Friday, December 23, 2016
Wednesday, December 21, 2016
Wednesday, November 23, 2016
Tuesday, November 22, 2016
Friday, November 18, 2016
We humans are very addicted to fairy tales and stories where the knight in shining armour kills the evil giants and rescues the people of the town. Modi's demonetisation move has evoked gleeful reactions from the general population. They are imagining that the blackmarketeers and the corrupt have hoards of cash in 500 and 1000 rupee notes stored under their beds, which now is not worth the paper it is printed on; and overnight a lesson has been taught to them. Justice! Retribution! The rich (and by extension, the corrupt) have been brought to their knees!
All this makes for good politics. But whether it is good economics is debatable.
To understand why demonetisaion will not solve the "black" money problem we need to understand the nature of money first. Money is primarily a medium of exchange and secondarily, a store of value. Human beings started with barter, and soon realized that you needed a common currency that has the following characteristics:
· It is acceptable by everyone
· It is not too easy to procure (e.g. sand cannot be money)
· It is not too difficult to procure (e.g. rare earths cannot be money)
· It needs some effort to procure (e.g. gold needs to be mined, and so do bitcoins) – the guy who makes the money cannot produce it out of thin air (nowadays they do, but more about that later)
· It should be:
o A non-life form (e.g. people have used livestock as money but they could die on them),
o easily transportable (e.g. real estate can't be money),
o divisible, i.e. one should be able to cut it into smaller pieces
o exchangeable and transactable (can't be poisonous for example),
o non-reactive with most other elements and things on earth (e.g. salt was used as money in the Roman army, which by the way is the origin of the word 'salary', but it could just dissolve in water and be lost),
o hold a lot of value in a small volume,
o cannot be liquid or gas, for obvious reasons
Of all the elements in the periodic table, most get eliminated due to the above reasons. What remains as ideal for money are gold, silver and copper.
Kings and governments started minting coins of the realm using these metals. This had a problem. The moment the currency was debased, which invariably happened, people would melt the coins for the value of the metal contained in them.
But then using gold as money is also a problem. It is not strictly divisible. So someone, initially the local banker, and later the Central Banks, offered to hold gold, and issue "notes" in their stead which people could easily use as money. The bank issued you a 'promissory note' saying 'I promise to pay the bearer x grams of gold', i.e. you could go back anytime and get gold by surrendering the promissory note. Slowly, an interesting thing happened. The banker realized that while the money was circulating in the economy, it was not possible that all the people would come and demand their money at the same time. So the banker issued more promissory notes than the stocks of gold he had! A scam of the highest proportions, which in modern economic parlance, is called deficit financing.
Exchange rates around the world were fixed with respect to the dollar, and the dollar was fixed to a particular exchange rate with gold. This was the gold standard. But every bank in the world, including the US, started printing more currency than the gold they had, and soon it was obvious that this promise could not be sustained.
So one fine day the United States unilaterally reneged from its commitment and withdrew its promise to pay gold in exchange for dollars. All the other countries followed. The currency note is essentially a promissory note to give you 'value' in exchange. Gold is one of the few things which have value across the world, and the promise to pay gold was acceptable. Once gold would not be paid in exchange for your currency, the promise becomes an empty one. They sanctified this emptiness by modifying the promise on the note. If you take your 100 rupee note and have a look it says: "I promise to pay the bearer the sum of hundred rupees"! Circular logic. The world's biggest empty promise. And who is the one who promises to pay? The Central Bank. What do they promise to pay you with? The same piece of paper!
So the currency note is essentially a piece of paper which is a promissory note signed by the Central Bank of the country; a note which promises to pay you nothing. It is also essentially a zero-coupon perpetual bond, one which bears no interest, and has no expiry date. So then how does this money become valuable? It is valuable only because we all say so. It is a delusion held by all by common acceptance that provides it its value; a faith that we place in each other to honour it and accept it as currency, a faith that is backed by law; all of these are man-made constructs.
So money now is merely a medium of exchange. It is no longer a store of value except for the limited period that the government says it is so. This is a very important point. In the public imagination, demonetizing notes is like killing a dragon; once it is killed, the problem is solved. There is no dragon here waiting to be killed, it is all a figment of our collective imagination.
So let us come to this whole black money issue now. What is black money? It is not a dragon which is waiting to be killed. It is merely the generation (flow) and the accumulation (stock) of money on which tax has not been paid. Where does black money sit? In assets of course. Are currency notes an asset? Of course not, not in the sense we are discussing it. Currency notes are at best temporary assets, exposed to the whimsical actions of the government of the day, held in order to exchange it for hard assets. So where is black money held? It is held in the form of gold, real estate, foreign exchange, money stashed abroad, etc. How much of the black money stock is then held in currency notes? No one knows for sure, but let us say, less than five percent, maybe much less.
How much money is in circulation in India today, before the withdrawal of these notes? About Rupees Eighteen Lakh Crores, of which about Rs. 15 lakh crores are in notes of 500 and 1000 denominations. ( I am rounding these numbers; they are close enough; and I have seen many numbers in this range being bandied about).
This money of 18 lakh crores is what lubricates the economy. Of and by itself it has no value. Its value arises from being something people can use as currency for exchanging with stuff of economic value. What happens when you suddenly demonetise 15 lakh crores out of this.
The economy contracts in the short term. People are put to great hardship. We are already seeing this happening.
There are some attendant consequences like banks becoming flush with funds, interest rates coming down as a consequence, ailing and tottering banks being propped up due to the sudden inflow in deposits, sudden upsurge of 'white' money due to money coming into banks, etc. but these are merely side effects that are worth noting, but not significant in the sense they are not responsible for making the decision in the first place, and their effects may wear off over time.
How did our beloved Prime Minister justify the demonetisation to the nation? Primarily on the twin planks of terrorist-funding through fake notes, and control of black money. The Prime Minister either has a profound lack of understanding of the nature of money, or it is as much a political step as anything else (watch how the entire nation's consciousness is centred around him). I suspect the former is only partly true, since he is a smart cookie, and the latter is definitely true.
Let us examine these two reasons.
First the terrorist funding through fake notes: The amount of fake notes in the economy is estimated at 250 per 1 million notes. Hardly significant. Also, who holds these notes? Not the terrorists, but the common citizens since they are already in circulation. So what do you achieve by demonetising? Stop fresh notes from coming in. For a while. We are entirely glossing over the fact that they will soon start counterfeiting the new notes anyway. Also, it is an admission on the part of the government that they are unable to stem the supply chain. Ask the BSF jawans on the Bangladesh border. They know how the whole chain works, but it is impossible to stop, due to sheer logistical issues. So what changes with this step? Nothing. In any case, the scale of the problem in terms of materiality is insignificant for a step of this nature. So the argument of terrorist funding is a red herring – in recent times it has become fashionable to appeal to patriotism; goes down well with the public, and no one dares say anything against it.
Ok, let us now come to the black money issue.
How much black money are we targeting? Less than five percent (just a guesstimate, but you get the idea).
How much of this money will be impounded? Of the 15 lakh crores, very little. Assume about half of it is with the general public, and the balance with the desh-drohi scamsters. That makes it about 7.5 lakh crore so-called black money. Of these, part of it has been already converted to gold. Part of it has already been laundered by over-invoicing festival season sales in various businesses by raising back-dated invoices. The major part of it is being distributed to people who don't have cash to deposit in their bank accounts, to be returned later after retaining a slight premium. How much of this is going to happen? One clue is the 'premium' in the market as on date (today, 18th November) for exchanging old notes. The people who take it from you in turn have their channels. The premiums shot up initially but reports are that currently you can get them exchanged for 20 to 30 percent premium. Now why would someone give you 70 percent of the value of the worthless notes, unless he has ways of laundering it?
So how much of money is going to get extinguished? About two to three lakh crores, maybe even upto five lakh crores. Part of this will be genuine hard-earned money of honest people who are either unable or unwilling (a large part of the poor still don't trust the system) to exchange the old notes, a part that is put off by the effort involved, NRI's who just will not bother, and a large part of it just because someone forgot.
What happens when this money gets extinguished? The RBI makes a profit. Since its liabilities have just reduced by five lakh crores. The government can use it to reduce the fiscal deficit for the year, or use it on fresh spending.
Does black money generation stop? As result of demonetisation, not at all.
Other steps need to be taken for that, which are anyway not linked, like:
· Make people declare the value of their assets with their tax returns (already begun in a small way with real estate holdings being declared along with returns in excess of fifty lakhs)
· Have a public database of transacted prices especially for real estate and punitive measures for under-reporting; there are many ways to bell this cat
· Attack agricultural income which is non-taxable and a source of much laundering. In India, the total "sales" of agricultural commodities are far in excess of actual production. People with unaccounted money simply show it as income earned from farming activities. This is the holiest of holy cows, and difficult to tackle due to political reasons
· Introduce single-point taxation with full traceability like GST and slowly strengthen the systems (already started)
· Control election funding (Modi is making some noise about it; but that is just noise, nothing will come of it)
· Control laundering through religious trusts and temples (can be done with some effort)
Do the above measures have any connection with demonetisation? There is a school of thought that says demonetisation will put the fear of God in people, and that other steps will follow. Fear of God is like the mother telling the child in Sholay "So ja beta, nahi to Gabbar Singh aa jaayega". The child is scared, but not the village sahukar. It is a specious argument if ever there was one. As to "other steps will follow", they anyway should – they are an ongoing process, but what connection does demonetisation have with that?
Are we stopping issue of large denomination notes, since it is supposedly the favourite staple of the ungodly corrupt to stash their ill-gotten lucre? On the contrary. We are now talking about keeping note-disgorging machines which will disgorge 2000 rupee notes at petrol pumps!
Will black money generation stop as a result of demonetisation? As we already discussed, we have only attacked the stock, and that too not of the asset but of the lubricant. The activities that generate black money will continue; and the assets that hold black money still exist.
You cannot kill the dragon by confiscating its droppings. The dragon will continue to shit.
What are the attendant consequences? Any person with even a rudimentary knowledge of economics always knew that currency has no value on its own, it runs on faith alone. The person who wants to store unaccounted income will now store it in the form of gold, bitcoins or bitcoin equivalents, and foreign currency. And what prevents any of these from being converted from a store of value to a medium of exchange? Nothing. If a section of people decides to do that, there is nothing the government can do about it, except passed toothless laws outlawing the practice.
Meanwhile, what of the establishment? The establishment is supporting the move. Witness the interview published yesterday of Deepak Parekh. He skirts over the real issues, and talks as if he is unschooled in the basics of economics. He of course knows his stuff, but he is just toeing the establishment line. There is also a large mass of people who are equating this with patriotism and any move to oppose demonetisation as anti-national. This kind of mass psychology that is taking hold is insidious and diabolical. I have not seen any arguments from any of these desh-bhakts rebutting any of the points that have been outlined above, and few will be forthcoming, since religion and patriotism don't operate based on logic.
And, finally, what about the common man? Are you joking, my friend? The common man is only a pawn in this game!
Thursday, November 10, 2016
The Megalomaniac strikes!
Modi's recent move of demonetising Rs. 500 and Rs.1000 notes is a masterstroke. He is a master at creating his own brand, and imprinting himself in the minds of the people. To do this, he can and does bypass everyone including seniors his own party. With this move, he would have antagonised many in his own party, as well as people across the political spectrum, and the trading community which was a strong supporter of BJP and RSS. Rather than count the costs to the party at large, the calculations in his own mind will be more to enhance his own image among the public at large, across the country.
And enhance his own image, he has. Who does not like a deliverer? The knight in shining armour who slays the dragon, and delivers the townspeople. That 'black' money is not a dragon, and that another dragon will in any case soon rise to take its place is forgotten in the euphoria. The knight is forever celebrated in stories and legends after that; the people's lives will anyway not improve by much, but the legends are then all the more important; like waiting for Kalki, the tenth avatar of Vishnu, to deliver us from the evil-doers of the current epoch.
Modi has enhanced his own image and obliterated other politicians from public consciousness, and this move is but one in the series of things he does in order to do that. Attending Sharif's birthday party in Lahore, was, I suspect a calculated velvet glove before the iron fist, planned in advance. Now the world admires him for being a he-man for taking the fight to the enemy, but no one can accuse him of not looking for peace first. I don't think he wanted the peace effort to gather any momentum; his brand only gains by being the he-man who can deliver the nation against the evil enemy.
Look at the justifications trotted out for the demonetisation. Terrorists are pushing in counterfeit notes into the country! This is an admission that notes can be counterfeited easily, but it is being celebrated as a victory over the evil terrorists. The notes have already been pushed into circulation, the people who are going to lose are the citizens. Is it not actually a failure on the part of the government to have allowed it to happen? What makes them think that the new 500 and 2000 rupee notes will not be counterfeited? It is a constant game of cops and robbers that goes on.
What about "we are attacking black money" with the demonetisation? Perhaps we are. But black money is not a dragon sitting there ready to be killed; black money is generated from activities, or flow, that enable people to avoid taxes. Some of this money sits around in the form of high value notes, but a lot of it stashed abroad, held in the form of gold, or held in foreign currencies. Demonetisation is a tool that can be used once in a while to disinherit some people of their money; in fact we have had demonetisation twice before, once in 1978 under Morarji Desai and once under the British in 1946. Has black money generation been curbed because of these moves?
What is needed to curb black money is to bring more and more transactions under electronic payments; it is a process of diffusion starting with the population with access to banking, with those who are higher educated, and with the urbanites, slowly moving to the others. Modern technology is making this possible with the penetration of mobile phones all across India, introduction of fintech solutions, spread of the internet, and biometric validation tools like Aadhaar. That process is underway and slowly we will see everything becoming electronic, and by extension, traceable.
So what is being achieved by this demonetisation? Certainly not an eradication of black money, since that is a process of generation, not accumulation; a flow, rather than a stock. What is being achieved are:
· Modi's personal brand has gone up among the Indian public
· He is being seen as a messiah, a deliverer; certainly not a bad thing for him
· Politicians, and other 'hoarders' across the spectrum are impacted big-time; but temporarily; they will bounce back
· The government is signalling its intent to fight black money very strongly
What is not achieved with demonetisation is:
· Curbing black money needs long term solutions like traceability which is possible by slowly moving to electronic transactions
· Tackling the major sectors which contribute to creation of black money and money laundering:
o Politicians and election funding
o Religious and other tax-free trusts which can accept anonymous donations which are used to launder money
o Real estate transactions
o Agricultural income which is non-taxable; a huge money laundering machine, but this is a holy cow.
What will be the impact on the economy? The impact will be short term. There is about Rs.16,50,000 crores in circulation in 500 and 1000 rupee notes. A lot of it will be deposited and converted to cash through the following means:
· Giving money to people you know to deposit two lakhs at a time
· Over-invoicing 'festival season' sales to the extent possible to show higher revenue
Depositing in excess of ten lakhs in your account is going to attract undue attention, where the tax plus penalty could even be hundred percent, thus forfeiting your money.
Assuming this will suck out about 40 to 50 percent out of the parallel economy, i.e. about 6 to 8 lakh crores, the consequences will be:
· Deflationary in the short term. The biggest impact will be seen in real estate and luxury goods sales
· Scope for the government to push more money into the system; in the form of 'infrastructure' and 'smart cities' etc., since this much money sucked out will leave a vacuum; these expenses in turn will result in creation of fresh black money because they involve political patronage and handing out of contracts
· Black money is like a lubricant in the economy. In the short term there will be some pain, especially in some sectors; even employment could be affected in sectors like real estate
· Real estate will take a beating, for a while. It is likely to bounce back, with higher guidance values, and lower 'cash component' till the new 500 and 2000 rupee notes take over for the cash component.
In all this there is a bigger philosophical issue that is at stake here. In the guise of preventing 'black money' the government will slowly come to know everything that I do. All activities require the lubricant called money; this money is slowly going online and my entire life is traceable through these online transactions. It is not just the money trail and taxes; all my purchases, where I go, what I do, my thoughts, my motivations, the people I keep company with; and with the help of big data and analytics 'Big Brother' will be able to figure out my deepest motivations and driving forces that even I am not aware of. A large part of this data gets trapped into the system by disabling cash payments which are anonymous. Big Brother, or the system, you can call it the Matrix, will soon know all my thoughts even before I think them, and everything about my life that is required to control me. This control is very subtle; without our own knowledge, right now we are all getting sucked into being part of the Matrix. I don't trust too much central control, and I anyway value my independence.
How do I keep transactions away from the prying eyes of the government? It is going to be increasingly difficult but I foresee that there will be parallel movements with people creating parallel currencies, some of them restricted to a specific geography, some of them restricted to specific interest groups, and some of them pretty much universal, like bitcoin. The same technology which enables the government to control more of our lives will come to our assistance in creating parallel economies that are out of the direct oversight of the government. Before you accuse me of being a tax dodger at heart, let me clarify, nothing of this prevents me from declaring and paying my taxes. I am not saying I necessarily will, but I am certainly not saying that I will not.
Amidst all this, do not underestimate the importance of gold. Just like the Rupee is a Fiat Currency, where a Mr. Modi, with a flick of his wand, can make it worthless, any solutions like those outlined in the previous paragraph are also promissory notes, which depend on the willingness of the other party to honour the promise inscribed in every note (which by the way is an empty promise. In those days it used to say "I promise to pay the bearer a quantity of gold"; nowadays it merely says "I promise to pay the bearer the sum of __" which actually means nothing).
Gold biscuits are a good currency. It can be stored away quite easily since it is not voluminous, its value is universal, definitely better than these useless promissory notes that the government can renege on on a whim, and it is not traceable. Think about it!
Saturday, October 29, 2016
I am just back from a visit to the jewellery store. I accompanied my mother in law who dutifully buys a hefty jewellery item every Diwali. For the rest of the year she is quite abstemious, but Diwali is an occasion for splurging.
I enjoy visiting the jewellery shop when someone else is doing the buying. Chatting up the sales guys provides interesting perspectives on the jewellery market and a few tips on investment as well.
Sri Krishna Diamonds and Jewellers is one of the reputed jewellery outfits in Bangalore, on Commercial Street. It is owned by a Marwari family who originally hail from Pali in Rajasthan. The sales guy who attended to us was quite knowledgeable; I later realised that he could part of the extended family. We headed first to the 'stones' section to look at bangles studded with rubies and emeralds. MIL finally made her choice, a ruby and emerald studded pair of bangles costing 2,05,450. I asked the shopkeeper to provide me the breakup.
Here is what it worked out to:
Gross Weight: 53.5 grams (including stones),
Net Weight: 49 grams (the weight of the gold), 916 KDM (i.e. 22 carat), at 2828 per gram = Rs. 138,572.
Making charges: 21 percent = Rs.29,100
Stone weight: 22.5 carats (five carats equal one gram), at 1500 per carat = 33,750
Total: 201,422 plus tax @1% Rs. 2014
Total price including tax: 205,450.
Jewellery serves two purposes, one of them being investment. The only way to judge how much margin I am sacrificing since I am buying the stuff as ornaments is to ask the shopkeeper how much I would get if I re-sold the bangles to him today. Here is what he replied:
If I 'exchanged' the bangle for something else in the same shop, this is what I would get:
Today's price of 22 carat gold, 2828, less five percent, times 49 grams: Rs.131,643
For the stones: 50 percent of the value, i.e. about Rs. 16,500
Total: Rs. 148,000.
That works out to a margin of Rs.57,450 which is 38 percent. Not too good as an investment!
But wait a minute. A true investment does not depend on the item being sold in the same shop, and nor does it involve 'exchanging' for another item. It involves selling for cash anywhere in the market.
So I asked the next in my standard list of questions: "What if I want cash instead of exchange" – in that case he would deduct ten percent on the price of gold and not five.
"What if the bangle were bought in some other shop" and I sell it here. In that case not only would I get ten percent less on the price of gold, but the stones would carry zero value. Hence what I would get would be:
Today's price of 22 carat gold, 2828, less ten percent, times 49 grams = Rs.124,714.
Now the margin works out to Rs.80,736 which is a decent 65 percent.
And people think these things are also a good investment!
Moral of the story: Stones are a scam. The resale value is always zero. Avoid stone-studded jewellery.
The only stones where you can get some resale value is diamonds, but even diamonds are a scam. The resale value is usually a fraction of today's purchase price for the consumer; and even these values are suspect; one does not know the long term future of diamonds.
MIL somehow got convinced not to buy worthless stones. So we headed to the plain-gold bangles section. The making charges for plain-gold bangles are between 12 percent and 30 percent depending on the intricacy of the work.
Plain gold bangles include bangles with minakari work which actually look prettier than stone studded jewellery, and definitely better than chunky plain gold jewellery; the kind of minakari bangles we liked came with making charges of 15 percent. Finally we bought a pair weighing 57 grams for Rs.187,000; the unromantic investor in me told me that the margin on this worked out to 29 percent. If I sell it back today, I will get Rs.142,000.
Obviously, if one buys merely for investment, it is good to head to the gold coins (a.k.a. biscuits) section. 24 carat gold coins were selling at at a buy-sell margin of about 8 percent.
This is still not good as buying what they call 'bullion' in market parlance – just plain gold. The government has apparently banned sale and purchase of bullion in retail. These large jewellers cannot do it. For that I need to head to my favourite shop on Avenue Road in Bangalore (in Mumbai think Zaveri Bazaar). Only cash. No bill. The buy-sell margin in that market on gold is 0.3 percent.
One more thing, if you pay by card, whether credit or debit card, the jeweller will charge you an extra two percent if you are buying coins or biscuits; for ornaments there is no extra charge.
Since we are on the subject of buying gold as an investment, an added piece of advice. Never buy gold biscuits from a bank. The margins are far higher, in the range of 15 percent. Further, the bank will never buy back your gold; you have to sell in the market.
The sales informed me that if you travel abroad you are allowed to bring back upto 50 grams of gold per person. The price is about 200 to 300 rupees less per gram, which works out to a decent 7 to 10 percent. In case you are a frequent traveller or a Malayalee, you are of course already aware of this.
All this I gleaned from talking to the friendly Marwari sales guy, and I thought it was time well spent. My mother in law got her minakari bangles which she declared her grand-daughter will inherit, which thought makes her very happy. The Marwari was quite happy too to have made is 30 percent margin.
Friday, October 28, 2016
Why Mistry is right, and why you should buy Indian Hotels today
The Chairman of the most iconic business group in India is sacked unceremoniously. He responds with a letter trashing the very group he was heading, and still holds 18 percent shares in.
The previous Chairman comes back, at 78, as 'interim' chief. He is the person instrumental in sacking the current incumbent, since he holds unquestioned control over all decisions in the group, by virtue exercising the authority of Tata Trusts' 66 percent stake, an absolute majority.
The rest of the directors of Tata Sons are like extras in the movie. They do the bidding of the main actors, and it has always been so. Whoever thinks independent directors are independent is naïve.
Mistry took over about five years back, to helm the group in which he has (along with his family) an 18 percent stake, hence, one would presume, a vested interest in its welfare, going well beyond the fact that he is Chairman.
As any new incumbent would do, he started going over the entire group portfolio and taking some hard decisions. A few write-offs here and there; the decision to cut back dividends in some cases to conserve cash; talking about huge write-downs in Tata Teleservices (everyone knows that company is a cash-guzzling dud, and will never improve) and playing tough with DoCoMo, Tata Power for a project based on projections of world coal prices which came unstuck (presumably no one to blame for this, but then right now it is a drag), Indian Hotels for ill-advised acquisitions abroad and removing its chief executive who was close to Mr. Tata; deciding to brexit Tata Steel, which the ex-Chairman had bought into with much fanfare; horror of horrors, questioning the white-elephant-holy-cow Nano, which due to Mr. Tata's ill-advised comments to start with about being a 'poor man's' car could never position itself properly; and questioning the group's two forays into aviation, a-business-of-carrying-bums-on-seats-don't-know-why-it-is-glamorous, maybe because Tata-fancies himself as an aviator and the family legacy of Air India; and I am sure sundry other questions on governance practices.
What Mistry perhaps lost sight of was the fact that through the Tata Sons board Mr. Tata controls the company totally. And Mr. Tata certainly was not amused. It is also reported that the old Bawas whose grandfathers bought the Tata shares which they will pass on to their grandsons (if any) raised a stink on reduction of dividends.
Apparently the board members had a chat with the Pallonji scion asking him to step down. Which it appears he refused to do. Being a man of principle, he said Nada, nothing doing.
Now Mr. Tata is also a man of principle. He is reputed to be one who sticks to his guns and keeps his word, in fact there have been instances where he has insisted that the group keep its word and go ahead on commitments made even if not contractually obliged to in order to keep his and the group's word. Mr. Tata's word is bond, and even his rivals in business will readily concede that he plays fair when it comes to business dealings with others. Several of Mistry's decisions seem to have gone against commitments implicitly or explicitly provided in that past.
Mr. Tata can also be extremely adamant. Once he decided that he would not get along with Mistry, it was unlikely that Mistry would stay. At this stage it becomes irrelevant who is right and who is wrong. Principles among highly principled people, also mean not being willing to look at and acknowledge past mistakes and rectify them. Mistry had to go, and he went. Since he was not willing to step down, the group, in classic Tata style goes to a battery of eminent lawyers, the more eminent the better, and takes an opinion on whether it would be possible to sack Mistry. Why not do it in a more dignified manner by giving enough due notice – Mr. Tata still controls the majority and he will be able to do what he wants? But this is where principles comes in, he needed to be sacked on a matter of principle.
What happens to corporate governance in all this? The minority shareholders of all the group companies and the sundry other stakeholders, where are they in the picture? Now we are being naïve if we ask that question. Corporate governance means the Boss governs. The Board has no say, except in acquiescing with what the boss wants; that is the way it has always been, and that is the way it shall continue to be; and this is not just in the Tata Group, it is pretty much a universal truth. You don't really have much to say against a 66 percent owner. That it is the trusts who own the 66 percent and not Mr. Tata in his personal capacity is neither here nor there.
So Mistry goes. Unceremoniously. Creating a flutter. All the news channels and journalists have a gala time, while the board members and everyone who matters hail the returning emperor. Who was of course the best choice while they look for a successor.
Now our man Mistry also seems to be a man of principle. He could have quietly exited; after all, his family has an empire that he can go back to managing, an empire that is not small by any yardstick. He still holds 18 percent stake in the company; that should be incentive enough for him not to throw any muck around that will damage the group's reputation. The letter that of course was deliberately leaked to all and sundry, that he has written to the Board of Tata Sons and the Trusts, throws enough muck around and some of it will stick. The problem with men of principle is they sometimes act against their own interests.
Meanwhile, some of the group company shares have taken a beating in the markets. Most of the muck that has been raked up is of a nature that should have already been discounted by the markets. No one in the market is naïve about corporate governance; the Indian Hotels acquisitions and their non-performance was already known; the coal price issue, Corus problem, and Nano non-performance are already old hat. So any sudden fall as a result of this incident should correct itself by the time the month is out. It is also likely that Mistry will back off now, he has already made his point, and anyway there is nothing he can do against a 66 percent shareholder; also he has his 18 percent stake to take care of.
Buy Indian Hotels. It looks good as a short term play.
Thursday, October 27, 2016
It is increasingly impossible to stay without going online for every requirement of ours, and it is increasingly scary how our life resides online. The key to this whole online life of ours is in our passwords, which reside in various places online, and are vulnerable to cyber attacks. So how do we protect ourselves?
Let us start with our main email account. This may seem innocuous – so what's the big deal if the password is compromised? – but this account, remember, is where all password reset links will be sent to, if you say 'forgot password'. Hackers, once they get access to your main email account, use this to reset all passwords. If your main email account is gmail, then secure it with a two-factor authentication. Every time you access it from a different machine which is not your usual one, it sends a code to your mobile which has to be entered. In fact, there is an app which generates this on your mobile. Also, there are back-up codes which you can note down somewhere for the times when you need to access your gmail and don't have your mobile with you, or the charge on your mobile has drained.
Now on to passwords in general, for all kinds of access on the net. We think we are being very clever when we put in our birthdays or name followed by 99, or some such pnemonic based password. When 9/11 happened, a lot of accounts of the employees who died there were immediately inaccessible since no one knew the passwords, putting the employers in a fix; however it was possible for experts to piece together their passwords through trial and error in most cases.
Birthdays, birth years, children's names, names followed by 99 etc., are strict no-no's for passwords. Dictionary words are to be avoided too, since it is possible to reverse-engineer to find the password in case of dictionary words. The longer the password and the more nonsensical it is, the more difficult it is to crack. Also, most websites insist that the password should have the following: (a) minimum 8 characters (b) maximum 16 or some such characters (c) a mix of small letters, capitals, and at least one 'special' character (d) no space or dot, sometimes (e) you need to change the password every three months or so!
Given that you have at least a dozen websites for which you need to remember passwords, how do you remember them? One of the best ways is to have an algorithm for generating your own password which is derived from a sentence that you can remember. For example you can start with the sentence:
(1) "My ICICI account is my main account since 2010". You can even note this sentence in your wallet where it is easily accessible.
(2) Take the first letter each word in the above: miaimmas2
(3) Make the "third letter" capital: miAimmas2
(4) After the third letter add a '^': miA^mmas2. Use this as your password.
Use a different password for each of your bank accounts; and don't use these passwords for non-banking sites.
While entering the password, especially if you are not on your own machine, it is good to use the virtual keyboard. This is to prevent a keystroke-reading cookie from getting at it. Talking of machines, it is necessary to have a good anti-virus software loaded on your machine and to keep the licence up-to-date.
All websites have a 'forgot password' option which enables you to reset the password from the backup email id. We have already discussed that this email id needs to have two-factor authentication. There is also a set of questions along with their answers which is stored for this purpose – things like 'what is your mother's name', or 'which school did you first attend' – in these days of social media where nothing is private anymore, it is good to remember a standard set of fictitious answers to these questions, and to use those answers to these stock questions.
Never access sensitive accounts like bank accounts from machines that are not your own. Also, never through a wifi in a public place like a coffee shop. It is very easy for hackers to intercept all your actions in these places. Also, sites which require high security like bank accounts, always start with an 'htpps' rather than the usual 'http'. Check if this is the case. Never follow a link to access any site. Please type the whole address yourself. You sometimes are fooled by following links to sites with deceptively similar spellings.
Keep changing your passwords every few months at the very least.
Now on to debit cards, credit cards, etc.
All card numbers and their associated codes are at risk of being compromised at any time. Hence the following precautions would be good to take.
Keep a sensible credit limit on your credit card, only to the extent required. It is not a requirement for your status that you have a high credit limit. This naturally limits your liability in case of loss.
Keep a limited amount in your account that you access through your debit card; keep the rest in another account, and keep transferring amounts to the card account as and when required. As for the real account where you keep your real money, tear up the card, resolve only to use online transfers for withdrawing from that account.
Most cards have a daily limit for purchases and withdrawal from atm's. Review the limit; however, if you have followed the previous step, it may not be necessary to do that.
Convert all your cards to chip-based cards which are more difficult to duplicate. Keep an eye on your card while using it for payments, and don't just hand it over like we usually do at restaurants.
While using the card at an atm, especially in a foreign country or in a tourist location, be extra careful. It is always good to cover your hand with the other hand, while entering the pin at the atm.
Keep changing your pin often.
Keep your mobile password-protected, and make sure that sms's that come are not visible as a notification if the phone is locked. A lot of online transactions use two-factor authentication through mobile nowadays.
In India, two-factor authentication is mandatory for online payments; this is not the case abroad. Be very careful while using your card abroad. You can either use a separate card; or keep a limited amount in the account, and keep transferring to the main account as and when the balance goes down.
For online transactions, it is possible to get a temporary limit with a credit card number for one-time use. Your bank should be having this facility. Use this for sites which you are not sure of; it is too impractical to adopt this approach for all normal transactions.
Reduce the number of times you have to enter card details online by shifting to a payment app like Paytm for routine payments. It has the added advantage of added convenience.
Keep changing your cards once in a while. The bank does charge a nominal fee for this, but it is worth it.
And lastly, always be paranoid when it comes to passwords and security. It is not a question of 'if', it is only a question of 'when' your passwords and codes will get compromised.
Friday, October 14, 2016
Saturday, October 8, 2016
Monday, September 26, 2016
An article in today's Mint shows how far the world has moved away from sanity (link at the end). The first few paragraphs are reproduced below:
Is the colleague who sits next to you blowing his nose into a handkerchief, complaining about a "mild fever" that has been lingering for more than a week? Chances are that he has flu. He should be consulting a doctor, and if the doctor so recommends, should take a couple of days off to recuperate.
"It may sound alarmist but the truth is that if your colleague is suffering from an infectious disease like flu or common cold, and it is only getting worse with time (lack of attention to the problem, severity of the disease, or a weak immune system), you are 30-35% more likely to catch their infection owing to proximity, since flu is highly contagious," says Anu Gupta, associate consultant (microbiology) at the Fortis Escorts Heart Institute and Research Centre in New Delhi.
"The modern open workplace only increases this risk," says Monica Mahajan, senior consultant (internal medicine), at the Max Super Speciality Hospital in the Capital. "The centrally air-conditioned halls increase the risk of people going down with air-borne infections. The same air gets circulated for hours on end, making the environment more contaminated with viruses and bacteria," says Dr Mahajan
Sounds Normal doesn't it? There lies the problem.
Time was when people used to roam around in the world where all kinds of 'viruses and bacteria' were floating around, and their immune systems used to take care of them. All organisms in the world evolve their immune systems in response to the environment around them, and over a period of time, they develop the ability to survive in the environments into which they are put. The human organism is no different. It is a masterpiece of design, and it is designed to survive under diverse conditions, in different types of environments, battling all kinds of 'viruses and bacteria' which are actually a part of the environment, not some alien creatures.
For doing that of course, the immune system must be strong.
Look at what is happening today. "colleague suffering from an infectious disease like cold or common flu... highly contagious... air-conditioned environment which circulates the same air... air is contaminated with viruses and bacteria".... This would be hilarious except that it is a sad commentary on the state of the modern sedentary office worker today.
Since when are viruses and bacteria "contaminants"? They have always existed and will continue to exist. This is like the fish complaining that the water in the fish tank is full of H2O. The fish evolved with the ability to survive in its environment, it developed an immune system for it. The problem is that now that immune system is severely weakened due to the lifestyle we lead, due to the choices we make in our diet ( for lack of a better all-encompassing term, the 'modern urban western' diet), occupations (where the body sleeps and the mind races when it should be the other way round), exercise (or lack of it - the occasional marathon to show that you are part of the corporate wellness initiative only makes things worse), and our lifestyles in general.
We have moved away from the way we are supposed to be, from the optimum way the human animal is supposed to function. And the result is we read things like 'viruses and bacteria are contaminants... dangerous.. highly infectious.. stay away' etc. - for God's sake we are talking of the common flu!
It is a disturbing portrait of a sick world.