mainly on personal finance, a bit on other subjects... a lot of prose, and some poems... all views here are personal, I welcome you to leave your comments
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Saturday, January 14, 2012
Captain no-longer-cool!
his admirers are turning cold.
Whatever the cool captain did,
is now dated, the story's old!
The batsmen have turned to fishing,
diligently outside the off-stump.
Oh, what a mighty side we were,
when scores were totaled on paper!
Gods don't retire, they are worshiped,
May he cross his hundredth threshold.
For one who has crossed ninety-nine,
The nation only lives on hope!
A tiger from his own jungle,
always thinks twice before stepping out.
Far from feasting on their victuals,
the enemies may tear his out!
The wounded animal goes back,
to his lair to recuperate.
Alas, in this case the master has,
for the next few years, booked the dates!
Thursday, January 12, 2012
Celebrate the ordinary, build up the banal!
The CAT results have been declared today. You have obviously seen the headlines in the newspapers screaming their guts out. Now what is so significant about a written exam results being out? 1.85 lakh students attempted the exam, for admission to 13 Indian Institutes of Management. As an aside, can you name the 13? I can't. I believe if you list all the IIT's and IIM's in alphabetical order, all letters of the alphabet are covered!
Anyway, 13 institutes have a common exam, with a couple of hundred seats on average on offer in each institute. They decide to gang up together and offer the CAT. A couple of lakh students attempt the exam. Everyone waits for the results with bated breath. The reporters too. They are being strangled by their editors for news, so their breath is more bated.
And then the big day arrives. And these are the headlines:
"Nine score centum in CAT". "Bangalore does not have anyone scoring centum". And then it gets more bizarre. "West Bengal and Maharashtra produced the highest number of candidates, two each, who scored a perfect (emphasis mine) 100 percentile in the Common Admission Test (CAT)". Now what is perfect about 100 percentile? If 1.85 lakh people write the exam, their scores are ranked in order, and whatever the marks, the first 1850, by definition, are between 99 and 100 percentile. This is irrespective of the actual score of the toppers – in the percentile system, that does not matter. Now, if the first 900 (for example) happen to get the same marks they are all placed at 100 percentile, and the 901st candidate is placed at 99.49 percentile.
But then we are all used to celebrating statistics which in our view are "achievements" – we graph and chart a bunch of numbers and look for patterns in them. Then we slice them, dice them, average them, sum them, draw bell curves, compute standard deviations and conclusions based on sigma limits (never mind if a normal distribution is not applicable), analyze them in several different ways, and try to draw conclusions from the results. Never mind if we have completely misinterpreted the numbers to start with! To continue with our quotes : " A whopping 1800 candidates scored between 99 and 100 percentile, all of them now celebrating and awaiting call letters from the IIMs." How amazing! !.85 lakh candidates write the exam, and 1.8 thousand are in the top one percentile!
To quote further: "But many candidates are shocked with what they got. There are always some candidates who are expecting a particular score and end up scoring less. This time, there are just too many such cases", said the head of a coaching institute. Firstly, on a relative scale, what is less, and what is more? Secondly, such comments are mere space fillers – in any exam, this is likely to be the case anyway.
Talking of "such" comments, I think our newspapers are now being heavily influenced by reality TV. The actual news occupies less space and there is more space and time devoted to the reactions of people, how elated they are, how depressed someone else is, photographs of the couple of them celebrating., and so on. Someone figured out that human beings are emotional animals, and banal content with dripping emotions is what appeals to them, and media has never been the same since! Some more quotes: "It's a great feeling and I am elated over the fact that I achieved what I desired. Now I am keeping my fingers crossed…", "The brothers speak of their joy of studying together" speaking of two brothers who both cleared with high percentiles. There are several more touching examples.
Then of course, there is the obligatory, I worked hard and hence I succeeded angle. A couple of stories of people who burnt the midnight oil, or people who got a good score on the third attempt where the in-between two years of heartbreak and effort is covered in great detail… working hard to succeed is always a nice angle to pursue. Parents who read the paper will call their teenage sons and daughters and read it out aloud to inspire them.
Coming back to statistics, there is a separate section that talks about what a "percentile" is. Presumably, this was given to another reporter by the editor – I assume there were many reporters on the story, each one covering a different angle, like statistics, achievements, human emotions and drama, etc.!
Throw up 1.85 lakh random numbers, in this case scores, and collect some parameters of the people who got those scores like university, state, region, age, gender, preferences on where they would like to study, parents, educators, teachers, deans, coaching institutes, and you can come out with tons of exciting analysis, a lot of them underpinned with "hard" numbers. And, numbers, as we are all told, don't lie!
(All quotes from the Times of India, Bangalore edition, dated 12 January, 2012)
A disclaimer, just to clarify matters: I have the greatest of respect for IIM's and their students in general, and I think they are the CAT's whiskers.
Thursday, January 5, 2012
In times of volatility: A menu driven approach
The stock markets are swinging wildly now not knowing which direction to head in. At 15,800 levels of the Sensex it currently looks very shaky – which it has been for long- and it is likely to hover between 14,000 and 17,000 levels for a while. What is more interesting than the movement however, is the reasons that are offered by the media and so-called expert commentators every time the movement happens either way.
So let us say you are a rookie financial journalist and are assigned to write about the stock market movements every day. How are you going to justify wild daily movements based on macro-economics and fundamentals? These things do not change on a daily basis! But never fear, public memory is short. It is so short that they forget what you wrote yesterday. So all you need is a menu from which you pick. Let us try to construct such a menu to help our rookie reporter.
First, start with the US situation.
The negative outlook for the US is as follows:
The US economy is not yet out of the woods. Unemployment is still high, which is because jobs are not coming back to the US manufacturing sector which is still in the doldrums. Blue collar jobs are increasingly scarce in the US and those jobs are the core of any economy.
Housing starts have not recovered to levels existing when it was boom time. House prices are still not back to early-2008 levels and a lot of people still have mortgage balances that exceed the value of their properties.
Budget deficits are still high, and any attempts by the politicians to cut spending is only rhetoric. When they talk of cutting 50 billion dollars it sounds big, but on a base of trillions, it is not even a decimal point. Unemployment benefits and healthcare costs are ballooning. About dollar three trillion (not confirmed – our reporter can check and put the number here) of treasuries are held by outsiders, of which the Chinese government is a significant third.
Policy making is paralyzed. Barack Obama is seen to be increasingly ineffective and it not able to push through anything of significance by way of much needed reforms. The US is already into the election cycle. Elections are due in November, so in any case do not expect any hard initiatives to come out of the government now.
QE 1, 2, and God knows what other QE have shown no signs of having any impact. Money at near-zero rates has an unanticipated effect of restricting lending. This is because the rates were reduced since there is an increased perception of risk in the market place. The perception of increased risk has resulted in the banks being unwilling to lend! So the money is being diverted to driving up commodities and asset prices across the world. And, paradoxically, buying back US treasuries. It has still not resulted in high inflation in all fronts – there are signs everywhere of inflation firming up but it is too early to say that the QE's have resulted in inflation – but that could happen as well.
The world is, currently, to put it mildly, in deep shit. At such times, all money flows back to "safe havens". Paradoxically, US treasuries are considered a "safe haven"! Currently lot of money is flowing back into US treasuries. This has a negative impact on markets across the world since money is being sucked out of other assets and is finding its way back to the US. With the European situation being what is it is (more on that in the next article), it is increasingly certain that the dollar is going to be the reserve currency for a long while to come. The Chinese, the Russians, and all other kinds of people are not going to like that, but that's the way it is. The current depreciation in the Indian rupee is also due to this reason.
The US situation commands an inordinate amount of attention when it comes to analyzing the world economy since they are the world's biggest consumers by far, both on an absolute and per capita basis. When the US catches a cold, the world sneezes, and for some time now, uncle Sam is a sick man with flu, so the world is having repeated sneezing bouts.
Our rookie reporter is happy. He has a good menu of negative news that he can twist and turn around in various ways to make his recipe for the day. He also happens to have passed out from a good reporting school where they have taught him how to make reports look impressive by putting graphs and charts of important looking statistics. Like this:
-----------
Extracts from an Associated Press article:
A surge in apartment construction gave home builders more work in November. And permits, a gauge of future construction, rose largely because of a jump in apartment permits (sic!).
The New York Times
The rise in permits provides hope for the housing market, though 2011 is still shaping up as one of the worst years in history for home builders.
Builders broke ground on a seasonally adjusted annual rate of 685,000 homes last month, a 9.3 percent jump from October, the Commerce Department said Tuesday. It was the highest level since April 2010. Still, the rate is far below the 1.2 million homes that economists say would be built each year in a healthy housing market.
----------------- end of extract – you can google for tons more of stuff like this -----
As you can see, the beauty of the above statistics is that it can be quoted in any context, to justify a rising market, or a falling one. It looks impressive, and there is a mass of numbers which no one understands.
The rookie, being a modern day kid, also knows how to google well. And his newspaper has a research department to boot who can provide him tons of stuff like the housing starts statistics quoted above.
All right, since we are constructing a menu, what about positive news on the US economy? You need that to justify a rising market. So here goes:
The US economy is coming out of the woods. Unemployment is still high, but there are positive signs of recovery in the job market. The companies which were almost bankrupt and on the verge of closure a couple of years back, are doing fine – take for example, General Motors, Citibank. Consumer credit off-take is increasing and people are flocking back to the stores once more. The Christmas season just gone has shown a huge increase in consumer spending which is being interpreted as a very optimistic sign by the markets. (Author's note: I have no clue if this is the case, but if the markets go up, I can say this and have enough statistics to back it up).
Housing starts are recovering. Housing starts are a leading indicator when it comes to the US economic situation. As to statistics and further comments, the same extract given above, with slight editing serves the purpose of justifying negative as well as positive news.
There is a focus on reducing budget deficits; however, with the economy currently not yet out of the woods, it is expected that the deficits will continue for a while. Some measures being taken now are likely to yield results in future – the trend is in the right direction, since there is a realization that one cannot run an economy perpetually on a deficit. In the meanwhile, economists are certain that following the Keynesian model of fiscal stimulus is the way to go now, which means that budget deficits are good (Note: if this sounds confusing, welcome to macro-economics!)
All the QE's at last seem to be having some kind of impact. The economy is on a recovery path. They seem to have put the steam back into domestic cosumption and, as everyone knows, more consumption is what an economy needs.
With the Euro showing signs of extreme weakness, even possible collapse, the dollar is back to its reserve currency status. And the world goes on meandering as before…
The rookie by now, is very very happy. Depending on whether the Indian stock markets go up or down, his "US economy" menu for any eventuality is ready.
We need to give the rookie some more menus as well – like say, Europe, rest of the world, Indian macro-economic situation, etc. But we shall leave those for a later article!