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??

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.

Let It Count

Ever since I read Freakanomics, I've been up in arms with whatever is happening around me. I'm just so hell bent on finding reasons behind why anyones doing what they are doing. I mostly think of bringing down politicians or celebs, but in general I’ve been thinking a lot, trying so hard to find patterns and answers to all kinds of questions. Actually there are not many questions, I’m just conspiring things to frame my own questions. After all, it’s good to question right?

That’s what my dad kept saying… sadly for him it only sounded good until I started asking questions. 

Anyway.. So the deal with this post is my obsession with Freakanomics. Freakanomics generally means finding patterns or signs to explain economic, social or political decisions and happenings. I’m just posting a problem that I found while watching TV. I’ve cracked my head and come up with scenarios, but I still can’t find a solution.

Heres the problem:

Problem Statement: The latest trend in TV channels has been the addition of the timer. It started with movie channels and now can be found in all channels including news and music channels. The timer starts counting down from 2 mins with a board about it that says "show will be back in" or "movie continues in" or "more news is" etc.. the objective of implementing the timer is to hold the audience. If there is a timer then you will know that the show will be back in just 2 mins and will not change the channel.. therefore watching more advertisements.

But theres another angle...  if you know that the show will resume in 2 mins, then you will change the channel knowing that the show won’t start for atleast 2 mins.

Also, not all add breaks are 2 mins long, they are 5 or say 8 mins long and so.. the timer won’t show up till the first 6 mins are past. In that case, I will switch to another channel and just keep checking if the timer has appeared. So the channel is losing viewership in the first 6 mins. But will they have views in the count down period.

But as seen earlier, once the timer comes up, the viewer will switch to other channel because he knows that the show won’t return for atleast 2 mins

So, is this idea of having the timer good or bad for the channel? If you were the customer would you want your product to be advertised in the 2 min window or before that? Or is the idea itself retrogressive and will reduce the viewer ship during breaks in the long run? Think!

That was the problem which I couldn’t solve as I’m thinking too much from customer, channel and the viewer’s POV. So I thought I might get some help if I posted this on the blog. Not to mention.. some comments :P :D 

Keep digging!! You could just be right!  

 

King of All Times

There are very few days when I’ve worked after dark, but whenever I do, I make sure to take a look at the lit glass buildings near my office and the fiery collation of brake lights on Richmond road. The UB city is hard to miss from my building. The lit elevator shaft and the blue and red of the helipad on top are always sites I envy. Yday I happened to see a few lit windows too. Mallya must be at work with his managers I thought, or maybe drunk? Whatever the case, but I don’t know if they could afford to burn so many lights I thought to myself and smiled. 

As I was walking out towards the exit I caught a third eye’s view of the top floors of the UB city. He must be working so hard, maybe coming up with something ingenious. I was actually surprised at myself, Mallya has lost a lot of things while trying to revive his airline with a broken wing and yet I seem to have some strange confidence in him. Strange indeed, but that’s when I remembered reading the Forbes of July 20. The cover story said that Mallya and his managers never looked worried or desperate when they went to talk to their banks or investors. In fact there seemed to be an air of poised arrogance in their arguments and they had complete faith in their plans and were completely certain that the KFA would fly again. Their only argument was - FDI.

Banks together have lost close to rupees 7000 crore! More than half the staff of KFA is on strike and none of them have received their salaries from 6 months!! How the hell is he gonna come out of this one?? Then suddenly news comes out that there might be a deal with Diageo, the world’s largest liquor maker. Mallya and Diageo were in talks for 2 to 3 years and the talks had failed every time, maybe nows the end of the road when there needs to be some selling and sacrificing to get some inflow of money.

That’s when it struck me, how were Mallya and his men so confident of the FDI?

Just making casual conversation, I spoke with my friends:

Me: Boys! I gotta theory,

Me: Maybe, Mallya’s deal with either Heineken or Diageo took some serious turn and he got some prospects of cash, then with his charisma he cast a spell on the govt to pass the FDI, the govt is anyway in favor of the brave and the rich, so with pranav da gone, and chidu taking over finance ministry, Mallya had a chance. Chindu is anyway too close to the banks, his family or extended started 4 banks in tamil nadu right? So maybe Mallya worked closely with Chidu, Chaudhary and a few other bank and govt guys to convince them that if the FDI was passed he would get all the money he needed to make his kingfisher fly again, and maybe get a bit more.  

Me: Andddd… with the FDI passed, he doesn’t have to make deals with both Heineken and Diageo, maybe that’s why he’s stalling the Heineken deal.. lets see.. its just a theory :D plus.. you should see his tweets on FDI :P 

Friend: But It’s a tough deciesen for anyone to buy shares in a company with 7k crore in debt.

Me: dude! Anyone would buy once the govt is out of the way.. as in FDI is passed.. I know I would

Friend:  dude.. KFA shares are at 16 rupees or something.. :P 

Me: lol.. yeah I know.. ok heres the time for my ~serious statement making face~ I don’t buy shares for money dude.. I buy shares for my share. ~hunk look~

Friend: lol :P die.. its end game for Mallya dude.. hes gonna lose the dominant role in UB and US and even if he gets investors (fat chance) its gonna be pretty much the same on KFA.. and its all too famous that hes too hard to work when hes not the boss.

Me: hmmm…

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

So, the wide spread opinion about Mallya is that much has been ruined and the only way to keep his head afloat is to sell off everything and just be a pawn. Well, that’s ridicules.

Now, many people might not like him, his extravaganza or his business, people might call him an opportunist or even arrogant. I have members in my own family circles that don’t like him because he made money from the liquor that ruined so many families. Well, We can blame the Indian conservatives for that.  

 

Speaking on Mallya, we all know who Vijay Mallya is; hes a rock star! How many Indians decided to buy an F1 team and name it after India? How many Indians decided to buy Tipu Sultan’s sword for 505,250 pounds? And who made sure India didn’t cut a sorry figure when we couldn’t stop the auctioning of Gandhi’s belongings in 2009?? Mallya. 

There might be a lot of reasons to pull down Mallya and beat on him when hes low, but hes really a man of the riches who also means well. He doesn’t just want to be and feel rich alone; he wanted all of India to experience the riches. He wanted to give a luxury experience to the ppl of India, maybe that’s where he went wrong. When just a simple air travel is considered luxury in our country... maybe he went a little ahead of time to provide luxury to everyone in the country. 

Ok.. where does he go from now? And what do I see for him?

It’s simple, the FDI was the last hurdle and now that hes beyond that, he should be clean. He just needs to watch out for a few months and then with his charm and elegant arrogance it would be no time before people joined him in catapulting the broken bird back in the air. 

I believe the King of Good Times has proved it that he has no problems being the Baron at Bad Times… And to all those in strikes and literally being a pain in his ass... you better switch sides before hes rich again