Archive for the ‘wealth’ Category

The One Minute Case for the Austrian Business Cycle Theory   Leave a comment

The Austrian Business Cycle Theory was developed by the economist Ludwig von Mises to explain the phenomenon of business cycles. It provides crucial insight for understanding the cause of cyclical boom/bust cycles and their connection to the government’s manipulation of the economy. To understand the Austrian Business Cycle Theory, an analogy is helpful:

Imagine an economy with just one actor: Robinson Crusoe on an island. Crusoe loves fish, so he spends half of each day fishing so he can enjoy fish in the evenings. Additionally, Crusoe spends Friday mornings maintaining his fishing dinghy and nets. In order to have fish on Friday, he must fish for an extra hour every other day of the week. In economic terms, Crusoe has a savings rate of one hour per day. His savings rate is also his investment rate, or the percentage of present income he sets aside to maintain or increase future consumption.1

Crusoe doesn’t have a fridge, so he preserves his catch by throwing it in a small, dark pond. He can’t see how many fish are in the pond, so he keeps a stack of small rocks near it. Every time he adds a fish, he adds a rock, and every time he eats one, he removes one. The rocks are his money supply.

Suppose that Crusoe shares the island with some mischievous monkeys, who see Crusoe adding rocks to his pile. They decide to imitate him, so every time Crusoe ads a rock, they sneak in and add one as well. The monkeys are inflating the money supply by injecting currency into Crusoe’s investment fund.2

One day, Crusoe suddenly notices that his “savings rate” of fish is double the usual. He decides to compensate by eating some of the fish he catches during the “savings hour.” This is the consumption-side of the boom phase of the business cycle. Crusoe also decides to take some extra time each day to start building himself a new hut. This is the investment-side of the boom phase of the business cycle.

Crusoe now believes that the cost of saving fish is half the usual, while in fact his savings rate is too low for the investments he is planning.

Before long, Friday comes around. When it comes time to eat his midday meal, Crusoe suddenly realizes that he’s out of fish – despite having a surplus of rocks. He’s exhausted his investment capital because the additional currency snuck into his money supply did not represent a real increase in his productivity or savings rate. He doesn’t have the capital (fish) to maintain his previous consumption rate, much less increase it. He is forced to cut his investment rate (he must spend some of his Friday fishing) just to have some fish for Friday’s dinner. He must also abandon his incomplete hut because he does not have the time to finish it. The abandoned hut is an extravagant expenditure that represents a loss of capital.3 This is the bust phase of the business cycle.

To review, here’s the overall impact of the monkey’s trickery: Sunday-Friday, Crusoe catches the same number of fish, but consumes more, and therefore saves less. That’s the boom period. Friday, Crusoe consumes less fish, and spends less time for maintaining his nets (capital). Some of his investment/consumption time must now be spent in production. That’s the bust period. If Crusoe’s initial savings rate allows him to just break even each week 4, his nets will gradually get worse and worse and he will eventually go hungry.5

Notes

  1. Crusoe prefers to enjoy his fish sooner rather than later, but he is willing to put aside some of his catch to get more fish later. The discount he gives to eating a fish Friday is his time preference, or his originary interest rate. (To that, he adds the risk that the fish will spoil by Friday to get the market or “real” interest rate.)
  2. As long as the monkeys keep contributing one stone for every fish, Crusoe can account for their trickery. But if the monkeys are unpredictable, it will be impossible for Crusoe to set the proper savings rate. In the real world, the originary interest rate reflects the average time preference of all savers. If someone starts monkeying around with the interest rates, it becomes impossible for investors (or the monkeys at the Fed) to know what the real rate of savings is even if they know that the rate is being manipulated.
  3. That abandoned hut represents investments which exceed the ability of the actual savings rate to complete. The resources it takes to build compete with worthwhile investments (such as repairing the fishing nets) by raising the prices for all capital. Ridiculous business models and sky-high salaries during the dot-com boom, as well as over-extended sub-prime mortgages likewise compete with legitimate business models, salaries, and mortgages. Manipulating the money supply makes it difficult to distinguish bad investments from good ones, so no one can escape the inevitable crunch.
  4. That is, zero net profit, an equilibrium rate of savings, or “the evenly rotating economy” in Mises’ terminology.
  5. Suppose Crusoe decides to ignore his hunger and work on his nets all Friday. In other words, he trades current production (and therefore consumption) for higher future consumption (that is, economic growth). If he does so voluntarily, there’s nothing wrong with that. But there’s nothing inherently more desirable or efficient in spending some of one’s time starving just to increase future production (that is, in valuing economic growth over present consumption.) Note that the longer Crusoe delays the shift back to production, the more severe the mis-allocation of resources (and his hunger) becomes. The monkey’s trickery does not actually make Crusoe to become a better saver – he is more likely to start saving less because of uncertainty over the future.

 

Taj Mahal – Sells for Rs. 63 lakh   Leave a comment

There are only 29 pieces of this Taj Mahal-embossed gold coin available for sale.

Want one? Well, you’ll have to fork out $1,40,000 or approximately Rs. 63 lakh for one of these limited edition solid gold coins.

Why? Firstly, because the coin weighs in at over 2lb, that’s about a kilo. And prices of gold have shot through the stratosphere; just 10gm costs Rs. 20,000 right now.

Secondly, the Taj Mahal gold coin is studded with 68 hand-set Cartier diamonds. That’s a lot of bling for packed into just one kilo.

The gold coin has been produced in France for the Franklin Mint – a private American mint that manufactures limited editions collectibles including a 550gm gold-plated miniature Mercedes, where the gold costs more than $25,000 and scarily real-looking Michelle Obama dolls (unfortunately, not gold-plated!).

The Taj Mahal coin comes in a $7,000 leather case designed by French luggage designer Goyard.

The gold coin is on sale in the US.

Antilla, The Most Expensive House in the World from India   Leave a comment

Have You ever wondered how luxurious the most expensive house can be? You should read this one. Antilla is the new house of Mukesh Ambani. This house break the record for most expensive house in the world. This is the first home in the world that exceeds $ 1 billion. This house is 570 feets high, the price of this house is around $ 2 billion. This house is built in the middle of downtown Mumbai, India that sadly in the middle of the area that full of poverty.
Ambani is a global conglomerate and the richest man in India, new emerging economies country. He explains that his new home will have more floor space than the palace of Louis XIV at Versailles.
Each of Ambani’s family will have their own personal health club. They will also have six levels garage for 168 cars. Most of the tower built from glass. This ultra modern house featured the panic room, cinema and employ around 600 servants and staff. Each level also have a lush garden.
The Building of Mukesh Ambani house

the lobby of Mukesh Ambani House

the ballroom of Mukesh Ambani house

the bathroom of Mukesh Ambani house

traditional lounge of Mukesh Ambani house

modern lounge of Mukesh Ambani house

Can You imagine that this house just for 1 family? Husband, Wife and 3 Children? I can’t imagine how life in the most expensive house in the world. This house will be stayed for a while as most expensive house in the world since the gap of price from the second place of the most expensive house is quite large.
Congratulations for Mukesh Ambani for your new most expensive house in the world.

Paid overseas holidays – a human right?   Leave a comment

An overseas holiday used to be thought of as a reward for a years hard work. Now, an European country has declared that tourism is a human right and pensioners, youths and those too poor to afford it should have their travel subsidized by the taxpayer.

Under the scheme, the pensioners could be given reduced price trips to other countries, while teenagers could be taken around to old industrial unused to experience the cultural diversity of Europe.

The idea was formulated by a government official of Italy, the EU said.

I think, going by the news reports over the years, the idea would have been taken from the Kuwait press reports.

Well here in Kuwait, a similar idea in is being reported in the local press for a long time now. The folks here are going abroad for an extended medical treatment. This is in-spite of the Kuwait medical industry boasting of the latest medical treatments being available locally.

Many reports have claimed that the idea of an abroad medical treatment is merely a guise to claim a state-sponsored holiday, given the fact that these trips are usually to a Western nation with great shopping and holidays locations.

I don’t know how much truth is there in these press reports, but state-sponsored abroad trips (for whatever reasons) is the brain child of some clever Kuwaiti minister, for sure. Of course, medical reasons are counted among human rights.

As far as human rights is concerned, on the other issues which are more serious, the HRW is keenly watching Kuwait and has also issued reports about its gross violation.

Well whatever be the reasons of travel, justified or not, the idea of state-sponsored foreign tourism, is the brain child of Kuwait. (Does it need to be patent protected?)

IPL Magnet   3 comments

Since the inception of IPL, it has acted as a magnet for people with big money (with or without any due credentials) and looking for a quick road to fame. Over the last 3 years, everybody joined the bandwagon of the IPL circus.

All those who did, made good money, exploiting the passion of the cricket hungry India and business of all sorts related to IPL cropped up over these years. And all of them shared the booty.

Now with the Lalit Modi and Shashi Tharoor spat gone sour on the Kochi team owners, that the IPL circus elephant has turned into a hydraheaded monster, all those even vaguely or remotely profited from the IPL name, no wonder, want to ditch it like a leech.

Day by day, the IPLGate is getting wider and wider and opening up new players with hidden agendas.The IT dept has gone full force into the scandal and much heavy steam is expected in the coming days. Many top notch people will find their faces scalded by this. Everybody who got money in the name of IPL is currently under the IT scanner; right from players, organizers, sponsors, team owners, fund managers, telecast & media rights owners, associated IPL brand companies.

Match-fixing and betting is another angle that is being investigated, with tons of money going into it. Being illegal, nobody wants to officially comment on it.

Even the BCCI officials and ministers are believed to be hand-in-gloves with those high profile IPL managers. Some heads have already rolled out and many more are likely.

Much heat is being generated from the politicians and are blaming the government, probably because they did not get the share of the booty. All those tainted parliamentarians, who made a killing with the earlier scandals are now raising their voices to blame those connected to IPL.

Well, in the whole deal, the game of cricket has been sullied. The perception in the minds of the people has changed, though a bit temporarily. Given the time, the fans will forget all this and clamor to cling to the stadiums and the TV screens to enjoy a good game of cricket.

The end result in this game is still awaited and will surely be a long bloody final.

Business Wisdom from Billionaire Warren Buffett   2 comments

Billionaire Warren Buffett shares his business lessons and wisdom.

Here are the hi-lites:

When do you decide to invest in a firm?

The best thing that happens to us is when a great company gets into temporary trouble. We want to buy them when they’re on the operating table. (Mr. Buffett bought Coke when it had its biggest fiasco after launching New Coke; he bought American Express when it went through a loss making phase in the early 60’s)

What do you look for in people when they come to sell their firms to you?

I don’t look for the usual credentials such as an MBA, a pedigree (Harvard, Wharton), or cash reserves or market cap of their firm.

What I look for is just a passion in their eyes; I think that’s the key. A person who is hungry will always do well. I prefer it when people even after selling stay on and work for the firm; they are people who can’t wait to get off their bed to get to work. Passion is everything; there is no replacement for innate interest.

Why do stock market crashes happen?

Because of human nature for greed and insecurity. The 1970s were unbelievable. The world wasn’t going to end, but businesses were being given away. Human nature has not changed. People will always behave in a manic-depressive way over time. They will offer great values to you.”

What are the things that are taught wrong in Business school and the corporate world?

I like such open ended questions, I think Business schools should refrain from teaching their wards about profit making and profit making alone, it gives a sense of 1 dimensional outlook to the young students that loss is a curse. In reality, in the corporate world, failure and loss making are inevitable. The capital market without loss is like Christianity without hell. I think they should teach the student on how to buy a business, how to value a business? Not just on how to determine the price of a business. Because price is what you pay, value is what you get.

How do you feel after donating $ 40 Billion to the Bill and Melinda Gates foundation? You are a hero to us!

I feel nothing. I haven’t sacrificed anything in life. I have had a good life. I donated after I turned 75. I think I admire those people who sacrifice their time, share their food and home, as the people to be emulated not me. Besides, what is money before a man’s life?

What do you think are the pitfalls in donation?

I have never donated a dime to churches or other such organizations; I need to believe in something before I end up doing that. I have been observing the Bill & Melinda Gates foundation for years now and I am confident they will do a fantastic job of making use of the money. I am a big believer in Outsourcing, others believed in me as an Investor and gave their hard earned money to invest. I believe in Bill Gates, he is a better donor than me.

You seem to be so well read, tell us how it all started.

My father was a stock broker, so we had all these financial books in our library. He introduced me to those classics and I got into them. I am lucky that my father was not a fan of Playboy! Reading is the best habit you can get. Well, you can learn from teachers too, and have mentors but there are so many constraints attached- they will talk fast, talk slow, they might talk like a pro or they might be terrible communicators. Books are a different animal altogether, I love reading! The beauty about reading and learning is that the more you learn the more you want to learn.

What is the 1 biggest advice you would impart to a young investor like me?

Think for a moment that you are given a car and told this is the only car you would get for the rest of your life. Then you would make sure that you car is taken care of well, it is oiled and detailed every now and then. You would make sure that it never gets rusted, and you would garage it. Think of yourself as that car. You just get 1 body, 1 mind and 1 soul. Take care of it well. Invest in yourself that would be my advice.

So, what is your roadmap to becoming a billionaire?

A wife’s vengeance   2 comments

On the first day, she sadly packed her belongings into boxes, crates and suitcases.
On the second day, she had the movers come and collect her things.
On the third day, she sat down for the last time at their beautiful dining-room table, by candle-light; she put on some soft background music, and feasted on a pound of shrimp, a jar of caviar,and a bottle of spring water. When she’d finished, she went into each and every room and deposited a few half-eaten shrimps dipped in caviar into the hollow centre of the curtain rods. She then cleaned up the kitchen and left.
On the fourth day, the husband came back with his new girlfriend, and at first all was bliss.
Then, slowly, the house began to smell…
They tried everything; cleaning, mopping, and airing-out the place. Vents were checked for dead rodents, and carpets were steam cleaned. Air fresheners were hung everywhere.

Exterminators were brought in to set off gas canisters, during which time the two had to move out for a few days, and in the end they even paid to replace the expensive wool carpeting.

Nothing worked!
People stopped coming over to visit. Repairmen refused to work in the house. The maid quit.
Finally, they couldn’t take the stench any longer, and decided they had to move, but a month later – even though they’d cut their price in half – they couldn’t find a buyer for such a stinky house.
Word got out, and eventually even the local realtors refused to return their calls.
Finally, unable to wait any longer for a purchaser, they had to borrow a huge sum of money from bank to purchase a new place. Then the ex-wife called the man and

asked how things were going.

He told her the saga of the rotting house.

She listened politely and said that she missed her old home terribly and would be willing to reduce her divorce settlement in exchange for having the house. Knowing she could have no idea how bad the smell really was, he agreed on a price that was only 1/10th of what the house had been worth .. but only if she would sign

the papers that very day..She agreed, and within two hours his lawyers delivered the completed paperwork.
A week later the man and his girlfriend stood smiling as they watched the moving company pack everything to take to their new home …… and to spite the ex-wife,

they even took the  curtain rods!

Now that’s a wife’s vengeance, when she doesn’t get a decent alimony & treatment.