path to democracy

This might be obvious to many but it just became obvious to me.

Democracies cannot be created by fighting wars and toppling even the most hated of dictators.

They are the result of creating independent and strong institutions most notably a legal framework, a legislature providing for elected representatives at the local, state and federal level, and even though often much hated, a strong bureaucracy.

While America fights wars in the name of anti-terrorism and for creation of democracies, its failure is owing to the fact that it also ends up destroying existing institutions which are vital for stabilising the region in the longer term.

British imperialists on the other hand while being exploitative in many regards, created institutions in their colonies which continued to work almost as if nothing had changed when they packed up and left.

Creation of institutions is a time taking process and therefore requires a much longer commitment than an exteranl 'liberator' is willing to make.

The solution perhaps is in re-vitalising multinational agencies(like the UN) to take control immediately after an 'assault' and be there to create institutions as long as it takes. NATO and the US thus have a lot to gain in working to give new power, new role and breathe new life into multilateral agencies

is this stock mkt for the retail investor? 3of 3

'Pundits' who advise all to make value long term investments when asked about the recent crash that wiped out long gains responded by coining another term for it...' a lost decade'. Well, you would feel the meaning of this term truely only if you were planning retirement and suddenly you see your investment built over a life time just wiped out into thin air.

As my concluding post in the series let me summarise why i think retail investing is a goner:
1. Apparent end of the long term investing approach in favour of active trading thus tilting the balance of effort return ratio unfavourably for a retail investor

2. Emergence of giant sized hedge funds and money managers with huge sway on stocks and direction of the market

3. Creation of a plethora of new complex financial instruments making the game more difficult and for the knowledgeable few

As somebody wanting to make money from a rising market wouldn't it be much simpler then to hand over your money to one of these savvy money managers? I certainly am tending to believe so. (Except you might want to do some research in choosing one wisely!!)

The only charm in retail investing left is now quiet akin to gambling and picking out the winning horses. You get a rush, a sense of having been proven right. But just like gambling that victory ain't gonna last long.

So go into retail investing directly knowing that you are making a gamble, play it like a sport, play it only with surplus cash and know when to say adios amigos.

is this stock mkt for the retail investor? 2of 3

i have always been inquisitive and i like to do deep dives in my areas of interest...tht's exactly how i got involved with stocks and in trying to understand abt how the markets work. assuming u r better than me ( and that's easy), u would be able to pick up the knowledge much faster and get ready to go...but the continuing point i'm trying to make from the first part in this blog is....IS IT WORTH IT? is the effort-return ratio favourable?

i feel that the stock market game changed forever with the emergence of mega size hedge funds and wealth managers, with their having created new instruments in derivatives like futures and options ( The Economist referred to the emergence of these as " an alphabetical soup of new instruments". Warren Buffet called derivatives as "financial weapons of mass destruction"). like all 'pundits', the hedge funds and money managers have sought to write in 'sanskrit' wht could be explained in simple english and create a select club in the process. they have thus not only increased the complexity of the game vastly, they have overtime garnered the muscle to move the market their way, interpret the stocks their way and force them up or down in the direction best suited to their positions.

there is even talk of some investment banks having become as powerful as the 'illuminati' or the 'church' with ability to affect not only the markets but the surrounding environment of main street business, politics and the media.

come back to the retail investor now; even if he does pick up genuine winners but the 'pundits' dont like 'em, they can just beat the stock down ignoring its winning qualities till everyone looking at their fall believes them to be no good too. and though each share holder is supposed to have a say, does a retail investor have any genuine ability to choose the management of the company or advise them in any way?

where lies the joy of investing for a retail investor then? to be contd...

is this stock mkt for the retail investor? 1of 3

i have read several stories of 'investment gurus' who started investing with pocket change .... have become millionaires and of course 'gurus' in the process. but is it possible to do so in today's day and age?

if at all tht is possible, do u simply follow the guru-speak and the strategies they used? Warren Buffet has always spoken of long term value investing whereby you choose good securities (how do u do tht? )and then stay invested in them over the long term. most gurus tend to agree on this as the best way to make money in the market. but is this strategy workable now or have the rules of the game changed dramatically? i say this cos' the recent secular tumble down of the global stock markets show that if u had invested in the top index stocks in US or India or Europe 10years ago and stayed invested throughout then your total investment gains today will be........................................................................................................................ZILCH if not NEGATIVE.
so if tht does not work no more, your other option is what is called trading. now again if u choose good securities which are priced right according to you in the present (again, how do u do that? wait some more ...), you have now the added problem of when to sell, at what percentage gain or when to walk away and take a loss... AND HOW DO U DO DECIDE THT??... hence the game only gets more complex....

of course, trading means tht u have to devote far greater time looking at the market and its gyrations and decide how often you want to get in and cash out...

and to answer all the HOW DO U DO THTs...well it is again more investment of time and hard work in terms of research and in knowledge of the fundamentals and technicals, understanding the P/E ratio, the support and resistance levels, the 200 day moving average, MACD and so on and so forth....

so as a retail investor r u upto it...............to be contd.

how much tax do u pay?

This was the question that sparked a debate at a family gathering recently.

We all know how much income tax we pay. That's easy to keep tab off being accounted for in total once a year when we file our income tax returns. But the problem comes with sales taxes for which you have to be very meticulous to keep tab of... i actually never thought some people keep a tab of that !!

Also in many countries like India, besides sales tax, there are also indirect taxes like Excise and Service taxes which are levied on the provider of the goods/service but borne by the consumer.

So the problem is this, do you really know how much tax you end up paying to the Government? Why does the government not impose just Income tax which is easier to keep tab of and get rid of sales tax and indirect taxes? Are not sales tax and indirect taxes a double taxation on your income?

I am no tax expert and its been sometime since i passed my grad in economics.

However, i know this; income and spending are two different activities for economics and taxing each has got different objectives. Also there is the divide of what goes to the Federal (Central) government coffers and what goes to the State coffers. For me though that is just a matter of how the Government has chosen to organise itself. I'm not sure if its true in the US but in India a fair part of the taxes collected by the Central government are re-routed to the states based on various parameters. Thus, as the person getting taxed i'm equally worse off, no matter which pocket or part of the Government taxes me.

Fact is many people who do not pay income taxes, still have to pay sales tax and indirect taxes when they buy goods/services and so it certainly widens the tax net. But for those who pay Income tax, it certainly does appear to be 'double' taxation.

Also in certain economic periods (like right now) when the government would want to stimulate spending, shouldn't they do away with sales tax?

Anybody out there has an opinion? feel free to share.

Can poverty be eliminated?

This post is inspired by a video of McKinsey Quarterly featuring Jacqueline Novogratz-CEO, Acumen fund. She mentions that her fund is dedicated to the cause of bridging the gap between the rich and the poor. It revived in me a debate i've often had on why there is poverty, can it be eliminated and if so how?

The existence of the poor is even mentioned in the golden period of Indian mythology-under Ram Rajya (period under the reign of King Rama a Hindu god) and also in the time of Christ. If it was something that could be wished away why did these god-men not eliminate poverty?

Continuing efforts to get rid of poverty through long standing supply of aid and effort of charitable organisations has not helped in fighting this stigma by a lot (though i would not say that there efforts are in vain; they play a vital role by creating awareness of this problem amongst the developed countries). This is because poverty is not just a problem of lack of monetary wealth but it also gets a grip on the psychology and spiritual character of the person it inflicts.

Actually, early Christian missionaries, consciously or unconsciously were able to address the problem at almost all levels. They were able to offer monetary help and also vitally provide support for physical and mental health and healing. They also successfully broke the negative spiral which can surround an individual in poverty and helped them become a part of a new 'higher' grouping. Perhaps the only things that did not work for them was their over zealousness to convert people to the christian religion and that they did not teach the 'converts' self-sustaining enterprise.

I was once told by my spiritual guru that you cannot get rid of darkness by fighting it head-on, you get rid of it by bringing in a lamp, a ray of light. Poverty, quite like darkness cannot be fought from just within but requires a positive external intervention at the physical, mental, spiritual and economic level.

Mahatma Gandhi, rightly understanding this, addressed each aspect of the problem- including the one left out by the missionaries- the economic problem. His dictum to the teeming poor and untouchables of India in asking them to spin the charkha (weaver's wheel to spin cotton) was aimed exactly at creating sustainable socio-economic development.

Modern charity and aid NGOs (Non Governmental Organisations)have also begun to realise that they cannot fight poverty by simply collecting and transferring donations from the rich to the poor. They need to make themselves and those they wish to help self-sustaining by operating akin to a for-profit enterprise.

CK Prahlad has brought a lot of corporate attention to the real profit making opportunity in addressing the social needs of the most downtrodden by talking of 'value at the bottom of the pyramid'.

Still can poverty be eliminated? I dont know. When i asked a seer this question, she simply told me that all fingers are not equal. However, i strongly believe that even if poverty cannot be eliminated, its causes can be addressed and the window of opportunity and hope widened to give many at least a chance.

change...always for the good?

Tuesday shall witness a change historic for America and possibly for a large part of the world...the new president speaks of change and represents it.

But perhaps a bigger change of which Barack Obama is just a manifestation started much before...i speak of the economic change or the economic meltdown as it turns out to be.

In the past hundred years big economic changes have normally been set into motion by war. Wars bring destruction and downturn and thus the opportunity of a renewed upturn and discovery of new frontiers. They bring down the high and mighty and create a new level playing field; they create new stars who have the chance to write their own story on the wall of time.

This time around the tide of economic change was set into motion perhaps by the "war on terror"; by the atrocities committed by both those who are fighting it and those they are fighting against. While this might be true of previous wars too, what is definitely different about this new war is that it is not over- no one knows how long it will last and the victor is not even in sight.

Obama is thus a star brought to the fore by a war different from the past and which will bring him unprecedented challenges to secure the tide of events in his favour.

However, Change as such, like in the past, will create new frontiers to be discovered, new level playing fields and new opportunities.

And so this shall be a change for the good- especially for those who cease the moment and like Obama try and make the most of it.

Long live change!!

The same answer to Gaza and Kashmir?

Israel is waging a war. Who is it they are really fighting? Hamas, ordinary residents of Gaza or is it waging the war of the west on Islam? Whoever it is fighting and whatever it is fighting for, the question i seek to answer is whether violence can bring about any lasting solutions?

I come from the land of Mahatma Gandhi, yes, India...most recently in the news for the terror attacks on its financial capital, Mumbai. After the Mumbai attack the people of India felt that their Government was a weakling, the politicians all jokers and that we needed to take bold actions akin to Israel against the perpetrators - Islamic militants based out of Pakistan. But the Indian Government stopped at just raising its voice by a bit.

A previous Indian Government's Minister for External affairs, Jaswant Singh, had in fact escorted the very terrorists who supposedly master minded the Mumbai attack to ensure their safe release in exchange for Indian passengers on board a flight to its capital, New Delhi, after it was hijacked and held hostage in Afghanistan in December 1999.

These responses clearly show that India somehow continues to believe (or make believe)that the terror problem it faces from Pakistan can be solved through diplomacy, international pressure and even perhaps through the exchange of culture and the playing of cricket.

So, Israel and India facing a similar problem have adopted two very different approaches to solve them and yet neither appears to be successful. Where lies the answer?

I believe that the answer may lie with Economics.

To present a radical economic solution, is it possible for India to sell off Kashmir, the region which is the bone of contention for its dispute with Pakistan at the cost incurred in the last 55 years trying to keep it under control and perhaps even take into account a brand value loss that it'll suffer?? I know the thought is too radical and perhaps impractical.

But the idea is this...show the Kashmiri people and the Pakistani based militants the cost they incur in human lives and economic prosperity and let them choose what they really want... is it just land they want or do they want happiness and economic prosperity for the people of Kashmir? They just have to look at the fate of people in Pakistan-Occupied -Kashmir which shows clearly that by merely merging into Pakistan or even having an autonomous region will not solve their problems. Economic growth, jobs, prosperity and the resulting peace will.
Let them then choose whether it is India or Pakistan which is in a better position to ensure that they get the basic development they deserve.

Similarly, the Moderate Palestinians under the Fatah party of President Abbas- which Israel supports, has rightly commented that the on going attack by Israeli forces on the Gaza region, rather than helping them, only weakens their proposed solution of peace to the radical elements in their population. The key to solving the Gaza problem using economics may in fact lie with Egypt which by bringing the Gaza strip under its economic cover ( with the support of Israel) can give the region an aspiration to become something more than just being seen as a war zone for Islam.

I know that communist-economic thought says that land is at the heart of all economic problems, but then we first need to recognise the problem of Gaza and Kashmir as economic problems foremost.