Contrarian Viewpoints: The positive economic opinions

Since May of this year when the Greek debt scare coupled with woes of the Euro region rattled the world markets, most experts have been talking about a double dip in the developed world. In these constant forecasting of doom, two articles with a contrarian viewpoint on the editorial pages of yesterday's Wall Street Journal captured my attention. The editorial titled, "The Housing Mirage," reflects on the record fall in existing home sales in July (the drop was 27% as compared to a consensus forecast of 13% by Bloomberg). WSJ editors try to tell us that housing is an effect and not a cause of the recovery. So housing will not help not hinder recovery beyond a small measure. Of course they go on to critique the administration's policies to support housing, but that's a different discussion.

The other article, an opinion piece written by DeVol from the Milken institute points out that investment in equipment and software is strong along with the outlook for exports. The growing tigers of Asia and South America aren't relenting on their American imports yet. Referring to their study, "From Recession to Recovery, analyzing America's return to growth," based on, "extensive and dispassionate econometric analysis," the article predicts a GDP growth of 3.3% of 2010 and 3.7% in 2011. They argue that relationship between rate of recovery and peak to trough decline of GDP is well established historically. The opinion piece goes to give suggestions to what the administration should do to ensure and bolster the recovery.

The editorial is -The Housing Mirage. As of today the article can be read without any subscription. Same is true for other article, The Case for Economic Optimism

PS: Tried researching Milken Institute and found them described as non-partisan at most places.

Warren Buffett's philanthropic pledge

Was reading Warren Buffett's philanthropic pledge in the latest Fortune and the following passage stood out.

My luck was accentuated by my living in a market system that sometimes produces distorted results, though overall it serves our country well. I've worked in an economy that rewards someone who saves the life of others on the battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into billions. In short, fate's distribution of long straws is wildly capricious.

Yes, I know it is great that Buffett and The Gates (Bill and Miranda) are asking wealthy Americans to pledge 50% of their wealth to charity. But for me, it is grave unfairness of the haunting truth of the above statement that needs attention. This, if anything, is what I hope to leave with you today.

Dealing with failures

Disappointments and failures – both professional and personal – are a part of anyone's life. How you deal with them shapes your life and that of others around you. People handle disappointments in a many ways ranging from inability to control their emotions with behavior such as stomping feet, shouting and throwing tantrums, to complete denial and building a shell around them so that failures can't be discussed. Both these extremes make life difficult – at work and home. This post analyses the consequences of your response to failures on your career. Response to failures can basically be of four kind

1. Aggressive - Lack of Self-Control, Shouting, Threats.
   
2. Sophisticated and shrewd blame game, Successfully putting the responsibility on co-workers, procedures etc
   
3. Remedial/Corrective – Finding where mistakes occurred and redoing things, correctly
   
4. Innovation & Abandon – Trying a completely new approach
   

I don't consider the silly blame game as a response. You come out looking even more idiotic and unconvincing. A particular response may have a very different consequence for you depending on your career level. For example, you can get away with option a if you are senior enough though it is highly likely that you have destroyed your team's morale. The table below captures the impact of these behaviors on your careers. I think most of behave in a certain way in a crisis because it has got to do with we are than what the issue is. Cognizance of our own behavior pattern is the first step in modifying it to something more appropriate.

Behavior/ Career Level		Aggressive			Blame-game	Remedial/Corrective	Innovative
Junior		Highly detrimental. Can even have immediate negative consequences.			Can be successful if well used. The key word here is sparingly, only when desperately needed. You can't afford to have a reputation for blaming.	Highly suited for repetitive jobs such as achieving the monthly sales targets	Mostly not welcome except for creative / non-repetitive jobs. Example – finding a new target segment. People want to know you can effectively follow directions and established norms.
Mid-Senior		Easier to get by than at junior level.			Not recommended. At this level people are looking at you to take responsibility.	Required as a part of managing others doing repetitive jobs	Needed. Welcomed more than at junior level. Be careful that innovation is not turning into escapism.
Executive		Though it appears that you can get by, there are huge disadvantages to behaving like this. It shows you not in control of a situation & can cause people to lose faith in your leadership			Since you have authority over & are responsible for everything, highly undesirable and ineffective	Needed. Shows that you are in control, and you can lead and teach	Required. Unless you have a different innovative idea for executing the company's vision, your subordinates won't have faith in your leadership.

 

We don't become different people in office. Most of us behave similarly in our personal life too, leading to same consequences. This understanding can help you & I become a better person.

Book Review : The Trillion Dollar Meltdown

I just finished Charles Morris's The Trillion Dollar Meltdown which was published in January 2008. Since the book is based on an area of professional interest, I think it deserves a detailed review and not just an update.

Morris' book was one of the first texts on financial crisis to come to the market. In less than 200 pages the book covers a huge breadth of topics. Starting from the precedents and history of the recessions during the Lyndon & Reagan presidencies, it goes on to talk about the previous market crashes caused by portfolio insurance & the failure of Long Term Capital Management. He describes the current crisis starting of course from the usual CDO's and derivatives, predatory lending practices including the NINJNA (No Income, No Job, No Asset) loans, the cascading effects of high leverage at hedge funds and other financial institutions and the roles of  the raters, insurers and government bond market. He reconfirms my view that loose monetary policy at the time of Alan Greenspan was one of the leading causes of the crises. (Read my previous post here). Morris strongly approves Paul Volker's handling of the problem in 80's. But what really impressed me about the book is that it covers to the global distribution of money, trade deficits &surpluses and also reserves in countries like China, Russia & in the middle-east. By including the power of sovereign wealth fund of these countries and the recent academic debate about China's savings rate & currency valuations, the authors covers the issue from both domestic & international angles. Any review of the book must take into account that Morris was forecasting the future & not analyzing events.

But there are some drawbacks of packing too much into so few pages and shipping the first book and at some places it misses depth. But for a bird's eye of how thing went wrong and where, The Trillion Dollar Meltdown is great book. In fact I definitely recommend it for any bookshelf. Coming from the other side of the table, Morris sees huge limitations of free markets in cleaning up the current mess. According to him the only immediate option America had was to deleverage (and hopefully in an orderly fashion or things would turn really bad). With the benefit of hindsight, here is a passage from the book

The recent woes of the dollar are important for our story because they effectively take the Fed off the board. As credit crunch works its way through banks and investment funds over the next year or so, there will be no soothing fountains of new dollars coming out of Washington. The days of a universal put to the Federal Reserve are finally over.

Clearly even the best of people did not anticipate how many dollars the Federal Reserve and the government would be willing to print. Here are author's views about the $800 TARP in an interview in October 2008.

Book Update: Right now am reading 'The World is Flat' and 'Eat, Love Pray'.

Why Do I Volunteer?

The most important of life's lessons do not come to you while you are managing P&L's and fretting over project schedules. They often land in your lap when you take the time (or are forced to) to sit back and reflect.

Nice Guy is this American teenager I met during one of our outreach sessions. The weather was biting cold and we were distributing hats, gloves and sweaters. He told me he didn't need any. We started talking to the other kids. He stood in a corner and then came around to ask me if he could take a cap and a pair of gloves for a homeless friend who wasn't around. I have often met kids/ young adults do not trust adults immediately. One of the first lessons homeless kids learn on the street is that admitting you are homeless makes you an easy target for predators. I thought Nice Guy wanted this stuff for himself and he was either shy of asking or lying to us. Nevertheless, I gave him whatever he needed. He told me that he lived with his aunt in Brooklyn for personal reasons. He didn't give me the details and I didn't push. I thought his eyes were misty when he asked me, "Why do you do this?" I didn't know what to say. I had started getting involved with non-profits in the US initially to find something to do with my long empty days. But you don't want to say that. You want to give a grand answer about how you want to change the world. I blabbered something inconsequential.

Suddenly Nice Guy spotted someone. He called over and handed over everything I had given him. I tried to find out more about Nice Guy. He worked at a Pizza outlet. I asked him if he made enough money. I wanted to make sure he wasn't going to go hungry that night. He told me, "I work 12 hours a day and overtime pays very well. I can even buy stuff for my friends sometimes." He had applied to college and had received an admission offer. He was going to do a bachelors degree and major in finance to get a job that, "will lead to great career." (To put things in context he was most likely planning to work through college to pay for his tuition and living expenses). Nice guy didn't want anything from the world except opportunity and he had no complaints. We shook hands and I wished him well before leaving.

When someone asks me next time, "Why do I do this?" I think I know better. I volunteer because it gives me opportunities to meet people like Nice Guy. It motivates me and makes me feel grateful for what I have. For the sake of Nice Guy I also wish and hope that Finance does lead to a great career, in spite of everything that is going on.

Book Update: SuperFreakonomics (Levitt and Dubner) – The book is an easy breezy read with interesting stories. However some parts are oversimplified such as those about climate change solutions. Often correlation is taken causation. It looks like the interest of the authors was in telling memorable stories from uncommon point of view than real research.

The Wharton India Economic Forum: Healthcare (India versus US)

On Saturday, March 27, 2010 I attended the 14th Wharton India Economic Forum. So I believe the event started in 1996 marking five years of liberalization of Indian economy. There was an impressive list of speakers. You had people from Private Equity, Information and Technology, Social Sector, Healthcare, and Education and Training. There also was panel of woman leaders talking about issues of glass ceiling at workplace.



In the morning, I attended the healthcare panel. I found the Sangita Reddy, (Director, Apollo Hospitals) had the most memorable insights. She pointed out the efficiency of health care services in India by comparing the back office & administrative costs in the two countries; 7 percent in India versus 25 percent in US. I am impressed that India has basically managed to keep the cost of a by-pass surgery stable for 27 years despite the high rate of inflation. She underscored her point by mentioning that Indian doctors were more willing to do a 'Beating Heart Surgery', a very complicated procedure that saves costs and has a greater probability of recovery. Apparently, 97 percent of heart surgeries are beating heart in India versus less than 10 percent in the US. You would think that a country as technologically advanced as the US would have adopted an advanced technique. This underscores the discussions about healthcare that I have with my friends, some of them healthcare professionals. They insist that in India doctors are more efficient and more willing to actually 'treat you'. My take on this has always been that a society with such a high instance of law-suits and 'do no harm' principle causes doctors to cover their backs first with multiple tests, before initiating any treatment. The inefficiency in the system is greater because the payment is made by a third party. Since the money appears to go from the insurance company's pocket, neither doctors nor patients are concerned about efficiency. Remember, your insurance premium is actually a 'sunk cost', money that you have spent anyway.



Bhargav Das Gupta, CEO and MD, ICICI Lombard talked about the new products to finance healthcare in India, especially for really poor people. The low penetration on insurance (less than 5%) is an opportunity for insurers, but the low awareness a huge challenge. Only yesterday I was reading how Indians do not care much about health insurance. There was the perennial subject of drugs patents and generics and branded drugs, and the long winded process to discovery of new drugs. What really stayed on with me was an interesting tit bit about ingenious water filters. Homi Khusrokhan, Advisor to Tata Healthcare explained how the Tata's successfully developed an extremely cheap water filter that removes 99.7% bacteria from water using burnt rice husk and nano silver, without power. On a personal note, I really liked Khusrokhan, the man had a wealth of experience with a really humble Lucknowi demeanor. The composition of the panel was extremely impressive. The organizers had ensured that there were representatives from delivery (Apollo), pharmaceutical (GSK and Excel life sciences) and the payers (Tata Healthcare, ICICI Lombard and GSK Venture), ensuring that all aspects of this complex issue are covered. I hope to write about other panels and speakers in my later posts. In the meantime you can have a look at the complete list of speakers & panel members here

Books Update: I am back to fiction for the time being. Finished 'Memoirs of Geisha' sometime back. Loved the portrayal and discovered few unknown aspects of the traditional Japanese culture

Canadian Impressions: February 2010

Recently, I was in Canada for a few days. It was my first visit ever to the country, and left me desiring for more. Canada may not appear foreign if you are an American, because you don't need a visa to travel there. But I did find Canada to be very different from USA. And, since I am comparing apples to apples - Toronto to New York - I think my impressions are representative. First, the Canadian winters. The average daytime temperatures are about 10 degrees lesser than those in the New York east coast area.

I landed there pretty early in the morning on a Sunday, 7 am, hoping to make the most of day (and also for some reasons beyond my control). We later walked the streets of Downtown Toronto scouting for breakfast. We moved from shop to shop looking at the operating hours. None of them would open before 10 am. By 9:30 am some Starbucks opened up. Though I was grateful, if you have been up since 3 o'clock in the morning, you want food by 9 am, not just a coffee with a snack. Lesson number one - Canadians are in no hurry to open their shops on a Sunday. Be prepared to wait till 10:30 am if you want a proper sit down breakfast. There weren't too many (rather any, when we started) people at the Younge Street - believed to longest in the world - even in the downtown area. Finally by midday few people started venturing out.

In a few hours you understand the reasons for the Canadian way of life. It was freezing. Further movement was subject to a hat and a pair of warm gloves. We finally gave up and had a juice and a pretty average Thai soup. The only thing great out the soup was the potion. I closed my day with a very early dinner. The biggest reason, almost all dining places closed by 6 pm. I returned back to the hotel by 6 pm to sleep for a good 14 hours. What better lesson in hibernation can you ever get.

Armed with the lessons of day 1, we begin day 2 in a relaxed Canadian way. Monday is the first day of the week and I noticed is the laid back and balanced Canadian life versus New York. The operating hours of a bank branch that I visited- 9:30 am to 4:30 in the evening. Compare it to 6:00 pm for a similar institution in New York. Or Indian public sector institutions, which work from 9:30 am to 5:30 pm. ICICI Bank, a private bank I was closely associated with as a part of my job in India, has its branches open from 8:30 am to 7 pm. Indian public sector banks which used to have their customer service hours from 9:30 am to 2:00 pm, have extended them as computerization has reduced the amount of manual work involved. However, the merit of timings become apparent after 5 pm when the winds become really chilly. You feel a strong desire to not go out unless you really have to. But a lot of eating and drinking places are open late on weekdays. I mean late by Canadian definition – 11 pm. We adapted to style of Canadian commerce and skipped our breakfast for an early lunch instead.

The rest of our stay passed nicely. Though we saw all around the Downtown, the Financial and the Theater districts, I decided against venturing too far out. I also tried this great place that serves vegetarian cuisine from around the world. We also met an old friend Karan, who is now settled in Toronto. Few other takeaways from the visit, Toronto isn't full of Indians as a lot of us think. I spotted fewer Indians than I usually do walking in Jersey and New York. Karan insists that it is the most cosmopolitan city in the world though I disagree. I believe the place has far fewer people of Asian – Chinese, Korean, and Japanese – origin too. The population is largely Caucasian White. I didn't visit the Greek, Chinese or Indian settlements around the city. But it does have food from all over the world, lots of Thai places, tea houses, Chinese restaurants, Sushi places and Pizza outlets. The public transport if good with Subway in the north to south and streets cars (buses or trams if you prefer) that run on rails in the east west direction.

Colder Toronto weather; higher transient population or the tougher corporate life in New York could all be possible explanations. But all of them lead to the conclusion that Toronto is more focused on family and having a relaxed balanced life as compared to New York. (Btw, Toronto is a more expensive city than New York.)

HOPE 2010 New York: A lesson in involving volunteers

Last week, I got an opportunity to lead a team for New York's annual HOPE (Homeless Outreach Population Estimate) survey. I didn't know what to expect while entering the public school near 33^rd street. But there was anticipation because we were there to help the Department of Homeless Services (DHS) plan out their services. Outreach itself didn't scare me much. I have been doing that for three months for my own non-profit. Though the idea of staying out to walk the streets the whole night was slightly unnerving.

The volunteers signing us in were glad to find that I was a team leader. Good! The materials you need are on your table, they said. In the large room probably used for the school grade assembly I found almost 200 people sitting with their teams. I hadn't signed up with friends. It worked out well because I made four new.

The training, instructions, press coverage and all took us about an hour. Time the efficient me utilized for checking the maps and plotting our most efficient path one end to the other. It was good because we were given four staggered areas to survey.

We discovered before leaving we were one of the few teams with police escorts. Looking at our volunteer tags the MTA driver let us in without swiping our metro cards. Royal Treatment. We walked the streets for the next few hours, offered help to homeless that me met and even got a ride on the NYPD vehicle. When we returned, there again were clear printed instructions on what to do with the data we had gathered.

The whole event was very organized. The training material was simple with flowcharts, checklists and color coding. I shouldn't have been surprised. The material was designed by School of Professional Studies (SCPS), NYU for DHS. I made a mental note that to involve volunteers for activities like this you need to have material as crisp and clear as that. The organizers made sure we had everyone's contact information and note down ours. In a operation like this, steps like these ensure that everyone feels and is safe. Apart from a satisfying experience, I returned home with valuable lessons in how to best use of volunteers.

Google vs China: Lessons in good corporate communication

Right when I am in the middle of Googled by Ken Auletta and, fresh after reading how companies in China are improvising, expanding and acquiring to make the country a manufacturing super-hub, comes the Google China standoff. What better time? The first thought that comes to mind about this story is that it is unique. A company versus a government? There maybe a few cases involving Russia and Venezuela but, initiated publicly by the company? None that I can think of. Though a lot of my friends have mentioned that Google has a small share of the search market in China and has nothing to lose, I personally believe that the potential of lost business is huge considering that Google is now also entering the phone business. What is most interesting is how Google has garnered headlines and moral support all around. An example of really great corporate communication. Of course the real ramifications are even bigger if you realize that with the kind of data Google has about each one of us - our inboxes, preferences, blogs, read lists and what not - one wrong step could have been a disaster.

This post on google's blog explains the Google's new approach to China is amazingly well written. David Drummond, company Corporate Development and Chief Legal officer explains that the company faced a security breach and its intellectual property was stolen. That is nothing new for IT companies. They face these kinds of attempts regularly. The next few paragraphs take the story to completely different level. According to the post many other IT companies and inboxes of human rights activists were targeted. Google suddenly seems to be taking a stand on behalf of other companies and also supporting human rights. A security breach is successfully converted into an opportunity for moral high ground. China's bad reputation makes things easier. Grade B+

Secondly, Google takes special care to assure us that no information was hacked except for two accounts to ensure that you and I who use Gmail everyday don't feel unsafe while logging in into our inboxes next time. The company safeguards itself by mentioning that accounts of those supporting human rights activists in China might have been regularly accessed through malware. Yesterday evening when I logged in to my inbox, I also noticed that a red label on the top right hand corner. It explained my mail had reached me via the secure 'https' protocol. Grade B+ with a positive inclination

The last paragraph then establishes Google as reasonable and all for the good cause. No wonder the Wall Street Journal reporter links it with Google's motto of Do No Evil. The company is willing to discuss and negotiate with the Chinese government. It is no longer willing to censor search results at http://www.google.cn/. What could have been a privacy debacle for Google has been converted to a battle in support for privacy and human rights. Grade A.

What do you think about Google's handling of the situation?

Globalization & FDI: The winds of change

I have been interested in the phenomenon of Foreign Direct Investment for a while. Till a few years ago, FDI implied the flow of foreign funds into a developing country. The direction was almost taken to be granted and the thoughts of India investing in Europe or Americas didn't cross my kind. Money flowing into the economy was an important indicator of the country's standing and opinion in foreign markets. An important proxy indicator of the possibilities, untainted by government statements. The last ten years of growth have however bought us to a new ground; winds of FDI now clearly blow in both directions.

There is this interesting editorial in Financial Times that shows how the growth in emerging markets has affected the flow of FDI. The article points out that FDI arising out of BRIC nations, Indonesia and South Africa has risen from a mere $10bn in 2003 to $12bn in 2008. A growth of 1100% percent. I remember a headline from the WSJ marketplace front page section about a Chinese company (Sichuan Tenzhong) bidding for the GM Hummer division. The reporter had used the word 'Unknown' literally in the headline. I searched the first four columns and didn't find the name of the company mentioned anywhere.

Coming back to the FT article, it uses four recent examples from the automobile sector involving mergers and purchases by Chinese and Indian companies. Next important learning most of these FDI transactions are M&A transactions and not Greenfield projects. A comparatively easier route with ready access to talent and technology and also a much faster path to growth giving these companies an immediate foothold. To me it is also an indication of the speed of the changes to come.

For the companies in developed markets this therefore is a time of reckoning. Clearly countries like Indian and China are no longer just places to outsource for cheap manufacturing and talent. They are also potential competitors and partners, presenting a need to engage and keep a tab on. The virtues of the 'next billion customers' in growing populations of China and India has already been extolled enough.
I am reminded of the principle of the state of equilibrium. It might be a useful reminder for those in power both in the developing and emerging economies.

You can access the article written by the Matthew Slaughter, associate dean and professor of management at the Tuck School of Business, Dartmouth here

Book Update: Just finished Dan Brown's The Lost Symbol.

Movie Update: Avatar is in a class of its own. Despite its over the top second half, Three Idiots is thoroughly entertaining. Sherlock Homes is a well shot and acted period drama with an unconvincing Dan Brown style story