Ageing Population

The greying of the prosperous parts of the world has long been forseen. Much less well know is the fact that well-off countries are far from alone in facing the prospect of an agening population.
As more amd more Indians and Chinese escape from poverty, they too will have longer life spans.
By 2050 the percentage of the Indian population over 80 will have risen five-fold, and the same segment in China will have gone up six times. The reasons for such increase are
1. peoples general health is better
2. childbirth is safer and malaria more treatable.

By 2050 about 80% of all deaths in the world will occur in people who are older than 60.

Pension Planning

Planning for retirement is the most difficult question faced by most of the people.

Although its easier said than done here are three questions one most ponder and decide to have a comfortable retirement life.

1. When do you want to retire?
2. How much do you want to save?
3. How much minimum percentage of your final salary do you wish to target?

The are countless of other questions and bets one will have to take like long term inflation, interest rates, cost of living, medical costs etc to come up with the right pension amount. And I am sure at the end it will feel you should have done more.

My simple advice is take life (professional career, personal life etc) in 5 year buckets. Its much easier to break down long term goals into shorter term targets which are easier to predict, manage and remember!!!

Think about where you want to be in 2020!!!...

China Car & Fuel Sales - Fantastic Statistics

I came across an amazing piece of statistics. It goes like this.....
Car sales in China are up 50 % year on year, however fuel consumption is the same as compared to last year.
The optimists argue:
1. The car sold are more fuel efficient.
2. Since fuel prices have gone up year-on-year (China also has the same administered price regime like India), the usage of car has gone down.

The pessimists argue:
1. Under the stimulus package State Governments have been asked to buy cars, which are now parked in the Govt offices.
2. The car sales numbers only reflect the sales made by manufacturers to dealers. There is a huge inventory built up happening at the dealer level.

China Garlic Bubble

Wholesale Garlic prices in China are up 400% as compared to last year.
Three reasons for the price rise
1. Garlic was suppose to be the cure for H1N1. But thats a myth.
2. Speculators have taken huge futures position. The stimulas money has been used to bet on agri commodities.
3. Garlic was the worst affected corp in 2007 with an acute shortage. This has resulted in the demand supply gap.

Why invest in stocks if you can pick a couple of such agri-commodities?
What will be the next bubble agri-commodity?
My hunch tells me it would be something in spices. More on it once I have made some money.

China Banks lend US $ 181 billion dollars in 9 months of 2009

Chinese banks advanced a record $1.27 trillion yuan (i.e. US $ 181 billion dollars) of new credit in the first nine months of the year, an increase of about 150 percent from a year earlier, prompting the nation’s banking regulator to warn of rising risks.

This is more than the cumulative advance of all Indian Banks cumulative till date.

The next bubble would surely be closer home

Credit Default Swaps

I have today understood the lay man's meaning of the derivative product - Credit Default Swaps.
It simply means person A is the beneficiary of the insurance policy of person B and person A has an option to kill person B.

No wonder AIG, Bear Sterns & Lehman etc could not assess the risk associated with their lives. They are like person B in my above example.

Ups & Downs in Timing

The 10% fall after the budget was an over-reaction. We call is over-sold situation. That was last week.

This week the markets are up 10% in 3 days. I call is irrational buying. Sell if you want to survive.

The old saying and investment advice - you cannot time the market was proved drastically wrong last two weeks.

What I only have to say is -
You cannot time the market. You can also not create wealth if you do not time the market.

Time and Tide waits for no man

Pareto's Rule

Pareto's Rule of 80 - 20 is very much applicable for the market too.
80% of the profit is made by 20% of the investors (this is what I have always heard) or
20% profit is made by 80% investors.
So its better to be with the 20% in order to make super-normal profits, else invest in Index ETFs or Index Funds.

QIPs Impact

What kind of companies are raising capital?. This group is populated by companies who were verge of bankruptcy. The real estate sector has been the major beneficiary of this cheap money rush.

But on the business end, what are they exactly doing with the money. Basically repaying high cost debt. So there is a shift in the capital structure of companies from debt to equity.

If one analyses the performance of real estate sector, the performance of the companies has been propelled by the used of debt financing. In financial management parlance this is called Financial Leverage. This boosted their performance in good times and made them cash starved during the credit crises.

Now the sector is using the money to repay high cost debt. This will reduce their financial leverage. What it will also do is probably reduce the EPS for the shareholder. This is also because the new capital is not going to be invested in new projects but it is only going to restructure the capital structure of the company.

My guess is the dilution is going to be heavy and the sector would be an underperformer for the next 2 years minimum.

Importance of Operating Leverage

The concept of leverage is very well evident in todays market. All financial services, media & entertainment sector and a host of other service industries operate on high operating leverage. The biggest component of the fixed cost is salary. In good years this high OL has propelled their results, however in bad times like in 2008, these companies had no option but to cut fixed costs and reduce their break even points.