tag:blogger.com,1999:blog-98466242024-03-14T05:57:15.979+05:30Restaurant at the End of the UniversePeter Drucker chose one new area of study every three years in his life. For the next two years (till Dec 10), this is my focus. (a) Markets (b) Learn French (c) Geography of Russia and Middle EastGauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.comBlogger312125tag:blogger.com,1999:blog-9846624.post-68646004103409805982011-02-07T21:26:00.001+05:302011-02-07T21:26:07.695+05:30Windows Live<p>This is a really nice blog writer that Microsoft has developed. </p> Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com21tag:blogger.com,1999:blog-9846624.post-62224897462241374932011-01-10T15:18:00.000+05:302011-01-10T15:18:07.450+05:30Notes from General Theory - Chapter 13After Chapter 3, I have jumped directly to note taking from Chapter 13. This is where the more interesting part of the book begins. I will take the notes of Chapter 4 to 12 later.<br />
<br />
<ul><li>There are forces that cause the marginal efficiency of capital to be equal to the rate of interest, yet the marginal efficiency of capital is, in itself, a different thing than the ruling rate of interest. Marginal efficiency of capital governs the terms on which loanable funds are demanded for new investment. Rate of interest governs the terms on which funds are supplied. </li>
<li>Historically, rate of interest has been thought to depend on the interaction of the schedule of marginal efficiency of capital with the psychological propensity to save. However, according to Keynes, merely knowing the demand for investment and the supply of savings is insufficient to determine the rate of interest. </li>
<li>Any individual has two distinct set of decisions in his psychological time preference: a) Propensity to consume: how much of the income is consumed, and how much is saved. (b) Liquidity preference: in what form will he hold his savings. Historic theories are erroneous as they attempt to derive the rate of interest from the first of the psychological time preferences at the neglect of the second. </li>
<li>Rate of interest is not a return to saving or waiting. If a man hoards his saving as cash, he will earn nothing. Rate of interest is the reward for parting with liquidity for a specified period. </li>
<li>Rate of interest is the price which equilibrates the desire to hold wealth in the form of cash with the available quantity of cash. If rate of interest is lower, more people will be willing to hold saving as cash. If it is higher, there will be a surplus of cash which no one is willing to hold. Rate of interest is not the price which equilibrates saving and investment. </li>
<li>So, it is the quantity of money, along with the liquidity preference, that determines the rate of interest. </li>
<li>If r is the rate of interest, M the quantity of money, and L the function of liquidity preference, then M = L(r). <b>This is where the quantity of money enters into the economic scheme</b>. </li>
<li>There are three drivers of liquidity preference: (a) Transactions motive: i.e. the need of cash for the current transaction of personal and business exchanges (b) Precautionary motive: i.e. the desire for security as to the future cash equivalent of a certain proportion of total resources, (c) Speculative motive, i.e. object of securing profit from knowing better than the market what the future will bring forth. </li>
<li>The existence of an organized debt market creates a dilemma. In the absence of an organized market, liquidity preference due to precautionary motive would be greatly increased, however, the existence of an organized market might create wild swings in liquidity preference due to the speculative motive.</li>
<li>If there is negligible demand for cash from the speculative motive, an increase in quantity of money will have to lower the rate of interest, in whatever degree is necessary to raise employment and wage-unit to cause the additional cash to be absorbed by the transactions motive and the precautionary motive. <b>This is what the Fed fought in 2009. </b></li>
<li><b><br />
</b></li>
</ul>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com4tag:blogger.com,1999:blog-9846624.post-39193313952288524572010-12-27T15:33:00.002+05:302011-01-10T15:19:24.194+05:30Notes from General Theory - Chapter 3<b>The Principle of Effective Demand:</b><br />
In a given state of technique, resources and costs, employment of labor by an entrepreneur involves two kind of expense:<br />
a) Factor cost: Amount paid out to the factors of production, ex other entrepreneurs.<br />
b) User cost: Amount paid out to other entrepreneurs for what he has to purchase from them + the depreciation of capital equipment in excess of normal wear and tear if the equipment were left idle.<br />
<br />
<br />
<ul><li>Income or Profit = Value of output - factor cost - user cost. Factor cost is regarded as income by the factors of production.</li>
<li>So total income generated by employment given by entrepreneur = profit + factor cost (<i>but what about amount paid to other entrepreneurs, who have made profits and in turn generated employment?) </i></li>
<li><i></i>Entrepreneurs try to fix employment at a level which will maximize their profits.</li>
<li>Let Z be the aggregate supply price of output from employing N men, i.e. Z = s(N). This is the Aggregate Supply Function. Let D be the proceeds which entrepreneurs expect to receive from the employment of N men, i.e. D = f(N). This is the Aggregate Demand Function. (<i>Is there any difference between the two functions?)</i></li>
<li><i></i>Volume of employment is given by the point of intersection between the aggregate demand function and the aggregate supply function, for it is at this point that the entrepreneurs expectation of profit is maximized. This point of intersection - the point D - is called the Effective demand. (<i>But aren't both the curves upward sloping? Demand goes up when employment is higher, so does supply). </i></li>
<li><i></i>The classical theory assumes that the two functions s(N) and f(N) superimpose each other, so that whatever the value of employment N may be, the proceeds D are equal to Z. Implying that effective demand, instead of having a unique equilibrium value is an infinite range of values all admissible, and the amount of employment if indeterminate except in so far that the marginal disutility of labor sets an upper limit. (<i>So is what Keynes saying that these two curves are not parallel, which is what Classical theory has always implicitly assumed</i><i>. And it is easy to fall into this trap because both the curves are upward sloping.)</i></li>
<li><i></i>If this were true, employment will expand up to the point at which supply of output as a whole ceases to be elastic. This is same as full employment. Thus Say's law, that aggregate demand price of output is equal to its supply price for all volumes of output, is equivalent to the proposal that there is no obstacle to full employment.</li>
</ul><br />
<br />
<b>II: Brief Summary of Theory of Employment:</b><br />
<br />
<ul><li>When employment increases, real income increases. Consumption goes up, but lesser than income. So employers will make a loss if the whole of increased employment was for satisfying the demand for immediate consumption. So, to justify and amount of employment, there must be an amount of current investment sufficient to absorb the excess of total output over consumption. So, given the community's propensity of consume, the equilibrium level of employment will depend on amount of current investment. The amount of current investment will depend on the inducement to invest, which is a function of marginal efficiency of capital and interest rates.</li>
<li>Given the propensity to consume and rate of new investment, there will be only one level of employment consistent with equilibrium, otherwise there will be inequality between the aggregate supply price of output and its demand price. The level of employment cannot be greater than full employment. But it is not necessary that it is always equal to full employment.</li>
</ul>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-54303327484754852882010-12-13T18:09:00.000+05:302010-12-13T18:09:16.345+05:30Notes from General Theory - Chapter 1 and 2There is nothing in Chapter 1.<br />
<br />
<b>Chapter 2: </b>Classical theory depends on three crucial assumptions:<br />
<br />
a) Real wage is equal to the marginal disutility of existing employment,<br />
b) There is no such thing as involuntary unemployment in the strict sense<br />
c) Supply creates its own demand in that aggregate demand price is equal to aggregate supply price for all levels of output and employment.<br />
<br />
Classical theory of employment depends on two fundamental postulates:<br />
a) Wage is equal to the marginal product of labor, i.e. wage of an employed person is equal to the value which would be lost if employment were to be reduced by one unit. This gives us the demand schedule for employment.<br />
<br />
b) The utility of wage when a given volume of labor is employed is equal to the marginal disutility of that volume of employment, i.e real wage of an employed person is that which is just sufficient to induce the volume of labor actually employed to be forthcoming. Disutility covers every reason why men would withhold their labor rather than accept a wage. This gives us the supply schedule for employment.<br />
<br />
Equilibrium happens where the utility of the marginal product balances the disutility of the marginal employment.<br />
<i><br />
</i><br />
There can be only two forms of unemployment in the classical theory:<br />
a) Frictional unemployment: due to various factors like time lags between job findings etc<br />
b) Voluntary unemployment: refusal of work due to legislation or social practices.<br />
<br />
Keynes postulated there can be a third form of unemployment, viz involuntary unemployment.<br />
<br />
So, there can be only four means of increasing employment, which Professor Pigou described in his <i>Theory of Unemployment</i>:<br />
a) Decreasing frictional unemployment, through improvement in organization or foresight.<br />
b) Decrease in marginal disutility of labor<br />
c) Increase in marginal physical productivity of labor in the wage-goods industries<br />
d) An increase in the prices of non-wage goods compared with the prices of wage goods, associated with a shift in the expenditure of non-wage earners from wage-goods to non-wage goods. <i>Didn't get this.</i><br />
<i><br />
</i><br />
Why does unemployment exist? Classical theory argues that full employment could always be reached by making real wages sufficiently low. Keynes disputes that, for two reasons.<br />
<br />
a) Labor focuses on money wages, not real wages. If inflation were to increase prices, that is equivalent to a reduction in real wages. But labor does not strike because of this, unless the inflation is gargantuan. So supply of labor is not a function only of real wages, which is what classical theory assumes.<br />
<br />
b) Look around during Depression years in 1932. Can it really be argued that unemployment exists because labor is unwilling to work at a low wage? <br />
<i><br />
</i><br />
Also, classical theory assumes that a fall in money wages is accompanies by a fall in real wages. In a short period of time, that is not true. A fall in money wages might very well be accompanies by a rise in real wages, and vice versa. <i>One can argue that nominal wages will fall only during a pronounced deflation, during which real wages might actually rise. And conversely, nominal wages track inflation with a lag, so real wages might actually fall during a boom.</i><br />
<i><br />
</i><br />
Classical theory assumes that there is a collective bargaining that labor does to bring its real wages in line with the marginal disutility of employment. Keynes argues that something like this doesn't exist at all. Employment and real wages are determined in ways other than the demand-supply curve of labor. <i> </i><br />
<i><br />
</i><br />
The struggle on nominal wages primarily affects the distribution of aggregate real wage between different labor groups, and not its average amount per unit of employment, which depends on different set of forces. The effect of combination on the part of a group of workers is to protect their real relative wage. The general level of real wages depends on other forces of the economic system. <i>Didn't get this.</i><br />
<i><br />
</i><br />
Involuntary employment: Men are involuntary unemployed if in the event of a small rise in the price of wage-goods relative to the money wage, both the aggregate supply of labor willing to work for the current money-wage and the aggregate demand for it at that wage would be greater than the existing volume of employment. i.e. <i>if marginal profitability were to increase and entrepreneurs were to hire labor, there is labor available. </i><br />
<i><br />
</i><br />
So the second postulate - that real wage is equal to marginal disutility of employment - corresponds to absence of involuntary unemployment. Classical theory is the theory of distribution under conditions of full employment.<br />
<br />
Axiom of parallels: Demand price of output as a whole is equal to its supply price. <i>Didn't get this. </i>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-18522310178921549442010-10-20T18:22:00.012+05:302010-10-21T17:58:33.869+05:30Notes from General Theory: PrefaceI am attempting to read Keynes signature book - <i>General Theory of Employment, Interest and Money -</i> for the first time. It is a very complicated book, so I am planning to take lots of notes.<br />
<br />
My biggest challenge while learning Economics has been a lack of understanding of the chronological order in when different theories emerged. Economics textbooks present theories in a logically cohesive way, rather than in a chronological order. So, I have only a vague understanding of what the prevailing theory of the day was in the 1930's, when Keynes wrote his book. Several elements of the "<i>Classical theory</i>" as we now understand were certainly developed after the 1950's. So what exactly was it that Keynes disproved?<br />
<br />
The book is so complicated that I can make notes starting right from Preface. There are actually four prefaces - one each for the British, German, Japanese and French reader.<br />
<div><div><div><div><ul><li>"Classical theory": <i>I guess Keynes himself labelled the pre-Keynesian theory as Classical theory.</i></li>
<li>"A monetary economy is essentially one in which changing views about the future are capable of influencing the quantity of employment and not merely its direction." <i>I guess classical economics did not include the influence of expectations. Which leads to the question - Does neo-classical synthesis postulate that people are rational in their expectations, hence future expectations are already built into today's prices, so lets get back to classical economics? Will explore this later.</i></li>
<li><i></i><i><a href="http://en.wikipedia.org/wiki/Alfred_Marshall"><span class="Apple-style-span"><span class="Apple-style-span"><span class="Apple-style-span"><span class="Apple-style-span"><span class="Apple-style-span" style="color: #0b5394;">Alfred Marshall</span></span></span></span></span></a> wrote a book "Principle of Economics" in 1890. It was probably the equivalent of Samuelson's Economics today - the standard text book of economics. Why does wikipedia say he is one of the founders of neoclassical economics. I thought it came after Keynes.</i></li>
<li><i></i>"The Manchester School and Marxism both derive ultimately from Ricardo." <i>Didn't get this.</i></li>
<li><i></i>"While Germany has had its school of economists, they are content with historical and empirical analysis, so there isn't any predominant theoretical framework of economics in Germany."</li>
<li>"This book traces its descent from Malthus rather than Ricardo." <i>Didn't get this.</i></li>
<li><i></i>"Savings = Investment is a controversial statement. What is true at individual level is not true at the system level, and vice versa."</li>
<li>"Many economists believe that the rate of interest is determined by the point of intersection of the supply curve of savings and demand curve of investment. But if aggregate S = I, then this explanation collapses. Interest rate preserves equilibrium between demand and supply of money, not capital goods."</li>
<li>Montesquieu was the French equivalent of Adam Smith.</li>
<li><i>"</i>Economics everywhere has been dominated by the doctrines of <a href="http://en.wikipedia.org/wiki/Jean-Baptiste_Say"><span class="Apple-style-span"><span class="Apple-style-span"><span class="Apple-style-span" style="color: #0b5394;">J.B. Say</span></span></span></a>. His basic fallacy was the assumption that demand is created by supply. Saw implicitly assumed that the economic system was always operating up to its full capacity, so that a new activity was always in substitution for, and never in addition to, some other activity."</li>
<li>"This book breaks away from the doctrines of JB Say in the theory of production, and returns to the doctrines of Montesquieu in the theory of interest."</li>
</ul><div>And that's it. </div></div></div></div></div>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-80358337255418865582010-10-08T13:17:00.003+05:302010-10-08T13:23:24.921+05:30Fed should destroy 2mn homesIf Fed were to buy 2 mn. homes in US at $200K apiece, and destroy them, it will cost $400bn. After that, housing inventory is gone. Housing starts will rise from current 300K odd level to 600K level, and housing growth (to which a lot of things get ultimately linked) will lead to rebound in economy. It will increase employment without a doubt, as construction generates employment. <div><br /></div><div>This is much better than the cost of any other alternative that is being proposed. Print money and we don't know whether it leads to inflation over time. Increase fiscal deficit and we don't know what taxes are over long-term. In this solution, US government will take a one-time hit of $400bn. Because economy will start growing robustly again, that should be more than offset by the reduction in fiscal deficit and anxiety. </div>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com2tag:blogger.com,1999:blog-9846624.post-82750496081480470472010-08-19T11:00:00.002+05:302010-08-19T11:06:46.225+05:30Facebook vs GoogleWe are probably at one of the tipping points in the evolution of the Internet. That tipping point is Facebook. And the question is - as more people spend more time on Facebook, and the number of clicks on Facebook surpasses Google, is it possible that Facebook itself replaces Google? Particularly as traffic moves from desktop to mobile, where the first thing consumers use is Facebook and not Google. <div><br /></div><div>It is certainly possible. And over the next 2 years, Facebook might start eroding Google's search business. But, the first thing that Facebook will hit is display, not search. It is probably already happening - Yahoo is barely growing its ad revs. Maybe, it is time to short some of the traditional display focussed ad biz on the Internet. Yahoo is so cheap that there is no point shorting it. </div>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com3tag:blogger.com,1999:blog-9846624.post-56324386573967213662010-08-17T20:13:00.002+05:302010-08-17T20:18:14.613+05:30SuperMedia and DEX OneDirectories just keep coming back to market after a trip to bankruptcy court. We have DEXO (former RH Donnelley) and SuperMedia (former Idearc) back in the market - still levered up 3x-4x Net Debt/EBITDA. These stocks will most likely still go to 0, but there might be some nasty bounces along the way. I hope they come out with a decent qtr, where ad rev decline is 12% instead of 15%.Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-25213877142553459852010-08-10T17:31:00.008+05:302010-08-17T20:19:30.703+05:30Google Verizon Proposal<div><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">Google and Verizon announced a </span></span><a href="http://googlepublicpolicy.blogspot.com/2010/08/joint-policy-proposal-for-open-internet.html"><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">joint policy proposal</span></span></a><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;"> today. While it is quite interesting in its entirety, what caught my eye was the word legal</span></span><i><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;"> - "</span></span></i><span class="Apple-style-span" style=" color: rgb(51, 51, 51); "><i><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">First, both companies have long been proponents of the FCC’s current wireline broadband openness principles, which ensure that consumers have access to all</span></span></i><i><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;"> legal</span></span></i><i><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;"> content on the Internet, and can use what applications, services, and devices they choose.</span></span></i><i><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">"</span></span></i></span></div><div><span class="Apple-style-span" style=" color: rgb(51, 51, 51); "><i><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;"><br /></span></span></i></span></div><div><span class="Apple-style-span" style=" color: rgb(51, 51, 51); "><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">So Google is agreeing with Verizon that it can block bittorrent bits? That's very strange coming from Google. </span></span></span></div>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-48149250758360088712010-05-02T08:55:00.003+05:302010-05-02T09:04:09.557+05:30Getting wages indexed to a labour indexThere are several amazing things about the great recession:<div><br /></div><div>a) Margins remained strong throughout, and will now go through previous cycle peak. Companies have squeezed labour costs hard.</div><div><br /></div><div>b) Commodity prices have zoomed right back, even in commodities like oil which have near-term oversupply dynamics.</div><div><br /></div><div>Traders in commodity pits have turned out to be the saviours of commodity exporting nations. Had it not been for their speculation, it is entirely possible that commodity prices would have been lower, and commodity consumers benefited at the expense of commodity producers. In case of commodities like oil, one can argue that traders are looking through near-term supply-demand imbalance and looking 3 years out. </div><div><br /></div><div>What I have been wondering is - suppose labor costs were similarly linked to some wage index on the exchanges. Wouldn't the wage costs also have jumped - which is the right thing to have happened if corporate profits are booming? Now there will be political issues with such a construct. In a downturn, wage costs might also fall below what is considered acceptable. But maybe, leftists should just think about this idea. </div>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-40537167424547760442010-03-12T14:34:00.002+05:302010-03-12T14:39:03.252+05:30Sugar stocks get poundedStocks like <span class="Apple-style-span" style="color:#3333FF;"><a href="http://www.google.com/finance?q=BOM:532670"><span class="Apple-style-span" style="color:#3333FF;">Shree Renuka</span></a> </span>and <span class="Apple-style-span" style="color:#3333FF;"><a href="http://www.google.com/finance?q=BOM:500119"><span class="Apple-style-span" style="color:#3333FF;">Dhampur</span></a> </span>have been absolutely crushed. Next time to buy these stocks will be 2014. It is pretty amazing - to say the least.Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com2tag:blogger.com,1999:blog-9846624.post-4305255294866000102010-03-10T17:01:00.002+05:302010-03-10T17:06:38.843+05:30Emerson RadioThis one is interesting. <a href="http://www.google.com/finance?q=msn"><span class="Apple-style-span" style="color:#3333FF;">MSN</span></a> announced a special dividend of $1.10 on March 2. That day, stock was at $2.27. Today, it is at $4.64. I saw the announcement two days after it was announced. The stock was at $3.47, and I debated whether I should purchase it. Too bad I didn't do something on impulse. <div><br /></div><div>Company is some sort of distributor of electronics, and it seems they make money. 2009 was a pretty good year for them for some reason. </div>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-9605990949494911382010-03-02T18:47:00.002+05:302010-03-02T19:26:46.215+05:30The blog is backAfter a brief hibernation. <div><br /></div><div>I calculated my <a href="http://www.carbonfootprint.com/calculator.aspx"><span class="Apple-style-span" style="color:#3333FF;">carbon footprint</span></a> here. The results are quite shocking. The key reason is the number of flights I take. I guess it is absolutely necessary that Boeing and Airbus come out with their new planes. Another technology that will help is video conferencing (Cisco and Polycom). This is something which is quite here and now. Maybe Cisco should encourage regulators to put a carbon tax on long-distance flights. Cisco might also benefit from attempts to make utility grids more smarter. Can Cisco become the new climate evangelist? </div><div><br /></div><div>Can GM seeds reduce carbon emissions? Due to higher productivity of these seeds, one can argue that total farmland area can reduce and still lead to higher food grain production. Farming is one of the biggest carbon emitters. It will also probably use lesser water, fertilizers, pesticides etc. Monsanto might also become a climate evangelist. That will be really interesting. </div>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-5014330165802560752009-12-11T11:33:00.002+05:302009-12-11T11:41:32.851+05:30CIT<div>CIT emerged out of bankruptcy yesterday. There is no balance sheet yet out there. Heck, people don't even know what the share count is - for that you need to read the bankruptcy filing 8-K. </div><div><br /></div><div>Total share count = 200 mn</div><div>Share Price = $28</div><div><br /></div><div>WSJ is saying that $11bn of debt has been wiped out. That is on top of $5bn of pref and equity interests that have been wiped out. So in total $16bn has been wiped out - on a book of $64bn. </div><div><br /></div><div>The books have to be restated at fair value. Even if there is a 15% write off of the book, so that $10bn of loans are written down, there should be tangible book value left. And after that, because there wont be any more provisions to take, CIT will report eye-popping earning numbers. This is like the Wells Fargo - Wachovia situation from a year ago.</div><div><br /></div><div><br /></div><div><br /></div>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-34687821069863968412009-11-26T09:30:00.002+05:302009-11-26T09:32:38.206+05:30Blue DartThe company's operating margins are expanding again. As this is a very high operating leverage business model, and considering in 1H09 the company was hit badly due to operating leverage, next year might see a steep jump in EPS. I have purchased this stock.<br /><br />So far, the Indian portfolio is up some 80%-90% odd this year.Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-53986408894314073862009-10-26T20:33:00.001+05:302009-10-26T20:34:20.019+05:30IGK vs ING stockA tale of two cities. ING announced 7.5bn Euro capital raise. The hybrid security is up 11%, while the stock is down 11%. Such a cool long-short.<br /><br />Another good long short pair might be MO-RAI.Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-84790268294715298702009-10-23T14:53:00.003+05:302009-10-23T15:03:30.992+05:30FAG BearingsVery bad results. Margins have taken a massive hit. Stock is down 5%. Company doesn't talk to investors - so difficult to figure out what is really going on. Company is on track to do a Rs 40 EPS - 12x PE, which is not dirt cheap. I used to think this is trading at 8x-10x PE, assuming Rs 60 EPS for full year. Point to note with this company is - revenues go up sequentially. 3Q08 was a sharp jump over 2Q08, so yoy 3Q09 is down quite massively. This doesn't seem to be a seasonal business. <br /><br />Considering 20% of my India portfolio is in this stock, I want to exit it. But considering it is so illiquid, I will need to figure out a better time to exit. <br /><br />NRB Bearings is up 8%. It also reported numbers today. 1H profit is 8.5 crore. If we annualize it, we come to 17 crore. Market cap of FAG is 300 crore. So it is trading at 15x. FAG is still cheaper.<br /><br />I hope this is the bottom of margins. Hopefully Schaffler group is not screwing us - the minority shareholders of FAG.Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-74063235891600906632009-10-19T13:22:00.001+05:302009-10-19T13:22:54.907+05:30Mark Twain's quote<span class="Apple-style-span" style="font-family: Verdana, Arial, sans-serif; border-collapse: collapse; color: rgb(51, 51, 51); font-size: 12px; line-height: 20px; ">It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.</span>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-68589102888300343692009-10-14T14:29:00.002+05:302009-10-14T14:34:50.062+05:30Selling out GodfreySelling out Godfrey Phillips. <span class="Apple-style-span" style="color:#3333FF;"><a href="http://www.godfreyphillips.com/pdfs/june09quarterlyresults.pdf"><span class="Apple-style-span" style="color:#3333FF;">1Q10 earnings</span></a> <span class="Apple-style-span" style="color: rgb(0, 0, 0); ">had a excise benefit of 16 crore, as well as other income of 24 crore (vs 10 crore in 1Q09). Remove these two items, and core profits grew 20% instead of doubling. So 2Q10 profits should be down sequentially - quite massively. This is probably not what the market is looking for right now. </span></span>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-71413420201810737952009-10-14T11:45:00.002+05:302009-10-14T11:57:07.528+05:30Excise Duty cuts continue to helpExide Industries - the big battery manufacturer in India - reported<a href="http://www.exideindustries.com/shareholder.php"><span class="Apple-style-span" style="color:#3333FF;"> Sep 09 earnings</span></a> earlier this week. The crucial bit is this - gross sales went down by 5%, but because excise duty rate is lower this year, net sales were the same. Company reported a 50% jump in profits. But if one were to assume the same excise rate as last year, profits would have jumped by 25% - aided by lower commodity prices (lead).<div><br /></div><div>It is possible that the <a href="http://gaurav1.blogspot.com/2009/09/excise-duty-cuts-what-happens-when-they.html"><span class="Apple-style-span" style="color:#3333FF;">reversal of excise duty cuts</span></a> will be a big headwind for profit growth next year - especially in the manufacturing sector. Most analysts will probably take this year profit numbers and project growth on that. That might prove to be really wrong. </div><div><br /></div><div><i>Disclosure: No position in Exide. </i></div>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-52270938225603977302009-10-13T09:38:00.001+05:302009-10-13T09:40:19.544+05:30People not shaving as much!!<span class="Apple-style-span" style="font-family: Verdana, Arial, sans-serif; border-collapse: collapse; color: rgb(51, 51, 51); font-size: 12px; line-height: 20px; "><div>From Barron's article on Energizer past weekend: </div><div><br /></div>Trouble is, consumers aren't trading in their razors and replacing their blades as often as they used to. "<i>A lot of people you see around aren't shaving as much as they used to</i>," P&G CEO Bob McDonald said recently.</span><div><span class="Apple-style-span" style="font-family:Verdana, Arial, sans-serif;font-size:100%;color:#333333;"><span class="Apple-style-span" style="border-collapse: collapse; font-size: 12px; line-height: 20px;"><br /></span></span></div><div><span class="Apple-style-span" style="font-family:Verdana, Arial, sans-serif;font-size:100%;color:#333333;"><span class="Apple-style-span" style="border-collapse: collapse; font-size: 12px; line-height: 20px;">That is very strange indeed. </span></span></div>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-48683813228162403902009-10-13T07:52:00.005+05:302009-10-13T09:36:34.796+05:30Verisk Analytics<span class="Apple-style-span" style="color:#3366FF;"><a href="http://www.google.com/finance?q=vrsk"><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="color:#3333FF;">Verisk Analytics</span></span></span></a><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:'times new roman';"> </span></span><span class="Apple-style-span" style="color:#000000;"><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:'times new roman';">had its IPO last week. Barron's mentioned over the weekend: "</span></span><span class="Apple-style-span" style="border-collapse: collapse; color: rgb(51, 51, 51); line-height: 20px; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:'times new roman';"><i>The company's business bears resemblance to the likes of </i></span></span><span id="ataglance_stock_DWC_label" class="chartToolTip" onmouseover="com.dowjones.rolloverQuotes.show(this,'V');" onmouseout="com.dowjones.rolloverQuotes.hidelater();"><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:'times new roman';"><a href="http://www.google.com/finance?q=v"><span class="Apple-style-span" style="color:#3333FF;"><i>Visa</i></span></a><a class="verdana rolloverQuote" href="http://online.barrons.com/public/quotes/main.html?type=djn&symbol=V" style="line-height: 20px; color: rgb(2, 83, 183); text-decoration: none; outline-style: none; outline-width: initial; outline-color: initial; "><i> </i></a></span></span></span><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:'times new roman';"><i>and the </i><a href="http://www.google.com/finance?q=cme"><span class="Apple-style-span" style="color:#3333FF;"><i>Chicago Mercantile Exchange</i></span></a><i> - once-cooperatively owned, low-capital-intensity, high-margin growth businesses. There are also similarities to current market darling </i><a href="http://www.google.com/finance?q=NYSE:MXB"><span class="Apple-style-span" style="color:#3333FF;"><i>MSCI</i></span></a><i>, a data and risk-modeling leader.</i>" What that implies is a biz growing topline in low-double digits and expanding EBITDA margins leading to a high teens EPS growth rate - what Visa and MSCI promise. </span></span></span></span></span><div><span class="Apple-style-span" style="color:#3366FF;"><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:'times new roman';"><br /></span></span></span></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size:medium;">Verisk has two segments - <i>Risk Assessment </i>(52% of revs) and <i>Decision Analytics</i> (48% of revs). <i>Decision Analytics</i> is growing much faster. <i>Risk Assessment</i> has grown its topline at 4% over last four years (from $450mn in 2005 to $525mn in 2009E by annualizing 1H09). <i>Decision Analytics</i>, on the other hand, has become 2.5x between 2005 and 2009 (from $197mn in 2005 to $481mn in 2009E by annualizing 1H09). Some part of that growth has come through acquisitions - between Jan 2006 and June 2009, <i>Verisk</i> acquired 10 companies, 9 of which were in <i>Decision Analytics</i> segment.</span></span></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size:medium;"><br /></span></span></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size:medium;">Now one can focus on the low teen growth rate, high (and expanding) EBITDA margins in the low 40's, and low capex (low single-digit capex-sales) and get excited. But the most crucial element in this story is probably acquisitions. </span></span></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size:medium;"><br /></span></span></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size:medium;">a) Six month ended June 30, 2009 revs - $503.7mn. Six month ended June 30, 2008 revs - $437.7mn. Increase of 15.1%. Ex acquisitions, rev grew $50mn, or 11.5%. <b>Positive. </b></span></span></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size:medium;"><br /></span></span></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size:medium;"><b></b>b) FY2008 revs - $893.6mn. FY07 revs - $802.2mn. Increase of 11.4%. Ex acquisitions, rev grew $52.8mn, or 6.6%. That's not encouraging. </span></span></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size:medium;"><br /></span></span></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style=" ;font-family:Georgia, serif;font-size:16px;"><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size: medium;">c) FY2007 revs - $802.2mn. FY06 revs - $730.1mn. Increase of 9.9%. Ex acquisitions, rev grew $24.6mn, or 3.4%. That's definitely not encouraging.</span></span></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-family:Georgia, serif;"><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size: medium;"><br /></span></span></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size: medium;">The problem with acquisition led growth is - acquisitions don't come cheap. Verisk acquired a company XactWare in 2006 for $188mn. Additional contingent payments of $98.1mn and $62.9mn were paid in April 2008 and May 2009 as XactWare achieved certain financial results. XactWare had $63mn in revs in 2007 - now its revenue run rate should be $90-100 mn. to have triggered the contingent payments. Clearly, XactWare's performance has been much beyond whatever the initial expectations were - so it is a success. But equally clearly, Verisk has till date been sharing that success. And if an acquisition doesn't succeed, then Verisk shareholders carry the bag. </span></span></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size: medium;"><br /></span></span></div></span></span></div></span></span></span></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size:medium;"><b>Can this company grow revs in low double digits on an organic basis? </b>Because if the organic revenue growth is mid-single digits, and the company pays up for acquisitions to get to double digit revenue growth, then that is quite different from what Visa and MSCI are all about. 2009 has so far been a great year on organic revenue growth. But is there something one-off - like a major contract or pricing increase, which will slow down pricing growth in future years? </span></span></div><div><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';"><br /></span></span></div><div><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">It is entire possible that under the old structure, the company didn't pass regular price increases to its owner customers. As an independent company, the company will be more focused on profits. So we might see much higher organic revenue and profit growth going forward.</span></span></div><div><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';"><br /></span></span></div><div><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">Verisk has around 200mn shares outstanding - 113mn Class A, 67mn class B, and 24mn stock options at strike price of $9.38. At $26, the company is valued at $5.2bn. We don't know the consensus EPS estimates right now. 1H09 PAT was $90mn. This number includes some one-time expenses like IPO expenses and pension costs. Still, it seems like the stock is already valued in the mid 20's multiple on FY09E EPS and low 20's on FY10E EPS. </span></span></div><div><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';"><br /></span></span></div><div><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">I doubt that bullish broker reports once the silent period is over will be enough to catapult the stock into the low 30's anytime soon - assuming markets don't rocket another 20% by that time. But it will definitely be a very interesting stock to follow. </span></span></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><br /></span></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><i>Disclosure: No positions in Verisk, but might change at anytime.</i></span></div>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-23258193837071011872009-10-08T10:18:00.003+05:302009-10-08T10:42:45.754+05:30Converting paper profits into real moneyOver the last few months, I have cut out and then got back in a few times. It might have been better to buy and hold since April - the profits would have been more - but the periodic profit taking has enormous benefits psychologically. <div><br /></div><div>But now, I am cutting out on all the positions I have even a little doubt on. The ones left in US portfolio are Berkshire, Philip Morris (best play on dollar weakness), Cinemark, Long CTSH - Short Infy, and a few odd here and there. The ones in India are Jagran, FAG, and GSK Consumer, and a few others here and there. </div><div><br /></div><div>After this, I am close to 40% into equities. </div>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-48717405482108658182009-09-25T20:10:00.004+05:302009-09-25T20:19:13.848+05:30Deflation and Commodity pricesSometimes I really wonder why bulls on everything else are perma-bears on commodities and commodity stocks. That such high return ratios for commodity stocks cannot be justified. I don't think they realize that if commodity prices were to collapse, we will get outright deflation. The only thing holding the world up right now are high commodity prices. <div><br /></div><div>That makes me wonder - all this recession and not even one scare of CPI deflation (not asset price deflation)!! Or is that a 2010 story? </div><div><br /></div><div>The simple reason to invest in EM's is - there is structural inflation here. Somewhere like Brazil, where we get 7% inflation and an appreciating currency - if one can time the currency swings right - is the best. Economic theory would suggest currency depreciation in an inflation heavy country. What we see is currency depreciation in potentially -ve inflation countries and appreciation in +ve inflation currencies due to capital flows. This is such a better way to generate returns.</div>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1tag:blogger.com,1999:blog-9846624.post-90211213612627356932009-09-25T15:19:00.008+05:302009-09-25T15:56:17.096+05:30Jagran PrakashanI recently purchased <span class="Apple-style-span" style="color:#3333FF;"><span class="Apple-style-span" style="color:#3333FF;"><a href="http://www.google.com/finance?q=BOM:532705"><span class="Apple-style-span" style="color:#3333FF;">Jagran Prakshan</span></a>.</span> </span><span class="Apple-style-span" style="color:#333333;">Publisher of Dainik Jagran newspaper in North India. Reasons:</span><div><span class="Apple-style-span" style="color:#333333;"><br /></span></div><div><span class="Apple-style-span" style="color:#333333;">a) My hunch is - ad biz in India is going to <a href="http://gaurav1.blogspot.com/2009/07/hindustan-unilever-struggles.html"><span class="Apple-style-span" style="color:#3333FF;">rebound </span></a>much more strongly than anybody anticipates. </span><span class="Apple-style-span" style="color:#333333;">Last year, media companies reduced ad rates as ad buyers stepped back fearing a recession. So media companies faced a volume AND price decline. <a href="http://gaurav1.blogspot.com/2009/02/commodities-homebuilders-and-autos.html"><span class="Apple-style-span" style="color:#3333FF;">Advertising is like real estate and commodities in that respect</span></a> - volume and price both go up and down at the same time. </span></div><div><span class="Apple-style-span" style="color:#333333;"><br /></span></div><div><span class="Apple-style-span" style="color:#333333;">Now, the thing is - India continued to grow at 6%. This year, ad buyers are back - real estate, IPO, financial services are getting back on their feet. Media companies are now seeing more volumes, but they haven't pressed the button on prices. Sooner or later, they will.</span></div><div><span class="Apple-style-span" style="color:#333333;"><br /></span></div><div><span class="Apple-style-span" style="color:#333333;">b) Analysts are modelling just volume growth and not pricing growth - at least for Jagran. That will prove a bit conservative - maybe a bit too much. </span></div><div><span class="Apple-style-span" style="color:#333333;"><br /></span></div><div><span class="Apple-style-span" style="color:#333333;">c) The biggest swing factor for newspaper EPS is the newsprint prices. Currently they are rock bottom. This has benefited Jagran. If they go up substantially, this will be -ve. What I am hoping is that they don't go on a rocket fire here. </span></div><div><span class="Apple-style-span" style="color:#333333;"><br /></span></div><div><span class="Apple-style-span" style="color:#333333;"> </span></div><div><span class="Apple-style-span" style="color:#333333;">d) It can easily do Rs 5.5 EPS this year, if newsprint prices remain within bounds. So the stock is trading at 19x. While it might look high, remember that Indian consumer staples are trading at 25x. They are unlikely to beat consensus estimates - while a consumer discretionary (media) can. </span></div><div><span class="Apple-style-span" style="color:#333333;"><br /></span></div><div><span class="Apple-style-span" style="color:#333333;">e) Will Indian newspapers go the way of their US counterparts? There are a couple of analysts who argue that they do not structurally like the newspaper industry, considering what is happening to newspapers in the West. What they forget is that newspaper circulation peaked in US in 1984. Till 2000, newspapers remained in fine shape. There is zero threat of Internet to the local language newspaper industry in India - till the time Internet content is predominantly English. </span></div><div><span class="Apple-style-span" style="color:#333333;"><br /></span></div><div><span class="Apple-style-span" style="color:#333333;"><i>Disclosure - Own Jagran. </i></span></div><div><span class="Apple-style-span" style="color:#333333;"><i><br /></i></span></div><div><span class="Apple-style-span" style="color:#333333;"><i>So here is how it is now. Consumer - Jagran, Godfrey Phillips, a little bit of GSK Consumer. Financials - Shriram Transport, Crisil. Manufaturing - FAG Bearings. A little bit of this and that. Biggest risk is in Crisil - Moody's (MCO) chart gets scarier by the day. </i></span></div>Gauravhttp://www.blogger.com/profile/08259512251834679825noreply@blogger.com1