God is on a sabbatical - Straight from the Hip by J Mulraj
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Investing in India - Straight from the Hip by J Mulraj
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1 SEPTEMBER 2012

God is on a sabbatical

Scandals such as coal gate are erupting because natural resources are in short supply globally and hence their ownership becomes more valuable. The reason they are in short supply is because, after creating the universe, millions of years ago, God is on a sabbatical. He is not making materials any more.

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At school we have learnt that there are four factors of production, materials, men, machines and money. The first of these are being consumed in a frenzy and stock of natural resources is fast depleting. Stocks of the other three are increasing, with money at the fastest rate, followed by men and then machines. We are rushing insanely into catastrophy.

As McKinsey Quarterly says in its report entitled "Winning the $30 trillion decathlon" it took 150 years for Britain to double its per capita income, it took 50 years for US to do so, but it has taken China 12 years, and India 16 to achieve it, with much larger populations. Thus, says the report "Thus the two leading emerging economies are experiencing roughly ten times the economic acceleration of the Industrial Revolution, on 100 times the scale-resulting in an economic force that is over 1,000 times as big. "

As investors we all look to GDP growth and are worried when it falters. What is happening now is that because supply of money, the fourth factor of production, has increased dramatically, thanks to quantitative easing, equity markets are propped up even as the supply of materials, the first factor, is declining.

But the resource crunch is getting worse by the day. Consider that by 2035 China, with 16% of global population, will consume 80% of today's global supply of paper, 70% of grain and 100% of today's supply of oil, i.e. 85 m. barrels per day. This is impossible.

That excludes India, whose growth would also generate huge demand for all natural resources.

The economic growth would require energy, and power generation requires a whole lot of coal, production of which requires a whole lot of water. In the case of China, plans for expansion of coal production would need 10 billion cubic meters of water a year, or a sixth of its Yellow River. This would deprive people of drinking water.

The US may also face an energy shortage due to a water shortage because power plants need water to cool. The article says that "Electricity production by coal, nuclear and natural gas power plants is the fastest-growing use of freshwater in the U.S., accounting for more than about of all fresh, surface water withdrawals from rivers and lakes. This is more than any other economic sector, including agriculture"

India would also face the same issue of drinking water shortage, once it has sorted out the mess made in allocation of coal blocks. All countries would need to look at increasing renewable energy sources to fuel economic growth whilst conserving natural resources. However, the subsidies for renewable energy is only $ 66 b. globally, whilst that of fossil fuel subsidy is $ 775 b.

In India, too, we continue to subsidise petro products

made from fossil fuels at a far higher spend than the subsidy on developing alternative renewable energy sources. This will have an adverse impact on future economic growth, on shortage of energy to drive it and shortage of water resources both for potable purposes and for power generation.

Other than fossil fuel and water, iron ore, required for making of steel, is also in danger of running out. In just 64 years, according to Lester Brown of Worldwatch Institute, if we assume a modest 2% annual increase in consumption.

Besides the shortage of natural resources, the environmental impact of unbridled exploitation is horrendous and, with it, the impact on the way of life of native people. Little wonder that nature is hitting back with a vengeance with typhoons in Florida, earthquakes in Philippines, tsunamis in Japan and the like.

For investors there are investment opportunities in spotting the correct trends. Technology provides solutions to problems created by myopic policy.

A company like Halotechnics has produced a material that makes solar thermal power generation more efficient and less expensive, and also reduces the cost of storing it.

Or software that enabled a power utility to cut power consumption by half. The software is used in smart grids, ones that can combine conventional power with renewable power and efficiently manage its delivery.

Global stockmarkets are, however, focused less on the shortage of Materials and the impact on continued economic growth, and more on the expected increase, yet again, in Money, through another quantitative easing by the US Federal Reserve.

At a meeting in Jackson Hole Wyoming, Federal Reserve Chairman Ben Bernanke stated that the high unemployment rate of 8.4% was a cause for concern and defended quantitative easing by pointing out that the $2.75 trillion of bond purchasing, essentially by printing money, helped create 2 million jobs

Hang on Ben! That works out to more than $ 1.3 m. per job created. And if you still have 12.7 m. unemployed, how much more money will you print?

In domestic news, the Supreme Court has ordered two private companies of the Sahara group to repay Rs 17,400 crores of funds raised through issue of Optionally Fully Convertible Debentures, together with 15% simple interest. These companies have a paid up capital of Rs 10 lac each and it boggles the imagination how they were allowed, and able, to raise Rs 17,400 crores in 2008 and 2009. When Securities and Exchange Board of India (SEBI) intervened in 2010, the Allahabad High Court stayed its order - why?

The episode shows how poor is the understanding by investors who invested several thousand times the capital of a company in its debt instrument. And of how slow and callous and uncaring is our judicial review system that it allows a problem to grow to unmanageable proportions. One's imagination boggles at the amount Sahara has to repay and wonders how it would do so, since this amount is not kept idle in liquid assets.

Last week the BSE-Sensex lost 353 points, to close at 17,429, and the NSE-Nifty dropped 128, to end at 5,258.

The coal-gate scandal will dominate sentiment in the coming week. It is a sad commentary on the state of the Indian polity. The ones guilty of taking bribes are never penalised, because they are all politicians. Why does our honest Prime Minister not order the seizure of the ill gotten wealth? After all, if SEBI can ask commoners to disgorge illicit gains from insider trading or other malpractices, why are politicians exempt? How long will the people accept this injustice?

In the coming week, on Thursday, the Bank of England, the ECB and other countries are to announce their monetary policy stance. If they decide to go in for more bond purchases by printing more money, then just like after a dose of intoxicants, markets would be up for a while. But over the longer term, sustained economic growth would require greater care, and a global policy prescription, on the use of natural resources.

God is, after all, on a sabbatical.

J Mulraj is a stock market columnist and observer of long standing. His weekly column on stock markets has run for over 27 years. An MBA from IIM Calcutta, he has been a member of the BSE. He is Conference Head - India, for Euromoney. A keen observer of events and trends, he writes in a lucid yet readable style and takes up issues on behalf of the individual investor. Nothing pleases him more than a reader who confesses having no interest in stock markets yet being a reader of his columns. His other interests include reading, both fiction and non-fiction, bridge, snooker and chess.

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9 Responses to "God is on a sabbatical"
sa
Sep 13, 2012
Although I am not an investor in shares, I really appreciate your article. It is very true that "nature" will take its revenge for the wrongdoings of us humans and as usual the wet grass also gets burnt along with the dry grass. Like 
MCA
Sep 4, 2012
When everything fails, nature prevails. All the wrongdoers will be brought to justice by divine intervention. Like 
rj
Sep 2, 2012
It is high time Africa was brought into main stream.
There should be much more exposure to the potential of Africa to raise itself up and also to profitably contribute to the global energy market in a big way.

If only the powers that be could see beyond their usual well worn paths to slow or no progress from other areas of the world.
Like (1)
M.R.Borkar
Sep 2, 2012
The Question and Answer both are present in your article. The
courts cannot decide because there are some smart brains who will
present the false to be TRUTH. As per Bhagwad Geeta GOD is within
you, so if I have taken sabbatical then it is so. Let us work for
a clean world with Love. - Borkar
Like (1)
surajit som
Sep 2, 2012
as stated above China will consume 70% of world's grain by 2035 with 16% of population. but even now the situation is alarming.in India right now ,probably half of the population suffers from some form of malnutrition.according to Amartya Sen, they simply dont have the money purchase food. that's why we have "so much grain" in our warehouses. in future we are going to have massive political unrest on this account. our Maoist problem is- in part- due to this.

so something drastic has to happen. one way may be that we shall be having food production and sharing on continental basis.for example latin america has lot of land but less people. countires like china or india may be given huge tract of land for agriculture. the host country will keep part of the harvest(or will be paid in cash)) as part of the deal.this is happening in industrial goods. why not in grain and other agricultural products? at any rate ,a massive world-wide food crisis that we have never seen before is coming soon. much before 2035.
Like (1)
surajit som
Sep 1, 2012
Europe is bankrupt except germany. euro will not survive in the present form. UK may escape the worst because at least it has its own currency and has some flexibility. USA has the advantage of having the world's reserve currency and it is still the world's technological super power. but aging population,high cost of healthcare,broken family system and unemployment will paralyse it. Like (1)
Anupam Garg
Sep 1, 2012
brilliant as usual

hope som1 attends to ur calls of end of the world, end of the world
Like (1)
C K Vaidya
Sep 1, 2012
God is not on sabbatical. He is a very slow worker. The naural resources that you talk about, particularly, hydrocarbons, were created over millions of years. I guess, the process is still on but if we use up God's output of hundreds of millions of years in just 2-300 years, we are bound to run out of these resources.
God is still continuing to shower us with Sunlight. Only a few days' of sunlight needs to be converted into electricity to meet all our existing energy needs. And the same can be used to recycle steel etc.
Ground water supplies can be augmented by converting sea water into usable form quite easily although once again this requires a lot of energy which can come from Sun.
So, the way forward is really clear. Growth but only through sustainable route! I am quite optimistic that we will move in this direction.
Like (1)
M.N.KHOSLA
Sep 1, 2012

God is not on SABBATICAL but has created enough resources on Earth which only Brave shall inherit. Game changing technology in enterprising countries. new thing is Vast amounts of SHALE GAS discovered in US. result is falling coal prices and companies who invested in Coal assets at High prices in 2008 and later outside India ,just to sit tight on Natural resources are in for a rude shock of their assets being considerably devalued, because of Huge GAS finds coming in US (SHALE) and Africa( Natural Gas.

Best Brains from all over world migrate to US whereas in India cornering of resources and Tax payers money has become national plitical character.
So GOD is not on Sabbatical but continously rewards the BRAVE and ENTERPRISING.

As a respected reputed journalist , please study forthcoming impact of SHALE GAS and new Gas discoveries in Africa.

Should data be necessary. I am prepared to support your work with published datas ,without considerations.
Like (1)
  
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