Tuesday, January 20, 2009

Open Yale courses on Finance

Robert Schiller, the bestselling author of "Irrational Exuberance" teaches a finance course at Yale. Its fantastic to see the contents of the course online. Stockmarket investors and speculators need to digest this course before burning money at the altar of greed. Here is the link. Knowledge is power.


karthik said...

Great blog Vik. Have been a silent reader.

Real estate is really in trouble. Over a year ago - Yogesh Chabria started talking about it. He in fact predicted a 70% crash even in his book.

Here is more from him on it:


He is saying even at Rs. 2500 a sq ft. there will be no buyers in time to come.

Observer said...

The above article, reproduced below, is really insightful. It looks like Yogesh Chabria is another "Vulture" type of investor. He confirms that there is a 50% crash in land prices already from the peak. So people should wait, and stay on rent. Even with the crash of 1996-1998, prices did not really start climbing up until 2002-2003, so there is no rush.

By Yogesh Chabria

I was speaking to someone who entered the realty space a few years ago. He has invested over Rs 700 crore into developing a township in Southern India. A large part of the funding has been done by banks and financial institutions. He entered the real estate space because he saw it booming and every Tarun, Dinesh and Harjeet were running after it. It was a boom time.

Now, when the project started, he was expecting revenues of over Rs 2500 crore. He assumed he could sell each square foot for Rs 5000. I remember telling him more than a year ago, how the real estate prices were overvalued and the rates will fall and how it would be best for him to reduce prices and sell.

That time he was making a decent profit and could have easily sold his stock for Rs 2500 per square foot. This means he would have still got back Rs 1250 crore on an investment of Rs 700 crores. This was good money but he didn’t exit that time.

Today he is unable to sell even at Rs 2500 per square foot and is not only stuck with huge inventory. Not just that, he also has to repay banks and financial institutions. Buyers will not buy property even at Rs 2500 per square foot, because they feel it will go down even further. Even if interest rates go down, and the government announces stimulus packages people will not buy if they feel they can get a better deal by waiting. Most people I speak to are willing to wait even for 1to 2 years and live on rent.

I have suggested to him to sell now, even if he just recovers the cost, because if he waits any longer there could be a lot more stock coming in from several builders and he might not even be able to recover his cost. I see a lot of builders going bust and this could mean more trouble. Instead if he exits now, he will have a lot of cash which can be used to buy cheap assets. And he won't have to pay interest on the loans he has taken.

Today land prices have fallen from their peaks and if he has cash, he can buy this land for the future. I know of so many people, who are willing to sell several acres of land in prime areas across the country at a flat 50 per cent discount to what they were asking a year ago.

He can actually make cash out of this crash, if he takes his cash of the table and uses it to buy things even cheaper. No crisis lasts forever and anyone who sees a long term picture can cash the crash! In fact boom times are the times that cause most people to go bust. Situations like depression and crashes are the best time to create wealth.

A crash is the best time to create wealth and I am not just saying it for the sake of it but based on my personal experience. The sad part is that, most people discover opportunities they could have benefited from only after the crash and crisis is over. For instance how many people actually went out and bought property after the real estate crash of 1996-1997? They were available almost 70 per cent cheaper.

To benefit from crash, you need to have the knowledge to do so. You need to have tools that will help you analyze financial statements such as balance sheets and P&L. But analyzing financial statements is not enough -- we have seen since decades how easy it is to manipulate numbers. We again saw it in Satyam. While analyzing my personal investments, I always understand the business. I, for instance have been buying so many assets more 400 per cent cheaper than their true value. In a crash so many things are extremely mouth watering and delicious.

“Insider” investors, hedge funds and people responsible for the crash wouldn’t want others to know these insider secrets, because they want to be able to benefit the most.

Sometimes great opportunities come disguised as problems and challenges. Let positive thoughts, words and people surround you. Don’t listen to people who are constantly grumbling and cribbing about problems, instead look and learn from people who have gone on to create tremendous wealth. (Read:Are you optimistic and opportunistic?)

Here is what the richest man on the planet had to say about crashes:

The stock plunge "doesn't make any difference," says Warren Buffett, one of the richest Happionaires on the planet. "It's happened to me three other times," he says.
"It happened when it went from 90 to 40 back in 1974, and it happened in 1987. It went down 50 per cent in 1998-to-2000. I mean, I hope I live long enough so it happens a couple more times."

Keep smiling, learning and believing in yourself and you can certainly Cash the Crash!

Anonymous said...






Anonymous said...

Great Anon above,
Please go ahead and buy some more as the RE prices will never go down. And don't tell your secret to anyone. Just keep buying. People don't need your advice.


Anonymous said...

Vik, As regards to the finance courses at Yale:

I think this is the second MBA bubble I'm seeing the last 10-15 years. In mid nineties there was no demand for MBAs especially finance people.

Once again it is coming to the same situation. Most of the recent MBA grads will not find a job in the coming years as this bubble is bursting.

It is likely that 20-25% of currently employed MBAs will lose jobs and there could be salary cuts for at least 50% of these high paid idiots. It seems to be the most non value added degree. The corporations will soon realise their mistakes and letting go many of these people who are responsible for creating this financial mess all over India and even MBAs in US would suffer.


Anonymous said...

Tracking layoffs in US:



Bharat said...

Dear Vic/HB,

Thanks for the links. The yale one is wonderful. More feedback after I give it an overall first glance.

Something for all -

This is worth going through in your spare time.


Anonymous said...

As someone who read Irrational Exuberance which changed my life, Shiller Rules.

Anonymous said...

Well, the Yale course summaries the different aspects of finance & economics but the intelligent & expert crook of the st. are exploiting the lacunas in the system & playing with the economy.

Now there are very serious concerns about economic recovery. Mr Bernanke applied a solution to get out of the depression like situation but so far it’s not a success. We have lost one year in this experiment. Now Obama is trying for another solution of which results, will come to know in next 6 months. Now today’s data is pretty much like great depression & if Obama’s solution will not work out, we can’t prevent a depression. In fact Roubini has predicted a –ve growth for China in 3 or 4thQ of 2009. So forget about the 6% growth rate for India, it will be a –ve growth.
When the growth rate dropped from 9% to 6%, it created so much havoc; we can imagine the coming storm. If Obama’s plan will not work out then the expectation are going down from minimum 50% to 80% price cut. As per the insider news, US housing recovery are expected after 10 years to it’s peak value.

We can see the desperation of peoples who is shouting sunlight .. sunlight in night but the night is too long.

So guys let it fall then only pick up, minimum 50% price cut is guaranty.


K said...


Anonymous said...

Major pains ahead in US:
--Once the foreclosures moratoriaum is lifted, the market will be flooded with even cheaper houses.
--Alt-A resets will start happening and this problem is bigger than subprime. The peak of Alt-A is 2011-12.
--Credit card bubble is bursting now. Banks like Cap One and AmEX losing a lot of money.
--Banks don't want to lend and credit not available easily.
--Major layoffs still coming.

In short, it would result into:
--The prices will fall by another 50% in US.
--A lot of Indian techies will be going home by June 2009.
--Major supply of professionals in India which will suppress salaries further.
--Major layoffs in India which will even make the pool bigger and salaries will be cut down further.
--50% reduction in IT outsourcing.

Finally, RE is just a part of a major economic bubble that was built in the past 8 years. There is a bubble everywhere: housing, salaries, jobs, MBAs, higher education colleges, hotel rental prices, restaurants etc. And Inflation in India will put a final nail in the coffin.


Bharat said...

Hey HB,

You missed -
1. Option Arm Resets
2. Commercial Real Estate Collapse
3. Exotic Derivatives like CDS which still have to hit...

I think the consensus is all this will cause a second wave and might take Dow to 6000 or below. Some folks like Marc Faber are saying Dow will go to 2000!!

India also will have a major credit card and Housing crisis. Banks having tons of NPA's. IT industry will undergo a decline in the short term and so will the BPO industry. Stock markets should suffer massive losses from here also...the Debt load on Unitech and others as we have seen is crushing. Now they are taking loans to repay loans hoping that a boom will start and people will buy houses at these inflated rates to bail them out which is not going to happen. So the logical thing is when hope runs out for the builders, they will start dumping their inventory..As vulture says, let's wait, minimum 50% cut assured. Realistically 80% and above!

Anonymous said...

Thanks Bharat. I did miss those exotic products. I'm worried about my job too now.

Do you think it is safe to put money in India in Fixed deposits?
Do they have somehting like FDIC there? Do we have to report interest at IRS here? And how easy it is to convert it back to USD on maturity?


Adi said...

All this forecast of gloom and doom is for people who enjoy sadistic pleasure. These forecasters were never right when they predicted sensex to go to 30,000 nor will be right to predict dow closing at 2000. Matter of fact is, these forecasters just base their predictions on computer models, which God knows what is fed for data entry.

Ground situation is very different. Economy today is very different from great depression. People in great depression did not have food to eat, had to give away their kids for lack of money etc. Today economy is totally based on computer recovery. It can recover quickly. Information spreads faster than our thoughts.

For near future unemployment can raise upto double digits. All these stimulus packages will have jolting effect on economy. Plus comes positive attitude with new administration. Banks are easing now in lending as compared to september. This will give cash flow to businesses worthy to survive. There will be some shedding of excesses. Real estate prices went up in a spike rather than linear line, so it came back faster than anyone thought.

India is totally different story. It has very corrupt system and very weak judicial system. So things there can be easily manipulated as compared to US. Here market drives the force. Corrupt officials will do everything in their power to keep RE from falling.

Does anyone has any data (not newspaper reports) to support their arguments of fall in RE in India? Nobody knows any number on layoffs, actual housing prices etc. We all just listen to news and react. Some data can show the trend and can be helpful in predicting a trend. Otherwise its nothing but an opinion/prediction with no basis. Word about RE falling has been going on since 2006 and it is 2009 now. So either its very slow or its just a "word".

Oh by the way I am waiting for buying a house for not lack of enough correction but lack of money. Once I have enough money I can buy me a house.

Anonymous said...

Please go ahead and catch a falling knife. The housing is not like stocks that it would crash in a day or two. Look at the stock market, close to 60% drop from its peak. RE is a massive bubble and it'll take time to deflate. It is not going to burst. The air will leak slowly and may take 2-3 years. But 2009 will see a major leak of upto 30%. 2010 will further see 25% declines and 2011 close to 15%.

If you are getting impatient, please go ahead and buy. And use cash as banks will not loan you money as they were doing earlier.
Once you burn your cash, prepare yourself for a good thrashing from your parents and wife.


Adi said...


Any basis for getting those numbers on prediction? I understand that it will be quite a while before prices drop or they may not drop as much. Do we even have data on how many buyers were investors or firt time home buyers to make accurate prediction?

I am one of the guys who would want RE to fall and have me a house. But there should be some sort of sense in basing predictions rather than hearsay.

Plus I am not going to resell the house so even if I buy house 15% of its actual price its ok. oh by the way I am not buying for another year. But just want to know how you guys come up with these numbers of 50%, 60%.

Vik said...

HB and Adi :

As everyone agrees the Fed along with the Obama administration will pump massive amounts of money into the system. The real issue to tackle is consumer sentiment and as long as people keep losing jobs that will not change. The good thing about all of this is the overspending by American's and recently by Indian's will stop. Three of my inactive credit cards were cancelled by my banks. My credit score is going down as a result. The same is happening to millions of credit card users. We will see a sobering economy where excesses are taken out in every walk of life. Hopefully the cockiness which accompanies money power is gone. I for one am sick of taking to morons and brokers who think their dilapilated apts are worth 2 crores.

Vik said...

The Yale lecture series has a good speech by the CEO of the Blackstone group. In Spring 2008, BX was trading at 20 with an opening IPO of 31. Now it is around $4. The market pumelled this stock as leverage hit. These CEO's have profited beyond the wildest expectations and now the shareholders are left holding the bag.

catch22 said...

For anon who enquired about bank deposits being insured in India like FDIC: Here is the RBI link. The deposits per bank are insured only upto 1 lac (including interest). Check out the various combinations, the amounts may vary.


Anonymous said...

Thanks Catch22.
1 lac is too low though.


Anonymous said...

Thanks Catch22.
1 lac is too low though.


Anonymous said...

The easiest for you would be to understand that the last 8-10 years will be a lost decade in terms of growth. The RE prices will revert back to 2000-2001 levels. In US they are already at 2002 levels now and they will go to 1999-2000 levels in US.

To see if the price is right: If you like a house check the monthly rent for a similar house in that area and multiply 150 with the monthly rent. That is what the house should be worth to make financial sense. If the rent is 20K, the price should be 30 lacs.

A lot of Indians are in denial mode. And what is the hurry to buy a house. I was presurred by my in-laws and my parents to buy one. I never listened to anyone and now they all say I made the right choice. My brother-in-law who bought a house in US has already lost close to $300K on his house.
Take your time and stay cash. Put your money in FDs in India and get 9-10% return.

These would be the phases in India:
Denial: We are in it now
Anger: Is coming in 6 months

You must not forget that Emerging markets and India shining was all a big bubble.


Anonymous said...

Anyone who claims there flat is worth 2 crores, have them listed it in the market and they would get no buyers even for 1 crore.
See my above post for phases and Indians are in denial mode as yet.

This is incredible India.


Anonymous said...

in comment above.


catch22 said...

Am a huge fan of this blog. Just wondering if there is a site similar to this one(deepcapture.com) about the Indian stock market detailing
scams/naked short selling.

I found one link through desipundit about satyamurthy.com(informative).

Anonymous said...

Vik - Dont we need a fresh posts - all the comments on housing are spilling over to your posting on OpenYale Courses on Finance.

Anil said...

Thanks catch22 for posting the link - http://www.deepcapture.com

I think, this blog certainly has ability and potential to reach that level considering the response from readers

Even I wish we had such portal -Investigative journalism examining the growing threat to our Real estate market. False claims/predictions by RE lobby are made available to public hand-in-hand with core pillar of our system - media (especially print) which many people trust and jump into financial decisions. Most of the articles / columns supplements are sponsored to bring new business at any cost and not for education and awareness. Print media looks like so dependent on revenue source from these business houses that they lost their credibility and basic purpose. To begin with I stopped ET/TOI subscription which I was reading every morning for past 12 yrs. I read The Hindu Business Line now but would rather trusts a common readers / bloggers comments than these salaried sponsored journalism.

Thanks all who are regulalry contributing to this blog..

Vik said...

thanks for the link Anil. I agree with you that TOI and ET write articles with a builders bias. Bad news is not reported or toned down and dressed up as inconsequential. Press releases make headlines. The Fourth estate has gone to the dogs. All we are doing is helping each other. I'm looking for the day when good deals get posted on this site cutting thru the broker-builder nexus.

Vik said...

India is too corrupt for investigative journalism. Most probably the journalist will get bumped off if he gets closer to the truth. All we can do is protect our capital by rational decisions. Sometimes things will not be in our control, however it will save us from making life changing foolish decisions.

Hearing the desparate cries of the builders for interest rate cuts sounds like the asura Bakasura who needs one person a day to satisfy his voracious appetite