the need for the Gold standard and also the rationale as to the state's refusal to accept one.

The Inflationary Consequences of Dollar Debasement

2008-02-27T19:08:00.000-08:00

Dr.Ron Paul Questioning Bernanke Yet Again

Another lesson in History & Economics for Bernanke. If Dr.Paul had been Bernanke's Professor, he would probably have never allowed Bernanke to make it past the Grad School. But again, why single out Ben -- it's probably true about most Central Bankers in the world today.

US Fed: Postponing the Necessary

2008-01-24T19:09:00.000-08:00

Published in Mint on Jan 25, 2008

Explains not only why the rate-cuts will not prevent a Recession, but also as to why the Fed should not even be trying to prevent a Recession.

US has to transform itself from an Economy that borrows for consumption to one that saves for production. & there is no way that such a transition can be effected without a deep and painful Recession. That's just the price that US has to pay for decades of their consumption binge.

End of Subprime Consumption

2008-01-21T17:56:00.000-08:00

Published in BL on Jan 22, 2008

Explaining why these are the early stages of the US Consumption bubble deflating. The immediate list of casualities post the subprime housing debacle would be the housing Industry in general, the EZ Car loans and then the credit card Industry -- all of which are "sub-prime" by definition.

Undoing of a Reserve Currency

2007-12-26T23:01:00.000-08:00

Published in Mint on Dec 27, 2007

With the rate-cuts by the US Fed, ostensibly to prop up the housing market, Bernanke has signalled to the world that they couldn't care less about the value of the US Dollar. As to when the rest of the world is going to realize is the Question.

My guess is that these are the final years of the US Dollar as the world's reserve currency. The chances that this status quo continues beyond the next 5 years is remote. Unless, ofcourse, the US Fed changes policy to start a series of rate-hiking initiatives and also signals the intentions of returning to a hard-currency standard.

Lords of Money and Inflation

2007-11-25T02:17:00.000-08:00

Published in Mint on Nov 21, 2007

The article explains as to why we need to get rid of the concept of Central Banking. As I have tried to show, Central Banking is the mechanism that is responsible for THE greatest wealth transfers in history from the citizens to the Government.

Credit Policy: Orwellian Logic at Work?

2007-11-16T16:32:00.000-08:00

Published in Business Line on Nov 17, 2007

The numbers coming from Governments the world over is truly "Black is White" -- look at Inflation numbers from the US Fed and our own RBI. Both these agencies have been debasing their currencies by printing money till their forests run out of trees... still they are claiming that Inflation is only 2-3%.

The general media seems to accept these audacious claims without even questioning it for a second. & this in an environment in which, Oil & Gold prices -- the two primary indicators of increasing Consumer prices -- are at their life-time highs.

Curing Inflation with Inflation

2007-11-15T19:37:00.000-08:00

Ron Paul Questioning Bernanke

This is not one ofmy publications.. but Dr.Paul questioning Bernanke on "damn the dollar" monetary policy followed by the US Fed.

It would be easy to see that Ben never really answers the questions that Dr.Paul asks him.

US: Wall Street - Main Street Disconnect

2007-10-11T19:56:00.000-07:00

Published in Business Line on Oct 12, 2007

A better title for the article would have been "Dow 14000 - The Illusions of Inflation".

Essentially what is driving the Dow higher is the reduced value of the dollar itself. So inspite of the Economy not doing well (and the Index is supposed to reflect the state of the Economy), the units in which we are measuring this progress, i.e. the Dollar, is losing value at a greater pace and hence we are seeing the increased value of the Indices.

What is explained above would be very easy to observe in hyperinflationary environment but not so very obvious under other conditions. Readers could read an earlier piece i.e "Inflation - The Unusual Suspects" to understand this further.

US Economy: Is the Party Over?

2007-10-01T19:05:00.000-07:00

Published in Business Line on Oct 02, 2007

The answer to the above question should not surprise regular readers of my column. In fact, if anybody had taken a keener interest in observing real-world data (instead of the Fed massaged data), it should have been obvious quite sometime back that the US Economy is in serious trouble.

What, however, is going to surprise most people is that depth of the Recession that lies ahead and the soaring consumer prices that is going to accompany the recession.

US Housing - Arms Without Legs

2007-09-05T18:05:00.001-07:00

Published in Mint on Sep 05, 2007

Explains why the current Subprime crisis is the tip of the iceberg and in the months ahead the entire housing Industry will follow in the footsteps of Subprime. This would eventually send the US Economy into a recession.

USA - The Caboose of Global Growth

2007-08-27T20:21:00.000-07:00

Published in Business Line on Aug 28, 2007

Explains why a Dollar Collapse is "Great News" for the rest of the world -- atleast for most of the Rest of the world. In the very short-term (a few days to a few months), there could be some disruptions, but eventually the rest of the World would start enjoying a higher standard of living at the expense of the US.

Spirit, Gone With the Wind

2007-08-13T20:43:00.000-07:00

Published in LiveMint on Aug 14, 2007

Why Nasscom's plea for RBI intervention in the currency markets is based on plainly incorrect data and faulty economic thinking.

One small correction to the headline of the article -- Nasscom's complaints about the impact of the Rupee's appreciation on National (not "Industry" as is given in the paper) Competitiveness is baseless.

The Collapsing Dollar

2007-07-26T19:28:00.000-07:00

Published on July 27, 2007

Putting the recent appreciation of the INR in perspective.

Why should the RBI not intervene? Currency risk happens to be just one of the many risks that companies face. Some companies would be smart enough to figure out the underlying currency drivers and create a strategy to benefit from the same; and some companies would lose by not understanding the issues involved. It’s not the job of the RBI to interfere in what is essentially a market function that separates the winners and losers. By interfering in the currency markets, not only do they reward the weaker companies, they end up penalizing the companies that have understood the currency trends.

US Fed: Between Scylla and Charybdis

2007-06-17T18:24:00.000-07:00

Published in Business Line on June 18, 2007

Analysts assume that when US enters a recession, all that the Fed has to do is to cut rates and that will take care of everything by boosting consumer spending/corporate investments and thus take care of the problem of recession.

The article shows the fallacy with the above argument and also explains why the outcomes for the US in the years ahead is going to be stagflation i.e. recession and increased interest rates.

The Yuan-Dollar Charade

2007-06-05T20:10:00.000-07:00

Published in Business Line on June 06, 2007

Commentary on the recently concluded "Strategic Economic Dialogue" between the US Treasury Secretary Paulson and China.

The Dollar Bubble of USA.com

2007-05-10T19:10:00.000-07:00

Published in Business Line on May 11, 2007

Explains as to why the USA is a bubble economy.

Some comparisons between the Tech Bubble and the US Economy Today

Bubble Formation

.com days: The technology benefits and business models of some of the companies were real. However, what started as attractive real growth for a handful of companies (Microsoft, Oracle etc.), became overblown to an entire sector and indeed the economy itself. The peak of the bubble saw some fashionable comments as the one by Jim Cramer, the popular anchor at CNBC: “You have to throw out all of the matrices and formulas and texts that existed before the Web… If we used any of what Graham or Dodd teach us, we wouldn’t have a dime under management.”

USA.com today: The US Dollar was one of the last major currencies to move out of the Gold standard which it did in 1972. So the Central Banks when they accumulated their reserves in US Dollars were doing so for sound reasons initially. Also, during the 1970’s and early 1980’s, the US was a net saving nation and maintained a balanced budget with a trade surplus. So the reasons that were initially valid have long ceased to hold true. However, similar to analysts trashing traditional valuation techniques during the dot com era, today you have analysts justifying a trade deficit and even the negative savings rate.

Outcomes – What Caused the Bust?

.com days: The recognition that the future earnings of dot com companies are not going match the valuations as represented by the Market Capitalizations.

USA.com today: The recognition by the ACB’s that the assets that can be purchased using their US Dollar holdings represent a tiny fraction of the outstanding Dollars.

Market Impact

.com days: The Nasdaq collapsed by about 80% from its peak levels. The ramifications of the Internet bubble bursting was not felt outside of the technology sector as the US Fed engineered a bigger bubble (the housing bubble) by holding interest rates too low for too long.

USA.com today: If the ACB’s stop the irrational policy of subsidizing the US consumer, then these currencies could appreciate upwards of 50% against the US Dollar. This would ensure that their citizens enjoy a higher standard of living while leading to a fall in the purchasing power of the US consumer.

Hawkish Talk; Dovish Walk

2007-04-25T17:34:00.000-07:00

Published in Business Line on Apr 26, 2007

Why all claims of inflation moderating in the near to medium-term is meaningless gibberish. I have made some predictions regarding CRR, Interest rates and Inflation that would be worth watching for the year ahead.

Inflation: The Unusual Suspects

2007-04-10T03:47:00.000-07:00

Published in Business Line on Apr 07

It is never recognized that Central Banks are the Causual factors behind Inflation. In fact, Central Banks were formulated for the very purpose of creating Inflation. However, the general perception is that Central banks are the guardians against Inflation.

This article shows some of the popular misconceptions in the way we calculate Inflation allowing Central Banks to maintain this Inflation-Fighters image.

Why we need the Gold Standard

2007-02-27T20:49:00.000-08:00

Published in Business Line on Feb 28, 2007

The article shows that the only cause of Inflation is Government printing of excess Money. Yet, there has never been an instance when Central Banks have acknowledged... but as Peter Schiff puts it, "Expecting Governments to accept their role in creating inflation is like asking the Mafia to give an honest report on crime".

Our RBI goes a step further and states that a 4-4.5% inflation is actually good for the Indian economy -- almost as if they are doing us all a favour by debasing our currency. On top of it, they claim that this wisdom comes from their experience..... how would they ever know what 0% or 1% inflation would be like -- they have never experienced it. Anyway, we can only hope that sanity prevails sooner or later and they move towards a Gold standard.

Is Our Monetary Policy "Sound"?

2007-01-10T20:13:00.000-08:00

Published in Business Line on Jan 11, 2007

Central Bankers the world over talk tough about Inflation. But their track record in controlling inflation pretty much deserves an "F". The ironic issue is that the world economy was indeed operating with 0% inflation before the Central Banks were created to formulate "Monetary Policy".

One small addition to the article today. I had stated that Gold prices are undervalued by a factor of ten in that article. The reasoning for that is there in the article titled "On Gold Prices and US Interest Rates" published on Nov 09, 2006

On Gold Prices and US Interest Rates

2006-11-08T19:36:00.000-08:00

Published in Business Line on Nov 09, 2006

Conventional Economic theory tells us that US Interest Rates has a negative correlation with Gold Prices. But historcial data for the last 35-years indicated in the graph shows exactly the opposite trend.

The article explains what truly drives Gold prices over long periods in time. Also as I have explained in my previous articles, Interst rates are set to rise dramatically in the US and this is likely to increase Gold prices many times over in the next decade.

The Bankrupt Superpower

2006-09-11T18:49:00.000-07:00

Published on Sep 12, 2006 in the Business Line

The accounting system followed by the US Government is so flawed (cash accounting as opposed to accrual-based accounting as companies usually do) that had it been a company instead of a Government, they would have been forced to recognize their liabilities on the books and consequently would have had to file for Chapter 11 by now. This is besides all the off-balance sheet liabilities that do not even make it into the already flawed cash accounting system. On it's part, being a country rather than a company allows the US Government some options i.e. instead of legitimately trying to get the books back on track, they are likely to try and print their way out of trouble. This however would lead to a massive debasement of the US Dollar in the decade ahead.

Using a Fiat currency, the US Government is today running the biggest Ponzi scheme ever attempted on this Planet . While this could be true for a lot of countries today, what makes the situation particular precarious for the US is it's relative size and the act of other central banks in holding up the Dollar instead of allowing market forces that would cause the dollar to plunge.

The $65trillion gap referred to in the article is a bit dated. Current estimates put the gap at between $75 to $90trillion. These numbers are so huge that it really doesn't matter eitherway. The lesson to learn is that in a democracy dictated monetary policy (I hope Readers do not still believe that the Central Bankers are Independent), the ultimate destination is Inflation. So all paper currencies will sink over time (against the only non-inflatable currency which is precious metals like Gold & Silver).. only that some will sink faster than others.

The Myth of Efficient Markets

2006-08-15T23:40:00.000-07:00

Click here to download

Any Theory proposed has to follow the pattern below

Is allowed to make some reasonable assumptions.
Explain some phenomenon observed today (but is not understood) using the assumptions and theory proposed
Uses the assumption and thoery to make some predictions

This is true about Theories in any discipline -- Physics, Astronomy, Finance, Psychology.. you name it.

The objective of the paper is to prove that the consequences explained as part of EMH is unrelated to the assumptions and the theory therof. It goes on to prove that "Mass Underperformance" is a plain statistical phenomena that is an outcome of the way we define "Underperformance".

p.s. To download, click on the download button at the end of the row of the file that you want to view (in the new window that opens on clicking the above link).

The Inflation Game

2006-08-11T00:03:00.000-07:00

Published on July 21, 2006 in the Business Line

Inflation is one of the most misunderstood topics today. Most people, incluiding Economists and Central Bankers tend to define it in terms of the Effects rather than the Causes. This often leads to rather meaningless debates between "Inflation Vs Deflation". This article shows that as soon as we acknowldege the underlying causative factors -- which is excess Money Supply -- then the outcomes are easy to predict.

BL did not publish some of the associated graphs and so am attaching the same here. Also, the BL introduction states that US has been running a tight-money policy under Greenspan -- that is also not correct. US has had a ultra-loose monetary policy for the last 20 years -- a casual look at the graph of M3 will confirm what I am saying. Additionally, the title "Maestro" used for Greenspan was a pun - the only thing he was a Master of was printing money.

It would be safe to state that when the obituary of Capitalism in the US is written 5-10 years down the line, it would be stated that Greenspan & Bernanke did more harm to the capitalist system than all others combined.

Economic Value Added: Much Ado About Nothing

2006-08-10T21:21:00.000-07:00

Published on Jan 31, 2006 in the Business Line

Goes into the basics of how company performance should be measured and explains some of the significant drawbacks of using EVA. Ultimately, it is easy to see as to why EVA is just old wine packaged in a form that masks the underlying financial parameters it uses.