In this issue:
» Another cockroach out of Goldman's cupboard
» US' transition into a fallen empire
» Gold could go up to a couple of thousand dollars an ounce
» Wind energy breeding corruption
» ...and more!!
There's one more cockroach that has spilled out of the cupboard of Goldman Sachs. The former US investment bank has been blamed as one of the major hands in last year's financial crisis. Now it is being accused of playing a big role in the near bankruptcy of AIG.
As per The Wall Street Journal, Goldman originated or bought protection from AIG on about US$ 33 bn of the US$ 80 bn of US mortgage assets that AIG insured during the housing boom. This was huge! And when the crash came, Goldman avoided losses on its trades, with AIG covering a total of US$ 22 bn in assets, as the US government bailed out the latter. And who, you might ask, in the US government did that? None other than Treasury Secretary Henry Paulson, the former Goldman boss!
The honeymoon period for Indian FMCG companies may soon be nearing its end. The government is considering ending the tax holiday for manufacturing units located in Himachal Pradesh and Uttaranchal this fiscal. The move to pre-pone the earlier deadline of FY13 is to have a uniform goods and services tax (GST) regime.
Many FMCG companies had set up manufacturing unit in these areas to take advantage of the tax sops. According to estimates, the higher effective taxes will scale up costs for these companies by upto 30% from current levels. An increase of this magnitude would put pressure on these companies to increase their prices. The cascading effect of this will be a slowdown in sales and an impact on margins.
Did you know that Spain defaulted on all or a part of its debt a record 14 times in the 16th and 17th centuries? Also, that pre-revolution France was spending a gigantic 52% of revenues as interest on debt in the 18th century? Or the fact that interest payments consumed 44% of the budget of the British Empire, thus making it difficult for Britain to incur defense expenditure to protect itself against the Nazis?
All the above mentioned countries were extremely wealthy and powerful in their own times but finally succumbed to a phenomenon. The phenomenon was nothing but the debt that these empires had built up steadily over time. And if there is one country in present times that is the most likely addition to this list, it is the US.
If Prof. Niall Ferguson, a Harvard University Professor and author of a well-received recent book, The Ascent of Money is to be believed, the US empire is being threatened and very seriously at that, by a strong surge in its public debt. He believes there will not be a balanced budget in another 30 years in the US, thus implying that every year, the US will have to keep borrowing to meet its expenses. This will further add to the economy's gargantuan debt burden!
Amongst all the doom and gloom that many of headlines these days convey, gold is one of the few investments that offer the most promising returns if the global economy were to go in a tailspin.
Consider commodities guru Jim Rogers' comments. In a recent interview with CNBC, he shared his detailed perspective on gold. Even though he owns gold, he's not buying the precious metal currently. That's because gold has shot up in price and according to him, whenever something shoots up it probably will go down for a while. But if gold goes to US$ 1,000 per ounce again, he will surely be smart enough to buy more. Infact, he has gone as far as to say that gold will certainly go to a couple of thousand dollars an ounce over the next decade. So he remains a firm believer of the theory that am gold will be a great investment over the next decade or so. With the kind of problems that the western economies are facing, we must say that that does not seem such a far off possibility after all.
An impending recovery in the IT sector has brought with itself its share of pains. There has been a hiatus in overall hiring for around a year. With the demand scenario improving now, companies particularly the IT biggies are revamping their hiring plans. Small start-ups are particularly feeling the pinch of this flight of talent towards better paying large IT brands. This is a big concern as it might take some time to fill in the gaps created by sudden exits. However, money is not always the sole reason for employee attrition. They need to ensure competitive levels of job security, challenging work profile as well as compensation so as to retain their resources.
Subsidies are fertile ground of corruption. No Indian needs to be told about that. But the phenomenon is universal. The New York Times reports how the wind energy sector is rampant with corruption with operators hiding under the good press that renewable energy receives.
The European Union grants billions of Euros in subsidy for clean sources of energy such as wind farms. Then there is also the matter of public land being misappropriated in the name of wind farms.
In our view, the solution is better regulation and creating standard procedure. For landowners, municipal bodies, local entrepreneurs, large companies and utilities. Whenever there is easy money to be made, the scamsters can't be far away. Whether it was the gold rush, the rush for crude oil or now the rush for clean energy.
Meanwhile, Indian markets witnessed a volatile trading session today after a weak start. The BSE Sensex was up nearly 28 points at the time of writing. Stocks from the telecom and banking sectors were amongst the lead contributors to the overall weakness. Amongst global indices, while the Asian markets are trading a mixed bag, Europe has opened in the positive.
Today's investing mantra
"The price of a stock can be influenced by a 'herd' on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person. " - Warren Buffett
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