Friday, March 19, 2010

When we see such articles hitting the mainstream media, we know that the bubble is on its way to pop, sooner or later. Fast money never lasts and Mr Yadav will soon realize this. New York times link. Farmers owing land in outlying areas of all Indian metro's have experienced this windfall. Personally I have witnessed farmers become overnight millionaries in Pune, Bangalore and Nagpur. However as we all know that is just a fraction of the farming population in India.

On the other post of Persistent, that IPO has been oversubscribed 93 times. I would not be surprised if the stock doubles in a few days. Some people are going to be very rich, and others very poor.

NOIDA, India — Bhisham Singh Yadav, father of the groom, is stressed. His rented Lexus got stuck behind a bullock cart. He has hired a truck to blast Hindi pop, but it is too big to maneuver through his village. At least his grandest gesture, evidence of his upward mobility, is circling overhead. The helicopter has arrived.
Kuni Takahashi for The New York Times

At a wedding on Delhi’s outskirts, the groom, Kapil Yadav, and the helicopter his father hired.
Enlarge This Image
Kuni Takahashi for The New York Times

Girls protected their faces from the dust near Delhi as a helicopter carried the groom to his bride’s village less than two miles away.

Mr. Yadav, a wheat farmer, has never flown, nor has anyone else in the family. And this will only be a short trip: delivering his son less than two miles to the village of the bride. But like many families in this expanding suburb of New Delhi, the Yadavs have come into money, and they want everyone to know it.

“People will remember that his son went on a helicopter for his marriage,” a cousin, Vikas Yadav, shouted over the din. “People should know they are spending money. For us, things like this are the stuff of dreams.”

The Yadavs are members of a new economic caste in India: nouveau riche farmers. Land acquisition for expanding cities and industry is one of the most bitterly contentious issues in India, rife with corruption and violent protests. Yet in some areas it has created pockets of overnight wealth, especially in the outlying regions of the capital, New Delhi.

By Western standards, few of these farmers are truly rich. But in India, where the annual per capita income is about $1,000 and where roughly 800 million people live on less than $2 a day, some farmers have gotten windfalls of several million rupees by selling land. Over the years, farmers and others have sold more than 50,000 acres of farmland as Noida has evolved into a suburb of 300,000 people with shopping malls and office parks.

Thursday, March 18, 2010

The Stock Market As Propaganda

The Stock Market As Propaganda

Since 91% of stocks are owned by the Plutocracy, the much-ballyhooed rise in the stock market as proof the recession is over is perception management/ propaganda.

The 75% rise in the stock market from its lows a year ago is ceaselessly offered as "proof" the economy is recovering. Too bad very few Americans are drawing any benefit from this stupendous rise. As I detail below, the Great Middle Class owns at best only 7% of all stocks and mutual funds.

So the constant, breathless heralding of the stock market's carefully manufactured ascent has only one purpose: to create perceptions of "recovery"and distract the populace from the fact that in terms of employment and tax revenues, the U.S. economy is still shrinking rapidly.

Let's begin with the facts presented in the Wealth, Income, and Power website (G. William Domhoff).

In the United States, wealth is highly concentrated in a relatively few hands. As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.5%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers).

In terms of financial wealth (total net worth minus the value of one's home), the top 1% of households had an even greater share: 42.7%. Table 1 and Figure 1 present further details drawn from the careful work of economist Edward N. Wolff at New York University (2009).

In terms of types of financial wealth, the top one percent of households have 38.3% of all privately held stock, 60.6% of financial securities, and 62.4% of business equity. The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America. (end of excerpt)

Here is a chart from the website:
wealth distrubition

According to the asset class breakdown on Wealth, Income, and Power, the bottom 90% owned 18.8% of all stocks and mutual funds in 2007. Since the bottom 60% own very little (only 22% of the bottom 60% own stock/mutual funds worth more than $10,000), and the bottom 80% own a mere 8.9% of all stocks/mutual funds, then the top 10% owns 81% of all stocks (of which the top 1% own 38%) and the "managerial/professional" slice between 80% and 90% owns about 10%.

Some 47% of the "middle class" (those between the bottom 40% with few financial assets and the top 20% with the vast majority of the assets) own stocks/mutual funds worth more than $10,000, but since the bottom 80% own a mere 8.9% of all stocks, it seems the Great American Middle Class owns about 7% of all the stocks and mutual funds in the U.S. (with the bottom 40% holding the remaining 2%).

According to BusinessWeek, the profits of the S&P 500 corporations rose in 2009 to over $500 billion--a vast sum presented as "yet more proof" that the recession is over.

Over for some perhaps, but not for the bottom 80%. It is no secret that the spurt in productivity which fueled those gargantuan profits was made by reducing headcounts and getting more work out of the remaining workforce. Bully for the S&P 500 managers and those who reap the profits.

Since there are about 130 million U.S. households and total corporate profits are around $1 trillion, we can do some simple math to see where all those profits flow.

If you dig through the BEA website and other sources, you find that Corporate profits were about 13 percent of GDP in 2007, their highest level in 40 years and significantly above the post-World War II average of 9.4 percent of GDP. Nonfinancial profits for 2006 were $1.08 trillion. Real GDP peaked in Q2 2008 at 13,415.3 billion; in Q3 2009 GDP was 12,973 billion (calculated annually).

Even assuming corporate profits have dropped back to 9% of GDP, we still get a number around $1 trillion in profit for 2009.

Based on the ownership of stock and mutual funds, we can estimate that 9% ($90 billion) of all that profit flowed to the bottom 80% of households (104 million), $100 billion flowed to the 13 million Managerial/Professional households (the 10% of all households between 80% and 90%), and $810 billion flowed to the top 10% (13 million households), of which $400 billion flowed to the top 1% (1.3 million households).

Since total household income runs about $9 trillion, then the $90 billion distributed among 104 million households doesn't really ring a lot of chimes when the estimated loss of wealth in the U.S. as the credit bubble popped has been estimated at $15 trillion.

The rise in the stock market and corporate profits benefitted the relative few--yet is touted in the mainstream media as heralding the end of the recession for the entire nation. That is pure propaganda. How easy it's been to manufacture a rising stock market, compared to engineering a recovery in the economy.

Indeed, the biggest problem facing the manipulators is the lack of participation by the professional and middle classes which have steadfastly kept their cash in money-market funds ($3 trillion) and put money in "safe" bond funds (about $350 billion went into such funds in 2009) while they withdrew money from the stock mutual funds.

The Grand Game has always been to engineer a rising stock market, sell to the middle class suckers and then go short, making a fortune as the bubble pops and the middle class loses the "sure bet."

Now that the middle class isn't responding to the endless propaganda about how great the stock market is doing, then the Powers That Be are forced to trade between themselves--hence the low daily volume and high-frequency trading.

The stock market isn't about building middle class wealth, and the middle class seems to have finally figured that out. The equity market is all about concentrating wealth and managing perception: if the top 10% is doing well, then the bottom 90% are supposed to feel better about the whole thing, too, even if they are poorer by every financial metric.

Charles Hugh Smith has been an independent journalist for 22 years. His weblog,, draws two million visits a year with unique analyses of global finance, stocks and political economy. He has written six novels and Weblogs & New Media: Marketing in Crisis and just released Survival+: Structuring Prosperity for Yourself and the Nation.

Wednesday, March 17, 2010

Impact of Persistent Systems IPO on Pune real estate

The Persistent Systems IPO opens today and is intended to raise over 167 crores. I have known about Persistent Systems for a long time and know some people who work there. Dr Deshpande the CEO is different then the rest of the businessmen in India, most of whom are ready to scam the people and make a quick buck in the stock market. I remember visiting the Persistent office in the PCMC MTDC STP in Aundh in Jan 93 when Pune was a sleepy town and everything used to shutdown at 7:00 pm. It has since grown organically as they kept building on their core strengths of systems programming as their niche rather then become the jack of all trades.

My feeling is that quite a few employees in Pune will have excess of 10-20L post the IPO as their options become liquid. With 4400 employees on their payroll, I have a feeling atleast 70-80% of them will cash out their options and buy some real estate in Pune, but I am also guessing that the Mumbai style purchases by investors with 10-20% down is going to eat up supply as people start to get greedy.

I think Pune builders are going to benefit big time in the short run as this mania is induced by the builders thereby driving other fence sitters into taking the plunge. Remember Pune is still cheap as compared to Mumbai and a lottery of 20L is almost a once in a lifetime opportunity.

If this blog has ever given a bullish signal it is giving now, only for Pune real estate. The key would be to negotiate prices before the Persistent folks start cashing out. I don't know the lock-in period of the IPO but I presume that it will be atleast 3-6 months before they are eligible to cash out. In essence investing in Pune real estate is a proxy for investing in the Persistent IPO, where you can leverage the bank for 80% of the amount. I would only advise this only to serious buyers in Pune and not those who would like to flip in 6 months. Livable areas close to Persistent, Pashan, Baner , lesser degree Hinjewadi, Wakad should be good bets

If we have any readers of this blog from Persistent I would like to know what they are doing with their liquid stock options

Monday, March 15, 2010

L.K Advani wants to get back black money from Swiss accounts

Here is your chance to comment in the blog and urge Mr Advani to generate pressure on the government to recover lost assets rightfully belonging to the Indian people. Corruption is the root cause of disproportionate assets in India and this is a way to fix it. Here is a link to Mr Advani's blog. Apart from Switzerland there are hundred other places where one can launder money. In this age of the internet it is not hard to know where all money can be stashed. Just the other day UBS released a statement of data theft of account names and numbers which were stolen by an employee. HSBC reported a similar theft few days ago. In this age there is no privacy and employees can be easily swayed by easy money to get hold of critical account data. Banks will try to tighten security policies and restrict access but to a motivated data thief, getting few megabytes of data is a cake walk.

We are going to see a lot of skeletons tumble from the black money cupboard. Its not a question of 'IF, its a question of 'WHEN'.

Indian inflation is real nasty

One will never see such articles in India's self censoring media. Editors and columnists think that the big three of Indian finance are demi-gods like Tendulkar or SRK. Not to mention leaders in the opposition who have their head stuck in the 19th century. Here is what is happening to the salary of the Indian citizen. Link

Factory gate prices are not a true reflection of cost-to-consumer, but these WPI figures, as the best available data, seem to indicate that the Singh Administration grossly underestimated the potential for inflation as the desired stimulus led output and investment gains have exacerbated the agricultural complex after last year’s disastrously dry monsoon season. The public assurances of Singh’s administration and Central bank Governor Subbarao that food prices will moderate in the new year (March to March) is meaningless if this year’s monsoon rainfall disappoints. Note that ,with agriculture accounting for nearly 20% of GDP but employing over half the population, water is the most volatile commodity in the Indian economy. indian inflation

Sunday, March 14, 2010

Sheela Murthy's interview on the latest USCIS

I found this recent video of Ms Murthy's interview with Sneha TV. Some people might find it off topic, however given the number of Indian IT professionals in the US and/or aspiring to go to the land of opportunity I thought it would be of interest to a wider audience. She makes some excellent points and it is a must see. Here is the link

Twenty-25 per cent toh market tootega

The brokers have a vested interest to drop prices since at current prices there are no buyers. Builders launch projects and sell to investors, now investors get greedy and are not ready to drop prices to the higher levels held by the builders. Brokers are squeezed in between as there are no transactions as investors are not ready to drop prices. Builders have no incentive to drop prices as they have sold to the investors and if they drop prices, investors will start bailing out and demanding a reduction in prices, similar to the DLF fiasco in Chennai. End-users cannot buy since they are not eligible for bank loans. Its a catch -22 situation which this ponzi scheme has now reached. The bubble will unwind one apt at a time, as investors realise that they have been fooled by the builders. There is no denying the fact that there is demand, however the price at which the demand is satisfied is in the range of 4k - 6k per sq/ ft in Mumbai. There are always exceptions to the rule however in the general locations where income levels don't cross 10-15L this is the range.

The same scenario will unfold all over Mumbai. This article in the mainstream media is what I was waiting for. I have been crying myself hoarse over the past few years and a 25-30% reduction in investor prices will bring apts down to under 5k per sq ft.

Congratulations buyers for being sensible. I woudn't mind paying the broker 2% if he can convince the investor that the bubble has burst and ask him to drop prices to the 4,000-5,000 range.

Goregaon-Borivli to house 30,000 new homes by 2012

Buyers can expect a correction in realty prices soon, say experts

By Alka Shukla
Posted On Saturday, February 20, 2010 at 02:05:39 AM

According to data collated by suburban brokers, around three-crore square feet of residential property could be up for grabs between Goregaon and Borivli over the next three years.

Going by the average apartment area of 1,000 sq ft, some 30,000 houses could be ready for possession in the next two to three years. That’s almost three times the average supply of homes seen in this belt. The current real estate rate in this region is between Rs 7,000 and 9,000 per sq ft.

“Many developers were sitting on land banks for the past two years. Holding on to land also involves its own costs and post-downturn, it’s prudent to capitalise on it. So you’ve seen a slew of launches.

Even as of today in the said belt, there is an unsold ready stock of one crore square feet,” says Pankaj Kapoor of Liases Foras, a realty research firm, indicating that there will be a glut in the market in the next two years, bringing prices down by 25-30 per cent.

Another real estate expert Ajay Chaturvedi concurs, “Builders are not really seeing the kind of demand that is being projected. Prices are bound to drop in the range of 15-25 per cent,” he says.

Picture for representational purposes
In fact a survey done by Liases Foras suggests that there will be nine crore sq ft of homes by 2011-2012.

This translates roughly to 90,000 homes, around 30 per cent of which will be in the extended suburbs from Dahisar to Virar, Thane and Navi Mumbai.

Developers claim there is enough demand to absorb the supply. Niranjan Hiranandani, MD, Hiranandani Group which has launched a seven lakh sq ft project in Malad says, “I strongly disagree that there will be an over-supply situation. What we have today in fact is gross under-supply. Although it is difficult to speculate on prices.”

Vijay Wadhwa of Wadhwa Group which has launched eight lakh sq ft of residential construction in Borivli and 10 lakh sq ft in Goregaon feels the sudden surge in supply will shake the smaller players. “Lot of projects have been launched recently, but only few are that good. There is enough demand in the city, but only the ones will a steady track record will sustain. Over-priced products will suffer,” says Wadhwa.

Property consultants however sound a word of caution. Says Pranay Wakil, Chairman, Knightfrank, “It will depend on what segment these houses cater to.

If 30,000 houses in one region are in one particular segment, say over Rs 75 lakh, there could be an over-supply. There needs to be a healthy mix of affordable and premium housing.”

Local brokers, however feel prices will fall. “Twenty-25 per cent toh market tootega,” says a Malad-based broker, continuing, “Many local developers are trying to sell flats at the rate of Rs 4-5,000 per sq ft to investors first and then selling only part of the stock in phases to the buyers for a higher rate. That’s how they are holding on to high prices.”