Here's A Solution To The Global Financial Crisis
In this issue:
» Solution to financial crisis: Convert debt to equity
» Rains cripple India's financial capital
» The economy is beginning to recover, says Nouriel Roubini
» China's forex reserves cross US$ 2 trillion
» ...and more!!
------------------ Don't Miss! ----------------------
You now have two very good reasons to subscribe to Equitymaster's StockSelect RIGHT AWAY:
1. It's the LAST OPPORTUNITY to save 60%
2. You become eligible to win a TATA NANO (Yes, you read that right!)
Why delay? Click here for more details...
-------------------------------------------------
00:00 |
||
The debt markets cannot withstand variations in assets prices to the extent equity markets can, and are hence more dangerous. Debt also tends to hide risk till the point default is triggered. That explains why this crisis, emanating from the credit markets, is much more severe than the bursting of the tech bubble. Moreover, a globalised, internet driven financial world functions more smoothly than ever before but, is also more susceptible to Black Swans. As for the solution to the present mess, Nassim Taleb believes debt should be forcibly converted to equity across all sectors. This will provide lenders an incentive to engage with the borrowers and help them in turning around. In fact, he believes that government stimulus packages encourage debt, which will result in another Black Swan event down the line.
We definitely find the logic of Mr. Taleb's arguments quite appealing. He certainly comes up with some startling ideas!
00:49 |
Chart of the day |
|
01:02 |
||
The Finance Minister Pranab Mukherjee in his Budget speech did talk about the Brihan Mumbai Storm Water Drainage Project (BRIMSTOWA) that was initiated in 2007 with an estimated cost of Rs 12 bn being funded through Central assistance. What's more he also talked about releasing additional funds to expedite the completion of the project. But that is the big challenge - execution. At the end of the day, the government needs to realize that if India has to grow at 9% plus on a consistent basis, infrastructure will have to be improved on a priority basis.
01:51 |
||
However, he warns GDP growth is not the only metric to measure recessions. "Unemployment, industrial production, real manufacturing, wholesale retail trade sales and real personal income (less transfer) are all considered", he says.
As such, while the GDP will stop shrinking at the end of 2009, it will not be at least till mid 2010 before the other indicators turn positive.
Talking of recessions, we are reminded of what Warren Buffett had to say about stock picking during bad times - "You don't want to not buy stocks just because business is lousy at the time. That may be the very best time to buy stocks. In 1954, the Dow was up 50% and the country was in a recession. It was the best year I ever had in my life. And I've had other good years in recessions, so you don't want to say, it's a big mistake to say business is bad therefore I shouldn't buy stocks. That usually is the time to buy stocks."
02:42 |
||
Mr. Mukherjee has said that while the government's borrowing programme was vital to supporting growth, the debt would not be monetised. He said that monetisation (refers to the printing of banknotes by central banks) occurs when the RBI lends to the government directly. As of now, the central bank will support the government through its open market operations. As for disinvestment, the Finance Minster has said that he is in talks with other ministries for finalising the list of public sector units for divesting the government's stake.
The government has so far signaled a great deal of emphasis on the aam aadmi . While the minister's assurances are welcome, it is finally action that counts. We have nothing against the 'aam aadmi' stand, but we hope it is not used as an excuse for stalling genuine reforms that are critical to improving the standard of living of the same 'aam aadmi'.
03:33 |
||
04:38 |
||
04:53 |
Today's investing mantra |
Today's Premium Edition.
Recent Articles
- All Good Things Come to an End... April 8, 2020
- Why your favourite e-letter won't reach you every week day.
- A Safe Stock to Lockdown Now April 2, 2020
- The market crashc has made strong, established brands attractive. Here's a stock to make the most of this opportunity...
- Sorry Warren Buffett, I'm Following This Man Instead of You in 2020 March 30, 2020
- This man warned of an impending market correction while everyone else was celebrating the renewed optimism in early 2020...
- China Had Its Brawn. It's Time for India's Brain March 23, 2020
- The post coronavirus economic boom won't be led by China.
Equitymaster requests your view! Post a comment on "Here's A Solution To The Global Financial Crisis". Click here!
7 Responses to "Here's A Solution To The Global Financial Crisis"
JADAVJI VORA
Jul 16, 2009YOUR MAILS ARE REALLY VERY GOOD. THEY ARE WELL RESEARCHED AND THOUGHT PROVOKING. YOU ARE DOING VERY GOOD SERVICE NOT ONLY TO THE SOCIETY, BUT, TO THE ECONOMY AS WELL. PLEASE KEEP IT UP. WITH GOOD WISHES TO WHOLE OF YOUR TEAM. WITH REGARDS. JADAVJI VORA.
umesh rakhra
Jul 15, 2009Ajit Dayal,
When a straight forward bridge that should have taken 3 or 4 years at most can take 15 years, and that is a project starting from scratch is it not unrealistic to expect that the drainage system will be implemented in time?
The amount of rains that caused havoc were the highest this century if I recall correctly, Do we really need investments to cater to once in a century events?
jigar
Jul 15, 2009Pls send me relly market is down in next any few day pls market possion in next 15 day
Rajiv Phadke
Jul 15, 2009Excellent coverage. Particularly, liked Naseem Taleb & Chart of the Day & Nouriel Roubini pcs...
Kanu K Warriar
Jul 15, 2009Interesting "Chart of the Day" showing high margin of safety for the Sensex at two times book, an observation is that the first two green circles are at or below the 2 times mark, the third not quiet, maybe, its ahead of us, maybe.
Dhruv
Jul 15, 2009Sir,
Any sane man talks about infrastructure but what about the quality of the infrastucture being built in India with "cuts" to all those who matter. How can the contractor give 100%? Please talk about it.
You write so well & to the point, but do the powers that be read your stuff?
Ch Jagadeshwer Rao
Jul 17, 2009I am happy here is a "Channel" I would continue to get latest updates on the economies world-wide and opinions of economists and business leaders that matter most. I particularly liked today's chart which indicates great buying opps when market indices hit 2 P/BV. I would urge you to highlight such charts when market hits such buying opps levels. After reading what Warren Buffet said on investing during recession periods, I felt we missed a great investment opportunity offered by markets during 1 Quarter of 2009.