Social Investing in India

Web 1.0 was about commerce and Web 2.0 is all about social.  MoneyVidya is a social stock investing site geared for the Indian stock market. The idea is pretty simple – once you sign up for MoneyVidya you can make stock recommendations, then MoneyVidya tracks the return and riskiness of the stock picks. Based on the aggregate performance of your stock picks, you get a rating based on 1 to 5 stars. The concept makes sense and thrives off the idea that a good portfolio manager can be found anywhere and not necessarily have to wear a suit or show up on CNBC.

However, the timing of the site might be a bit off as many people are turned off by the stock market but that might separate the real portfolio managers from the posers. Gautam Kshatriya, the founder, sums it up best “It would be silly to deny that market conditions have hit us. But we’re going to hang on. Besides, the users that join a site like this in the beginning are ‘passionate’ investors anyway, who are likely to be in the market no matter what.”

AIG Bonuses Revisted

aig-sign-124Over the weekend, the Connecticut attorney general indicated the bonuses paid to AIG was closer to USD 218 million. I’m a bit enraged the bonuses were paid out, but you have to put the amount in perspective. Over the past 6 months AIG received over USD 160 billion in bailout money with more to come.  The bonus amount is less than two tenths of one percent of the current AIG bailout money. So why is their such little outrage at the other 99.80% of the money? I assume because it’s tough to put a human face to a counterparty like Goldman but if a single person like Douglas Poling receives USD 6.4 million it’s a different story. But even the USD 160 billion for AIG is chump change compared to what the Federal Reserve announced this week: to spend up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. It’s official the US Government used their last weapon and early – the printing of money. As a data point, last year the Bureau of Engraving and Printing (BEP) printed USD 154 billion in real currency notes based on yearly data provided by BEP.

Back to AIG, although the media talks about AIG to be precise there was a division within AIG that caused all the pain – AIG Financial Products (AIGFP).  You can think of AIGFP as the bad insurer. Towards the end of last year the WaPo had a great three part story on the history of AIGFP: Part 1Part 2Part 3

Another article I found has a quick timeline of the Rise and Fall of AIGFP

Finally, Rolling Stone Magazine (yes, of all publications) has a good story on AIGFP

Are you Warren Buffet?

berkshire_buffetSomeone recently sent me a PDF describing how to invest like Warren Buffett…seriously What The Fu!@. I’m waiting for someone to send me a PDF on how to become the next A-Rod…oh wait just take steroids.

Before you start to mirror his trades remember this simple calculation. Based on the 2008 Forbes billionaire list, Buffett is worth USD 62 billion.  If he loses 99.5% of his wealth he still has enough change to buy an Airbus A380…USD 310 million. Now run that calculation on your networth?

This week Berkshire closed at around USD 73,000 an almost 50% haircut from it’s peak of USD 147,000 and now sits at a 5 1/2 year low.  It was fun to listen to Buffet just several months ago telling people to buy US equities because they were historically cheap. His newsletter came out last week and it looks like he tripped on his own advice and bought some stupid things. Let’s highlight some of the deals from the Oracle of Omaha:

Goldman Sachs – USD 5 billion at USD 115 a share and wait for it…wait for it…gets 10% a year.  Currently GS is at USD 75.65 (down 34%)

GE – USD 3 billion at USD 22.25 a share and gets 10% a year. Currently GE is at USD 7.06 (down 68%)

If you took Buffet’s advice you would be down quite a bit and you wouldn’t be getting the additional 10% kicker that Grandpa Buffet gets. Right now cash is king.

Citi's Vikram Pandit

citi_panditNew York Magazine recently ran an exceptional piece on the back story of Pandit’s rise to the top job at Citi.  In summary, he was smart but didn’t know how to play “the game” throughout his career.  The article is sprinked with anecdotes of how Pandit liked to roll with brown people and they even nicknamed his inner circle the “Indian Mafia.”

I’m still clueless on how Citi valued his hedge fund, Old Lane, at USD 800 million.  Even back then when money was flowing it seemed a bit outrageous.

The smartest move that Pandit made was selling off some assets in India. Back in November 2007, Citi sold one of it’s residential properties in South Bombay for USD 8.5 million. Sadly, that might be the only positive balance sheet move by Pandit.

The billion dollar quote from the article:

…When Pandit was born, an astrologer told his family that “whatever this boy touches will turn to gold.”

ouch…I wonder if that astrologer still has a job?

GM's 5 year plan

gm_logoAs part of getting federal money, GM released its 5 year restructuring plan this week (download PDF). I briefly scanned the 100+ page document and it touches on some key points but misses the biggest point – build cars that people want to buy. Below are my recommendations:

Only 3 divisions should be left – Chevrolet, Cadillac and GMC. Chevrolet should be focused on cars below USD 40,000.  Cadillac will focus on cars above USD 40,000.  GMC should be the truck/SUV division. Stop the overlap of designs and pricing between divisions which just confuses the shi@#$ out of consumers.  German cars are so damn easy – small, medium, large.  Small (A4, 3 series, C class), Medium (A6, 5 series, E class) Large (A8, 7 series, S class).

Buick/Pontiac – get rid of them. Once again, does anyone believe Tiger Wood’s drives a Buick? Pontiac had it’s glory days but it’s over (NY Times).

Saab/Hummer – Bye. Never could figure out who buys Saab, none of my friends. Hummer…really do we need this kind of fossil fuel consuming vehicle on the road?

Saturn – Should focus on India or China where cheap cars rule.  A Saturn car with ding/dent proof doors would do very well in Bombay traffic. But as far as a US entity selling cars…goodbye.

Of course, I have not addressed the two biggest issues ailing GM – unions and health care. That’s for another day.

Doesn't Look Favorable

dlf_logo_2Doesn’t Look Favorable = DLF. India’s largest real estate developer DLF announced their 3rd quarter earnings this past week and it was not pretty.  I think we all understand the economic environment is grim and the real estate market is REALLY grim but hearing Rajiv Singh, DLF Vice Chairman, speak on CNBC-18 you get the sense it ain’t so bad…whatever.

There is no denying it, most real estate developers around the world and in India are living on borrowed time and borrowed money. Rajiv also stated in the same interview that he doesn’t expect homes prices to get cut beyond 20% yet they have a hugh amount of excess inventory.  Rajiv mentioned people are not buying because bank rates are too high, I think what’s high is either home prices or Rajiv or probably both.

Real estate projects can simply be classified as:

  1. New – in today’s environment only a complete moron would loan a dime to a new project
  2. Partial – Hugh dillema, throw good money after bad?
  3. Completed – sell or lease at rock bottom prices, this screws up the initial project cash flow calculations. Existing tenants will ask for a rate negotiation (read – lower prices)

For DLF the numbers don’t add up and they are massively over leveraged which is not a good thing.  Will DLF or any Indian real estate company file for bankruptcy?  No chance, Indian corporate law is so convoluted that filing for bankrupty doesn’t seem to be an option, instead the company will just be a zombie of it’s former self.

Previous posts on DLF:
May 2, 2006 – India’s next crorepati (billionaire): KP Singh
June 8, 2007 – Yes, DLF. Really?
Oct 10, 2008 – Boom to Bust

Debt Spiral

credit_cardsDebt is the new four letter word. Debt is affecting everyone from Mr. Consumer to private equity firms like Carlyle.  More precisely, massive debt is the real killer.  Mr. Consumer for years had been charging up a storm on his credit card, buying 4 dollar lattes, hitting the mall and buying every retarded gadget from the Sharper Image and then to top it off he went and bought a home with very little down.  The technical term for Mr. Consumer’s situation is called clusterfu!@#$.  The recipe to get out of this situation is almost like losing weight – eat less (earn more) and exercise more (spend less).  Easier said then done, most companies are cutting back on raises or just getting rid of people.  Any sort of government refund check will most likely go to paying down his debt and not new spending. That is the catch-22, most of the world economy revolves around the American consumer spending and not saving.  But, for the American consumer to get back on track they have to save and not spend. Policy makers around the world seem hell bent on lower interest rates and approving fiscal stimulus packages to boost the economy.

If I’m not mistaken, this whole credit crisis was about cheap money and loose lending practices.  Take India for example, the government has been reducing interest rates but no one seems to be buying houses.  The banks fault the property developers for overpriced inventory and the property developers blame the banks for high interest rates. Who is right? Both share some blame but it’s also the real estate companies that over built which is leading to excess capacity in most Tier 1 (Bombay, Delhi, etc…) and Tier 2 (Poona, Indore, etc…) cities. I don’t think stimulus packages will work and the only thing that will help is just the natural progression of the business cycle.  But, policy makers can’t sit around and wait, they have to show they are doing something which just seems to make things worse…think TARP.