Wednesday, March 28, 2007

How has IMF become irrelevant?

In a very good article written in ET, Swaminathan S Anklesaria Aiyar writes some cogent reasons. Read it in full here.

It is a pity that the very institution which used to advice various governments about how they should handle their affairs has fallen on bad days and is doing what it would never have advised the governments in the first place. It is digging into its reserves to bridge its revenue deficit instead of conserving them for loan losses.

The IMF seems to have lost its relevance. He says that there are both cyclical and structural reasons.

The cyclical reason: The world economy is booming for the fourth year in a row. The global boom has been financed in large measure by the enormous trade deficit of the United States (about $800 bn). This is injecting more liquidity into the global economy than the IMF ever did or could. This cyclical upturn is not bound to last forever. There is going to be point when the global economy will turn downward, balance of payment crises will recur and the IMF will be relevant again.

But the structural reasons suggest that the IMF will be less relevant, even when the world economy takes a downward path. Look at how…

The structural reasons:

  1. The four key functions of the IMF – crisis resolution, exchange rate management, financial policy coordination and country surveillance – are now being increasingly done by institutions and actors other than the IMF. The debt crisis ridden 80’s, the transition of countries from communism to market driven systems of the 90’s have all witnessed the emergence of alternative institutions and arrangements.
  2. While IMF was originally a government solution for a market failure (weak or missing markets), today the world capital markets are deep and willing to invest in instruments and countries which were earlier perceived as too risky. Private equity, hedge funds, pension funds, central banks (notably China) are generating trillions of dollars of funds flows that dwarf the $20 bn that the IMF could provide.
  3. Fear or dislike of the IMF loans has engineered a fiscal change in many countries. FRBM (Fiscal Responsibility and Budget Management) legislations have been introduced across the globe. This is bound to reduce the crises and need for IMF rescue.
  4. Labour remittances from migrants to poor countries have far outstripped the lending volumes that either the World Bank or IMF could provide in their peak years.
  5. Rapid growth of financial markets has created a veritable army of experts who do the economic surveillance that the IMF used to believe as its USP (Unique Selling Proposition).
  6. With the beginning in the 1970’s of the floating rate exchange rate regime, the IMF lost its clout in exchange rate management.
  7. Emergence of a variety of policy co-ordination mechanisms like the G-8, G-20, Cairns Group and the European Union have further eroded the IMF’s role.

Conclusion: The IMF still has a residual role as a lender of last resort in crises, especially to poor countries. But it is a pale shadow of what it used to be.

Tuesday, March 13, 2007

Impact of global volatility on Indian markets

With the recent volatility in Indian stock markets attributed more to global events, again popped the question about whether we can escape global volatility. We take note of the opinions expressed by three experts.

The global downswings in the markets across the board (across asset classes and currencies) were attributed to the sub-prime mortgage problems in the US and fears of a sharp unwinding of the yen carry-trade (borrowing an asset at the yen interest rate, selling the asset, then investing those funds into a different asset that generates a higher interest rate yield).

There has been a rise in the correlation between various markets and asset classes, and risk averseness will result in an in-sync movement. Over the past 5 years, the correlation between Nifty returns and the S&P 500 returns has risen from around 0.25 to 0.38. Thus whenever the world markets move, the valuation of Indian stocks is affected.

The influence of the global markets in Indian markets can be accounted for in three ways:

  1. Some large firms in India being entirely engaged in export driven performance. Example: the IT sector. As global volatility affects their customers, their future earnings are affected, which in turn affects their stock’s performance on Indian bourses.
  2. Equalization of product prices through import parity. Eg. Prices of locally produced steel are determined by the international market prices. This phenomenon makes companies’ bottom lines vulnerable to global market swings.
  3. The arrival of the Indian MNC on the scene. Their profits and future growth would depend on world markets and world economy. Hence their share prices are naturally affected by the global swings in markets.

So, the answer to the question whether India can stay insulated from global swings, is in the negative. As on one hand we are seeking a more tighter integration with the world economy, we cannot with the other keep looking at the possibility of insulating our economy from the effects of globalization and integration. They go hand in hand. We should be prepared for the volatility. This will be a tough learning process; but one which we cannot do without.

By the way, do you know that volatility on market is also measured? The ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index (VIX) shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge".

There are three variations of volatility indexes: the VIX tracks the S&P 500, the VXN tracks the Nasdaq 100 and the VXD tracks the Dow Jones Industrial Average. I think we don’t have any Indian equivalent as yet for our markets.

Sunday, March 11, 2007

ATP and WTA rankings

The Association of Tennis Professionals (ATP) was formed in 1972 to protect the interests of male professional Tennis players. (Female players formed the Women's Tennis Association the year after.)

In 1990, the association became the organizer of the principal worldwide tennis tour, thereafter known as the ATP Tour.

The ATP Tour at present has five categories of tennis tournaments belonging to its tour:

1. Tennis Masters Cup (jointly with ITF)

2. ATP Masters Series Tournaments

3. International Series Gold Tournaments

4. International Series Tournaments

5. Challenger Tournaments

In the history of ATP ranking it was Pete Sampras who stood for a long time as World Number 1. He stood at the rank for 286 weeks. Jimmy Connors is the second best with 268 weeks. Current World Number 1 in ATP rankings is Roger Federer with 162 weeks.

The Women's Tennis Association, is also known as the WTA Tour, and is to women's tennis what the ATP is to men's tennis. In 2005 the WTA changed its name into The Sony Ericsson WTA Tour.

The Women's Tennis Association was begun in Houston, Texas when the inaugural Virginia Slims event was won on 23 September 1970. Billie Jean King was a major figure in the early days of the WTA.

The WTA divides the main women's tournaments into several tiers:

1. Grand Slam Events

2. Season-ending championships (Sony Ericsson Championships): with Three Million Dollars ($3,000,000) prize money.

3. Tier tournaments:

  • Tier I (minimum prize money of $1,340,000): There are ten (10) Tier I Tournaments.
  • Tier II (minimum prize money of $600,000): There are sixteen (16) Tier II Tournaments.
  • Tier III (minimum prize money of $175,000): There are seventeen (17) Tournaments in this Tier.
  • Tier IV (minimum prize money of $145,000): There are twelve (12) Tournaments in this Tier.

Steffi Graf was the all time great in WTA rankings with 377 weeks of standing, followed by Martina Navratilova with 331 weeks. The current World Number 1 is Maria Sharapova with 12 weeks of standing.

Wednesday, March 07, 2007

Cricket matches and trophies

  • Deodhar Trophy
    • It is named after Prof. D. B. Deodhar (known as the Grand Old Man of Indian cricket) and is a 50-over one-day competition played on a league basis among the 5 zonal teams - North Zone, South Zone, East Zone, West Zone and Central Zone. The competition was introduced in 1973-74 season with South Zone winning the trophy.
    • The winner of the 2005-06 competition was North Zone for whom this was a record 11th tournament victory.
  • Duleep Trophy
    • The Duleep Trophy is a domestic first-class cricket competition played in India between teams representing geographical zones of India. The competition is named after Kumar Shri Duleepsinhji (also known as "Duleep").
    • The competition was started by the Board of Control for Cricket in India in the 1961-62 season. The inaugural tournament was won by West Zone who defeated South Zone in the final by 10 wickets.
    • From the 2003-04 season onwards, a guest team has competed as a sixth team in the Duleep Trophy.
    • 2006-07 winner North Zone
  • Ranji Trophy
    • The Ranji Trophy is a domestic first-class cricket championship played in India between different city and state sides, equivalent to the County Championship in England and the Pura Cup in Australia. The competition is named after Kumar Shri Ranjitsinhji (Jam Sahib of Nawanagar, also known as "Ranji").
    • The competition was launched as "The Cricket Championship of India" following a meeting of the Board of Control for Cricket in India in July 1934, with the first fixtures taking place in 1934-35. The trophy was donated by Bhupinder Singh, the Maharajah of Patiala. The first Ranji Trophy Championship was won by Bombay after they defeated North India in the final. Syed Mohammed Hadi of Hyderabad was the first batsman to score a century in the tournament.
    • 2006-07 winner Mumbai beat Bengal.
  • Irani Trophy
    • The Irani Trophy tournament was conceived during the 1959-60 season to mark the completion of 25 years of the Ranji Trophy championship and was named after the late Z.R. Irani, who was associated with the Board of Control for Cricket in India (BCCI) from its inception in 1928, till his death in 1970. The fixture is always played between the previous year's Ranji Trophy winners and the Rest of India Team.
    • The first match, played between the Ranji Trophy champions and the Rest of India was played in 1959-60 with the trophy being instituted in the name of Zal Irani, long time treasurer of the Board of Control for Cricket in India and a keen patron of the game. For the first few years, it was played at the fag end of the season. Realizing the importance of the fixture, the BCCI moved it to the beginning of the season. Since 1965-66, it has traditionally heralded the start of the new domestic season.

Tuesday, March 06, 2007

About eye sight problems

We have heard frequently of some common eye-sight problems like myopia, hypermetropia and astigmatism. What exactly are these problems? I always get confused with long-sightedness and short-sightedness.

Hyperopia, also known as hypermetropia or colloquially as farsightedness or longsightedness, is a defect of vision caused by an imperfection in the eye (often when the eyeball is too short or when the lens cannot become round enough), causing inability to focus on near objects, and in extreme cases causing a sufferer to be unable to focus on objects at any distance. As an object moves towards the eye, the eye must increase its power to keep the image on the retina. If the power of the cornea and lens is insufficient, as in hypermetropia, the image will appear blurred.

Hyperopia is often confused with presbyopia, another condition that frequently causes blurry near vision. Presbyopes who report good far vision typically experience blurry near vision because of a reduced accommodative amplitude brought about by natural aging changes with the crystalline lens. It is also sometimes referred to as farsightedness, since in otherwise normally-sighted persons it makes it more difficult to focus on near objects than on far objects.

Myopia, or nearsightedness also known as short sightedness, is a refractive defect of the eye in which collimated light produces image focus in front of the retina when accommodation is relaxed.

Those with myopia typically can see nearby objects clearly but distant objects appear blurred. The opposite defect of myopia is hyperopia or "far-sightedness" or "long-sightedness" — this is where the cornea is too flat or the eye is too short.

In optics, astigmatism is when an optical system has different foci for rays that propagate in two perpendicular planes. If an optical system with astigmatism is used to form an image of a cross, the vertical and horizontal lines will be in sharp focus at two different distances. That is from a particular distance the person can only see either the horizontal or the vertical lines. She can’t see both at the same time from the same place.

Monday, March 05, 2007

Names for words

While preparing for some quiz questions for you, I came across an interesting list of names for peculiar words in English. Thought I would put them up all at one place in a short definition for to get a quick hand of their meaning.

An ambigram, also sometimes known as an inversion, is a graphical figure that spells out a word not only in its form as presented, but also in another direction or orientation.

An anagram (Greek ana- = "back" or "again", and graphein = "to write") is a type of word play, the result of rearranging the letters of a word or phrase to produce other words, using all the original letters exactly once; e.g., Silver-haired congenial scum : Louise is clever and charming. Someone who creates anagrams is called an anagrammist.

Holorime (or holorhyme) is a form of rhyme in which the rhyme encompasses an entire line or phrase. A holorime may be a couplet or short poem made up entirely of homophonous verses.

A kangaroo word is a word that contains letters of another word, in order, with the same meaning. For example: the word masculine contains the word male, which is a synonym of the first word. Similarly, the word observe contains its synonym see.

A pangram (Greek: pan gramma, "every letter"), or holoalphabetic sentence, is a sentence which uses every letter of the alphabet at least once. Pangrams are used, like lorem ipsum, to display typefaces and test equipment. For example, the pangram The quick brown fox jumps over the lazy dog was developed by Western Union to test Telex/TWX data communication equipment for accuracy and reliability.

A spoonerism is a play on words in which corresponding consonants, vowels, or morphemes are switched. It is named after the Reverend William Archibald Spooner (1844–1930), Warden of New College, Oxford, who was notoriously prone to this tendency.

A phonetic palindrome is a portion of sound or phrase of speech which is identical or roughly identical when reversed.

Some phonetic palindromes must be mechanically reversed, involving the use of sound recording equipment or reverse tape effects. Another, more abstract type are words which are identical to the original when separated into their phonetic components (according to a system such as the International Phonetic Alphabet) and reversed.

In English, certain written palindromes also happen to be phonetic palindromes, particularly monosyllabic ones such as mom, dad, and pip. However, this does not guarantee that a reversed recording of any of these words will sound identical to non-reversed speech, because certain pronunciations can cause a shift in the articulation of the vowel, differentiating the beginning from the end in its pitch.

Sunday, March 04, 2007

Allocations vs. Outcomes

It is really fashion to say that it is not increased budgetary allocations that matter but that there is should be desired outcomes. But everybody seems to be keeping count of allocations. Have you ever seen anybody keeping count of outcomes? I for one, have not been able to find anybody.

So, just because nobody anyway seems to be keeping count of the desired outcomes, should we give a go bye to increased allocations? And are increased allocations really the answer to many of India’s ills in development work?

In an excellent piece written today, Mythili Bhsunurmath, says emphatically NO. The reason she attributes for that is that increased allocations do not address the basic cuase of people’ anger: the feeling that the playing field is not level for all. Reforms and globalization have opened up huge opportunities; but only for those who already possess certain skills, not for the vast majority who live in the hinterland and do not have access to those skills. They lack the wherewithal to take advantage of the new opportunities – access to basic education and skills.

So the government should address this issue. Providing them with the wherewithal to enable them to put those skills to good use and enjoy the fruits of the ongoing globalization and liberalization. How do we go about educating and enhancing the employable skills of our people? Come up with more institutions by allocating more money for education?

She immediately says that, this is almost impossible to achieve the desired results through this route, given the huge leakages inherent in our existing institutional structure. Decentralized local government institutions would be far more accountable and deliver better results. But Panchayat Raj institutions are still to find their feet.

So what could be a possible solution? The voucher system, where people are given vouchers to access facilities provided by private sector players. But again with our experience in telecom sector, where even a good number of incentives have not been able to entice private sector players into rural areas, will the private sector players in education system venture into rural areas?

All these look like only questions but no answers. My suggestion is let us make a beginning with the voucher system. So far our telecom players might not have ventured into rural areas. They cannot ignore it either for long, if they want to stay for a longer play. One more thing that needs to be remembered by us is, how long should we hold ourselves hostage to the rural-urban divide question? Let us come with something, then it will find its own diffusion mechanism. In view of our inability to service a vast majority, saying that we should not try a new thing in itself sounds criminal to me. Retail offers a huge potential – both for education and employability. How long can retail concentrate only on the urban India? It will have to look rural sooner rather than later. That’s when synergies are bound to enter the system and make it viable for even private sector players of education to go rural.

In the ultimate analysis, still allocations do matter – as well as their method of usage. I vote for the education voucher system.

Saturday, March 03, 2007

About Reverse Mortgage

A reverse mortgage is a loan available to seniors, and is used to release the home equity in the property as one lump sum or multiple payments. The home owner's obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (i.e. into aged care).

In a typical mortgage, the home owner makes a monthly amortized payment to the lender; after each payment the equity increases within their property, and typically after 30 years the mortgage is paid in full and the property is released from the lender. In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, then the debt on the property increases each month.

If a property has increased in value after a reverse mortgage is taken out, it is possible to acquire a second (or third) reverse mortgage over the increased equity in the home. But in certain countries, a reverse mortgage must be the first and only mortgage on the property.

When does the loan end?

The loan ends when the homeowner dies, sells the house, or moves out of the house for 12 consecutive months or more (for example, to go into an assisted living home). At that point, the reverse mortgage can be paid off by the proceeds of the sale of the house, or refinanced by the heirs of the homeowner's estate. If the proceeds exceed the loan amount, the owner of the house (if moving out or selling) receives the difference; if the owner has died, the heirs receive the difference. For cases where the proceeds are not sufficient to pay off the loan, then the bank (or insurance that the bank has, on the loan) makes up the difference.

In most cases when the borrower moves out of the property or passes away, as long as the borrower (or their estate) provides proof to the lender that they are attempting to sell the home or obtain financing to pay off the outstanding debt, the investor will allow them up to one year to do so. After the one year extension period is up, the lender cannot provide any further extension of time to the borrower (or estate).

The technical term for this cap on debt is "non-recourse limit." It means that the lender does not have legal recourse to anything other than the value of the home when the loan is to be paid off.