It's never paid to bet against America - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

It's never paid to bet against America 

A  A  A

In this issue:
» Current crisis an 'economic Pearl Harbor', says Buffett
» World Bank official spills the beans
» AP government shows its real colours
» Vivek Paul speaks on Satyam's future
» ...and more!

In a recent interview with NBC, Warren Buffett has put in context how bad things are in the US. He says that World War II and the Great Depression were worse, but the current crisis is pretty bad. In fact, he calls the current crisis the 'economic Pearl Harbor'.

He also mentions that the US has a track record of overcoming crisis and it will eventually come out of this one too. However, it might take time because the economy currently is in a cycle of fear. "It's never paid to bet against America. We come through things, but it's not always a smooth ride," he says. He also believes that Barack Obama is the right person for the job.

It is normally hazardous to take such directional calls, but given his track record, it would be foolish to ignore Buffett's predictions.

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India-specific skeletons continue to tumble out of the World Bank cupboard. Steve Berkman, a retired but once a high ranking official of the global not-for-profit firm has accused India of being as corrupt as few African nations if not more with its dealings with the World Bank. And he has put the blame squarely on the government officials for both acting as a fountain head as well as nurturing the acts of corruption.

In an interview with a leading Indian portal, he even went to the extent of saying that nothing is done in some countries at all for the benefit of the people and the entire thing is merely for the benefit of the people running the show. At a time when the Indian government is desperately trying to win back the confidence of the global financial community after the Satyam saga, Berkman's candid observations are not likely to go down well with the Indian establishment.

But could there be smoke without fire? We would be better off trying to do something that deals with the reasons behind such comments rather than the comments themselves.

"Every man has his price," goes the proverb on corruption. Some state governments in India prove it to the core. Andhra Pradesh is one glaring example. After having treated the scamster who happens to be a son of the soil, Ramalinga Raju with kid gloves, the state government is now showing its true colours in not acting against Maytas.

The state government maintains that the projects to Maytas were awarded in a 'very transparent manner and that the government had placed all the facts before people'. We wonder if the investor in Maytas i.e., Ramalinga Raju has confessed of his fraud that involved transferring the ill-gotten wealth to his sons' companies, how would the investee i.e., Maytas would be any different.

Andhra Pradesh has long been known as one of the hubs of corporate corruption in India. We believe scamsters in the state have probably cut a political deal under which their families would be protected and certain state officials rewarded. Instances like Satyam-Maytas paint a sorry picture of the state as also the country, which ranks poor on the global corruption index.

We need change - in our tolerance of such malign activities - if we are to truly emerge as an economic super-power of the twenty-first century. However, with corrupt bureaucrats, politicians, and managements, we will not make it anywhere near what our forefathers had dreamed of our future to be.

At these times, we are reminded of Munnabhai's dialogue in 'Lage Raho Munnabhai' - "Aaj agar Bapu hota na, toh bolta...Desh toh apna ho gaya...Magar log paraaye ho gaye." (If Mahatma Gandhi would have been alive today, he would have moaned that while India has become his own, its people have all become strangers!"

Vivek Paul, the erstwhile CEO and Vice Chairman of Wipro, who was instrumental in making the software major what it is today, has broken his silence on the Satyam issue. Mr. Paul has silenced news reports that indicated that he might be the next CEO of the beleaguered Satyam, which is currently in a mess following its Chairman's confession of a fraud. In an interview he gave to The Economic Times, he has indicated that he has not been contacted by anyone to take up the top job at Satyam.

On the role of a new CEO at Satyam, Mr. Paul said, "Any CEO will have his work cut out. He will have to do this salvage act at a time when customer demand is shrinking, and competition is very hungry, and I don't just mean Indian companies - Chinese and US competitors are calling on the Satyam customer base. Satyam needs someone who can build a great team, is willing to work long hours, and have the confidence to take on a situation that looks difficult with uncertain rewards."

While the search for a new CEO for Satyam continues, the company is mulling over a name change "to ward off the stigma" its existing brand carries. "What's in a name," said Shakespeare. "Much!" Satyam's flag-bearers might say.

L&T has upped the ante on its proposal to take over Satyam. India's largest engineering company has approached the government with an action plan to save the IT major from going down under. As a matter of fact, L&T holds a 4% stake in Satyam. Mr. A.M. Naik, L&T's Chairman says, "My biggest worry is that nothing is going to happen over the next three months, and Satyam will be dead by then. The need of the hour is to save Satyam from disintegration. For shareholders, it is important that its value is not eroded any further. We are more than ready to help if we are approached by the government agencies."

Mr. Naik's predicament is understandable given that L&T is sitting on a mark-to-market loss of over Rs 4 bn due to a slide in Satyam's share prices. The company already has a software arm in L&T Infotech (around 5% of L&T's consolidated revenues) and an acquisition of Satyam is seen from a view of giving a further fillip to this division. However, one might also see as another aggressive move by L&T in diversifying greater into an unrelated area of software.

L&T is known for its engineering skills. But do we see it as a software superpower in the future? Definitely not!

Obama will be sworn in sometime tomorrow. He will officially become the 44th President of the US, and will inherit a country in shambles, particularly on the economic front. Hence the role of his economic advisory team becomes key. But the appointment of team members has not gone down well, especially in respect of the comments some of them have made.

Experts believe that the team members have not correctly identified the problem, which ails the US economy " the huge trade deficit. None of the team members have appeared serious about the deficit. This automatically means that US economy will continue to go downhill.

Asian markets closed mixed today. Stocks in Hong Kong and China were up 0.6% and 1.7% respectively. India's <>BSE-Sensex closed with marginal gains of 6 points. Buoyancy in Chinese stocks was despite reports based on a survey of economists that the country's economy may have grown (by 6.8%) at the slowest pace in seven years in the fourth quarter on the back of collapse in exports. European stocks have opened amidst strength on the announcement of Britain's second bank bailout plan to boost spending in the flagging economy.

India Inc.'s result season has begun on a rather dry note this time around. While there are few result announcements at the beginning of every season, the momentum is never so slow. It's probably a sign of things to come " slowdown in sales growth, pressure on profitability, and declining earnings? The results announced so far haven't been exciting as well, with the exception of a couple of private sector banks.

04:56  Today's investing mantra
"Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it." - Peter Lynch
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