Crypto currencies and Block Chain Explained !

There is so much buzz about crypto currencies and its underlying technology Blockchain. 

However, for an average Joe it is rather difficult to grasp what exactly all this means and where is the world headed for; whats in it for Individuals, Companies, and the country's regulators. Here I try to simplify what I have understood regarding crypto currencies, blockchain, its use-cases, whats good and whats not so good, and what the future may behold. 

1. What are cryptocurrencies ?

To simply put, cryptocurrency is a store of value; similar to fiat currencies such as US Dollar, Indian Rupee, or the Japanese Yen. Just that the crypto currency is not printed on paper by a central authority such as the Reserve Bank of India. The crypto currency can be exchanged online and every record of transfer of crypto currency is recorded on a public register called as a block chain. Today there are hundreds of crypto currencies with top currency such as Bitcoin, Ethereum, Cardano, XRP, Polkadot among others traded on crypto exchanges all over the world. The combined market capitalization of all crypto currencies is about 1.7 trillion US dollars as of January 2022; that is 1.6 times the GDP of Mexico !

2. Why and How cryptocurrencies were born ?

Crypto currencies are kind of peoples money - No centralized authority or control to print and distribute ! 

Central banks print currency, control inflation, interest rates through their monetary and fiscal policies. During the Global Financial Crisis of 2008, the common man felt helpless. Interest rates increased, housing prices collapsed, creditworthiness of individuals and companies deteriorated, the world financial system was brought down to its knees. Large companies were bailed out by governments using public tax money but the common man suffered heavily - loss of jobs, loss of property, and wealth destruction as world markets collapsed. Post this crisis, there was an idea of creating a currency independent of the central banks of the world -  kind of taking matters in public’s own hands ! Bitcoin was the first crypto currency to be born; a brainchild of an “untraceable” hypothetical Japanese person called Mr. Satoshi Nakamoto.

3. What is a Blockchain ?

Crypto currencies are “exchanged” on a public record or register called as Blockchain. A block can be thought of as a packet of data or information. This block passes from one node to another node forming a chain. There can be many nodes in a single chain. Important point to Note is all Nodes are kept up-to-date about all transactions happening in the chain.  

Let me give an example of How blockchain works by giving an example of a Housing Society.

Assume there are 100 members in the housing society. Now if a member, say Mr. Nadkarni, wants to do a house renovation work, then he needs to apply to and get approval from all other 99 members of the society. Let’s say Mr. Nadkarni wants to paint his house in Blue. Then he submits an application to all 99 members. All members will review and approve the application and keep a permanent record with them stating “Mr. Nadkarni has painted his house in Blue”. This record is permanent and cannot be altered so easily. For e.g. if 3 years later, a member of the society or an outside member claims that Mr. Nadkarni has painted his house Red then this statement will be verified by each member and will be rejected because each member has a record which states that “Mr. Nadkarni has painted his house in Blue”.

Instead of taking approval from each member of the society, what if Mr. Nadkarni took approval only from a central authority (such as the society secretary or chairman) ? Then there is a risk that if only 1 record (one with the secretary or chairman) could be tampered with, the history can be distorted; there is a danger of the truth being lost. On the other hand, it will be very difficult if not impossible to tamper the records held by all 99 members of the society in a block chain environment.  

As we can see, the Blockchain methodology is more effective (99 people can attest to the “truth”) but also inefficient (need to ask all 99 people to reveal the “truth” instead of record from 1 central authority). 

4. What are the practical uses of Blockchains ?

Crypto currencies such as Bitcoin mentioned above are a practical use case of Blockchain. 

As we can see, the concept of block chain is much wider and can be used in real life. Extending on the example of housing society, let’s consider the case of property ownership. 

For example a person holding a title on a parcel of land has a record of land registration with him. This same record is held by the central authority such as the municipality. Occasionally, there are cases in India and elsewhere in the world where property rights are under dispute. Although a person is holding the title paper, there could be claims on the same property showing ownership rights and thus the title will be under dispute. 

Blockchain offers a solution to this problem. If the property is registered on the block chain (called as a smart contract), then all members in the chain have a record that the parcel of land is owned let’s say by Mr A only. It is not possible to change the record unless all members agree to it. Later, if some other person Mr. B claims ownership on the title, the claim will be instantly refuted as it does not agree with the “truth” held by all nodes (members) of the chain. This trust-less, de-centralized nature of block-chain creates more transparency, and also reduces frictional costs - dispute resolution is quick as “truth” is known to All. Potential to save time and court and lawyer fees !

Blockchain technology is also used today to transfer money across the globe - using ripple’s platform via the XRP cryptocurrency - the transaction is done at a fraction of what it would cost through the traditional SWIFT channel and also completed in seconds as against few hours to couple days taken in traditional remittance procedures. As of this writing, 100+ financial institutions world over have partnered with ripple for cross border payment solutions.

5. What is the future of Blockchain ?

Similar to managing the property rights example given above, the block chain technology can be used in protecting copyrights, patents, securing medical records, validating and processing insurance claims. The solutions are endless and can span across industries. 

There are concerns and challenges around blockchains such as the security of blockchain against cyber attacks, use by anti-social forces for money laundering and extortion activities among others. Also, the global regulatory landscape is not yet clear, and taxation rules on income earned through trading cryptocurrencies is yet to fully develop in several countries. Additionally, the mining activity associated with cryptocurrencies is power intensive though we have seen renewable energy sources being increasingly used for mining purposes - bitcoin mining today consumes 0.5% of the worlds energy needs !

So what are the central banks doing amid an increasing interest in crypto currencies - they are developing their own crypto currency! termed as CBDC (Central Bank Digital Currencies). The role of Central banks around the world is to maintain a well functioning financial environment, aid economic growth while keeping inflation under control. Central banks are developing use-cases for their own digital Crypto currencies - the purpose is multi-fold; from payments monitoring to taxation monitoring, payment of social security benefits to its citizens among others. As of 2022, more than 100 countries in the world have researched into CBDC and are either in the Research, testing the Proof of concept, or close to the Launching stage of a CBDC. A digital Yuan, Digital Yen, e-Krona, Project Atom of Australia are some of the CBDCs under consideration by their respective central banks.

As with any emerging technologies, there are bound to be opportunities and challenges, pluses and minuses and crypto is no exception. These are still early stages and block-chain technology and use-cases continue to evolve. It would be interesting to see if mass adoption of cryptocurrencies by individuals and institutions can become a reality or not in the future. However, it is becoming increasingly clear that the potential of block-chain if used for the right purposes has immense practical applications, and only time will tell if they become a main-stream adoption and integrate into business and society. 

Rate Cuts by Central banks

The world seem to be obsessed with central bank meetings over rate decisions. Ofcourse rate cuts/increases by central banks would impact economic activity and aid lot many industries and companies to grow. But the real growth trigger lies in many other aspects such as - skills development, training of workforce to enhance productivity, transparent taxation policies, less red tape, faster processing of business licenses, safety at workplace and in society, equal opportunities for men and women to grow...there are many more 

CFA Level 3 Hurdle cleared!!!

Finally done with all the exams and studying. The congratulatory e-mail from CFA institute sealed victory over the beast exam Level 3. The past years have been very tough balancing work, family, and study commitments. Could finally see the end of the tunnel. Looking at my performance, i did better than i expected in the morning session with 4 sections > 50%, and only 2 sections < 50%.
Afternoon section score was bit lower than expected especially Ethics which i scored in 50-70% range while i thought i had aced Ethics. Overall the performance of AM and PM combined together was sufficient to get the job done.
My 40/60/80 score analysis puts me at 65.5% which maybe close to the MPS !
I am glad that CFA Exams and studies are over however the learning continues...

ECB Stimulus Package

Another money printing event in hope of economic revival.

European Central Bank on Jan 22 announced its unprecedented  stimulus program to help the 19-member euro region come out of economic slowdown by committing to buy back 60bn Euros in assets per month.

While the markets cheered the move, severe concerns linger on the effectiveness of the program - only time will tell.

CFA Level 2 2013 results

Folks, its that time of the year again ! CFA Institute is to announce the results of Level 1 and Level 2 exam on July 23rd. Results will be e-mailed to candidates starting 9 AM EST...

So only 3 days to go until i get my Level 2 results..fingers crossed! All The Best everyone. 

Skyscraper Index for Contrarian Investors !

Sounds silly, but there is a study done to check the correlation between skyscrapers and Financial crisis ! and there seems to be a positive correlation between the two. which means the many and higher the skyscrapers, the deeper is the financial crisis.hmmm.

so the next time you read an article about new skyscrapers cropping up in the city, then you know...that economic trouble is around the corner..well might not be really, but the article below says so, and is a good read.

www.bbc.co.uk/news/business-16494013

Behavioral Science in Investments

Time and again i am reminded of this science of investment; behavioral finance. In my opinion, it is one area in Finance which has a very close connection between Theory and Reality. The concept is simple to understand and is easily observable in real world. When i think of my own investment actions in the past, it reminds me that the concepts of behavioral finance and investment biases are so very true ! Here are a few of them which most of the investors might have experienced in their life

1. Confirmation Bias : I like this one ! This bias is regarding actions of an investor post their investment decision. as an example, if you invested in stock of Sony. Then you would like the stock to do good. You will thus be 'looking' for good news about Sony. If there is any bad news, you would tend to discount it. The reason you want to see only good news is the justification of your investment decision to buy Sony. So rather than sell the stock upon bad news, you continue to hold it believing it will do good and continue to search for good news !

2. Escalation Bias : This bias too is easily observable in real world. Again if you bought a stock at say $100 and the price drops to $95. you will not sell it. nobody likes to see a loss ! most of us continue to hold onto the loss rather than book the loss. you believe someday the stock would rebound and do good. that's ok but worst would be to invest more in a losing stock to 'average down' the purchase price instead of evaluating the future prospects or financial condition of the company. Behavioral Finance texts have rightly said "Investors tend to sell their good picks too early and hold onto losers for too long" !

3. Overconfidence and Pessimism : when there is good news floating around, investors tend to be more optimistic about it. e.g. when most of the stock analysts have a positive indicator for the stock of a firm, investors give it an upward bias, flock to this stock thereby driving its price to the roof. only to realize later that they paid $50 for something which was actually worth $30. Similarly, investors tend to overreact to bad news. All this can be easily seen in everyday market movements. One day stock analysts and investors are highly pessimistic about the developments in Europe and the next day they are jumping with joy on even unconfirmed reports of possible German and French government support to the EU causing high volatility in the markets.

4. Others : Stocks perform well on Friday as opposed to Monday's similar to Holiday effect in which stocks do well on a day that precedes the holiday. Then there is January Effect in which stock returns in the month of January are better than the other months.

Dim Sum, Samurai, and Yankees - Interesting Bonds !

Dim Sum...yes it is a very famous food dish in Hong Kong. But that is not what i am talking about here. I am referring to Dim Sum bonds. Yes ! basically these bonds are Yuan denominated and issued in the Hong Kong market by an overseas borrower. whats so special about them? These can be attractive for an investor who desires to have exposure to Yuan and also given that the foreign investors are restricted from investing into local Chinese debt. Not surprisingly, HSBC is one of the largest players in the Dim Sum bond underwriting market.

Whats also interesting are Samurai Bonds. These are yen denominated bonds issued by a foreign borrower in Japan. The advantage is YEN LIBOR yields are low and given the continued strength of the Japanese Currency (76.5 JPY/USD as of today), it would be attractive to the foreign borrower to convert the proceeds of the bond issue into their domestic currency to well pay back their existing local currency debt !

On the same page, a Yankee bond would be a USD denominated bond issued by a foreign bank or corporation in the United States although the regulations are quite tight to get the bonds registered into the US market.

Imagine what are bonds denominated in Japanese Yen and issued by a non-Japanese company outside of Japan called ? EuroYen bonds ! The term Euro here is mis-leading as it has nothing to do with the currency Euro !! Sometimes confusing but interesting concepts in the bond market.

13 weeks for CFA Level 2

It was quite some time ago when i registered for the June 2011 CFA Level 2. But i realized that now there are only 13 weeks to go. By this time, i should have almost finished reading the LOS for all topics. But have not done so. I am lagging behind schedule, have yet to start Fixed Income, Corporate Finance, and Derivatives..i might not have sufficient time for revision and mock tests....

I think no other way but to study harder on the weekdays and catch-up with the schedule...Ganbarimasu !!

Time to re-balance your portfolio ?

The Stock market of the emerging economies of Brazil, Russia, India and China had a very good run this year. Indian stock market has been the best performing of all.YTD returns of 10%, 30%, and even 60% for some stocks have not been uncommon in 2010.

Money managers and Analyst are predicting a brighter road ahead based on GDP growth (8-10%),rising consumer demand for most of emerging markets, etc. So all this is good news. Most stock analysts are recommending a BUY or a HOLD position for the emerging markets stocks. I am wondering why there is no talk of portfolio re-balancing at this stage?

Portfolio re-balancing is nothing but an adjustment of the weights of different assets in your portfolio to match with your objectives.

Let's take an Example: Ideally every investor should have a target allocation for the equity and debt component in his/her portfolio. This would be based on a variety of factors such as his risk tolerance, investment time horizon, income, age, family needs, etc , etc. e.g. lets assume that out of an investors total asset base of 10 million, he chooses to allocate 7 million to equities(through stocks, mutual funds, etc) and the remaining 3 million to debt (through gov/corporate bonds, bond mutual funds, etc). so he has a 70%-30% mix between equities and debt holdings. Now assume that this investment portfolio was built at start of year 2010. Today, assume he got a return of 40% (after transaction costs) on his equities, then his stock position would be worth 7*1.4 = 9.8 million. Lets assume the bonds in his portfolio gave him 8% return. so his position in debt assets would be worth 3*1.08 = 3.2 million. The investors total assets grew to 9.8+3.2 = 13 million. a gain of 3 million since beginning of 2010. very good news for him ! but his equity-debt mix has now changed to 75% (9.8/13) in equities and 24% (3.2/13) in debt. i.e. increase in equities and decrease in debt component.

we can simply see a 5% deviation from his target allocation of 70%-30%. This means he is overweight in equity and underweight in debt. He should thus sell some of his equity positions and buy into debt positions (or just hold cash) to re-balance his mix to his target of 70%-30%. If the investor falls prey to an analyst stock BUY recommendation or to a new 'attractive' equity mutual fund scheme, his proportion in equities will still get higher; which means the investor is taking on more risk than he can digest. This can be dangerous to his financial well-being should the equities perform badly.

My recommendation is which stock or industry to BUY in is an important decision, but whats more important for the stock market investor is to re-balance his portfolio on a regular basis. To put it simply, if equities do good, sell some of them and buy debt or other risk-free asset or hold cash. If debt market does good, sell some debt and get into equities enough to maintain the right mix for you. This will ensure your total risk exposure remains at target level irrespective of market volatility.

CFA Level 1 - Cleared !

I was thrilled to get my CFA Level 1 result. I passed with >70% in all sections including Financial Reporting (my weak area !).

It was a tough job with many sleepless and restless nights, no-fun time on weekends, and the regular pressure on the job. I owe a BIG THANK YOU to my dear wife for being so supportive all these months and especially during the last 3 weeks before the exam (I would say the most critical period). Without her support, it would have been impossible to clear the exam. Also Thanks to Schweser Notes (they are much condensed but precise version than the CFA curriculum books) plus the MBA background helped too..

Anyway, It's time to move to the next level (however don't feel like going back to studying again !). I heard from someone "If Level 1 feels quite an uphill task then Level 2 is like climbing Mount Everest!".

Credit Default Swaps - Anti-Social?

As we all know, derivatives and CDS in particular were the focus and a root cause of the failures of big banks in the recent 1 year.Investors like Warren Buffet had warned years before about the ill-effects of using derivative instruments. They described them as "dormant economic weapons of mass destruction" of size upto $500 Trillion dollars . But people simply ignored the wise words...they simply loved the idea of leverage to make BIG money....

A recent article in the Financial Times, refers to CDS as an anti-social product. Its very interesting to know why. As many of you might know, a CDS involves 3 parties. One which has granted credit to another party (e.g. Corporation A gives credit to Corporation B) and the third which insures that loan (e.g. AIG). If company B fails to pay-back or has a credit downgrade, AIG would compensate company A. In return for this protection, Company A pays AIG a regular premium (insurance premium).

Thus CDS is anti-social as there is an incentive for Company A debt holders that Company B fails. There are also real cases wherein the debt holders of Company A forced Company B to go bankrupt. But what if the intermediary who provides for the protection (AIG in this case) also fails? This is what exactly happened ! Company A was left to the street along-with Company B and all the intermediary insurance providers.....The Financial world was paralysed and is still recovering......

Price v/s Value -

The other day i was talking to one of my friends about stock market investing. He seemed to be pretty excited about lessons he learnt in his Finance 101 class about cash flows, dividend growth, etc. ..He said i am going to invest in this company X. Its a market leader in its field, has a strong brand recognition, its earnings are forecasted to grow N times and therefore its stock is worth investing in. You might say well my friend is making a correct decision with his investment.

Well, he might or might not be correct. I said to myself, He might make a VERY BIG Mistake. Why? Simply because of the fact that the stock of a good company need not always be a good investment. You may ask why? Whats wrong with investing in such a company. Because the stock might be over-valued in the market !

The biggest mistake that investors make is failing to differentiate between good companies and good stocks. Take the example of GE or e-bay. It is a good company but has been always over-valued. Its earnings have grown by leaps and bounds since the 90s but its stock price has roughly remained the same since then ! It would be so much frustrating to see no growth in your investment all these years. Or consider Microsoft and Google. Everybody knows these are excellent companies. But are their stocks worth investing in?They may or may not be. If you think their stocks are great investments at any price, you might be in trouble.

Here comes the emotional aspect of investing. Investors tend to overestimate the performance of good companies thereby driving-up their price to ridiculous levels.
They fail to realize that good investment is a product of fundamentals (cash flows, earnings growth, etc) and valuation (P/E, P/CF ratios, etc) . If you invest considering only one factor, you are at the risk of a loss.

Benjamin Graham had once said "Price is what you pay. Value is what you get".

Dividend Confusion

Every now and then i read news about dividend declaration by Mutual Funds and every time i read such news, i am sure a lot of investors especially new to the world of investing in mutual funds are mis-guided. Basically, a mutual fund offers three schemes to choose from : growth, dividend re-investment, and dividend pay-out. These have been in the market for quite some years now but many investors still dont completely understand the last one (dividend payout).

Simply speaking, a dividend payout scheme returns back a portion of an investors own money. Full Stop ! When and How much is upto the descrition of the company (thats why it cannot be a guranteed source of income as otherwise thought and promoted by many). Why does an MF declare a dividend? One reason might be there is no asset worth investing in the market at the moment. e.g. when markets are over-heated. Other reason might also be to attract new investors to the fund luring them to grab this "income".

For e.g. if you have invested $100 in a scheme which declares a 2 $ dividend, then your investment in the scheme now becomes 98$ if you had opted for a dividend pay-out scheme with the 2$ returned to you. Its as simple as that. Its upto you to decide what to do with that 2$. There are also some tax implications with dividends but i will leave them out from this discussion. The point is the term "dividend" seems so attractive that mis-informed investors easily fall prey to all the positive marketing about such schemes. They also plan their investment (in some cases even encouraged by the investment advisors!) close to the schemes dividend declaration date to capture that "dividend" because there is a gap between when the company declares a dividend and the time the money reaches the bank account.

My personal recommendation would be to invest in an MF (scheme suited to your equity-debt exposure) with a good track-record atleast for the past 5 years rather than falling prey to this very "attractive" dividend proposition. Finally, how much net return you make in the long-term is what really matters with or without dividends.

System Security at Banks

Recently an IT executive at a top US bank was arrested for stealing the companys proprietary trading software before moving to another employer. Apparently, there is a possibility of the entire trading platform to be stolen and if actually used by rival firms would result in losses of millions of dollars for the bank. The high-speed trading system used for taking equity and commodity markets positions is an asset to the bank as it assists in making trades ahead of the competition and thereby benefit from it. But if the system falls in the hands of rival firms, the banks competitive edge is eroded. Not only this, but if the system falls in the wrong hands for e.g. terrorists then the entire US financial system might be in danger !

The suspect quit the bank to move to a start-up company offering 3 times his existing salary. It is very likely then that he would have used the stolen trading application to benefit his new employer. Upon discovery of the theft, the new employer suspended the suspect. This event should be an eye-opener to banks and financial institutions to beef-up their IT security and take stringent measures to protect their data and systems agaisnt theft or mis-use and guard the interest of all the stake-holders in the financial markets.

Finally Madoff gets his "return" on "investment"

Madoff, the infamous ponzi-scheme fraudster gets 150 years in prison for duping investors of billions of dollars. Its a welcome news and given the fact that the sentence was handed just a few months after the discovery of the fraud is commendable. But i think the punishment is still not enough. Look at the age of Madoff. He is already 71 and has enjoyed his life all these years "fooling" innocent investors. Given that he will probably live for another 10 more years doesnt make the number 150 attractive anymore. Capital punishment would have been harsher and more suitable for this fraudster who ruined the lives of so many investors and bought immense shame to the financial world and investment profession in general.

While Madoff should be subjected to the harshest punishment, the case should be an eye-opener for the investors all over the world. They need to always read the fine print of any investment plan before investing even a single penny and be skeptical especially about schemes that advertise "guaranteed returns" or boast of "excellent performance even during bad times". Time and again investors have fallen prey to such obviously suspicious schemes. These might be the red flags for the next scandal as well......

Missed the Bus?Dont miss the Flight

Many individual investors feel that they missed the recent stock market rally. The stock market gave a fantastic over 30% returns in just a couple of months and stocks with high beta (higher volatility to the market) gave more than 50%. Those who invested in stocks then (and very few of them did) enjoyed enormous gains. While those who had put in their money a year ago are still struggling to break-even. But it was not only the retail investors who missed this years spectacular rally.

Almost all Mutual Funds (supposed to be managed by smart money managers) were sitting idle all these months. Mutual Fund data shows that funds were sitting on a cash pile of upto Rs 20,000 crore !!! as of April-end. They were waiting for the market to correct post-election. But just the opposite happened. The election results were un-expectedly positive, the market zoomed and everyone were a mere spectator to the rally. But money managers should have realized that valuations had already hit the bottom. Unsystematic Risk was still there and there was no strong reason enough to be optimistic but it was clear that many stocks were dirt cheap and the path from thereon was north-wards towards their fair price even though at a slow pace. But they totally missed it. What are these funds doing now? They are waiting again as they think valuations are too high now ! to enter so they want to wait before prices correct again. These Investment Mangers advise investors not to time their Investment and have a long-term horizon to achieve decent returns. But what they themselves do is the opposite.

Individual and Institutional Investors may have missed the bus by not getting in the market. I think, if they continue to wait further, they might miss the Flight towards the next rally.

Where to Invest?

Usually when people think of Investment, they think in terms of monetary gains. They ask questions like "If i invest X amount in this opportunity, how much shall i get in return?", "How can i make my money grow 10% in a year?",etc,etc. Today, the list of instruments to invest in is virtually endless...from bank deposits to stocks to real estate investment to Exchange Traded Funds and to even complex derivatives like Index Futures, almost all products are available to invest in for retail investors like you and me and that too at the simple click of a mouse ! Amazing isnt it?

Ofcourse Money is very important. But easy access to and a wide product variety creates confusion due to lack of proper knowledge and might create frustration if your decisions go wrong. The Question is "Are monetary gains the only success criteria in Investment?" I dont think so if you look at Investment from a different angle that is. The concept is simple to understand but might be difficult to implement.

If you want to be really successfuly in Life, Invest more in YOURSELF. By "Invest", i dont necessarily mean only in terms of money. It can be just your Time.
Invest to get a good education, Invest to upgrade your skills and get a broader and matured view of the world around you. Invest for a better health for you and your family. Go for a Jog outside if you can't afford going to the Gym ! Invest your time and energy to make relationships stronger. Invest time in Listening to Yourself. Invest in ways to enhance your beauty (get atleast 8 hours sleep per day and drink more water; its for free isnt it? ! )

These "Investments" shall give you "returns" that are not clearly "measurable" (we have a bad tendency to measure everything in terms of money !) but immensely beneficial for a healthy mind, body, and peaceful living. This is the biggest dividend that any investment can give you. And this matters more than just a hefty bank balance. I think most of you would agree on this. Happy Investing ;-)

Is INDIA really a global power?

The other day i was wondering if the image of INDIA has really changed in the minds of the outside world especially the west. Statistics indicate that the worlds one-fifth population consist of Indians or are of Indian origin. But is the country today considered as an upcoming and powerful asian giant just like China is or is it still considered as just a cheap destination for outsourcing IT and BPO call center work with decent english language support?

While speaking to my European and American colleagues over lunch, i was shocked to know that they still think India mainly as a country of Camels and Elephants! I dont know if it is their true feeling or a deliberate comment. Here in Japan, indians are considered as good english speaking people with strong IT and Math skills. But is that all that indians and India as a nation is? Is the country today thought of as a real and strong upcoming force and a nation that can probably rise above the major first world countries in another decade or two? Many outside India wont think so. Why? Why are we not taken seriously yet by the outside world?

In my view, Indians lack Branding and Marketing skills. Majority are still quite behind in terms of communication and leadership skills. We might be good in Math and some English. We might be equally hard-working and dedicated to our work like the Chinese are. But what we really lack are the soft skills. The skills that can make people believe in you, trust you, follow you and stand by you. We fail to project a strong and interesting image of our country to the outside world. We lack the skills to attract more foreign tourists and thereby earn forex revenues.

Not enough is done to get us recognized and appreciated. Okay, outside India we are considered as good and nice people. People who can follow instructions and get the job done. But are we considered highly competitive, aggressive, and strong leaders like the Chinese are? NOT AT ALL !

Agreed that we need to improve on our manufacturing capability and product quality but what also needs to be achieved is brand creation, recognition, and respect. For this to happen, soft skills need a big-time upgrade and so does the civic sense ! A recent poll ranked India towards the bottom in terms of civic sense among developing nations. A stricter government needs to accomplish this. Would anyone dare to throw garbage anywhere on the streets in Singapore or talk on a mobile phone while driving a car in Tokyo or blow car horns un-thinkably and endlessly? Such things are near-impossible in these places. So why not implement and follow them in India too? People attitude and image change is what is the need of the hour in order to achieve true global recognition and success in the long-term. And this is more important than tackling Terrorism which is a threat to almost every nation today.

Stress Testing - Too Late?

So finally US banks are being stress tested ! Everybody now seems to look forward to May when the report of US banks stress testing result is released. This is supposedly to separate the healthier banks from the weaker ones. A report in Washington Post states that a total of 19 US banks would be stress tested.

The results would give an indicator as to which bank is doing fine and can steer clear on its own without further government funding. The weaker ones shall continue to receive government money for some more time. This seems to be a good move by the Obama Administration since it is hoped that the results of the tests would be made public.

However, i feel that although it is very important to stress test the business, it would have been better if the banks were stress tested before the crisis hit. Doesnt it make more sense that way? Stress testing, as most of us know, gives an insight into the micro/macroeconomic effects on the business. for e.g. it deals with questions like what will happen to our portfolio if interest rates rise by 5% ? How adversely our portfolio shall get affected if the sovereign bonds of country X default? Wouldnt one expect that banks conduct such tests on an on-going basis to identify potential impact on its business and the measures it can take to shield against it?

Ofcourse, almost nobody could have imagined the size and the global scale of the current crisis. But I feel if the banks had conducted such testing more rigorously and diligently (even a child could have easily pointed out to the problems with the mindless lending and bad loans), the red flags could have been detected much earlier and the impact of the crisis could have been reduced to a smaller scale (possibly). We had all the necessary tools at our disposal then but the problem was no-one was willing to use them (out of sheer greed !)