India's Democracy a hampering factor

Is democracy the hampering factor depriving India from the growth?


Yes, though we take wise decisions. Well taking decisions wont make a difference but the implementation will. So when it comes to the implementation before which we have large chain of ministries to agree with it in the parliament and when the implementation is about to initiate the government changes.

So the instability in governing bodies is the actual hampering factor affecting growth without which we have the potential to achieve double digit growth rate. These factors are disliked by most of the foreign investors affecting the young and dynamic entrepreneurs of our nation which are the boosters to double digit growth rate.

This is not with another Asian economic giant China where we have one government taking one wise decision implementing it and moving to next one. They do not have to go with large chain of formalities.

Now are we of more potential then China I believe yes we are because we are moving at same growth rate of 9% since few years and can manage in democratic and slow governing bodies.

Eradication of democracy will lead India to super power by 2050  as predicted India & China will contribute to 45% of worlds GDP. But the question is who shall hold a major share.

Kuldeep P
Making love with Economics & Fin

China's art of escape velocity

As we know 200 yrs of economic wisdom proved that the more your country borrows the sooner your economy will crash. And so we have been predicting China’s economic crash since long it has been borrowing funds on large scale and used them for infrastructure development
Infrastructure development includes building malls, tunnels, skyscrapers, roads, highways, ports, schools , hospitals etc . But how can we forget that Chins has equally built factories which produces goods consumed on the large scale by the rest of the world. It is true that economy of great nations Japan. US, Dubai, Europe collapsed on heavy borrowing and funding infrastructure growth. They how is it possible for China to survive what is the difference with other economies
As we know China is more on manufacturing goods and makes good foreign surplus and investing 50% on its GDP. Yes now this is how it is different from other nations it built factories as well with other infrastructure developments. Whereas other nations had asset bubble because they were concentrating more on private asset development. China is equally on private asset as well as social asset development.
Social assets empowers people of the nation contributing more to economic growth in real sense instead of only borrowing and developing private infrastructure.
Of all this if seems that China have managed to defeat 200 yrs of economic wisdom.

Kuldeep P
Making love for Economics & Fin

Money changing hands

Over the past decade Greek authorities borrowed heavily to fund government spending and deficits leaving the country with debt exceeding its GDP and needs to borrow 13 % of its GDP to repay its debt.


The Greek government wants to implement following policies to repay the debt by 2012.

• Freeze public sector pay
• Increase tax & price of goods.
• Raise retirement age from 60 to 63 hence will lead to delayed pension payouts.

In short the suffering is for civilians. So the civilians are accountable to these crises. Before theses crises there was lot in news about Goldman Sachs mortgage manipulation.


The Dept & GDP ratio which is crippling the country was the same situation back in the year 2000. Why was it not reported that the Goldman Sachs acts conjunction with the government hits billions & billions of debts. Bankers like Goldman Sachs 7 Wall street colliding with Greek government to falsify the data. Then to rectify the problem Greek government is sending their intelligence agency  to investigate whats going on and the hard reform Goldman Sachs to head up the particular investigation sot he government is being captive by the corrupt bankers and Wall St and blaming themselves for the debt and asking citizens to be accountable for the debt by raising taxes.


Goldman Sachs paid less than 1% of taxes last year and also stands responsible for Greek crises by manipulating mortgage funds it also paid large bonuses to ts employee's in Christmas. This shows that government is corrupt.
Manipulation by i- banks have often lead to crises for which civilians are made responsible on large scale. The financial system needs to be transparent to avoid such crises. 

Be Sure about Rupee appreciation

The recent declaration of Warren Buffet about his visit to India in March 2011 regarding his investment plans in the India would be the prime reason for appreciation of rupee in future. Since Buffet is holding his assets in Dollars and would certainly not like his investments being depreciated due to depreciation of Dollars, off course no investor would like that.

So what strategy has Buffet adopted?, the answer is to invest in the growing economies (China, India..... ). About Buffet holdings in China, it holds 9.95 stake in Chinese auto maker company BYD and many such large stakes. India is the next destiny of investment after Sep-2011 and will also force other such investors to pump their money in Indian economy. 

The calculation of investors is simple a 50 % (per annum) growth in Indian economy will stand profit whereas a 15% (per annum) decline in depreciation of Dollars or other currency stands a loss. What they would be left is with 35% Nett profit (per annum) on this trade. The point where they will pull the money back from India is when they will find that % growth of economy is equal to % of deprecation of currency because such trade will lead to neither loss nor profit.   Investors always prefer to invest in rising economies since the assets are cheap at an initial stage. This will appreciate Rupee because to buy Indian assets they will sell dollar in exchange of a Rupees. 

Even after growth of two Asian giants India & China, USA stands ahead because the profit will certainly be deployed in buying the Dollar assets again because they would be cheap after appreciation of Rupee so always buy dollars when cheaply available. 

A golden rule says "Always buy assets when cheap and sell when when they are  at high prices." 

Enjoy making money......

Kuldeep H. P
Making love for Economics & Financial Analysis
pitrodakuldeep@gmail.com    

Collapse of Banking System

Banks are the medium of exchanging money. Depositors deposit money in the bank and charge interest rates for their deposits where as banks lend money in the form of loan and charge interest. So the system will only function if interest rate on money deposited is less than interest rate over the loan amount. The banks make money in this gap and so are called money creators.

Profits of Bank = Total revenue - Total cost

So it is clear that if total cost goes up i.e. the number of depositors increases than the number of money lenders the system goes wrong. What makes no of depositors increase in the bank which making the system wrong the answer is rise in inflation.

Rise in inflation is fewer money chasing less goods i.e the prices of goods rise due to shortage of demand which decreases the buying power and since the savings of  people increases the money is then deposited in the bank to get the interest. Banks on the other hand has less number of borrowers so the amount of money lending decreases and hence the interest collected is less which increases the total cost of the bank thus decreasing the Profits which might be loss even on the long run leading to collapse of banking system(Eg : Lehman Brothers), leading to recession.

Now in recession banks themselves lend money to large institutions at high interest rates through investment banking system making huge profits and hence recovering previous losses. Them till the time of recovery there is enough money flowing in the economy which increases demand as well as supply where aggregate demand is same as aggregate supply (in Recovery stage). The banks now has enough borrowers and the cycle continues until next collapse.

Concluded the recession stands an opportunity in span of every 7-9 yrs.

Kuldeep H. P
Making love for Economics & Financial Analysis
pitrodakuldeep@gmail.com

Depreciation of US Dollars

The depreciation of currency is due to various economic factors and cant be manipulated by other foreign nations as claimed government of USA.

Since many years with the start of Bush era (2001) USA is running large trade deficits and the Iraq war was the main reason for large government expenses in US military leading to budget deficits and further trade deficits. Trade deficits because foreign countries (China & Japan etc) contributed to large inflows in USA in exchange of US treasuries.

The Debt to GDP ratio increased further since 2003 and was about 0.4 i.e about 40%. Obama government introduced mediclaim & mediaid bills in 2010 and it is predicted that this bill will have large contribution of government expenses and so will rise the government expenses and US dept is predicted at about 53 trillorn dollars in 2014 leading to large trade deficit and depreciation of US dollars.

 Predicted Debt to GDP ratio
2050 - 100% (the worst situation happened during World war II)
2070 - 200%

Rise in debt will cause large trade deficits and depreciaiton of US dollars. The question is how would other countries get affected with rise in trade deficits of USA, the answer is as simple as the next currency bubble is surrounding China.

China is buying Gold and hedgeing with deppreciation in US Dollars and so the price of gold will rise till then. But there is always a saturation point for rise in gold prices where other investors will sell Gold due to fall in supply. 

So never buy Gold after it crosses $1600 an ounce because it would be forced to fall from this level.

Kuldeep H. P

Making love for Economics & Financial Analysis

pitrodakuldeep@gmail.com 

Stay up on inflation (India) to support your old age

Inflation (India) hovering to double digit 17.65% . This means your investments have to earn double digit returns to combat with rising inflation.Here are some ways for you to slug it out with inflation demon.

EQUITIES

Equities are considered as the best defence against inflation. When you invest in company you are offering risk capital to that company. The company invests the money in various businesses and with a view of generating profits that could certainly beat inflation and benefit share holders. But this again has a risk factor discussed in (Recession indicators) i.e. when GDP rate matches with rising inflation there are chances of investors withdrawing money from investments be conscious about this.

FIXED DEPOSITS

There are considered as safe investments for people who don't know what an investment is, a wise investor will never do this unless late expansion of recovery is in process. Say inflation is at around 18% and rates of return with FD are 11%max this means you have 7 % deprication of real interest rate on your investment. Instead it would be better to buy a car with 10% depreciation at least you can enjoy a ride.

COMMODITIES

One can also go for agricultural or energy bonds. Going forward emerging giant economies like India & China will consume more energy and agricultural commodities for their growth. It would be a good hedge against inflation. Considering this scenario one can go long for investments in commodities.

REAL ESTATE

Several analyst believe that real estate is strong bet against inflation since it is real asset. It you bought a house at low interest rates it is better because the principal component does not increase that much with that compared to increase in the price of your home. One must also remember that one of the reasons for global crises was real estate prices which became an asset bubble. However in India with GDP growing at 8.5%  inflationary pressures should drive up house prises in future. In early 1980's the real estate market in Japan boomed and if one owned a 10,000 sq.ft office in the Imperial place (Japan) he was capable enough to buy the entire state of California by selling that office. The same thing might happen in Mumbai some where around 2025-2030. The recent real estate boom & Burst in Dubai stands an evidence. Always remember history repeats itself.

GOLD & PRECIOUS METALS

Well if one is well off in tracking gold & metal prices they can trade a future contract with commodity exchanges or else one can also buy gold or metal bonds. Gold is considered as safest beet against inflation and has least tendency to fall. The point to be noted is if Indian rupee hardens against the Greenback (U.S Dollars) then Indian gold investors will not be in the position to enjoy the upside fully. Silver being the most volatile so HNI's (High net worth investors) bet on it it also has its large industrial application thus making it volatile. Gold has fraction amount of industrial applications so is less volatile compared to other metals.

So you get a pension plan always remember the growth initial amount invested  should match with the rising inflation every year because inflation grows at a compound annual rate of 12% approx is your pension plan capable enough to match the rising inflation at your 60.

My grand father once told me all he needed was Rs. 500 /- a month in 1970's to live an upper middle class life which costs Rs 50,000 /- today we being the second generation growing 100 times and so our grand children will need Rs 50,00,000 /- a month (Ohh a big amt but will be small at that time) and at that time your medical & monthly expenses will cost Rs 8-10 lacs minimum. So plan well with your pension plan else investing in Gold, Real estate & Equities stands a safest bet.

Kuldeep H. P

Making love for economics & Financial analysis

pitrodakuldeep@gmail.com        

Investment cycles

OBEY THIS RULE TO MAKE MONEY

Regards,

Kuldeep H. P

making love for economics & financial analysis

pitrodakuldeep@gmail.com

Recession indicators

GDP stands one of the prime indicators for the recession.

The reason for recession is imbalance in aggregate demand & supply.

Fluctuations in businesses & consumer confidence can cause firms and consumers to bunch their aggregate demand at certain time periods which can cause the level of aggregate demand to fall short of potential GDP or to exceed it in short run.

Eg : In late 1990 there was big investment in mobile, computing & IT systems about 21% of GDP in 2000 but when investors realised they might not get enough returns they pulled out the money this happened when inflation matched with GDP also a indicator and then the recession arrived in next 8 mths
similar case happened in 2008.

The chart indicates rise in inflation matched with ris in GDP is a peak point of GDP growth where one is expected to withdraw investmenets since at this stage the rates expected are more and one gets less interest rates which forces pulling out money cusing IT bubble burst.

Recessionary periods are 1983 ------ +9 yrs-------- 1992------+9 yrs------2001-----+7yrs-----2008. the cycle is fixed 7-8 yrs approx the gap in recession is reducing since there was large industrialisation in 1980's and which decreased gradually causing lesser time spam for investmants.

The next recession is predicted 2014-15.

Never loose heart if you have lost money in investments there is an opportunity in every 7-8 yrs.

Recession is best time to invest in blue chip stocks & market index one of the safest bets could expect returns abt 300-400% and do not leave the position till recovery which takes next 2-3 yrs.

There are many indicatiors of economic rise & fall GDP stands one of them.

Enjoy making money. 

Kuldeep H. P
Making love for economics & financial analysis

Understand ur money's worth

This page shall aim to share and discuss financial theories and throw light onto what defines the worth of money at any given point of time.

*Strictly no stock tips or investment advices shall be shared.*

We are concerned about detailed analysis of various economic factors only.

Any sugesstions on the mentioned topics would be appreciated