LAMENTATIONS OF GREECE - Part II

Euro is proving to be Man Made Financial Disaster!

On 2nd Feb 2012, Financial Thoughts have suggested that exit of Euro by Greece is good for the country. It was plain logic. After the stringent austerity measures put forth at the recommendation of Germany (reminding the colonial rule of 19th century?), by 2020 Greece will still have 120% Debt/GDP ratio! (For details see http://www.financialviewsonline.com/2012/02/lamentations-of-greece.html)

This was level of Debt/GDP ratio when the Greece crisis began couple of years ago! If the policy of austerity still fails to reduce it after a decade, it is common sense that the austerity is not the right medicine.

However, the Greece departure is sure create a big mess. It could be as disastrous as Lehman or even worse - or there is a fair chance that since the event of Greece departure is not a 'black swan' most of the financial world would be prepared.

Financial Thoughts is worried about the consequences to its stock portfolio. We have been searching for the comments and thoughts by the veteran investor and Guru of Gurus, Warren Buffet. We haven't seen any other than that during the recently concluded annual shareholders meeting of Berkshire, he has predicted a good performance of his company. We hope he will come out with his views soon.

We believe there is time till end of June 2012 before Greece officially declares its exit.

Those who are courageous can play a George Soros of 1992 - akin to the manner he made tons of money betting against the weak GBP. The Euro, at least in the short term, is on the weak footing.

The question is how to protect the stock portfolios. As financial thoughts mentioned earlier http://www.financialviewsonline.com/2011/07/nasty-experiment-called-euro-part-ii.html as long as Euro is in existence, there will be troubles.

Euro is proving to be a man made financial disaster. Financial thoughts is now concerned with how to protect the portfolio - there are several options, take short positions, buy puts, create straddles, create synthetic positions, take DITM/DOTM option positions, etc. However, an idea about the extent of damage that can be caused is required

Ludicrous socialism policy of UPA

It is well known that Mrs Sonia Gandhi’s strategy is to pamper the poor for votes & don't care much about others - majority of India's 1.1 billion population is poor. Roughly 10% of India is super rich, 20-30%% middle class and they pay most of the taxes to keep up the Government. About 60%-70% are stated to belong to 'poor' section without much incentive to improve - as they are pampered in the wrong manner. Instead of giving hand-outs they must be given chances to work hard towards success.

As part of pampering the poor, free/ subsidised food, cloth, etc is flowing to the BPL (Below Poverty Line) class. For example, a southern state Kerala provides 1 Kg rice for Rs 1/- to the poor class. With average daily wage of around Rs 350 -500/- (monthly income of Rs 10k-15k) in the state, this lopsided socialism is creating undesirable behaviour among the population. It is easy for a labourer earning this level of wage to qualify themselves into BPL category and enjoy free/subsidies. No wonder even the middle class segments in the country is trying to get into BPL category to get benefits. As usual, the lopsided policies of Indian Govt. is not providing any incentives to work hard towards success. Instead, it encourages the population to be BPL.

But the middle class of India which exceeds 250 million exceeds the combined population of several leading European nations including Britain, Spain, France, Germany, etc. and adds a lot to the Indian economy is being ignored. Why? They are not the vote bank just as  National Democratic Alliance (NDA), led by the Bharatiya Janata Party, realised in 2003. After putting up a spectacular economic performance, they lost elections .

It is pertinent to note that during 2002-2003 period US kept its interest rate low at 1% and India was able to reduce its rates to record lows as well, thanks to then bold RBI Governer, Bimal Galan and NDA, led by Vajpayee who initiated the world class National Highway program. Compared to that currently, the interest rates in the US is all time low; however current RBI Governer did not reduce the rates to help the business in India. UPA led by Mrs. Sonia is a far cry from NDA led by Mr. Vajpayee. The result is the slowing economy. No wonder Indian Manufacturing data for March 2012 was in negative territory.

Recently Forbes magazine has put out a list of the world's billionaires, of which fifty-five of them are Indians. About half of them belong to Baniya caste (traditionally business class) who comprise less than 5% or 55 million of Indian population. The heartland of India , where most of the quantity (60%-70%) resides, is missing from this list. Bihar, Bengal , Jharkand, Utterkand, Chattisghad, Madhya Pradesh, Odisha, Uttar Pradesh have little or no representation. Remember these are some of the resource rich, mineral rich territories in India. The skillset of the successful indians and poor indians are different. Instead of pumping free / hugely subsidized goods to 60%-70% of the population - that results in huge deficits - Govt must embark upon schemes to improve the skillset.

Some one defined Capitalism as 'wealth shared unequally' and Socialism as 'poverty shared equally'. It seems that current UPA believes in the latter!