What will the leadership change in 2012 bring?

In this issue:
» A possible solution for OMCs
» Pessimistic view on US recovery in 2012
» Europe should learn a lesson from a toy maker
» Investors to blame for the state of real estate
» and more!----------------------------------------------- Free WebSummit With Ajit Dayal -----------------------------------------------

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00:00

It's Christmas Eve today and we are almost reaching the close of 2011. We are on the cusp of the New Year 2012. But, looking back over the past year, a specific theme is very apparent. The problem is that it is anything but pleasant. ANGER. That's right, anger is the overriding theme that has characterized 2011. Unhappiness with the status quo and dissatisfaction with world leaders has caused people across the world to revolt.

Uprisings took place right from the Middle East to Wall Street. The Egyptian revolution took down the tyrannical leader Hosni Mubarak. But even the new military appointed leader cannot bring calm to Tahrir Square. Feared Libyan dictator, Muammar Gaddafi is now dead. Anna Hazare single handedly challenged India's corrupt politicians, with social media and GenX providing backup. The Occupy Wall Street movement questioned the concentration of wealth in the hands of few. After staying silent for years, Chinese citizens are begging for more transparent and accountable governance.

While these movements in different countries had separate agendas, their complaints sprang from a common source. According to an article in Business Week, high rates of youth unemployment, frustration with crony capitalism, inequality and loss of faith in the established order contributed to the mess. Just to put things in perspective, youth unemployment in these frustrated countries are at all time highs. It is currently 25% Egypt, 40% in Greece, and 18% in the US. Thus, it is not surprising, that the youth are the leaders of such anti-establishment revolts.

Will things change in 2012 is the biggest question? Russia, China, France and more importantly the US are all expected to choose new leaders next year. In India a few states will also be busy with elections. But, with democracy under question and leaders vulnerable to public protests, we hope that the new heads of state are able to step up to the tall task in front of them.

Will the changing of the guard in 2012 bring a marked change in governance and accountability? Let us know your views or you can also comment on our Facebook page / Google+ page.

01:40		Chart of the day

Retail FDI is currently on the backburner after a showdown in the Parliament. But, maybe India was never ready for it. Even on a small base, our country's retail theft is rampant. Shrinkage is a term that refers to a reduction in inventory due to shoplifting, employee theft, omission errors, and supplier fraud. Today's chart of the day shows that India saw the maximum shrinkage (percent of total retail sales) as per the Global Retail Theft Barometer 2011. Globally shrinkage rose to US$ 119 bn in 2011, an increase of 6.6% since 2010. In dollar terms the US shows the maximum shrinkage of over US$ 41 bn. However, this amounts to just 1.6% of total retail sales in America.

Data source: The Global Retail Theft Barometer 2011 (Center for Retail Research)

02:10

With the European policymakers heaping misery upon misery on its poor citizens, one wonders what gave them the credentials to run the financial affairs of a huge economic block when they don't seem capable of running even a small firm. For if they would have done the latter, they would have known that throwing good money after bad will only make the matters worse. This is precisely what the boss of the iconic toy maker Lego is trying to drill into their heads. It should be noted that just like the over leveraged Eurozone, Lego too faced a similar crisis back in the 90s. But did the company resort to piling up more debt? Certainly not. Jorgen Knudstorp, the man responsible for turning around the company, noted that Europe needs to face up to its economic harsh reality just like Lego did. "It's about all of us recognizing that we have lost a bit of our wealth," he is believed to have said. Infact forget Lego, the people behind every successful turnaround story in the world will perhaps have the same piece of advice for policymakers. And that is to face up to the truth. We sincerely hope that the European leaders are listening. Or else, the coming crisis will be even worse.

02:50

While the US economy was on a recovery path in 2010 after the 2008 meltdown, it faced several roadblocks in 2011. As per the Wall Street Journal survey, the US economy would have a growth of just 1.7% in 2011. However, surprisingly it witnessed a good recovery at an estimated growth rate of 3.5% or more in the last quarter of the calendar year 2011. Despite this, the economists paint a less than optimistic picture for the US economy in 2012. As per their estimates, the US economy is expected to have a moderate growth rate of 2%.

Why are these expectations subdued? Well, there are many reasons for the same. The prevailing debt crisis in the Euro zone poses a threat of recession in the Europe. Plus China's giant growth engine is expected to sputter. All this would hurt the growth prospects of US exports. The country is still ridden under foreclosures problem, continuing to affect the housing industry. Budget cuts from the state and central governments would also keep growth at a slower pace. And last but not least, the employment condition is expected to remain subdued due to a slower pace of new job additions. Seems the US economy is in a long slump, and needs to go a long way to recover from its current state.

03:20

Driving a diesel car may soon get costlier. In a recent move, the Parliamentary panel has suggested to impose a cess on private diesel cars at the time of purchase which will be used to compensate state run oil marketing companies (OMCs) for losses on selling diesel at fixed prices.

It's been more than a year since petrol was deregulated. The move has not made things easier for state run OMCs or fiscal balance that are overburdened with under recoveries. The real game changer in fuel price reforms will be freeing diesel prices, the usage of which is almost four times of that of petrol. The Government has been dodging the diesel deregulation bullet since a long time. However, with the moderation in economic growth and ballooning fiscal deficit, keeping on the blinders regarding losses on diesel is not easy. While a direct deregulation of diesel seems unlikely due to upcoming state elections and high inflation, we believe imposing a cess on private diesel cars is a smart way not to let the privileged class take undue advantage without impacting the target beneficiaries.

03:45

We often blame the producer or the consumer of a commodity due to its mispricing. But when the commodity doubles up as an investible asset class, it is often the investor who is to be blamed for irrational pricing. This trend has been more conspicuously evident in both prices of real estate and food crops. In the absence of investors, the pricing of these commodities should be governed by the demand supply dynamics. But that has not been the case. Take the Indian real estate sector for instance. Consumers have shown a clear disapproval of steep pricing. The appetite for home loans has also truncated due to unaffordable interest rates. Builders have been complaining of inventory pile up. Hence what is it that stops the real estate prices from falling, especially in the metro and tier 1 cities? As per an article on Firstpost, the 'big investors' are the ones to blame. The big investors are none other than NRIs, HNIs or politicians hoping to churn their black money. Their purchase has no remote connection to need for housing. But they are purely speculative investments. Their economic and political clout is so overpowering and important to the builders that the latter cannot afford to turn the ROI (return on investment) negative. Unfortunately, that is exactly what discounted pricing to retail buyers would do. Hence even if the demand supply dynamics suggests downward pressure on pricing, the rogue investors may ensure that real estate remains unaffordable for the common man!

04:30

Positive news from the US regarding new-home sales, up 1.6% compared to October 2011 and up 9.8% as compared to last November overshadowed fears of the debt crisis in Europe for the time being. Other US economic data too indicated the strengthening of the US economy. This led to markets across the world closing the week in the green, adding sheen to Christmas celebrations.

The Indian stock markets were up 1.6% during the week. News about easing of food inflation along with global cues regarding strengthening of the US economy helped the markets post gains for the week. Other world markets, all were in an upbeat mood except Japan (down by 0.1%) and China (down by 0.9%). France and the US were the top gainers up 4.4% and 3.6% respectively.

Source: Yahoo Finance

04:55

Weekend Investing Mantra

"Everyone has the brain power to make money in stocks. Not everyone has the stomach." - Peter Lynch