I must say I was wrong

I must say that I went wrong, based on what I was thinking, back in 2006-07.

Following is a list where I went wrong.

1. Sub prime Loan: I thought there will be a loss of 500B in the Finance Industry due to sub-prime loan. It is clear that it is way over 4 Trillion and no one know it is done. Read Article.
   
2. Bank Failure: I thought Couple of Bank will fail like Countrywide. Fact: There are 24 banks already failed and that does not include investment bank like Lehman, Morgan Stanley, Bear Stern.
3. Housing: I though that housing will go down 20%. Fact: According to the Shiller it has gone down 24% and expected to go down upto 30%.
4. Unemployment: I thought we unemployment will hit 6%. But its looks like it might go to double digit. The companies in the bay area has not yet announce big lay off yet.
   
5. Stock Market: I thought that Dow and S&P will not go below 9000 and 900 respectively. Fact: both went down significantly below that level.
6. Bankruptcy: I thought that individual bankruptcy will be less due to the fact that congress pass tough bankruptcy law. Fact: Bankruptcy is breaking the records.
7. GM Future: I thought GM will be all right for another 5 years. Fact: If fed does not help they are on the way of Bankruptcy as early as next year.
   
8. International Market: I thought, unlike before, they are not much impacted with the US problem. Fact: International market is still has lot of dependency with United States.
9. Interest/Mortgage Rate: I thought fed has no room to go below 2%. They learn the lesson from the past. Fact: Fed Interest Rate is at 1% and expected to go even below. Also Fed is working to offer around 4.5% Mortgage Rate.
10. Recession: I thought the recession will last 6-9 months, but looks like it will continue for more than 12 months.
    

Most of the above cases are related to each other. I went wrong due to the fact that the result of panic in the market place. No one can judge the magnitude of the human sentiment and the ripple effect of it. This is not the excuses why I went wrong, when you are wrong, you are wrong, no matter what. One thing I learned out of this mess is - you cannot measure the magnitude of the problem and its effect.

Bankruptcy

I was wondering how many company will go bankrupt by 2009.

Here is the few, and no surprise to start with GM

General Motors, Chrysler, Ford, Sun Microsystem, Circuit City, Sirius/XM Satellite, Sprint PCS, Etrade, Pilgrim's pride corp, Twin River, and many more smaller companies.

The company, FYI consulting, who help other companies for bankruptcy are doing good.

Needless to say unemployment number will be in 2 digit.

Myths about Media and Marketing

Both media and marketing has one thing in common - they guide the consumer in wrong direction. And both of them are powerful.

1. Media- It is a myth that whatever comes in news it is true. Any media whether is it TV News, Radio, Newspaper, Magazine, they divert your attention the way they like. This is so powerful that Obama bought TV time to give his speech and vision. It almost like you loose the freedom. Couple of months back every media was talking about inflation, now no one is talking anymore. 30% of Texan believe that Obama is Muslim. No one know the name of the person who was involved in Oklahoma bombing but everyone knows Bin Laden. They drive us in terms of what we need to know. They like to make story of any give event - so they become popular and sell more advertisement. They will tell that Wine is healthy based on some research, but they never tell you who sponsor that research. Be very careful what your watch, read and listen.

2. Advertisement - The myth for this is - everything they ask to buy we need that. We are so much abused with the advertisement and we don't know we are abused. We are like hostage monkey who they control the way they want. They make you buy the stuff that you never need in the first place. And if you want one they will sell you two. Remember buy one get one free. For example, Nike make the advertisement like if you do not buy Nike shoes your leg will worn off. You would go to big and fancy houses and pretend this is how the average American lived. Advertisement bring the revolution in the society. I mean it change the society the way they live. It change the life style. Corporate America spends 15% of their revenue in Marketing and Advertisement.Think before taking any action based on advertisement.

We as a consumer need to be smarter than we are.

Historic Day

Today is the Historic Day for America. 50 Years back African American had a problem in getting the seat on the Bus. Today, Barack Obama, a transformational leader, got the most powerful position in the World. Clearly this event makes America proud of. We once again lead the world. The world will learn the lesson why diversity is important. This election is primarily influenced by the economic down turn and problem in the financial market. I think younger age pepople make the difference in this election. If you look at the people, they have the money in 401k, retirement, loosing the job and they want changes. This election tell us the newew generation is thinking differently. They watch politician closely, they understand, what is right. American proves that who is right person to run the country which badly need great leadership.

America Is A Land Of Opportunity And We Can Now Truly Tell Children You Can Be Anything You Want

That being said, I am proud to be American Citizen.

What changes do we need?

About $30 trillion of market value has been erased from global equities in 2008, according to data compiled by Bloomberg. Is that all because we did not regulate the mortgatge industry? In the late 19th century, we had faced problem for the rail road companies, and government stepped up and rescue them, after few years they rescued whole farming industry by grants. If any industry get bigger then open market has a significant factor on the economy and it need some level of regulation. We learn a lot for the short term, learn more for medium term and learn nothing for a long term.

There are few points I want to mention that I think does not work.

1. Rich getting richer: We moved from the economy from "opportunity for everyone" to rich getting richer. In the last few decade, huge amount of wealth is created. Usually, wealth is created by Intelligence and Hard work. It was not the case in past decade. People getting rich by housing, stock option and simply by speculation. As a result, it form a bubble of wealth, which we have seen bursted. In this down turn, the biggest loss was faced by the rich people and not the average Joe.
   
2. Deregulation: In late 20th century, governemnt implemented deregulation in various industry such as Telecom, Energy, Finance, Insurance, Airline. Telecom - Because of dereulation it gives huge opportunity to become success. Many companies has been created to take the opportunity. As a result it spurs growth. But at the end, only few big companies left AT&T, Verizon, Sprint. Similarly, in Energy, we have seen how Enron has manupilated the open market and in the same way how the crude oil has gone up. Finally Finance, investment banks has become very innovative in getting new product in the market - which no one understand the consequences. As a result, all the investment banks has gone. They have been converted to regular bank, so that it can be regulated. We know airline industry is also struggling and in merging phase. At the end you will see few companies and fewer competition and we as a consumer will have to take the hit.
   
3. Globalization: I cannot claim that Globalization does not work. But due to globalization, there is significant dependency that nobody knows the consequences of it. We have seen how the problem in Iceland, Argentina, Russia, and many more to come. Few years back when Indian PM, Manmohan Singh, interviewed on PBS. He mentioned that he does not want other country to participate and eventually manipulate in Indian Debt Market. Indian regulation such as Energy, Fianance is working very well. They regulate the Gas Price, Insurance, Banking Industries and it works. Their economy does not give much opportunity to create innormous amout of wealth that sustain longer time.
   
4. Semi-Socialism: We need to stop lobbying. We need to stop governement becoming socialist. Government is not only bailing out the company but they are now taking ownership in the equites of Finance Industry. Governement is writing big fat check to the companies like GM and Ford, who cannot compete with Japanese Car maker. Government has a strong relationship with the main street. Does this sound familer in other countries? Yes. China. When these companies were making big profits nobody bother to take big tax on them. We tend to be semi-social government. This was not capitalism, here tax payer are abused. Also we has a lot of companies has CEO also act as a Chairman of Board. How that company overlook what CEO is doing? I would never invest in company like this.
   

We have very big challenge ahead, and we need to change these policies. Leadership and Adivsors will determine the future of the country.

Healthy Living

For last few decade, when manufacturing jobs move abroad, the obesity level became high for an average American. Now our economy is only 20% manufacturing and 80% service based job. This makes us physical activity less than required. On top of that TV, Games, Internet make you sit in one place for hours and hours. Because of this - Corporate America found very good business Exercise related and Diet Food.

When I went to cruise this summer, I learn few thing in the seminar they gave. There are three things important for the good health. 1. Food, 2. Exercise and 3. Internal Health. While you see many commercials and products related to first two category but no one talk about the Internal Health.

1. Food - Food is important for your body either vegetables, meats, or water. The time, amount and what type of the food we take plays significant role. They were saying we should have more breakfast, less lunch and light dinner. I guess it change with the time. since we do lot less labor work. We should avoid the toxic substances such as Prescription/OTC medications, Alcohol, Caffeine, Tobacco, Preserved sugar, soda, frozen food etc. Preserved sugar is very dangerous and many people does not realize it. It is used in diet coke/pepsi. This toxic substances over the time raise the acid level ( called ph) in the body. When we born we have we have ph level of around 6.7. The diet coke has ph level of 1.7. When we consume this toxic substances the ph level go way below 5. Eventually, this bring lot of problem in our body including cancer. The reduce the acid level in the body, eat more alkaline food. One of the best alakline food is Sea Weed.

2. Exercise: Since we do very few physical activity, they says need to do 30-45 minutes a day for 5 days and other 2 days to recover the body. The time is also important early in the morning compare to during afternoon or late evenings.

3. Internal Health - To improve this you have to control the type of food you eat and air you breath. The liver play important part in this like - filtering the toxic sustances. It detoxifies the poisionesous chemical such as alcohol, drugs etc. It store the tonic substance such as iron reserver, vitamins, mineral, energy and control the sugar. It manufacture the blood. It deferes the germs going into the body. But, if you dring, eat too much of this, it cannot handle. The worst part is it won't warn you like heart or kideny. When you detect the problem in lever, it is too late. So Internal Health i.e. detoxification plays important role to become healthy.

The secret behind the flat tummy is not food or exercise but balanced ph level.

Talking Recession

Needles to say we are already in the recession. But there are some good part of the recession. First and foremost, it will kill inflation. We (American) spend more than we earn, consume more than required and leave way above our mean. Recession let people to look into this issue and force them to readjust. Recession will bring a best opportunity to invest in the equity market. And this recession will bring once in a life time kind of opportunity to invest. Recession will bring you the best deal that you always wanted to purchase. It bring less traffic on the road.

However, there could be lot of disadvantages - it will bring people out of job, so crime level increases. Companies will fail - every recessions, companies closes the door; especially - start ups (I mention as it is important in the valley), companies with negative cash flow, company with no cash on balance sheet, and company with huge debt. In this recession, you will not only see the bank will fail, but big company like Ford, GM and Chrysler will fail. Small business will hit the hardest in the recession. This recession is like in 90s, so most of the "Blog Reader" has not seen the effect of it. What we saw in 2001 was very tiny recession, and mainly on the corporate side which is 33% of economy. This one will be on both the side; consumer and corporate, so it will be deep and may last longer than 9 months. And this recession is global, which never happened.


Here is the excellent presentation from Venture Capitalist in the valley - Sequoia Capital. Which will tell you the picture of the coming month from the VC perspective.

http://www.slideshare.net/eldon/sequoia-capital-on-startups-and-the-economic-downturn-presentation?type=powerpoint

Recession is good for the economics, it's a normal economic cycle. The only fear with the recession is when it turns out to be the depression.

Capitulation begins

We have a bunch of idiots on the media who people love them and listen them, No.I idiot is Jim Cramer. Today, he comes out and says S-E-L-L everything you have. He told after market already been down. Few years back, I thought he was a smart guy, apparently he is totally worthless; but the tragedy is people listening him. He has a media power.

Anyway, the market is down a way down than anyone expected. And one fact is Market alway over-react whether in up trend or down trend. There is a good news and bad news, but bad news are on win as it is bear market. I am not sure if this is capitulation. The world is not going to end. I am holding tight and keep my finger cross.

TARP Bill Raise the National Debt to 11.3 Trillion

The new 700B (actually 800B) TARP passed bill will make national debt to 11.3 Trillion, this is almost double when President Bush took the office. The US Dollar will have to suffer and that will cause another longer term problem. Anyway, here is the highlight of the bill

1. The Treasury department can purchase troubled asset (CDO, MBS, CDS etc) from the Financial Institution upto 700B. 250 Billion immediately, and 100B as required and rest of them with the President advise. It expires by Dec 31, 2009 and can extend upto one year if Treasurey want to do so. They can define the terms and condition.
   
2. It is treasury responsibility to price the security based on the risk. They have to consider tax payer cost, national debt, stability of the financial market, preserving home ownership, need of financial institution and local communities; expect corruption with this line. There will be lot of regulation to avoid the conflict of interest though.
   
3. There will be Financial Stability Oversight Board to review and make recommendation. The board will have Fed Res. Chairman, Ben B, Sec. Hen P, Chairman of SEC, Director of FHA, Secretary of Housing Development. There will be also a special inspector general to supervise and coordinates audit and investigations. He has to provide the quarterly report to congress as well. There will be also a Congressional Oversight Panel, who will review the financial market, regulatory system and use the authority. They all have to cooperate with the FBI too.
   
4. Within 60 days treasury has to report to Congress what they have purchased, if it is more than 50B they have to provide detailed report. Within six month they have to report the effectiveness of this program. They have to also report the transaction within 2 days to public.
   
5. If any profit they have to pay the national debt. There will be profit for sure if it is managed properly.
   
6. Plan will try to avoid foreclosure by modifying the loan terms for the trouble and other home owners, who might consider foreclosure.
   
7. It prohibit the golden parachute for the executives who sell the trouble assets.
8. They will also study of mark to market accounting and its effect,
9. Raise the FDIC limit from 100k to 250k, until Dec 2009. Also raise the borrowing limit for the insurance.

The Question is: Will this works? If "works" means avoid recession then NO. If "works" means potential failure of other financial firms then YES. This program will be more effective if they did earlier; IMO its too late. Also to the other note it is government intervention in the open market, they are fixing the prices, as Ron Paul said. The company like GE and Goldman (both are AAA grade company) are paying 10% to their investor. How much is the cost to borrow the money for the BBB grade company? Costco is selling $100 Starbuck Giftcard for $80. How creative to raise the money? Will government come and rescue them as well? This is the problem and that will bring the economy into the recession. Furthermore small business; if mom and pop shop cannot borrow at sufficient cost, to do their business, that business is going to fail.

Full detail of House Bill here

Worst Vice-Presidential Candidate Ever

Generally I do not like to talk politics, because I hate all of them. But with the selection of our Vice President Candidate Sarah Palin, I cannot resist. We saw dollar declining, our (USA) status being strong declining, performance in sports declining (e.g. Olympic medals), Financial Power declining, Military power declining, and now leadership. I cannot stand the declining of our Leadership. Leadership is very important for the success of our country.

Looking at Sarah Palin, I would rate George W Bush better. It seems like she does not know anything except raising the kids; even their she did not do a good job, as her 17-year old daughter is pregnant. The only good part about her is her "Glasses". She is a total joke, she doesn’t answer questions. Simply because she doesn’t know the answers. Totally out of her league, she has no idea about anything at all. A disgrace to America, a disgrace to the world. The only thing she knows about the foreign policy is she can see Russia from her window. She read all the newspaper but she cannot name them. We cannot let her to be our vice president. And being Mccain very old and can get heart attack any time; she is going to be our President! I don't want to see that day. I think she is not qualified for this position. If Republican are smart enough they should pull her out as soon as possible. I think she knows it and she should step down. Being Governor of State with less than half million population does not qualify for the president.

The worst day is when McCain elected and by any chance Sarah Palin become President. I mean there is nothing worst can happen to USA than her being President.

God Bless America.

Here is the next problem

Is Money Market Fund safe? That is the big question. And no one has right answer. Login to your brokerage account and check the 7-day yield of swaping money market account . Do not surprise if it is over 4%. I am talking about CA Tax Free money market account, so taxable yield is over 6%. Any point over 3.5% is consider risky this days.

So what is going on? The bank are looking for your money - to raise the capital. So this is the way they are attracting investor. The money market fund usually buy Commerical short term papers and other short term securities. This securities are too many in the market and fewer buyer, hence its prices has gone down and yield going up. So your brokerage is passing this high yield to you. Very unusal, I have never imaging this could happen. This does not mean underlying security is very risky. If this underlying securities are risky then you will see the value of your $1 money market fund will be $0.97 or even lower after some time. People says that it never happend, but it happend last week. Since August, Wamu was offering 5% FDIC insured CD for 1 year and 4% in saving account. (It is still available Sep 24, 2008) Fed overnight rate is 2% and treasury yield is less than 1%, however they are offering 4.5%, something is cooking which is beyond our imaginations. I think they want to raise the capital. I just found the news that Wamu is taken control by FDIC through JPM or in other word 12th bank failed this year. Here is the list of all failed banks since 2000.

This high yield investmet securities will be available at lower price until the market stabilizes and find the buyer for this securities. At this point, international buyer are going away from US, we have record outflow of investment dollor in July. So here is the question again, where to put the money?

My mother used to tell me if you have money, do not put in the bank - Buy Gold.

Armageddon Has Arrived ...

Finally, Lehman will file bankruptcy, or at least it looks like this way.

Greenspan said more firms will fails, the crisis is once in a century. He should get some credit for this crisis.

AIG, the biggest insurer is in trouble, that means most of the retiree, who has annuity they are in trouble.

The rating agency in trouble, so no one know what is the value of Bond.

Merill Lynch cannot survived by its own, they are in talk to merge with Bank of America.

Wamu is next one, if need bailout it need 24B tax payer money.


So what will happen tomorrow ? a) Market will down 5%, black monday, b) Fed will reduce 1 point, c) Market will close in memory of Lehman :-


....will know more later.

Alt-A Loan problem still to come

The mess of sub-prime mortgage is almost over but there is another problem that financial companies need to worry about i.e. Alt-A loan. Alt-A (Alternate Document) loan is the loan given to the people who has good credit but does not want to show the document related to asset and income such as W2/1040/Bank Statement and so forth. Going forward, you will hear the news of Alt-A loan problem. About 3 million U.S. borrowers have Alt-A mortgages totaling $1 trillion, compared with $855 billion of subprime loans outstanding. 70% of them has exaggerated their income by 50% or more. $400 billion of that was sold in 2006. Almost 16% of Alt-A loans issued since January 2006 are at least 60 days late. Many of these loans (around $270 billion) were interest-only, and the resets were at 3- and 5-year lengths. That means starting next year we are going to see a wave of mortgages resetting to new rates hence it will increase the foreclosure rate.

Fannie own 340B, Freddie own 190B, Wachovia own 122B and Washington Mutual own 53B of Alt-A loan. If you look at their stock its already built into it. But if it go worst, this companies has no future. And due to this, housing is not near bottom, according to the Schiller. Housing went 20% down and it will down further more 10%. Housing fell 30% in great depression. This is the time nothing less than Great Depression as 164 years old company, Lehman brothers, is struggling to survive. This company survived Civil War, Panic of 1907, World Wars, Great Depression, and many deep recessions. But as of now, they are looking for buyer. You can imagine how bad it is.

There is one more problem apart from this I will cover later.

Financial Crisis Continues

While Fed Chief, Treasury Sec, and Top Management of Fennie and Freedie are working on right now for Fannie and Freddie future; lets take a look at what crisis going on. We keep reading the news about Banks has trouble raising the capital. Why this is important?

The crisis are started by leveraging the money 30 to 50 times and investing in the risky assets. This is same analogy when people sold their gold and buy stocks, back in 2000. But this time Bank and Brokerage are caught up.

Let's do some mathematics here. Usually, banks (FDIC insured) on average has about 8% of capital for their assets, and loans are 60% of assets. It means they have leverage the money approximately 12 times (60 divide by 8) . What does this leverage means? For example, if you have 100k in your bank in CD (i.e your Capital), then you (if not you than bank) can borrow and lend 1.2M (100k X 12). You have done 12 time leverage of your capital. So if you paying 2% (Current Fed Rate) for your money you borrow and charge 6% to other for the loan. The loan could be for Car, Mortgage, Home Remodel or may be to take vacations. So you can make profit of 4% (6%-2%) on 1.2M i.e 48k. You just made profit of 42k on 100k. This is 42% gross profit on your invested capital. Amazing, isn't it? This is why you see small banks are started.

Now, let's take a look at risk factor. Out of 1.2 M you lend, let says 10% if it (i.e. 120k) is bad loan. The person you lend forclose the home, or they have no money to pay for whatever the reason. So all of your profit i.e 42k gone and on top of that it dipped on your capital. So 1.2M + 42k (Profit) - 120k (loss) = 1.122 M. So you need to raise 78k. (1.2M - 1.122M) or you have to reduce your loan porfolio and have a write down the loss.

This is why you see the news about raising the capital and write down the loss. In this example above, I have just used 12 time leverage and 10% bad loan, the brokerage firm like Bear Stern made 44 times leverage. Fannie and Freddie made 50 times of leverage. Fannie and Freddie combined has a loan of 6 Trillion, half of the whole mortgage market which is 12 Trillion. Considering house price went down 20% so far; and delinquency rate is still high more than 4.5%. If you apply this number with above formula it is no brainier Fed has to bail out Fannie and Freddie. Not only that, one more top tier bank has to go out of business.

Merill Lynch are selling the asset to raise the capital and so what Fannie do, but there is not enough demand in the market to buy this assets. Couple of weeks back, Merill sold all of the mortgage portfolio for 22c for the $1 value (They sold 30.6B asset for 6.7B.), on top of that they give buyer (Loan Star) a financing of 75% of it. So basically that means they may get 5 cents for the face value of one dollar. Additionally, they will sell 8.5B in stock, so it will dilute the value of share by 38%. This is how the bad it can go, and this is the reason why Goldman rates Merill stock to Sell.

And not only US bank is on this mess, country like Singapore, Kuwait, UAE all has invested on this brokerages and banks (Merill, Morgan Stanley, Citigroup, Barclays, UBS ) as a part of raising the capital in 2007 and 2008. They are all down more than 40%. So far Banks and Brokerage Firms across the world has write down 500B, more to come.

I am not saying it is the end of the world; the market will find the solution. But there is some more short-term pain for many investors like me, and we need to be aware of the problems and see if we can avoid them for ourselves.

Update as of 9/7/2008: US Govt has undertake Fannie and Freddie under Conservatorship for indefinite time, they will get a credit line of upto 20B/month from treasury, to save 2B they are going to cut 100% dividend on Stock and Preferred Stock, but they will pay the debt, common stock will be last on the line, so it won't wipe 100%. Most of the detail can be found below:

LINKS

• Paulson Remarks on Housing GSE Actions
• FHFA Director Lockhart Remarks on Housing GSE Actions
• Fact Sheet: FHFA Conservatorship
• Fact Sheet: Treasury Preferred Stock Purchase Agreement
• Fact Sheet: Treasury MBS Purchase Program
• Fact Sheet: Treasury GSE Credit Facility

Yet another browser

We have one more browser available to consumer, most probably starting Sep 2, 2008. This one is from Internet Giant Google, the project Chrome was going on for a long time and it has several rumors in the past about it. But this time it is official.

They have introduced it with the comic book, an easily book to read by anyone. Here is the book if you want to see. Chrome has a lot of features better than Internet Explorer 8 Beta, which Microsoft is working on. I love the innovation and competition. One can expect the browser could be very fast, easy to use, easy enough for grandpa, so they click on Google Ad. One feature about privacy is "incognito window", allows user to browse but nothing in this window will be logged into the computer. This feature will help tremendously in Library and public computer.

Reading this comic book about Google Chrome make me exciting about this new browser. First, big kudos to Scott McCloud, a cartoonist, who done a fantastic job of illustrating the concepts around modern browser design and engineering.

Final verdict will be tomorrow.

My Best Vacation ever - Alaska Cruise

We went to Alaska from San Francisco through Princess Cruise on Aug 15, 2008 for 10 nights. This is the first time we took the cruise. It was one of the best vacations I have ever had. It was completely stressed free, relaxing and really enjoyed the days in cruise and Alaska. The cruise we took was Dawn Princess. It was built in 1997 with dimension of 857 X 106 feet. It has 12 decks. We were in Dolphin (Deck 8) in inside cabin. For family of four it cost around $4500, which is the best deal we got IMO. Also Outside/ocean-view cabins are not worth the extra price.

Pre-Cruise Preparation:

We book the cruise through travel agent. I spend some time on cruisecritics.com to learn more about the cruise since this is my first time. We had a list of thing to pack. We book our offshore excursion for Juneau. We choose to go Mandhell Glacier by helicopter. The cost was $250 pp. $30 cheaper than offered by the Princess. We decided Princess, because Princess has invested heavily in Alaska cruises & has good support for logistics at the ports.

Embarkment: We got a ride from one of our friend to Pier 35. We were there by 10:30 and check in. The porter were ready to pickup over baggage. The check in process was smooth. We were on the ship by the lunch time and had lunch on board. We explore the cruise and gathered all the information. Our baggage was arrived little later. The cruise was little late for Embarkment. We passed the Golden Gate Bridge around 4:45. The weather was foggy and windy.

Rooms and Facilities: The ship in general was good. The room is spacious than I thought. There was a enough space in the closet. The TV size was small and selection of the channel was horrible. No CNBC or major News channel except CNN Headlines, few movie channels and some channels for kids. On the ship, they had a decent library, computer center, four heated swimming pool, 5 hot tubs, fitness center, two theaters, casino, art gallery, shopping stores, 24 Hour Buffet, Grill, Ice Cream Center, Pizzeria, various bars and lounge to relax and couple of fine dining rooms. The internet connection was slow and expensive (75c/min). Fitness room and 24 Hour Buffet was in very good location with a view of the ocean. Theaters were nice too, they used it for the show and movie and the seats are very good. They also had a kid’s center divided by the age; one with 3-7 and other with 8-18. They have a big area on the top deck to tan your skin under the sun. They also have a Spa, nearby there was a Sauna and Steam Room. On Deck 7, they have a walking/jogging trail around the ship; three laps makes one mile. They had a night club for dance as well.

People and Program: You always get a warm welcome wherever you go. The staff was highly professional. The steward was very nice and can do whatever you ask him to do. They always want to make you happy. They have a variety of programs in various places going on. We had a five days on the sea and never felt “what do I do now?”. There is always something going on. There is free as well as paid seminar in the fitness center about your health. They have a exciting programs for the kids, one day kids has a dissection of the fish. Every night they have entertainment on Princess Theater, it could be song, dance, comedy show, bingo, magic, information, seminars, knowledge session and movie. There were two formal nights where they take the pictures; you have to buy to get it though. They have 3-4 Art Auctions where they draw for free art, and give drink and appetizer free. The entertainment show, comedy show and magic show was best, they are very talented in what they do to entertain you. Most of the staff are Canadian, Indian, Philippians and East European. I guess they pay less to them in terms of salary, so they highly rely on the tip. Princess charges the tip everyday 10.50pp/day. If you do not want that way, you can tell them and give the cash to the people who served you most. We have 75% of passengers were 60year and old. So lot of programs, food and facilities were based on that age group.

Food: In general I was not impressed with the food, but the other people was praising. The food is more American rather than continental.

They have a Japanese, Mexican, Alaskan day to make the food based on theme. Pizzeria has one of the best Pizza I had. Fin

e Dining food is same as Buffet. We use first seating most of the time. In the fine dining, they have a choice of Indian and Philippines food too. The grill was ok, they never cook on fire grill. The food is mostly pre-cooked and the cook again to server you. They do not have any spicy ingredients such as Jalapeno. We bought unlimited drink package for $90, which allow to order Beverages, Hot Coffee, Virgin Margareta, Soft Ice Cream anytime anywhere.

Shore Excursions:

Victoria – This is the thrid time I went Victoria so I was not that excited. We went to Victoria Parliament and get a free tour inside the parliament rest of the time we walk around the warf. The warf is approx 1.5 mile from the cruise terminal.They have always canoe race going on, its fun to watch those.

Ketchikan – This is the place I like the most. We took a Rain Forest Tour from local for about $25pp, kids free. The princess was charging $79 pp for the same tour. The only difference was the bus, we got school-bus and they had a hi-fi bus. But we enjoyed very well. The guide took us to the important places to see in the town. We saw Eagles, their 100 year old nest, lot of Salmons, sea lion. The Eagle is a truly represents Unites States. We had on of the best lunch there, Burger Queen, very old restaurant with fresh food. If you want to do shopping this is the town to do so.

Sitka – This is very small historic town. You do not need to take any excursion here. You can walk to the places that is interesting. We went to the Salmon Hatchery, Raptor Hatchery, and a small walk in the rain forest, it was very nice place. There was tons of salmon in the creek. We had another good lunch, Salmon Fire-Grill Sandwich.

Juneau – In the morning we went to see the Glacier through Express bus, we paid $6 pp one way. We went their saw the glacier, took lot of pictures and we saw bears. To see the bears sometimes you have to wait for 2-3 hours. We were lucky we saw two times one on the creek and second they were on the Road! In the afternoon, it was raining, so our tour to Mendenhall Glacier was cancelled. It was disappointing. There is also skyline you can go. We eat lunch on the ship and dinner in the local restaurant. The ship stops at very close by to everything. We didn’t bother to see the Governor House (Now he is contending for Vice President with McCain!). Some other folks took a tour for Whale Watching and Wildlife Quest and they saw lot of wild life.

Tracy Arm: Before the cruise I had no idea what it is. They had a information session couple of day before we go to Tracy Arm. That session excite me most. We wake up 5am in the morning to see this beautiful place and it was the absolutely blast. The captain took all the way to the North Glacier, if you see the route you would think how he is going to turn around. But he did a fantastic job handling ice-berg and cursing. We saw glacier from about 500 feet distance. This is the first time in 15 year some big ship like Dawn Princess went there; according to them. We saw both North and South Glacier. The valley was amazing, it is the most beautiful place in the earth, or at least I think that way. We went to 11^th deck to see this. This is a best place to see, not many people knew about this place. The 5 hour experience you get in Tracy Arm was mind blowing. After couple of hour, we were in the hot tub on the top deck and we saw these beautiful mountains from the hot tub. While returning from Tracy Arm, we saw lot of Whale doing their show, the one you see it in the Sea World.

Disembarkment: They give enough information about this.

They divided the people into batch, we were on the last batch, we request to go on first batch and they honor it. Since we were the first it was each to find the porter to take our baggage out.

Conclusion:

The ship ride overall was good, lot of shaking first 2-3 days. This vacation was the best one so far. If you love Mother Nature, wild life you should go to Alaska. This is the vacation to relax and enjoy. On Monday, when we back from the cruise I directly went to work and didn’t felt tired unlike other vacation. One must go before those Glaciers go away. Chao for now.

PS: More Pictures

Can you believe this?

India won Gold medal in shooting. As far as I remember this is the first one other than Hockey; which India won in Russia in 1984. When I saw the opening ceremony, I saw around 25 participant in the country of the 1B population. My hope immediately went down as usual. India needs to invest into the people and their talent. In 1984 China does not know about Olympic. And at this time they are expecting to win highest gold medals.

Go Team India.

8/11 Update.. an unbelievable competition 4X100 Relay.. Bravo Michael Phelps

http://www.nbcolympics.com/video/player.html?assetid=0811_hd_swb_hl_l0194

Do you think eating make difference in maintaing the body? Think Again.

This is the daily menu of Michael Phelps, all items every day. And still he maintain his

Breakfast: Three fried-egg sandwiches loaded with cheese, lettuce, tomatoes, fried onions and mayonnaise. Two cups of coffee. One five-egg omelet. One bowl of grits. Three slices of French toast topped with powdered sugar. Three chocolate-chip pancakes.

Lunch: One pound of enriched pasta. Two large ham and cheese sandwiches with mayo on white bread. Energy drinks packing 1,000 calories.

Dinner: One pound of pasta. An entire pizza. More energy drinks


By eating all this, he still can maintain this body.

China flex their muscles

Most of us has watched the best ever Opening Ceremony in Beijing Olympic. The Pyrotechnics was one of the best. Now I know when we do shopping, where does money really goes. I think Brits will be the only one who are sad as they have to show something better in the next Olympic.

This event does not comes free; there were lot of sacrifice or human right violation occurs . Media are not focusing on underlying facts of the events. 2 Million people became home less as they move them to capture the land to build stadiums, parks etc. All the factories and road are closed because of pollution. They said worker will be compensated but corruption is the biggest challenge to get those money. There are lot of buzz going around in China but truth will never comes out. Soon we will see independence of Taiwan will go away. Couple of US resident who display the Taiwan flag are deported immediately. Taiwan will no more independent country. Pollution is the biggest threat to all the athletes. Its amazing to know that people in Beijing do not see the blue sky. Thousands of premature babies are dieing because of this pollution.

There were lot of reason that USA should avoid the Beijing Olympic just like Russia. But politically or economically it was not feasible. And that is the problem going forward. The Opening Ceremony was important to them as they wanted to show the world what China is, they are flexing their muscles.

When dream comes true

I had a dream in my 80s to see Amitabh live performing. That dream comes true when we went to see "The Unforgettable Show" at Oakland Arena. I checked one check box from my Goal List. But this is more than check box. We saw Amitabh and all the actors with the distance of feet, which I did not expect. It was mind blowing experience. It really make diffrence what you see live and what you see on TV. Its most fun event that I remember.



When you see and know how Amitabh Bachchan keep in contact with his fans through blog, I was truely amazed. I saw his blog for this show at Oakland Arena. I express my openion in his blog, I wrote following as a comment in his blog (click the above link and see the comment#362. )


"It was my dream since 80s to see the Amitabh performing in real and that is the reason we went to the Show in Oakland Arena. Let me tell you. It was fabulous. This if the first time ever my money worth something. Absolutely amazing. Click here if anyone want to see the glymps of the show. The Amitabh Dialouge of Deewar was outstanding as usual. Abi has a lot of energy just like Amitabh had in 70s. He is stylish just like his dad. We were on the left of the stage near stage and Abi is absolutely with us in dancing he loves us. Madhuri/Preeti was great too. Its glad to see Jaya there but it would be awesome if she would in “Shaba Shaba ” dance. I think she can do that. I also like her vision on Go Green. "





Bang. Next day, he mention this comment in his blog, check this blog


http://blogs.bigadda.com/ab/2008/07/30/day-97/#more-327


and he wrote this


"Many responses talk of the emotion connected to the show, the efforts made to travel to the venue from distances not traversed normally. They talk of being moved to tears to see us in person and to be fulfilling long-standing dreams. It is to us too equally emotional. We shed tears of joy at seeing your appreciation. It may not look very evident but I can tell you that inside all of us there are similarities."


It is true pleasure to see that kind of person on stage and this is something Unforgettable.

You won sir.

Randy Pausch, the Carnegie Mellon University computer science professor whose final lecture inspired millions, has died of pancreatic cancer. Dr. Pausch, 47, who turned the lecture into a book, said that no one would have been interested in his words of wisdom were he not a man in his 40s with a terminal illness. Expect movie from Hollywood in couple of year.

http://www.chicagotribune.com/entertainment/reviews/critics/la-me-pausch26-2008jul26,0,5191339.story



"But we don't beat the Reaper by living longer. We beat the Reaper by living well," said Dr. Pausch

Check my previous post here.

Men and Women Explained

The picture pretty much explain the difference between man and woman.

1. Man is simple, woman is complex to operate.
2. Men can operate women and women can operate man.
3. Man is digital, woman is analog.
4. Men on top!
5. Men and women are different.
6. More button more fun.
7. Machine need both men and women.
   

anything else missing?

Fannie/Freddie in trouble

Bear Stern, 85 year old company, does not exists any more. Fed shovels in the hand of JP Morgan. Now it time for Fannie and Freddie going out of business or rescued by the US Government/tax payer.

Both the companies are insolvent and they badly need cash as Housing Foreclosure increases and at all time high.

If government is undertaking this company then there is no or very low value for the share holder. They already have problem raising the money. They have to give 75basis point higher than the treasury bond. They recently raise 7.5B but they probably need 29B. How the company will operate if they need such kind of money. Both company together has 6 Trillion of loan portfolio. (United States total debt is around 8 Trillion) If price goes down they have to write down significant loss. If US government does not help then they cannot buy the commercial mortgage and hence consumer will not able to get loan which further bring down the housing market.

I don't think that this companies has the future nor US Dollar. Be careful.

My Hats Off for Bill Gates!!

One of the goal of Bill Gates in his early years was to see a computer on every desk and in every home, presumably running Microsoft software. That sort of vision, put forth in a time when very few people knew about computer. But by the year 2000, just 25 years after its founding, Microsoft had achieved that improbable goal, at least in the developed world.

What would you do if you defined the most ambitious goal you could imagine, and then achieved it at age 42? And what if you had done so while still relatively young? That's the position Gates found himself in just a decade ago. Most people when they find they achieved the goal they set another and never stop. And so did Bill Gates. But wait.... different goal and in different world.

How about curing AIDS? Or ending the spread of malaria? What about improving life expectancy and quality of life for the poorest people in the world? I have to point out that sense of thinking "Okay, we won -- what next?" is extremely unusual.

And here is Bill Gates answered that question with Philanthropy. Every person in the poor world should have option to treat their disease. He is going to dedicate the rest of life in achieving this new goal.

My hats off for Bill Gates for his new impossible Goal. Goodbye and Welcome.

Here is the nice article which explains "What money can buy?

Where do you keep your money?

When the stock market, housing market, bond market, real estate market goes down. One question that everyone's mind is, what to do with the money I saved and where should I keep?

Here is the possible ways people do it with outcome:

Hard cash, stuff it under your mattress: If nobody steals it, over the long haul inflation will destroy the value of your money.

You could buy CDs or invest in a money market fund: After inflation you will do just a little better than hiding the money in your mattress.

You could buy bonds: You stay just ahead of inflation, with very little capital appreciation potential.

You could buy real estate: You subject yourself to the unpredictable situation of the real estate market and take a huge risk for a very uncertain return.

You could give it to a hedge fund operator or invest in an actively managed mutual fund:
80% chance you will lag the performance of most good passive strategies.

You could buy individual stocks: You subject yourself to uncompensated risk, which probably results in under performance.

You could attempt to time the market: You will fail like all the other poor saps that think they can do it.

You could stay the course: Eventually your perseverance will most likely be rewarded by returns that exceed those of all other commonly known investment strategies.

The problem with all the other potential strategies is that none have been demonstrated to be superior to your strategy. So, hang in there, time is on your side and you will succeed.
Also, stop listening to the market reports, they aren't providing you with any useful decision making information; they are just fueling your angst.

Merger and Acquistion

Since 2001, when Alan Greenspan lowered the interest rate, Merger & Acquisition increased significantly compared to last decade. The main reason is the borrowing cost is very low which makes Corporate America to achieve high Return on Equity. At the same time, Leverage Buyout also increased; there are many companies than before which become private by LBO. It makes sense because raising capital was very easy.

There are many reasons for a Company to go for M&A. Here are the few:

1. To increase the Revenue: When they see there is not much growth left with the existing product line, for a company, it makes sense to buy company that adds the revenue and profit to show the growth. It shows value to the investors and Wall Street.
2. To gain the competitive edge: Companies often does not have the products and services that are different than competitors. They want to distinguish from their competitors by adding more offering on the shelf.
3. To eliminate the competitors: Competitors are tough; sometimes it makes sense to buy the competitor rather than competing against them.
4. To increase the market share: Market share are very important for a company to show the credibility. They use the new customer base to up-sell and cross sells other products.
5. Market Cap and Cash on hand: Some companies have lot of cash on their balance sheet and what to show more growth. It makes sense to utilize those cash to find the companies whose market cap is lower than other company.
6. Brand: Company often lacking the brand; even though they have better products than Branded Company, it is very difficult to create the brand. So the buy the company to take that brand. Often times they have to pay the premium to do that.
7. To increase the footprint into the other market: Some company focus on a region for their products and they want to increase their footprint to other market such as other countries.
   

Oracle has acquired nearly 50 companies in last 4 years. Lately they acquired BEA System for all of the above reason. Pfizer acquired Pharmacia for adding more products. P&G got Gillette for Brand. Cisco has acquired more than 100 companies so far to show the growth. eBay acquired European company iBazar to enter in European Market. Symantec acquired Veritas to enter in corporate market. There are many more examples to list here.

Most recently, Microsoft attempted to buy Yahoo because they want their brand and nothing else. Microsoft has everything what Yahoo has to offer, but the users do not recognize Microsoft. However, the user do recognizes Microsoft in the desktop platform but not in the internet platform. So Microsoft is struggling to get into the internet platform. They realize this too late and that is the reason they have to pay the premium.

In technology sector, if company does not have new products and services that competitor has to offer or they do not increase their footprint to other market then the future of that company is not good. Many companies in the technology sector could not survive because of this.

For an investor this is something not to ignore.

Why inflation is bad?

Inflation is caused when demand increases relative to the supply of goods. In United States, Inflation is usually coming from the Geopolitics and Lower Currency (dollar).

Let's take an examplie of inflation in Oil; it usually comes through Geopolitical risks of the commodity, which control the supply. For instnace, Mr Chavez does not want to supply and tighten the grip on foreign partner, a likelyness of Israel strike on Iran. So the supply shortage from this event shrink and Saudi Arabia or Russian cannot make it up, as a result price go higher and hence inflation.

The weak dollar also contributes to the Inflation. Commodities such as Gold, Grain, goes up when dollar falls and you sill see the price increase (inflation) in related products. Why weak dollar is a sperate topic to talk later.

Both of the above examples (largely oil) will eventually make price of other goods and services higher. Oil has significant impact on Transportation (and Travel) industry, which is backbone of the American Economy. In short time you may not see the impact, but gradually you will see the prices will go up everywhere due the rise in oil price.

So why is inflation matters? Inflation has a certainly more effect on your investments. If more inflation means higher interest rate, and that make borrowing cost more, which turn less profit for company. It certainly freaks old people who are retired or near the retirement, because they have a fixed income. It will kill them.

Inflation reduces the purchasing power of money. If inflation is 4% then in 7 years the purchasing power of 100k can reduce to 81k. So if you cannot make 19k more in 7 year (after tax) then you forced to reduce your lifestyle. If the inflation rate is higher in the future, a higher investment return will be required to maintain or increase the purchasing power of a portfolio.

The only benefit with the high

er inflation is when you have larger mortgage with lower interest rate. You pay the same amount with cheaper dollar. That is the reason why you should not pay off the mortgage.

Historic Election in 21st Century

Let’s be clear: Barack Obama may indeed be different from most politicians. Not only will he be the first African-American nominee of a major U.S. political party, but also he is truly gifted with rare communications skills and charisma. Obama brought out millions of new voters — most black, white liberals and young — attracted by his persona, his calls for change and rated as the most liberal in the U.S. Senate for 2007.

I think the new voters he inspired in the primaries will go to the polls in November, and will offset any weakness among the white working class. Historically Black never come this far, but I think that history does not always predict the future. The other reason possible he could win is -- Bush’s legacy may be that he turned so many against voting Republican. I think most folks realize our county cannot handle four more years of Bush policies.

He is a unique figure in U.S. history, who–win or lose– will be a reference point for how America evolved in the early 21st century.

Speculation in the market

This is not something new, but its worth to mention.

If we go back in 2000, there was a speculation in the Stock Market, and bubble were created what we called dot com bubble. The market capital of the companies, which did not make profit was in billions. NASDAQ stock index soar from 1500 to 5000 in 2 years. When the market crashed, Fed Reserve rescued companies by cutting the borrowing cost and reduce the interest rate to 1% (retiree get hurt oouch). Now NASDAQ is half way to that top.

There was a another bubble during the same time, energy bubble, where the prices of the electric city and gas was artificially inflated by Enron. Which eventually burst.

Because the interest rate was too low in 2003-4, that enable housing boom, and house price start to soar, many houses increase its value to 70-80% in this years. Lot of speculator (Banks, Loan Agents, etc) jumped into market. Consumer use their equity as credit card and use the money to spend. Now we see the housing prices are going down as much as 30% and that created another problem called Credit Crunch in the financial industry. Many hedge fund and mortgage company are bankrupt.

In late 2006, when housing price goes down, it create another bubble. This bubble is in the commodity market.

In this bubble,
Crude oil soar from $50/barrel in Jan 2007 to now $118, whopping 150%
Wheat prices jumped 130% since March 2007.
Rice prices jumped 140% since Jan 2008
Soy prices jumped 80% since 2007.
Coal price is almost double since 2005.
Gold price rose 90% in a year.


Not to mention the speculation in the currency market, as US Dollar drop 20% in last 18 months. It never happened before.

The number one reason for each of this bubble in past decade is Speculation. The speculation is easy to implement, especially when the trading market is computerized. (Thanks to Enron who found the idea of selling the contract through electronic exchange).

Other reason is Media, they too much spread the negative news. Like house prices going down, rice price going up and so forth.

I personally believe the reason is Globalization, Open Market and De-regulated System in the United States. The country like China (Totally Regulated and Close Market) get benefit out of this.

Even though we go through this bubble and burst, the S&P 500, which is US broad based index, has return just 1% in last 10 years. So if you have put the money in S&P 500 in 1998, than you just get 1%. Check this WSJ article.

One more monster to worry about

In silicon valley, the big labor market is from the pre-IPO/Startup, that market is been HOT since M&A started back in 2002-03. VC put lots of money in the valley to find one company like Google, Youtube, Facebook, VMWare and so forth.

With the problem in the Financial Industry, it spill little bit over to the Startup in the bay area. One of the oldest startup Red Envelop shut its door today laying off all of its 200 employee according to Valleywag. Is this a beginning? Its a monster question.

If it continue like this people will forget the Financial Market in terms of how bad it was. Being said that, it make two prominent economy of US i.e Bay Area and New York, will struggle in the near future. The consequences will be much worst, as there is no remedy for this. Back in 2001 at least Fed has a room to lower tje interest rate. And now, there is not much Fed can do today.

Lets hope startup market won't fall.

Job market in 2009...may be 2019

LOL

Money can buy happiness

Well over the period, I was in debate (disagree) with the argument whether money can buy happiness, but I have to agree now. Money can buy happiness only if you spend on others. People works day and night to make money and still they are unhappy in their personal life, still they think missing something. They spend and buy lot of stuff to make them happy, but it does not somehow feel really happy so they end up spending more.

Recent research found century old belief, ( "It is more blessed to give than to receive." ) that it can buy happiness, if you spend on others or if you give away money to charity.

There is no wonder why more and more rich people give away money to charity, they realized that this is the only way to be happy, not to mention Warren Buffet. "Indeed, although real incomes have surged dramatically in recent decades, happiness levels have remained largely flat within developed countries across time," they wrote. That mean, if you go from low income to medium you certainly feel happy, but after certain stage it does not.

In our Indian culture, there is saying that its better to have "prasaana" rather than "khush". "Khush" is temporary while "prasaana" is eternal. There was one classic example one of our saint told during Diwali. If you use the firework for yourself, it gives you happiness, but its temporary However if you give fireworks to others who need, it feel you eternal happiness which is called "prasaana".

Meet our future president and his vision

Speech is truly intelligent and inspiring. I can't wait to vote him.

Price of Freedom

Do you wonder why United States is not interested in Tibet Freedom?
Oil? No.
Uranium? Nope.
Any other economically feasible natural resources? Nada.
Significant potential trading/economic partner with the U.S.? Never

How Bear Sterns fails?

If someone don't know how the financial compaines are facing the credit crunch, here is I am trying to explain what happens.

In 2003, when household person went to refinance their loan to Loan Broker.

Household: Hi Mr Broker, I want to refinance house, because the rate is very low, I will save lot of money in my Mortgage. (Household spend the money and economy went up, Thanks to Mr. Greenspan)

Broker: Sure thats way to go. But, hey do you want to buy another house for investment, since the rate is low, and when you rent it you will have positive cash flow.

Household: But I don't have down payment or monthly income that I can get loan

Broker: You don't worry about it, we will manage it. Congratulation, you are just qualified for $400k loan.

Now he goes to real estate agent to buy $350k house

Household: I want to buy this house, I have my loan approved.

Real Estate Agent: Sure, but you have to bid 50k higher, as there are many interest in this property.

Household: No problem, my loan is approved for $400k, here is my offer for $400k.

Real Estate Agent: Congratulation, you got the house.
Broker: Congratulation, you got the loan, with 0% down, and 1% loan for 2 year, and it is interest only, the payment is less than the rent you get, so you get a really good deal.

In 2004...

Household: Wow, my house has gone up to $500k, I have a profit of $100k, with no money to invest, this is GOLD

Next time broker call for Equity Line of Credit

Mr Broker: Hey bro, do you want to take equity from the home? You have 100k in there that you can use either to buy home or spend for vacation. Its like an ATM card, where you can get the money when you want.

Household: Can I do that?

Broker: Sure, here it is, spend any way you like.

I guess lot of people did this way...year goes by.

Now lets see what happend on the back side, where consumer has no idea what's going on.

In 2005...

Brokerage Firm: In there team meeting they tell the Business Situation. We have $xxx Billion of open order to buy AAA securities, don't we have anything to fill this order? Also we have lot of MBS that we just finance. Guys lets work on it. They decided to work on this and come up with, new financial instrument, called CDO, Corporate Debt Obligation. The biggest scam of the century. Its a structured investment instrument, which is 80% backed by Mortgage (so called subprime mortgage) and 20% is the tranches, which makes its rating AAA by major credit agency such as Moody's and S&P. To understand this tranches you have to read 80,000 pages of document. I never understood what it is. They start filling the order from the banks, so here is what happend:

Mr Hedge Fund Manager: I have a fund, if you invest it gives you 8% return and it is AAA, fantastic deal.

Mr. Bank : Wow, that's cool. I am very must interested in it. How do you do that? I want $100 securities, so I will get $8. How about If I want to buy more.

Mr Fund Manager: Sure, give me more money, I have to buy more CDO, that will give this return. Basically its a Mortgage backed bond.

Mr. Bank: Sure, I want to lend you money, you just pay me 6% of that money and you keep 2%, how about If I lend you $3000?

Mr.Fund Manager: Wow, so for $3100, I get $248, and if I pay you interest i.e 180, I keep $68 on my original $100 investment. i.e. 68% return, my customer will be very happy with this return. Lets do it.

Times goes by...2006... the house price fall because mortgage rate reset after 1 or 2 year and the new payment household cannot afford. Still get money so its worth to sell, so lot of inventory and price fall further more. Economy 101, supply and demand.

So, In 2007 this is what it happen.....

Banker: Hey Mr Hedge Fund Manager, remember I lend you money $3000 at 6% ? I still have a promissory note. Can I get $1000 back as we think that most of the mortgage that CDO has will go bad.

Hedge Fund Manager: Dude! The price of CDO is already down 5%, If I sell bond to get you $1000 then I would get $50 loss (1000*.05) . So for $100 of my original investment I h ave $50 loss, which 50% lost on investment. And, I have to mark to market and need to report to my investor.

Banker: Well, we really need our money back, at the value of the underlying document is not worth that much.

Hedge Fund Manger: Damn! Everybody else doing just like you. If I keep selling this bond, the price of the bond will go 20% down. Which mean I have to take $200 loss, and I just invested $100. That means now only I wiped out but you also loose $100. And if you want all your money back then you will lost $600 of your $3000 investment too.

So banks has taken the hit and write off in the next earning.

Below is the description of the character described above:

Household: Person living somewhere in Atlanta and has job in Mcdonald. Many of them are in forclusure. I personally was one of them back in 1997, back then I didn't have any credit, nor much down payment and they got me house.

Real estate Broker: Toll Brothers, Lennars, Pulte, Dean Horton etc.. They all struggling to sell the houses.

Loan Broker: Countrywide, Washington Mutual, Fremont Bank etc, atleast 90 of them went bankrupt already. Many of them wind up with real estate so call REO.

Hedge Fund Manager: Carley Group Fund, Bear Sterns, Lehman, some I don't remember, and more are coming. Some of them are bankrupt already, and some in severe trouble.

Bankers: Citigroup, all major banks, international bank from Europe, China, India, Japan, and so forth. Most of them are expected to write off.

They borrowed 2.5Trillion loan in last 3 years, if you count the value of the underlying security lost by 20%, then there is $500B loss some or all combined has to take. So far, they have declared $185B, so $315B loss still to go....

US Treasury is not safest investment in the world anymore.

Over the decades, US Treasury Bond is the most safest investment in the world by far. And that is the reason Japan and China hold 50% together of our debt.

For a two days in the last week, the Treasury Bond is loosing the ground against the German Bond. This was due to the fact that Fed Reserver Bank has announced that they will pump up $200B dollar US Treasury into the system in exchange of MBS based security and for 28 days. Wow. Fed never took this debt obligation before and not for that many days.

This means that Fed want to bail out some few wall street company such as Bear Sterns which is going to bankrupt anyway.

With this news, Dollar and Treasury both lowered. Some people are speculating that US Debt obligation are too much now, (approx $9 Trillion), that US may not able to pay off and may default on it. So China and Japan should worry about it!!! LOL

There was Tech Bubble and it burst , and lot of company went bankrupt and people lost job and money, Silicon Valley was mainly affected, and now we are facing Credit Bubble or Credit Crunch, where lot of company like Countrywide, Bear Stern, and not to mention this hedge fund will go bankrupt, unless someone rescued them, and New York is facing similar problem. First time ever I saw that rich people are feeling the bleeding.

Billionaire : Transfer of the wealth.

Over the past decade, Bill Gates was #1 richest man. Not any more! Its Warren Buffet. Next year will certainly other, as Warren donated the money to Charity.

People and Company were dominated by US in the past. Due to globalization, transfer of wealth occured across the country. China has more wealthier company than any other country in top 10. US is still dominated by Billionaires, out of 1145 Billionaires, 456 is in US. First time there are more than 1000 are Billionaires. Approx 70% of Billionaires came from US, India, China and Russia. So this countries will be certainly financial power in the world. Interestingly, 4 out of top 10 Billionaires are Indians, taking 4,5,6 and 8 spot, namely Laxshmi Mittal, Mukesh Ambani, Anil Ambani and KP Singh (Real estate king). If you consider family, Ambani Family is the richest in the world.

What a few years make a diffence!!

How to live your life?

This post is inspiration from the last lecture of Prof. Randy Pausch. He recorded this session because it was his last lecture of life and he want his kids to see this lecture, if you have not listen to him here it is:

10 min version

Full version.

Here is the main points of this lecture, some of the philosophy is same as Swami Vivekanand's, but to listen from the person who knew, he is going to die, that's make it different.

1. Its ok to dream, let your child dream what they want to be or to do. Never loose the spirit. Vivekanand also said Set the goal, and do not sleep until you reach it.
2. Its ok if someone tell you that you are not doing good, that means the person care about you. If you do a bad job and nobody point out then it means they given out of you, but if they do it, means they care you better.
3. While archiving your goal there could be a lot of rejection. Rejection is good. The brick wall that you see on your way is for reason. They are not to keep us out, they are there to give us a way to show how much we wanted. So they are there to find how badly we wanted. This illustrate the same philosophy of Swami Vivekanand. Here is the small illustration that I remeber for a long time now. One day he went to his Guru (Ramkrishna Parmanhans) and said there is no God in the real world. His Guru, take him to the Ganga River, and then told him to jump on the river. He does not know how to swim. He jumped on the River, Guru also jumped. Then his Guru keep pushing him down, so he won't come out of water. After some time he pulled him out. Then his Guru said to him, Listen if you want to achieve the God, you have to do the same effort that you did when you were in the water to come out.
   
4. Have a fun all the time. Mother are the people who loves you when you pull her hair. Its important for a kids to have a good parent. Let kid do whatever they want. It could be anything. The creativity of kids is more important than any other thing. Never underestimate the result of fun.
   
5. Don't let other to felt bad or guilty, just because you don't like it. He gave a very good example of kids throw out when they were sick, in his new car.
   
6. If you want to achieve your dream, and live with integrity then always tell the truth. Secondly, always apologize. Apology has three part: Sorry, its my fault and how do I make it better. Most of the people forget the last part in the apology.
   
7. Another point is my favorite, No body is evil, its your thought that makes other Good or Evil. Give some time on the people you don't like, do not give up, they will show you their good side. This always works.
8. Do not complain or whine, because simply it does not solve the problem. Just work harder. If you complain it, then it divert your force away from your work, which makes you fail. So do not spend time in complaining.
   
9. If you live properly, as mention above, then the dream will come to you.

Click here to see latest on his health.

God bless him.

Few reasons housing will go down further.

Here is my research, why housing will have a trouble ahead.

1. High Inflation, risk of rate up is higher, so mortgage rate will remain higher for now. 30 Year Fixed loan is already high since Oct 2007. This is all with anticipation of Fed will reduce the interest rate by 750 basis point. So how much lower it can go?
2. Appraisals : Now lender is using their own apprizer, its funny they did not realize that, mortgage broker who are looking for their commission used their own appraisers to inflate the prices, to take new loan or take money out of house. Fannie Mae also will not buy the loand until they have their own appraisals apprise the value of underlying securities. More detail news here.
   
3. Tight Credit, LTV 75% : Most of the big bank like Wells Fargo (here is the news), already annouce to consider LTV to be 75%, so to get a better rate, one need to put 25% down. Same thing for refinancing, lot of homeowner would not able to refinance, even though the rate become lower.
4. There is a huge inventory, approx 10 month of supply, this will nothing but bring the price down. Mortgage delinquencies rate is going up, which bring more houses on the market. Today in WSJ, there was an article that people who afford to pay the mortgage they are walking out of the house, because the equity in the house is negative.
5. Job market is starting to get weak: First time claim is high since Iraq war. Consumer Confidence is down, lowest since 1992. The main reason for consumer confidence down was that people on the survey says that "its hard to find the job". IMO consumer confidence is forward looking econmomic number. And lastly, almost everyday I saw the news of layoff.

Needless to say the Credit Cruch is not over, CDO market is shaky and no one with confidence says that we see some good sign. This year we will see more and more Hedge fund will go bankrupt. This will wide spread the problem in the Financial and Real Estate Market.

Update 3/3/08 : Lender now required FICO 680 up from 660

Update 3/4/08 : Federal Reserve Chairman Ben Bernanke warned on Tuesday that mortgage delinquencies and foreclosures are likely to rise, with more declines in house prices

Visa : A must own stock in your porfolio

Visa, a Credit Card Company, going to public next month, March 19, 2008. This company is formed by the several bank, so many banks own the stock of Visa. Unlike Amex and Discover Card, it does not provide the Credit Card, it just provide the network to verify the card and for that they charge small fees. Its main competitor is MasterCard, which went Public last year.

Here is some analysis I have made:

They have 967 Outstanding Shares, out of which they are going public with 406M Class A share.
The offering price is between $37 and $42. So they are collecting around $17B from the public and insitutional investor; which makes the biggest IPO in the history of United States and Second in the World. They will use some fund to pay of the Lawsuit. JP Morgan, BofA, Goldman Sachs, Citigroup and Merill Lynch are the underwriter.

Last year, they have Revenue of 5.2B and lost 861M . Last Qtr they have 1.5B Revenue and made 424M in Profit. Their Revenue grew by 100% and Profit grew by 76%. This is just like when Google went public. They are planning to pay dividend of 42c/Share.

IMO, it is a must own stock for a very long time.