In the last few weeks some of my friends and colleagues have been very busy debating the global economic situation and trying to figure out where we are heading. GO Figure! Eh…. I so wish I could help them and had answers to all their questions. But then on a second thought no harm in trying…. right?

Let us look at the last few months to get a good handle of where we are, shall we? To begin with I must say if we look at the events unfolding in the last couple of months there was no dull moment and it has been an action-packed rollercoaster ride which has kept us busy and entertained but this depends on how you look at it.

Shall we do a quick RECAP and look at some of the HIGHLIGHTS of the past few months? continue reading »

A friend of mine once told me Positive Attitude is the MANTRA for success.

Now some may say being positive is good but one has to be a REALIST too. Isn’t that just COMMON SENSE or maybe not. I believe human psychology plays a very important part in whatever we do as humans. And I do mean everything relationship, business, career etc.

Let us explore this more shall we?

Most of us who operate in the market or just watch the market have witnessed the markets going UP on bad news and vice-versa. And sometimes the strength of these irrational or unexpected moves will make you want to lose all your foresight, judgement, wisdom and commonsense. You will be tempted to abandon your own view and just follow the trend.  There are some who do follow the trend. And there is nothing wrong with that. You don’t need to beat the market consensus but just profit from it.  But sometimes bucking against the market consensus does pay well in the end.  We all know that the markets have a habit of getting either too optimistic or too pessimistic and this has a lot to do with the market psychology.  continue reading »

Although the economists still can’t agree on the real quantative impact of various stimulus packages that were adopted by economies from around the world but one cannot dispute the fact that the size of the stimulus did matter and did work in most cases.

To investigate this further let us look at the various stimulus packages that were adopted during the CRISIS.

Obviously by the sheer size and percentage of National GDP China’s US $ 586 billion stimulus Package which accounts for above 12.9% its GDP stands out from the REST. It is possibly followed by Saudi Arabia, Malaysia, and the mother of all STIMULUS thrown by United States under its American Recovery and Reinvestment Act of 2009 which is the largest by any measures (US$ 787 billion).

At the time there were market pundits who were debating the pros and cons and some even doubted if the stimulus packages will deliver and I am glad to admit that some of us including myself had a different view. Based on my judgement and commonsense I concluded in a piece that I wrote in March of 2009 titled “ Getting the Patient Out of Intensive – The Economy “ that it should deliver and put the US and the world economy back to growth. But having said we should have no illusion that the road ahead is still bumpy and uncertain. continue reading »

Developing countries’ share of global equity market capitalization jumped to a record 24 % in the first half of 09 from the past levels of 15% at the start of 07 as more investors flock attracted by the growth story.

Investors are now beginning to realize that developed nations are possibly faced with decades of very low growth and may need decades to work off the mountain of debt which is the biggest since World War II. According to IMF recent forecast the total debt of developed nations used to fund various bank bailouts and stimulus packages could reach above 113% of GDP by 2014. This is more then three times the estimated forecast of 34% for developing nations. Though one could argue that developed countries have had bigger debt burden in the past ( post World War II ) reaching close to 250% of GDP in case of U.K., and over 100% in case of USA but these debts were repaid pretty quickly. On the other hand, we have to take into account that developed nations recorded decades of high growth just after the World War II ended which allowed them to get their fiscal house in order. In the current circumstances it is highly unlikely that the developed economies will see growth levels of post World War II era going forward.

Developed countries are in a catch-22 situation if they spend more to keep stimulating the economy they risk running into a huge unsustainable fiscal deficit. The combination of low growth and ballooning budget deficit could be very damaging to developed economies. The talk of the town is now increasingly focused on getting the fiscal deficit under control. It looks like the Governments in the developed world have resigned to the fact that they are entering into a low growth era. World Bank is now forecasting the GDP of high-income countries to shrink by over 4.2% in 09 and the overall global economy to contract by 2.9% in 2009. continue reading »

Forbes magazine had an interesting piece about large business acting as lenders to small business. This comes right behind the biggest credit meltdown in history. This lending comes in the form of retail financing or vendor financing, and in some cases, in the form of corporate venture funding. In 2008, as per NVCA, corporate venture funding arms amounted to 19.2% of all venture deals, an amount that works out to $5.4B out of total deals worth $28B. Similarly, the Forbes article pointed to $52B raised for corporate non-venture financing.

What does this mean for the shareholders in these corporations? Let us look at a few numbers. A stock screen on Yahoo for companies with positive free cash flow, and picked companies that have positive cash balance on their balance sheets reveals about 896 stocks, and most notable among them being Berkshire Hathaway with $16440 of cash available per share. Since free cash flow does not include the cost of debt servicing by these companies, one should also look at the total debt assumed by these companies. A vast majority of these companies have very little to zero debt on their balance sheets. So, to keep matters simple, let us assume there is no debt servicing expense.

The stock screen reveals that, on an average, after excluding outliers such as BRK-A, each company has a 15% return on equity, and $1.3B of cash in the bank. There is a total cash position of $1.2 trillion. In other words, the $5.4B continue reading »

The Berkshire Hathaway (BH) annual shareholder meeting has long been regarded as the Mecca for prestigious investors and businessmen alike.  Knowledge-thirsty shareholders and spectators flock from all over the world to hear the Oracle of Omaha, Warren Buffett, and his curmudgeonly sidekick, Charlie Munger, pontificate in grand fashion on the conglomerates’ performance, as well as on a wide array of current events. 

Attending the meeting had been a personal desire of mine going all the way back to my grad school years.  The event has often been described as an “MBA in a weekend” or even the “Woodstock for investors”.  Such sensational statements always left me feeling a bit incredulous, as I always found it hard to believe that an annual shareholder meeting could yield such a worthwhile experience.  However, my incredulity was surpassed by my appetite to discover the reality for myself.  So I purchased my obligatory share of BH stock and made my way to Nebraska for the 2009 annual meeting on May 2nd. 

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All the talk about Recession and now DEPRESSION can make anyone nervous. Wall Street “ Pros “ make their  predictions, and in doing so, create more chaos. This sentiment is probably shared by most folks on the main street.  The market is behaving like a Yo-Yo. To get a perspective, let’s look at the rallies we had in the past week. One wonders, is this a sustainable rally or a one off, I want to feel good BEAR market rally. We are seeing markets rally despite of all the negative NEWS. One might argue that the Market is always FORWARD LOOKING. Which begs the question, is it forward looking or just SPECULATING?  Let us just look at some of the headline stories of March 09, to get a perspective. GE downgraded; Germany’s growth collapsing by a record since world war II; UK and France Industrial output at lowest in over four decades; Jobless rate in the US reaching 10% in at least three states; U.S. household net worth plunging by a record $ 5.1 trillion; Japan’s GDP shrinking by over 12% annually; World Bank is now predicting a negative global growth in 2009. In spite of all these very negative news we saw the markets rallied.

Though, we saw the markets back in the RED again on 27th of March 09 after 5-6 days of consecutive rallies one could argue, what was the basis of this rally? Well may be some “INVESTORS” were expecting the worst and they believed these news were not that BAD after all? The launch of TALF and TARP program also probably helped carry the positive sentiments. The consensus view is that these programs would help but the reality is, we have a lot of continue reading »

Silicon Valley, the heart of innovation, has its roots in the growth story of the transistor. With a whole generation of inventors and business ranging from William Shockley, Andrew Grove to Steve Jobs, Silicon Valley gets its name from the exponentially rapid progress made by semiconductor industry in the 70s and the 90s. The industry began with feature sizes greater than 2 square micron, and the self-feeding Moore’s Law (expounded by Gordon Moore, one of the Intel founders) ensured that the best intellects in Silicon Valley figured out ways to cram more functionality into each square millimeter of a silicon die. Today’s minimum feature size of 25 nanometers is equivalent to a 10000 fold increase in feature packing density for a silicon circuit.

Over the course of this steady progress, it appeared that innovation engine could be profitable forever. Over the past 15-20 years, semiconductor startups have tried to tackle problems such as increasing computing performance, improving graphics and user interface performance, and enabling communication innovations such as OFDM (a computation intensive communication signaling process that is bandwidth efficient and tolerant to interference) that would have been scientific fiction two decades ago.

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