2008 - A year that was.

US Economy
Ben B. had taken the chair of Fed Reserves in 2007 and consistently maintained economy was going strong and that there wasn’t any need for rate cuts. Well, until 2nd week of Jan ’08. Then BAM!!! He cuts the discount rate by 75 basis points – a first in almost a quarter of century. For a new chairman, even if the need was for such a large cut, I would’ve appreciated a 25 basis points cut on that day followed by 50 basis points cut the following week. Actions from leaders usually act as signals for people and people want their leaders to be in control. So what happened here? Was Ben’s analysis wrong or he simply panicked? I will never know the answer to that but the signal was of a panic confirmed by a heavy sell off in the world market. That was when I lost faith in the guy.

Of course nobody would’ve listened to me but they listened to Henry P. who once wanted to use $700B of tax payers’ money to buy junk assets – great going dude! – And hires one Neel K. to lead the TARP; for his expertise? Well, I don’t know that too, but may be – hey, he’s my GS buddy, that’s why. GS guys know all and can run the world; didn’t we tell the whole world that Oil was going to cross $200 per barrel? Goodie!! Such arrogance or nonsense can’t take the US very far and must change.

Well, the cows have come home now and they are trying a combination of monetary, fiscal, and mortgage rate as the measure to tackle this. Whoopee!! We are only nine months late. So what we have lost over 2 million jobs and counting? Bottom line – I think that the US is finally on the right track now. If it continues on it, things will improve but the signs of improvement won’t be seen until at least end of 2nd quarter of 2009. For Ben B and Henry P, Obama can/should cut them loose. One additional thing Obama might want to do is to start making the public services more structured like it’s in India (or England). The Henry P. choosing Neel K, and Obama choosing Harvard classmates on committees won’t work in the long run and will be extremely detrimental to the future of US at both national and local levels.

I did pretty well with my predictions here – Govt. has become sane to apply fiscal and mortgage rate reductions as well to fix the economy (only if they had followed it earlier) as I had asked for. Obama won the Presidency as expected, more oversight for corporations has arrived, and green technologies are already being talked about. Also, the US dollar has appreciated against most of the currencies, China is feeling the heat of decreased export demand and foreign investments, and the true home run is – there is some activity in Somalia already (see my blog).

India and MNS Issue
Great going Indians and folks in the Indian government, including top offices, for not saying anything against one maniac trying to split the country on regional lines. It was expected from the Executives, a group of eunuchs – as we should call them, but I am very surprised that the judiciary is still staying arrest warrant against Mr. Thakrey. I was also surprised with the Indians and media entertaining blogs on multiple sites suggesting that north Indians (particularly Biharis and UPites) should indeed be pushed out of most of the developed states. I am pretty sure that most of the Marathis and even other Indians aren’t misguided by this philosophy and believe in one India. This issue was another Khalistaan in the making but thanks to Mumbai attack that re-united the country and this issue got diluted. I hope we all believe that we need to address this as we did Khalistaan. We need to make that decision now because this issue has the potential for raising its ugly head again.

I have only a few messages of shame for those who are still misguided. Aren’t UP and Bihar the heart and true identity of India? Be it known that no matter which part of the country you (you = misguided ones) are from and which part of the world you reside in, your Indian identity is legitimized only by a Bihari emblem – that’s right, the Lion capital of the great Mauryas of Magadha, shame on you to live and breathe under the Bihari sign. So is our national flag bearing Ashoka’s dhamma chakra, shame on you again. Also, Mauryans were the only “true Indian empire – as the misguided would learn” after Nandas (another Bihari) to have checked foreign invasion in its true sense (Chandragupta v/s Seleucus Nicator) until 1965; so much for our bravery. May be renaming cities, airports should count for some valor I guess.

Again, no matter which part of India we live in, a true Hindu can’t do away with Rama (Ayodhya), Krishna (Vrindavan), Shiva (Varanasi), or even Buddha (Gaya). Our first Prime Minister (UP) and President (Bihar) should also remind the misguided on the center of our freedom struggle. It’s a shame to malign a great emperor (Aurangzeb) to highlight one’s own clan (that fuelled strengthening of Muslim league in late 19th century) and then to burn down the library (a few years back) to stop any research trying to study the facts. When the nation called during our first freedom struggle in 1857, learn what Holkar, Gaekwad, Bhonsle, and Schindhia did. Khub ladi mardani woh to “North India” ki rani thi. Shame, shame, shame. Time to show courage again – in light of the terrorist attack, let’s rename the Taj Hotel to …– you know what I mean.

Satyam n’ maytaS – Almost Dan Brown’s Angels and Demons.
My problem is I can’t keep my mouth shut although things are turning out to be true. “I will win $100M in lottery this year.” One of my friends informed me in the morning that Satyam board approved the purchase of Maytas, run by the chariman’s son. My first statement was, “This guy will go to jail. How can he justify purchasing a construction company being an IT company – that too without giving the investors enough time to react?” My mistake – I was underestimating the capacity of Indians corporate owners. I thought it was more of a corporate governance issue and couldn’t connect that there could be an accounting fraud.

With the Satyam fraud fact out in the open, I can bet that we will see 5-10 more companies riding the same boat. There is never only one cockroach in the kitchen. I feel even some PWC folks should be put behind bars if they can’t prove the cash was actually present in the banks. So unless Mr. Raju siphoned out the $1B out of the banks after the last audit, there is a lot PWC will need to answer. This isn’t Enron as they claim it; Enron had accounting creativity all over its books, BUT not in its cash. There is no hiding cash through accounting magic; it is hard cash that must reconcile with the total of bank statements. Period.

Indian Economic Outlook in 2009
My prediction on Indian economy will be mostly bearish for 2009 since govt. isn’t taking the steps necessary to revive it. In fact, it’s doing the opposite. Infusing liquidity will only make the situation worse. In the short-term it’ll make borrowing cheaper so people can borrow cheap to buy stocks. That will certainly give a short-term boost to the Sensex. To me it looks nothing more than an election time house cleaning exercise from the government.

My feeling at this time is that a big IT company in India will be bought over by Reliance (Anil Ambani group) by end of 2010; it will be interesting to see which one. Also, I’m not going to say that Rupee will depreciate another 20% to 60 per dollar by the end of 2009, but for NRIs in the US, it will become 20-30% cheaper to buy properties in India by then. It can be due to either Rupee or property prices declining by 20-30% in the next year. I feel inclined towards 60 to a dollar but that can be maneuvered by RBI if they got sentimental with it.

It’s not possible to keep the interest rates low for such a long time without hurting the exchange rate. Low interest rate in a worsening economy will worsen the budget deficit. It will also lead to inflation when output is going to decline. Drying up of foreign fund flows will also put pressure for increased government spending to keep the GDP level up, which will hurt the deficit further. All these are pointing to a severe decline in the Indian Rupee vis-à-vis the US dollar. Regarding Sensex I can say 2009 will see it find its new support around 7000, particularly after April when the first quarter results start showing up.

Goldman Sachs has predicted that Rupee will strengthen in 2009. This reinforces my belief since I see GS is now desperate for people to buy Rupee on their guidance that will make Rupee stronger. Well, that’ll be the golden time for GS to liquidate its holdings and say Ta-Ta to its investments in India. If GS is so sure, they should’ve bought heavily on Rupee futures before making the prediction. If not, they should be investigated if they in fact end up liquidating their Indian holdings in 2009.

I did well here as well with my March 2008 prediction on Indian Rupee depreciation to 46-47 to dollar came out to be true. Further, my prediction on 50 to dollar was also vindicated. Sensex is right where I had predicted; around 9000 mark. Most interesting one was my March prediction on FIIs. I’d said (see my blog) that FIIs will start liquidating their Indian holdings after two quarters and BINGO, they actually started doing that after two quarters.