Binny George’s Commentary and Observations

October 26, 2008

Where is the Next BUBBLE ?

Future for Green

Future for Green

“In the future, scientists will learn how to convert stupidity into clean fuel.”
Prediction #16, The Dilbert Future , 1997, Scott Adams.

Introduction

In my 24 years of lifespan I have already witnessed two bubbles – DotCom and Housing.These bubbles are epitome of human greediness. Greed is intrinsic attribute of human psychology. But greed is important as it drives stupendous growth and development.

Lets focus on the topic. For past couple of weeks I have been trying hard to answer this -“Where is the Next BUBBLE ?”. Nobody can answer this accurately but there is something obvious happening – maybe a bubble in the making?

Green Bubble

‘Outsourcing’ was the buzzword for past 5-6 years. ‘Green’ is the latest buzz.The CEO’s of major IT companies have started to use the word ‘Green’ religiously (IBM, Dell, HP, Google). They see a green future in ‘Green’. Not that climate has been worrying them but it is about growth & operating costs. Eight years back nobody considered power efficiency as a bottleneck for Servers. With time, Data Centers grew rapidly and companies like Google would now have whole building occupied by Servers sucking huge amount of energy. The energy spending is deterring companies from expanding the data centers. The writing is on the wall – to sustain data center expansion either energy prices go down or energy consumption is nailed down.

IT is not the only business engaged in ‘Green’ rhetoric. Companies like GE, Toyota, BP too are enthusiastically jumping for ‘Green’. The energy demands have gone up and business foresees increasing demand for energy efficient products. This applies to all products – Industrial Machinery, Cars, Computers and Peripherals, Consumer Electronics.GE is already seeing ‘green’ results in China where the Wind Turbine business did well. In the next decade both China and India are set to embrace green energy in a big way. Chinese government has been giving unprecedented push for renewable energy sources. With the Indo-US Nuclear deal India would go big on nuclear energy. Wind, Solar, Hydrogen, Ethanol and Nuclear are seen as the next drivers for demand & growth.

Conclusion

The demand for energy efficient products would certainly increase. Companies have been spending huge on Research over Energy Efficiency for past few years. There would be huge pressure on Companies to en-cash the intellectual asset developed through this research. When the economy comes back to shape, the spiralling oil prices would further push the demand for power efficient goods. But, as usual, the supply would exceed the demand at some point. The political clout of businessmen would ensure favorable legislation to further their market. The greed to en-cash the research spending would throw plethora of unwanted products into the market.  They would cross the boundaries and create an insane market. The ambitious investors and blindly optimistic suppliers would create another bubble. (Trust me, I am not against bubbles. Conceptually it is based on Darwin’s evolution theory – survival of the fittest. The shrewd make money and the gullible loose it all. :) )

September 29, 2008

Russia – Georgian War : NATO incites the Belligerent Beast

“You can have power over people as long as you don’t take everything away from them. But when you’ve robbed a man of everything, he’s no longer in your power” – Aleksandr I. Solzhenitsyn

Introduction

On 8th August 2008, when the whole world was engrossed with Beijing Olympics Opening Ceremony, Russia striked war on Georgia that would last for 5 days.  Let me try to explain what irated Russia to strike its neighbour and the significance of this event on the International front.

Caucasia

Caucasia comprises of Georgia, Armenia, Azerbaijan, Southern Russia, along with disputed territories of Abkhazia and South Ossetia. Abkhazia and South Ossetia,  the breakaway province of Georgia, is openly supported by Russia. NATO works very closely with Georgia and infact during the 2008 Bachurest Summit NATO promised Georgia of its membership.

On 7th August 2008, Georgia declared a unilateral ceasefire after a series of clashes with South Ossetian rebels. But within five hours of ceasefire Georgia resumed use of force and blamed South Ossetia for provoking the attack. Georgia lead an offensive land operation in the Tskhinvali region. Russia responded with a full scale attack on Georgia. Russia was determined to occupy South Ossetia and Abkhazia. After defeating Georgia, Russia recognized South Ossetia and Abkhazia as independent.

Rising Differences Between Russia & West

For years Russia has been gradually and mutedly regaining its strength by increasing Oil Export in terms of volume and better terms of trade. The dormant bear has suddenly stood up roaring in response to the provocative hunter. It has given a well timed and apt response to NATO. It is difficult to comprehend the decision of NATO to promise membership to Georgia. NATO clearly challenged Russia by extending its influence upto Russia’s own backyard. (I dont question Georgia’s pro US stand but they should desist from inciting the Monster nextdoor) Russia would take every measure to prevent NATO from erecting Anti-Ballistic Missile close to its border. Its not about security alone, but also about oil and gas pipeline politics. Georgia is an important pipeline route for US’ access to Caspian energy reserves. Russia, on its part, cannot afford to loose its dominance on energy reserves in the region.

An event germane to this topic – Kosovo gained independence from Serbia earlier this year. It was a setback to Russia and may be South Ossetia was the opportunity Russia was looking for since then.

Russia has been building up its influence in middle east since past few years. Russia is assisting Iran in building a nuclear power plant at Bushehr and West countries have very strong objection to this they fear Iran is trying to acquire nuclear weapons. Earlier, Russia thwarted US attempt to impose additional sactions on Iran on the nuclear weapons issue. Israel has been selling arms and combat training to Georgia which were used by Georgia against Russia during the war and this has infuriated Russia. On the other hand, Israel blamed Russia of supplying intelligence data regarding Israel to Syria which had led to the setback of Israel forces against Hizbollah in 2006.  As a retaliation to Israel’s weapon supply to Georgia, Russia has decided to supply weapons to Syria and accelerate the completion of Nuclear facility in Iran. Moreover, Russia and Venezuela would be conducting joint naval exercise later this year.

Conclusion

Russia is certainly determined to take on the NATO which has very few options at the moment. Europe depends on Russia for its energy needs. Moreover, Russia’s coperation is needed to resolve issues of global concern such as Non Proliferation, Terrorism, Global Warming. As a result, for the timebeing NATO would not do anything to further alienate Russia. They would wait until they find another scapegoat like Georgia. In a way, small countries like Georgia are a means to measure the balance of power between Giant Countries. The Superpowers dont mind sacrificing these minor allies in proxy wars to test the opponents heat.

The Georgian war has certainly tilted the balance towards a bipolar equation. The US hegemony has taken a minor beating. The Bipolar equation is more favorable for the world. Otherwise when US says – “You are either with us or against us”, it would mean “You are either with us or You are the next Iraq and get ready to be doomed for reasons that are purely figment of our imagination” ( WMD?🙂 ). I hope the bipolar world would reduce the number of wars as the anti-US countries would be able to align under Russia and get an opportunity to defend their stand. (We dont want US-Iran, US-Syria war which ends up like Iraq)

PS: I feel sad for the civilian population of Georgia & South Ossetia who were impacted by this war. I regret if any of my views are disturbing to the readers. I would appreciate if you point out any discrepancy in the article in terms of factual data.

September 27, 2008

Economics of Subprime Crisis and Bail Out

Subprime is Wall Street‘s euphemism for junk. Andy Serwer and Allan Sloan:,  TIME, Sep. 18, 2008

How did it start?

I am confused with the current econmic turmoil (I m with George Bush on this🙂 ) . So lets try to unwind the whole crisis. What is Sub Prime Lending? In US individuals with bad or limited credit history (or job history) find it difficult to get loan at normal market rates. Some institutions provide loans to such borrowers at a higher than normal (Prime) rates since it is a higher risk loan. There are other stringent terms and higher fee for such loans.  Technically, the Subprime Loans do not meet the Freddie Mac (FNMA or Federal National Mortgage Association)  guidelines.

The Risk Vs Reward dogma of the financial world is the underlying principle behind Subprime Lending too. Post 2001 economic recession, the home valuations rose steadily. This lead many people to invest in Real Estate through loans and mortgages. The Subprime Lending also rose significantly as the Lenders expected the Real Estate to go up and this secured their investment even if the borrower fail to repay. For the Borrower too this was a great oppportunity as , with Real Estage prices going up, after a period of time they could refinance thier loan at the mainstream rate. The borrowers were so illusioned by the rising property value that they accepted highly difficult to meet conditions for sub-prime mortgage. During 2005, the housing bubble got burst and Real Estate prices started seeing corrections. The borrowers started seeing downtrend in valuation of their property and refinancing became difficult. Suddenly the number of mortgage default rates increased and spiralled out in 2007-08. The Mortgage lenders took the hit and major lenders got knocked down. Owing to Securitization, the lenders had passed on the risk to third party investors via Mortage-Backed Securities and Collateralized Debt Obligation. So the subprime shock was passed to these investors (Corporates, Institutional Investors, Individuals) and they suffered heavy losses since the underlying mortgage asset value declined. Stock markets across the globe tumbled down as a result of these affected investors pulling out. Moreover, credit market saw tightening and it becomes difficult to get credit in such times. Loans for average borrowers becomes impossible and even the reputed ones have to pay higher rates. Demand goes down, growth is affected and recession sets in.

Who is responsible and What is the fix?

As a number of Banking and Investment Giants have started to fall on the ground, the US government has jumped in fire-fighting with a whopping $800 billion rescue package. The US administrations effort to stop the economic bleeding looks highly warrented to prevent collapse of economic machinery and unemployment (in short the Great Depression) . But is the rescue package a definite solution? Who is the real culprit and who should pay for this mess? The reckless lending by banking institutions and risky borrowing by financially unstable individuals has brought down the entire system. From my perspective the Banks behaved irresponsibly, their reckless practices’ have to take the blame. The Government is financing the irresponsible guys with all hard earned money of tax payers. For years, US has considered Capitalism as an unquestionable trading method. The economic instruments in US have an absolute free hand and there is no regulation. All because of a false pride on the free market. And floating this bail out package sounds like US is taking a leaf from Marx’ book and adding a flavor of its own to it. It would be appropriate to call this package policy as – Socialism For The Rich. I consider the US administrations attitude as hypocrite in this regard.

The bail out package is a short term rescue which would bring a short upswing and then system would tumble more drastically. Because the fundamental problem would still be unadressed. How justified is the exorbitant participation by banks in Real Estate Lending when Real Estate is one of the most unstable asset in terms of value? Somebody needs to define the boundary and it is imperative. Few ambitious decision makers at the helm of the banking system should not be given free way to squander the tax payers hard earned money to clean up the toxic debts.

How far would it go?

I feel the after effects of the damage has just started to appear. There is more pain in the pipe. The turmoil in US is just the beginning. The world economies are tightly integrated  and that means the subprime infection is bound to spread to other countries. The pain would soon spread to EU & BRIC countries. Moreover, EU has no room for bail-outs as the concept is against the EU framework. It would be interesting to see the if the EU model really helps the constituent countries to tackle such a crisis.  The BRIC Economy would undergo the Litmus test. Among the BRIC, those countries which really hold value for the future would emerge stronger after the crisis is over and it would be really interesting to see if they come out stronger enough to take on the US hegemony. I would certainly put my money on Russia and India.

April 2, 2010

Interesting Business Models

Filed under: Uncategorized — by binnyblue @ 9:00 am

Xerox – The original xerox copier machine was expensive compared to other copying alternatives. Xerox rented the machine to companies but the normal rate of copying was 15-20 copy per day and was not sufficient to ensure ROI. But after companies started using xerox machine the rate of copying went up to 2000 copy per day primarily due to its easy to use and better quality.

IBM – Primary revenue for IBM is software service and consulting for business segment.  IBM is a leading technology integrator and middleware software provider.  The profit margin in these segments is very high.

Southwest Airlines – SA is a low cost carrier that uses only Boeing 737 that helps reduce training and maintenance cost. It follows a point to point flight routine and uses secondary airports in major cities. The turn around time for its flight (turning the flight on runway for return trip) is lowest in the industry.  SA is the largest carrier in the world in terms of number of passengers carried per year.

Netflix – Offers monthly flat rate DVD and blueray discs online. Customer can have a fixed number of DVD’s simultaneously delivered and keep them as long as they want. Once the DVD’s are returned, next movie can be ordered. The discs are delivered in mail by united states postal service and ships 1.9 million discs per day. Customer doesn’t have to pay late fee or shipping fee.

Toyota – largest car manufacturer in terms of sales.  Toyota follows Kaizen principle to continuously improve quality at every level and involving everyone in the organization. If there is a defect in the production line, the worker is expected to stop production and fix the problem.  Quality improvement is eternal priority and the practise is inculcated at every level through trainings.  It has a lean manufacturing model with just in time inventory.

March 30, 2010

Reservation in India : A sad practise

Filed under: India,Uncategorized — by binnyblue @ 7:27 pm
Tags: , ,

Reservation is a failure for any country/system to bring about a section of people, for whom reservation is being implemented, to the mainstream.  It is a humiliating compensation by the government to the deprived section. Granting the alms of reservation undermines the ability of the deprived people and would undermine the achievements of people from that section.Now it worries me if some irrationality ends up adding my religion/sect/language into some reserved group.

Governments responsibility is to drive awareness among the masses and make efforts to integrate the people in an impartial and non partisan manner. Education should be made available easily and freely available for under privileged children.  There should be incentive for these children if they perform well in sports or arts. Every effort should be made to grant them opportunity to nourish their talent.  This will ensure that these young children will grow up with full respect and ensure that they would would work hard to gain success. The right to education bill was a good step in this direction. I would expect government to direct their on similar lines.

March 17, 2009

Israel Palestine – Religion, Land, Greed, Blood

Filed under: World Affairs — by binnyblue @ 9:14 pm

Hatred and fear is the fate of the people living in this disputed territory.

The Israel-Palestine dispute is the left over venom of World War II. Prior to to 1948 there was no country called Israel and the present day Israel plus Occupied Palestinian Territories was called Palestine. During 19th Century, Jews were spread across European countries and there was an underlying hatred towards Jews, sort of a movement, called Anti-Semitism. In order to protect themselves, Jews started Zionism – A political movement to establish Jewish Settlement in former Palestine. Jews across Europe purchased land in Palestine and increased thier presense in the region.
During World War I (1915-1916) , the British High Commisioner in Egypt convinced Governor of Ottoman Empire to lead an Arab revolt against Ottoman Empire in return for independent Arab states (and palestine, Husayn-McMohan Understanding). In 1917, British Empire made a conflicting declaration, Balfour Declaration, stating support for an independent Jewish State in Palestine. However,  the Middle East Region was divided amongst Britain and France and each took controlling influence of their alloted region  (that was a secret deal between Britain & France) .  Britain got mandate over Palestine. The magnitude of Jewish immigration to Palestine increased when Hitler came to power.
After World War II, Britain was unable to manage the internal conflict of Palestine and submitted the issue to UN. The UN decided to partition the country into two states – Palestine state & Jewish state.  The Jewish state had majority land (56 percent) though Jewish population had bought only 6-8 percent of the region. The basis for this majority allocation might have been the anticipation of huge Jewish immigration into the region. The Jewish community accepted the UN proposal but Arab including Palestine  rejected it since they were totally against Jewish immigration and settlement into the region. The United States vehemently supported the proposal and there were two probable reasons for it – 1) Then US President, Harry Trueman, was under intense pressure from Jewish political lobby. 2) A majority Jewish state ensured less Jewish immigration to US itself.
Eventually a civil war broke out in Palestine between the two communities. Jews gained over Palenstine in the war and Jews declared independence (independent Israel). The neighbouring seven Arab Nations – Egypt, Iraq, Syria, Trans-Jordan, Saudi Arabia, Lebanon and Yemen attacked Israel but were eventually defeated by Israel (Czechoslovakia supplied arms to Israeli army). The arabs signed armistice agreement and Israel now controlled 77 percent of the region. Egypt took over Gaza strip and Jordan controlled West Bank and East Jerusalem. After the war, Israel expelled around 700,000 Palestenian Arabs. In 1964, Palestine Liberation Organisation (PLO) was founded with the objective of restoration of original Palestinian state.

In 1967, Israel attacked Egypt, Syria and Jordan regions along its borders. Within six days Israel captured Golan Heights (Syria), West Bank and Gaza Strip. In 1973, Egypt and Syria attacked Israel to regain West Bank & Gaza Strip but were defeated (Yom Kippur War). In 1978, Camp David Accord was signed by Israel, Egypt and US. Based on this accord, Israel agreed to give away Sinai (containing Israel’s only commercially  productive oil well, Abu-Rudies)  to Egypt  in return for peace and free movement through Suez Canal. US promised huge annual subsidies to both Israel and Egypt. The agreement vexed other Arab nations since Egypt was unable to leverage its position by forcing Israel to recognize Palestine’s right for self determination. Egypt was suspended from Arab League since it was all set to get alligned with US.

In 1987, Palestine initiated resistance movement against Israel – First Intifada. The Intifada was a result of frustration among the palestinian population against Israels ruthless treatment towards them. Hamas (Palestine’s armed group) was born during First Intifada. Intifada included non violent resistance like civil disobidience and non tax payment as well as violent means. The palestinian youth threw stones on Israeli soldiers as mark of protest.

In 1993, Israel and PLO decided to negotiate. The Oslo Accord (Oslo Peace Process) was signed between the two parties. As a result of this accord, Palestinian Authority was created for managing administration in West Bank and Gaza Strip. Israel also agreed to withdraw its troop from the region. An interim self government was planned to set up in phased manner within five years. Election for Palenstinian Legislative Council and President were held in 1996.  The implementation of Accord wasnt completely successful due to reluctance by Israel to relinquish control and frequent violent resistance by Hamas. Moreover Israel continued to establish jewish settlements in the disputed region. In 2000,  Second Intifada was launched with more violent protests this time.

Israeli primi minister Ariel Sharon declared a partial disengagement plan in 2003.  Under this plan, Israel withdrew its military and civilian presence from Gaza Strip but continued to control its border and air space. The plan was executed in 2005 after a lot of political turmoil in Israel. But the outcome of this plan turned out to bitter for Israel when Hamas won Palestinian Legislative Council elections  in 2006. Hamas took over exclusive control of Gaza. Hamas doesnt recognize the state of Israel and aims to completely eliminate Israel. Its frequent rocket attacks forced Israel to conduct air strikes during last week of December 2009.

September 26, 2008

Industrialization and Social Inclusion

India ,  Asia’s third largest economy, has been on a growth spree. Industrial Production grew by 7.1% in July ’08. Economic fundamentals look strong and every statistics points towards a great promise for the future.

But would this growth continue all by itself? No, growth is not exclusive. India has 70% of its population in rural area. Around 300 million people are below poverty line. One out of three young people in India is illiterate. What does growth mean for these masses? They certainly dont reap benefits of the growth and industrialization in the present scenario. Whatever happened in Singur is a clear demonstration of the anger brewing among the excluded mass. Thanks to democracy thier voice was heard. In Maharashtra’s Raigad disctrict a refrendum was held for the setting up SEZ (Special Economic Zone) by Reliance. The Maharashtra government deserves special appreciation for taking up the referendum. The farmers in Raigad rejected the SEZ and the government decided to stay away from land acquisition.

These events have a special message for all the Corporate Giants. They need to device means to include underpriviledged population into the industrialization process. They need to generate employment for these masses. It would be a good idea to setup special wings for training the illiterate and rural people who get affected by industrialization. Corporates should help in setting up more schools in these areas. Development of communication infrastructure like Telephone/Internet would help align people more closely with the Corporate Philosophy.

If growth is persued in a ruthless manner there would be many more Singur. There would be uproar against industries across the rural belt. This is the right moment for Corporates to start a more healthy relation with society. Else India Shining would turn out to be – India Turbulent.

July 12, 2008

Developed India & Indo US Nuclear deal

Filed under: India — by binnyblue @ 11:35 pm
Tags: , ,

‘No power on earth can stop an idea whose time has come.’ 

This deal would mark another milestone in the evolution of the Developed India. India’s strategic and economic importance has attracted US to develop close relations with India. India may not benefit immediately but in the long term India stands to reap great benefits out of this deal.

Unfortunately there are many forces that do not realize the importance of the new equation that this deal would lead to.  China has never proved to be a great friend to any country. But US has always stood behind its alies (there are exceptions but still overall it has an excellent track record).  Like our domestic polictics, international stature of a country depends on the nature of it alies.

The move by US to push for the deal was a calculated and significant decision. Politically, both UPA and NDA are pro US. Economically, India is one of the strongest emerging countries. Strategically, India is already a nuclear country and there is no way India is going to sign Non Proliferation treaties.

For India, this is a stepping stone towards the new Developed India. We are the largest and strongest democracy in this world. We have globalized/liberalized our economy and our domestic giants have already started shopping for international giants (Tata’s acquisition of Corus). We have the best medical infrastructure and great educational institutions. There is a lot to be done for literacy and industrial infrastructure. But we are on track.. there are many hurdles but these hurdles would teach us our lessons.

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