Ref:15/Article/01 of 14 January, 2015                                                               By Kalidas (Anil Selarka)

The Elections are won on rhetoric. The slogans are invented based on the current perceptions of the masses so that they can be addressed by playing them up in loops until the election process is over.

BJP led by vibrant face of Narendra Modi judged the mood of the people against corruption and scandals correctly and orchestrated national campaign of Congress hatao, desh ko bachao. (Remove Congress, Save the Nation). He galvanized the nation with his indomitable spirit reminiscent of Sardar Vallabhbhai Patel, a renowned freedom fighter and close ally of Mahatma Gandhi. Modi used modern technology, like conveying his views through Face book, and secured massive and convincing mandate from the people by leading BJP (or Bhajap) into a single party majority in the parliament.

PM Modi, equipped with massive mandate and clean image against the backdrop of tainted politicians of Congress, had to face uphill task of dealing with the stark reality – high inflation, slow growth, high current account and bloated budget deficits. All he needed was the massive amount of money in the coffer. He recounted his election promise of bringing back into the country massive amount of black money suspected to have been stashed overseas, especially in Tax haven like Switzerland which he singled out without doing enough home work.

When a doctor wants to treat a disease, he has to diagnose it with clinical accuracy. He should have facts straight, all X rays and pathological reports on his table, have the expert colleagues endorse his diagnosis; and then only he could venture into critical surgery. Wrong facts, reports, analysis, concepts and prejudices invariably lead to wrong diagnosis that would lead to wrong medicines, thereby killing or paralyzing the patient on his operating table.

Modi is a politician, not an expert on economy. His belief backed by popular views that the lakhs of crores of black money were lying outside India was terribly wrong – I will prove it later. He did not have basic idea – why, how, when and where the black money was generated and then stored. He thought that all black money were in the form of “physical currency or electronic money” and must be in bank account, which was outrageous and wrong. He, and for that matter Finance Minister Arun Jaitley and RBI Governor Raghuram Rajan, do not have faintest idea whether or not so called money are stacked overseas in physical or electronic form or in some form of other assets. Dr. Subramanian Swamy and his bizarre claim…. Modi was backed in his belief by so called Harvard educated economist – Dr. Subramanian Swamy of his own BJP party, who filed PIL (Public Interest Litigation) in Supreme Court to bring the black money back home, estimated to run into several lakhs of crores. He also alleged that more than 1.2 million bank accounts of the tax dodgers in India exist in foreign banks. Dr. Swamy never backed up his claim how did he acquire or arrive at the numbers. Although he proclaims to be an expert economist educated at Harvard University of United States, never did he give a single constructive suggestion to improve the core economy or any other social issues in his last 40 years of his political and parliamentary career.

Not so easy to open Foreign Bank Accounts…….
Being NRI living in United States and Hong Kong alternately, I know for sure how difficult it is to open a bank account in normal course. Most banks in United States and also in non- US countries are governed by Patriot Act (a US Law) under which banks and financial institutions are required to observe strict rules (known as KYC or Know Your Customer rules) for opening an account. They open the account only after satisfying potential customer’s full identity with a view to eliminating the possibilities of money laundering later.

Further, the banks in foreign countries usually insist on minimum balance from USD 1250 to 4000 in normal accounts and over $25,000 for premium accounts. Let us evaluate his outlandish claim of foreign bank accounts.

Not every bank account overseas held by some Indian names are tax dodgers from India. As per Government of India’s survey in 2012 <http://moia.gov.in/writereaddata/pdf/NRISPIOS-Data%2815-06-12%29new.pdf>, about 21.90 million Indians or about 5 million families live abroad known as NRI (Non Resident Indians) and PIO (Persons of Indian Origins). Most of them are poor laborers living in Malaysia, Sri Lanka and petty job earners in Middle East (See the above cited report).

However, the rich Non Resident Indians of about 5 millions live in wealthy countries like US, UK, Germany, Japan, Hong Kong, Singapore and other tax havens. Most of such bank balances are tax paid legal money as they pay the taxes to their host governments. Just because their names are sounding “Indian” does not mean their savings belong to tax dodgers of domestic Indians. If we presume that of alleged 1.2 million accounts overseas were held by domestic Indians with average balance of $100,000 per account (Rs 60 lakhs) – no wealthy man would open foreign account with small amount – total amount that would have been held by local residents abroad would be $120 billion ( 1.2 mil x $100,000 = $ 120,000 million) or Rs. 720,000 crores or Rs 7.20 lakh crores ($ 1 Million = Rs 6 crores @ Rs 60 per dollar). The potential tax loss to the national exchequer (Income Tax Dept.) would be 33% or Rs 2.40 lakh crores. This is absurd as proved later.

Remitting alleged money abroad via “hawala” routes… It is extremely dangerous to send the money abroad using “hawala” trades. One has to depend on the unknown hawala trader to pay honestly abroad in a bank account. Also, the cost of hawala is anywhere between 3% to 5% depending on the experience of the concerned local Indian remitter. Most hawala trades are being conducted through Dubai (60%), Hong Kong (10%), Singapore(15%) and London (15%). Advanced countries including Switzerland are rarely used since large remittances attract the attention of their respective central banks.

Ever since UBS (Union Bank of Switzerland) disclosed thousands of names of US Investors considered potential tax defaulters, major investors have started distrusting “Switzerland” as preferred destination. UBS lost over $60 billions from under its management. Once considered almost second largest bank in the word after Citibank, UBS has paled into insignificance. HSBC, Switzerland who disclosed over 628 names to Government of India will also face the same fate. No one would trust HSBC if it does not respect the privacy of the investor customers. The actions by UBS and now HSBC in Switzerland would dissuade major investors from parking the money in Switzerland. Not every local Indian can remit or would remit money using hawala trades. He does not trust even a local friend or family member with paltry sum of Rs 1 lakh. Where is the question of his trusting unknown hawala traders with Rs 60 lakhs (= US$ 100,000 @ Rs 60/$)?

Wild and absurd estimates of black money parked abroad… The estimates of the Government of India or that of Global Financial Integrity (GFI – a think tank based in Washington DC) in United States, that over $500 billions (Rs 3,000,000 or 30 lakh crores) are being held by local Indians is therefore grossly inflated and highly unrealistic. ($1 = Rs 60; $1 million = Rs 6 crores; $1 billion = Rs 6,000 crores) Money in circulation is different from total capital and revenue assets of an individual. For instance, an Individual’s total assets including home, gold, car and cash may amount to Rs 1 crore at market value, but real cash saved in bank accounts or in hard cash may not exceed Rs 10 lakhs. If an individual earns Rs 1 lakh every month, he earns Rs 12 lakhs in a year. (Monthly income x Velocity or a factor of 12 for entire year). If he saves Rs 1 lakh per year after taxes (1/12th of his gross earnings), it would take him at least 8.25 years to accumulate the savings of Rs 10 lakhs in cash.

Businesses, where most black money is generated, the money rotates 4 to 6 times a year. That is, Rs 1 crore cash/credit/bank balance could generate sales revenue of Rs 4 to 6 crores per year (based on trade credit of 3 to 2 months respectively). If his net profit margin is say 6%, his savings after personal expenses would be hardly 1% of gross revenue (sales). In other words, for Rs 1 of black money, he should have Gross Revenue of Rs 100 or 100 times the black money. If we are to believe that $500 billions have been stashed outside (Net Income) and they are all black money, then the gross business revenue would have been 100 x $500 billion or $50,000 billions or $50 trillion!

The size of entire Indian economy is not even $1.5 trillions including black and white money, then in that case, how black money alone could have been 50 times GDP of entire Indian nation? Based on above, we can only conclude that most black money are not hoarded abroad. Over 95 % black money generated in India are being held locally (and not overseas) in various forms of assets as under:

1. In Real estate where every transaction entail 60:40 (white:black) ratio. Do you want to assess how much black money is generated by “Real Estate” sector per year? consider the following. Almost every real estate transaction, be it residential, commercial or industrial property, generates (source) and applies (application or utilization) black money depending on whether one is a seller or buyer. In Metropolitan cities like Delhi, Mumbai, Chennai, Bangalore, Surat and Ahmedabad, the deal ratio is 60:40 (White: Black money).

The population of Delhi is say, 2.8 crore. Presuming average family size of 4, there may be about 70 lakh families residing in Delhi. They need 70 lakh homes. Most of lower income group (LIG) or middle income group (MIG) live in chawls or small tenements rented for years. They do not generate lot of black money, as transactions are few and far between for such homes. Only those 10 to 20 years old are recently owned. Presuming that at least 40% are owned out of 70 lakhs homes, the total newly owned homes may be about 28 lakhs.

Let us presume that annual real estate transactions rate is 10% of such homes or say about 2.8 lakhs. One may use exact numbers from the Registrar of Property. Average size of each property transacted may be Rs 80 lakhs. The black money element is 40% or say, Rs 32 lakhs per apartment or home. If there are 600,000 transactions in Delhi and Mumbai together in 2014, the amount of black money being generated (source) or applied (utilized) is 600,000 x Rs 32 lakhs (0.32 crore) = Rs 192,000 crores. (Rs 1.92 lakh crores).

In other centers, the black money generated would be Rs 50,000 crores (Ahmedabad), Rs 1 lakh crore each in Bangalore, Chennai and Surat – a city of diamond which business thrives only on black money. Even some of the names released by HSBC list are those of diamond merchants from Surat, Gujarat. A majority of diamond merchants in India are Gujaratis. These are only guesstimate. We have not considered Commercial and Industrial properties where the size of the deal is from few crores to thousands of crores.

Even chief of Sahara group is trying to sell his real estate for Rs 1,200 crores in Mumbai to get out of jail.

In other words, to arrive at reasonably correct numbers, we have to use registered value of property all over India x 2/3. Reason: If the gross value is Rs 1 crore and registered value Rs 60 lakhs, the black money portion is Rs 40 lakhs. Therefore, if we use registered value of the property as base, which is official number, the black money element is 40/60 or 2/3rd of registered value. If the Government works out the Registered value of all property on national level (including Homes, Offices and Industrial properties), it can arrive at the generation level of black money during the relevant period. (Say, 2014)

If Government extends this exercise for last 15 years at least, it will arrive at the extent of black money cumulatively generated and tied up in the real estate sector with 60 to 70% accuracy. I am 100% sure that the amount so arrived at will be several times the black money suspected in overseas bank accounts. By my rough guess, the extent of black money tied up in real estate sector over last 15 years will be not less than Rs 40 lakh crores.

Please note that the property value has risen only during last 7 years. In first 8 of last 15 years, the property value was hardly around 30% of current value. The extent of generation of black money in first 8 years may not be as much as they were in rest of 7 years.

2. In Agriculture land which is being transacted at “Ready Reckoner” value. It is just at 10% of real transaction value. The black money so generated goes into the hand of a farmer who is never investigated. The sale of agriculture land does not attract capital gain tax if the land is situated more than 8 km from the urban center or local City municipalities. Even sale of land is treated as agriculture income which is not subject to income tax. In other words, the black money is white washed once those lands are sold.

Supposing one has Rs 1 crore black money in cash. He buys agriculture land, say 10 acres, @ Rs 10 lakhs per acre. The official agreement value as per Ready Reckoner” will be just Rs 10 lakhs. Thus, his black money of Rs 90 lakhs is effectively employed. When he sells the said agriculture land for official value of Rs 50 lakhs (his cost Rs 10 lakhs), the surplus income of Rs 40 lakhs would not be taxable.

In other words, his black money to the extent of Rs 40 lakhs (out of Rs 90 lakhs originally) gets white washed officially. Call it a tax avoidance or tax planning. Most buyers of agriculture lands of large value are Doctors, Lawyers and local businessmen who receive most of their incomes without bills and pay little taxes by way of excise duty, sales tax, income tax and service tax.

Farmers too hold agriculture land, but they are “holy cow” and would not be touched even with 100 feet long pole by any government. Whereas farmers are a ”vote bank”, the black money holders are the “note bank” of any aspiring political party to fight election.

If Modi government goes all out to punish businessmen who are large black money holders, none of such businessmen would ever come forward to donate political contributions to BJP in forthcoming election in 2019. In other words, the present Modi or BJP government would lose that election hands down, and 2014-19 could prove to be last 5 years of its rule.

3. In Gold bullion, where most transactions in non urban sector (villages and towns) are in cash or mostly in black money. In large ABCD Metro cities (A = Ahmedabad, B= Bangalore and Bombay (now Mumbai), C= Chennai and D = Delhi) most gold being bought officially are in female names. A woman’s wealth is considered “untouchable” even from the powers of courts and income tax department because it is categorized as “stree dhan” or “married woman’s wealth”

India’s Net import of gold (Gross import – Gross Exports, the value added items like gold ornaments) is about $8 billion per year (Rs 48,000 crores). Gold is the destination of most businessmen’s tax avoidance money. The black money generated out of real estate or business operation gets invested largely into gold. If other sectors are “source” of black money, gold is the “application” of such money. If male folks make too much money, the very first hint goes to the lady of the house. And the very first item she wants to buy is gold. Thus, while husband generates black money, wife applies them skillfully in gold assets. After all, gold is a major gift away to loving daughter – millions of daughters marry every year.

The storage of Rs 1 crore cash needs at least two large suit cases whereas equivalent gold of 3.3 kg would take up only a small locker in a bank. This is why bank lockers are not so easily available to the public.

4. In Diamond, Whereas common men’s destination is gold, diamond is the preferred storage place or application of black money of very rich people. A diamond necklace may cost Rs 1 crore but needs very tiny place to hold it in a bank locker or safe at home. The entire diamond industry located in Zaveri Bazaar in Mumbai and Surat is run and financed by black money. The diamond merchants are the largest hawala players dealing with the black money.

While diamond may be colored white, underlying money is black money.

5. In Mining, the mining sector is one of the largest creator and applicator of black money. Coal mines (biggest scam was in this sector recently), granite, marble or stone mines, (in Rajasthan, Karnataka and Andhra), mineral mines (like dolomite, alumina in Central India) , metal ore mines (aluminum, copper and iron) are the kind of industries run mainly by illiterate owners (called “angutha chhap” or thumb impressionists). Most miners are Marwaris (Rajasthan) and Gujaratis (Gujarat and Kutch) in the west; Chettiyars and Reddys in the south; Agarwals, Mehtas, Sarafs and Shroffs in the north, central and east India.

There is a light hearted joke which I heard when I was in my early college days. A growing child asked his Rajasthani mother – Maa, what is “paap“(sin) ? The mother said, ask your baap (father), he knows it too well. The son then went to his Rajasthani father and asked him same question – pitaji (father), what is sin, did you ever see it? The father adjusted his glasses, held the currency notes in his hands and replied – Kar bharna paap hai (Paying taxes is an act of “sin”). This is why the tax payments of any kind (excise, sales or income taxes) from the said mining sector and respective states is the lowest in India. This is a joke, so do not take offence.

6. Corruption, in the hands of Ministers in Central and State governments, municipalities, courts, government employees, tax collectors, public utilities, education especially in medical and engineering faculties, police and other law enforcing authorities. Since most activities are centered at State administration level, the corruption is widely prevalent and rampant in the states where federal (central) government may not have much control.

The common denominator is “power” . Where lies the power, there thrives the corruption. They are all small thieves but the sheer numbers of government and semi government employees make them one of the largest source of corruption and creator of black money. These persons ride the power and sell the “favors” for cash. (Black money)

These employees are fearless – they feel that once they are caught, their unions will fight for them and they may be transferred at the most . They never fear loss of job. Until their “job security” is threatened by decisive force, we can not stop this major source. Once these corrupt employees and ministers are caught, they should be dismissed (not suspended), their assets confiscated and all retirement benefits withdrawn. They should be booked and ruled within 3 months of concerned corruption incident.

Such corrupt government officers force the honest citizens to become corrupt as well. Say, in medical education, one needs to bribe Rs 12 to 20 lakhs to get the admission for his son or daughter. He does so by corrupting himself taking bribes in his employment or by avoiding payment of income taxes. Why should I pay the tax if the government can not assure me a clean and corruption free administration? He would argue.

We have tons of good laws to govern any kind of economic or social activity – but the efficacy lies only in honest implementation. We do not need new laws, but effective implementation of existing ones..

Are “Black Money holders” traitors? Not all of them. Only corrupt Ministers and government employees could be categorized as “traitors”. In fact, traitor is a very strong word and should be used with utmost discretion. Almost all Indians are patriots. They should not be abused as “traitors” for some innocent economic aberrations.

Most black money is generated by businessmen. They are the driving force of the economy. It is they who create employment. And in addition to their own tax payments, their engaged employees pay even more salary taxes than they do. Banish those businessmen, face multiple closure of businesses and consequent unemployment on massive scale.

We live in democracy where the majority has a right to rule. The businessmen are the largest contributors of taxes to the system. They deserve to be respected for their contributions in creating employment. However, we tend to tenderize them, abuse them, cry them wolf and make them “shaitan’ out of normal human being. We glorify the non tax payers like farmers, poor people, dalits etc. but vilify, abuse and hate tax payers who at times may be dodging some taxes. These businessmen are like “ chickens in the backyard who lay the golden eggs every morning”.

We should never kill such golden chickens. It is their money that goes into the subsidy or helping out poor, farmers, dalits etc. who never paid a paisa to the national exchequer in last 67 years of post independence. We have to understand why do they avoid taxes, and then only take bold steps to address deficiencies in the system so that they come back to tax payment mode by persuasion and not by force.

Tax avoidance is a human instinct and a natural phenomenon. It is as innocent as the stealing of pencil or rubber by a child from other student in his class. Even taking home of stapler, paper or gem clips from office also amount to “stealing” but everyone does that unconsciously. We can perhaps scold the child or an employee, but do not banish them from the society by labeling them as “chor” or “traitor”. Even Lord Krishna stole “makhhan or butter.” Don’t we worship him even then? We pardon his acts of aberration as “natkhat” only because such stealing is innocent and not accompanied by vicious mind.

Once we understand this notion, we can think of taking proper actions by not only unearthing the black money but also avoid its creation in future by installing suitable system. The taxation system has to be fair, equitable and honorable to the tax payers. How many times in last 67 years of independence did we honor, award and reward the largest tax payers in the country with titles like Padma Bhushan or Padma Vibhushan for doing exemplary service?.…. Never. We decorate dead people but forget the living legends.

Finance Minister Arun Jaitley is in a state of futile exercise. He can not get back enough money from overseas. The cost of recovery will far exceed the Income Tax collected, besides creating hatred and ill will amongst local businesses against BJP government. It will be a political suicide.

Most black money are lying within India right under our nose, which can be seen with naked eyes. One does not need binoculars to look thousands of miles away at Switzerland or elsewhere. We can not wield stick to get back black money. We need voluntary participation of such tax payers and infuse confidence in them that future tax system will be fair, rational, equitable, easy, vendetta less and meet the needs of large income earners.

Black Money and Black Economy – Understating India’s real  GDP by 30% to 40%
The belief that most black money are inactive and hoarded as cash, gold or other passive assets is terribly wrong. Black money is hyper active in Indian economy. The growth generated by such black money is not reflected in the official numbers for obvious reasons. India’s November 2014 annualized growth rate of about 5.5% is understated by at least 2.5%. India’s real growth could be anywhere between 7% to 8%.

What is Money?
The term “money” is not just the physical quantum or volume. The real money is = money (Volume) x Velocity (speed at which the volume circulates). The black money circulates faster than official or white money. For Instance, a businessman may give trade credit of 3 months for white money trades. In such cases, his Rs. 1 crore of trade credit may generate turnover of 4 crores in a year. He may also charge interest at annual rate of @ 12% to 15% depending on the creditworthiness of the buyer. The production or sales recorded in this turnover does get reflected in the official GDP numbers.

For black money related transactions, same businessman may give trade credit of 30 days. As such, his turnover in black market may record Rs 12 crores (12 x 1 crore of trade credit). The turnover so generated does not reflect in country’s GDP numbers. Further, the cost of financing is less at about 9% compared to 15% for white money trades. Most Marwaris (Rajasthanis), Gujaratis, Punjabis or Sindhis conduct such trade financing in the name of “Multani hundis” (similar to Promissory notes or Bill of Exchange for 30 days tenure). The amount is rolled over every month, where the borrower returns the money on last day and re borrows on very next day. This comforts the financier that the borrower does have outside resources or market credit to pay back his loan.

Multani Hundis or Discount Houses
Such financiers are known in the market as “Multanis” and therefore the promissory notes or hundis are known as “Multani hundis” . The cost of financing is lower because the turnover is faster, and the borrower is usually introduced by some good referees. In English, such financiers are known as “discount houses’ in South India (Chennai, Bangalore, Hyderabad) and in East India (Calcutta) where English is more prevalent.

Real GDP growth = Official GDP% + Unofficial GDP% (due to black money) In other words, the black money economy does not reflect in official numbers, except in electricity bills where no one can separate the electricity consumption between white or black money transactions. If the current growth rate has come down from high of 8% to 4.5% in terms of GDP, the consumption of electricity for commercial or business users have not come down, in fact it has gone up by nearly 10% nation wide, suggesting there is in fact rise, not slowness, in economic activity. The black economy is flourishing at the cost of official economy.

If one wants to know the real GDP or GDP growth rate, he has to sum up both activities – official economy and unofficial (black) economy. While the official economy numbers may be reliable, those of black economy will be just conjectural. It may be noted that all large expenses connected with the black money trades such as cost of rent, electricity, wages, salaries, transportation etc. get debited to official Profit & Loss account (white money transactions) reducing the taxable income. The income portion on black money is not included in the official accounts. The government loses on two counts – the profit is understated due to charging off expenses relating to black money trades, whereas the income generated on black money deployment is not included in the official accounts.

It raises the question – what is the real growth rate for India? Since the growth rate attributable to black economy is conjectural, the best bet is to use approximate % of official money to add up to overall growth. For instance, if the official growth rate is 5.5%, add to it 33% (1/3rd) being the contribution of black economy on conservative basis. It will give us real indicative growth rate of 5.5% + 33% of 5.5 = 5.5%+1.83% = 7.43% If the Income Taxes being collected from individuals is say Rs. 240,000 crores, the loss of income due to black money will be 33% or 1/3rd of declared taxes paid or Rs 80,000 crores. We can not include corporate sector, where large incomes can not be concealed due to compulsory audit of accounts.

Is it possible to extract black money and put them back to work into the system?
Yes, it is. I do have a comprehensive plan and strategy to extract not only more than 40 lakh crores of black money but also create innovative tax system where the honest tax payers are honored with privileges and lessen the importance of non tax payers who have contributed nothing to the nation for over 67 years.

We can achieve the target successfully in less than 18 months from the implementation of my exhaustive plan mentioned in this report that can place India on top of the world, ahead of even United States. The growth rate will return to 8% in 18 months and later over 11% in 30 months time.

Kalidas (real name,  Anil Selarka)
Aliso Viejo, California, United States dated January 14, 2015

Note:
The exhaustive plan (almost 450 pages document – I have spent months of my time) is a secret exercise which will be disclosed to the Government of India after agreeing to the terms of arrangement. “No Free Service” because my comprehensive plan will bring in additional Income Tax revenue of Rs. 10 lakh crores at marginal cost of just 2% to say the least.

I have sent this article in letter form to Narendra Modi, Prime Minister, Arun Jaitley, Finance Minister, Rajnath Singh, Home Minister and Amit Shah, BJP President on 23/12/2014 with a copy of my book “Sub Prime Resolved”. No reply, acknowledgement  or response has been received until the time of this publication. 

Ref: 12A-01 Of 23/Jan/2012 by KALIDAS

PART – 1 (Part 2 will be posted on Friday, 27 Jan 2012)

Water and Money

Water & Money share many attributes. They follow same pattern all the time.

When water is in short supply, the people tend to save it, hoard it or even treat it as most precious commodity – more than even Gold. Almost every member of the family is under tremendous anxiety lest the local water authority in a bid to ration its supply stopped it within a few hours or minutes. Good morning wishes are forgotten and the shouts or rebukes greet the children or young members of the family.

When the same water is in umpteen supply, same people bother least about it. They let it flow carelessly and allow the water leakage to linger on for days without calling the plumber to fix it up.

Money is also following same ritual. When it is in short supply or income is less, the people get tense and run around like wild animals. When same money is in ample supply, the owners go around like spendthrift and waste it without any discretion. It is true for individuals, corporations and also governments.

Too scarce money (like water) is a problem and too much money poses even greater problem. Like water, the money begins to leak from every outlet it finds and the owner loses all sense of proportion, rationality and logic in managing it. It is easy to manage less money (or water) but it is extremely difficult to manage too much money (or water).

RBI’s aberrations:

When India’s Forex reserve touched $300 billions, RBI expressed helplessness in managing it and wanted to engage expert or professionals to manage them as if RBI considered itself as non professional, non expert or incompetent in the field of monetary management. China could manage $3 trillions or $3000 billions, but RBI could not manage even $300 millions. This is why Chinese Yuan appreciated from 8.28/$ to 6.30/$ in less than 18 months (by +24%) whereas Indian Rupee under the guidance of RBI depreciated from Rs 44 to almost Rs 54, (by – 25%).

Mukesh Ambani of Reliance Industries Ltd has also realized that too much money is a big problem for him after 40 years of RIL existence. Rs 70,000 crores is too much for him to handle, and when he saw the fortunes of RIL flagging for a short while, he could not control the urge to lose focus, forgot the teachings of his father and Harward Business School, and embarked upon a journey to waste the money in every small opportunity he saw. The money, like water, started leaking from the RIL Storage tank without anyone noticing it.

Learning from the past…

For almost 40 years, his father (Dhirubhai Ambani) and both sons, Mukesh and Anil Ambani, have been creating and printing shares in the backyard by declaring free bonus shares from time to time with a view to enhancing the value of shareholders. They never paid liberal cash dividend. Their philosophy was ”we give you the paper; go, get out and sell in the market”. That is, we will not pay anything from our treasury but get yourself paid by the open treasury in the form of stock market.

Since they were controlling shareholders, they issued extra (bonus)shares to themselves to the extent of their shareholding – over 40% . When the crores of shares could be issued to themselves “free of cost” what made Mukesh Ambani to open the company’s treasury, take out over Rs 10,000 crores, and buy back the shares from the market paying as much as Rs 870 per share? It was a total loss – in as much as he issued (Sold) the shares to shareholders at “Zero” price, and buying them back at “Rs 870 per share”

There are 327.3 crore shares outstanding, and spending about Rs 10,400 crores amount to Rs 30+ per share outstanding? He would be buying back about 12 crore shares from the market, about 3.6% of total shares outstanding. Why did not he declare special cash dividend of Rs 30 per share instead?

Leakage of Money:

This is what is called the “leakage of money”. It followed three minor leakages in the form of his investment foray in telecom (broadband), hotel and entertainment industry. When the leakages are not arrested at the first sight, they get bigger and bigger, and this is what happened here. When the first “three minor leakages” that cost over Rs 2400 crores did not stop, the leakage got bigger and bigger,  and now would cost Rs 10,400 crores! A trickle if left unchecked becomes a torrent of flood later on.

I do not count his investment into shale gas ventures in USA because it is related to his core business – energy. How other three investments such as Hotel, Entertainment and Broadband Telecom fit into his core business? Indian markets are at very low. There are umpteen bargains not only in his core industry but also other ancillary businesses indirectly related to them. He could have invested there at lower end of the spectrum and potentially made 300% to 500% in next 5 years. We are detailing those opportunities later to justify our opinion.

RIL and other equally large global majors compared…

• Have you ever heard major energy companies such as Exxon, British Petroleum, Royal Dutch Shell, Chevron, Total (of France) with billions of dollars in their kitty, investing into non core industries like telecom, hotel or entertainment?
• Have you ever heard IBM, Apple Computer, Hewlett Packard, Google or Dell Computer trying to invest into non – core business such as hotels, entertainment or telecom?
• Have you ever heard major auto makers such as General Motors, Ford, Toyota, Honda, BMW or Mercedes making investment into non core business diverse from auto trade?
• Were they all stupid and only Mukesh Ambani was a clever guy?

I have great respect and admiration for Mukesh Ambani. He made correct decision most of the times in the past because he listened to himself or his mentor-father Dhirubhai Ambani. However of late, he has begun to falter by listening to the market forces, so called financial experts and not himself.

Those guys never made even Rs 100 crores either for themselves or for others, whereas you, Mr. Mukesh Ambani, made over Rs 70,000 crores in last few years; so who should you listen to – the mediocre and unsuccessful them or a smart and successful person in yourself?

RIL Buy back is a “subjective investment”…

Let us now see how much his subjective investment into RIL itself will give return compared to same amount he could otherwise invest “objectively” in other companies, some in his own core industries (Oil exploration and production, gas exploration, production and transportation), undervalued companies in his own sector, be they PSU or otherwise, alternative energy related companies in wind and solar power sector, highly troubled core industries, aviation and infrastructure, electrical energy sector such as Power or backwardly integrated coal industry and related financial industry.

It is not the investment itself but the modality of investment that would prove the success of his proposed actions. Each model will differ for each destination company, the industry, security regulations (SEBI rules) and investment products (Stock, Bonds -direct debt or convertible debt securities- and direct project investment)

We have identified various companies of alternative investment (to his own company – RIL) based on following criteria and principles.

INVESTMENT AMOUNT AND STYLE:

1. Total portfolio = Rs 10,000 cr. minimum or Rs 30,000 cr. Maximum
2. Individual Investment amount: Minimum Rs 1000 cr Maximum Rs 4000 cr
3. Currency of Investment : Indian Rupees or US$ in exceptional cases.
4. Form of Investment : Shares (Equity), Secured Collateralized Debt ( straight bonds or convertible bonds in rupees or FCCB)
5. Style of Investment : 30% to 40 % from open market (purchase of shares, bonds, CB or FCCB) and 70% (or 60%) by taking stakes in the target company ( so that the target company gets the cash to alleviate its liquidity troubles or for project development)

INVESTMENT TARGET:(Industry and individual companies)
Energy sector

1. Your own core industry – Oil and Gas exploration, production and distribution.
2. Highly undervalued own core industry candidates in public sector (PSU) and private sector.
3. “Alternative Energy Industry” – candidates or AEI – such as Wind and Solar Power, which is the future for next several decades.
4. Atomic power
5. Ancillary industries related to his own core industry or company.
6. large CAPEX oriented electrical energy sector such as power.

Non Energy sector
7.        Troubled Infrastructure companies, which are more than half way through in project implementation.
8.        Aviation industry, a major consumer of his own industry’s products (ATF = Air Turbine Fuel)
9.        Infrastructure Companies which are already half way through in project implementation. This will include power industry also.

Finance sector
10.     Involved in financing any of the above industries

DIVESTMENT (Rs 8,400 cr.) from following industries or companies

11.     Hotel sector – non priority and non related. Amount released : Rs 1000 cr. estimated (est.)

12.     TV Media and Entertainment sector : non priority and unrelated  Amount released : Rs 2400 cr. (est.)

13.     Broadband and Telecom sector – non priority and unrelated. Amount released: Rs 2000 cr. (not sure of amount committed) (est.)

14.     Retail sector – non oil/gas based which is non priority and unrelated such as Reliance retail – such as selling vegetables and food grain. Amount released: Rs 2000 cr. ( not sure of amount committed) (est.)

15.     Real Estate: Non priority and unrelated – except land for future projects.  Amount released : Rs 1000 cr. (est.)

Getting out of non priority or non related sectors (to his own industry) and getting into own but diverse industries, is the advice this Kalidas gives to maximize the earning potential of the large cash holding. No more wandering eyes 360 degree around, but look only 45 degrees from either side of his core industry and company. Just stay focused on your core business with unwavering attention.

Following above strategy would divest him of non core industries, realize Rs 8000 cr. and invest additional Rs 10,000 cr. reserved for share buy back, making him available Rs 18,400 cr. at least. He will still have Rs 60,000 cr. in balance after above employment (Rs 10,000 cr) and redeployment. (Rs 8,400 cr.)

End of Part – 1 (Part 2 will be appended here on Friday, 27 Jan, 2012)

Anil Selarka (Kalidas)

USA, 23 January, 2012

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2011-11 of 2011-06-03 (3rd June, 2011)            PDF Download

In financial markets, the people are never afraid of heights, but always worried of lows. Almost all hyper activities are taking place at the height of the market, which is determined by fast and hectic rising of the almost all equities.

In Goonda Raj, the bad news pervade from one gang to another easily. The gang leader knows in matter of days how the other gangster made so much of money in so little time. They adopt same methods to succeed, and they often do.

Greed and Fear are inseparable parts of any market. Money makes everyone corrupt. Almost everyone wants to become a millionaire or billionaire in matter of days. When the bureaucrats and Ministers see the businessmen making money so easily, they come in like “mafias” and start seeking their cuts, fees, haftas (installments) or whatever christen names you may want to assign to such activities.

When the market has risen from one peak to another in rapid succession, a time comes when it begins to either crash or climb down slowly, surely and steadily. There is no more upside, so the best thing that can happen at the peak is to come down due to its sheer gravity.

So it applies to corruption as well. Scam and Scandals begin to emerge when the market is jumping from one peak to another. The ignominious methods adopted by one minister becomes example to pursue by another minister. When one is caught, the entire range of gang operators come within the net.

Media like vultures pounce on such stories and sell their newspaper or magazines at maximum rate by publishing juicy stories. They call it “investigative journalism”.

No one wants to become Lord Rama, a higher rated moral God with “ek patni vrat” (believer in only one wife). However, everyone wants to become Lord Krishna who was darling of many girlfriends or dasis or sakhis (Companions). Similarly, in financial market everyone wants to become Warren Buffett, but they do not adopt his strategy. They worship Madoff, Stanford, Harshad Mehta, Ketan Parekh etc etc. to become instant billionaire like instant coffee.

Of late lot of money has flowed into South India. Initially, lot of Keralites went to Gulf and became richer. They sent lot of money home in their home state, so the prosperity flowed there. However, they were low level workers who earned by hard physical work. They could not engage themselves into corruption. South Indians in north of Kerala were good mathematicians for a long time. They got hold of Software or computer technology. This was instant hit. So Software exports generated billions of dollars or thousands of crores in South India. Hyderabad, Bangalore and Chennai became the focal point of interest.

Such flow of enormous money attracted crooks and scoundrels in the industry and scams and scandals started erupting like volcano in government circle. While License Raj has ended long time ago, the government officials and ministers started reformed “Spectrum Raj” to capitalize on telecom revolution.

In state of Maharashtra, a new Raj called “TDR” started which means Transfer of Development Rights in real estate business. Here the official or minister allows higher FSI (Floor Space Index) against the rule by permitting the developer to transfer his right in one development to another development obviously for a hidden fee. Like Mafias, the ministers and officials at the top started charging fees to the developers and builders. In short, paper derivatives like operations started in “Spectrum Raj” and “TDR Raj”. Everything was up for sale, including IPL.

The scams and Scandals follow same pattern of stock market. When they come out with increasing frequency, they denote the first sign of “cleansing up” . The scams and scandals have no where to go up now, but only down. It is a self healing process.

A few years or decades back, Bihar, Uttar Pradesh, Haryana and Madhya pradesh were considered the most corrupt places in India. Our famous Lalu Prasad Yadav and his bibi Rabdi Devi became the household name. Their fodder fraud of Rs 700 crores look minuscule by today’s standard. In fact, Lalu compensated the country by turning Indian Railways into highly profitable public enterprise earning thousands of crores in revenue and made it a shining example. Phoolan Devi was forgotten and replaced by Maa Rabdi Devi his wife. They are no longer counted because after many scandals in Bihar and Uttar Pradesh, a correction set in and now they are nearly out.

The slack was taken over by the South India where the prosperity flowed due to rise in software exports that brought in thousands of crores of money.

A honey bee goes where the flower blossoms. The honey bees in this case were corrupt politicians and their bureaucrat secretaries. Flower pots or money were in South India. Hyderabad, Bangalore, and Chennai were the places where the crooks and criminals arrived and mushroomed. Andhra Pradesh fired the first salvo when Rajus and Reddys took over the reins.

Satyam Computer’s Chairman B Ramalinga Raju became the first billion dollar fraudster of India. If Guinne Book of Records recognizes the corruption as outstanding achievment, Raju of Satyam will enter the roster of “Fame of Records”. Once tamed Andhra Pradeshi became famed “fraudsters”. 3R – that is – Rajus, Reddys and Rajas started as roosters. GTB or Global Trust Bank where thousands of crores of frauds took place also originated from Andhra Pradesh and RBI’s Reddy took the reins indirectly behind the curtains.

When the storm or tornado arrives, it changes the directions by turning a few degrees all of a sudden. The corruption started traveling from Andhra Pradesh to Karnataka (Bangalore) and to Chennai where Maharani Jay Lalita ruled over the state with thousands of saris and sandals in her closet.

Now that we know the natural process of creation of scams and scandals and their self destructions, let us see whether they help us in making good investment decisions. The dilemma facing the innocent nationalistic investor is whether he should sell and get out of the market or use the correction as outstanding buying opportunities?

Our experience opts for latter – that is – outstanding buying opportunities to buy the tainted yet high growth and potential stocks. The stocks are some of the simplest, finest and efficient financial instruments. They are extremely volatile because very few understand them. The stocks make money when they are bought at lowest and sold at the highest. However, in order to buy high end growth stocks, we need the help from fraudsters, scam artists and scandals at the top. They cause the stock prices to crash to the lowest to afford the intelligent and smart investors extra ordinary opportunities. Otherwise, how could one buy the stock at the cheapest?

Look at the Satyam which was taken over by Mahindra group to rebrand it as “Mahindra Satyam”. In spite of accounting fraud, the company was in one of the best health by all counts. Debt free large balance sheet, huge cash chest of Rs 1600 crores, high end growth, acceptability by high end customers such as Pharma industry leaders, well trained and qualified software engineers, erstwhile good reputation in its real field, sufficient margin and rising too, and competent management.

Almost all the bad things that were to happen to Satyam had happened and the company has written off all past losses of settlement of all law suits. It starts with the clean slate now, and the stock which we recommended strongly at near 60s has risen to Rs 89 today, a gain of 50% in just under 8 months. We have set the target of Rs 160 in less than 10 months or gain of about Rs 100 or 170% .

Political events, as different from financial event, provide the high quality opportunities. A stock makes money for the investors if the underlying company makes profits consistently which is a financial event or cause. The stock price therefore goes up. However, a non financial event such as scams or scandals involving promoters or their blood relations provide the outstanding opportunities to the real gem investors.

Such scams or scandals give them “god send opportunities”. They understand the risk and reward and go for it when the scandal dies down or getting reported on inside pages of financial newspapers instead of on front page.

A case to the point is SUN TV and SPICEJET which is controlled by Kalanidhi Maran. His brother Dayanidhi Maran, a former Telecom minister, is being investigated for his role in showing favors in 2G telecom licensing, a spectrum matter. The stock of SUN TV lost 27% in one day, and Spicejet by 17% which is holding most prospect amongst the listed airline. These companies were in different industries and have no vested interest in telco licenses. Their prices crashed due to poor sentiments generated by the main promoter’s family blood relationship.

A question arises – when to buy such scrips? The answer differs from exchange to exchange. In India, Bombay Stock Exchange sets the circuit limit which varies from 5% to 20%. Some stocks do not have any circuit rule attached. When the stock falls to lower circuit, it means that buyers refrained from buying. It is possible that the stock may go to lower circuit again on next day. It is also possible that the stock may have hangover from the scandal for a few months. However, we follow the following strategy not to miss the lower prices.

• See the intensity of the bad news and see whether the stock trades near the lowest circuit all through the day on heavy volume.
• Start buying from third day if the intensity of news is very high
• If the company or its promoters were not involved in seemingly bad news, ignore the news and start buying on 1-2-3 basis as under:
  1. Buy small to test the water. Say you bought 1000 shares at CMP or Current Market Price
  2. If the publicity of news is very bad, buy on alternate days. That is, after buying 1000 on first day, leave second day and buy more on third day. Say you bought 2000 shares now.
  3. Leave again for one more day and on fifth day from the news, buy small portion, that is, you buy 1000 more if the price is lower than previous purchases.
  4. Then stop. Now allow the stock prices to recover. If you have enough stock, ignore the urge to add more.
  5. If the stock recovers strongly, start selling from last purchase. Say your last purchase was 1000 shares, so begin to sell it.
  6. Sell more (say 2000 shares you bought under Stage 2 above) if the stock continues to surge. Here again sell on alternate days or if the stock trades at upper circuit or up by 15%
  7. Allow one more day to pass, and then sell the last lot under Stage 1 (1000 shares)
  8. Do not worry by selling if the stock goes higher. You made your money. If the stock goes higher, you already have old stock which was averaged down. Sell only later as per your convictions.

Allied Digital Services Ltd was hammered down due to Income Tax Raids alleging tax evasion. Good part of interpretation was that the company was making good money which was the reason to save taxes. However, the news here is bad because the company’s management is directly involved. Not so in SUN TV and Spicejet.

Buying and Selling stocks is a imperfect science. It is at the most an Art. Use your common sense, and listen to only yourself. Do not be guided by media news analysis except to know the bare facts. Trust the company’s news release as provided to NSE or BSE under Corporate announcements. Do not act on impulse and sit in quiet corner to think over whatever happened and what could be the reasonable truth. This is the best way to deal with the stock price crash of any substantive stock.

Kalidas (Anil Selarka)

June 3, 2011

2011-10 of 19th May, 2011 By Kalidas    Free PDF Download

Was it an event or Set up? is the question arises when we hear the news that IMF Chief Dominique Strauss-Kahn or DSK, prospective candidate for French Presidency, was arrested minutes after he boarded a Air France plane on charges of “criminal sexual act, attempted rape, and an unlawful imprisonment in connection with a sexual assault on a 32-year-old chambermaid in the luxury suite of a Midtown Manhattan hotel”.

The alleged crime scene was $3,000 per night suit at Room 2806, Sofitel Hotel, 45 West 44th Street, near Times Square, New York.

The initial description of the incident as reported was as under:

It was also reported in media that the alleged victim was forced to perform “oral sex” on the IMF Chief. In other words, she was not raped or had sexual intercourse.

A few questions arise that need the meticulous answers:

1. DSK was 62 years old and the victim was just 32 years old. Was he physically capable to launch physical attack on young victim?
2. It is said that DSK came out “fully naked” from the bathroom into the foyer where the chambermaid was present or in waiting. How a person inside the bathroom knew that there was a “chambermaid” in the foyer?
3. And even if he did, why did he come out “fully naked”. No sane person comes out fully naked into his foyer knowing perfectly well that someone else was present in his room.
4. or was he waiting for some woman with whom he prearranged at certain fees for her services. Was it coincidence that he mistook the chambermaid as the preappointed visitor? Even if it was presumed to be preappointed visitor for a fee, what was the reason for attacking the expected person when it was all arranged?
5. As per the internal hotel rules and etiquette in high end hotels, the cleaning staff usually go in a team (of usually two persons). In that case, how come the alleged victim went there alone?
6. It was stated that the alleged victim knew of the identity of the IMF Chief only later. Normally, when a hotel staff visits such high end suit costing as high as $3000 per night know well in advance the full name of the visitor, his status and reputation to communicate effectively in first person name, rather than treating him as stranger or a calling him impersonally as “Sir” or “Madam”.
7. A person of IMF Chief caliber, was known to be a very wealthy man. In fact he posted a “bail amount of US$ 1 million immediately” and also posted bond for a staggering amount of US$ 5 million. If he was so rich, he could have hired a woman on rent for $100 per hour or even $ 500 per hour for all services. What could have motivated him to attempt for “free sex” with hotel chambermaid staff?
8. Was IMF Chief scheduled to leave same afternoon by Air France or he tried to run away after the alleged crime? If he was scheduled to leave in the afternoon, would any person in his sane mind have entered into sexual act minutes before his alleged scheduled departure?
9. It comes to final question – Was it an event or carefully planned “Set up” ? If it was a “set up”, who were the planners behind the curtain and their ulterior motive? Was it related to some past economic actions of the IMF Chief that displeased some quarters, and wanted him to “go” or “eliminated”? After all, he was IMF Chief and his actions determined the fate of certain countries and currencies.

Crime Investigation – Search for Motive:

In any crime there is one element investigated by all Crime Investigators – Motive.

• What was the motive in present case?
• Did the IMF Chief act on premeditated move or acted on impulse?
• Was he under the influence of drug such as Viagra or Cialis or other form of violent sex stimulants?
• If so, did he take voluntarily or injected into his drink or otherwise?

Search for Beneficiaries:

If it was a simple event of rape, further investigations end here. But if it was a set up, then the investigations should proceed further. They look for beneficiaries.

In present case, who were the beneficiaries if DSK, a French national and from Euro Zone, was removed from the scene? The immediate candidate to succeed would be “John Lipsky” and American who would be acting Managing Director until the official replacement of DSK was found. He would be more responsive to US Administration and their needs.

In other words, a key member and policymaker from Euro Zone was forcibly removed , whether by his own criminal action or forced actions of beneficiaries, and replaced “interim” by an American.

So, it was European replaced by American, and if we represent them by currency, we can say that it was “Euro replaced by Dollar”.

Timothy Geithner, Treasury Secretary, played his card very carefully, distancing himself from any controversy and even doubt that could point fingers at him or his administration, immediately echoed his joy saying that IMF Chief DSK is unable to conduct his duties effectively, and should be replaced by some one, and that some one he knew would be no one else but an American.

If it was a set up, now we know the motive and the beneficiaries. We have to know what could be the benefit, who would be the losers and who would be the gainers?

Let us examine the last few months events where the IMF Chief has taken some actions found unacceptable by certain quarters. What are the pressing circumstances right now?

Greece, Ireland & Portugal immediately to be followed by Spain and Italy. Collectively they are known as PIGS (Portugal, Ireland, Greece and Spain). IMF Chief DSK wanted to help Greece and Portugal so that his Eurozone does not break up. Whereas the opposite forces wanted to destroy Greece and Portugal and break up the Euro zone which news is in the air in the form of hints, discussions, debates etc for over 4 months.

Now, who benefits if Greece and Portugal fails? or put it this way, if Greece and Portugal leave Euro zone or abandon its currency “Euro” , which other country or currency benefits? Obviously it is United States and its US$.

Many years ago, before the birth of Euro, all global transaction used to be routed through the medium of US dollar. So, if the German wants to export to France, he converts his DM into US$ and the French converts its Franc into US$ to settle finally the trade. When these nations developed their own common currency, there was no need to use US$ as “intermediary currency”. They can settle the trade straight into Euro, the new common currency between German and France in this case.

Thus, with the birth of Euro, the US$ running into trillions of dollars that formed part of inter-european trades, were turned “redundant” or “surplus”. There were no takers. Where to find home for billions or even trillions of dollars found in the street?

If Greece and Portugal were hurt and removed from the scene of Euro zone, an initial attack to dissolve or destroy Euro would begin. This is similar to Asian Crisis when the initial attack was launched on Thailand, a corrupt country. Greece and Portugal have same thing in common – Corruption. The people there can be bought or sold as easily as mineral water.

IMF pronouncement on US economy – Unacceptable to Timothy Geithner

Immediately before the above event, IMF made following bold predictions not acceptable to United States.

• America’s economic dominance on the world stage could end in five years, according to a new (IMF) report. (Fox News April 25,2011)
• The International Monetary Fund’s latest forecast predicts that China’s economy will outflank the United States’ in 2016. (Foxnews April 25, 2011)
• The European Central Bank’s chief economist said a Greek debt restructuring would be a “recipe for catastrophe” as he blamed “vested interests” in Britain and the United States for fueling market pressure on the country.

American Ego

It hurts American ego. We are Number 1 and can not relegate this position to anyone else. Further, Greek which is holding on for over 4 months in spite of vicious attack on its bonds that forced its yield to rise to 16% to 24%, in derivative attack in US markets, is still not falling. It was mainly due to DSK who was a staunch supporter.

Greek, Ireland and Portugal Debt

It may be noted that Greece could not have contracted such huge debt. It was Goldman Sach who appear to have sold some structured and complex derivatives, credit default swaps and interest rates swap that balooned its debt without its knowing. All these derivatives were sold by American and later by British banks that wrecked the economies of Greece, Portugal, Ireland and now they are talking about Spain.

One common thing among these nations is that they are all high on “Gold Assets” which form substantial part of their Forex reserve. US which appear to have lost over 6000 tons of gold which is now shown as “Under Lien” in Fed’s balance sheet, mainly appear to belong to some european nations, most possibly these nations. If their nose is squeezed, they will open their mouth, that is, if they are subjected to extreme duress, they will be obliged to sell their huge gold reserve which could be bought by United States who appear to have leased out to other investment banks for short selling purpose over the years.

If Greece fails and gets out of Euro zone or European Union, dollar will win and euro will be defeated. The contagion will set in when one after the another country in Euro Zone will be thrown into limbo by the derivative specialists on the Wall Street in active collusion with the paramountly interested party – US administration.

A contagion on much larger size and dimension is likely to take place in Europe to finish its alternate role of global currency in true memory of Asian crisis which was also engineered in United States.

Rôle of IMF Chief – Dominique Strauss-Kahn

DSK who was stubborn resistance to US vested interests to destroy Euro, appears to have become victim of his own strength. All circumstantial evidence appear to suggest that he was “marked for elimination” and there is a saying that “everything is fair in love and war”. We are in middle of unpublicized currency war between two titans – Bankrupt dollar and not so bankrupt Euro. Otherwise it is inconceivable how “A” rated country like Portugal could come to the verge of default.

European Union is investigating the role of over 30 Investment Banks mostly from United States for their role in precipitating crisis in 2008 in Europe. Before they are caught, apprehended and penalized, the vested interests based in United States and United Kingdom want to consign the European Union to flames. When it no longer exists, where is the question of their taking any action against the wrongdoers? There is a saying in Hindi “ Naa rahegi baas, na rahegi bansari” , that is, if there is no baas (or bamboo shoot), there will be no bansari (the flute made from bamboo shoot which plays melodious tunes)

It is all the more surprising that a country like United Kingdom which was nearly destroyed by same western Investment Banks from United States, is still supporting their own destroyers. Read any British newspaper and you will get the impression that they were printed in United States, not in UK. Democracy has severe limitations. You can not destroy the weeds.

Will IMF Chief plead guilty?

Do not be surprised if he pleads guilty finally. Pleading guilty is not necessarily the admission of guilt. It is the way the American justice system works. What they call “plea bargaining” under which the defendant is given choice to pursue the trial and face the very long jail sentence or admit the guilt under plea bargaining to get shorter reprieve or jail term for helping court save the time.

Who cares whether the justice is done or not. Justice should be delivered and case should be treated as “CLOSED”. Bang!

However, if he had really committed crime, then he has no excuse. He should be punished under the law. We can not let the people with loose pants or trousers to hang around and do whatever they like.

Kalidas (Anil Selarka)

May 20, 2011

2011-09 of 18 May, 2011   Click here for PDF Download

The difference between a government and private enterprise is that the former looks for the “votes” whereas latter goes for “notes.”

The Ministry of Petroleum & Natural Gas (Let us say, Oil Ministry) being a section of the government obviously go for the votes. Inflation is rising, GDP is rising, interest rate is rising, budget deficit is rising, subsidies are rising, oil prices and petrol pump prices are rising, but the gas output of Reliance Industries Ltd. major off shore facility in KG Basin is falling.

Reliance Industries Ltd. who owns the licensed facility in Krishna-Godavri Basin is dilly dallying in raising the production. Reason – final product price Gas Prices are not allowed to rise by the government. RIL who opened hundreds of pumps a few years ago shut them down without any ceremony because it could not sell the petrol at subsidized rates and lose money. Same thing is happening in gas produced at KG Basin. Reliance being a public listed company loyal to shareholders and their purses, looks for notes (Rupee) because it can not sell more and more gas at less and less prices.

Reliance is telling the oil ministry – look you want votes, so you are subsidizing but we are not in business of getting votes. We need hard currency notes when we produce and sell the gas from KG Basin. This is why we obtained the license from you and found the huge gas reserve spending thousands of crores of rupees. We are answerable to our shareholders, and look at our stock price which is not rising for over two years in a row. Only due to your policy of containment of the gas prices.

Government of India is taking the matter seriously. It wants to keep the inflation in control, and since it can not control the overseas oil prices and does not want to let the Rupee appreciate either to blunt the effect of the inflation, it has picked up cudgel with the Reliance to up lift the gas production. If gas is produced more domestically, it could cost less, and it could be sold cheaper to the common people by not raising the prices, and also save on extra budget deficits.

However, RIL is not ONGC or Oil Marketing Companies like ONGC, IOC, BPCL, HPCL or MRPL who shoulder part of subsidy by themselves and also ask the government 10 times before raising prices. RIL means business, and just as it shutter down all petrol pump due to its inability to pass on the extra costs to the consumers under prohibitive price control, it would shut down the Gas Platform or rigs or wells in KG Basin if it can not raise the price in conformity with the market prices.

Now, the Government says – Do it and RIL says it can’t (= won’t). It plays up the technical and feasibility studies in its defense and says that drilling more wells will not be technically feasible. If that was so, why did British Petroleum agree to pay US$ 9 billions only two months back to take stake in those very ventures RIL says are not profitable or technically not feasible?

What RIL is telling the Government that – Look, We are not ONGC or IOC. You allow us to raise the gas prices, we will drill more. If you say No, then we may not say “No” but we can say “We can’t”. After all you are a government, and like King, the government “Does No Wrong”.

The government is in fix. They can armtwist Anil Agarwal or some other telco company, but here they are fighting a muted war with Mukesh Ambani of RIL who lives in US$ 1 Billion bungalow, and where he has spent more money in guest toilet than what Government spent on whole floor or block on the parliament street housing the Petroleum and Gas Ministry (oil ministry).

What could happen if both sides remain adamant. Would the ministry cancel the license or permission to extract the gas in the name of protecting or efficiently utilizing the national resources in best national interest and force “RIL to do it or abandon it”

RIL, if government orders it as above, would go to the Supreme Court and assert the right to dictate the free market prices under the law and in order to protect the best interests of its shareholders. The Supreme Court will be in dilemma and will have to chose lesser devil. If RIL succeeds in imposing free market prices, almost all State Owned Refineries such as ONGC, MRPL, IOC, BPCL and HPCL too will benefit.

So it is a battle royal. It will be a important battle reminiscent of Napoleon or Sikander. This will make it interesting to watch.

Kalidas (Anil Selarka)

Ref: 2011-09 of 2011-05-18

Ref: 2011-08 of May 4, 2011

A final curtain appeared to have been drawn on World’s most wanted fugitive – Osama Bin Laden who was found, caught and killed in midnight operation near Islamabad, capital of Pakistan, in one of the most guarded place with 8 feet to 18 feet tall walls flanked by barbed wire, with no phones, internet or human beings seen in or around, near the military residences. Considered to be one of the millionaire mansion without normal basic facilities.

In a place like Pakistan, and also India, almost everyone knows everyone in the street or grocery shops or even shops of tea vendors, this place did not attract any attention of bypassers. Most Pakistanis are inquisitives by nature and would like to know who lives next door and their activities. If they can not go inside, they send their servants with a plate of savories to develop acquaintances. But this place was different. Do not ask questions and mafia type “Code of Silence” was implemented.

As mysterious this place is, equally spooky events took place on 1st May, 2011 when the Unites States’ coveted special forces – Navy Seals – landed the compound in middle of moonless night and launched massive and coordianted assault carried out under the authority of their Commander -in-Chief Barack Obama, the President of the United States of America to find the most wanted person – Osama Bin Laden – who has been eluding arrest or even find like pin in the haystack for almost 9 years after 911 attack on the soil of America.
According to President Obama’s brief and flawless address to the nation, the chief architect and mastermind behind now infamous 911 attack which killed over 3000 people in one single stroke amid the smoky towers in New York, Osama Bin Laden was found, caught and killed in single swift operation without loss of any American life taking part in that covert operation.

It was stated that –

• Osama Bin Laden was shot in the left eye on the third floor of Abbotabad mansion
• there was not much of a resistance
• a few women were found and care was taken not to harm women and children
• a woman, supposed to be wife of Osama Bin Laden, was shot in the leg
• an adult, suspected to be the son of the Osama Bin Laden was also killed
• Some guards were killed.
• United States had in possession Osama’s dead body and preliminary DNA confirmed that it was him.

It was reported later that 3 guards were killed, Osama Bin Laden was unarmed and yet was killed with a shot in his head, and pictures were shown which showed contrary to claim of no resistance that the beds and the room was ransacked spluttered with the blood.

Within hours of the raid and release of the news, the so called body of the Osama was buried in the sea according to Islamic tradition within hours of his death or any kind of post mortem analysis typical of such accidental or encountered death.

It was also reported that the President had received the first briefing of his adversary’s locale as early as in August 2010, almost 9 months back. This tip was later religiously and meticulously followed before decision was made to attack the fugitive.

The questions  that arise now are:

1. If OBL was unarmed, why was he not arrested for interrogation into the total set up of his Al Quaida organization which has become a menace? His live arrest would have furnished vital information of key figures of the organization who are still at large and whose files are still alive in FBI.
2. Why was he killed instead that endangers the national security in the acts of revenge in future?
3. Which dedicated officer shot him to death? Why that hero’s name is not mentioned nor even his picture released to the American people?
4. Why the picture of slain leader was not released to the Press in confirmation of his certain death?
5. Why such pictures are not released even now when he is reportedly buried in the sea?
6. Was he buried under the “seabed” or just thrown into the “open sea” to rot himself out in a few following days?
7. Why the exact location of his burial is still not shown with full geometrical co-ordinates so that people at large are finally convinced that he is certainly dead and will not walk back into the Ground Zero again?
8. What was the reason for burying him so quick in less than few hours after his death without following normal post-death procedures such as Post Mortem and DNA analysis?
9. Why his body was not handed over to his family members who are very much alive when they have all legal and moral rights to the deceased body under the Islamic law, Laws of Pakistan and also the Laws of the United States under which the deceased of the condemned person is released to his family members after confirmed death?

There were also reports that the Osama Bin Laden was not killed by NAVY SEALS bullet but the bullet of his Guard (who also died) to carry out the last wishes of their boss to kill him before he could be arrested by the US forces.

Contrary to earlier reports, two bullets were fired on “unarmed” Osama Bin Laden, one into his left eye and other in the head. If that was so, what does the Post Mortem says – were they fired from same gun of the navy seal or one fired by the guard and other by the Navy Seal to make it believe that they shot him? Also, Post Mortem report would also show which bullet killed the Osama, the first one that shot through his eye or head , OR other bullet that shot through head or the eye?

When the Navy Seal soldiers who are very sharp shooters, could shot a woman in the leg, they could have paralyzed even Osama by shooting him into his leg or lower portion of his body and then arrested him live for full interrogation later in United States to find out the full details of his Al Quaida organization, its principal, secondary and tertiary branches, its leadership table, and who has been funding their organization for all these years?

According to International Law or Law of the United States or Pakistan where the death took place and therefore subject to their jurisdiction, a person is not considered dead unless and until his body is found, sent to post mortem, its post death identification by the family members or next to kin, and then allowed to be buried according to their family or religious belief or orientation.

It is pretty obvious that if the person was dead, and body handed over to mourners, Osama would have been turned into “martyr” than a “mass murderer”.

It is therefore most likely that Osama Bin Laden is NOT dead but still alive and transferred to some secret locale of CIA/FBI in United States. He is being investigated, kicked and abused in manner similar to or even worse than human rights recognized by all countries, including United States.

Yes, Osama did not deserve all the liberties usually reserved for the normal citizens or human beings. He was extra-ordinary similar to Hitler or Mussolini or Stalin. Even then, the President need to inform the American people the truth of entire episode with a promise to disclose later, if not now.

Otherwise, it is inconceivable that after nearly 9 months of planning, the Commander in Chief – President Barack Obama – killed the fugitive in 9 minutes, after 9 years, and buried in less than 9 hours at 9 fathoms deep in the sea without any fanfare or record.

As such, the Osama Bin Laden is legally and morally alive in terms of international law, and may be he is not kicking but being kicked around in some place in United States to ferret out the truth which is waiting to be disclosed after 9 years of massive search that cost over $ 1 trillion to the United States and Allied forces.

Whether he is dead or alive, the truth of the matter is that “Osama Bin Laden” has been totally incapacitated to carry out further terrorist attacks on innocent lives all around the world, which is an event of bliss, joy and happiness through out the mankind.

No regrets Mr. President, whether you disclose the truth or not, now or later, it is enough that Osama is no longer a threat. Your word is enough.

Anil Selarka (Kalidas)
May 4, 2011, United States

© All Rights Reserved by Anil Selarka (also known as Kalidas) 2011

General permission is granted to reproduce, copy or distribute bonafide media, print or otherwise, researchers, historians or any educational institution,  subject to acknowledgement of source to this blog and the Author specifically.

Ref: 2011-07 of 24 April, 2011

There is an adage “ The people peep into others home when troubles are in their own”

United States, United Kingdom and entire Europe, most of whom are NATO members follow the above adage literally. When United States intervened in World War II, the entire Europe that was decimated resurrected to become a super power. When US threw two atomic bombs on Hiroshima and Nagasaki in Japan, the Japanese re-livened from disaster to become a magical super economic power. US engineered Asian crisis to destroy rising economic powers. And Asian emerged as the super economic power larger than Japan and Europe combined.

However, these super power merged themselves in every action later on world stage with experience in military warfare. They tried Vietnam, failed; then Korean peninsula, failed; Cambodia and Laos, failed; Iraq, failed; Palestine, failed; Lebanon, failed; Bosnia, failed; Iraq, failed; Afghanistan, failed; and now Libya, failing; Iran, nearly failed or failing.

The above alliances or mergers are similar on financial battleground to Time Inc. merging with Warner Communication to become Time Warner in days of trouble and when it did not work, they merged with another uprising power AOL to become Time Warners AOL to hide enormous troubles within. It did not work either. Now they are separating. The western culture of “marry and divorce, marry and divorce” is not working as efficient model.

Since the days of Iraq war, the western powers have found new battleground in Middle East. However, their tactics are not working because of vast cultural difference between other nations where they intervened and current one. Middle East nations are mostly “Muslim” countries where the prime loyalty is to their “religion” or “Koran”. A person is a “Muslim” first and then only Kuwaiti, Iraqi, Irani, Pakistani etc. Such unilateralism unites them and any attack on any nation is viewed as an attack on Islam, their religion. These are the countries where mullahs, kajis, ayatollahs and other religious leaders have dominating influence over the political leaders or sheiks or sultans. Western political leaders therefore can not force the “democratic” values upon the national leaders of those countries only because their role is secondary.

As result, the Muslim community as whole has become extremely volatile. The real education has not percolated down enough through the masses. Even well educated Muslim scholars do not imbibe or publicly profess the democratic values for fear being “cast out” of their community. Their children have to pay the price. Their daughters or sons do not get suitable match only because other families may not want to associate with literate or reformist Muslim.

Unless and until the attacks are directed to eliminate the root causes, that is, Islamic religious leadership, nothing is going to work, and the common people are going to continue to lose lives of their dearest kin, parents, husbands, wives, children etc. for no fault of theirs. Removing a political leader like Saddam Hussein, Shah of Iranl, Gadaffi, Saleh or Assad will not bring in democracy. If intention was to remove only the offending leaders, why not Western powers concentrate bombing on the leaders and their place of dwellings to eliminate them, and instead bomb all around through war planes or drones which kill only innocent civilians who turn against the very western powers trying to help them?

Economic Sanctions and their effects

In the name of democracy, the western powers go on interfering into the internal affairs of those nations. They use “United Nations” to validate their military actions by allowing free passage of resolutions authorizing them to indulge into such actions. They also get to pass resolution authorizing “economic sanctions” on those countries. Why should the entire nation be penalized with economic sanctions for the single unacceptable act of a political leader of that nation?

Such economic sanctions under the authority of United Nations is no different similar sanctions imposed by Clerics, Mullahs or Ayatollahs on their Muslim community. They impose their brand of social sanctions which is also a form of economic sanctions. One does in the name of United Nations, other does in the name of clerics or mullahs or ayatollah. How many times the Western attack was aimed at removing the belligerent clerics or mullahs who were instrumentals in authorizing, conceiving, planning and executing terrorist attacks on western worlds? Almost none.

The western nations also take pride in launching attack from 20 miles above the ground with almost 2000 pounds of bombs on Islamic civilian targets alleged to be used by real terrorists as their hide out. When the affected people find themselves paralyzed to launch similar counter attacks, they resort to guerrilla warfare and become terrorists (in the language of western powers). In their own nations such people are recognized and applauded as “nationalist” or “real Muslim”. When your home is attacked with guns and arsenals, would not you traditional weapons like Iron bars or wooden sticks or even kitchen pots to stop the invader into your home?

The Western forces are also cowards. They can not not take part on the ground and fight the opponents on one to one basis because of fear of loss of their lives. Only yesterday, an American drone (unmanned plane) attacked one place in Pakistan killing 26 civilians including few women and children. The attackers did not say “sorry” but tried to justify their attacks based on information of terrorists hide out there. Killing of 26 innocent civilians push them more into the fold of their religious leaders, against their political leaders for allowing or consenting Western powers to use their home land to attack their own people and creating 260 future terrorists to avenge the death of their parents, children or next to kin.

In other words, the western powers are attacking leaves, secondary branches and other branches of a tree rather than attacking the roots where the Clerics or Mullahs live. Even if they help the rebels, who are also Muslim, they will grab the power from one political leader and appoint their own, but follow the same principles, guides, directions and intentions of their religious leaders because they too are Muslim first and rebel later.

Freezing Islamic Nations Forex Reserve and Impact on Oil prices, Euro

In the name of economic sanctions, the countries like United States and United Kingdom are freezing the national Forex reserve of affected Islamic or Arabic countries. If US Dollar is to be used as “world’s reserve currency”, it should be respected as such by its own issuer – United States. Forex reserve of any country lying in United States is “sacred” and should not be touched even with remote hand or pole by the US administration. It is not their money. Such Forex reserve is held in United States in Trust, and US has to carry out the duties as “Trustee“. You can not freeze the Forex reserve held in trust with the United States. If you are keeping your valuable ornaments in any bank locker, would you accept if they refuse to allow you to access to your own private property held in trust at the bank? Certainly not.

Undesirable Effect of Freezing  “$ Reserve” on Oil prices and Inflation

If there are troubles in Greece, Portugal, Iceland or Spain, why the hell their currency “Euro” is rising? It may be noted that Euro has been rising with every increase in oil price in US$ terms? What is the correlationship?

Almost all Arab nations, who are involved in political turmoil, for fear of being their Forex reserve being frozen in United States and United Kingdom (America’s bedside partner), have started quoting oil prices in Euro rather than US dollars. As result, the buyer of the oil has to buy Euro first by selling dollar and then place buy order for oil with reasonable assurance from European nations that they would not freeze their reserve held in “Euro”. As result, the dollar has been plunging, oil prices are rising in dollar terms and Euro is surging.

Such “Forex Reserve Freezing exercise” has turned out to be “nightmare” for US financial officials like Fed, Treasury and even President Obama who launched massive investigations for extra ordinary rise in oil prices in United States by penalizing the “speculators”. Oh Mr. Obama, no one is manipulating oil prices at the pumps – it is only your economic sanctions freezing “Forex reserve” of Arab nations, is the main cause. Remove that cause, your dollar will start rising again. When you can see such truth with naked eye, why do you use “binoculars” and “microscope” to ferret out the truth. The culprit and speculator is nowhere else but only in White House – that is You, Bernanke, Geithner and rebellious senators in the House of Senate and House of Representative. Look in the mirror, Mr. President, you will find the criminal there itself.

In my book “Sub Prime Resolved” I have devoted entire chapter on oil price manipulation, its mechanism and also informed the readers that “US Should pass a legislation removing the authority of anyone, including President , to freeze any country’s Forex or Dollar reserve lying at FED/Treasury as untouchable sacred money belonging to other nations lying in trust with them.

Saddam Hussein was attacked by United States because his $1.6 billions were frozen in United States which forced him to quote the oil prices in Euro. US being extremely fearful of economic adverse effect attacked his country in the name his possessing WMD or Weapons of Mass Destructions which were never found.

Even India found difficult to buy oil from Iran. India buys 400,000 barrels of oil every day from Iran. Manmohan Singh in his policy of appeasement directed RBI to frame rules not to deal with Iran and carry out monetary transactions in dollar. Indian Oil Corporation was in such dire strait that it had to buy the oil from other sources paying 10% premium to market price. Iran recently agreed to supply crude oil without payment for time being and requested settlement in non dollar currency or gold, that is, Euro or Gold. This is one of the main reason why both Euro and Gold are rising neck to neck with oil prices in dollars.

Poor Obama! He has lost his mind. He knows the solution to higher oil prices is lying on his desk but he is not aware of it. He looks more at TV, tea parties, and daily change in gas prices at the pumps and increasingly ordering “drone” attacks on Libyans in the hope of reducing oil prices. Who will show him the “Kalidas Note” that solution lies in his pen by de-freezing Forex reserve of any nation even if they are under watch of economic sanctions, not in drone or manned attacked on rebels from several miles above in the sky. Hey Mr. President. The Arabs have money and you are preventing them from sending dollar remittances to your country!

GET DOWN TO EARTH, Mr. OBAMA. You are now welcome on this planet if you are carrying a pen to sign the defreezing order. Otherwise the oil prices will go so high that Americans will freeze to death in winter only due to your freezing actions of other nations dollar reserve lying in your country which are in fact financing your huge deficits otherwise. Do not drive them away – only you and American people will suffer.

If there are troubles in Middle East countries, Mind Your Own Business. If they do not want democracy, so be it. If they want to die, let them die, but while helping them to live, do not kill rest of the nations in the world. There are over 6 billion people on this planet. Existence or non existence of about 50 million people in Middle East is not going to make much difference!

Anil Selarka ( Kalidas )

2011-04-24 Ref: 2011-07

© Copyrights Reserved by Anil Selarka (also known as Kalidas) 2011

Bill “Window” Gates & Warren Buffet teach Indians Some Charity!

Ref: 2011-05 of March 29,2011                                                Click here for  ScribD PDF Download

It is difficult to make money honestly most of the times. We are living in the era of easy money, casino money, lotto money, cheapest money, QE2 money and bail out money. However, such easy money can be made only by “House” or big guys sitting in the golden towers decorating Manhattan skyline in New York or within the boundary of White House, Fed and Treasury in Washington.

When the money loses the cost, it becomes a mean to manipulate the market, people and entire environment. Cheap money is therefore most pollutive element on this planet, dangerous than even CO2 emissions. Corruptions galore everywhere – there is no rule of law. If someone is caught in “Insider Trading” he is condoned by allowing him to pay fines of few or few hundred million dollars when the magnitude of fraud runs into billions or even trillions of dollars. The days of millions and billions are gone – we have made progress, tremendous progress, we can talk of about only trillions. Look around. The bailout costs are in trillions, Madoff and Stanford also defraud in billions. Europe and Japan also talk only of trillions. The total derivative outstanding today is in excess of $ 700 trillion – 100,000 times of world’s entire population of just over $ 6 billion.

Noblest Soul amid the hooligans
Even in the midst of such hooliganism, we still have civil and law abiding individuals and companies. It is a rule of self balancing nature. In the midst of Madoff, Stanford and Rajratnam, we still have fantastic corporations like IBM, Merck, Exxon, Chevron, Apple, Intel, HP, P&G etc. While almost everyone on the Wall Street want to become an instant millionaire or billionaire, believing in motto that by hook and crook the money must be made, we still have some of the noblest soul on the planet like Bill “Window” Gates and Warren Buffet who want to give away billions of dollars, almost entire fortune of their life time, to charity.

Gates and Buffet – Opposite Characters unified in Noble Cause
Gate and Buffet are diametrically opposite characters. Bill Gates was a hardnosed techno-businessman who would not want to give away anything and would do anything to scuttle the competition, either by destroying them or taking them over.
It could never be visualized that such man would turn a philanthropic one day. Such transformation could happen only due to one single force – a woman – the gift of god to the mankind. Was it due to his wife Melinda? Well, I do not know much about her. But it could be. A woman would not want to give away even a thousand dollar, whereas we are talking about billions here. It should be with her consent or motivation.

Warren Buffet is soft spoken silvery haired legendary investor known more to me for his famous waving hand than investments. He has made billions the way a bird builds its nest. He still loves his old home. He is non assuming but while announcing his intention to donate his entire fortune to charity, he forgot one proverbial wisdom  – “Charity begins at home“. He ignored his children and grand children, of course after reserving their future, but still not large enough to make them happy. In short, he ignored his basic parental duty.

That aside, the most difficult part of their charitable donation is the conversion of intention into reality. When one publicly announces donation of billions of dollars in charity, crooks and scoundrels spring up like mushroom.

Easy to earn, difficult to give away
Both of them realize that it is fairly easy to make money but very difficult to distribute amongst the cause. They also do not seem to know how to help the fellow human being or people in distress. They look beyond the borders of America when the American themselves have turned from rich to middle class to poor people. They go to Africa to distribute medicines to help them cure from HIV or AIDS but what they are doing is to address the result rather than cause.

Clandestine Charity
The charity should be done in clandestine manner, The left hand should not know what the right hand is doing. Further, the charity must be given only to deserving characters. It should be done in such a way that the recipient of charity builds up strong character on his own and become independent to such extent that he too becomes the torch bearer like his unknown donor.

Purpose Oriented Charity – that Gates and Buffet do not know
Instead of giving away money free of cost through corrupt politicians or middleman, the persons like Gates and Buffet should have thought of building water dams or power stations in the poor country by engaging the US contractors or companies. This will create jobs in America and also provide purpose oriented help to deserving people by cutting off the corrupt politicians. Those countries would have become independent and self sufficient in producing enough food in their heartland. It is one thing to conceive the noble ideas, but very difficult to carry them out to desired goal, intentions or destinations.

Misconceived India Visit
While visiting India recently, Warren Buffet and Bill Gates said that they were looking for Indian billionaire to adopt their stance and become extra ordinary donors like they are. He was addressing wrong people or segment of the people. Gone are the days of Tatas and Birlas who could afford to be philanthropic in their own inimitable style. New breed of MBAs now manning the corporate scene in India, with possible exception of Infosys, are money go getters. They are new to money. They have never seen this kind of money in their life time or during the days of their childhood. Most of them are not “Garbh Shrimant” or “Borne Billionaire” who have seen money through generations. Every other day, one is coming across in India the scam, corruption at high places and extra ordinary level of filthy life now pervading in the higher echelons of business and politics.

Real India lives in Villages not in Cities, so said Gandhi
What Gates and Buffet missed was the millions of people living simple middle class life style and poor people in the villages. Both Gates and Buffet were travelling from Bangalore to Mumbai to New Delhi in privately owned planes. They forgot the basic tenet that father of Indian Nation – Mahatma Gandhi taught to another freedom fighter Gopal Krishna Gokhale that “If you want to know India, go back to villages where the real India lives and thrives“. Richard Attenborough, the famous film maker of Gandhi fame also illustrated this dialogue in his masterpiece movie.

Coming to masses, both Gates and Buffet missed was the hundreds of thousands of Indians routinely donate to charity by frequenting places like Balaji temple in Tirupati, Jalaram temple in Virpur where unknown and unmarked donations arrive in hordes without any name mentioned anywhere. Such donors never wanted their names on the donation they give. Their right hand would never know what the left hand was doing. But again, such donations were going to waste. They were not helping recipients to become “independent” but become excessively dependent on charity. They would line up every day, doing nothing but just line up, fill up their tummy and reappear again next day with same routine.

Guest vs. God in India
If Buffet had visited any village and taken a lunch or dinner with his host, he would have realized that the host and his family would have remained “hungry” while feeding him. It is the natural Indian tradition where the “guest” is equated with “God”. Buffet may be charging $500,000 for anyone to have lunch or dinner with him, but the Indian farmer would give away his everything including family pleasure to appease his guest.

A famous movie made by legendary Raj Kapoor – Jis Desh Mein Ganga Behti Hain – where the following lines were sung with ethos and eloquence

” Mehmaan Jo Hamara Hota Hain, woh Jaan se pyaara hota hain” (Whoever become our guest, he is dearer than all, even dearer to our life)
” Narajin nahin hamse hokar , thode mein gujaara hota hain, thode mein gujaara hot hai” ( We never feel displeasure while serving him (guest) and we do not mind getting on with our life even with reduced resources).

Mr. Buffet, this is India. You have to go to villages to find hundreds of thousands of donors, not in cities of Mumbai, Chennai, Bangalore or New Delhi. Gandhi’s teachings even today remain valid.

And while Mr. Buffet was sermonizing on “unsuitability of gold as investment” a farmer would have said “GET HIM OUT OF HERE”!

Anil Selarka (Kalidas)
March 29, 2011  Ref: 2011-05

Ref: 2011-04 of  March 24, 2011       Click for expanded PDF Download on ScribD

Silver catapulted to $ 38.20 before giant bankrupt banks who have shorted the metals too high for too long became aware of their own survival. They undertook giant short selling operation in last 45 minutes to bring down to 37.20 – still way above the level desired.

It was a day of ferocious trading. It was a day of nerves and nights will be no less relenting for those traders, authorities and managements who were fighting their battle for survival.

Following figures speak themselves. We do not want to comment. Let figures speak themselves.

And Lo0k at that!

Those 20 Minutes of hectic trading….

Anil Selarka (Kalidas)
Hong Kong,  Camp USA  24/3/2011
All Rights Reserved except the basic charts of respective associations or owners.

Ref: 2011-02-PO of March 15, 2011 Click here for Free PDF Download ScribD

Quake in Japan, Tremors in America

Nature is Supreme:
Nature is the most powerful force dawned upon the universe by almighty God. If humans were to control everything, no one would have ever believed in God. When something wrong is perpetrated over the years, it ultimately gets corrected by the almighty force of nature with glaring violence with a warning and stern reminder “Do not fiddle with me, did you get that?”

In the wake of severe quake followed by Tsunami in Japan, the humanity was served with this violent reminder again. The illiterate people learn the message quickly, but the educated class – so called Investors, speculators, hedge fund managers, pension fund controllers, derivative players – does not learn easily and quickly. The nature has therefore reserved the massive shock – CRASH – in whatever the educated class practice day by day, year by year, decades by decades and centuries by centuries.

Have you heard the word “Crash” from the illiterate class – ever? No. But ask the educated illiterates or Elite Class – they will recall every crash of 1929, 1987, oil shocks  of 1980s, crash of commodities, oil prices crash to $ 9 per barrels, crash of 2003 and crash of 2008 – all in financial markets with the paper and electronic money created by humans to utter defiance of the disciplinary money of God – Gold.

When Japan was not listening to the nature that low interest rates and weaker yen was harmful to its economy for almost 16 years, the Supreme Power assumed the command. It engineered the massive crash in the form of major earthquake of  8.9 scale followed by huge Tsunami that wiped out almost entire north east coastal cities of Japan in less than few minutes. What was built over 66 years since World War II was destroyed in less than 6 minutes. That’s the nature – the Supreme Lord.

Japan – Making money in hard goods, loose in Paper trading
When the Japan was creating fabulous products, everyone admired, including God. HE must be carrying Giant LCD or HD TV to micro TV, gadgets, mobile phones! Just kidding.  But when HE saw that the Japanese were blindfolded by its love for dollar, not God, HE was perturbed. HE tried to teach the Japanese with subtle warnings by causing its NIKKEI crash from 37000 to currently 11,000 (before Tsunami), and not allowing its economy to prosper for 16 years. However, the Japanese did not understand nor did they heed the warnings.

Japan was exporting huge physical inventories to United States, UK, Europe and rest of the world in fierce competition, not in terms of price, but in terms of extra ordinary quality. However, what it earned was kept in Dollar reserve with the United States by deliberately keeping its currency artificially low. Japanese governments in almost every succession went on printing more and more Yen to buy dollar to keep its own currency weak. United States mused. It never objected to Japanese keeping its currency low but went on lecturing China to allow its currency strengthen when both countries were following almost identical policies.

Violent Correction
The nature could not prolong the obvious wrong. It finally struck, caused severest quake on record in Japanese history, and sank almost every asset that was used to build the massive reserve in dollars. When the humans do not heed the warnings, the nature acts, and IT DOES ACT with severest punishment. But even then, the humans do not learn.

When the disaster struck, the natural course for Japanese was to withdraw the dollar and convert into yen. After all, its reserve – a kind of savings – has to be used one day for eventual use in calamity. But the Japanese did not use. They pumped into money market 15 trillion yen created out of thin air (not by selling dollars) which is equal to US$ 183 billion. And what happened – the NIKKEI dropped further by 14% in single day! On following day, it pumped in another 8 trillion yen (almost $93 billions) again out of thin air into the financial markets, that is, the paper market.

Almost 23 trillion Yen went up in smoke in just two days.
When the need of the hour for the Japanese government was to rush massive physical aid to affected people and area under destruction, it went on engaging itself into unprecedented money market operation or in paper and intangible markets with massive force without any conviction.

According to CIA latest figures, Japan today has massive public debt of 197% to its GDP. In the aftermath of quake, its GDP is likely to go down by 30% and its public debt (with 25 trillion yen printed by budget deficits) will rise by 25% that will worsen its Public Debt to GDP ratio to over 353% – in less than 9 months. (Existing Public Debt + 25% of new PD divided by new GDP (Current GDP – 30% deceleration) %.

With massive 25 trillion injected into the system, the specter of inflation will rise very fast. The inflation in Japan will be almost uncontrollable. With huge short supply in daily essentials such as water, electricity and food accompanied by umpteen supplies of additional Yen created out of thin air, Japanese government has played a gamble of lifetime in casino type of operation. In all probability, this gamble is not going to work. With massive political instability, uncertain economy and now the humongous debt with destruction, we do not know how many years the Japan will be thrown back. It will recede into 5^th or 6^th largest economy after the effects of the dire game is played out in full.

True that Japanese are the most industrious people in the world. But what can they possibly do when their policy makers are running with the speed of Boeing 787 in wrong directions?

The Supreme Nature will reassert itself.  It is possible that –

1. Japan will have to sell massive amount of US Dollar reserve in favor of its own currency – Yen. It needs more yen at home than dollar overseas. What is the use of savings if it cannot be used even during the days of extreme necessities?
   1. As result, it is possible that Yen will eventually rise with outflux of dollar and influx of yen into the monetary system in Japan
   
   Unless the Japanese Monetary Authority and Bank of Japan adopt another imprudent step to pump in trillions of yen into the money market without selling its dollar reserve.
   2. Whether BOJ pumps in more money or not, it is inevitable that the Japanese Yen will rise from current 82Y/$ to almost 60Y/$ in less than 18 months at the most. There is a strong urge for money to revisit home from overseas, and this will be done very fast whether to the liking of Japanese politicians and businesses or not. Home-coming of Yen will be the biggest development in FOREX market in more than 60 years.
   3. The journey from 82Y to 60Y will not be easy one to start with. Initially, with growth figures of Japan revised down followed by rating downgrade by S&P, Moody and Fitch credit rating agencies, some hedge funds will short the Yen knowing fully well that Japanese government will love their actions. The Yen might show some initial weakness right up to 86.8 levels at the most, after which it may résumé its upward journey stopping at 81, 78, 75 and 71. Once it surpasses the 69Y threshold, it may move to 65, 63.50 and eventually 61 level. There could be concerted actions from G7 nations at the instance of Japan’s request, but such actions cannot stop the rise for long time.
   4. Those who short the Yen presuming lower GDP growth or excessive printing of yen by BOJ will be simply butchered later on.
   5. Those overseas workers working in Japan and getting their salary or other income in Yen should preserve their savings before remitting the amount to their own country in panic. In this authors’ personal opinion, any weakness in Japanese Yen to 86Y or about will be entry point for taking position in Yen. Those who sell Yen in panic may feel hurt later for loss of profits.
   6. Japanese insurers will have no alternative but to sell its overseas assets like stocks, bonds, and treasuries and bring the money back home to meet the insurance claims. These insurers do not have luxury to print the Yen on their back yard. They are private corporations, not government entities who can print the Yen at random out of thin air.
2. Japanese growth will be knocked off in big punch. It will be a sufficient cause for foreign investors to shun the NIKKEI and invest less in Japan for at least 2 years.
3. Interest rates may rise in Japan which has been kept at artificially low level for a long time. There will be a dearth of capital, so new capital will come at a cost, not free as before.
4. Japan will be absent at all future treasury auctions in United States. Or its scale of activity will be substantially cut down. When one major creditor Japan stays away from the participation, there will be rise in effective interest rates in United States. Watch out the LIBOR – it may give first indication of movement in interest rates in United States.
5. If Japan and its businesses/insurers/banks are obliged to sell the dollars, and buy Yen for use in resurrecting manufacturing plants in Japan, US dollar index (paper trading) and physical dollar itself will come under severe and continuous selling pressure. Gold and silver may gain steadily with faster pace than ever before (barring short term downward prices caused in wrong conception).
6. The countries exporting food items such as Australia, Canada, USA, China and other nations will gain from their exports if they are not facing foodstuff related inflation and did not ban exports.
7. There is a wrong conception that the Japanese manufacturers will lose their production advantage. They will make it up by producing more in cheaper overseas plants. Therefore, the countries housing Japanese manufacturers will witness substantial increase in exports from their countries. China, Malaysia and Indonesia will be the biggest gainers in exports. Their respective currency may gain too as result.
8. With Yen rising, the profitability of Japanese conglomerates will decline in Yen terms but in dollar terms they may not lose advantage due to rise in Yen value. It is possible that some Japanese companies will start preparing their final accounts in US dollar terms rather than their own currency to window dress it better.
9. Those who contracted debt or contracted “Yen Carry trades” by borrowing in Yen or swapping into their ultimate currency to fund their own requirements will suffer huge losses because their debt in real terms will rise anywhere between 10% and 25% depending on the level of Japanese Yen appreciation versus currency of destination. For instance, a bank like ICICI in India, who contracted Japanese Yen debt equivalent to $ 1 billion of loans or Commercial Borrowings in recent past, will find its profitability shrinking to the extent of Yen appreciation versus Indian Rupees.
10. The derivative markets which was mainly involved in “Carry Trades against Yen” and in non deliverable forwards, will find themselves losing humongous amount. There could be total collapse of derivative market when the Yen starts strengthening and interest rates in Japan ticking higher from near zero level. Those Yen borrowers for swap transactions will suffer from higher Yan and higher effective interest rates on Yen.

Tremors in America
There will be more consequences. Most worried persons will be Bernanke and Geithner (and Obama himself) because none of their high profile visit is going to work in their favor this time. They can’t bring even moral pressure on Japan not to sell the treasury or buy more of them in future auctions. Their day of inevitable will be nearer than before. When Japan starts selling treasury, Chinese are not going to sit behind and watch their value shrinking right before their eyes – they have even greater stake after all. Based on the cardinal investment rule  “ If you can’t fight them, better join them”  the Chinese  will be forced to join the Japanese in selling treasury dollar game. US dollar is going to be vulnerable in future. Give or take 4 to 6 months, and you will have heavily losing US dollar in the Forex game.

All in all, the currency market is going to witness the massive upheavals. The major beneficiaries will be Aussie dollar and Canadian dollars. Minor beneficiaries will be Brazil Real and South African Rand. Controlled currencies of China and India may not rise much in spite of higher exports for obvious reasons. They have surplus food stuff to export to Japan; secondly, they are least affected by inflation due to stronger currency and economy, and finally they are benefitted by higher hard and soft commodities. Aussie dollar might rise to 1.20 and Loony (Canadian Dollar) may rise to 0.88 to 0.92

It is amazing that the Japanese leadership is engaged into paper trading exercise when it should focus on real tangible asset exchange and development.

They have still not understood that it has been adopting deliberate “weak yen’ policy right from 142Y to current 82Y in last 16 years with disastrous result. If it has amassed US dollar reserve of about $900 billion, it has in real sense lost nearly $300 billion in Forex losses, if you take average rate of 120Y. That is, they shorted or sold Yen at average price of 120 and now can get back only 82 or 2/3rd of what they sold. That is, they lost 1/3rd of $900 billion or cool $ 300 billion in Forex losses.

Japanese Government will learn it hard way that “Selling Yen and Buying US Dollar is injurious to Japanese Wealth” and by the time it realizes the truth, it will be too late.

Anil Selarka (also known as Kalidas)
Hong Kong               Camp: USA
March 15, 2011 – Ref: 2011-02-PO

©2011 by Anil Selarka (Kalidas)          All Rights reserved by the Author