Sunday, December 20, 2009

Eggs Rs. 48 for a dozen

Two things, I hate to disappoint you all, but this blog will have nothing to do with internet space, but the economic indicators can be understood in overall business sense, second, in this blog I will use movie quotes from 1967 classic “Cool Hand Luke”.

As commodities moving up by almost 50% year on year, Eggs for example have moved from Rs. 32 to Rs. 48 for a dozen, and similar trend for vegetables, fruits and pulses, the government WPI inflation showed up a number of 4.78 %, as on 14th December, 2009. On news of this high inflation, the suggestions floating around are to curb liquidity further and raise the interest rates. But how good is this inflation number, when clearly the value of currency is going down much faster than these number indicate. The currencies across the world are showing worst trends, with US Fed maintaining a 0.5% interest rate, and printing money. Meanwhile, the gold is rising all the time, with more faith in precious metal than in currency, and couple of months back, Chinese government offering official advice to its people to invest in Gold and Silver.

“What we have got here is failure to communicate”

The core of the inflation numbers, come from it being driven by age old wholesale price index, rather than consumer price index in developed nations. The other side of it, is lack of control of government on economy and liquidity as a whole. With Congress enjoying absolute power in parliament, there is no one questioning the price of gasoline, up or down, in turn commodity prices, due to hoarding, the situation for a common Indian is getting worse. And to check common man’s case, Mr. Rahul Gandhi visits a dalit’s home in UP, every two months, to have “two poories and aalu ki sabzi”, which becomes prime time news for our esteemed news networks, apart from covering “paa”.

“Sorry, Luke. I'm just doing my job.”

“Luke: Nah - calling it your job don't make it right”

The government is doing its job, the stock market is rising, the auto sales are up, the real estate is back in business, so what’s wrong? The same thing which was wrong in late 80s Japan, and to some level post Sep’11 United States. It is the budget deficit and trade deficit, that is wrong, it is the out of control real inflation, it is the Debt bubble we are building, it is the falling exports month on month. But does RBI care, nopes, they want to cover the deficits by printing money, a la helicopter Ben (Bernanke), who can be blamed for the crash, but since he later tried to put off the fire he lit, he got re-elected.

This is the new RBI solution for everything, print more, and with no focus on the problems which US is facing post making that mistake. RBI is also accumulating worthless dollars as part of its foreign exchange reserves, and some recent buying(200 tonnes) of Gold from IMF at ridiculous prices. The conspiracy theory behind it, is the insecurity of RBI as part of its printing currency blindly with no back-up.

Coming to the original question, is the currency value falling faster than inflation numbers suggest, Yes Sir! What does that mean, one clear thing that in an effort to put dirt under the carpet, that is not having effects of slowdown, RBI started printing more money, and making big money auctions to banks at lower rates. This was the same action taken by US federal reserve post Sep’11, 2001, where the US economy was badly hit, instead of taking the punch, they started printing money left right and center. Which is the case for us today, with rising debt all over the place, do remember money creation is equal to inflation, and money is always created as debt. With clear lack of control over money supply, prices are going out of the roof, and so is the stock market, owing to high liquidity and operators play.

“Luke: John-boy, lemme tell you something. You know, them chains ain't medals. You get 'em for making mistakes.”

I simply fail to believe how media and people at large, do not talk about this. The prices do not inflate on their own, these things have reasons behind them, and deficits do not get wiped out by printing more paper money. US is staring at over 10% unemployment, the common man is suffering there. As US looks at loosing its AAA rating, please remember India’s rating is still BBB.

"Luke: Nobody ever eat fifty eggs"

With these prices, nobody can!

Tuesday, March 10, 2009

You are not your car

The DJIA(Dow Jones industrial average) going under 6600, bailout not making any difference, homeless increase and jobs disappear as US goes down the hole of recession. The cash crunch has hit India, RBI opening gates with lowering ratios and rates, Banks skeptical to pick up more debt, as NPAs rise, still more loans are on offer to get the economy back on track. Could this be counter productive, in case loans are not paid back, like in the US? As Buffett announces “this is the pearl harbor of recession, and we have fallen off a cliff”. The fear in the customer’s mind is unprecedented, and its spreading like the bush-fires, the corporate needs to come out with honest and lower offerings, and marketers across the world have the tough job of renewing customer confidence. Is social media marketing, where millions of customers are converging, the right medium to convince customers of new offerings, that too only when corporate is giving some good schemes, as in India, greedy auto firms are raising prices, airlines not dropping prices even after government sops! Complicated, Yes, that’s the life in one of the world’s worst crisis. I will use the quotes of fight club to make it interesting.

“You buy furniture. You tell yourself, this is the last sofa I will ever need in my life. Buy the sofa, then for a couple years you're satisfied that no matter what goes wrong, at least you've got your sofa issue handled. Then the right set of dishes. Then the perfect bed. The drapes. The rug. Then you're trapped in your lovely nest, and the things you used to own, now they own you.”

What is the reason of recession, as per Dr. Ron Paul “We spent too much, We borrowed too much, and Fed printed more to facilitate this”. Basically the spending was out of control based on debt, and the debt was made easier and easier by Fed, the people drove expensive SUVs, got big houses and they couldn’t pay back. Is RBI not doing the same thing, reducing CRR each month, printing more money, pushing more money supply, as NPAs of banks rise, does it make sense to give out loans, when current loans are not getting paid out, that is what has created this global crisis, and I think in India we are following the ways to doom. People are buying sofas for 1 lakh, cars for 8 lakhs, and house for 1 crore, and we know it is out of capacity, its due to the availability of debt, this is bound to crash. Now even bathrooms and kitchens need to supremely ornamented, the tiles, the Italian kitchens, the expensive appliances, its going out of the window. We are spending too much, which is based on debt, this is modern India, going on lines of Japan and US, into the recession.

The government budget, is far more adventurous, instead of conserving spends, and taking money out for sops, decreasing income tax, they have increased the spends, the pay package for government employees, the rural schemes for 1,00,000 crores, I have put the zeros intentionally, we know where that money is going to go, as poverty in India actually stays constant. Slumdogs are staying slumdogs, and richdogs are becoming richerdogs. The budget deficit looks at a mounting 3.5 lakh crore, on which giving sops is suicidal, and sops keep coming, and spending keep rising, result S & P has rated India negative, I said the same thing on budget day, but no one heard me, but when S & P gave out rating, that was on front page, but that is obvious, I am not complaining. Bottom line, with this budget government is not in a condition to help us pay back installments of the big car, while RBI is working hard to get us that loan.

“Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need. We're the middle children of history.... no purpose or place. We have no Great War, no Great Depression. Our great war is a spiritual war. Our great depression is our lives.”

Warren buffet has warned that the fear in the consumer is unprecedented, he puts it very well, that you can install the gravest fear in five minutes and confidence may not be installed in the same manner. The fear maybe unreal, but what about demand, that is also driven by fear, advertising and availability of debt. As the dollar departs from world markets, the domestic demands has to facilitate the economy, while the export market markets crash. In India, the best part is retail consumer demand still on a good level, But as exports fall, and demand relatively falls in infrastructure and retail sector, the manufacturers and wholesalers, are experiencing overnight losses, one of my friend, who deals in copper, told me that copper rate plummeted within a week, and his inventories, were worth half. He no longer holds big inventories, but that has lead to loss of customers who want the material the same day. Please get it right, that means, everyone wants Just-in-time inventories, only when order is there, which manufacturer cannot do, obviously, so he is cutting down production or smaller units getting closed. In China, these problems are bigger, as it is highly export oriented, but the old tide is in their favor.

"It's only after you've lost everything," Tyler says, "that you're free to do anything."

Still India looks good on consumer demand, and that is what we need to push. The RBI measures are risky but happening. The service tax reduction is one good move, but now it is up to corporate to give special sops to consumers. post which it is the marketers job to install confidence and promote good purchasing for consumers. As media spends dry up owing to high pressure on costs, the marketers are looking at newer options.

I bet social media marketing and video advertising on internet is the way to go, but it has got to come intelligently. The connect, the evangelizing, the continuation of communication and the value delivery on ground has to be the order of the day. What it means is this, the social media has millions of people entrenched, you got to be part of the media, entertaining these people, without blowing trumpets of your brands, so entertain first, introduce second, give a humble introduction, not in their face, as most of the media planners and brand managers want “It needs to be seen”, so that they can impress their idiotic Heads, who have no head or tail of internet marketing, and it is for their bragging, since it is technology and digital, or maybe since his son is on Facebook. Do not, and I mean it, Do not bring the term ROI here, and please understand what that means, it is been some time that this term is abused. It is a financial term, just ask your finance guy for the firm's P & L, and check the EBIDTA, calculate the operating leverage for the year, then lets talk ROI. So Entertain, Introduce, and next impress him enough, for him to leave his contact info, contact quickly within 24 hrs, surprise him with more value, and service him well when he comes to your outlet, MARKETING IN ACTION!! Do not make it inaction…

Video advertising is really going to be the future, with video publishing and ad-serving technology getting stronger. Creativity is the name of the game, and entertainment has to be the starting point, same walk way as I explained for social media marketing. But creativity and customization do not go hand in hand, so do not trust the agencies looking for mock-ups for the clients to clear, that will kill creativity. The creativity will come out of “loosing all fear and hope of appreciation” from the client, the creativity is about you, your own stamp, it is like the great Sergio Leone movies, once upon a time in America. As responsible internet media owners and marketers, lets crack it for the brands, increase consumer demand, get the spending in the right direction, and beat the crap out of recession. Then buy that 1 lakh sofa, may be not……

“'re not how much money you've got in the bank. You're not your job. You're not your family, and you're not who you tell yourself.... You're not your name.... You're not your problems.... You're not your age.... You are not your hopes.”

Saturday, January 17, 2009

India Blinding

This blog entry would be more about economics, corporate and financial order in India, with little reference to Internet. To make things interesting I will use the quotes of the famous film “Wall Street”

The lack of reduction in prices, the falling demand and the falling inflation, the Satyam downfall and the political, corporate and banking corruption is order of the day. The politicians, corporate and media are out to protect India’s Image in terms of pretending to have no impact of meltdown, complete control over economic variables and Satyam being just one bad apple. I am shocked to see how nowhere real facts are getting discussed.

Fact 1: The Economy is clearly getting effected, the credit crunch is high, the demand is low and inflation is falling(and it is not the best sign). We lost close to trillion dollar of market cap within an year. Look around, there is a clear credit crunch, money is getting tighter, and no parallel economy and black money is going to make it better, which is the theory of some people. The credit crunch is bigger within trading circles, please check with your trader friends. The money is stuck in the speculative markets, everyone waiting to make his profits, even the people who are already in profits are looking for more and more, why?? Simple as it was worth more 12 months back. A friend of mine wants a sell a flat in Delhi, he bought it for 15 Lakhs, he is getting 45, he needs the money, but 8 months back he was getting 60, he waiting, and hanging on hand to mouth but not selling. There are hundred such theories on stocks and real estates. The problems with others, some people rather than doing anything productive, made shares and property their business, and now are holding on to barren plots(which was to become flats), under construction properties and entries in DMAT accounts.

“Stop going for the easy buck and start producing something with your life. Create, instead of living off the buying and selling of others”

Fact 2: The government packages to push the economy are great, but there are hardly any takers. The government opened up over 50 K crores to be released in the Economy. To every street economy expert, that is something to be pumped up about and make a story upon. But get a grip of it guys, this money is to be taken as debt by systems, YES DEBT, the banks take debt, they give debt, Debt is the way money flows. Banks are highly levered already with NPAs right on limits. ICICI is highly levered, and is India’s largest private bank, and as per RBI, they hold more liquidity by 3-4% than actually required. So why is RBI opening more liquidity if India’s largest private bank is so well placed? Why are there no takers for it? Because you need to buy something to take Debt, to push buying, there needs to be a price stimulus, which finance minister is begging for, but the greedy corporate India, has decided not to give that. The auto price cuts are just a sham, the auto firms have already decided to cut down production, which means they will produce less and sell less, but would not compromise with the profitability.

“Ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right. Greed works. Greed captures the essence of the evolutionary spirit”

Fact 3: The falling inflation is coming from steep fall in demand, and here is where a lot of people would disagree with me, but I think the lowering of inflation clearly a bad sign. For once, we need to see that government efforts to reduce inflation were not working, but as the stock market has fallen and real estate transactions have lowered, with US dollar business dropping, the inflation has come down, as a result of these factors creating a major drop in demand. This means government is not controlling the economy, it is highly market lead, Oh yes I know some people might be think, what’s new about it, we operate in a free market economy, no my friend In India, we don’t, we have a complex half baked system going towards a free economy, but far from there. The second bad part of this is corporate, media and banking taken positive meaning out of it, and supporting to push more liquidity in the system, in turn asking more loans to be taken, taking us to the mistakes US made, with entire population living in Debt and speculation. With Hindi news channels busy covering bollywood releases in prime time, the English newspapers and news channels are busy promoting utopian positive shit. The talk shows are pre programmed, the guests are taught and selected in a pre-decided manner, the print media is worse, have to fill some pages, so write whatever is new and not written about, has to be new, can be anything, but new, today criticism, tomorrow sympathy. Everyone is here to sell news, not to guide you, I hope you all know that…..

“If something’s worth doing it's worth doing for money.”

Fact 4: The Satyam case is a true case of how India is going blind and loosing all direction. First the guy does it for years, acknowledges it and quotes “Riding Tiger, Getting Eaten”, sounds like an Ang Lee film title. Second, what corporate India does, get on big time defensive and image correction, I mean like no discussion on corporate governance, no accountability taken by SEBI or any government institution, no accountability of the banks where Satyam money was claimed, PWC missing all over, all-for-one and one-for-all, Narayanmurti to premji to finance minister to TV show hosts, “India is a clean place, we have no corruption, no fraud, we haven’t even heard about any bribing in here”. Oops, DDA scam, Noida housing Scan, fodder scam, wipro banned by world bank, local cops, government babus, only 3% of country paying tax, hardly any corporate governance(you be my director, I will be yours with no liability and SEBI sleeps) and on and on. But we are Indians, we are clean. As businessweek and WSJ questions India’s corporate governance, SEBI’s control and corruption levels, we are worried getting some sympathy on front page of newspapers for Mr. Raju. Government bailing out the fraud firm in interest of 53 K employees, amazing!!!! Let me get your attention, You got LIC policy I guess yes, they commit you bonus and loyalty and stuff, that’s not guaranteed, that is as per LIC’s investments performance, which was a good 5 % of Satyam, so your return will be lower now, still worried about the employees of Satyam….whose going to worry about the investors???

My point is that media, politicians and corporate are taking us away from the facts. In the age of bailouts, do not accept the Satyam bailout, the corrupt should not be bailed out in a free economy, US fed, although being far from perfect itself has bailed out bad decision making, not fraud. AIG, Freddie mac and company did not commit fraud, Enron was not bailed out, worldcom was allowed to collapse, and Xerox took their hit in their scandal. In the current US meltdown, only the madoff scandal is there, and his victims are not bailed out. But our news coverage and word on street says, bailout is bailout, it is happening everywhere…who knows…..who cares….we are gathering sympathy for Rajuji, we have taken zero action on PWC, which is preposterous, and what about SEBI and Indian Accounting Standards, nothing, no action. I think most of people know, how after enron and worldcom scandals, the US GAP became very tough. But we are not even thinking about it why? Because we are busy claiming that we are clean….

“A man looks in the abyss, there is nothing staring back at him. At that moment he discovers his character. That keeps the man out of the abyss.”