Archive for March 10th, 2008

How about buying a house in Omaha instead of Mumbai?

March 10, 2008

There are a lot of blog posts and comments over annual treat for finance professionals- Warren Buffet’s letter to shareholders. It is one of the most awaited events.

This one is also full of anecdotes Buffetisms:

Some major financial institutions have, however, experienced staggering problems because they engaged in the “weakened lending practices” I described in last year’s letter. John Stumpf, CEO of Wells Fargo, aptly dissected the recent behavior of many lenders: “It is interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine.”

You may recall a 2003 Silicon Valley bumper sticker that implored, “Please, God, Just One More Bubble.” Unfortunately, this wish was promptly granted, as just about all Americans came to believe that house prices would forever rise.

He explains the great, good and gruesome business

The great one pays an extraordinarily high interest rate that will rise as the years pass. The good one pays an attractive rate of interest that will be earned also on deposits that are added. Finally, the gruesome account both pays an inadequate interest rate and requires you to keep adding money at those disappointing returns.

Before he begins to explain how much he earned from his 4 lines of business (insurance, utilities, manufacturing and retail, finance and finance products), he writes:

The best anecdote I’ve heard during the current presidential campaign came from Mitt Romney, who asked his wife, Ann, “When we were young, did you ever in your wildest dreams think I might be president?” To which she replied, “Honey, you weren’t in my wildest dreams.”

:-) 

He goes on to criticize overstated reportings by public companies and defends sovereign wealth funds.

And finally, he says the annual meeting will be on May 3 2008. And the centre would have many avenues for shopping. What caught my eye is this

This year we will again showcase a Clayton home (featuring Acme brick, Shaw carpet, Johns Manville insulation, MiTek fasteners, Carefree awnings and NFM furniture). You will find that this 1,550- square-foot home, priced at $69,500, delivers exceptional value. And after you purchase the house, consider also acquiring the Forest River RV and pontoon boat on display nearby.

I just checked the website of the Clayton and came across some superb homes.

Well, now the main point. If you calculate the per square rate of this house it costs just about Rs. 1793.5 per sq ft! And that too with some basic furniture.

You wouldn’t get a house at these rates in Mumbai and would have to go really to far-0ff places. Like let us compare the ratesacross the 3 railway tracks . You wouldn’t get a house for this rate as far as Panvel (the last stop on Harbour Line) and might get one beyond Ambernath (on Central Line) and Virar (on Western Line).

So, those having a house in Mumbai and are looking to invest, Omaha could be a good option; prices are rock bottom in US and one can gain from appreciation over the years.

Moreover, it might also just bring some respite to the Mumbai property market. And address demand-supply problems which a visitors have commented on in this post.

Dr Reddy suggests new avenues for research

March 10, 2008

Bank of France organised a symposium on Globalisation, Inflation and Monetary Policy. It has got some of the best brains talking on an evergreen subject in monetary policy- the impact of globalisation on inflation (the summary is here). I would try and cover the speeches I have read in subsequent posts.

Dr. YV Reddy in his speech suggested few topics of research on the subject. Some I have shortened, some have been picked from his speech (in italics) 

1.  What has led to lower inflationary pressures- . globalisation of trade or globalisation of finance or both.

2. India and China, both have grown despite managed capital account and has also not led to adverse sentiments in financial markets. So should the research give more weight to macroeconomic fundamentals than capital account openness?

3. recent turbulence in financial markets/institutions and the importance of harmonised and coordinated response of public policies indicate the significance of countercyclical fiscal and monetary policies. Is it possible to argue that similar harmonisation between monetary policy and prudential policies would be of some value as part of counter cyclical measures?

4.  Regard to regulation and supervision over banks, it is useful to explore whether the special status of banks in the financial system and the need for active coordination among regulators / supervisors needs to be reaffirmed.

5. Shouldn’t regulation of financial markets be expanded as financial flows are becoming more global?

6. How should Central Bankers cooperate and coordinate in these times?

7. Finally, from a purely academic perspective, it may not be out of place to explore the issues concerning international policy coordination including the political economy considerations, in terms of interaction between governments and the financial sector, which may have been influenced by not only by the growing importance of finance but also the cross-border linkages in the financial flows.

All the seven are really good areas of research on this subject of globalisation and monetary policy. I will post on the topics as and when  if I come across some useful research on the same.

Assorted Links

March 10, 2008

1. TTR believes ICICI subprime losses are exaggerated.

2. WSJ Blog points to a lot of Fedspeak: Kohn, Mishkin, Hoenig, Yellen

3. Krugman explains what Bernanke is upto.

4. Mankiw asks what happened to inflation targeting? He also pointsto an article looking at similarity between ethanol and subprime mess.

5. Rodrik responds to the criticism against his article where he advocated political controls.

6. EPSA Blog points to a new book on development in  B’Desh.

7. Econbrowser asks has the recession started?


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