The Limerick of Finance for 10/11/15

India state bonds ready to sell
The wealthiest states should do well
Those yields are so high
Foreign funds want to buy
State cash holdings are bound to swell

The Limerick of Finance for 09/27/15

India's tech appeal opens wide
China's problems have now turned the tide
One billion to log in
Where connections are thin
Silicon Valley wants on this ride

The Haiku of Finance for 11/18/14

India calling
Cheap telecom call centers
Build a middle class

The Haiku of Finance for 02/17/14

India tax cut
Business sector is happy
Prop short-term demand

The Haiku of Finance for 08/27/13

Indian rupee
Rapid decline stuns business
Import prices rise

US-Bangladesh Tech Investment Summit at TiE

I'm really glad I attended part of yesterday's US-Bangladesh Tech Investment Summit down at TiE Silicon Valley.  I didn't do any networking because I don't do business in Bangladesh, but a bunch of other people do and they need to know what's going on.  I must say that Bangladeshis need to work on the editing of printed materials and Web content they distribute to an English-speaking audience.  The website for this summit had a few grammar and punctuation errors, as did the program booklet they handed out at the summit.

Sajeeb Wazed, the IT advisor to the Prime Minister of Bangladesh, spoke first during the evening session.  I also need to say that Bangladeshis need to polish their PowerPoint pitches.  This guy said he had a Master's degree from Harvard's Kennedy School but his slides were all text in small type.  He could benefit from watching a few Silicon Valley startup pitches.  He also didn't mention that he's the Prime Minister's son!  Westerners need to know things like that before they sign contracts to do business with Bangladeshi officials.  Some Asian countries have hereditary political aristocracies.  There's some Internet buzz about his potential for entering politics.  No wonder he admitted spending much of his time in Washington, DC.  He must be learning the ropes.  There's also some buzz about his personal history if you do a Web search of his name.  Reading some of the comments in other news articles is informative, with Bangladeshis complaining about his background.

Mr. Wazed made a pitch for foreign investment in Bangladesh as a turnaround story.  The latest fad in the investment world is the concept of "frontier markets."  These are the least-liquid of the emerging markets that are touted by investment banks as high-yield long-term bets.  They also come with a ton of risk.  My readers know that when I write about resource sector companies operating in emerging markets, I cite reliable international assessments of those markets' political and economic conditions.  Let's do that for Bangladesh.  Transparency International rates Bangladesh as 144 out of 174 in its Corruption Perceptions Index.  It's tied with the Central African Republic and Syria.  You're known by the company you keep.  The Heritage Foundation rates Bangladesh as 132 on its Economic Freedom Index.  Their score of 52.6 is below the world average score and the regional average score, but hey, at least they beat Cameroon.  One data element that should concern foreign investors is the very low score for financial freedom.  Note that the World Bank reports Bangladesh's debt/GDP ratio has dropped for 20 years and was 24.2% in 2011.  That's good news.

Mr. Wazed claimed that Bangladesh's sovereign debt ratings are second only to India's in the region.  The S&P rating is currently BB-.  Moody's rates it as Ba3.  That's nothing to crow about.  His point is that until recently Bangladesh had no sovereign debt rating at all because it was heavily dependent on donor aid, so getting established in the international bond market with a such a poor rating is better than no rating at all.  Bangladeshi sovereign debt with such medium to low ratings does pay investors a higher yield to compensate for perilous credit.  The country also wants to issue dollar bonds whose greater liquidity will make the country's sovereign debt more attractive to foreign investors.

He said Bangladesh has cellular coverage for 100% of its land mass, which is cool.  The government also funded information centers at the municipal level that function as cyber cafes for people who don't own computers.  That's cool too.  Bangladeshi expats remit money via cell phone transfers.  He also mentioned that energy shortages have precluded the establishment of data centers and that the government's desire to save money on its fuel subsidies have prompted regular blackouts.  He promised us that new power plants were almost ready to come online.  One blackout he did not mention was a Bengali blog blackout in protest of the government's crackdown on blog content that radical Muslims wanted to suppress.  That is not cool at all.

Speaking of energy, Mr. Wazed said that arbitration with Bangladesh's neighbors over UNCLOS demarcations would give his country block rights to prospective offshore drilling zones.  The competitive advantages he mentioned for Bangladesh include no restrictions on repatriation of invested capital and a cost arbitrage of 40% in overall business costs versus India or the Philippines.  My caveat is to read the Heritage Foundation's specific assessments of Bangladesh's economic conditions.  The country still has a lot of regulation for FDI projects despite the government's claims of liberalization.

The next speaker was Dr. Atiur Rahman, the Governor of the Bangladesh Bank.  In other words, he's their equivalent of Ben Bernanke but without the fixation on printing press technology.  I once aspired to be a central banker but eventually figured out that pursuing a PhD in economics would be a waste of time and money.  Dr. Rahman mentioned that Bangladeshi inflation closely follows Indian inflation due their long and porous border, which is why his central bank coordinates monetary policy with India's central bank.  I'll give you one guess as to which bank is the bigger kid on the block.

Dr. Rahman said the country's currency reserves had risen to $15B.  I wonder about the composition.  Their interest in issuing dollar bonds means they'll hold more US dollars, not a good move given the US's untenable monetary stimulus.  He also said the taka is a strong currency because of their current account surplus but the bank intends to keep it strong by managing the exchange rate.  Uh-oh, central bank intervention is not good at all.  He did add something to the World Bank figure of debt/GDP I mentioned above; including domestic debt brings the ratio up to 37%.  That's still pretty healthy.

He likes the country's liberal FDI policy and claimed simple registration with some government board is all you need to get started.  Uh, doc, read what the Heritage Foundation says about your country's simple process to see it through foreign eyes.  He mentioned that foreign companies like to reinvest their earnings in Bangladeshi government securities.  I can't blame them given the high interest rates but caution is warranted; Bangladesh has used capital controls during part of its modern history.  The country is serious about building out its IT infrastructure especially for the last mile of connectivity.  This is why they've exempted IT services from corporate taxes and do not impose import duties on servers.

The audience at TiE was very concerned about the Bangladeshi government's response to the collapse of a garment factory that killed hundreds of people.  The garment sector is still Bangladesh's biggest driver of GDP and export revenue despite the country's high-tech aspirations.  This accident is clearly the result of many years of lax safety standards, inadequate building codes, and a business culture of noncompliance with standards.  The panelists seemed to downplay the government's responsibility for requiring tougher construction standards.  The businessmen in the audience were particularly unimpressed with the Bangladeshi government's PR response, noting that Western media continues to excoriate the country.  The Hoover Institution suggests a way forward.  Bangladesh needs a comprehensive solution to a culture of greed that enables compliance shortcuts.

No one mentioned religious tension in the country.  Investors must note the paralyzing riots that have shut down the capital city of Dhaka in recent days.  A radical Islamic movement is agitating for the implementation of Sharia law.  Well, that's just great.

Oh BTW, one more tip from yours truly.  If you want to do business in South Asia, get familiar with that region's unique numbering system for large digits.  The origin of those figures is fascinating.  Some of these ancient Vedic number names like "ogho" for octodecillion are found in the Valmiki Ramayana.  Why would ancient writers need to work with numbers so large?  Does this mean there's some substance to the theory that ancient Indians had advanced technologies and even fought a prehistoric nuclear war?  Maybe I should go to South Asia and find out.  I just won't be visiting Bangladesh while its garment factories are collapsing and its radical imams are protesting.

The Haiku of Finance for 04/27/13

Indian startup
Raise funding outside country
Need home-grown VC

US-India Innovation Funding Panel at TiE Silicon Valley

I get emails from The Indus Entrepreneurs (TiE) all the time but yesterday was the first time I actually attended a TiE event.  I've really been missing out on some quality insights all of these years.  I journeyed on down to TiE Silicon Valley's conference center in Santa Clara to hear from panelists discussing U.S. and Indian joint initiatives in funding innovative technologies.

The best insight of the evening was from an Indian-American academic I met during the buffet dinner.  BTW, one reason I'm now considering joining TiE aside from the great events is that they serve good Indian buffets.    I'm sitting next to this guy and I ask him whether India still has a rigid caste system.  His answer was that it's much like the class system in the U.S. and other countries.  Indian class status is determined by economics now, and not so much by birth.  I think that's progress.

The introduction from a senior TiE guy extolled the organization's application of the "pay it forward" Silicon Valley ethos where established business leaders mentor younger entrepreneurs.  He noted that Steve Jobs was brazen enough to call Intel's Andy Grove in Apple's early days and Mr. Grove gave him a one our meeting.  That is rare anywhere else but commonplace in Silicon Valley.

The Indo-US Science and Technology Endowment Joint Panel members gave their introductory remarks.  The guy from the US-India S&T Endowment Fund said their fund originated from the US government's food aid program for India.  They grant $2-3M/year to startups to promote commercialization of technology with social impact.  The focus has historically been on accelerating India's development but US-based tech startups obviously benefit.  The fund reviewed about 400 proposals in its third round and will soon announce awards of about $500K each.

The next guy represented the Indian government's sci-tech policy body.  I didn't match all their names and faces with their jobs, so hang in there.  He said India's economic liberalization in 1993 accelerated the country's development.  Sci-tech funding grew rapidly and the number of published academic papers absolutely exploded.  The Indian government has a fund for non-Indian companies that can benefit the Indian market.  I believe he was referring to programs under the auspices of India's Global Innovation and Technology Alliance.

Another Indian guy on the panel addressed the country's business climate.  He said Indian business failures often end up in court.  Yeah, like that never happens in the US, right?  Former partners sue each other all the time in Silicon Valley.  I have digressed; back to the Indian guy.  India has had positive GDP growth for 31 years.  India doesn't seem to have much of a native VC sector, because 94% of all funding for early-stage startups comes from outside India.  I discovered after the panel that there is an India VC Association but the announcements on the home page all refer to investment conferences outside of India.  I think Indian VCs should pump their own activities because you gotta start somewhere.  The Indian guy also mentioned that there's a lack of quality Indian mentors for startups.  No wonder these guys came all the way to TiE; there's nothing like it back in India.

The panelist from the US Department of Agriculture predicted world population peaking in 2050, with water scarcity and limited arable land already setting limits on growth.  The USDA wants to see new agricultural tech to help grow a sector still characterized by hard work and low pay.  He mentioned that US cows in the 1940s produced 4000 gallons of milk (I'm not sure whether he said it was an annual figure or a lifetime figure), but today they produce 30,000 gallons.  Technology drove this improvement in yield.  I checked the USDA's National Agricultural Statistics Service for data on milk production.  I clicked through to "milk - production, measured in lbs/head" because that seems to be the metric for how much a single cow yields in a given year.  The data readout shows that the figure was 5007 lbs/head in 1947 and 21,697 lbs/head in 2012.  Maybe the USDA guy meant to say pounds rather than gallons, but his current year number is still way off and his historical number looks like an average of annual 1940s numbers.  Whatever, close enough for government work.  His basic thesis is still correct.  The technology revolution matters in agriculture.

The US Embassy India's Sci-Tech officer spoke last.  He noted that an open government platform works collaboratively with Indian innovators.  US and Indian coders rolled out upgrades to Indian government websites together and now the India government uploads much more data to its websites for public use.  He mentioned several joint programs promoting women in science, clean energy R&D, oceanography, and health care initiatives.  I'd like to see some Indian financial blogger run through that country's open source data like I do with US data.

Now we get to the panel discussion.  Someone referenced India's innovation timeline as too small and slow, asking how to scale up Indian innovation to match Silicon Valley's rapid time scale.  The panel said the board members of the Endowment Fund agree Indian innovation cycles are too slow.  Their fund has done milestone-based grant funding so far rather than equity funding.  One panelist said the Indian government has funded network centers that do virtual collaboration.

Another guy asked how entrepreneurs can expect to benefit from development funding if the Indian government's requirements for technology transfer are so restrictive.  The panelists said the Indian government takes innovation seriously, but they need entrepreneurs to help show them how to be innovative.

One TiE gal (a rare woman in a mostly male audience) said there's a huge fear of failure in India but Silicon Valley culture sees failure as a stepping stone.  She wanted to know how India would overcome this cultural fear.  The panel guy who said Indian failures end up in court commented that the Valley's tolerance of failure is unique.  Cultural change will take time.  He said India's colonial history may have contributed to its risk averse culture.

Someone asked about Indian water quality and waste.  The panel said different regions face different water contaminants, so there are many ways to deploy innovation.  The Indian ministry that regulates water use is spending money on technology.  I find it interesting that 90% of India's water is used in agriculture.

One of the final questions was about how India incentivizes US serial entrepreneurs to come and do business.  The panel extended an open invitation.  I got the feeling after several questions like this that the typical TiE serial entrepreneur is frustrated with the Indian government's limited understanding of how to develop an entrepreneurial culture.  The TiE folks have their work cut out for them.  A camera crew from the local IND TV studio was on hand to get shots of the action.

My hat is off to TiE.  I can't believe I've missed out on this organization's awesome resources for so long.  I am definitely coming down the peninsula as often as I can, and not just for the Indian buffets.  TiE people have what it takes to blaze trails in business.

Financial Sarcasm Roundup for 03/25/13

I've been plenty sarcastic recently about life, business, and even the arts.  Now it's time for my weekly official dose of sarcasm, in one full blast.

Cyprus sort of got its rescue deal.  I say "sort of" because the real price it had to pay was the end of its competitive advantage as a haven for Russian hot money and multinational offshore banking.  No self-respecting oligarch will ever again keep cash in a Cyprus bank.  The troika is taking a big risk but has little choice.  The ECB balance sheet has enough Cypriot debt to cause problems for its equity cushion if that island doesn't get a lifeline.  The troika is out of ammo for now, so any further deals will be a gift to Gazprom and the Russian government (not that there's much difference between the two).  One very important lesson policymakers learned is that any attempt to cram down deposits that are below the threshold of deposit insurance will trigger widespread popular resistance.  Future cram-downs now have a template with a sequence of red lines to cross, each with a higher pain threshold than can now be modeled.

BP's stock buyback is not as encouraging as it seems.  Any time a company buys back its own stock is a  signal that it can't find new projects to generate an NPV high enough to cover its own cost of capital.  Other supermajors are investing heavily in new projects in Africa and Southeast Asia, so where's BP drilling?  It's also a risky move if BP is assessed a $17B contingent liability for the Macondo blowout.  Making a slight adjustment to dividend policy would have been a cheaper way to send a friendly signal to shareholders.

China's new president is touring Africa to promote goodwill.  If the West's multinational resource producers don't get on the ball, China will beat them to new resource discoveries in Africa.  An old saying about the flag and trade alternately following each other applies here.  Trading nations expand militarily to protect their trade interests.  The OECD sees only the promise of China, not the threat.  If East African nations grant basing rights to the Chinese military, the Indian Ocean will become contested for the first time in centuries and India will face strategic encirclement.  Wake up, New Dehli, because you're about to be surrounded.

Bond market investors aren't worried at all now that Cyprus economy's ability to issue bonds has been devastated.  Never before in recent memory have Fixed-income portfolio managers been so utterly stupid.  They ought to see that this template will be applied in sequence to each of the PIIGS countries and them finally Northern Europe, yet they continue to talk their books.  I'm really glad I don't own any European bonds right now or work with people who are dumb enough to do so.  I'm also glad not to be downwind of whatever they're smoking.

Here's a hearty shout-out to my legion of new fans from concert halls and recital rooms across the nation.  I'll have a lot more to say about alternatives to union strikes very soon.  In the meantime, you musically-inclined folks need to go watch some old newsreels of labor unrest in the 1920s and '30s, just to know how lucky you are today.

The Haiku of Finance for 02/16/12

China gold market
Soon to outgrow India
Sign of a bubble

Potential Fed QE3 Informing Anti-Dollar Trades

Let's take note of two seemingly unrelated developments.  The Fed is busying itself making noise about another round of quantitative easing.  The intended market signal is that even with internal dissent the Fed can still push QE3 liquidity into bank balance sheets and the bond market.  I think it's funny that one stated intent is to "keep inflation from slipping" below a target.  The Fed's historic mandate has always been to fight inflation.  Abetting the devaluation of the dollar is the new Fed mission.

The lesson is not lost on other nations.  India will reportedly pay Iran in gold for oil shipments.  Take that with a grain of salt.  An unconfirmed report from an Israeli intelligence mouthpiece should be considered in the context of Israel's reported security ties to India.  Israel has little reason to formally embarrass its security partner but may wish to deter it from working around anti-Iran sanctions.  Releasing a hint from a grey source carries little risk.  At any rate, the public mention that large oil consumers are considering moving away from settling trades in dollars makes sense in the context of the Fed's willingness to harm the dollar's purchasing power.

I will presume that the Fed has an Observe-Orient-Decide-Act loop even if it doesn't know such a thing exists.  Its policies on quantitative easing and zero interest rate targets are oriented upon fostering a gradual inflation that will whittle away the federal government's unfunded liabilities for middle class entitlements.  That is an internal orientation, which is the Achilles' heel of an effective grand strategy.  The Fed's OODA loop should take into account the gradual abandonment of the dollar that other G-20 nations will eventually pursue apace.  That is an external orientation that can keep strategy on target.  This OODA loop is thus incomplete and invites a positive feedback cycle that will end the dollar's status as the world's reserve currency.

Longtime readers may note that my tone when discussing the Fed and other major policy actors is now much more sanguine than the periodic vitriol I spewed in the early days of the Alfidi Capital Blog.  In 2008 I was angry about incompetence and fraud in the financial markets.  Now I am largely resigned to its continued existence.  I am not sufficiently pedigreed to gain the ear of policymakers so I cannot dissuade them from any course they choose.  I will always fight people who try to rip me off personally.  I can offer no such assurance to anyone else.  

China Growth Story Stronger Than India's (For Now Anyway)

If you're tired of hearing about how the BRICs are a great place to invest for the next generation or so then you're going to be a lot more tired in the years to come.  Some Bloomberg index that no one has ever heard of assesses China as a much more likely growth story than other Asian economies. 

Traffic-grabbing headlines can gloss over deeper forces at work.  China's growth has been impressive but forced; something had to be done to put restive young single men to work to avoid social unrest.  Now China is at serious risk of price inflation and a real estate implosion.  The country also has too much overbuilt infrastructure serving no immediately useful purpose and potential energy supply constraints it must overcome. 

China's political leadership knows that it must keep generating international media attention for its growth narrative if it is to attract value-added manufacturing that complements its leadership in rare earth metal production.  Look for India to generate further headlines as it pushes for development of its water delivery infrastructure.  Let the headline wars begin, to be followed by resource wars in other emerging markets. 

Full disclosure:  Long FXI with covered calls. 

Margin Compression Soon To Hit All Producers

Commodity price explosions aren't just igniting Middle Eastern protests against the rising cost of food staples.  They're now impacting the margins of producers in the earliest links of the global supply chain.  Witness the margin compression at PPG Industries over copper prices.  Its market dominance in specialty coatings means it can afford to pass price increases to its customers.  That's good for PPG's bottom line and bad for every single industrial user of its coatings. 

Companies in competitive industries are in for a rough ride.  The big U.S. automakers will face a very difficult climb back to health in the face of rising material costs.  Indian car and bike makers are feeling the pinch from input prices.  Companies at the very end of most value chains (that is, retailers and their servicers) will be in the worst possible position in 2011. Expect more stories of companies facing hard choices between raising prices for end customers or reporting lower earnings. 

Tuesday Newsreel for 02/15/11

It's time to comment on whatever strikes my fancy.  Join the fun.

Wireless monitoring looks to be another next big thing in oil and gas extraction.  Wireless connections also open up SCADA systems to penetration from malware like the Stuxnet virus.  Wireless Ethernet connectivity is not any more secure. 

Here comes some bad news in the form of cognitive dissonance.  Retailers forecast import growth at the same time as overall retail growth is slowing down.  That means the component of retail sales from domestic goods production is seriously deteriorating.  Forget about solid GDP growth in 2011.

The Japan-India free trade agreement is about more than tariffs.  Japan needs a counterweight to China if the U.S. is no longer able or willing to play its role as a regional balance of power.  Look for Japanese-domiciled multinationals to seek supply chain security in India's resources. 

I'm proud of the logistics action in the Bay Area, my neck of the woods.  The Port of Oakland is firing on cylinders.  It almost sounds too good to be true.  It would be even better if their shore-side electric power came from renewable sources.  They should stick some solar panels on the roofs of those long warehouses at the former Oakland Army Base. 

Egypt is probably in for serious macroeconomic instability if the ruling military coalition has to deal with general strikes.  It's odd to see the only Egypt-tracking ETF rally since Mubarak's departure.  Amateur traders and naive hedge funds might be betting the worst is over.  I wouldn't take that bet.

PIMCO has drastically cut its U.S. debt exposure.  They've decided to get off the bond train before it crashes into the next station.  Buying debt from emerging market nations may be the next bubble to inflate. 

American Empire Goes To India

The Anglo-West seeks a return to a subcontinent it once abandoned.  The new Rome sends its royal entourage to impress the locals in a variety of ways.  A mighty flotilla will project Smart Power (TM) into India's tourist traps.  A royal tunnel will magically appear to protect sovereigns from the sight of unwashed commoners, and BTW it sounds way cooler than your typical red carpet.  Even coconuts are being harvested early lest they mature into ripened ICDs:  Improvised Coconut Devices.  Everything must go according to plan.  Nothing can be left to chance. 

India may very well scoff at this spectacle after it's over.  New Dehli has its own supersonic cruise missile program and a standing agreement with Russia to develop a fifth generation tactical fighter aircraft.  It's not like they need all of America's know-how, but they would like to cherry-pick what they can afford.  The country is also fairly unique among Asian nations in the readiness of its middle class to absorb domestic production that can't be exported.  That's a handy trait to have as central banks threaten to launch currency wars in response to the Fed's inflationary folly.  The trigger for part two of Great Depression 2.0 won't be a reenactment of Smoot-Hawley tariffs.  It will come from the responses of Asian central banks to the inflationary pressures of capital inflows.  India will be ready. 

Full disclosure:  No investments in Indian securities (yet). 

Currency Crisis Awaits U.S. Dollar And The Rest Of The World

Pundits can pontificate all they like about leading currencies avoiding a state of war with each other.  The dollar is under attack by Uncle Sam himself thanks to a stealth round of quantitative easing that Helicopter Ben is waiting to launch. 

Perhaps describing QE as the end of the world as we know it is a bit much.  Apocalyptic apoplexy may not be appropriate.  All this excitement is making gold investors even more excited than they would be without their meds thanks to gold's rising price.  Insanely high commodity prices make resource investors happy but prolong the popping of China's property bubbles.  What to do when the Chinese bubble pops?  Why, blow a new bubble in India with foreign direct investment, of course. 

Don't worry if you've decided to sit out these Asian bubbles and currency gyrations.  There will be a few more before China and India go to war against each other some day over their disputed Himalayan border. 

I hope I've given my readers enough to chew on while I look for some decent stocks that deserve my attention.

India Prepares For Trade Growth

Here's a brief note on one of the BRIC economies.  India's government is getting ready to spend some serious money to expand capacity at its ports.  They'll need all of that throughput ability if the recently signed Japan-India free trade agreement results in more cargo traffic through South Asia's sea lanes.

I've been a China bull up to now but India deserves further study.  These two ancient cultures are IMHO soon to become serious regional rivals. 

Full disclosure:  No holdings in any Indian investments.

The Haiku of Finance for 03/20/10

India rate rise?
Common sense on inflation
Not found in U.S.