Of hotdogs and recession

This Story is about a man who once upon a time was selling Hotdogs by the roadside. He was illiterate, so he never read newspapers. He was hard of hearing, so he never listened to the radio. His eyes were weak, so he never watched television. But enthusiastically, he sold lots of hotdogs. He was smart enough to offer some attractive schemes to increase his sales. His sales and profit went up. He ordered more a more raw material and buns and use to sale more. He recruited few more supporting staff to serve more customers. He started offering home deliveries. Eventually he got himself a bigger and better stove.
As his business was growing, the son, who had recently graduated from College, joined his father.
Then something strange happened.
The son asked, "Dad, aren't you aware of the great recession that is coming our way?" The father replied, "No, but tell me about it." The son said, "The international situation is terrible. The domestic situation is even worse. We should be prepared for the coming bad times."
The man thought that since his son had been to college, read the papers, listened to the radio and watched TV. He ought to know and his advice should not be taken lightly. So the next day onwards, the father cut down the his raw material order and buns, took down the colorful signboard, removed all the special schemes he was offering to the customers and was no longer as enthusiastic.
He reduced his staff strength by giving layoffs. Very soon, fewer and fewer people bothered to stop at his hotdog stand. And his sales started coming down rapidly, same is the profit.
The father said to his son, "Son, you were right". "We are in the middle of a recession and crisis. I am glad you warned me ahead of time."
Moral of The Story: Its all in your MIND! And we actually FUEL this recession much more than we think

-Arun Ram

the beginning of the end : Death Bonds!

In the early 1980's and 90's, AIDS was rampant and incurable. The sufferers needed cash, and so they started selling their life-insurance policies to investors/companies who were ready to pay cash. They got the much need cash and they did not have to pay premium anymore! The investors paid the premium till the insured died and made themselves a neat profit, if they died early!

"Death Bonds" or "Life Settlement-backed Security" are rapidly becoming the safety nets for companies from the turbulence of the other investments for the obvious reason that 'Life Expectancy' is not as volatile as the other financial instruments - but for the terrorists who are likely to have invested only in Death Bonds. Life insurance policies are pooled together, repackaged ('securitized') into bonds and sold to investors.

"Profiting From Mortality - Death bonds may be the most macabre investment scheme ever devised by Wall Street " - Businessweek Cover Story, July 2007

For example, if the person is insured for Rs 10 lakhs upon death, the investor buys the policy at a lump sum of Rs 5 lakhs. For the insured, this is quick and easy cash - the investor bears the premium and waits to the get the money upon death of the insured.

Death Bonds are still unheard of in India; but they are fast becoming a popular and safe investment in Europe and United States. Death Bonds may still be far in the future in India, but how eerie is it knowing that the investor wants you DEAD!

Vicious Circle Fuelled by Oil Price

There has been a lot of hush hush in the newspapers about rising fuel costs and search for alternate fuel sources. Why is fuel becoming expensive? How does it touch each of our lives? We try and analyze the vicious cause-effect cycle driven by the fuel costs.

Here is a list 9 potential factors which drive the fuel prices up.

  1. OPEC Policies : Since mid-eighties Organisation of Petroleum Exporting Countries (OPEC) has been creating an artificial scarcity i.e. it produces only to fill the gap between global oil demand and production by non-OPEC countries. This has resulted in OPEC having a lot of idle capacity and thus a control over the oil prices. But recently with surging oil demands OPEC has hardly any idle capacity left i.e. no safety net and a higher risk premium.
  2. Petro-Dollars to Petro-Euros : Till recently almost all oil buying and selling was in US-dollars (petro-dollars) through exchanges in London and New York. But the OPEC countries are now shifting to petro-euros. So till ~ 2002 the USD-Euro conversion rate were independent of the oil price; but now are directly correlated.
  3. Political Instability : Most of the known oil reserves are in West Asia (or the Middle East). The other major petroleum exporting countries are Russia, Nigeria, Indonesia and Venezuela. These countries have been politically unstable in the recent past and this has also led to the oil traders demanding a premium.
  4. Speculations in Oil Futures by large amounts of funding also drive prices up.
  5. Weak Dollar Policy : With most oil deals worldwide are priced in US dollars; and the dollar's devaluation puts on the pressure for higher oil prices. To maintain an income and purchasing power, raising prices has become a major strategy of OPEC members.
  6. Rising demand from emerging nations like China and India. Rise in oil prices applies brakes to the fast growing economies.
  7. Rising cost of corn and ethanol : An increase in oil prices increases the demand for alternate fuel i.e corn and ethanol; which increases costs of cattle feed and ultimately food-products. Inflation goes up sharply resulting in cracking of the economy.

Gold vs Liquid Gold
Gold / Oil prices have maintained a ratio of ~15 for half a century, but the sudden steep surge in oil prices has resulted in this ratio halving! Also, a strong negative correlation is seen between the Gold/Oil price ratio and Dollar/Euro conversion rate.