My first (serious) research paper

The link is here. Its been an eventful two years at MSCI, and I've worked on a few interesting indices and projects which I hope democratizes the knowledge that has hitherto been the privilege of a few elite investment managers (and make money doing so :))

On the personal front, Aishwarya and I are expecting our first baby in October.

News not getting their due

Agreed, its election time and IPL. But there are a few big items thats not getting their fair share of attention at all.

1. Sri Lanka: Indians tend to dismiss Lankan Tamil cause as a terrorist struggle. After the bittter exit of Indian Peace Keeping Force and the subsequent assasination of Rajiv Gandhi at the hands of LTTE, there are plenty of reasons to be circumspect about poking into the fire again. But these are no ordinary times. An estimated 30 - 40 thousand tamils are trapped in an area of 10 square miles at the hands of LTTE. On the other side is an unremorseful Sri Lankan army determined to squash LTTE at any humanitarian cost. Sending foreign ministers and making public statements condemning the Sinhala majority Government is as spineless a response the government could've mustered. Where is the emergency UNSC meeting? Where are the UN observers and the threat of sanctions? Where are the peacekeeping forces to stop the military advance endangering lives of so many people? There are so many domestic issues in Tamil nadu. But I completely support the regional parties' stand that the Government has failed to stand up to the interest of minorities in the neighboring state, when it could've shown better leadership. The media apathy to the issue which is as serious as Darfur is appaling.
2. Shanno: The 10 year old girl who studied in the corporation school in Delhi after her teacher made her kneel down in the hot sun with 7 bricks on her back for over two hours. Her crime? Failure to recite alphabets. The west is bashing US over human rights abuse in Guantanamo bay over torture meted out to criminals. But in one more instance of Government apathy, Law minister suggested that a change in mindset was necessary before change in laws to deal with such situations. Its time the change in mindset comes from top. Where are the sacking of Government officials accepting responsibility? The death of a 19 year old medical student at the hands of his 4 seniors, oestensibly called ragging is another phenomenon which only catches the media and politiccians attention when someone dies. There are cries of shock and horror, promise to deliver justice and even possibly some suspensions. But things get back to normal after a few days. Is there anything to suggest things would be difficult this time around?
   

What does your blog say about you? Part II

Typealyzer.com apparently answers the question with a warning- your writing style may have nothing to do with your self perceived personality. When I last checked, this was the description typealyzer gave for my blog.

ISTP - The MechanicsThe independent and problem-solving type. They are especially attuned to the demands of the moment are masters of responding to challenges that arise spontaneously. They generally prefer to think things out for themselves and often avoid inter-personal conflicts.

The Mechanics enjoy working together with other independent and highly skilled people and often like seek fun and action both in their work and personal life. They enjoy adventure and risk such as in driving race cars or working as policemen and firefighters.

Now the same site gives this description.

ISTJ - The Duty Fulfillers. The responsible and hardworking type. They are especially attuned to the details of life and are careful about getting the facts right. Conservative by nature they are often reluctant to take any risks whatsoever.

The Duty Fulfillers are happy to be let alone and to be able to work in their own pace. They know what they have to do and how to do it.

I dont normally check out random sites which measures your love quotient, personality scores etc. But the endorsement of typealyzer was given by no less than Greg Mankiw the respected economist. But I could think of a few reasons for the change

1. I've somehow changed and become less fun and more facts.
   
2. I havent blogged enough for the site to give stable results (the difference between ISTP and ISTJ is just one letter)
3. I've quoted too many people in the recent posts and it affects the results (analyzing their personality?), especially taken together with the second hypothesis.
   

May be its just good timepass. Check it out. Let me check if this post affects the results.

My London trip

London is only my second foreign trip, the first one being a 2-day trip to Bahrain. My sister was onsite for her Genpact (an outsourcing company) project for about 6 months, and although she was totally tied up with her work there, it was her initiative to make us (my parents and me) stay with her and sight see London for 2 weeks. Bless her heart! I couldn't have afforded a London trip on my own.

There were snowstorms the week before we arrived, and frankly we weren't sure if how much we could cover. Thankfully, although it was near freezing while we were there, the sun was shining and there wasn't one cloud in the sky.

The nearest place was Kew Botanical Gardens, with an admission fee of £13 per person (about Rs. 1000. the entire period we were there, we couldn't help converting everything to Rupees in our head) It is spread over 300 acres, and was once a picnic and hunting ground of the Kings of the yore, along the banks of Thames. I found the Charlotte cottage right in the middle of the woods quite charming. We walked for 6 hours, interspersed with only slight amount of rest. In fact, we walked a lot during the trip. I was amazed how my mother at her age had the energy to come home and do household chores after all that walking.

The next visit was the Natural History Museum and Victoria and Albert Museum at South Kensington (London is the city of Museums. I must've visited more museums in 2 weeks than I did the entire life) The best things in London are free. Museums are one of the few things in this world that cannot be digitized (Can you imagine a three dimensional experience of exhibits in the internet?) Victoria and Albert Museums have the best collection of Jewellery in the world. My parents and I initially searched for the Kohinoor, not realizing it is in the Tower of London.

The National Maritime Museum and the Royal observatory at Greenwich (where the famous Prime Meridian runs) is perhaps the most interesting part of my visit. The Royal observatory have the following story:

In the olden days, the sea travel was considered dangerous, because the sailors lacked navigational tools. The latitude, how far north or south of the equator one is, is relatively easy to find by the height of the Sun at midday or (in the northern hemisphere) by the height of the pole star; sailors had been finding their latitude at sea for centuries. The longitude is a measure of how far around the world one has come from home and has no naturally occurring base line like the equator (Imagine a sphere, you can always draw the equator, but can you say which one is the central meridian unless explicitly defined?). The crew of a given ship was naturally only concerned with how far round they were from their own particular home base.

In theory, two approaches are possible- either find the time accurately at sea; Knowing the time at Prime Meridian, and knowing 4 mins correspond to 1 degree helps fix the longitude. The other approach is this. If an accurate catalogue of the positions of the stars could be made, and the position of the Moon then measured accurately relative to the stars, the Moon's motion could be used as a natural clock to calculate Greenwich Time. Sailors at sea could measure the Moon's position relative to bright stars and use tables of the Moon's position, compiled at the Royal Observatory, to calculate the time at Greenwich, by which they know how far East or West they are from it. This means of finding Longitude was known as the 'Lunar Distance Method'.

Pendulum clocks which measures time accurately on Earth fares dreadfully under unstable conditions at sea. So Harrison worked on the most accurate clock at sea, while Flamsteed worked on the Mapping of the stars. Both approaches were eventually successful.

A few things an Indian would notice about London. Its public transport system is great. Not only are they well networked, but also the directions are so clear a child would find its way around. The credit crunch is visible in atleast one way- On the last day, we were shopping at Hounslow. Most of the shops were displaying 'Credit crunch prices!!!'. A couple of things were really cheap- Chocklates and Shirts. We hoarded them. People everywhere were precise and helpful with directions, not the usual take the right and go straight and ask someone there. I didnt find any signs of racism, although it could be because I'm just dumb to take note of any. Anyway, Indians are racist when it comes to Black people. Ask any African tourist who has visited India.

My mom was clad in Silk sarees and Golden ornaments and attracted attention everywhere. In Windsor castle, my mother and I had an argument over how to use the audioguide. I asked the lady at the counter to arbitrate. She smiled and said, Mother is always right. Mother is king!! (No. She did not say Queen) Oh boy! I think my mother would mimic the line if I argue with her over anything, ever.

London pictures here.

Spot the odd one out

Gandhi's glasses, like success, have many fathers. I don't know which one is more hilarious - The fight between the Government and the dashy millionaire over who would take credit for rescuing Gandhi's memorabilia for a not small sum of $1.8 million, or the owner Otis' solemn pledge that he would stop Gandhi's auction if India spends more on health care than on defense.

If Gandhi's items were acquired by legitimate means by the owner and auctioned through a legal contract, India has no right to waste precious taxpayer money going for it or use other means to coerce the owner to give up his right. The diminutive man must be turning in his grave that his memorabilia went to someone who is an antithesis of austerity.

Consider the problems India faces. The country is plunging to its worst slowdown in recent memory. It is painful to see India in international news for all the wrong reasons (latest one here) The pace of infrastructure projects implementation is debilitating, when the west is trying to manufacture growth using public spending on not too dilapidated highways and Broadband services. Justice system is in a state of decrepitude - By Delhi high court's own admission, it would take 466 years to clear its backlog, while the lawyers in southern city of Chennai strike work for issues like violence on Sri Lankan Tamils. Not even the ignominy of Mumbai attacks has galvanised the Government to come up with a concrete plan on internal security. Oh, and the Government or Vijay Mallya, rescued Gandhi's glasses in a major show of diplomatic victory. Spot the odd one out.

The Great Crash, 1929 by John Kenneth Galbraith

The past does not repeat itself, but it rhymes - Mark Twain

Crises serve a useful purpose - Regulation is a poor substitute for good memory. People after a big crisis become fearful of excesses that regulation try hard to limit. Excesses might come in different forms after a few decades, for there is nothing more predictable as human desire to make money without effort. But memory serves the same purpose as SEC, in a far more effective way.

Refreshing memory was the main intention of the author when he wrote the book in 1950s. Half a century later, as a crises of comparable proportions looms, it is worth considering the aspects of the Great crash which rhymes slightly with the current one.

When people talk about the great crash, they say it merely precipitated the already weak economy. By most standards, the real economy had slowed down. The stock market crash merely made people realize what thin ice they were on when they were speculating high stock market values.

But that's underestimating the effect of stock market crash, argues Galbraith. During that time, the top 5% of the income earners controlled more than 30% of the wealth. Any crash which wiped out the wealth of these 5% was bound to affect the real economy. But how did it crash? Like most if not all crashes, the answer is Leverage.

In 1920s, Investment trusts, similar to Mutual funds today, operated on a holding companies model taking stakes in a host of operating companies (Montgomery Ward, American Telecom etc), and issuing securities to finance the acquisition. At the height of the boom, the market values of these holding companies sold at 2 or 3 times the market values of the operating companies they were holding! That's the first stage.

How do you act on this premium (ostensibly attributed to the financial genius of the managers of the trust in picking the right stocks and achieve diversification) ? The traditional way of issuing bonds, preferred stock etc achieves leverage to some extent (Assume a 100 Rs investment in stock portfolio financed by a 50% investment. A 1% rise in value to 101 results in a 2% rise in equity (50 becoming 51)) But that's not enough when you are a financial genius. The holding companies started spawning even more holding companies and so on and so on and the final link in the chain was the operating companies. The companies also held stakes in holding companies of other institutions (the author calls it financial intercourse) creating a structure which could bring the whole system down in times of crisis.

The second cog in the speculation wheel was the amount of broker loans (loans taken by brokers in the call market to finance purchases of stocks). Unlike the period of early 2000s, the money was by no means cheap. At 12%, it would've enticed the money lender in Mumbai. But such was the nature of speculation that the brokers were willing to finance stocks at that rate, and the world was willing to finance them.

In hindsight, the speculation had to come to an end. When the investment trusts did come under selling pressure, in a bizarre display of self delusion, the trusts started using the excess cash they had built up during good times to support their own stock. By the time they had realised the futility of trying to support the stock everyone wants to dump, they had burnt through all their cash and was left with nothing to pay up their debt. When they were forced on a firesale, for the first time in history, people realised that there need not be a buyer for every seller at any price. The market went on a free fall.

There were some auxiliary reasons why the recession became as severe as it did. In the present day current crisis, at least for a time being, the American economy was sustained by a surge in exports as the crisis, combined with high oil prices weakened the dollar against all major currencies. But 1920s America wasn't that fortunate. America, at that time was a creditor economy (lender and exporter to the world). In the balance of payments equation, the current account (Exports and imports) and capital account should by design balance. In those times, most of the economies of the world ran a huge current account deficit (imported more from US that they exported) The only way they balanced it was by borrowing more from the US. Most of the loans were made to Latin American countries which had domestic instability and credit risks (nothing changed till date). As credit became tight the loans came down sharply. The only way to keep the Balance of payments in balance was that the imports from US had to come down. This deepened the crisis.

The author agrees that the Economic knowledge at that time was poor in dealing in the crisis of that magnitude, and that some of the actions deepened rather than alleviate the crisis, (the rules which forced the Government to balance federal budgets and cut back spending during crisis, the Smoot Hawley Act that smacked protectionism, the Fed inaction leading to multiple Bank failure etc) which makes the Depression of 1930s unique in some ways. But his ideas behind the crisis, the basic human desire to make money without effort, to suspend disbelief when the going is good and even actively seek justification for the new found prosperity (Noted economist Irving Fisher made the infamous assertion 'the stock market had reached a permanently high plateau') remain true of every crisis.

P.S: There is an interesting observation. President Coolidge in his state Union address in 1928 said 'No congress has ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than the current one...' Historians have chastised Coolidge for his false optimism that had prevented him from seeing the looming disaster. This, says Galbraith, is grossly unfair. Historians rejoice in crucifying the false prophet of the millennium. But they never dwell on the man who wrongly predicted Armageddon.

Could what be true of Coolidge be true of Greenspan? Was it wrong to let the good times last, especially the one which had lasted for more than a decade? (Even if he didn't do what William McChesney Martin, Jr., the longest serving Fed chairman (not Greenspan like many believe!) famously quipped 'the job of the Federal Reserve is to take away the punch bowl just as the party gets going'?)

Nehru, A contemperary's Estimate

The notion of Nehru spending halcyon hours relaxing with the peasants or Nehru's affection for children are comically off the mark, claims Walter Crocker, the Australian high commissioner to India in his biography of India's first and longest serving Prime Minister, written shortly after his death. Of the dozen or so biographies written on Nehru (the man himself wrote not one but three autobiographies! An Autobiography in 1936, Glimpses of World history and Letters from a father to his daughter in 1940s), none is more critical of him (although the affection and respect for the man shines through the book), which is remarkable considering the book was vetted by the Australian Foreign ministry and a few inflammatory references were apparently removed in the best interests of India-Australian relations.

The book sometimes smacks sarcasm ('typical Indian attitudes') to being downright critical, but is nonetheless engaging. It is even funny occasionally, like the reference that senility had gotten the best of even a balanced man like Nehru.During the Jalianwala memorial day, at a time when Russians had recently sent astronauts to space, Nehru spoke glowingly of weightlessness of space and his vision of Man's conquest of nature to an audience of illiterate peasants concerned about their next square meal. It harps on his famously short temper; During an occasion of modernization of villages through self help which quickly turned into a 'typical Indian function' of speech making starting with the President's speech being telecast from the Rashtrapathi Bhavan. He went on and on; irreproachable platitude following irreproachable platitude till Nehru grew restive. After the President's speech, Nehru stood up angrily, denounced speech making, vetoed further speeches and led the crowd to a place and asked then to dig a drain.

But the book is mostly about the main issues of the day. On Kashmir, Crocker minces no words saying India went back on its promise of holding a plebiscite to decide whether Kashmir accession would be whether to India or Pakistan, just after 1947 war. This, Crocker suggests was perhaps due to suspicions that such a plebiscite may result in Pakistan's favor.

On Goa (then Portuguese colony), the author charges India of unprovoked attack on a region which had no military power worth its name, under tenuous logic of the peninsula being integral part of India (he says Spain could use the same argument against Portugal, for example). Here too, he says a plebiscite could have gone against India, mainly because of the prosperity and more efficient administration of Portuguese.

On China, however, he is more forgiving of, even sympathizing with Nehru, as he wonders why China, in spite of the support it received from India on a host of issues (India gave up the special position it inherited in Tibet from the British and acknowledged Tibet as a integral part of China; India was the first to recognize the nacent communist regime; India actively lobbied for a permanent position for China in the Security council) chose to go into war with India over a petty boundary dispute.

Walter Crocker is prescient on a host of things. Like his forecast that when dust has settled, Nehru's achievements would be scaled down (Even he would be surprised at how far it has fallen). Or his prediction that Nehru's zest for equality for the masses with such haste has made it impossible for a higher caste Kashmiri Brahmin to ever become a Prime Minister of India (Nehru destroyed the Nehrus), and that the future would be dominated by members of the lower castes who would be voting majority as against the detached-majority-upper-castes.

But he was wrong in predicting the demise of India's democracy. The author while acknowledging that India's capacity to survive says chances are in favor of tyranny and oligarchy (an suspicion voiced by even the ardent optimists of the time). India's chaotic stability has endured till date.

While it is impossible to compress the life of a man in about a couple of hundred pages, much less a complicated man like Nehru (There were two men in Dr.Jeckyll and Mr.Hyde; there were more like twenty in Nehru), the author presents a riveting account a man who is done great injustice by a one-sided portrayal by his hagiographers