"Aim for high paying jobs", says Obama - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

"Aim for high paying jobs", says Obama 

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In this issue:
» Aim for high paying jobs, says Obama
» Indian pension funds find stock markets volatile
» Oil companies to provide stimulus
» Tata Tea goes to Russia
» ...and more!

In the wake of the deepening recession in the US and the alarming rise in unemployment, outsourcing of jobs to low cost destinations has become a sore issue. But President Barack Obama is of the opinion that it would be better to create new jobs that can't be outsourced rather than bringing back such low paying jobs from the other countries. Especially, if the US economy is dependent on jobs requiring low skill and paying out low wages, the chances of holding on to them are considerably less, as there will always be another country that will pay lower wages as compared to the US. Thus, he believes that US needs to go after high-skill, high-wage jobs in the future, which would involve training Americans more effectively and finding new industries. He has urged Americans to be patient as far as job creation is concerned as it will take some time for the steps taken by the US government to start yielding results.

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In a decision that can be termed as outright silly, a committee that looks after EPFO (Employees' Provident Fund Organization) investments has rejected a proposal that 15% of its funds be invested in the Indian stock markets. The rejection was on the grounds that the stock markets are too volatile currently. Perhaps they could do themselves a world of good if they pay heed to experts around the world, who've been crying out loud about the long term attractiveness of the Indian stock markets. Of course, in the near term the markets could well be volatile, but EPFO funds are not meant to have a short term time horizon. And we see little reason for the stock market to head downwards from a 3-5 year perspective if one sticks to companies with sound fundamentals. Furthermore, with FIIs turning their backs, the US$ 5.5 bn that the committee was planning to park in the stock markets could have also given the much need liquidity booster to the markets. We sincerely hope that the committee does not commit another mistake by approving the investments when the markets have already run up significantly and are ripe for a huge correction. A tall order indeed, especially in a world where failing conventionally is prized over succeeding unconventionally.

Most Indian media companies rely on advertising revenue. That explains why they are having a tough time in the economic slowdown. However, they are not alone. As per CNN Money, advertising revenue has declined dramatically for the two iconic American newspapers - The New York Times and The Washington Post. As a result, the papers are resorting to cost cutting and layoffs. The Times will cut the salaries of its non union workers. It has already laid off 100 union workers and has asked the unions to take pay cuts in order to avoid further job cuts. A bunch of other American newspapers have shut down or gone bankrupt.

The newspaper industry broadly relies on two sources of revenues -subscription and advertising. The advent of the internet has meant that readers look for news online. However, online subscription revenues have not been able to replace the print subscription that has been lost. Overall, the hold of newspapers on paid subscribers has weakened considerably. Still, when it comes to sensitivity to economic cycles, subscribers as a group tend to be more stable than advertisers.

Ironically, the internet giant Google is also feeling the pinch of the recession. The company will cut around 200 jobs. However, it plans to accommodate them by relocating them within the company. We wonder if such an option would have been given if the company did not have to live up to its reputation as one of the best workplaces in the world. Nonetheless, some observers believe that up to 400 more jobs could be on the line.

China is using its state owned oil companies to provide stimulus to its economy. India has followed suit. As per a leading business daily, public sector oil companies have drawn out a plan to spend nearly Rs 570 bn in the next year itself. These investments are aimed at expanding supplies and building new transportation networks for oil and gas. As these investments will be made in domestic projects, this move will help boost economic activity in India. It is believed that the government will contribute only around Rs 250 m to these investments. As such, the balance will be invested by nearly thirteen PSU oil companies.

The dragon seems to be keen on throwing its weight around. After the proposal to withdraw the status of the US dollar as the global currency, China is now hoping to impose its views on the most developed nations of the world with regard to stimulating their economic recovery. This is in fact evidence of the fact that China's 4 trillion Yuan (US$ 585 bn) stimulus package has emboldened the nation's leaders to dictate their vision for a new world economic and financial order. As per Bloomberg, China's central bank governor yesterday lambasted governments that failed to emulate China's 'decisive' action to spur economic growth. Earlier this week he suggested creating a new international reserve currency to rival the US dollar. This is despite the fact that China itself has witnessed a massive slowdown in economic growth and exports that has forced closure of thousands of factories and left nearly 20 m migrant workers jobless.

It must be noted that the leaders of the 20 largest industrial and developing nations are set to meet at the G-20 summit next week to look for ways to alleviate the global financial crisis and strengthen international regulation. China seems to be positioning itself to have a more significant role at the summit.

Once Reliance Industries' D6 field in the KG basin begins gas production, it is expected to boost the demand for transmission infrastructure (pipelines) significantly. As a result, the fortunes of pipe manufacturers are likely to change. It may be noted that investments in pipeline infrastructure are the last leg of an oil and gas project. Moreover, with city gas distribution coming under the government's focus, the demand for transmission network will remain strong. Reduction in input costs (mainly steel) due to the economic slowdown has also indirectly helped pipe manufacturers. In fact, as per some domestic pipe manufacturers, order booking has increased by almost 30% to 40% from the lows in the last two-three years.

Luxury and discount do not fit. But these are unusual times. As per a leading business daily, high end car makers are offering discounts to clear up inventory and make way for new launches. The Mercedes E-class comes with a discount of Rs 250,000 and interest free finance. A BMV 3 series is available at discounts of up to Rs 400,000. In the parlance of garment retailers, we are witnessing an end of season clearance sale!

Tata Tea and the European Bank for Reconstruction and Development (EBRD) have together acquired a 51% in Russian firm 'Grand' for an undisclosed amount. Tata Tea will hold a 32.2% stake, while EBRD will have 17.8% in the second-largest tea and coffee brand in Russia. The Indian tea major has no investments in Russia and this foray will open up a strong growth potential as coffee is becoming increasing popular and tea is the national beverage of Russia. Tata Tea is slowly and surely transforming itself into an FMCG company rather than a plantation company.

The benchmark BSE-Sensex witnessed considerable volatility today. After opening on a negative note, it alternated between being in the green and the red for the rest of the day, finally closing higher by 0.5%. Asian markets closed a mixed bag. While indices in Singapore and South Korea closed in the red, the Shanghai Composite closed marginally in the positive. The European markets have opened weak.

04:51  Today's investing mantra
"It is no difficult trick to bring a great deal of energy, study, and native ability into Wall Street and to end up with losses instead of profits. These virtues, if channeled in the wrong directions, become indistinguishable from handicaps." - Benjamin Graham
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