Realistic optimism is key for success in economic recession

Yesterday I read a wonderful article by Azim Premji, president Wipro Inc. in BusinessWorld magazine. There he shared one story which I am going to discuss with you. This year 2009 is going to be very tough year for business community so the thoughts and ideas of Azim Premji will be definitely helpful for the whole business world. He says, the year ahead will be tough, to say the least. It is important not to get too optimistic or pessimistic.

There is one story of a ship that was lost in the high seas. On board the ship, along with the other passengers, were an optimist and a pessimist. The pessimist was the first to get up every morning and say, “Today, we will sink.” The optimist would get up a few hours later and say, “Today, we will reach the shores.” This went on for a few weeks. Neither the ship sank, nor did they reach the shores. Finally, the passengers got tired of the pessimist who disturbed their sleep with bad news. So, they threw him overboard. Then the optimist continued with his good news. Since the ship did not reach the shores, they were disappointed every evening. So, they threw the optimist overboard as well.

You know there are two lessons here. First, it is better to be realistic than optimistic or pessimistic. Second, in this story, the optimist was the second to be thrown out. So it is better to be optimistic than pessimistic. But the moral of the story is that realistic optimism will be the key theme for successful organizations in the year 2009.

Story source :: BusinessWorld

What is economic recession?

These days everybody is talking about some recession. However most of them don’t know much about it. Just they know that the world economy is suffering from recession. Today I will discuss what exactly is economic recession. If you refer any economics book, there you will see that the word ‘recession’ means reduction of a country’s gross domestic product (GDP) for at least two quarters. Let’s see the official meaning of recession from the United States-based National Bureau of Economic Research (NBER). It defines economic recession as

“a significant decline in the economic activity spread across the country, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales.”

There is one more term called depression which is more severe than a recession. Depression is the extreme case of recession, a depression is normally characterized by abnormal increases in unemployment, restriction of credit, price deflation or hyperinflation, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations. The most well-known depression is the Great Depression of 1929 that affected most of the economies in the world for around ten years. The depression began during the Wall Street Crash of 1929.

But let’s forget the depression, focus on recession, better say the latest recession which has created troubles in our lives. The most important reasons for economic recession of 2008-2009 are high oil prices, high food prices, and a substantial credit crisis leading to the bankruptcy of large and well established investment banks like lehman brothers as well as commercial banks in many nations around the world. These fluctuations in world economy has caused increased unemployment, high inflation etc. The International Labor Organization (ILO) has predicted that at least 20 million jobs will have been lost by the end of 2009 due to the crisis – mostly in “construction, real estate, financial services and the auto sector” – bringing world unemployment above 200 million.

So I think you will be interested to know what has caused this major economic upheaval in the world? What is main reason behind falling share markets across the globe and bankruptcy of major banks? Who is responsible for this? Let’s see.

Boom in US real estates

A few years back there was big boom in US real estate industry. The reason behind this boom was low interest rates on housing loans and many other easy credit solutions. Actually it became quite easy for US people to take home loans. As a result of this, more and more people took home loans and thus the demands for property increased which ultimately increased the home prices. Also, there was enough money to lend to potential borrowers, so the loan agencies relaxed the loan conditions to increase their market base. And they did the terrible mistake as they completely ignored the customer’s repaying capacity while giving the home loans.

Real estate boom and overbuilding of houses finally led to a surplus inventory of homes, causing home prices to decline beginning from the summer of 2006. Once housing prices started depreciating in many parts of the U.S., refinancing became more difficult. Home owners, who were expecting to get a refinance on the basis of increased home prices, found themselves unable to re-finance and began to default on loans as their loans reset to higher interest rates and payment amounts. In the US, an estimated 8.8 million homeowners – nearly 10.8% of total homeowners – had zero or negative equity as of March 2008, meaning their homes are worth less than their mortgage.

Sales volume (units) of new homes dropped by 26.4% in 2007 as compare to 2006. Further, a record nearly 4 million unsold existing homes were for sale including nearly 2.9 million that were vacant. This excess supply of home inventory placed significant downward pressure on prices. As prices declined, more homeowners were at risk of default and foreclosure.

Arrival of Financial investment banks in real estate boom

During the booming period, these sub-prime loans became lucrative part of their investment portfolio for lenders as they were expected to yield a very high return in view of the increasing home prices. Also the interest rate charged on sub-prime loans was about 2% higher than the interest on prime loans due to the involvement of higher risk. Inspite of the risk involved lenders were confident that they would get a handsome return on their investment as a sub-prime borrower will continue to pay his loans installment, the lender would get higher interest on the loans. If a sub-prime borrower could not pay his loan and defaulted, the lender would have the option to sell his home to get his money back. So there was very less risk in this sector as in both the situations the Sub-prime lenders were in profit. The sub-prime loan market thus became a fast growing business in US.

Most of the big investment banks heavily bought these loans (known as Mortgage Backed Securities, MBS) to diversify their investment portfolios. Due heavy buying of Mortgage Backed Securities of sub-prime loans by major American and European Banks, the problem, which was once confined to US propagated into other countries.

As the home prices started declining in the US, sub-prime borrowers found themselves in a big dilemma. Their house prices were decreasing and the loan interest on these houses was increasing. Now they could not manage a second mortgage on their home so it became very difficult for them to pay the higher interest rate. Most of them became defaulter on their home loans and vacated the house.

Since the home prices were falling rapidly. The lending companies, when they went into the market to sell the house to recover the loan amount, found that the loan amount exceeded the total cost of the house. This caused major losses to Citigroup ($55.1 billion) and Merrill Lynch ($52.2 billion).

So this is how the current economic recession started.

Who is hiring in this economic recession?

Last week, Indian Government announced that around 500,000 Indians have lost their jobs and almost 25,000 have returned home after losing their jobs in US companies. Now job-seekers are in search of companies which are still hiring in this period of economic recession. Don’t you think it is silly question. Layoff announcements are piling up and unemployment numbers are reaching the sky but I am talking about companies which are still hiring. According to rediff, the leading Indian portal, India Inc’s hiring plans saw a marginal increase in January 2009, with the PSUs, telecom, banking, education and hospitality sectors showing a marked improvement. Other industries including legal, government and defence continued to see an increase in jobs.

Believe me, more than 60 per cent of companies in India are still hiring, and nine out of every ten companies are still giving promotions. Also, India is expected to see a salary rise of 8.2 per cent in 2009, the highest in the Asia Pacific region.

There are about 260 PSUs all over India. BSNL is going to hire 3945 Junior Telecom Officers. LIC has plans to hire 45,000 people this year. Most of the public sector banks like SBI, Syndicate, Indian Overseas Bank, NABARD etc. are hiring. Only SBI is going to hire to around 25,000 people in 2009. BPCL, which is one of India’s largest PSUs is planning to add more than 1000 engineers in next 2 or 3 years. No doubt, Indian PSUs are becoming the last refuge of job-seekers. PSU banking, insurance, petroleum, energy and construction companies are trying to expand their talent base as now large number of IIT, NIT and IIM graduates are applying for PSU jobs.

Mukesh Ambani is third richest CEO

Despite 62 % drop in RIL share prices, Reliance Industries chairman Mukesh Ambani is still the third-richest chief executive in the world. His stake in the petrochemical firm is around $16.8 billion. Recently Forbes magazine has published the list of top 10 wealthiest CEOs. Steel tycoon and chairman of Mittal steel, Lakshmi Mittal, Anil Ambani and Sunil Mittal were the other Indians in the list. Multi-billionaire Warren Buffett is the wealthiest chief executive for the second year in a row, with stake worth $35.9 billion in investment management firm Berkshire Hathaway. Oracle CEO Larry Ellison is having second rank second ($19.7 billion).

Lakshmi Mittal, who also heads ArcelorMittal has slipped two places in the list this year to No 4. Last year he was at number 2 position. Anil Ambani who is at number 6, has stakes in his various firms is worth around $9 billion. The Bharti Airtel CMD Sunil Mittal has $6.9-billion stake in AirTel as he was on 9th position. However since last year, Airtel’s shares have dipped 30 %.

The complete list is ::

Warren Buffett

Larry Ellison

Mukesh Ambani

Lakshmi Mittal

Bernard Arnault

Anil Ambani

Abdul Aziz Al Ghurai

Steven Ballmer

Sunil Mittal

Tadashi Yanai

Indian top 10 business houses lost $139 billion

Today I got a phone call from my friend and he told me that he lost 300,000 Rupees in share market in last one month. I said to him don’t worry, see top 10 Indian business tycoons, they have lost 139 billion US dollars. All these losses whether for small investors like my friend and giants like Mukesh, Anil, K. P Singh etc is due to recent economic crisis or better say economic depression. According to Economic Times, this amount is equivalent to around 16% of India’s gross domestic product(GDP) and more than the combined GDP of Uttar Pradesh and Maharashtra. Actually, India’s top billionaires have lost more than 60% of their wealth since January 2008.

Now India’s top 10 business houses are now worth $84 billion (Rs 4.1 lakh crore) compared with $223 billion (over Rs 10 lakh crore) in January 2008.

So who all are biggest losers?

Anil Ambani’s total wealth is now worth $12.9 billion against $45.1 billion in January this year.
Mukesh lost 54% of his money.
Unitech’s Ramesh Chandra lost 85%.
DLF’s chief K. P Singh has now only $ 9 billion against $35 in January 2008.
Bharti Airtel’s Sunil Mittal lost 31% money.
If you have already invested in share market, mutual funds etc and lost a good amount of money then these figures will give you some relief and you will start thinking that you are the only loser.

13 years old Indian girl addresses UN climate Change summit

This is a great achievement for Yugranta Srivastav, a 13 years old girl from Lucknow. Last week, she addressed the United Nations Climate Change Summit in New York. Almost all the top leaders including UN General Secretary Ban Ki Moon appreciated the speech of this little girl. In her speech she discussed the importance of the energy and potential which lies in children and youth. She also showed her concern about global warming, scarcity of food and drinking water and an outbreak of accentuated epidemics. She compared her age group to flowing river which can be allowed to make their own way in the direction in which they march.

After delivering the speech, she addressed one press conference and said “It was a very great experience for me because now actually I feel I’m one in a million who gets an opportunity to speak. I also met several heads of state and I was sitting next to Al Gore,”
Last year when she was in 6th standard, she joined “Tarumitra” (Friends of Trees) due to her inclination towards environment and nature. Tarumitra is an organization which tries to stop the felling of trees and forests, builds roadside gardens and cleans up garbage dumps, among other environment friendly activities.
We should take inspiration from Yugranta and try to protect our planet from global warming, deforestation, poverty, genocide etc.

What is the secret of Bermuda Triangle?

The Bermuda Triangle has always been a strange and mysterious place in modern World History. This is located in the southern Atlantic Ocean. It is roughly the shape of a triangle. Many people claim that Bermuda Triangle sucks planes and boats into its dark and murky waters. But no one knows exactly what happened to those lost planes and boats in the region. News papers, TV channels and internet websites have attributed these disappearances to the paranormal or activity by extraterrestrial beings. That’s why it is also known as the Devil’s Triangle. Hundreds of ships and planes have been reported missing in the area and more than 1,000 lives have been lost.

Some people think that the Bermuda Triangle is in a place where there is high magnetic force so when planes or whatever goes over it, they get sucked down and all of the computers, magnetic compass and other machines stop working. Some say paranormal or human error or even large amounts of methane in the water that cause ships to sink. See the video of group of aircraft that were the first of thousands to go missing inside the mysterious Bermuda Triangle in 1945, in the BBC show.

 

Incidents in Bermuda Triangle ::

1843: USS Grampus, schooner, last seen March 15, presumed sunk in a gale off Charleston, South Carolina.

1872: December 5, Mary Celeste, a 282-ton brigantine, sailed from Staten Island, New York City, bound for Genoa, Italy, on 7 November, and was found abandoned some 400 miles (640 km) east of the Azores; her last log entry on November 24 gave her position as 100 miles (160 km) west of the Azores.

1918: USS Cyclops, collier, left Barbados on March 4, lost with 309 crew and passengers en route to Baltimore, Maryland.

1921: January 31, Carroll A. Deering, five-masted schooner, Captain W.B. Wormell, 11 crew, found aground and abandoned at Diamond Shoals, near Cape Hatteras, North Carolina.

1925: April 21, Raifuku Maru, a Japanese cargo ship which sank with the loss of all 38 crew, supposedly went down in the Triangle after sending out an SOS signal which allegedly read “Danger like dagger now. Come quick!”, but in reality the ship was seen to sink in a gale off Nova Scotia and the SOS message did not contain the word “dagger”.

1925: December, SS Cotopaxi, tramp steamer, Captain Meyers, went missing with crew of 32 after leaving Charleston, South Carolina for Havana, Cuba, reported caught in tropical storm.

1942: February 18, FS Surcouf, a Free French Naval Forces submarine en route for Tahiti via the Panama Canal, sank about 80 miles (130 km) north of Cristóbal, Colón, after a night-time collision with the American cargo ship Thompson Lykes.

1945: December 5, Flight 19 (5 TBF Avengers) lost with 14 airmen, and later the same day PBM Mariner BuNo 59225 lost with 13 airmen while searching for Flight 19.

1948: January 30, Avro Tudor G-AHNP Star Tiger lost with 6 crew and 25 passengers, en route from Santa Maria Airport in the Azores to Kindley Field, Bermuda.

1948: December 28, Douglas DC-3 NC16002 lost with 3 crew and 29 passengers, en route from San Juan, Puerto Rico, to Miami.

1949: January 17, Avro Tudor G-AGRE Star Ariel lost with 7 crew and 13 passengers, en route from Kindley Field, Bermuda, to Kingston Airport, Jamaica.

1963: February 3, SS Marine Sulphur Queen T-2 tanker carrying molten sulphur, lost with 39 crew near Dry Tortugas in the Straits of Florida, west of Miami.

1967: December 22, Witchcraft, cabin cruiser, 2 onboard, disappears one mile (1.6 km) off Miami; had called Coast Guard requesting a tow, but on their arrival 19 minutes later no trace found; possibly pushed north by Gulf Stream; search involved 1,200 square miles (3,100 km2).