Feed the Fed

Alright, it’s been way too long since I brewed something… So... Let’s get to work.

The Context:

October Jobs Report.  It seems that companies have added about 271,000 jobs in October. This sudden surge in the number of jobs added has been the fastest rate change yet and as an effect has sent the unemployment rate to 5% which is the lowest level since April 2008.

Ok, what does that mean?

Well, according to Economics, inflation rises as unemployment goes down. I know sounds strange at first because we are used to associating negatives with negatives… but Economics thinks otherwise.. for every good, there is bad. Hence, as more and more people get employed, they have money to spend, and as their spending ability increases, so does the demand for things and hence price rise or inflation. Tada!

All right ok we understood that employment increases inflation, what’s next?

Coming to that; USA’s central bank rate has been practically 0% for almost a decade now... 8-8.5 years actually. So now they want to increase that. Now maybe you’re thinking, wait increase bank rate or as its popularly called Fed rate in USA, wouldn't it increase the cost of loans? That would make it harder for people to get their hands on more money, that’s bad, why does USA want to do that??

Weeeelllll…. Inflation in USA has also come to about 0% and now that there’s a sudden drop in unemployment, this inflation will go up and they don’t want that to happen. Simple right? Wrong! Nothing is ever simple!

 Think about it, if inflation goes from 0 to 0.5 or even 1% what’s the big deal? Growth and inflation are directly proportional, so if inflation rises (up to a certain extent, not like Zimbabwe) it means somewhere you are making growth. So the story of wanting to keep inflation under check is bogus.

Wow, ok boss, so what does all this mean then? Why do they really want to increase the fed rate?

I’ll tell you… because they want to look good.

For a stable economy, the Bank rate needs to be respectable, well at least not 0. Japan’s central bank rate has been at zero for almost 15 years, and everyone knows Japan is a saturated economy. They don’t want the same to happen to USA.

Alright… We get it now... so they want to give the Fed rate a hike because they want to look good and look like they made a recovery from the 2008-09 crash. But if this make believe stunt is what they want to do, then why didn’t they do this earlier?

Good question. Frankly, I believe they are doing this because of the presidential elections. However, this post is about a conspiracy theory. Now, where’s the theory??

The Theory

We know what the context is, how Recession, Recovery, Fed Rate, Inflation, Growth and Unemployment are related to each other. And we also know that unless Obama and his govt. show some proof of recovery, it will be really hard to get a third term for the Democrats. So, there’s but one option to show this for sure, increase the fed rate.

This might choke cash flow in the system but! And I mean a serious But! This fed cut is not to choke or pour money into the common man of USA, but it is to show the outsiders that USA is on track for recovery. We must note that people are really wry of the situation. Japan is in a recession, China is looking unstable, and India is still volatile. Everyone else is anyway insignificant. So investors will put their money into USA.

But sir, what about the employment? The govt. can’t simply cook it up, how did nearly 200 thousand new jobs come up within a month??

Ask yourself that question again! How did nearly 200 thousand jobs come up within a month?? Come on!!

I looked it up; the October jobs report a little and I found and I quote

“White-collar businesses added 78,000 profession jobs. Health care added 45,000 positions. Retailers took on 44,000 new workers, and restaurants hired 42,000 people.”

I’m not chasing after everyone, but I got curious at the restaurants and so did a little more digging. About three companies did 80% of this 42000. And surprisingly, these three are Pizza Hut, Taco Bell and KFC. All three belong to the same parent organization of Yum Brands, Inc.

Now about this Yum Brands, Inc.

Yum Brands stock tanked 11% in October. They said it’s because the company didn’t meet the analyst's expected quarterly revenue... seriously? 11% because it missed “analyst estimates”?? Ok I'll believe even that… But listen… The quarterly revenue actually grew by 2.2% and increased the "adjusted earnings" by 14%.

Now the stock, even after recovery is at 5% below last year’s price, but the earnings are high and they just hired 42000 people!!

Here’s where I come in... US wanted to hike the fed rate so bad... But they couldn’t just do it.. Neither could they leave it at 0 and be another Japan... sooo.. They called some of the big guys... like Yum and a few others… and said, look guys, you need to hire more people.

We just saw, that the sales revenue of Yum isn’t that great, the stocks tanked 11% but still its profits are awesome. How?? Think! Universities and Hospitals are known all too well for Govt. indulgence... Sooo… I’m just thinking… somehow someone made a big donation or an “adjustment” leading to a growth in numbers, then the hiring boom and hence creating a clean, unsuspecting and natual green signal for the fed rate hike.

But the question is … will you buy this natural green signal??? Is it all that natural in the first place? Will you invest in USA after knowing this??? Or is Obama really looking for investment in America and the American people or is it all just to get money for a short term till the elections are over??

Do You Read Fast?

This happened a few weeks ago, another friend posted a pic on facebook showing off her incredible reading spead. This has been happening to me all my life. People telling me how they read books in a night or sometimes people say they've read full books in 2-3 hours time.

I've googled about it, lots of times. How can they do this? I learnt to skim read when I was preparing for aptitude exams, do they skim read entire books? can they do that? then I created new theories, maybe they don't read it too well, maybe they just go with the story and wont remember the details, or they fake read, they skip, they don't enjoy the word associations and sentence forming. They don't see the parts of speech, the prepositions, or don't pay attention at the beauty of the adverbs. All possible theories, I came up with so many things to protect my slow reading pace. But none of them actually made sense. People who read fast, like 10 or 20x faster than me knew the story line better than me, including the details. So whats going on??

More googling lead me to the reason. Its called subvocalisation. Meaning, your actually saying or imagining the words that are being read, or you imagine that you are listening to the words you read in your head. This is called subvocalisation, this imagining the sound of the words is what takes time. Most of our brains are alike, well upto a certain extent, so almost all of us can read at the same speed. But people who subvocalise while reading are spending that extra time to read out or imagine the sound of the words in their head. Hence the slow reading speed.
Next, how do you solve this?

Step1: Google, yeah I googled again and found some really simple techniques. I put them to the test and I gotta say, they have worked, a little albeit.

First, remember how they told in primary school that using fingers to read was bad, unlearn that. It might look uncivil to read with the help of your fingers, but try moving them along the words, it really, really helps reduce subvoculisation.

Second, distract yourself, simple, think of non sense, keep repeating words or listen to non lyrical music. Thinking or saying non sense in your head maybe a little risky, so try to listen to instrumental or play non lyrical music. It will help.
Try these two things, your reading speed will surely improve by atleast 70%.

One needs to remember though, that while scrutinizing documents or while reading technical reports that may have new words that you don't know, subvocalisation helps you remember it. Also, if you want to learn something by heart, subvocalisation can be of help even there. But if you are jealous of your friends who can read books in 2 hours, start practicing these 2 things and you can do it too. Go!

Government’s Goldberg

It’s surprising how most of my writing happens on Wednesdays; maybe I need to consult an astrologer to find out why. OK so today’s big news in the paper this morning was the Gold Monetization scheme. Gold Monetization is where Gold will be treated like Cash. 

This scheme was announced by the Finance Minister Arun Jaitley in this year’s Budget. The scheme is a two pronged answer to the Indian obsession with Gold.

1.       The scheme shall allow public to deposit gold in scheduled banks and earn interest on their gold.

2.       The scheme allows Banks to use the gold received in this scheme to meet the CRR and SLR requirements.

So what does this mean?

Simply put, you and I can deposit our gold in the bank and earn an interest after a fixed maturity period. How does this happen? Well it works just like cash, the Bank will measure, test and tag your gold, and then lend it to jewelers or other investors who may be willing to buy or borrow at a rate higher than the banks offer to pay you. The interest earned in this scheme is not taxable under income tax or tax from capital gains. Please note that interest will be calculated in terms of gold. That is, if you deposit 50g of gold, 10% would be 5g of gold.   

This brings us to some simple but genuine questions

1.       How will they pay interest? Will they add another gram to my bangle? 

Well, no… Your gold will be treated just like cash. Meaning, you will not get to see the same gold bangle at maturity. If your bangle was 50g, then you will get 50g back + interest, but not in the same bangle. You may get the maturity amount as bullions of gold or you also have an option of redeeming it in cash. However there’s a catch, you need to specify if you want gold or cash while signing up for the scheme.

I’ll say what you’re thinking now… Nope, not gonna happen! My mom would never lose her bangles for 5% or 10% or even 30% if she’s never going to get a chance to see the bangles again. 

So why make this scheme? Politicians and bearcats are probably smarter than us, they would obviously be aware of our attachment to personal jewels, why would they draft such a thing??

Well the answer is simple. The general public is not the target of this scheme. This is for investors who already have gold in their portfolio. Gold itself would grow its worth in time, imagine depositing it in banks and earning interest on it, that’s a double income on a single asset! 

All this is fine and obvious. What are we missing? Well, tipping the rich to invest more is not the only goal here, the second leg,(which is actually the first) is that Banks would be able to allocate this gold to meet CRR and SLR requirements. Banks, need to place certain percentage of their deposits with the RBI, currently the CRR and SLR together constitute 21.5% of the deposits.  Meaning, if a bank has 100B of deposits it needs to deposit 21.5B with the RBI. The remaining 78.5B can be used for their business that is; giving loans. So, now that gold has come into the picture, Banks may keep gold in the RBI and use more cash to give away more loans and hence increasing growth in the country. 

So to summarize, what’s this scheme about? 

1.       Make big investors earn two times on a single asset.

2.       Allow banks to use the gold to meet their duties and save cash to give more loans. 

 

Will this reduce gold imports?

No

Will this make any difference to household gold?

No

Will this mean anything to small investors?

No

Do we need this scheme?

I don’t know.