Breakout Nations – Ruchir Sharma

I am sure you must have heard about the great uplifting story of the economic miracle of China – of how India is just behind China and yet another nation which is becoming an economic superpower. You must have also heard about the South Korean manufacturing miracles and African resurgence.

What Ruchir Sharma does in his book is that he takes all these ’emerging’ economies one by one and dissects their economic policies and assesses their basic economic indicators like investment/trade/taxes as a % of the GDP and points out if that indicates good or bad tidings. His analysis is put forth in simple english sentences which is easy to understand and gives a pretty good picture of the nations which are discussed – macro economics wise.  He places his bets on economies which are relentless in their reformist attitudes and have stable political atmosphere or sound infrastructure in place.

For me the best takeaway from the book was the education about emerging markets and where these nations are placed. I was also able to understand what the actual level of development each of these economies have and what needs to be done to close the gap. I also learnt that even a decade worth of fast track growth does not necessarily mean that a nation will continue to grow. In fact, as a rule, the growth slows down and even reverses some times. It is not as uncommon as one might think. So, the road to become developed is a long one and requires constant innovation, attention to micro signals from domestic and international markets and also that saving and risk taking [in terms of reforms] are better strategies for growth and yield better returns in times of slow down.

All in all, a very informative book and comparatively breezy as compared to others on the same subject. Must read if you are interested in just getting to know about the world and how its economy moves.

US Financial Markets in Doldrums

The news about Lehman going for an almost firesale and a sale in any case, has been splashing since few days all over the media. Check out at : News about Lehman Crisis

This comes about right after the great rescue of Fannie Mae and Freddi Mac by the Federal agency of the US government. The move was anticipated as a stopper for more bad news and rotting companies but as it has turned out, investments continue to get sour and companies are still at high risk, along with the danger of whole of the market and eventually the economy going down a whirlwind path. To me, it is particularly astonishing because I thought, as did most of the people, that banks like Lehman were more prudent and perhaps would be able to manage the situation. As it turns out, it is not about the ability to manage. The forces of market are far more weighty and dangerous that a single firm could contain. The news is doing the rounds that Merrill Lynch and Washington Mutual are in for a similar fate if they do not get up and do something right now. If Lehman goes badly, Merrill may be next in line with all the pressures, although the situation there is not so critical, and may I add, YET. It was assumed that the credit crunch would stop after Bears Stearns was bailed out. But it did not.  And it is not to be predicted that how much longer and how much wider it is going to go on.

In all of this, a student of economics should ask that are there any lessons to be drawn here about free markets, capitalism, socialism, socialized capitalism, government intervention and globalization etc? I would say that when we will look at these events in hindsight, there will be many many lessons. However, what all this has certainly done is to question the robustness of capitalized markets and their efficiency to deal with the problems. Why is it that the fellow banks and financial institutions are not coming to the rescue of the beleaguered Lehman when its collapse could spell a bigger doom which will take them down too. Why are they asking the government to support the bad credits and intervene for stabilizing the markets. Is it not the inherent and imminent rule of capitalism that the profits as well as losses will be shared by the markets. Why then are then the  losses expected to be  turned over to the government?

Financial markets have often come to the stage of creating havoc in the whole of economy. They seem to be periodically going into a crash state after a boom state. Had it been a completely free market without any government intervention at all, things would have been different and I mean better by that? Is it this unexplained camaraderie between the two which is responsible for bad turns. Or can we ask the question that capitalism is not able to deal on its own and that it is most of the times the government which supports it?

Altogether, it is a very interesting time for not only financial analysts but also for general economists. What amazes me often is that the complexities of the financial instruments( like exotic derivatives) have grown so much that it is hard to estimate and calculate their worth even by those who are creating them. Something like the Frankenstein’s monster. Aren’t they?

I am waiting for the Monday morning and the markets to open and see what is the fate waiting this crisis. Meanwhile, the decision about Lehman should hopefully become clear in the coming day.

economisty feelings

I dont know but often times I have a feeling that I am a budding economist, which was most recently fuelled  after I watched the Commanding Heights for a second time. I just love the long lectures that economists give, the way they view things and how it is all in some sense a philosophical realization of the existing world.

Microeconomics is like the zoom in of the camera, seeing the nano particles and making them interact right, whereas macroeconomics is the zoom out, taking the upper hand, guiding the herd not really concerned about each member. It all just thrills me and sometimes I wonder that whether it is not possible to apply the concepts and philosophies of quantum physics and quantum information theory to microeconomics. It draws some uncanny parallels.

Maybe, I wish dearly and I hope that I would get to study the subject in great detail and gain a wonderful breathtaking insight.

On the side, youtube is the best product of information revolution. There is so much wealth there waiting to be shared that I cannot just get enough of it. It is a bad things sometimes but its OK.

Tata Nano

Tata Nano has been a topic of much debate since it has been put before the world. It is going to be the cheapest car in the world. No mean feat that is. And kudos to Ratan Tata for pulling that. It is exemplary. But as good as it sounds as an achievement, it has created quite a furore in economic and political circles. There are plenty of issues which are in focus which I am jotting here:

  • Congestion of already congested, narrow roads.
  • Pollution
  • Safety, Accidents
  • Fuel Price and Consumption
  • Market Reception and success
  • How will it help the economy

We already know what condition our roads are in. They are narrow, congested even with the few four wheelers that are there and pot holes abound. In this situation if there is a car with every household what will the condition be we can hardly imagine. To this the arguments are that the deteriorated condition will force the government to take action and better the roads. That’s being fairly optimistic but I think that is possible.

It will enable the lower middle class to be owning a vehicle ( a four wheeler) who might have had a two wheeler till now and in that sense, it reduces the number and chances of accidents ( two wheelers being more risky ). But, there are also questions being raised about the safety in Nano as in if an accident occurs then the riders are prone to getting hurt. About these aspects I think that as the demand increases, the technology will better itself and safety measures and fuel efficiency will improve.

The question of pollution stays and there will be a definite increase in pollution.For this I think we should not blame nano solely but urge the engineers to find a really good way to curb pollution. Fuel prices and consumption will be affected. I am not so sure about the numbers but someone told me that two wheelers saved fuel while a 4 wheeler drank more of it. But we are here reducing the number of two wheelers so that saves some fuel. I am lost on the fuel aspect here. Enlighten me someone, if you will.

As far as I see, there will be a welcome given to Nano since now most of the lower middle class would be able to afford a car and that would mean an improved standard of living, a better status and to some extent increase in confidence.

How it helps the economy? Well, for one more production would mean more jobs, more utilization of materials hence growth. As Tata proposes to issue the parts to be assembled at various assembly centres run as franchises, it would employ many people. So, it increases employment, however slightly. Slight is better than naught after all.

There is the SEZ issue of Nandigram also attached to it. Tata Nano has come forth with many polemical strings attached to it. Only time will tell whether it is for the good or for the worse but this much is clear that it has come at a time and in a way where it will do nothing to curb or prevent environmental degradation but is surely an emblem of hope and signal of the rise of new, innovative corporate India.

I am optimistic about it.