|»5 Minute Wrap Up by Equitymaster|
On This Day - 25 JULY 2013
Is being self-reliant on crude oil stupid?
In this issue:
Not known to mince words, Munger launched into a scathing attack on this kind of stance of the US Government. He argued that the policymakers are barking the absolutely wrong tree by supporting energy independence. As per him, energy independence is a really dumb idea.
To help understand why, he argued that oil and gas are absolutely certain to dwindle in quantity and thus, could also get highly priced. Consequently, by using up its domestic reserves, US is leaving very little for future generation to use and survive on.
As a matter of fact Munger loves what China is doing. He opines that China is suffering now to benefit later. China is relying heavily on imports and is thus preserving its own domestic reserves of hydrocarbons. Thus what Munger seems to be saying is hydrocarbons are absolutely essential in running an economy and are also non-renewable. Therefore, the less we use it from our own national borders and the more we import, the better it will be for a country's long term energy security.
As always, we do believe that Munger does make a lot of sense. But blindly adopting his advice in India would be a recipe for disaster according to us. Of course his arguments have now become a stick with which to beat those who argue for energy independence in India.
But is high oil imports really a problem for India? It could be. But we believe a bigger problem is the absolutely low energy productivity. Had we used the oil we import sensibly, we would have had a strong economy and robust exports. And higher exports would have meant that we don't run into the currency problems we are running into right now.
Thus, India's problem is lack of reforms and not high energy dependence. For tomorrow, even if we unearth a massive oil discovery, the lack of reforms will ensure we squander it away and still have the currency problems we now blame on high oil imports. Thus, the key is to improve productivity and encourage other sources of energy so that we are not reliant on non-renewable hydrocarbons alone.
Do you agree with Charlie Munger that high energy dependence is not such a bad thing after all? Please share your comments or post them on our Facebook page / Google+ page
One reason for this is that with so many MBA institutes and colleges there is excess supply. To add to this, the quality of education being given in most of the colleges is not too good either. In the current scenario of companies facing a slowdown, they are desperately looking for talented individuals to help them boost their growth. And this is where most MBA colleges have been failing to deliver.
The silver lining is that most corporate agree with the RBI's compulsion in taking the distinctly prohibitive move. That stemming the rupee's fall against US dollar was possible only by stopping speculative activities is well recognized. Corporate India is now looking forward to banks donning a hat of generosity for productive sectors. Instead of diverting funds to unproductive sectors like real estate, it expects more funds to go towards manufacturing. All said, the latest move by the central bank seems to be yet another litmus test for India Inc. Those who can come out of it unscathed may win favour amongst investors too.
What if a similar calamity struck any mega city that houses tens of millions of people? Be it Mumbai, Delhi or Kolkata, the preparedness for any major calamity is close to zero. Low probability of disaster should not be mistaken as zero chance of disaster.
There are numerous cases around the globe of cities collapsing on account of natural disasters. Many, who learnt the lessons the hard way, committed themselves to building more sustainable and resilient settlements. It would be too naive of us to assume that nothing could happen to our place of residence. Can we learn lessons from the mistakes of others? Or are we going to wait for disasters to rebuild sustainable cities?
So, it goes without saying that the Fed's so called exit from QE is hardly going to be smooth. Infact, Bill Gross of Pimco opines that he does not expect QE to wind down any time before 2016 at least. What is more, Ben Bernanke since then has also started making conflicting statements. The latest being that the withdrawal of QE would depend on how the economic data shapes up. If that is the case, we agree with Mr Gross. It seems highly unlikely that a financial system which has been propped up by steroids will hold up once these are just taken away.
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