Round 2...

In no particular order...an MBA, 2 cities, amit, shandy, a hairline fracture, gym, amazing appetite for PJs, plenty of weight gained, lost, gained and lost again, macdonalds at midnight, lotsa late night walks in dubai, CS, bonds, derivatives, pool, swimming pool, CNN, galaxies and magnums everyday, US general election, RR, 2 and a half men, shandy's (farty) slippers, backstabbers, macdonalds at 2am, sunday biryani at the canteen, Jurong medical center, friends, amit's prim and properly wrapped clothes in the cupboard (and then....they stank!), dubai academic city, subway sandwitches...for months on end, macdonalds at 4am....and the guy who's been through it all with me....aseem, life's been quite a roller coaster ride!

Day 1 -- aseem and i landed in dubai and somehow my visa document had not reached the airport. We waited for quite a while before it was found and then we got out. Zi was there and then we decided to use the college van to reach the hostel. It was a different feeling as we were to settle with different roomies. Took a while and the journey turned out to be great! Especially the pool games the 4 of us used to play -- Bombay vs Delhi! I was unbelievable at snooker. Unbelievably terrible, that is:-)

Singapore - amazing city! I love walking and this city has forests trails all over the place! Too bad i broke my leg...:-) I still can't forget aseem having fun pushing me around the hospital on the wheelchair the first time I had the cast on....

Shandy and I were unbelievable in crapping out PJs!!! That was an amazing collection we had. Amit and Aseem would just disown us. Especially aseem...he would just switch on his ipod and stare at his laptop while shandy and i would be rolling on our tummies laughing at our crappy jokes! Amit.....well, he would enjoy them provided he was awake...:-)

Most importantly....we had these great debates....from vegetarians vs non-vegetarians (aseem in one corner, shandy, amit and I in the other) to the future of the financial world and how the whole collapse was the revamping of the economic order.

Fast forward to right now...sitting in my bed, watching Spy Game, I decide to blog. This is my first blog since i joined back Hewitt. 20 months in the wild. Back at the same firm, same house....and what do you know...even the same interviewers! Though it seems that time stood still for all this while, I seem to have come to a completely new place. The challenges are quite different from the ones I had faced in my earlier stint and that makes it all the more....fun! How am i doing? Donno. It's just too early to take a call. I am yet to come into my 'element', still a little rusted, a little slow. But I am moving...

Life's come a full circle. It's time to work.

This is ibrahim 2.0 signing off.

If you have nothing else....

As I wait for a download to be completed, this comes to my mind....

Bored? Absolutely. 

Sleepy? Yep.

Tired? Surprisingly so :-)

Horny? Surprisingly not!

Connect with God? goes without saying.

Hungry? Nah....

How about dessert? Empty freezer.

Aches? Nope.

Temper? Cool as a cucumber....that's till I see my gardener...!

Mood? Relaxed.

Porn? Been quite a while since I saw one.

Intuition? my job....let's see how it pans out.

Anything new? itrip. Not recommended.

Missed anyone lately? mom.

Tube? American Idol, Reaper.....and many more....

Achievements lately? My dad watching American Idol....even if it's just once....!

International Affairs? Nada. 

Prayers? He is supposed to know. 

Regrets? Not having followed Heroes from the beginning....I will make it up soon.

Worth Watching? Just Shoot me....starting on Zee Cafe soon. Absolutely hillarious!

Music? Poker face - Lady Gaga.

Secrets? ....

Religion? Pained to see it distorted. 

Financial meltdown? Fascinating!

China? Would love to go there one day.  

In touch with the world? Incommunicado.

IPL moment? Warne grabbing a beer on the boundary while fielding!

Weather? Allah ki rehmat!

Twitter? Let's talk about it when it starts monetizing.

Money? Plenty...living off my dad!

MBA? Good!

Outsourcing? Still figuring out if its a blue collar job or a white collar one?

Movie? Almost 70 in the last two months.

Must watch? Spy Game, My Fair Lady, Khuda Kay Liye.

Green? Key to making a lot of money!

Water? Cause of the next big war and also...right beside me....:-)

Source of spiritual concepts? Matrix and Star Wars.

Download? completed.

Bored? Clearly you have the memory of a goldfish. Please go to the top.

Parting Thoughts? Why don't you read this once again....clearly you have nothing else to do!!

ciao. 

Where's the substance....?

My staple timepass these days is the IPL - one heck of a tournament! Needless to say, I am having a great time. Infact, I have postponed my plans to think about what I need to do till this tournament gets over...though I must confess, there is a lot of pressure building up on me from people close to me. Anyway, that's not what this blog is all about....but yes, the IPL is the root  of this particular blog. During one of the B'lore games, I heard the commentator mentioning that Dr. Mallya had just come in from Bahrain after watching his Force India team in the F1 race. That set me thinking-what's this guy got to do with F1?  Is it worth the investment? 

Spent sometime digging into the numbers (as you can see, I have plenty of time..:-)) and here's what I came up with...  

Let's try to analyse the economics of owning a F1 team and if it makes sense for all and sundry to think that they should own one as it is a good subject for an interesting chat with that fancy guest that you have been secretly envying all year long...

We must first understand as to why this sport really exists or came into being. This is where a lot of automobile as well as ancillary industries are looking to test out some of their latest technologies in terms of performance, aerodynamics, innovation etc. That is why you have the likes of ferrari, mclaren, toyota, merc, BMW as team owners. 

I am going to spare you the details and not delve deep into the numbers.  Let's look at the expenses at a high level --

An F1 team annual expenses can be as high as $450m  to as low as (just) $80m. Close to a $100m can go into just the engine.  The other major expense is the S&B - to be very specific - the driver and the management salaries, which eat up close to half the S&B budget of a F1 team. Drivers such as Alonso and Hamilton can be as expensive as 25-30m USD a year. You have the car  manufactring costs and finally the miscellaneous costs of travelling, lodging etc. Teams like Force India generally are at the lower spectrum of the expenditure budgets. 

Now, where are the revenues coming from -- Main sponsor, mini-sponsors and corporate and technical sponsors. In addition to this, the F1 Administrative authority shares a large chunk of their revenues with the teams based on their wins and standings. With the FOA revenue sharing on the basis of wins/points being a siginificant source of revenue for the teams, teams like Ferrari and Mclarens are considered to be profitable ventures while some of the other may just be break-even cases. 

In case of Force India - their main sponsor is Kingfisher and in addition they will be lucky to gain any points in this season. So, the revenue from FOA is hard to come by. What does a airline company get out of sponsoring a F1 team? Publicity, yes. But is this really worth this kind of an expenditure for an airline that basically is a domestic affair. It may have something (to sound extremely optomisitic) good for the company when F1 comes to India in 2010. This company, as we all know is seriously in the red at the moment. So, effectively speaking Dr. Mallya is bankrolling the F1 operations at the moment through one of his not-so-healthy companies. 

Let us not forget that a company such as Honda pulled out of F1 this year citing economic downturn. A company that actually has something to gain from a sport like this is not willing to sustain such expensive operations shows how much of  a pressure this can have on your margins. It is also relevant to say that, unlike the other F1 teams, Honda was footing the complete bill on it's own without accepting any main sponsors.  We have heard that there has been pressure on toyota to also exit the sport owing to the same pressures (though they have a main sponsor). 

We need to unclutter our thoughts and then take the right decision. Does it really make sense to be part of the something if you have absolutely zilch synergies to speak of!

Again, one needs to be clear about what one wants to step into. The question is WHY? If there are no synergies, it doesn't make sense. This is what I call "taking your eye off the ball". 

We all have this inherent desire to make something of ourselves in this world. Let me rephrase that - we all have this inherent desire to "make a name" for ourselves. Nothing wrong with this. But sometimes we tend to take this desire a tad too far. We tend to make some not-so-wise decisions just to become the cynosure of an evening gathering. But does that decision really pay off eventually? If hogging a little limelight is the reason, in all probability not.   

So, is a kingfisher logo on the scorcher good enough to justify Dr. Mallya owning an F1 team? How long will he keep it before he sells it off? Your guess is as good as mine.....!

Going ons...

It was good to see both aseem and gaudy last week after ages (a month, to be honest). We, as usual, spent time talking about what's on and what's not. Gossip, tales of Hewitt from gaudy which includes a generous sprinkle of funny anecdotes.....and after a while, spiritualism and our views on it. Sitting with these guys you just don't realise where time flies. Before you knew it, it was 230am and we were sipping some absolutely atrocious cold coffee (with Gaudy proclaiming "Doodh phata hua hai!") and paying a handsome sum for each of those. It's important to connect with people who are at the same wavelength.....and that's exactly what connects the 3 of us. It's hard to believe that someone like me who is extremely notorious when it comes to keeping in touch, would dial gaudy every couple of days while aseem and i were in dubai/singapore. 

As always, i managed to catch a couple of movies....and i absolutely cannot miss one if there's an animation in the theatre -- Monsters vs Aliens....not really great but definitely funny in parts especially, the blue gooey creature....that thing had me in splits! These movies really crack me up! Saw The International....an okay movie with a rather mediocre end.  It's just that I am a great fan of Clive Owen. I think he's simply marvellous.  Tried out a new restaurant after a while - it's called Chi @ Citywalk. Very nice food. This place is not specifically chinese but has a mix of oriental food, the menu is different from the regular oriental restaurants in delhi. Pretty good. Would love to try out their Tempura the next time. Haven't had good tempuras in a while. 

Well, while coming back from delhi, I realized that I had a stiff back. Next morning, the doc told me I am having muscle spasm. I was back to using a driver in aligarh -- no driving for a while. Anyway, medicines have done a wonderful job and feeling pretty good this morning. My santro does not seem to have the most comfortable seats when it comes to long hauls. Earlier on, i had decided not to buy a new car for another year (I find it to be quite a waste)  when some new models are expected and this one would finally have lived it's life but now, I just might...

IPL....what an amazing match b/w Rajasthan and KKR the other day,  the best I have seen since India vs Pak T20 wc finals. Simply superb! What it showcased was the impact of true leadership on a bunch of mediocre non-entities. This includes Munaf, who seem to bowl without a head on his shoulder. He was the quickest we had a year or two back. Now, he has neither pace nor shrewdness in terms of surprising the batsman.   

Nothing much on TV these days...American Idol is the only one that keeps me glued to the tube. Anoop goes out....sad, but then his time was up. Chris has really improved over the weeks and matt...he seems to be deproving over the weeks. We can see either him or Allison going out next week (though she absolutely does not deserve to!). Adam sits at the top of the pack...it's not his voice but the desire to amaze the audience every week with a very deliberate attempt to show his versatility to the audience. The others just look (as simon would say), "kareoke" when compared with him. 

This shows that you just don't need a good voice but also a brain to showcase your talent. But if you were to watch the blue gooey thing in M vs A, he would tell you (from experience) that brains are "highly overrated"!!! Do watch it if you have a taste for senseless humor!

  

Amazing!!

http://www.youtube.com/watch?v=9lp0IWv8QZY

What an ABSOLUTELY AMAZING rendition of a song that big - out of this world!!!

Exploring The Turmoil II -- Uncle Sam's toxic asset scheme

Before I start off with this post, on the contrary to what I had mentioned in my earlier post, I will not be talking about how well is President Obama doing with his efforts in getting the American economy off the floor again. That may not only take a few posts as there are so many different areas of concern which require to be and are being focussed on at the moment that this blog may turn to be terribly boring after a point. So, let's just talk about the toxic asset scheme unveiled by Mr. Geithner last month. Again, a word of caution, i hadn't exactly been reading a lot in the last couple of months. So, i may have missed some of the more significant (and insignificant) aspects of the scheme. In that case, my apologies to you all.  

The toxic asset scheme talks about the government tapping close to 100 bn dollars into its emergency bailout fund  and matching it "dollar-for-dollar" with private investment that would include hedge funds, private equity funds and other private sector investors in buying out mortgage-backed securities, derivatives and other troubled financial instruments. Infact, with the FDIC providing a guarantee for any debt issued by these entities to pay for their toxic purchases, they expect them to be able to leverage the capital by a 5:1 ratio, if not more. What this basically means is that if the private money is matched dollar for dollar by the government@100 bn dollars, we are talking about a capital of close to 200bn dollars which again can be leveraged 5 times or more leading to a sum of close to 1 tn dollars to be used to buy toxic assets. I was talking to zi and he raised a very valid point here -

The private sector will be buying these assets at substantially marked down prices. This would mean that the banks will have to bear losses in their balance sheet for these sales. Let's try and quantify these figures. If the assets were bought at 30% "discount", this would mean a cumulative loss of 300 bn dollars on a purchase of 1 trillion dollars! Now, what this would mean is that some of the major banks in the US may be close to folding operations if a significant portion of these losses were to show up in their balance sheet......quite the opposite of what the Obama administration wants really!! So, in order to cover these losses, will the administration recapitalize the banks with 300 bn dollar of taxpayer money? We haven't heard anything of the kind as yet. So, this whole toxic asset buyout program does not seem to have laid out all it's chips on the board as yet. We need to wait and see what comes next.....

We have already heard what Paul Krugman had to say about this bailout plan where the private sector seems to be in a win-win situation while the government just seems to be covering up the risks for them. It is a valid concern. No doubt about that. 

Now, let's look at a "happy-day" scenrio - what happens if the toxic asset buyout scheme does ease up the liquidity crunch...

1. Banks are in a position to lend. The question is - with a rapidly contracting economy, whom do you want to lend to?Automotive businesses, hotels, travels and several others don't sound such a good idea. Alternative energy......probably ( i am a great fan of this line but again, you cannot close your eyes to the fact that this source of energy is probably twice as expensive as that produced using fossil fuels etc.)
2. Now, a bank's job is not to hoard but to distribute the cash (especially when your largest stakeholder wants you to :-)). They will and with the no one being sure where the economy is heading,you may just end up creating more non-performing assets. What we see is that even with the scenario being good, the money may just have a negative impact on the whole scenario. 
3. We must not forget that a significant portion of 787 bn dollar fiscal stimulus package is coming from printing of new money. What does than mean? More money in the market in addition to the easing up of the liquidity crisis. This would lead to inflation in a contracting economy. Possibly, value of the dollar dropping. Is that good? To a certain extent, yes as it will help the exports but don't you think some of your good friends (read: China and the persian Gulf) may find this a little discomforting as the value of their investments may come down.       
   

   Well, the "rainy-day" scenario would simply mean that the liquidity crunch remains as it is. No change. Either way, what we are seeing is that this package may not really do all the good it is supposed to. I don' think what i have said really is a stretched reality. So, in all proabability, we will see some good coming out of the fiscal stimulus package and the toxic asset scheme together but probably not to the extent that the adminstration is hoping for.

Ladies and gentlemen, look forward to some more measures in the coming months...

Having said all this, let me now go to a more personal front.....having being fortunate (isn't this exciting???? Almost gives you a hard-on!!!!) enough to see a financial turmoil of this magnitude, I am yet not able to decide whether i am a liberal or a conservative. Somewhere I have believed that these interventions by the gov't will only prolong this crisis. If you let the too-big-too-fail organizations go down, the dust will settle rather quickly (with a lot of casualties) and we will see new opportunities rising faster. But then there are just too many variables in this equation to solve. If you let Freddie Mac and Fannie May fail, China won't spare you. Putting that aside, there will be millions on the street. Civil unrest looks like a plausible scenario. Not that easy. I had always believed that I was a conservative but we've all seen what free markets can do. Regulations? yes.....but then they are not free any longer and more importantly, I am not a conservative any longer either...sigh.....

I am still working on my inclinations....but yes, a state is expected to take care of it's citizens and rather unfortunately, the Americans lost the plot at the beginning of this century. 

Finally......Amit, Shandy, Aseem - miss you all and the vociferous  discussions we used to have for hours on such (and many other) topics. We need to connect. 

Let's talk about the Persian Gulf the next time.....hmmm.....may be not....probably what I am currently watching on TV these days....we will see.....

Exploring The Turmoil -- Is the dragon scared...?

You spin my head right round, right round
When you go down, when you go down down...

It's been a while but I am slowly getting back to my newspapers and mags. The financial turmoil still hogs the headlines as they did the last time I was reading the papers. Seems like we are stuck in a time-warp. Something very significant that's come up recently is China's insistence to make SDRs the reserve currency instead of the dollar.

Some say that this is China coming of age. Let's try to analyse the impact of this one such movement if it were to happen anytime soon...

1. China's trillion dollar investment in US treasuries.....down the drain....if people stop buying the dollar, do you really think this trillion dollar investment will be worth even 50 bn USD? I don't think so. is China willing to lose so much of investment. Don't think so. So, logically speaking, we may see China moving from long term treasury bonds to short term investments and slowly moving out of them to some extent. 
2. Yuan is part of the SDR....and if not, it will be. This would mean that people would buy the Yuan to suport their reserves. This would lead to appreciation of Yuan which would, in turn, lead to Chinese exports becoming more expensive and a further impact on the Chinese economy. The era of Yuan as a managed float will end very soon... 

Is China willing to take such drastic steps during these uncertain times? I am not very sure. Hence, there seems to be a sense of desperation in the tone of the Chinese Central Bank governer. They seem to have lost the plot somewhere in the quest to have "competetive" (to speak modestly) exports. There may just be a little panic behind the yellow curtain. 

Having said all this, i personally believe this is a step in the right direction. This takes them one step closer in becoming an economy running on consumerism. I have always believed that the Chinese have to stop relying on the US economy to keep up that growth. It is expected that with these fundamental changes, the GDP growth will hit some serious bumps but that is expected and required. These may be termed as a few "necessary corrections" that will be good for the Chinese economy moving forward. Again, let us not be fooled into believing that China is an export driven economy. It is not. Exports contribute roughly 15% of Chinese GDP, which is to say the least, not very much. But this 15% today supports millions of cheap labour which is rapidly getting unemployed. So the concern is more political than economical really. Though the Chinese society is not known for demonstrations et al, it is never wise to underestimate the reaction of a man who is unable to put food on the table. We are currently hearing about the 500+ bn dollar stimulus package that china had announced. Well, this sounded more of a talk and very little substance. 

You spin my head right round, right round
When you go down, when you go down down...(damn! i love this song!!)

If one were to look at the nos, China today has a per capita GDP somewhere in the range of 3K USD, which is quite good really keeping in mind the huge population it has, but (with no statistics to really confirm this) the wealth seems to be concentrated in major cities and there is a growing divide between the hinterlands and the towns and cities in terms of economic prosperity. In short, this is another classical case of "India Shining" not really impacting the common man living in the hinterlands of China. India lost a government owing to this. Will China see any disturbances....? 

Here again there will be several Keynesian proponents ( is there anyone who is not) who will talk about how the stimulus-induced infrastructure projects are expected to bring economic prosperity to these regions. But I believe that there are a few additional things China must start looking into. So, let's talk about certain rather abstract steps which are required to be taken in order to bring a more balanced growth into the Chinese economy...

1. Artificially low wages to keep exports cheap needs to be stopped. These are the millions who will finally become the massive consumer base in the years to come. 
2. Encourage entrepreneurship. A government is not supposed to run enterprises but create the environment for people to think. In India, it's the opposite- we see entrepreneurship exists despite government efforts not to provide the required infrastructure!

Next time, let's talk about Obama's efforts to save the US economy.