Stock Market and the Economy

Discussing Stock Market always excites people. Tell people that you are a trader and people will start asking you for ‘tips’ immediately. Some people are nuts about stock market and some people just hate the idea of investing directly into stock market. The irony is both are right. Risk to invest money for short term usually outweighs the returns while investing for long term is probably a better idea. Still, stories of traders walking off with Corvette as a bonus or people jumping out of windows because huge losses are permanently imbibed on the psychic of modern societies. But why stock market is so important for economies?

Stock markets are hallmark of capitalistic economies. It is one of the most important system in Capitlism to raise money. Now, they can raise capital either by borrowing money from banks or floating bonds in the market or taking company public. When a company goes public, stock market comes into the picture. A company divides its worth into stocks. They sell those stocks on Stock Market to general public and raise capital. A stock holder owns part of the company, though, he/she doesn’t have any say in day-to-day running of the company. Later, those stocks get traded over and over according to news, rumors and performance of that perticular firm. But capital that, company raised initially remains the same.

Now as returns of stock market – over the period of time – are usually greater than interest rate of bank, more and more people invest money in the stock market. In developed economies percentage of population involved in stock market is quite high. For example, in US, more than 50% of people have their money in stock market while in China it’s mere 7%. So, it is quite clear that when stock market crashes lot of public equity vanishes. But this usually happens when market is floating high on the cloud nine of speculations. For example, the tech bubble of 2000.

Another factor that is related to above point is that as stock market lures people with higher results, greater part of household savings or pension plans is invested to stock market. Obviously, when market tanks, household savings and pension plans goes down the drain too!

The second factor to gauge importance of stock market is the value of tradable stocks. These tradable stocks doesn’t include equity held by government. As this value increases it affects economy more and more. In China, for example, value of stocks traded is only 25% of GDP. But in US, value is 150%. (In India this percentage is more than 100%)

Third, if stock market is on roll then it becomes easier for companies to raise money through the market and there by invest more. But when stock market crashes the investment decreases affecting economic growth on longer term.

Thus stock market is quite important to economy but without these above factors, it doesn’t affect economy as much as it is believed. That is, stock market melt down in China won’t be as detrimental to Chinese economy as it is predicted. But swings in stock market have puissant effect on public psyche. So, it is understandable that when stock market dives everyone is talking about economy going down but it doesn’t have to be so.

Hindu Renaissance

It seems Hindus are destined to take fault for every possible ill in our society. Now, considering more than 85% of our population is Hindu so,it is quite obvious that Hinduism or at least, Hindus are responsible for social problems. But what bothers me is that Hindus are the victims here. Victims of bloody and torcherous history. The situation that they are facing today is the result of constant warfare and invasion for last thousand years. How come Hinduism that bore the brunt of Islamic genocides and plunders and lost 1/3 of its population to Abrahmic religions, stands on trial for everything that is bad in India? Isn't there a tiny possibility that the ills we are facing are caused because our society cocooned itself in order to survive from continuous invasion?

Worst thing is that modern day politics dictates Hindu sects like Sikhs, Jains and neo-buddhists to consider Hinduism as main threat to their existance. One reason is our political system since independence (thanks to Mr. Nehru) made joke out of Hinduism. Hindus are compartmentalized and marginalised in their own land. The imprints of extrimely biased education system are quite evident on Hindu mind as we don't know our history. We don't know meaning of our traditions and our heritage. That's why we are usually on the backfoot when sects like Sikkhism, Jains and Buddhists attack Hinduism with blatent lies.

Still worst, our insecurity oozes out whenever faced with Islamic terrorists and Christian. We suddenly start parroting alien concepts like secularism and conveneantly misinterprit the spirit of sarva-dharma samabhaav.

With such a non-confidense and lack of knowledge, are we going to survive in next century?

I agree that we should embrace these enstranged children of ours more tightly. They are slinging mud at us only because they gain political profits out of it. But most of believe that that somehow someone will take care of problem and that ain't going to happen for sure. As more and more Hindus make economic progress as their priority numaro uno and rightly so, I think we are going to witness further dip in Hindu traditions, Hindu population and awareness for Hinduism before we see possible resurgence. Swami Vivekananda said that unless a person is sure about his/her two meals every day, he/she ain't going to think about Hinduism. (Of course, Muslim people are opposite but that's why Hinduism and Islam is two opposite ends of spectrum.)

Coming back to economics, right now majority of Hindus are worried about their income. They are working really really hard for making more and more money and then spending as much as possible on luxuries. It is understandable. This is probably the first time that Indians, in general, are seeing so many opportunities to progress. But the flip side is that either they ignore their religious traditions or young generation grow ignorant of their religious background. But as they grow economically stable, I hope that 'Hindu gene' will kick in and they will start working towards betterment of Hindu society. One can see similar thing happening withNRI's. They are econmically stable and financially rich. That's why we see more awareness amongs them about problems faced by Hinduism and more probability of NRI's working towards betterment of Hindu society. It's going to take at least half of a century for economic progress to encompas all most billion Hindu people, but do we have that much time? We are going to face another onslaught of Islamic and Christian terrorism within next 20 years. In the mean time our political system will be more minority appeasing, more corrupt and will be admantly anti-Hindu. How are we suppose to face this?

There are three kinds of people, one who blessed with absolute ignorance. Second who think someone will take care of problems and that 'someone' doesn't include them. And, third who believe that Sanatan Dharma faced with such problems before and came out triumph. True, we faced with similar kind of problems before. For the sake of convenience, I will divide Hindu history into three broad parts. First one, before Islamic invasion, second one, from Islamic invasion till independence and third time period is since independence. During first part the greatest threat we faced was from Buddhism. This closest relative of ours literally gobbled us from inside out. All though, Buddhism emerged as more refined version of Hinduism sans rituals, later on it tried to disown Hinduism and stumbled badly. Things never looked bright for Buddhism since then. But Buddhism held mirror to Hinduism and unwittingly, end up strengthening roots of Sanatan Dharma. Islamic invasion was absolutely brutal and bloody. This kind of religious ferocity and unprecedented violence was something Hinduism never witnessed in its a-historical past. Though it took few hundred years for Hinduism to regroup and fight back. These efforts weren't exactly coordinated and missed quite a few golden opportunity(we lost one third of our population and one third of our land to Islam) but Hinduism still survived. We are still majority in Indian subcontinent.

That was that. It all happened in past. All this was result of sacrifices made by innumerable souls. Some we know like Shivaji or Maharan Pratap and some we don’t know like Khokars of Afghanistan or Raja Harpal Dev of Devgiri or Ahoms of Assam. But the most important thing that was common among all these people was they were ready to sacrifices their life for the cause. And, they knew who their enemies were. Not only this ‘sacrifice for cause’ thing is missing in present generation, we have absolutely no clue about our enemies either.

Let me finish this blog by giving an example -: Christian missionaries put together a study in which they figured out how much money it takes to convert a Hindu? They divided that part according to regions, castes, education and language. And, with this study (I am not saying this study is statistically correct) they know where to push for further prosyletization. So, they using their capitalistic mindset to ‘harvest’ more souls.

How’s that? How are we supposed to counter this with stupid caste and regional politics?

Complexities of Debt and Securities Market I

With housing market crashing down, market is behaving quite cautiously. The effects of housing crash took two of Bear Sterns hedge funds to cleaners. Failures of these two respected hedge funds, which has more than $20 billion of investments, bares the inner world of extremely complex debt and securities market of Wall Street. I will try to shed some light on these intricacies.

Since last few years US housing market was going through housing boom. This was possible because loans were given to the people with bad or not-so-good credit history. These home loans are known as sub-prime lending. But institutions who loaned money to these people didn’t wanted to carry this risk entirely. So, they packaged those loans into bonds and sold them to investors further. Thus, if they are lending money with 10% interest rate, they packaged this loan into bond and sold them to the market by promising say 5% interest rates. Since 2000, more than $1.8 trillion of such bonds back by home loans are sold in the market. Now value of these bonds are affected adversely as number of defaulters or late payments are increasing. But the underlying concept behind this procedure is simply to spread the risk by repackaging and selling an already sold financial product.

The next step of this chain is to pool these bonds, that in derive their value from some other entity, into one product. They are known as Collateralized Debt Obligations (or CDO’s) So, some CDO’s contain less risky bonds and some contain high risk (and obviously high return ) bonds. But the funny thing is institutions and hedge funds that invest in these CDO try to further stretch the risk potential of their investments. So, for example, if a Hedge Fund decides to invest a grand in CDO’s, they will invest only 100 bucks of their own money and they will borrow rest from some other institution. Thus, it is clear if a particular set of CDO went down, it sends shivers through out the market. Because directly or indirectly lot of investors are involved in it.