Sunday, June 27, 2010

Wonderful story about stock markets about Europe crisis

Everybody in the west knows the fable of the grasshopper and the ant. The grasshopper is lazy and sings away the summer, while the ant piles up stores for the winter. When the cold weather comes, the grasshopper begs the ant for food. The ant refuses and the grasshopper starves. The moral of this story? Idleness brings want.

Yet life is more complex than in Aesop’s fable. Today, the ants are Germans, Chinese and Japanese, while the grasshoppers are American, British, Greek, Irish and Spanish. Ants produce enticing goods grasshoppers want to buy. The latter ask whether the former want something in return. “No,” reply the ants. “You do not have anything we want, except, maybe, a spot by the sea. We will lend you the money. That way, you enjoy our goods and we accumulate stores.”

Ants and grasshoppers are happy. Being frugal and cautious, the ants deposit their surplus earnings in supposedly safe banks, which relend to grasshoppers. The latter, in turn, no longer need to make goods, since ants supply them so cheaply. But ants do not sell them houses, shopping malls or offices. So grasshoppers make these, instead. They even ask ants to come and do the work. Grasshoppers find that with all the money flowing in, the price of land rises. So they borrow more, build more and spend more.

The ants look at the prosperity of grasshopper colonies and tell their bankers: “Lend even more to grasshoppers, since we ants do not want to borrow.” Ants are far better at making real products than at assessing financial ones. So grasshoppers discover clever ways of packaging their grasshopper loans into enticing assets for ant banks.

Now, the German ant nest is very close to some small colonies of grasshoppers. German ants say: “We want to be friends. So why do we not all use the same money? But, first, you must promise to behave like ants forever.” So grasshoppers have to pass a test: behave like ants for a few years. The grasshoppers do so and are then allowed to adopt the European money.

Everyone lives happily, for a while. The German ants look at their loans to grasshoppers and feel rich. Meanwhile, in grasshopper colonies, their governments look at their healthy accounts and say: “Look, we are better at sticking to the fiscal rules than ants.” Ants find this embarrassing. So they say nothing about the fact that wages and prices are rising fast in grasshopper colonies, making their goods more expensive, while lowering the real burden of interest, so encouraging yet more borrowing and building.

Wise German ants insist, gloomily, that “trees do not grow to the sky”. Land prices finally peak in the grasshopper colonies. Ant banks duly become nervous and ask for their money back. So grasshopper debtors are forced to sell. This creates a chain of bankruptcy. It also halts construction in the grasshopper colonies and grasshopper spending on ant goods. Jobs disappear in both grasshopper colonies and ant nests and fiscal deficits soar, especially in grasshopper colonies.

German ants realize that their stores of wealth are not worth much since grasshoppers cannot provide them with anything they want, except for cheap houses in the sun. Ant banks either have to write off bad loans or they must persuade ant governments to give even more ant money to the grasshopper colonies. Ant governments are afraid to admit that they have allowed their banks to lose the ants’ money. So they prefer the latter course, called a “bail-out”. Meanwhile, they order the governments of the grasshoppers to raise taxes and slash spending. Now, they say, you must really behave like ants. So the grasshopper colonies go into a deep recession. But grasshoppers still cannot make anything ants want to buy, because they do not know how to do so. Since grasshoppers can no longer borrow, to buy goods from ants, they starve. The German ants finally write off their loans to grasshoppers. But, having learnt little from this experience, they sell their goods, in return for yet more debt, elsewhere.

As it happens, in the wider world, there are other ant nests. Asia, in particular, is full of them. There is a rich nest, rather like Germany, called Japan. There is also a huge, but poorer, nest called China. These also want to become rich by selling goods to grasshoppers at low prices and building up claims on grasshopper colonies. The Chinese nest even fixes the foreign price of its currency at a level that guarantees the extreme cheapness of its goods. Fortunately, for the Asians, or so it seems, there happens to be a very big and exceptionally industrious grasshopper colony, called America. Indeed, the only way you would know it is a grasshopper colony is that its motto is: “In shopping we trust”. Asian nests develop a relationship with America similar to Germany’s with its neighbors. Asian ants build up piles of grasshopper debt and feel rich.

Yet there is a difference. When the crash comes to America and households stop borrowing and spending and the fiscal deficit explodes, the government does not say to itself: “This is dangerous; we must cut back spending.” Instead, it says: “We must spend even more, to keep the economy humming.” So the fiscal deficit becomes enormous.

This makes the Asians nervous. So the leader of China’s nest tells America: “We, your creditors, insist you stop borrowing, just as European grasshoppers are now doing.” The leader of the American colony laughs: “We did not ask you to lend us this money. In fact, we told you it was a folly. We are going to make sure American grasshoppers have jobs. If you do not want to lend us money, raise the price of your currency. Then we will make what we used to buy and you will no longer have to lend to us.” So America teaches creditors a lesson from a dead sage: “If you owe your bank $100, you have a problem; but if you owe $100m, it does.”

The Chinese leader does not want to admit that his nest’s huge pile of American debt is not going to be worth what it cost. Chinese people also want to go on making cheap goods for foreigners. So China decides to buy yet more American debt, after all. But, decades later, the Chinese finally say to the Americans: “Now we would like you to provide us with goods in return for your debt to us. Whereupon, the American grasshoppers laugh and promptly reduce the debt’s value. The ants lose the value off their savings and some of them then starve to death.
What is the moral of this fable? If you want to accumulate enduring wealth, do not lend to grasshoppers.

Thanks & Regards,
Vamsi Grandhi

Saturday, June 26, 2010

Loksatta and Dr.JP I am amazed

I have been following up with the activities of Lok satta and was reading their blogs as well of late. The recommendations they were giving to the govt., their fight against the govt. ( for its corrupt acts and meaningless rules), are really great.

Some activities of the party which I liked are below.
Fight against the Karanataka govt for reinstating the officials suspended for corruption and harassment of Lokayukta employees for their role in ferreting out corruption, read this link is really appreciable. I cannot imagine that corrupt officials are reinstated back to service. How can we allow such a thing in our society. We got to fight against such things.

Recommendation to prohibit widespread liquor all through andhra and justifying that the 18000 crore losses can be avoided by funds from the health ministry of central govt, which stated that if such steps like stopping smoking and prohibiting liquor were taken, then central health ministry will bear any financial losses incurred to the state govts.

Recommendations not to subsidize petrol, diesel and LPG, but subsidize Solar LED. JP has been working in a real commendable way in the kukkatpally constituency. His initiatives on providing proper water, good schools for his constituency people are certainly appreciated by one and all. His views have already started flowing into the minds of people. His organising the Loksatta party, giving a lot of people leadership roles is also quite commendable.

During his speech in his tour to the US recently, JP pointed to the fact that India is the only country where city Mayors are not elected and in India, local govt. have very negligible power. We need a much decentralized govts. like in the US. Even UK which used to have centralized power is moving in that direction, but not us who took their govt as our model.

Many more activities like these have made me really feel good about this party and the person behind the party Mr.JP. Given a chance, I would really love to participate in the activities of the party. And any organisation which stands by its values all through the ups and downs can only inspire people. I believe Loksatta is probably the only such party at this point of time.

Sunday, June 13, 2010

Trading Nifty Options - I love it

Nifty Options have been a good challenging and a very profitable task but with a very high rewards and risk too. Everyone fears only of the risk. I had some setbacks too in the beggining. But, the rewards are too good to leave them off. Learn from your mistakes, dont trade by intuition but trade with technique and have a check on all the news. Any minor miss, can make you loose money and always be careful that you bet your money basing on Nifty is sustaining its support levels or not. If nifty falls its support then buy a put and if it is sustaining buy a call option. As simple as that. Start with one lot of Nifty with abt 6k to 10k rupees and as u get profits, go for bigger amounts...............that is all Nifty trading.

Bhagavan, when I going to do this professionally like a finance professional?????????
Hey I always prefer just out of call options only for the maximum rewards.

My first post - Quote of M.K.Gandhi

"You must be the change you wish to see in the world."
- M.K.Gandhi

Really amazed with this quote. How true is this quote. If you ask why Gandhi is so well respected, it is not just because he brought freedom for our nation, it is much more because of his truthfulness and integrity, which made him great being.

At oneness, we learn and realize that we don't accept our own selves, we give a lot of justifications to every action we do. Do we have inner integrity? It is scientifically calculated that on average a person lies about 150 - 200 times a day to himself, and to everyone around him. The strange fact is 90% of these we tell to our own selves. Inner integrity when truly followed can change your life to unbelievable levels. Inner integrity is not being honest, telling the truth in outside world. Inner integrity is accepting your own self as you are. Gandhi used to exhibit enormous energy despite having very little food because of his inner integrity.

If you really want to use this post, try this question to yourself....
1. Why do we lie even in outside world? Think for about 10 minutes and see the answers below and let me know your comments.

We lie most of the times because -
To yourself, because you cannot see yourself in a bad way.
To others, because
1. We don't want to use our energy in telling the truth to others
2. Telling lies has become a habbit.
I think there is one more reason, but I don't have the notes of my Oneness class. will let you know soon...

By the way, I am trying to be integral atleast to myself. Also, it is told when you try to be integral to yourself, you will automatically become an honest person.
Guys, I would love to hear your frank comments on this first blog of mine.