Vol 3 - Issue 11 | February 2010 | Rs.3.
50
Across the developed world, all markets
(except gold) have been dominated by
government and central bank measures for
more than two years now. Even bond markets
have been weighed by these two principal
drivers. This is important because the charts
for key bond indices now show a life of two
parts.
Pre-Sep 2007, the charts exhibit private and
market determined trends. In the aftermath of
the crisis officially unfolding in August 2007,
the charts developed a different life in which
the influence of government and central bank
had increased in a pronounced manner to
temporarily trample risk.
As a result, the signalling effects are
completely different now. We may be
effectively looking at apples and oranges.
This attribute of government and central bank
support is also true to an extent for
economies in the emerging world and their
equity markets; their economies have
responded by showing robust growth, which
is likely to be of a sustainable nature. The
policy measures have not gone to a stage
where they have taken signalling effects out
and this is a notable credit in the present
context of the global economic trends.
In contrast, economies in the developed
world have just about managed to avert the
downward trend with all the support.
Whatever nominal growth has been reported
is almost entirely driven by the effects of
government stimulus and favourable central
bank policy. This is, therefore, not of a
sustainable nature unless governments go far
in stretching support for extended periods.
There is not much headroom for additional
support, especially in terms of monetary
policy too, except to keep rates low for
extended periods, which the Federal Reserve
has clearly stated is its intent. It is in this
backdrop that we need to examine the
effects of life beyond government support in
different parts of the world.
When there is talk of focussing on deficit
Sundaram BNP
Sundaram BNPParibas Asset Asset
Paribas Management: Investment Manager for Sundaram BNP Paribas Mutual Fund / Portfolio Management Services: Sundaram BNP Paribas Portfolio Managers
Management
‘Lost decades’ for developed nations, but...
reduction and interest rates starting to rise in
the developed world, one cannot help think
this may just be talk and governments and
centrals banks will not walk the talk. At best,
what may happen is a winding down of a few
of the extraordinary measures by central
banks.
Not much more is likely to be done for the
fear of avoiding deflation will dominate policy.
Just take the example of Japan, which is now
its third decade of fighting the after-effects of
a bubble in the late 1980s. Its nominal GDP is
still close to levels that prevailed at the peak,
its equity markets are about 25% of the peak
level.
Just in the past three months, we have
witnessed two waves of political pressure on
the Japanese central bank to fight deflation as
well as more stimulus by the government.
These measures by the Japanese government
and the central bank there have such a
familiar ring, and one cannot help wonder if
the effects will also be as disappointing as in
the past. It is likely they will be.
This is a world into which much of the
developed world has stepped into. The Dow
is threatening to cross 10,000 on the
downside – 10000 was a level first reached in
1999. So the U.S has already had its first lost
decade. Story Japan is playing out in full force.
Investors in India cannot be blind to this
trend of Japan-like situation taking deeper
roots in more parts of the world.This will not
hamper economic growth by much in
countries such as India, which have domestic
triggers and Brazil, which has strengths in
resources and a macro-economy that is in
good shape.Trends in the past decade are a
good pointer.
Indeed, even as the developed world spent
the first lost decade and Japan its second,
India and other emerging markets had robust
growth rates and equity markets that
delivered double-digit returns over the past
decade; the notable exception was China,
which trailed most of its peers on equity
returns despite reported GDP growth of
about 10%.
Check out tables between pages 22 and 26
for a clear idea of how developed and
emerging markets have panned out in the
past ten years.
What the subdued trends in the developed
world will, however, do is to contribute to
bouts of high volatility in equity markets. We
have a Japan-like situation developed in
economies that are collectively significantly
larger in size (for just the U.S, you can apply
a multiple of 3.5 times and if you add Europe,
you almost double that number).
These are all economies from where
funds have sought out emerging markets
in the past. This trend of flows to
emerging markets may not get
hampered (at least as long as China
keeps humming). The ebb and flow in
the flows will, however, lead to volatility
and corrective phases. Investors in equity
in India must be prepared for such
phases.
In the developed world, it made sense to
stay out of equity in the past decade
(and in Japan, for the past two decades).
This is one reason why gold has been a
favoured asset class.
Even allowing for volatility and corrective
phases linked to global trends, such an
approach may not be appropriate in
emerging markets, including India.
What will be important is for a longer-
term approach to equity than what
investors have gotten used to in the past
decade.
Also important will be the ability to
‘invest when times are bad and harvest
when times are good’ as suggested by
our Head of Equity in a Q & A on
lessons from the meltdown and
recovery of 2008 & 2009.
To be informed is important in such an
environment and to help this process,
The Wise Investor will continue to
provide a range of views from in-house
and independent experts.
The focus of The Wise Investor will not
be to provide only content that is dumb-
down in nature, which we believe will be
an insult to our readers and also useless
in investing for the long term in a
meaningful manner. In this respect, The
Wise Investor will seek to avoid the
beaten track.
T.P.Raman
Managing Director
Sundaram BNP Paribas Asset Management
 Chart of the Month
The Herengracht Index: Four Centuries of Location Value in most cases, at least over the long run.
We have been unable to change the notation in the graph to English, but the message Virtually all of the net growth in real location value on the Herengracht over the
is loud & clear. 346-year period can be attributed to a couple of decades in the 17th century and
a couple of decades in the latter half of the 20th century, both of which were rather
The Herengracht Index shows the CPI-deflated value of housing along a wealthy exceptional periods in history.
canal in Amsterdam.Take note of the spurt in the last ten years, which has left the
index at a record level for 400 years despite the decline in 1980s.This is considered In the former period the Herengracht was at the periphery of the expanding
to be longest available time series of price information for real estate anywhere in residential area of the city. In the latter period the Herengracht was at the
the world. periphery of the expanding commercial core of the city. In both cases a conversion
Amsterdam is in some respects a useful "laboratory" for this type of analysis. in the highest and best use of the land (from agricultural to urban residential, and
Holland is the densest and most intensively farmed country in the Western World. then from residential to commercial) underpinned the jump in real location value.
This, and the country's age-old struggle against flood, may account for the This index shows how important the starting date can be in working out whether
Netherlands having some of the earliest and strictest land use planning and housing is “expensive” or “cheap” at any point in time.
controls in the world. Source: Four Centuries of Location Value: Implications for Real Estate Capital Gain
The 0.56 percent average annual real growth rate in the Herengracht's location in Central Places by Piet M.A. Eichholtz & David M. Geltner
value over the 346-year history presented here may be viewed as rather low. It (http://web.mit.edu/cre/research/papers/wp86eichholtz.pdf) and Steve Keen’s
suggests that real capital gains for unlevered real estate investments will be negative DebtWatch (http://www.debtdeflation.com/blogs/)
Value of housing, over 400 years, along a wealthy canal in Amsterdam

http://www.huizenmarkt-zeepbel.nl/images/huizenprijzen_300jaar.jpg
Global Market Snapshot
Market Cap of Global Markets - A comparision in 2007 (close to peak), 2008 (close to bottom) & the present

Market Cap ( $ Billion) Share in World Marke Cap (%) Returns (%) Distance
Region/Country from Peak
End Jan 2009 2008 2007 End Jan 2009 2008 2007 2010 2009 2008
TYD (%)

World 47830 49722 31901 60880 100.0 100.0 100.0 100.0 -3.8 55.9 -47.6 -21.4
United States 13135 13748 10455 17660 27.5 27.7 32.8 29.0 -4.5 31.5 -40.8 -25.6
Canada 1517 1609 992 1749 3.2 3.2 3.1 2.9 -5.7 62.2 -43.3 -13.3
Brazil 1242 1326 565 1273 2.6 2.7 1.8 2.1 -6.3 134.7 -55.6 -2.4
Mexico 347 363 247 398 0.7 0.7 0.8 0.7 -4.3 46.8 -37.9 -12.8
Chile 232 229 130 208 0.5 0.5 0.4 0.3 1.4 76.0 -37.5 11.5
United Kingdom 2850 2975 1981 4051 6.0 6.0 6.2 6.7 -4.2 50.2 -51.1 -29.6
France 1774 1900 1480 2736 3.7 3.8 4.6 4.5 -6.6 28.4 -45.9 -35.2
Germany 1270 1371 1075 2208 2.7 2.8 3.4 3.6 -7.4 27.5 -51.3 -42.5
Switzerland 1041 1076 848 1217 2.2 2.2 2.7 2.0 -3.2 26.8 -30.3 -14.5
Japan 3558 3488 3268 4545 7.4 7.0 10.2 7.5 2.0 6.7 -28.1 -21.7
Honk Kong 2148 2268 1312 2655 4.5 4.6 4.1 4.4 -5.3 72.9 -50.6 -19.1
India 1280 1294 640 1813 2.7 2.6 2.0 3.0 -1.1 102.3 -64.7 -29.4
Australia 1162 1253 652 1415 2.4 2.5 2.0 2.3 -7.2 92.1 -53.9 -17.9
China + Others 16274 16823 8256 18952 34.0 33.8 25.9 31.1 -3.3 103.8 -56.4 -14.1
Data Source: Bloomberg;The last available figures for each year have been taken; Analysis: Sundaram BNP Paribas Asset Management
End December 2007 figures have been reckoned as the peak as different countries reached the point on different dates
Sundaram BNP Paribas Asset Management 2 The Wise Investor February 2010

Looking ahead by looking back on 2008 & 2009
Satish Ramanathan
Head-Equity
Sundaram BNP Paribas Asset Management
2008 and 2009 have been tumultuous in different respects.We present a Q
& A with Satish Ramanathan, Head – Equity on the import of these two
years from the perspective of economy, markets and investors.
What have been the most important takeaways as a long-only fund manager
from the tumult of 2008 & 2009?
As a long-only fund manager, focussed on medium to the short-end of the
cycle, we are prone to the market cycles as much as the average market
participant. The main lesson out of this outcome was to believe in
valuations and the franchise value of companies rather than get confused by
the overall macro situation.
Another important lesson from this tumultuous period has been to ration
money and allocate it to higher conviction bets rather than hold a small
amount in a larger number of stocks. This affords us the comfort to buy
stocks that have come down due to short-term panic.
We also learned that market moves may be irrational in the short term
guided by selling pressure or buying moves, but longer-term price
movements are almost always guided by earnings.
What are the implications of taking sizeable cash calls in a mutual fund type
environment (even in a year such as 2008 when it was the right thing to do)?
Does the present regulatory structure hinder in this respect?
Taking cash calls are also aggressive decisions, but it limits downside risks and
often comes at a cost of risking complete participation in any sharp up
moves. We generally take cash calls when the environment is extremely
unpredictable and investors’ interests are better protected with cash in the
portfolio.
The current regulatory environment does allow high cash calls on a regular
basis and we believe this is adequate to buffer investors from extreme
shocks.
What has been most challenging aspect in the past two contrasting years?
The most challenging aspect has been how fragile markets are and that
most of them have been on trust. When comparisons to the Great
Sundaram BNP Paribas Asset Management
India View Equity
Depression were drawn, indeed many experts and others clouded our
thought process.
We began to view the Great Depression as the Great Regression, where all
of us would move back in living standards considerably. Once that thought
process sets in, then all fundamentals that markets rest on can be challenged.
For instance – Will people have jobs in the first place to buy the goods and
services that companies provide, if so at what price will they buy? We need
to settle down more before we can think of the next sustainable rise in
markets.
So we had to cope with the “reflexivity” of markets and ability of markets
to over react on both sides and our ability to cope with them.
During the last quarter of 2008, anything that we sold was a wise decision,
and in the first quarter of 2009, anything that we bought was a wise decision.
We had to be extremely nimble to survive this volatility.
What are your thoughts on the breadth and depth in the Indian equity market
after the meltdown and recovery?
Indian markets are still emerging in depth and volatility. I would like to
highlight that perhaps markets are mature, but its participants are not!
When all the investors decide to dump Indian equities, no market can
provide a simultaneous exit at a uniform price.
Take the instance of Satyam Computers, when it reached a low of Rs6.30
and when almost all investors wanted to exit! There are also regulatory
aspects, which need to ensure that large trades are confidential and do not
impact the market.
How does the experience of the past two years compare with the tech boom
& bust of 1999-2000? What are the key differences? Have we learnt anything?
While there are many differences between the tech bubble and the 2008 &
Q1 2009 market fall, the similarities are what we need to be aware of.
Extreme confidence on the future was something that did markets in on
both events, and also complete disregard for valuations fuelled by an
extremely high liquidity environment. These symptoms are what we need
to watch.
The confidence in real estate prices in India is what worries me now. Prices
of a few of the high -end apartments in Mumbai and Delhi are now
comparable to London and New York, without the matching (or even
adequate) infrastructure in these cities.
Let us look ahead.What would be the events that would most positively surprise
you through 2010 & 2011?
The key developments that may spring a positive surprise are:
• A good monsoon and improved crop output can keep the consumption
story ticking albeit at a more modest pace. A lot of industrial goods
such as cement and steel are also consumed on a diverse basis including
rural consumption. Hence an improvement in agriculture will keep
consumption ticking.
• A sharp improvement in global economic conditions on back of
demand coming back from consumers could surprise markets, which is
currently factoring a flat recovery in 2011. This could provide a
recovery for Indian IT and other exports, creating employment in India
• Infrastructure growth could be ahead of expectations and this can
create its own virtuous cycle
3 The Wise Investor February 2010
Let us look ahead a bit more. What would be the events that would most
negatively surprise you through 2010 & 2011?
We have an extremely difficult situation that we need to navigate carefully.
What are the issues we need to be concerned about (these would not be
negative surprises but issues that could have a negative impact):
• Personal consumption growth has been very strong on the back of
higher agriculture product prices and benefits of the sixth pay
commission, which resulted in a lot of money in the hands of people
bidding up property prices again. With India’s high fiscal deficit, we may
need to increase taxes or scale back subsidies, which could impact
consumption. More importantly, markets have built secular growth into
consumer stocks when actually there could be a decline in growth rates.
• Another area of concern is the durability of the recovery process.
Globally all governments have infused significant funds across the
banking system, or have given its citizens incentives to consume more,
leaving all government budgets with a large hole. We think governments
across the world will begin the process of repair of their balance sheets,
which could result in some higher taxes or lower subsidies. This could
result in a slower recovery/ growth in 2011.
• China has been a black box for many people and we think that should
there be a sharp slowdown there and deflationary fears could reassert
themselves again
• Much of the stability in commodity prices, despite lower consumption
has been on account of higher investments into commodities as an
inflation hedge. With recent initiatives to reduce proprietary trading, we
think infusion of leveraged capital into commodities could decline. This
along with a sharp slowdown in China could potentially get us back into
extremely volatile commodity prices and take us back to a 2008
environment.
• We are also concerned about the fact that this slowdown has not been
Darwinian. Capacity abounds and utilisation is low; yet inflationary
pressures loom on account of easy liquidity. This anomaly has to be
resolved, before one can take a directional call.
• Another poor monsoon could damage consumption and government
finances. As of now markets are assuming a low probability of this event.
We have to build in some safety in our portfolios for this event taking
place as well.
Much of the focus is on India and China. What are the major positives and
negatives for the two emerging economies?
India and China have become the large engines of incremental growth
globally. The fear is, however, that should China slowdown then growth
across the world could be challenged. China’s consumption is increasing but
may not be adequate to stem the decline in exports and infra spend.
India’s consumption story could be delayed on weak monsoons or our
infrastructure build could be delayed due to government indecision.
India and China will have large domestic demand stories emerging
regardless of the global environment, and we have to be alert to capture
them. These could be multi-year themes such as telecom or two wheelers.
The advantage of investing in these themes is their intrinsic defensive cash
flows and limited infusion of external capital and higher return on equity.
What should be the key takeaways for investors from a period such as 2007-
2009?
Invest when times are bad and harvest when times are good.
As investors, it appears increasingly tough in the fixed-income space, though
rates are not as low in India as in the developed world. EPF, PPF, Small Savings
& FDs appear the most appropriate options. How are you handling this aspect
of investing when you invest for different time periods?
Investors have to maintain a judicious mix of liquidity, growth and risk before
investing. Fixed income options such as PPF and small savings are definitely
very safe but not liquid. Equities are volatile but are a good growth option.
Investors will need to diversify and maintain a balanced approach to their
savings.
Sundaram BNP Paribas Asset Management
Snippet
Jeremy Grantham - 15 Lessons
In his latest quarterly report, Jeremy Grantham of GMO has provided a
snapshot of lessons learnt in The Decade, Just Past.
• The Fed wields even more financial influence than we thought.
• Low rates have a more powerful effect on driving financial assets than on
driving the economy.
• The Fed is capable of being extremely out of touch with the real world –
“what housing bubble?” – plus more doctrinaire – “no, the low rates had
no effect on housing” – than anyone could have imagined.
• Congress is nearly dysfunctional, primarily controlled by large corporations,
and hamstrung by the supermajority now routinely required in the Senate.
• Government administrations can be incompetent for long periods.
• Poor leadership can really damage a country’s hard-won reputation in a
mere 10 years.
• Obama is not a miracle worker!
• The leadership of major corporations can be very lacking in insight and
competence on a fairly routine basis.
• The two time-tested investment tools, value (P/E ratios and P/B ratios) and
price momentum, are now much more heavily used and not so reliable as
they once were, say from 1977 to 1997.
• Asset classes really are more inefficiently priced than individual stocks on
average, and therefore offer greater opportunities for adding value and
reducing risk.
• Developed countries, including the U.S., are past their prime compared
with developing countries: it is indeed a new world order.
• Education and training are the keys to increasing wealth on a sustainable
basis and the U.S. is in danger of losing its once large edge here.
• We all live on an island, which can be overexploited and turned into a
barren Easter Island if we are not careful. Resources are finite and
biodiversity is fragile, and both must be protected. Carbon emissions are
the single greatest threat.
• Being a global policeman is expensive, and somewhere between difficult
and impossible.
• The Fed learns no lessons!
Source: www.gmo.com
The outside view
The infrastructure sector, and in particular the progress made on power and
roads, will be the key variable for the Indian economy during the five-year term
of the recently re-elected Congress-led government. The importance of
infrastructure can already be seen in the behaviour of the banking system in
terms of the far greater pick up in lending to infrastructure than to the
consumer. This is not to say the consumer story is over. It is just not at the
forefront since banks have backed off in the past two years from previously
“hot” areas, such as unsecured consumer financing. Still the long-term
consumption story remains healthy, demonstrated by the remarkable
consistency of HDFC’s performance.
Christopher Wood, Managing Director & Strategist of CLSA Asia-
Pacific, an independent research outfit and author of the weekly
report GREED & Fear.
China gets all the play, But …It’s really India that has the long-term
demographic advantage. This is true in terms of future population trends, as
well as the fact that India also has twice as many people that can be classified
as ‘middle class’ at 300 million strong. Income fundamentals are also far
stronger. Still, China grabs all the headlines, and now it’s all about how last
year’s massive fiscal and credit stimulus has probably worked too well for its
own good.The dark side of the country’s resounding 10.7% GDP growth rate
is that inflation is percolating across a broad front.
David Rosenberg, Chief Economist of Gluskin Sheff & Associates,
a wealth management firm in Canada.
4 The Wise Investor February 2010

CRR hike in homestretch to rate hikes
K Ramkumar
Head – Fixed Income
Sundaram BNP Paribas Asset Management
The Reserve Bank of India announced the Third Quarter
Review of the Annual Policy Statement for fiscal year 2009-10
on January 29, 2010.The key measures and numbers from the
RBI Statement are presented in the accompanying panel.
Comment: The quantum of hike in the Cash Reserve Ration
(CRR) is higher than what was expected by the market. This
was perhaps attributable to the need to cover ground due to
a delayed action. Lower bank credit growth has also created
more surplus in the banking system. Thus the idea behind
hiking only CRR and not the reverse repo or the repo rates is
to suck out the surplus liquidity so as to make any future rate
hikes meaningful.
Given that the markets are still in reveres repo mode, a change
in the repo and reverse repo rates would have been
ineffective. Moreover RBI has stated the transmission of earlier
cuts to lower lending rates is still ‘in progress’.
The long term G-Sec yields were neutral to the policy initially.
There was negative reaction later in the day, due to fear of
higher anticipated borrowings in the current year, following
the cancellation of telecom 3G auctions, which were expected
to yield about Rs 25,000 crore..
Corporate bond yields moved up by 5-10 basis points (a basis
point is 0.01%) across all segments between three and ten
years. The less-than-one-year segment is likely to see yield
hardening by about 15-25 basis points over the next one
month or so.
Predictably enough, the RBI sounds unnerved on inflation,
especially in the light of the observed upward trend in global
commodity prices.The year-end estimate has been revised up,
but may also be overshot marginally.
Growth, according to the RBI, is still propped by the stimulus
measures, and therefore, worries on the same have not
disappeared in the central bank’s view. On the other hand, the
central bank pencils in 7.5% growth in FY2010, based on flat
agriculture growth, both of which could be considered
optimistic.
Another looming uncertainty is that of the quantum of
Sundaram BNP Paribas Asset Management
IndiaView
government borrowings next year. Last year’s borrowing
programme had sailed through largely due to the liquidity
enhancement measures adopted by RBI.
The RBI may thus wait for trends to pan out better on the
growth front and for more clarity on the fiscal situation before
moving on rates, possibly in April 2010. In the meanwhile,
surges in excess liquidity may get drawn out through CRR
hikes, even on an inter-meeting basis, so that the eventual hikes
in policy rate are more effective.
With the much anticipated negative event past for now, the
market will look forward to inflation and growth data for
direction. The budget for the next year due in February and
will be the event the bond markets will look forward to with
more nervousness for a direction on likely level of government
borrowings and contours of other fiscal policy moves.
The RBI View on Key Macro-Economic Parameters
Growth:…Growth during Q2 of 2009-10, at 7.9 per cent,
reveals a degree of resilience that surprised many. Subsequent
data releases, whether on industrial production, infrastructure
or exports, confirm the assessment that the economy is
steadily gaining momentum.
Based on this better-than-expected performance, growth
forecasts for 2009-10 have generally been revised upwards.
As reassuring as this recovery is, it is still unbalanced. Public
expenditure continues to play a dominant role and
performance across sectors is uneven, suggesting that
recovery is yet to become sufficiently broad-based.
…A consolidating recovery should encourage us to clearly
and explicitly shift our stance from 'managing the crisis' to
'managing the recovery'. We articulated this change in our
stance in the October quarterly review, but the growing
confidence in the recovery justifies our moving further in
reversing the crisis-driven expansionary stance.
Our main policy instruments are all currently at levels that are
more consistent with a crisis situation than with a fast-
recovering economy. It is, therefore, necessary to carry
forward the process of exit further.
Government borrowings: …But as the recovery gains
momentum, it is important that there is co-ordination in the
fiscal and monetary exits. The reversal of monetary
accommodation cannot be effective unless there is also a roll
back of government borrowing.
Even as the government borrowing had increased abruptly
during 2008-09 and 2009-10, it could be managed through a
host of measures that bolstered liquidity. Those liquidity
infusion options will not be available to the same extent next
year.
Inflation: …For several months, rapidly rising food inflation has
been a cause for concern. More recently, there are indications
that the sustained increase in food prices is beginning to spill
over into other commodities and services as well. The
increases in the prices of manufactured goods have
accelerated over the past two months.
While food products, understandably, contribute significantly
to this, pressures in other sectors are also visible. Further,
prices of non-administered fuel items have increased
significantly in line with rising international prices.
With growth accelerating in the second half of 2009-10 and
expected to gain momentum over the next year, capacity
5 The Wise Investor February 2010
Bonds
Stance of Monetary Policy
• Anchor inflation expectations and keep a vigil on the
trends in inflation and be prepared to respond swiftly
and effectively through policy adjustments as warranted.
• Actively manage liquidity to ensure that credit demands
of productive sectors are adequately met consistent
with price stability.
• Maintain an interest rate environment consistent with
price stability and financial stability, and in support of the
growth process.
Expected outcomes:
• Reduction in excess liquidity will help anchor
inflationary expectations.
• The recovery process will be supported without
compromising price stability.
• The calibrated exit will align policy instruments with the
current and evolving state of the economy.
Key Numbers
• CRR raised by 75 basis points to 5.75% to be
implemented in two phases and would remove Rs
36,000 crore from the system by 27th Feb 2010.
• Reverse Repo rate held unchanged at 3.25%.
• Repo Rate held at 4.75%.
• Bank Rate kept unchanged at 6%.
• Statutory Liquidity Ratio (SLR) maintained at 25%.
• GDP estimate for FY10 revised to 7.5%.
• Inflation estimate for end fiscal revised up from 6.5% to
8.5%
• Non-food credit growth estimate for FY10 revised
down to 16.5% from 18%.
• Projected M3 growth revised down to 16.5% from 17%.
constraints could potentially reinforce supply-side inflationary
pressures.
…Though the inflationary pressures in the domestic economy
stem predominantly from the supply side, the consolidating
recovery increases the risks of these pressures spilling over
into a wider inflationary process.
Looking ahead into 2010-11, if the growth momentum turns
out to be as expected, pressures on capacities in an increasing
number of sectors are likely to strengthen the transmission of
higher input and wage costs into product prices.
Growth versus Inflation: …Significantly, prices of important
food items are also firming up. Going by the Food and
Agriculture Organization (FAO) data, the global rates of
increase in the prices of sugar, cereals and edible oils are now
appreciably higher than domestic rates.
The opportunity to use imports as a way to contain domestic
food prices is, therefore, quite limited.…More recently, there
are indications that the sustained increase in food prices is
beginning to spill over into other commodities and services as
well.The increases in the prices of manufactured goods have
accelerated over the past two months.
While food products, understandably, contribute significantly
to this, pressures in other sectors are also visible. … Even
amidst concerns about rising inflation, we must remember that
the recovery is yet to fully take hold.
Strong anti-inflationary measures, while addressing one
problem, may precipitate another by undermining the
recovery, particularly by determining private investment and
consumer spending.

Turbulence spots in Latin America
Martial Godet
Head of Investment Management-New Markets
BNP Paribas Investment Partners
Last month, a new political crisis broke out in Argentina,
and Venezuela announced a devaluation of its currency.
Below we review the implications of these events
Argentina – new year, new troubles
Context: Argentina doesn’t have access to international
capital markets, as it is in the process of restructuring
US$100 billion of debt on which the country defaulted
in 1991. As part of this process, Argentina was preparing
to launch, later in January, a swap of its defaulted debt for
US$20 billion with non-litigating investors.
In 2010, the country is expected to pay investors US$13
billion in total. As recent events have shown, the
Argentine government was, however, also tempted to
find a faster, if less orthodox, solution to its debt issue.
What happened?: On 14 December, President Cristina
Fernandez de Kirchner asked the central bank to transfer
from its reserves US$6.5 billion into the “Bicentennial
Fund for Stability” to repay some of the country’s debt.
But the President of the central bank (which has US$48
billion of reserves) Martin Redrado refused, challenging
the legality of the decree.
His concern was that the use of central bank funds in this
way would spark claims from holders of defaulted
Argentine bonds, and would cause a freeze of central
bank assets abroad. That appears to have begun to
happen. A US district court judge has now frozen the
Argentinian central bank's U.S. accounts at the request of
holders of Argentine debt.
The amount of assets frozen is only US$1.75 billion, but
the seizure has further inflamed domestic political
Sundaram BNP Paribas Asset Management
Emerging Markets Focus
tension. President Fernandez fired the central bank
governor on 7 January. The governor was subsequently
reinstated by the courts, but the government is appealing
the decision, and a political crisis appears to be unfolding.
Implications: The repercussions so far have been political
rather economic, and it’s likely that the congress will
shortly address the crisis, since a failure to find a political
solution would be likely to affect Argentina’s debt
restructuring programme and would drive borrowing
costs up.
On 13 January, the Merval equity index was virtually flat
compared to its level at the end of 2009. Note that
Argentina is not part of the MSCI Latin America index.
The country was downgraded to “frontier” status after
the Fernandez government nationalised the country’s
pension fund assets.
Venezuela – devaluation to the rescue
Context: Venezuelan authorities are facing dramatic
economic challenges: GDP is likely to contract by 2.9% in
2009, while the inflation rate is close to 25%. As the
October legislative elections approach, the government
is manoeuvring for greater spending power. Indeed, the
primary goal of the devaluation is to increase
government revenues. President Chavez also requested
the central bank transfer US$7billion to the Fonden – a
dedicated fund created a few years ago for the
redistribution of oil revenue.
What happened: Last week, President Chavez
announced a devaluation and the introduction of a dual
exchange rate:
• The official exchange rate was moved from 2.15 (in
place since 2005) to 2.60 bolivar to the US dollar.
This exchange rate will be applied to so-called
priority sectors, such as food, healthcare products,
science and technology, among others.
• All other transactions will now be conducted at the
so-called oil exchange rate, set at 4.30 bolivar to the
US dollar. This exchange rate will be used for
transactions in sectors such as autos, retail, telecoms,
chemicals, and metals.
In essence, the introduction of the oil exchange rate
means that oil exports generated by the state oil
company PDVSA will now be converted at a higher
domestic rate generating higher revenues expressed in
domestic currency.
Implications: The new exchange rate is expected to
dramatically increase the domestic price of imported
goods – right after the announcement, Venezuelans
rushed to shops to buy consumer goods. If inflation
6 The Wise Investor February 2010
Asset Allocation Stance
Emerging markets are reasonably valued according to
traditional criteria. Most emerging multiples have
returned to their historical average and are now
comparable to those of the developed markets.
At 13.6% return on equity (vs. 14.8% for the
developed markets but using much more leverage) is
back up to a pre-crisis level thanks to higher profit
margins and asset turnover, while lower debt-to-equity
ratios reduce risk. Earnings prospects are still solid and
should justify a premium. The consensus forecast
foresees 28% and 20% earnings growth in the
emerging markets in 2010 and 2011 respectively
• We maintain our overweight in Asia and continue
to prefer China, although we have reduced our
exposure. The Chinese economy's vigour is
causing authorities to tighten monetary policy.
• Exposure to Korea has been trimmed, in
expectation of higher policy rates.
• We have added toTaiwan, given the sharp upward
revisions in earnings forecasts fuelled by the global
recovery.
• We are neutral in India, where earnings revision
momentum is stalling, rising inflation is likely to
mean tighter monetary policy and valuations are
relatively high.
• We are overweight in Brazil and Russia, which are
favourably exposed to rising commodity prices.
• We are underweight in Turkey (economic
prospects have dimmed) and South Africa, where
the business and earnings cycles and monetary
policy are less favourable relative to other
emerging economies.
becomes even stronger, it will erode fiscal gains and the
government will face the same macroeconomic issues
again.
In the short term, the measure will provide the
government with some additional fiscal resources – after
the announcement, S&P has even raised its outlook on
the country’s debt (with a BB- note) from “negative” to
“stable”.
Conclusion: The impact of the events in Argentina and
Venezuela on our equity portfolios is virtually nil, as
neither country is part of our investment universe. The
impact on their neighbours such as Brazil or Mexico is
expected to be insignificant, as events in both Argentina
and Venezuela are “domestic”, and shouldn’t concern
materially neighbouring countries.

Professor Muhammad Yunus
Professor Muhammad Yunus delivered the second
Annual Hirendranath Mukerjee Memorial Parliamentary
Lecture at the joint-meeting of the members of Lok
Sabha and Rajya Sabha of India in Delhi on December 9,
2009. We present edited extracts:
In 1974, I found it extremely difficult to teach elegant
theories of economics in the classroom while a terrible
famine was raging outside. Suddenly I felt the emptiness
of economic theories in the face of crushing hunger and
poverty. I realized that I had to leave the campus and
somehow make myself useful to the distressed people of
Jobra, the neighboring village.
I was shocked to meet a woman who had borrowed just
five taka from a money-lender and trader.The condition
of the loan: She would have to sell all her products to
him at a price he would decide. A five-taka loan
transformed her into a virtual slave.
To understand the scope of this money-lending practice
in the village, I made a list of the people who had
borrowed from the money-lenders. When my list was
complete, it had 42 names. These people had borrowed
a total of 856 taka from the money-lenders. To free
these 42 people from the clutches of the money lenders,
I gave them the money to repay the loans.
The excitement that was created in the village by this
small action touched me deeply. I thought, “If this little
action makes so many people so happy, why shouldn't I
do more of this?”
That's what I have been trying to do ever since.
The first thing I did was to try to persuade the bank
located in the university campus to lend money to the
poor. But the bank manager refused to do that. He said,
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Need for two kinds of businesses
“The poor do not qualify to take loans from the bank -
they are not creditworthy.” I argued with him about this
for several months, but I couldn’t change his mind. So I
offered to become a guarantor for loans to the poor.
The bank agreed to accept this proposal.
By the middle of 1976, I started giving out loans to the
village poor, taking personal responsibility for their
repayment. I came up with some ideas for making it
easier for the poor people to repay the money they had
borrowed. These ideas worked. People paid back the
loans on time, every time.
It seemed to me that lending money to the poor was not
as difficult as it was imagined. But I kept confronting
difficulties in trying to expand the programme through
the existing banks. Finally, I decided to create a separate
bank for the poor. Finally I succeeded in creating this
bank in 1983. We called it Grameen Bank.
This idea of small, collateral-free loans for poor women,
known as "microcredit", or "microfinance", has spread
around the world.
Fundamental Flaw & The Financial Crisis: During the
current financial crisis, the falsity of the old assumption
(of not lending to the poor) became even more visible.
While big conventional banks with all their collateral
were collapsing, microcredit programmes, which do not
depend on collateral, continued to be as strong as ever.
Will this demonstration make the mainstream financial
institutions change their minds ? Will they finally open
their doors to the poor?
I am quite serious about this question. When a crisis is
at its deepest, it can offer a huge opportunity. When
things fall apart, that creates the opportunity to redesign,
recast, and rebuild. We should not miss this opportunity
to redesign our financial institutions. Let’s convert them
into inclusive institutions.
Nobody should be refused access to financial services.
Because these services are so vital for self-realization of
people, I strongly feel that credit should be given the
status of a human right.
Let me return to the current financial crisis.
Unfortunately, the media coverage gives the impression
that, once we fix this crisis, all our troubles will be over.
We forget that the financial crisis is only one of several
crises that are threatening humankind.
We are also suffering a global food crisis, an energy crisis,
an environmental crisis, a health care crisis, and the
continuing social and economic crisis of poverty. These
crises are as important as the financial crisis, although
they have not received as much attention.
Furthermore, the media coverage may give the
impression that these are disconnected crises that are
taking place simultaneously, just by accident. That's not
7 The Wise Investor February 2010
By Invitation
true at all. In fact, these crises grow from the same
root—a fundamental flaw in our theoretical construct of
capitalism.
The biggest flaw in our existing theory of capitalism lies
in its misrepresentation of human nature. In the present
interpretation of capitalism, human beings engaged in
business are protrayed as one-dimensional beings whose
only mission is to maximize profit. This is a much
distorted picture of a human being.
Human beings are not money-making robots. The
essential fact about human beings is that they are multi-
dimensional beings. Their happiness comes from many
sources, not just from making money.
Yet economic theory has built the whole theory of
business on the assumption that human beings do
nothing in their economic lives other than pursue their
selfish interests. The theory concludes that the optimal
result for society will occur when each individual's search
for selfish benefit is given free rein.
This interpretation of human beings denies any role to
other aspects of life - political, social, emotional, spiritual,
environmental, etc.
No doubt human beings are selfish beings, but they are
selfless beings too. Yet this selfless dimension of human
beings has no role in economics. This distorted view of
human nature is the fatal flaw that makes our economic
thinking incomplete and inaccurate. Over time, it has
helped to create the multiple crises we face today.
Once we recognize this flaw in our theoretical structure,
the solution is obvious. We can easily replace the one-
dimensional person in economic theory with a multi-
dimensional person - a person who has both selfish and
selfless interests at the same time.
Our picture of the business world changes immediately.
We now see the need for two kinds of businesses, one
for personal gain (profit maximization), another
dedicated to helping others. In one kind of business, the
objective is to maximize economic gains for the owners,
even if this leaves nothing for others, while in the other
kind of business, everything is for the benefit of others
and nothing is for the owners—except the pleasure of
serving humanity.
Let us call this second kind of business, built on the
selfless part of human nature, as “social business”.This is
what our economic theory has been lacking. To read
more, please visit http://bit.ly/62rTMm
Source: http://www.muhammadyunus.org
Note: By Invitation features articles solicited by The Wise
Investor from experts. It may, on occasions, showcase
excerpts of exceptional papers/speeches, which are
available in the public domain or published with permission.

Sunil Subramaniam
Executive Director-Sales & Marketing
Sundaram BNP Paribas Asset Management
We continue on our yield curve journey. To
summarise our discussions so far:
The yield curve is obtained by plotting the market
rates of interest for a risk-free borrowing (by the
Government) against time. By looking at the curve
one can obtain the rates of interest payable for
any specified tenor.
Generally, a yield curve is upwardly sloping. In
simpler terms, interest rates for longer tenors are
more than interest rates for shorter tenors. From
our earlier discussions, this is intuitively easy to
understand as the investor (or lender) should be
compensated for postponing his natural desire to
consume his money immediately and the more
we delay his consumption the greater should be
price that the borrower will have to pay.
We will dwell a little more on this aspect today:
Why did we use the term ‘generally’? Should not
the yield curve be always ‘upwardly sloping’?
The answer is that it is not the case; at times it is
‘downward sloping’ or sometimes it is ‘flat’.
Why? Is our intuition wrong? Our intuition is not
wrong – in fact an ‘upwardly sloping’ yield curve is
referred to as a ‘normal’ yield curve.
Lenders do not, however, always control the
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Knowledge Centre
Mutual Funds Demystified
market – of course if they had their way the yield
curve would always be normal!
Herein lies the answer to why the yield curve is
sometime flat or downward sloping.
To explain, suppose there were no borrowers at
all in the market for long-term money.Then what
would a lender do? He has an option to spend his
money on immediate consumption. But what if he
has satisfied all his consumption needs? He could
lend it in the short term market and hope that
when the short-term borrowing matures. He
could find another borrower to lend to.
Alternatively he might agree to lend it for a longer
tenor at the same rate as for a shorter tenor! That
would naturally lead to a ‘flat’ yield curve!
Why would he do this? This is because he expects
interest rates to decline and hence would like to
‘lock on’ to the current higher rates!! (Here `high’
is a relative term).
Why would he expect interest rates to fall in the
future? One key reason would be if future inflation
is expected to be lower.
To refresh one’s memory of an earlier discussion
- Nominal Interest rate = Real Rate + Expected
Inflation.
This very factor also leads to a ‘downward sloping’
yield curve.
Because the information about lower future
inflation is available to the borrowers also!!! Hence
their natural tendency would be to borrow for a
shorter tenor so that when it matures they hope
that the future borrowing rate would be lower
than what prevails now.
Thus there is a constant tussle in the market place
between the borrowers and lenders – and at
times, the lenders become desperate (especially if
there is a high quality long term borrower) and
are willing to offer lower rates for the long term
in order to tempt the borrower into borrowing!!
Thus leading to a ‘downward sloping’ yield curve.
Why again? As they believe that interest rates are
going to drop much more sharply than what the
8 The Wise Investor February 2010
• 24 •
borrower anticipates!!
Let me end with a numerical example to illustrate
this:
Let the borrowing amount be Rs 100 and the
current one-year rate be 5 per cent per annum
and the 5 year rate also be 5 per cent per annum
- a ‘flat’ yield curve.
If the lender lends the money for 1 year he would
earn Rs 5; If he lends it for five years, he would
earn Rs 25 (Rs 5 x 5-we are ignoring
compounding effects in order keep the discussion
simple).
Suppose the lender is not able to find an
acceptable borrower for a five-year tenor, he has
to adopt the strategy of lending it for one-year
today and at the end of one year, lending the
money for a further period of four years, if there
is a borrower for such a period then.
Assuming he finds such a lending trail, he will earn
Rs 5 for one year and Rs 20 (Rs 5 x 4) for the
remaining 4 years!! Hence his total earnings
remain Rs 25.
Suppose he fears that at the end of one year, the
four-year lending rate might be only 4 per cent
per annum as inflation is going to turn out to be
lower that what market is expecting? Then by
adopting this strategy, his actual earnings would be
much lower – Rs 5 for one year plus Rs 16 (Rs 4
x 4) for four years (Rs 21).
Also, there is the risk that he might not find a
suitable borrower at that point in time!!
Hence, his approach would be to tempt the ‘good
quality borrower willing to borrow for a five-year
period today’ with an attractive rate of only 4.75
per cent per annum. Why? In such a case, he
would end up making more money over a five-
year period – Rs 4.75 x 5 = Rs 23.75, which is
greater than Rs 21.
If the borrower is tempted – we then have a data
point for our yield curve which would render it
‘downward sloping”!!!
I will end on this note today!!

Fixed-Income funds can be broadly classified
into liquid funds, liquid plus funds, short-term
bond funds, long-term bond funds and gilt funds
in the ascending order of risk; volatility of returns
may also vary from less to more in the same
order. In the process of fixed-income investing,
suitability of the funds shall depend on time
horizon of investments. This linkage is essential
for investors to be prepared and overcome
frequent bouts of volatility for short periods that
may be experienced by such funds in the short
term.
Liquid Fund: These are funds that are
appropriate for deploying surplus funds available
with investors for short-term parking purposes
ahead of usage/investment in other options. The
surplus is funds beyond transaction money and
waiting to be invested or used for specific
purposes. The portfolio of such funds is also
guided by regulation, and hence, market risks are
contained. The marked-to-market component
is restricted to 10 %. Such funds have average
maturities of less than 90 days so as to mitigate
market risk. They are suitable for investors with
a time horizon of 1 day to 15 days. Such funds
also provide high liquidity, quality portfolio and
seek to capture prevailing market yield.
Liquid Plus Fund: They carry moderately
higher degree of market risk as compared to
liquid funds as such products may invest a part
of the portfolio in securities with longer
maturity.These securities will have to be marked
to market based on price movement every day
and this aspect creates the incremental risk.
There is no restriction in respect of marked to
market and hence the funds may have exposure
of higher than 10 % to marked-to-market
securities. The portfolios of such funds usually
have average maturities of between 90 days and
180 days. It is suitable for investors with a time
horizon of 15 days to 3 months. Such funds
provide high liquidity and seek to capture
Sundaram BNP Paribas Asset Management
Investing Environment
Basics of the fixed-income space
prevailing market yield plus 20-60 basis points
by taking small exposure to riskier (as compared
to securities in a liquid fund) bonds with longer
maturity. As these funds belong to debt funds
category, the dividend distribution tax incidence
on the dividend option is lower and hence more
attractive as compared to liquid funds.
Short-Term Bond Funds: Such funds are
suitable for investors with a more-than-3 month
investment horizon.The average maturity of the
portfolio may be more than a year, and so entail
higher market risk. They generally invest more
than 50 % of the funds in marked-to-market
securities and hence can be volatile on a daily
basis. The fund aims to capture higher accruals
or earnings by investing in securities with
maturity of more than a year.
Long-Term Bond Funds: Such funds
represent a classic case of a fund manager’s
conviction on likely trends in interest rates. The
portfolio is usually a mix of Government
securities, corporate bonds and other
structured instruments and is actively managed.
They are appropriate for investors with
investment horizon of more than six months.
Investing in such funds may be a superior option
when interest rates have peaked and appear to
be heading for lower levels. When anticipated
lower rates materialize, bond prices rise and
capital appreciation provides a boost to returns.
Such funds also have an exit load for investors
to deter them from taking short-term view.The
portfolios of such funds have an average
maturity of between 3 years to 8 years and
NAV can be extremely volatile in shorter
periods.
Gilt Funds: Such funds invest in securities
issued by the government of India and exhibit all
qualities of long-term bond funds. They are
especially suitable for Provident and Gratuity
funds with statutory investment guidelines.
9 The Wise Investor February 2010
Fixed-Income Concepts
Portfolio Maturity: Every fixed-income
instrument or money-market instrument has a pre-
defined maturity with the exception of a few
perpetual bonds. In case the instruments have
embedded options of either call or put or both,
dates on which they can be exercised are deemed to
be maturity dates. An average of the maturity of
various instruments in the portfolio with duly
assigned weights is termed as the portfolio maturity.
Portfolio maturity, in simple terms, reflects the
interest -rate risk associated with the portfolio (but
in reality, it is not so simple).
On relative terms, a portfolio with higher maturity
carries higher interest rate risk and more market risk
as compared to a portfolio with lower maturity.
Using the examples of the types of funds, liquid funds
have low portfolio maturity and low interest-rate
risk. They capture prevailing yield. Portfolio maturity
is incrementally higher for other types of funds and
rises as we move liquid plus to long-term bond
funds.
Duration: Duration of a fixed-income instrument is
the measure of average time period over which the
fixed cash flows associated with that particular
instrument are received. A coupon-paying bond
receives interest income at fixed intervals and final
payment of the face value on date of maturity. As a
certain portion of income earned on the bond is
received before its date of maturity, the average
maturity of the bond is less than its tenor (period till
maturity). We can consider two bonds of one-year
maturity. Bond A maturing on December 30, 2008
pays to investor Rs. 50 on June 30 and Rs. 50 on
December 30, vis-à-vis Bond B maturing on
December 30 that pays to investor Rs. 100 on
December 30.
The average time over which Bond A pays the
investor the due flows is less than one year; hence its
duration or average maturity will be less than one
year. As Bond B pays the investor after one year, its
duration will be one year.The same concept can be
applied to instruments of higher maturities, too, to
calculate duration. The duration of a bond increases
with its term-to-maturity and is inversely related to
the coupon of the bond. Higher the duration greater
the interest-rate risk of the bond, as yield and
duration are inversely related. Duration of a portfolio
is an important measure in determining its interest-
rate risk.

Financial Inclusion, A Thousand Flowers Blooming
Duvvuri Subbarao
Governor
Reserve Bank of India
Banking on the poor can actually be a rich banking
proposition. Financial inclusion is a win-win
opportunity for the poor, for the banks and for the
nation. Because of growing incomes, and improving
awareness levels, aspirations of the poor are on the
rise.
We will not be forgiven if we do not rise up to meet
these aspirations if only because of poverty of
imagination. It is for the banks to convert what they
see as a dead-weight obligation into an exciting
opportunity and move on aggressively on financial
inclusion.
Let me begin with a couple of anecdotes. In rural
Maharashtra, where people, like everywhere else in
the country, face the daily challenges of water,
sanitation, electricity and transportation, a number of
women have improved their lives, and the lives of
their families, by becoming entrepreneurs, all because
they could take a bank loan.
• Take Aruna Gaikwad. Aruna, a farm labourer,
began selling excess produce at the local market.
An astute observer of the laws of supply and
demand when it came to pricing fruit and
vegetables, she soon saw an uptick in business.
To expand, she needed to borrow money so
that she could build her own vegetable stand.
The loan helped her establish a thriving
vegetable vending business, allowing her to shift
away from the back-breaking work tending
other people’s fields. Her former hand-to-mouth
existence had given way to a new reality, one
which includes savings and checking accounts at
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Perspective
the bank, and the credit needed to keep her kids
in school - a good fortune she herself never had.
• And then there is Lakshmi Shellar. Widowed at
17, Lakshmi helped form a local self-help group.
She spoke up and spoke out at meetings, and
inspired other women in the group to take their
future into their own hands. Meanwhile, she
brought banking services to them. And she
provided evening literacy classes. The 177
women of Lakshmi’s self-help group have all
borrowed and repaid their loans.
Aruna and Lakshmi are just two of the millions of
women across the countries who have
demonstrated what is possible if only rural women
can have access to basic financial services.This is what
financial inclusion is all about – giving people an
opportunity to build better lives for themselves and
their children.
That impulse, if given a chance, can contribute to
sustained improvements in the quality of life at the
community level and foster growth and poverty
reduction at the national level.
There remain tremendous barriers to unleashing this
“fortune at the bottom of the pyramid.” Chief among
them: financial exclusion.
This is a confluence of multiple barriers: lack of
access, lack of physical and social infrastructure, lack
of understanding and knowledge, lack of technology;
lack of support, lack of confidence, among others.
Overcoming these barriers is, in a nutshell, the
challenge of financial inclusion.
Why is Financial Inclusion Important?
Why is financial inclusion important? It is important
simply because it is a necessary condition for
sustaining equitable growth. There are few, if any,
instances of an economy transiting from an agrarian
system to a post-industrial modern society without
broad-based financial inclusion. As people having
comfortable access to financial services, we all know
from personal experience that economic
opportunity is strongly intertwined with financial
access.
Such access is especially powerful for the poor as it
provides them opportunities to build savings, make
investments and avail credit. Importantly, access to
financial services also helps the poor insure
themselves against income shocks and equips them
to meet emergencies such as illness, death in the
family or loss of employment. Needless to add,
financial inclusion protects the poor from the
10
India
clutches of the usurious money lenders.
There is another benefit of financial inclusion which
we have yet to fully appreciate let alone exploit.
Financial inclusion will make it possible for
governments to make payment such as social
security transfers, National Rural Employment
Guarantee Programme (NREGA) wages into the
bank accounts of beneficiaries through the ‘Electric
Benefit Transfer’ (EBT) method.
This will minimize transaction costs including
leakages. In parts of the country where such EBT has
already taken off, the results are impressive and the
experience of both payers and recipients extremely
satisfying.
There are enormous benefits at the aggregate level
too.
• The first and more obvious benefit is financial
inclusion provides an avenue for bringing the
savings of the poor into the formal financial
intermediation system and channel them into
investment.
• Second, the large number of low cost deposits
will offer banks an opportunity to reduce their
dependence on bulk deposits and help them to
better manage both liquidity risks and asset-
liability mismatches.
Financial Exclusion - The Big Picture
Effort at financial inclusion is not new; both the
Government and the Reserve Bank have been
pursuing this goal over the last several decades
through building the rural cooperative structure in
the 1950s, the social contract with banks in the
1960s and the expansion of bank branch networks in
the 1970s and 1980s.These initiatives have paid off in
terms of a network of branches across the country.
Yet the extent of financial exclusion is staggering. Out
of the 600,000 habitations in the country, only about
30,000 have a commercial bank branch.
Just about 40 per cent of the population across the
country have bank accounts, and this ratio is much
lower in the north-east of the country. The
proportion of people having any kind of life
insurance cover is as low as 10 per cent and
proportion having non-life insurance is an abysmally
low 0.6 per cent.
People having debit cards comprise only 13 per cent
and those having credit cards only a marginal 2 per
cent.
The National Sample Survey data reveals that, in
2003, out of the 89.3 million farmer households in
The Wise Investor February 2010
the country, 51 percent did not seek credit from
either institutional or non-institutional sources of any
kind.
These statistics, staggering as they are, do not convey
the true extent of financial exclusion. Even where
bank accounts are claimed to have been opened,
verification has shown that these account are
dormant.
Few conduct any banking transactions and even
fewer receive any credit. Millions of people across
the country are thereby denied the opportunity to
harness their earning capacity and entrepreneurial
talent, and are condemned to marginalization and
poverty.
But there is a brighter side to the story. Remember
that illustration they give in business strategy courses.
A business executive of a shoe company was sent to
a large developing country to assess the market
potential there. What he saw was millions of people
going without shoes. He came back and reported to
the management that there was no business
potential there because no one wears shoes.
A few months later, a strategist of a rival company
went and saw the same picture. He came back and
reported to his management that there is
tremendous business potential in that country
because of the number of shoes they can sell.
Ultimately, it is a question of mindset.
Banks must see the picture like the second business
strategist, look at the opportunity at the bottom of
the pyramid and move into financial inclusion in a big
way.
Financial Inclusion-Challenges & Opportunities
Let me now turn to challenges to financial inclusion
and the potential opportunities. The question we
should ask ourselves is this: despite the rural policy-
push, why are so many bankable people unbanked?
There are barriers to access financial services
emanating from both demand side and supply side
factors.
From the demand side, the big barriers are the lack
of awareness about financial services and products,
limited literacy, especially financial literacy of the
populace, and social exclusion. Many of the generic
financial products are unsuitable for the poor and
there is not much of an effort to design products
suitable to their needs.
The unfriendly and unempathetic attitude of the
banks to the customers also plays an important role
in undermining the demand for financial services. On
top of that, exorbitant and oftentimes non-
transparent fees, combined with burdensome terms
and conditions attached to the financial products,
also dampens the demand.
From the supply side, the main barrier is the
transaction costs that the bankers perceive. Because
of current low volumes, banks find that extending
financial services is not cost effective. Furthermore,
lack of communication, lack of infrastructure,
language barriers and low literacy levels all raise the
cost of providing services and inhibit bankers from
Sundaram BNP Paribas Asset Management
taking initiative from the supply side.
The big take away from (a recent) workshop, for the
Reserve Bank as an institution and for me personally,
was that even as there are problems to extending
financial inclusion, these are not insurmountable. If
the Reserve Bank and the commercial banks put
their minds, and more importantly their hearts,
together these problems can be resolved.
According to what we heard at the workshop, the
three big challenges are: (i) cost; (ii) lack of robust
technology; and (iii) lack of awareness. Some of these
challenges are clearly being exaggerated and others
can be easily redressed.
Cost, of course, is the main consideration. It is
nobody’s case that each of the over 500,000 villages
in the country can each be covered through a brick
and mortar branch. That is clearly not a ‘bankable’
proposition. We need to go through the low cost
Business Correspondent model and leverage
technology to deliver financial services.
The Reserve Bank has encouraged banks to use IT-
enabled financial inclusion by leveraging on the smart
cards/mobile technology. Business Correspondents
of banks are making extensive use of hand held
devices/mobile phones to reach banking services to
remote villages, and especially for Electronic Benefits
Transfer of NREGA wages and social security
payments.
This has been very successful in Andhra Pradesh, and
a state-wide project has recently been kicked-off in
Orissa. In addition, pilot projects are underway in
most states of the country.
As a village-to-village robust electronic remittance
system is presently not available in the country, it can
be enabled by building suitable infrastructure to
connect the systems of various banks which are
presently involved in Electronic Benefit Transfer
(EBT) through the medium of Business
Correspondents.
A robust switch similar to the National Financial
Switch (NFS) located for the purpose in the National
payments Corporation of India / Institute for
Development Research in Banking Technology may
fulfil a long felt requirement of a nationwide
remittance system for the country.This will make the
remittance system more efficient, and therefore,
more attractive.
I also want to emphasize that there is tremendous
opportunity on the way forward for reducing costs
by increasing volumes. Let me elaborate a bit. First,
there is the demographic profile – the labour force
in the 15-64 age group is going to increase.
As job opportunities grow and these people start
earning, their incomes provide a large and growing
source of deposits for banks. Banks that are ahead of
the curve in establishing a presence in the vast
hinterland of the country will have a first mover
advantage in exploiting this potentially huge
opportunity.
Second, there is the opportunity of capturing
remittances.Although there are no firm figures, I have
been told that thousands of crores of rupees of
11
remittances take place across the country today,
predominantly from migrant labour, and over ninety
per cent of this happens through non-formal
channels.
If banks can capture even half of this into their fold,
they will not only reduce costs for the labour making
remittances but they will also have the advantage of
an enormous, permanent float.
Third, EBT, the electronic benefit transfer, is another
big opportunity. I believe banks are inhibited about
pushing this forward because of the fear of the
unknown: they are not certain that the business can
be cost-effective. Banks are clearly underestimating
the potential.
If indeed, all or even most government payments to
rural people are captured through the EBT mode,
this again can give banks a large float and make it an
attractive business proposition. So far there has been
a sharing of the costs between banks and state
governments with regard to EBT. As EBT mode
expands and becomes universal, banks will find that
this is a viable business model even without any
service charges.
It is also relevant here to acknowledge the potential
of the Unique Identification Number (UID) that
Nandan Nilekani and his team are working on. The
UID will be a powerful instrumentality for helping
poor people establish their identity to meet the
banks’ KYC norms.
I believe, this is going to reduce cash and non-cash
transaction costs both to the banks and to the
potential customers. The UID is another powerful
illustration of harnessing technology to the benefit of
the poor.
The Reserve Bank has made a commitment to bank-
led model of financial inclusion and will support
banks in their financial inclusion initiatives by way of
information dissemination, sharing of best practices
and also through regulatory incentives.
I want to add that our commitment to a bank led
model is not irrevocable.There are other models of
financial inclusion that are being experimented
elsewhere in the world. Should banks fail to come
forward and exploit this opportunity of financial
inclusion, the Reserve Bank will not hesitate to
explore other models of furthering financial inclusion.
Last week, I visited Jalanga village in Orissa as part of
the outreach programme. I was very impressed by
the self-help groups – groups of usually women who
get together, pool their savings and give loans to
members – and how these groups have empowered
the women by giving them financial independence
and thereby confidence.
More than just hope, these women have the vision
to imagine how they can take advantage of the
slightest opportunities and to work hard to make it
happen.
Remarks by Dr. D. Subbarao, Governor, Reserve Bank of
India at the Bankers’ Club in Kolkata on December 9,
2009.
Source: www.rbi.org.in
The Wise Investor February 2010

John Mauldin
Best-Selling Author, Recognized Financial Expert
and Editor of Thoughts From The Frontline
The Federal Reserve has been very clear
about the fact that they intend to stop the
quantitative easing program at the end of
March. What that means in practice is that
they are going to stop buying mortgage
securities.That does two things.
As Bill Gross so aptly points out, those
mortgage purchases helped keep mortgage
rates low. But they also financed the US
government fiscal deficit, albeit indirectly. It
seems that funds and banks that sold the
mortgage securities turned around and
bought US government debt or put the cash
right back at the Fed.
Foreigners bought about $300 billion of the
$1.5 trillion in new government debt.The rest
came from the US, courtesy of the Fed
buying mortgages. But that program stops
(theoretically) at the end of March. The
government still plans to run yet another
$1.4-trillion-dollar deficit (give or take a few
hundred billion).
The question is, who will buy the debt?
Foreigners will kick in another $300 billion,
unless they decide to stop selling us stuff, or
buy other less liquid or physical assets. So far
there is no sign of that.
But as I asked last year, who is going to buy
the multiple trillions in government debt that
Sundaram BNP Paribas Asset Management
Thoughts From The Frontline
When the Fed Stops the Music
the G-7 countries want to issue? Who is
going to buy another $1 trillion here in just
the US? That is 7% of GDP. That means that
consumers and businesses will have to save
an additional 7% of GDP just to finance
government debt at the federal level, not
counting state and local debt. As Bill Gross
concludes in his recent column
(www.pimco.com):
"The fact is that investors, much like national
citizens, need to be vigilant, and there has been
a decided lack of vigilance in recent years from
both camps in the U.S.While we may not have
much of a vote between political parties, in the
investment world we do have a choice of
airlines and some of those national planes may
have elevated their bond and other asset
markets on the wings of central bank check
writing over the past 12 months.
Downdrafts and discipline lie ahead for
governments and investor portfolios alike.
While my own Pollyannish advocacy of
'check-free' elections may be quixotic, the
shifting of private investment dollars to more
fiscally responsible government bond markets
may make for a very real outcome in 2010
and beyond.
Additionally, if exit strategies proceed as
planned, all U.S. and U.K. asset markets may
suffer from the absence of the near $2 trillion
of government checks written in 2009. It
seems no coincidence that stocks, high yield
bonds, and other risk assets have thrived
since early March, just as this 'juice' was being
squeezed into financial markets.
If so, then most 'carry' trades in credit,
duration, and currency space may be at risk in
the first half of 2010 as the markets readjust
to the absence of their 'sugar daddy.'"
This is yet another uncertainty. We simply
have no idea, no relevant marker, for what
happens when a country goes so cold turkey,
coming off a central bank bond-buying binge.
And this in the midst of a massive
deleveraging and with stock market
valuations basically where they were in 1987
- except there was at least large earnings
growth then.
12
Who Wants the Old Maid?
Why, therefore, would anyone want to be
long the dollar or treasuries? The dollar may
be the worst currency in the world, except
for all the others.What's an emerging-market
central banker to do? Where do you put your
reserves?
The dollar? With large fiscal deficits and low
interest rates? "What are my other choices?"
they must be asking themselves. The euro?
Really? The euro is not a currency, it is an
experiment.
Everyone knows the problems of Greece.
There is no political will in the country (so
far) to do what Ireland has done, and really
cut their budget. I think Spain is an even
bigger nightmare for the EU when compared
to relatively small Greece. Italy? Belgium?
Portugal?
All those countries (and their voters) will be
watching to see how the EU deals with
Greece.The potential for volatility in the euro
is just huge. I hope the euro survives. The
world is better off with the euro. But there
are very large pressures facing the Eurozone.
And what about the British pound? Already
down 20% (a little relief for my London trip
next week!), and their problems are every bit
as large as those in the US. What about the
yen?The government has let it be known they
are not happy with the rise in the yen, and
seem ready to actually do something about it.
What about the Renminbi? Oh, wait, you
can't get enough of them, and the Chinese
manipulate their currency. Same for most
other Asian currencies.
The dollar may rise against the major
currencies during the first part of the year. As
I wrote weeks ago, world trade is slowly
picking up. While that growth has not been
very visible in the US, it is becoming evident
among the emerging-market countries that
were not overly leveraged when the crisis
began. And trade is still in dollars.
Businesses sold their dollars during the crisis,
as they did not need them for trade. But now,
The Wise Investor February 2010
with trade picking up, they once again have to
buy dollars.That is one reason for the recent
bull market in dollars. The other is that the
markets are massively short the dollar.
When everyone is on the same side of a
trade, that trade may have run its course, at
least for a while. And that seems to be the
case recently for the dollar.
So, where are the strong currencies going
forward? The Canadian dollar is on its way to
parity. I would want to own the Aussie, if I was
a trader. Maybe the Swiss franc, although it is
so high on a parity-value basis right now.
But the currency I want the most if I am a
central banker is that barbaric yellow relic,
gold. Just as India has recently bought 200
tons of gold, I think central banks in other
emerging nations will want to buy more, too.
They all have relatively little gold as a
percentage of their reserves. Look for that to
change.
I also like gold in terms of the euro, the
pound, and the yen - more than I like it in
terms of the US dollar, but even there I like
gold long-term, at least until we get some
fiscal sanity.
It's the Deleveraging, Stupid!
The reason this recession is different is that it
is a deleveraging recession.We borrowed too
much (all over the developed world) and
now are having to repair our balance sheets
as the assets we bought have fallen in value
(housing, bonds, securities, etc.).
A new and very interesting (if somewhat
long) study by the McKinsey Global Institute
found that periods of overleveraging are
often followed by 6-7 years of slow growth as
the deleveraging process plays out. No quick
fixes.
Let's look at some of their main conclusions
(and they have a solid ten-page executive
summary, worth reading.) This analysis adds
new details to the picture of how leverage
grew around the world before the crisis and
how the process of reducing it could unfold.
MGI finds that:
• Leverage levels are still very high in some
sectors of several countries - and this is a
global problem, not just a US one.
• To assess the sustainability of leverage,
one must take a granular view using
multiple sector-specific metrics. The
analysis has identified ten sectors within
five economies that have a high likelihood
of deleveraging.
• Empirically, a long period of deleveraging
nearly always follows a major financial crisis.
Sundaram BNP Paribas Asset Management
• Deleveraging episodes are painful, lasting
six to seven years on average and
reducing the ratio of debt to GDP by 25
percent. GDP typically contracts during
the first several years and then recovers.
• If history is a guide, many years of debt
reduction are expected in specific sectors
of some of the world's largest
economies, and this process will exert a
significant drag on GDP growth.
• Coping with pockets of deleveraging is
also a challenge for business executives.
The process portends a prolonged
period in which credit is less available and
more costly, altering the viability of some
of business models and changing the
attractiveness of different types of
investments. In historic episodes, private
investment was often quite low for the
duration of deleveraging. Today, the
household sectors of several countries
have a high likelihood of deleveraging. If
this happens, consumption growth will
likely be slower than the pre-crisis trend,
and spending patterns will shift.
Consumer-facing businesses have already
seen a shift in spending toward value-
oriented goods and away from luxury
goods, and this new pattern may persist
while households repair their balance
sheets. Business leaders will need
flexibility to respond to such shifts.
You can read the whole report at their web
site. The ten-page summary is also there.
http://www.mckinsey.com/mgi/publications/d
ebt_and_deleveraging/index.asp
The Lex column in the Financial Times
observes, concerning the report:
"It may be economically and politically
sensible for governments to spend money on
making life more palatable at the height of the
crisis. But the longer countries go on before
paying down their debt, the more painful and
drawn-out the process is likely to be. Unless,
of course, government bond investors revolt
and expedite the whole shebang."
And that is the crux of the matter. We have
to raise $1 trillion-plus in the US from
domestic sources. Great Britain has the GDP-
equivalent task. So does much of Europe.
Japan is simply off the radar. Japan, as I have
noted, is a bug in search of a windshield.
Some time in the coming few years the bond
markets of the world will be tested. Normally
a deleveraging cycle would be deflationary
and lower interest rates would be the
outcome. But in the face of such large deficits,
with no home-grown source to meet them?
13
That worked for Japan for 20 years, as their
domestic markets bought their debt. But that
process is coming to an end.
James Carville once famously remarked that
when he died he wanted to come back as the
bond market, because that is where the real
power is. And I think we will find out all too
soon what the bond vigilantes have to say.
And so we have uncertainty all around us.
What will our taxes look like in the US in just
12 months? Health care? Who will finance the
bonds, without a credible plan to reduce the
deficit? And any plan that has Nancy Pelosi as
its guarantor is by definition not credible.
There is just so much that is uncertain, and all
we can do is wait to see how it unfolds. My
best guess is that we see a solid GDP number
posted for the 4th quarter (which will get
revised down over time), due mostly to
stimulus and inventory rebuilding.
By the middle of the year the stimulus will be
far less. And while inventories are rebuilding
and that is good for the GDP numbers, the
sales-to-inventories number has not risen.
And final demand is what drives inventory
rebuilding.
The latter half of the year looks to be weaker,
and then we hit what right now looks like the
largest tax increase in history, much of it on
the small businesses that are the drivers of
job creation. The National Federation of
Independent Businesses just released their
latest survey. It was brutal. There is little
optimism in it.
The Fed is going to stop the music in March.
There will be a scramble for the chairs.This is
a huge experiment with no precedent. The
entire developed world is the test subject.
Risk assets will be subject to uncertainty. And
markets hate uncertainty.
Hopefully, we can Muddle Through this year
before a relapse into recession in 2011
(because of the tax increase). I wish I could
see it like Larry Kudlow (of CNBC), but I
don't. I would be very cautious about being
long the stock market. It is now a trader's
market. I would not be buying long-duration
bonds. It is still an absolute-return world.
Copyright 2009 John Mauldin. All Rights
Reserved.
John Mauldin, Best-Selling author and
recognized financial expert, is also editor of
the free Thoughts From the Frontline that
goes to over 1 million readers each week. For
more information on John or his FREE weekly
economic letter go to:
http://www.frontlinethoughts.com/learnmore
The Wise Investor February 2010
 Economic Crisis Effects

Life in the time of Great Recession

The title is not original. It is a take off from Love in the Time of Cholera by Gabriel Garcia Marquez, Nobel Prize
winning author from Columbia, who was also recently selected as the most influential writer of the past 25 years for this
book. Pardon that indulgence on our part, but we felt this best captures what you are about to read.

Even as equity markets led by Wall Street have charted a major rally on the back of liquidity since March 2009, the
ground reality on Main Street is different. Read this eighth part of how the Great Recession is touching lives in many-a-
different way.
Number of start-ups tumble: The number of
new businesses being set up around the world has
declined in the face of the global recession, a
report has found.
New start-ups were down 10% last year in 20 of
the world's richest nations, said the latest edition of
the annual Global Entrepreneurship Monitor
(GEM). It found that the decline was the most
severe in the US, where it fell 24%. By contrast, the
UK only saw a 6% dip.
The United Arab Emirates saw the most start-up
activity in 2009, up 38%. Now in its 11th year, the
2009 GEM report was based on a study of 54
countries, and more than 180,00 interviews. The
study was established by London Business School
and Babson College in the US.
"Throughout the world, would-be entrepreneurs
reported greater difficulty in obtaining financial
backing for their start-up activities, especially from
informal investors - families, friends, and strangers,"
said Professor Bill Bygrave of Babson College, one
of the founders of GEM.
"What is needed is for entrepreneurs to feel
comfortable venturing out again, because they are
the real engine for creating new jobs. Unfortunately,
there is not a silver bullet for entrepreneurs,” said
Kristie Seawright, executive director of GEM.
More Unclaimed Bodies: To step into the
morgue at the Oregon medical examiner's office is
to confront destitution at its most final.
In this frigid, dark locker, the dead lie draped in
plastic sheeting on steel tables.These aren't people
who died watched over by family. Dr. Karen
Gunson's morgue is the first stop for people who
were killed in car accidents or shootings, or who
simply died at home, by themselves.
Gunson says these people died unexpectedly, and
their families — if they had families — weren't
prepared.Oregon is one of several states that
provides funding for so-called indigent burials.
Historically, this money pays for a final service for
people with no home or relatives.
But in 2009, Gunson says, an unprecedented
number of bodies went unclaimed — some for a
month or more — not because family couldn't be
found, but because the economy has left families
unable to pay for even the most basic $500
cremation.
The trend is elusive to track. In Oregon, demand on
the indigent burial fund was so high last year, the
Legislature had to nearly triple fees on death
certificates to keep the fund solvent.
Highest Number of Long-Term Unemployed In 62
years: Forty percent of all unemployed Americans,
at least 6 million, have been out of work more than
six months. Many are so discouraged they have lost
hope that a job exists for them.It is a national
challenge: reduce the number of people who have
been out of work for a long time.
In the December unemployment report, the
Bureau of Labor Statistics said the number of
people out of work for 27 weeks or more hit 6.1
million Americans, or 40 percent of all 15.3 million
jobless.
This is the most since 1948, when the data was first
recorded, according to the Department of Labor.
On average, it now takes 20.5 weeks to find a new
job – double the amount of time in the 1982-83
recession.
“It’s a real risk to the workplace,” says John
Challenger of Challenger, Gray & Christmas, the
outplacement firm in Chicago.“We may be creating
a permanent group of people who think there are
no jobs out there, who feel they are shut out of the
system.”
Part of the reason the nation has such a large
number of long-term unemployed is related to the
nature of the downturn, says economist Richard
DeKaser of Woodley Park Research in Washington.
“This is not your typical cyclical downturn where
hiring is just postponed until business improves,”
says Mr. DeKaser. “This is really more about
structural unemployment.” Entire industries have
been hobbled, such as construction, some elements
of financial services, and the auto industry.
Staying late, millions are working for nothing: If
you spent yesterday playing in the snow with the
kids, there is no need to feel guilty. If you were one
of the five million people who regularly work
unpaid overtime, you were merely redressing the
balance, at least for a day.
The TUC said yesterday that UK workers were
giving away £27.4 billion of unpaid overtime,
despite a prolonged recession that has seen many
companies cut working hours and drastically scale
back paid overtime.
According to the TUC’s latest research, the five
million people who regularly work unpaid overtime
are working on average 57 days a year for nothing.
The figure represents the highest number of unpaid
extra hours worked since the late 1990s.
On the positive side, there has been a small
decrease in employees who regularly work unpaid
overtime. Since 2008, when the TUC last analysed
official statistics, 168,000 fewer people have said
that they regularly work extra hours for no pay.
Warring couples forced to live together:
More than a quarter of cohabiting couples that
break up are forced to continue living together
because of the effects of the recession, research
has found.
Two-thirds of people who continue to share a
property with a former partner said they cannot
afford to move, while one in forty couples are
unable to sell their homes because of negative
equity, according to the survey by
Easyroommate.co.uk .
Jonathan Moore, of the house and flat-share
website, said: “The recession is preventing even
more couples from making a clean break when
they split up. Unfortunately, those same financial
stresses that make the break-up process so difficult
are often a key reason for the break up. And

Sundaram BNP Paribas Asset Management 14 The Wise Investor February 2010
although people are aware of the negative equity
trap that many divorcing couples face- few realise
the heartache this is causing cohabiting couples
who have split up.”
Research by Shelter, the housing charity, also
indicates that a quarter of Britons are sharing with
an ex-partner or know someone who is, because
they cannot afford to live alone. The charity said
that the high cost of housing and the shortage of
affordable homes was forcing an increasing number
of couples to share a property when they might
not under different circumstances, putting strain on
otherwise happy relationships.
"New York Runs Like a Payday Loan
Operation" : In a strikingly blunt State of the
State address, Gov. David A. Paterson chastised the
lawmakers seated before him saying they had
spent the state into near-ruin and stood by as a
plague of political corruption destroyed New
Yorkers’ trust in their government.
The public scolding drew a cold response from
lawmakers. Some sat stony-faced during the
speech, while others fidgeted with BlackBerrys.
Lawmakers, Mr. Paterson charged, had too often
bowed to the wishes of powerful special interests,
feeding an “addiction to spending, power and
approval” and plunging the state into economic
catastrophe. “No longer are we going to run New
York like a payday loan operation,” the governor
vowed.
Referring to industry and labor lobbyists in the
chamber, he declared, “The moneyed interests —
many are here today as guests — have got to
understand that their days of influence in this town
are numbered.”
Challenging times for wine & champagne:
What a difference a decade makes. With high
unemployment, pared-down expense accounts and
a glut of wine, it’s the consumer’s turn to make
merry, with lower prices, more choice and less
pretension.Those 99-point ratings don’t seem quite
so requisite any more to buying good wine. So
what do I see happening in 2010?
• Prices will continue to drop across the board,
from the priciest of Bordeaux and Burgundy to
cult California wines that were once available
only by subscription.
• More people will buy online. Wine stores will
stock more inexpensive wines, which account
for most of their profits.
• The tsunami of new wines from South
America and Eastern Europe will ebb as the
market overflows.
• Champagne will be in serious trouble.
• Fine-dining restaurants will buy nominal
numbers of expensive wines after trimmed
expense accounts caused them to sit on their
previous big capital purchases.They’ll wait until
guests are telling sommeliers, “Money is no
object.” Good luck with that.
• Fewer top-end restaurants will even open, and
more modest new eateries will build wine lists
with interesting, small labels from around the
world and sell them at reasonable mark-ups.
Sundaram BNP Paribas Asset Management
• Americans will buy more wine at the $10-and-
under level. The best bet for an expanding
market is China, which is thirsty for good,
inexpensive wine.
Lowest-ever level of job satisfaction: Even
Americans who are lucky enough to have work in
this economy are becoming more unhappy with
their jobs, according to a new survey that found
only 45 percent of Americans are satisfied with
their work.That was the lowest level ever recorded
by the Conference Board research group in more
than 22 years of studying the issue. In 2008, 49
percent of those surveyed reported satisfaction
with their
Workers have grown steadily more unhappy for a
variety of reasons:
• Fewer workers consider their jobs to be
interesting.
• Incomes have not kept up with inflation.
• The soaring cost of health insurance has eaten
into workers' take-home pay.
If the job satisfaction trend is not reversed,
economists say, it could stifle innovation and hurt
America's competitiveness and productivity. And it
could make unhappy older workers less inclined to
take the time to share their knowledge and skills
with younger workers.
College costs rise, loans harder to get:
When Daniel Ottalini entered the University of
Maryland in 2004, his family had an array of choices
to cover the cost -- cheap student loans, a second
mortgage at low rates, credit cards with high limits
and their own soaring investments.
By the time his younger brother, Russell, started at
the University of Pittsburgh this fall, the financial
crisis had left the family with fewer options. Russell
has had to juggle several jobs in school, and the
money he could borrow came with a much higher
interest rate that could climb even further over
time.
To pay for higher education, most Americans had
come to rely on a range of financial products born
of the Wall Street boom. Nearly all of these shrank
or disappeared in the storm that engulfed the stock
and debt markets.
Lenders have raised rates and tightened standards,
dramatically limiting the availability of home-equity
loans and private student loans. College savings
accounts, known as 529 plans, had acute losses in
the downturn. And a new law, set to take effect Feb.
22, will bar students younger than 21 from getting
credit cards on their own.
Teenagers cutting back: After a year of
observing their parents pinch pennies and fret
about the economy, the nation’s teenagers may be
coming to grips with reality. Sales are down sharply
in recent months at nearly every major retail chain
catering to teenagers, and interviews with
teenagers suggest that the reasons go beyond their
own difficulty finding part-time jobs.
“I think my sister and I, throughout this year we’ve
kind of lost an interest in getting gifts and things like
that,” said Morgan Porpora, 16, who in the past had
a list of things she wanted for Christmas. “I guess
we’ve noticed the economy and we just kind of
15
even feel bad I guess asking for a lot.”
Teenagers’ growing mindfulness about money is
influenced, of course, by the way their parents are
cutting back, and by a record-high teenage
unemployment rate. But the biggest factor,
according to the teenagers themselves, is that they
have come to understand the social moment. “As
me and my brothers get older and we realize the
implications of the recession,” said Sarah Berger, 16,
“we just kind of value presents and gifts less.”
Seismic shift in consumer culture: As crazy
as it sounds, losing a $70,000-a-year job has been
good for Marty Morua's finances. The former Wall
Street stockbroker says the setback forced him to
scrutinize his family budget and snip away at
expenses. And soon, even with less income, their
savings grew.
First, he and his wife decided to live on her salary
so he could be home with their 5-year-old
daughter after school. Without a nanny, they saved
$12,000 a year. He dropped services he didn't use
on his cellphone -- texting and video games -- to
pocket $250 a year.
He took a defensive-driving course for a 10
percent discount on his auto insurance and
dropped car-rental and roadside-assistance
coverage, for an extra $150 a year. For holiday gifts,
he turned to thrift stores and gave home-baked
cookies.
"When I was working, I didn't look at the price tag,"
he said. "In a strange way," he added, losing the job
"has been a blessing to teach me how to become
aggressive and wise about saving and ways to save
-- areas I never would have thought about."
The recession has caused a seismic shift in the
consumer culture, converting die-hard spenders
into savers. A growing number of people, either
smarting from a job loss or spooked by the financial
crises of others, are scrambling to get out of debt,
establish emergency funds, and add to their
retirement and savings accounts.
Youth Depression hard on retailers: People under
30 have been pounded by this recession and its job
losses and the implications for some retailers are
proving to be dire this holiday season. Andrew Sum,
a labor economist at Northeastern University in
Boston, reckons about 50 percent of the 7.7 million
jobs lost over the past two years have been
absorbed by those under 30.
Within that group, about 62 percent of these job
losses have been incurred by young men Those
aged 16 to 19 have seen a 23 percent decline in
jobs -- by far the sharpest decline of any age
category.This may explain why mall-based retailers
catering to male and female teens are resorting to
steep promotions.
The young tend to spend what they earn so their
job woes are bad news for retailers. And in this
downturn, they can't rely on making up the
difference through from parents' wallets, which
already are stretched thin.
Sources: BBC, NPR, Christian Science Monitor, Times
Online, Mish Global Economic Analysis, Bloomberg,
Washington Post, New York Times. Reuters, Financial
Armageddon, Reuters
The Wise Investor February 2010

Philippe d'Arvisenet
Chief Economist
BNP Paribas - Economic Research
History will remember 2009 as the year of the
deepest and longest recession since the Second
World War. Economic activity contracted dramatically
under the combined impact of housing market crises,
especially in the US, the UK, Spain and Ireland; the
collapse of exports, notably in Germany and Japan;
the drop-off in asset prices and in general, the impact
of the downturn in job markets on revenues and
confidence.
Both the UK and Spain were still mired in recession
in the third quarter, and the Spanish economy is
expected to contract slightly further in 2010.
US GDP contracted over four consecutive quarters
before swinging back into mild growth in third
quarter 2009, bolstered by the slowdown in
destocking, the rebound in the housing market, thanks
to past price cuts and fiscal incentives for first-time
homeowners, and a surge in household consumption,
fuelled largely by the cash for clunkers programme.
Temporary technical factors and economic stimulus
measures were key drivers behind this rebound,
which explains the persistent uncertainty concerning
the solidity of the recovery. All in all, US GDP
contracted roughly 2.5% in 2009.
In the Eurozone, economic activity contracted much
more abruptly over a period of five quarters (-3.8%
in 2009), despite similar efforts to adopt extremely
accommodating policies. It is worth noting the sharp
disparities: GDP contracted by nearly 5% in Germany
and Italy, over 3.5% in Spain and nearly 2.5% in France.
Japan was hard hit by the full impact of the crisis on
exports and investment, and sunk back into deflation.
GDP is expected to contract by nearly 5.5% in 2009.
Sundaram BNP Paribas Asset Management
Unsynchronised recoveries
The Chinese economy hit an air pocket in late
2008/early 2009, but the government managed to
stimulate infrastructure investment via very aggressive
budget measures and an extremely accommodating
monetary policy (loans outstanding were up 34% at
mid year). Retail sales also accelerated rapidly.
Buoyant domestic demand offset mild exports and
the negative contribution of foreign trade to GDP
growth. Growth surged from 6.1% in the first quarter
to 8.9% in the third quarter. The government could
even reach its 2009 target of 8% growth. Yet these
policies are also risky and threaten to create surplus
capacity, asset bubbles, to name a few.
Widespread wage moderation combined with the
cyclical rebound in productivity gains, especially in the
US, has put downward pressure on unit wage costs.
Consequently, we can rule out the idea of inflationary
pressures in terms of costs.
The abundance of unused production capacity and
the negative output gap will persist throughout 2010
as well as 2011, given the feeble strength of growth
expectations, eliminating all pricing pressures in terms
of demand.
On the whole, although the impact of higher oil
prices and the elimination of base effects due to the
past drop in energy prices is in the process of lifting
inflation into positive territory, the downward
pressure on core inflation guarantees that inflation
will be very mild in 2010.
Yet the consequences of the crisis are far from over
and will continue to strain growth in 2010, preventing
GDP from rising above or even matching its long-
term potential: there will not be a catching up effect
for GDP lost during the crisis.
First, in countries with very high debt ratios where
the negative wealth effect continues to play,
household will mainly be concerned about repairing
their balance sheets. The deterioration in the job
markets is not over yet.
Employment is a lagging variable in the business cycle,
and the jobless rate has yet to peak (unemployment
was over 10% in the US and nearly as high in the
Eurozone in December 2009). This strains the
formation of revenues and creates incentives for
precautionary savings.
Moreover, the recession triggered a very sharp
decline in fiscal revenues coupled with a series of
economic support measures, without speaking about
efforts to rescue financial institutions.
Public deficits have soared to 10 points of GDP in the
US, over 13.5 points in the UK and 6.5 points in the
Eurozone. Public debts have swollen dramatically, and
recent trends cannot be sustained. The impact on
interest charges has not been very significant given
the decline in interest rates, but naturally this effect
cannot be replicated.
16
EcoWeek
Greece in the limelight
Greece remains in the headlines after its credit
rating was downgraded by the three big rating
agencies in December and January: it now has a
BBB+ rating with Fitch and Standard & Poor’s, and
an A2 rating from Moody’s.
After a visit from experts from the European
Commission and the ECB to examine its public
finances, the Commission has just released a very
critical report on the quality of Greek statistical data
(see “Report on Greek government deficit and
debt statistics”, European Commission, January
2010).
The Commission fears that the estimates published
last October could be much too optimistic. The
public deficit could reach about 12% of GDP in
2010, after nearly 13% in 2009, with the public debt
accounting for about 125% of GDP in 2010, the
highest in the Eurozone.
Moreover, at the government’s request, an IMF
mission was sent to Greece this week “to examine
the possibility of providing technical assistance on
reforming pensions, fiscal policy, tax administration
and budget management.”
The Greek prime minister has presented the broad
outlines of his stabilisation and growth plan (the
document was sent to the European Commission
on Friday, 15 January), which is designed to reduce
the public deficit to less than 3% by 2012.
Yet the financial markets do not seem very willing
to be convinced
With the deterioration of public finances, the credit
agencies have downgraded their ratings for
several countries, some with a negative credit watch.
All of this tended to exacerbate fears, resulting in
wider sovereign debt spreads.
Although it might seem judicious to move cautiously
down the path towards budget consolidation at a
time when the economic recovery is so fragile, it is
crucial to demonstrate credible programmes to clean
up public finances.
To halt current budget overruns, it is important to
restore budget manoeuvring room and prevent
uncertainty from further encouraging private savings
in anticipation of higher fiscal pressures, which would
only hamper the recovery.
Under this cyclical environment and in the absence
any inflationary threats, key central bank rates are
likely to be held at currently low levels throughout
2010. Priority will be given to the gradual elimination
of non-conventional measures.
Source: BNP Paribas EcoWeek, a publication of the BNP
Paribas group www.bnpparibas.com
The Wise Investor February 2010

Making room for China in the world economy
Dani Rodrik
Rafiq Hariri Professor of International Political
Economy
John F. Kennedy School of Government.
Policymakers blame the undervalued renmimbi for the
global imbalances. Here one of the world’s leading
development economists argues that the undervalued
currency boosts China’s growth, and this, in turn, is good
for the world’s recovery and the alleviation of poverty.
China could maintain its growth without trade
imbalances if it could introduce industrial subsidies to
offset a rising yuan. It is better to subsidise tradables
directly than to subsidise them indirectly through the
exchange rate. This may run afoul of WTO rules, but
that doesn’t diminish the economic case for the policy.
As it comes out of the crisis, the world economy faces
two apparently conflicting demands. On the one hand,
achieving global macroeconomic stability and
preventing a protectionist backlash will require that we
avoid large current account imbalances of the type that
the world economy experienced in the run-up to the
crisis. On the other hand, returning to rapid growth in
the developing nations will require that they resume
their conquest of global market share in tradable goods.
The challenge of meeting both demands is epitomised
by the contentious US-China bilateral relationship.
American (and European) policy makers blame China
for an undervalued renminbi, which they argue is the
root cause of China’s huge trade surplus.
Chinese leaders resist the pressure, fearing that
appreciation will undercut the competitiveness of
Chinese goods in world markets, hurt exports, and
damage growth. China’s arguments are typically
dismissed by Western commentators, who argue that it
is time the country turned away from exports and gave
a boost to its service industries.
But if growth depends primarily on the supply of
modern manufactured products and other tradables as
opposed to services and non-tradables, as I think it
Sundaram BNP Paribas Asset Management
does, the Chinese position has more force than critics
give it credit. The conventional fix for China’s current
account surplus, consisting of a combination of
expenditure expansion and currency appreciation, will
shift the structure of the economy away from tradables
and towards non-tradables.
This may be good for macroeconomic balance in China
and elsewhere, but it will almost certainly have adverse
effects on China’s growth – perhaps large enough to
even endanger the country’s social and political stability.
Tradables as the engine of growth
What is common in the experiences of Japan, South
Korea, China, and all other growth superstars? They all
based their growth strategies on developing industrial
capabilities rather than on specialising according to their
prevailing comparative advantages. They each became
manufacturing superpowers in short order – and much
more rapidly than one would have expected based on
their resource endowments.
China’s export bundle was built up using strategic
public investments and industrial policies that forced
foreign companies to transfer technology; today, the
country’s export bundle resembles what one would
expect for a country that is three or four times richer
than China.
High-growth countries are those that are able to
undertake rapid structural transformation from low-
productivity (“traditional”) to high-productivity
(“modern”) activities. These modern activities are
largely tradable products, and within tradables, they are
mostly industrial ones (although tradable services are
clearly becoming important as well).
The reason that undervaluation of the currency works
as a powerful force for economic growth is that it acts
as a kind of industrial policy. By raising the domestic
relative price of tradable economic activities, it increases
the profitability of such activities, and spurs capacity and
employment generation in the modern industrial
sectors that are key to growth.
As discussed in detail in Rodrik (2008), the association
between undervalued currencies and high growth is a
very robust feature of the post-war data, particularly for
lower-income countries.
China’s currency undervaluation: China has not always
had a large external imbalance, or an undervalued
currency. In fact, prior to the present decade it never
had a current account surplus exceeding 4% of GDP.
From 2001 on, China’s surplus began its inexorable rise
to more than 10% by 2007.
Interestingly, 2001 also saw China joining the WTO,
after years of negotiation. It may not be a coincidence
that China’s current account imbalance began to widen
and its currency undervaluation started to rise just as
the country became a member of the trade body.
WTO membership made it difficult, if not impossible,
for China to promote its industries with the type of
17
Insight
explicit industrial policies that the country had been
relying on. Prior to the late 1990s, China’s
manufacturing industries were promoted by a wide
variety of inducements, including high tariff barriers,
investment incentives, export subsidies, and domestic
content requirements on foreign firms.
As a condition of membership, China had to phase out
these policies. From levels that were among the highest
in the world as late as the early 1990s China’s import
tariffs fell to single-digit levels by the end of the decade.
Local content requirements and export subsidies were
eliminated. Currency undervaluation, or protection
through the exchange rate, became the de facto
substitute.
What if China stopped growing?: If undervaluation has
supported China’s recent growth, what kind of growth
penalty would the economy suffer if China were to let
its currency appreciate (in the absence of compensating
changes in industrial policies)?
By many accounts, including my own estimates, China’s
currency is undervalued by around 25%. Correcting this
undervaluation would result in a reduction in Chinese
growth of 2.15 percentage points per annum. This is a
sizable effect, even by the standards of China’s
superlative growth record.
Most importantly, a slowdown of this magnitude would
put China below the 8% growth threshold its
leadership apparently believes is necessary to maintain
social peace and avert social strife.
No-one knows where the 8% figure really comes from;
it clearly does not have a scientific basis. Many China
experts think the Chinese society and polity are
capable of handling growth much lower than that.
Nevertheless, even if the political implications can be
put aside, it would be hardly a desirable outcome if the
most potent poverty-reduction engine the world has
ever known were to experience a noticeable slow
down.
It is true that other countries that relied on exports to
grow rapidly – such as Germany, Japan, and South Korea
– eventually had to let their currencies appreciate. But
China is still a very poor country, at barely above one-
tenth the income level of the US.
It has a huge reservoir of surplus labour in the
countryside. In addition, it has to live with restrictions
on its industrial policies that none of these other
countries, in pre-WTO days, had to abide by.
Dani Rodrik is the Rafiq Hariri Professor of International
Political Economy at the John F. Kennedy School of
Government.
Hyperlink to this article:
http://www.voxeu.org/index.php?q=node/4399
Source: www.voxeu.com (VoxEU.org is a policy portal
set up by the Centre for Economic Policy Research
(www.CEPR.org) in conjunction with a consortium of
national sites)
The Wise Investor February 2010

Short memory, $ positives & If I were Ben
The decade of short memory: Ingrid Bergman
once said that “happiness is good health and a
bad memory”. I beg to differ.
At the risk of challenging the philosophical and
emotional authority of a Hollywood celeb, I’d
argue that forgetting, say, the name of a senior
manager at your company’s Christmas party, or
driving off with someone else’s sports car after
the parking valet (and you!) confused it for your
own rental, are not exactly “happy moments”
once you account for the consequences.
But worse than a bad memory is a short
memory. And in the spirit of the general
pontification on the decade that is about to go
by, let me say that this was the decade of short
memory par excellence.
• Take national security: Short memory in
the context of a few years of “terror-free
calm” on US soil is in part to blame for the
spectacular blunder that allowed a guy with
explosives wrapped around his body to
board on a US-bound airplane.
• Short memory (or shall we say ignorance of
history?) was also behind the failure of US
intelligence to grasp the threat to national
security from Afghanistan’s internal
instability and socio-ethnic fragmentation
back in 2001.
• Basically, short memory drove us away from
the big picture, compromised our forward-
looking vision, compartmentalized our focus
and prevented us from connecting the dots
at critical moments. Compartmentalized
focus… failure to connect the dots… Tell
me you see the parallel with our blunders in
the sphere of finance!
• As it happened, short memory led investors
to flout growing signs of asset bubbles and
flock into investments that, in retrospect,
seemed absurd.
• Short memory drove traditional “financial
fire brigades” like the IMF to near extinction,
after a few crisis-free years bred a belief in
countries’ economic impregnability.
• Short memory even afflicted such
intellectual masters as Ben Bernanke, who
coined the term “Great Moderation” in
describing our new era or “stability” and
“prosperity”.
• Now, failing to prevent major blunders is
one (bad) thing… Allowing our short
memory to define our (knee-jerk) response
is still another.Yet, in this very spirit we were
Sundaram BNP Paribas Asset Management
quick to adopt a pre-emptive-strike
doctrine, invade Iraq, seal our windows with
duct tape and, lately, prohibit airline
passengers from covering themselves with a
blanket *one hour* before a plane’s landing!
• Economic policymakers are barely faring
better: Short memory against the backdrop
of the stunning “failure of capitalism” has
brought (some of) us back to Keynes’ arms,
has triggered calls to reinstate the Glass-
Steagall Act and has even led to doubts
about the Fed’s independence.
• Short memory even discouraged some
traumatized investors from getting back into
the stock market earlier this year, costing
them the opportunity of a +68%
turnaround.
Problem is, a complete self-imposed disbelief in
your own memory is very hard to achieve, both
at an individual level, let alone by an entire
Congress. Coming to think of it, maybe Ingrid
Bergman’s plea was right after all… happiness
may indeed rest on a truly bad memory…
provided that we’re aware of it!
Models & Agents http://bit.ly/83BFgB
If I were Federal Reserve Chairman: If I were
Federal Reserve Chairman, I would figure out
why:
• The value of the dollar has declined more
than 95 percent since the Federal Reserve
was created in 1913, given that one of the
Fed’s two mandates is to promote “long-
term price stability” (the other is “full
employment”);
• Many banks were allowed to loosen or
abandon traditional lending standards, ramp
up leverage, concentrate their credit
exposure in risky sectors (e.g., commercial
real estate), and skirt rules designed to
protect the financial system, given that the
Fed is charged with regulating and
supervising the sector; and,
• Monetary policies ostensibly aimed at
smoothing the peaks and troughs of the
business cycle and ensuring that the U.S.
economy remained on an even keel
spawned numerous asset and credit bubbles
and laid the groundwork for the biggest
financial crisis this century.
After that, I would take Jim Rogers’ advice and
call it a day.
Financial Armageddon http://bit.ly/daYYFM
18
Blog Picks
Dollar Positives
Kyle Bass, founder of Hayman Capital, says the
US has 10-12 years to right the ship; I think 5-
10 years (but closer to 5 than 10). Even if it's
only three years, it's not today's worry. In the
meantime, the pending collapse of Japanese
government bonds will not be good for the
carry trade, but should benefit the US dollar.
In fact, there are many things good for the US
dollar here.
• Japan demographics as noted above
• Greece bailout
• Spain property bubble
• Baltic state currency collapse
• Savings rate in US headed north
• Extreme bearish US dollar sentiment
• Pending implosion in the UK
• Canadian property bubble bursting
• Australian property bubble bursting
• Hard landing in China, collapse of the RMB
Most would argue against a hard landing in
China, but I actually think that is the best
China can look forward to after its rampant
expansion of credit. All of the above are
accidents in progress or accidents that will
happen soon enough. The US dollar should
benefit when they do.
Moreover, I would like to point out that the
Massachusetts special election is likely to be
US dollar positive. After the special election
Democrat massacre, there will be little
sentiment for more bailouts but there will be
increasing calls for more fiscal prudence and
less government spending. It will be much
tougher to pass stimulus bills, or bills of any
kind.
Health care may not even pass now, although
it's likely the Obama administration will
manage to slam it through in one last hurrah,
possibly by the simple manoeuvre of the
House accepting the Senate version straight
up.
However, if the healthcare bill does not pass,
that too would likely be US$ positive.
Finally, many US states are in deep, deep
trouble. California and Illinois lead the list.The
change in the senate is a huge message that
states are going to have to go it alone and not
rely on Washington for bailouts.
Add it all up and most of the possible
surprises are likely to be US$ supportive.
Thus, dollar bears should consider hibernating
for a while.The stars are aligned for at least a
modest dollar rally, and perhaps a lot more
than that.
Mish Global Economic Analysis:
http://bit.ly/4Y3jTG
The Wise Investor February 2010

Of Two Minds is a blog that has articulated on the global
economic and financial crisis from an early stage. Charles
Hugh Smith has put together his thoughts on the crisis and
the challenges it poses in a simple, cogently argued and
comprehensive book, Survival +. We have had the
opportunity to read the compressed e-book version. It is a
must read to understand the processes at work, as the effects
could last several years (Japan has stepped into its third
decade of woe).A complete review will follow when we have
read the full book.
We present edited extracts from the book.
Since launching my blog www.oftwominds.com in May 2005,
nothing seemed more important than warning readers that
the unsustainably leveraged credit-mad global financial system
was poised to break down.
Once the system finally crashed in late 2008, my goal
switched to writing a practical guide for not just surviving the
coming Great Transformation but prospering: a concept I
called Survival+ (Plus).This requires liberating ourselves from
failed models of credit expansion, resource depletion, financial
looting and a counterfeit prosperity built entirely on debt.
I immediately ran into several great difficulties. Many others
had foreseen the same calamity, and their focus narrowed on
individual survival: relocating to a remote/sustainable spot and
preparing for societal collapse by stockpiling self-defense and
food.
While prudent and practical on a short-term timeline, this
response struck me as incomplete on several levels. Most
importantly, stockpiling six months' supplies would not sustain
anyone through a 20-year Crisis and Transformation; their
own Crisis was simply being delayed a relatively short time. In
Sundaram BNP Paribas Asset Management
The Book of Choice
other words: "what happens in month seven"?
Viewing ourselves in isolation is ultimately misleading.That is
why I subtitled this book "Structuring Prosperity for Yourself
and the Nation." To believe that we can prosper individually
without regard for the actions of our fellow citizens and the
State (government) is simply not practical. This, then, is a
practical book for the rest of us.
The status quo "Powers That Be" and its mainstream media
repeatedly insist that:
• We have abundant cheap energy for a long time to
come; shortages or permanently costly energy is
decades away.We have plenty of time for technological
wonders to arise and replace petroleum.
• The Social Security and Medicare entitlements
promised to all Americans, though totaling some $50
trillion in excess of projected tax revenues, will be paid;
all that is needed are modest policy adjustments.
• The current financial meltdown was unexpected and
could not have been foreseen; it is a temporary "bad
patch" which has already been fixed by government
intervention and modest policy/regulatory adjustments.
• Public and private credit and debt can continue
expanding three times faster than GDP indefinitely;
rising credit and debt are the essential lifeblood of
permanent growth.
• Environmental issues such as the stripping of the world's
fisheries, dead zones in the Chesapeake Bay, dwindling
fresh water aquifers, etc. can all be fixed with modest
policy adjustments.
• The consumerist culture that has evolved over the past
60 years is a natural and highly successful perfection of
capitalism, prosperity and American values; Americans
are the happiest, most prosperous people on the planet.
• The fast-growing epidemic of obesity and related
chronic diseases in the U.S. are puzzling and worrisome,
but we have the finest healthcare system in the world.
Yet all of the above is demonstrably false.
If all the fundamental contentions of the Powers That Be are
demonstrably false, we are forced to ask why they press them
so mightily and persuasively on us.
The answer to this critical question can be found by asking cui
bono: to whose benefit?
Although we are constantly told the system benefits all of us,
that it is the very perfection of prosperity, free market
capitalism and thus of happiness itself, this is also
demonstrably false.
This leads to the conclusion that the entire intellectual
structure which supports and enables the U.S. economy,
government and culture is nonsense, and those pushing it so
mightily and perseveringly are doing so out of a highly refined
self-interest--a self-interest which does not magically better
the nation or those not fortunate enough to belong to the
19
Survival +
Elite (the Plutocracy) or to its high-caste technocratic
workforce.
These are troubling assertions, and they require careful
analysis.
It is my contention that the global meltdown has exposed the
Plutocracy's over-reach via ever-larger bets, ever-riskier
leverage and ever-larger redistributions of national income to
its own coffers.To protect its interests and dominance, it must
defend at all costs the intellectual framework that enables its
dominance.
Thus there is a whiff of desperation in its campaign to
convince the world that this is not at heart a global crisis
which threatens to bring down the entire structure but a
"normal" if slightly deeper recession which has already been
repaired by the usual "fix" of State manipulation of interest
rates and money supply.
We must be alert to the concentrated ownership/control of
the mass media, and to the overwhelming need of the global
Elites to reassure their restive, anxious populaces that the
structure of Elite dominance and wealth is robust, secure, and
in the populace's self-interest.
Conflicts between various segments of the Elite does not
mean there is no Plutocracy--it only means that greed and
over-reach naturally set up some shuffling and pushing to
head the line.
Lastly, the status quo understanding of the world is that any
problem is inherently "fixable" with minor policy adjustments.
Thus even as the global financial pyramid of highly leveraged
bets and debts unravels, the status quo response is
bureaucratic shuffling of oversight duties, minor tweaking of
regulatory rules trumpeted as "major fixes" and behind the
scenes, trillion-dollar bailouts of the Plutocracy funded by the
non-Elite taxpayers.
When the non-Elite citizen comes to understand this, a new
mechanism takes hold that I call when belief in the system
fades.
This is how empires fall: complacency joins hands with self-
aggrandizement.
As the wheels fall off the U.S. economy and the bubbles
cannot be re-inflated, fruitless attempts at holding back the
tide with incantations (stop, tide, I speak for the U.S.Treasury!)
and loopy sand castles (the bottom is in, buy now!) abound.
Unresponsive to propaganda, the real world grinds down into
a global Depression without visible end. If we do nothing, we
will be swept along in the Great Descent. Alternatively, if we
want to prosper, then we must first gain an integrated
understanding of all the interlocking crises we face.
Book: Survival + "Structuring Prosperity for Yourself and the
Nation." by Charles Hugh Smith (396 pages).A truncated version
Survival + The Primer (134 pages) is also available. If you are
interested in buying either of the two versions, check out
http://www.oftwominds.com/survivalplus.html
The Wise Investor February 2010
 Taking note of

Paul Volcker, In the limelight

Paul Volcker, the legendary former Chairman of the U.S Federal Reserve, has long maintained that the only useful financial innovation
in decades has been the ATM. He was one of Obama’s key advisors in the run-up to the Presidential elections. Post the election, he
appeared to have been shunted in favour of persons more favourably inclined to the big banks and Wall Street.
Volcker had remarked in October 2009 that it was wrong to even assume he had influence in the first place. This view was from a
man of formidable reputation and credibility and a person who is chairman of the President’s Economic Recovery Advisory Board
indicated the extent to which the reform process appeared off track.
He had laid the road map for reforming the financial sector in the G30 Report (http://www.group30.org/pubs/reformreport.pdf)
Just when it was taken for granted that Volcker would not have his way, he has moved centre stage. In what became known as the
Volcker World Tour, he outlined his views in the public domain. (We had presented a selection of quotes in Voices Page of The Wise
Investor January 2010. (http://www.sundarambnpparibas.in/wiseinvestor_pdfs/The_Wise_Investor_January2010.pdf)
In the course of an interview in December 2009, he remarked `I am not alone in this (proper and needed reforms), and in fact I think that I am probably going
to win in the end. (This view was in December 2009 was in sharp contrast, after his October statement: `I did not have influence to start with’.)
The Volcker Rule: On January 24, in an address, President Obama acted on a part of the Paul Volcker thought process. Deposit-taking banks will not be able to
engage in proprietary trading or owning, investing in or sponsoring hedge funds or private equity funds
Volcker has stepped up the pressure by an excellent summary of his thought process in an Op-Ed article in The New York Times on January 30, 2010.
(http://www.nytimes.com/2010/01/31/opinion/31volcker.html)
This has to go through U S Congress. A right step has unfortunately been labelled as populist – mainly because of the fact that what should have been done in
the first place is now getting started and an election loss has provided a perfect way to spin the step as populist. Of course, Wall Street banks are not pleased.

Here are a few independent views on the move:

The Washington Post went with the headline “Volcker Rule Shifts Power from Geithner.” Secretary Geithner is perceived as more of a New Era Wall Street-
type – a tenuous position to find oneself these days. Paul Volcker is the consummate tough, no nonsense Old School financial regulator. Mr. Volcker is an
anachronism from a different era – or so the markets had thought until yesterday.
The general perception was that he had lost touch – and was basically out of touch with the White House. Yet the great American statesman has made a
dramatic return to the center stage. (http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10335)
Doug Noland, Credit Bubble Bulletin

Still for GREED & fear the real point is less the details than the new political reality.This is that a fundamental increase in regulation over finance in the West is
coming despite the obvious power and wealth of the finance lobby. If so, it will undermine the assumptions of the consensus which had been assuming until
yesterday that the 83-year-old Paul Volcker was too old and anachronistic a figure to influence the debate. In this respect Obama has smartly, albeit, belatedly,
sought out the advice of his one economic adviser with total credibility as a public servant. Meanwhile, if the President wants to maintain the political momentum
he should now change the rest of his economic team, all of whom are viewed as far too close to Wall Street
Christopher Wood, Managing Director & Strategist, CLSA Asia-Pacific Markets

The unintended message of Volcker’s op-ed (in The New York Times) may be that even someone as tough-minded as he is may not recognize the magnitude
of structural change needed to limit the extent of government guarantees to the financial sector and contain officially-backstopped risk-taking. And while Volcker
does speak of the need for structural reform, which is absolutely necessary, his outline does not go anywhere near far enough to start defusing the bomb that
financial services deregulation managed to create. I believe this problem is solvable, but it requires even more intrusive measures than Volcker contemplates. It
would be better if I were wrong, but we may need yet another crisis to produce the needed political will.
Naked Capitalism blog

There are three problems with the current setup on Wall Street: systemic risk, rent seeking and conflicts of interest.The Volcker proposal addresses the systemic
risk problem to a great extent, but does not do much about the other two. For a complete solution, we thus need to go further. Let us atomize Wall Street.
Martin Hutchinson,The Bear's Lair

Sundaram BNP Paribas Asset Management 20 The Wise Investor February 2010
 Voices
David Rosenberg is the Chief Economist of Gluskin Sheff & Associates, a wealth management firm in Canada. He was earlier Chief
Economist at Merrill Lynch. He is one of many who saw the financial and economic crisis coming well in advance. His views are always a
must read. Rosenberg publishes a daily report Breakfast With Dave, which should be a good addition to reading for those interested in
economy and markets. Here is a selection of quotes reflecting his thought process:.

Mainstream economists called this downturn “The Great Recession”. But this is truly a gentle way of saying
1
“Depression”.

The emerging consensus is that everything is just going to be fine and that we should expect nothing more than
2 a second-half economic slowdown, and that if there is a sharper turndown the monetary and fiscal spigots will
be turned on even harder.

I do not view the economic events of the last two years as a classic recession/recovery phase. They only exist
3
in the context of secular credit expansions.

Having read various Year-Ahead Reports, it sure seems like there is a remarkable level of agreement for 2010.
4 We are with a glorious opportunity to reintroduce Bob Farrell’s Rule 8: “When all forecasts and experts agree,
something else is going to happen.”

You’d be surprised how a blend of intuition and experience can make a difference in a cycle like the one we are
5
in that has nothing in common with the other recessions of post-WWII era.

If the new normal coming out of recession is a penny a share of profit for a global company like Alcoa, then we
6 can be assured that we are in anything but a normal economic environment; despite all the efforts to put on a
brave face and appear optimistic.

It is extremely difficult to handicap “double dip” odds at this time but the history of post-bubble credit collapses
7
is such the economy remains extremely vulnerable to adverse shocks for years

The ratio of household debt to disposable income is up from a 30% ratio in 1950s to 125% today (down from
8 139% at 2007 peak). Mean reverting closer to 60% means deleveraging will be a multi-year event and more than
$7 trillion in additional household credit will have to be extinguished.

We must refrain from over-reacting to every piece of minutia in the economic data; know the fundamental
9
trends and ignore the noise around the trend.

Tape and Glue: That is what is holding the global economy and capital markets together – not just dramatic
10 monetary easing but the fact that G20 governments have managed to spend $2.2 trillion to restore growth. But
this is clearly unsustainable.

While much is made of the federal funding earmarked for infrastructure, something tells us these monies will
11
find their way towards plugging record fiscal gaps in state & local government

We look forward to the day, especially with regard to the equity market when either the price catches down
12 to the fundamentals or the fundamentals play catch up to the price. Even after a whopper of a 70% bear market
rally in the S&P 500, patience will win out.
Source: www.gluskinsheff.com

Sundaram BNP Paribas Asset Management 21 The Wise Investor February 2010
 Best & Worst Performers Global
Month/Year/Category MSCI MSCI 2009 1 3 6 1 3 5
Emerging Market World Month Months Months Year Years Years
Jan-10 Best 934 1119 Russia Turkey Turkey Russia Indonesia Gold Brazil
Worst Brazil Brazil Honk Kong Honk Kong Gold Nikkei 225 Nikkei 225
Dec / 09 Best 989 1168 Brazil Turkey Crude Indonesia Brazil Gold Brazil
Worst U.S (Dow) Gold Korea Japan U.S (Dow) Japan U.S (S&P 500)
Nov / 09 Best 953 1149 Brazil Gold Brazil Indonesia Indonesia Gold Brazil
Worst Japan Japan Japan Japan Japan Japan Japan
Oct / 09 Best 914 1106 Indonesia Crude Russia Indonesia Indonesia Gold Brazil
Worst U.S (Dow) Korea Japan Japan U.S (Dow) Japan U.S (Nasdaq)
Sep / 09 Best 914 1127 Indonesia Brazil Russia Indonesia Indonesia Brazil Brazil
Worst Gold Japan Crude Crude Commodity UK U.S (Dow)
Aug / 09 Best 839 1086 Indonesia Turkey Turkey Indonesia Gold Brazil Brazil
Worst U.S (Dow) Hong Kong Russia Gold Russia Russia U.S (S&P 500)
Jul / 09 Best 844 1045 Indonesia Indonesia India Indonesia Gold China Brazil
Worst UK Commodity Gold Gold Russia Russia U.S (Nasdaq)
Jun / 09 Best 761 964 Crude Indonesia India Crude Turkey China Brazil
Worst UK Russia Gold UK Russia Russia UK
May / 09 Best 773 970 Russia India Russia Indonesia Gold Brazil Brazil
Worst U.S (Dow) U.S (Nasdaq) Gold U.S (Dow) Russia Japan Japan
Apr / 09 Best 663 893 Brazil Russia Russia Indonesia Gold Gold Brazil
Worst U.S (Dow) Gold Gold Crude Russia Russia Japan
Mar / 09 Best 570 805 Crude Korea Crude Gold Gold Gold Brazil
Worst Dax Gold Dax Crude Russia Russia Taiwan
Feb / 09 Best 499 751 Gold Taiwan Gold Gold Gold Gold Gold
Worst Mexico Korea Mexico Russia Russia Russia Taiwan
Jan / 09 Best 530 839 Crude Crude Gold Gold Gold Gold Gold
Worst South Africa South Africa Russia Russia Russia Russia Taiwan
Dec / 08 Best 567 920 Gold Indonesia Gold Gold Gold Gold Gold
Worst Russia Crude Crude Russia Russia Russia Taiwan
Nov / 08 Best 527 893 Gold Gold Gold Gold Gold Gold Brazil
Worst Russia Crude Russia Russia Russia Russia Taiwan
Oct / 08 Best 571 957 Gold UK U.S (Dow) Gold Gold Gold Brazil
Worst Russia Indonesia Russia Russia China Japan Taiwan
Sep / 08 Best 787 1182 Gold Gold U.S (Dow) Crude Crude Gold Brazil
Worst India Russia Russia Russia China Japan Taiwan
Aug / 08 Best 956 1345 Crude Turkey Crude Crude Crude Brazil Brazil
Worst India Russia India India Europe Europe U.S (Dow)
Jul / 08 Best 1042 1367 Crude Turkey Crude Crude Crude Brazil Brazil
Worst India Russia India India Europe Europe U.S (Dow)
Jun / 08 Best 1087 1402 Crude Gold Crude Crude Crude Brazil Brazil
Worst India India India India Europe Europe U.S (Dow)
Dec / 07 Best 1246 1589 Brazil India India India Brazil Brazil Brazil
Worst Japan China Japan Japan Japan U.S (S&P 500) U.S (Dow)
Europe: MSCI Europe; Commodity: S&P GSCI Index; Rank based on returns in $ terms. Data Source: Bloomberg; Analysis: Sundaram BNP Paribas Asset Management Analysis: A Preetha
Sundaram BNP Paribas Asset Management 22 The Wise Investor February 2010
 Best & Worst Performers India
Month/Year/Category S&P S&P 2009 1 3 6 1 3 5
CNX Nifty CNX 500 Month Months Months Year Years Years
Jan-10 Best 4882 4156 Consumer Durables Consumer Durables Small-Cap Small-Cap Metals Metals Capital Goods
Worst Realty Realty Realty Realty FMCG IT Healthcare
Dec / 09 Best 5201 4329 Metals Small-Cap Metals Auto Metals Metals Capital Goods
Worst FMCG FMCG Realty Capital Goods FMCG IT Healthcare
Nov / 09 Best 5033 4145 Metals Metals Metals IT Metals Metals Capital Goods
Worst FMCG Reality Reality Reality FMCG IT Healthcare
Oct / 09 Best 4712 3853 Metals FMCG Healthcare Metals Metals Oil & Gas Capital Goods
Worst FMCG Realty Realty Oil & Gas Oil & Gas IT Healthcare
Sep / 09 Best 5084 4119 Auto Banks Small Cap Realty Auto Oil & Gas Capital Goods
Worst FMCG FMCG FMCG FMCG Oil & Gas IT Healthcare
Aug / 09 Best 4662 3840 Auto Realty IT Realty Auto Oil & Gas Banks
Worst Healthcare FMCG Oil & Gas FMCG Capital Goods IT Healthcare
Jul / 09 Best 4636 3764 Metals Auto Realty Metals Auto Oil & Gas Capital Goods
Worst Healthcare Capital Goods Oil & Gas FMCG Realty IT Healthcare
Jun / 09 Best 4291 3470 Metals IT Realty Metals Public Sector Banks Capital Goods
Worst FMCG Realty FMCG FMCG Realty IT Healthcare
May / 09 Best 4449 3580 Auto Realty Auto Power FMCG Oil & Gas Capital Goods
Worst Consumer Durables FMCG Consumer Durables Consumer Durables Realty Consumer Durables Healthcare
Apr / 09 Best 3474 2663 Auto Realty Auto Power FMCG Oil & Gas Capital Goods
Worst Consumer Durables FMCG Consumer Durables Consumer Durables Realty Consumer Durables Healthcare
Mar / 09 Best 3021 2295 Auto Metals Auto FMCG FMCG Oil & Gas Capital Goods
Worst Realty FMCG Realty Realty Realty Small-Cap Auto
Feb / 09 Best 2764 2113 Auto Auto Auto FMCG FMCG Oil & Gas Capital Goods
Worst Realty Realty IT Realty Realty Consumer Durables Metals
Jan / 09 Best 2875 2209 Oil & Gas Oil & Gas Power FMCG FMCG Oil & Gas Capital Goods
Worst Realty Realty IT Realty Realty Small-Cap Auto
Dec / 08 Best 2959 2296 FMCG Realty FMCG FMCG FMCG Oil & Gas Capital Goods
Worst Realty IT Metals Metals Realty Auto Metals
Nov / 08 Best 2755 2093 FMCG FMCG FMCG FMCG FMCG Oil & Gas Capital Goods
Worst Realty Realty Realty Realty Realty Auto Metals
Oct / 08 Best 2886 2226 FMCG IT FMCG FMCG FMCG Oil & Gas Capital Goods
Worst Realty Realty Realty Realty Realty Small-Cap Metals
Sep / 08 Best 3921 3059 FMCG FMCG Public Sector Healthcare FMCG Oil & Gas Capital Goods
Worst Realty Realty Metals Realty Realty Small-Cap Healthcare
Aug / 08 Best 4360 3489 Healthcare Banks Healthcare Healthcare Healthcare Oil & Gas Capital Goods
Worst Realty Small-Cap Realty Realty Realty Small-Cap Healthcare
Jul / 08 Best 4333 3457 Healthcare Public Sector Healthcare Healthcare Oil & Gas Capital Goods Capital Goods
Worst Realty IT Realty Realty Realty Auto FMCG
Jun / 08 Best 4041 3203 Healthcare Capital Goods Healthcare Healthcare Oil & Gas Capital Goods Capital Goods
Worst Realty Realty Realty Realty Realty Auto FMCG
Dec / 07 Best 6139 5355 Power Consumer Durables Small-Cap Metal Power Capital Goods Capital Goods
Worst IT Capital Goods IT IT IT Healthcare IT
Rank based on returns in INR terms. Sector Information is based on BSE Indices; Data Source: Bloomberg; Analysis: Sundaram BNP Paribas Asset Management Analysis: A Preetha
Sundaram BNP Paribas Asset Management 23 The Wise Investor February 2010
 Periodic Table & Quartile India
The Periodic Table compares returns of different asset classes over each of the past 11 years as well as for the 10-year period between 2000
and 2009; This period includes deep bullish and bearish phases. The table illustrates the experiences of investing in different asset classes,
investment style and market capitalisation across market phases.
Annual Returns for Key Asset Classes (1999 - 2009 YTD) Ranked in Order of Performance
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Dec 1999-Dec 2009
Nifty Junior I-SEC Bond I-SEC Bond Gold Nifty Junior Nifty Junior Diversified Sensex CNX Mid Cap I-SEC Bond Nifty Junior CNX Mid Cap
Fund
162.3 12.6 25.3 24.7 141.0 30.8 46.7 46.7 76.9 27.1 127.9 20.6

Diversified Gold Gold CNX Mid Cap CNX Mid Cap Diversified MSCI India Nifty Junior Gold CNX Mid Cap Diversified
Sensex
Fund Fund Fund
127.8 -5.5 2.5 24.2 138.3 26.0 42.3 46.5 75.7 5.1 99.0
17.3

BSE 100 Diversified CNX Mid Cap BSE 100 CNX 500 MSCI EM MSCI India
Nifty MSCI EM I-SEC Bond MSCI India Gold
Fund
93.1 -14.7 -1.7 23.0 107.6 25.0 40.2 41.0 62.5 -43.8 91.5 14.3

MSCI India MSCI India Nifty Diversified CNX 500 CNX 500 BSE 100 Nifty BSE 200 Nifty CNX 500 BSE 200
Fund
89.1 -17.2 -16.2 98.1 17.9 38.3 39.8 60.4 -51.8 88.6 13.9
17.6

BSE 200 Sensex Sensex MSCI EM BSE 200 Diversified Sensex BSE 200
BSE 200 BSE 200 Nifty CNX 500
Fund
88.7 -20.6 -17.9 15.5 94.5 16.6 36.3 39.6 59.7 -52.4 88.5 13.6

CNX Mid Cap BSE 100 MSCI India BSE 100 Diversified BSE 100 BSE 100
CNX 500 BSE 100 CNX 500 BSE 100 Nifty
Fund
68.7 -22.6 -18.6 10.3 84.7 16.4 36.3 34.9 59.7 -55.3 85.0 13.4

MSCI EM CNX 500 Diversified BSE 200 Diversified Diversified

Nifty Junior Sensex MSCI EM CNX 500 Nifty Sensex
Fund Fund Fund
67.8 -24.2 -20.3 8.8 72.9 15.7 35.1 34.0 54.8 -55.3 84.5 13.3

Nifty Diversified Sensex

BSE 200 BSE 100 Nifty CNX Mid Cap CNX Mid Cap MSCI India BSE 200 Sensex BSE 100
Fund
67.4 -21.9 6.9 71.9 13.1 35.0 29.0 52.5 -56.5 81.0 13.4
-24.5

Sensex CNX Mid Cap CNX 500 MSCI India MSCI India MSCI India BSE 200 Nifty Junior Sensex MSCI India Nifty MSCI India
63.8 -25.0 -23.3 5.3 65.5 11.0 33.8 28.2 47.1 -56.8 75.8 12.9

CNX 500 BSE 200 BSE 100 Sensex MSCI EM Nifty Nifty Junior MSCI EM Gold CNX 500 MSCI EM I-SEC Bond
53.1 -26.2 -23.4 3.5 44.2 10.7 24.4 26.9 31.0 -57.1 66.8 10.6

I-SEC Bond MSCI EM CNX Mid Cap Nifty Gold Gold Gold Gold MSCI EM CNX Mid Cap Gold Nifty Junior
16.4 -26.9 -27.6 3.3 19.3 5.5 18.0 23.0 21.5 -59.4 25.5 10.0

Gold Nifty Junior Nifty Junior MSCI EM I-SEC Bond I-SEC Bond I-SEC Bond I-SEC Bond I-SEC Bond Nifty Junior I-SEC Bond MSCI EM
0.1 -39.1 -46.5 -8.5 12.4 -1.4 6.3 6.0 6.9 -63.5 -6.8 8.0

Asset classes in Quartile 1 & 2 should do a good job of wealth creation

Number of years in each quartile
Asset Class Q1+Q2 Q3+Q4
1 2 3 4
Diversified Funds 5 2 4 0 7 4
BSE 100 2 7 1 1 9 2
S&P CNX Nifty 1 4 4 2 5 6
CNX Mid Cap 5 1 3 2 6 5
S&P CNX 500 1 5 3 2 6 5
Sensex 2 3 5 1 5 6
BSE 200 0 6 4 1 6 5
MSCI India 3 3 5 0 6 5
CNX Nifty Junior 5 0 2 4 5 6
Gold 4 0 0 7 4 7
I-SEC Bond 3 1 0 7 4 7
MSCI Emerging Markets 2 1 2 6 3 8
Average Returns 52.2 30.8 22.8 1.2 41.5 12.0
Data Source: Bloomberg; Analysis: Sundaram BNP Paribas Asset Management; Returns for diversified fund is sourced from Value Research
For every 100, Q1: ranks 1-25, Q2: ranks 26-50, Q3: ranks 51-75 and Q4: ranks 76-100 Analysis: S Vidhya
Sundaram BNP Paribas Asset Management 24 The Wise Investor February 2010
 Periodic Table Global
Annual Returns for Key Asset Classes (1999 - 2009 YTD) Ranked in Order of Performance
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Dec 1999-Dec 2009
Russia Commodities Russia Crude Brazil Indonesia Russia China Brazil US Treasury Brazil Brazil
246.2 26.9 53.2 55.4 102.9 44.5 69.5 78.1 75.3 14.9 121.3 15.1

Crude EM Bond Korea Commodities BRIC Real Estate Korea Indonesia India USD (DXY) Indonesia Gold
135.5 14.4 46.0 39.0 84.2 38.0 54.3 69.6 71.2 6.0 120.8 14.3

Singapore Real Estate Taiwan Indonesia China Latam Brazil Russia China Gold India Latam
97.1 13.8 8.8 38.1 81.1 34.8 50 53.7 63.1 5.1 100.5 13.9

Indonesia US Treasury US Treasury Gold Chile Europe EM Europe BRIC Crude EM Bonds Russia Russia
92 13.3 6.9 24.7 79.7 33.4 47.2 52.9 56.1 -10.9 100.3 13.5

Korea Agriculture USD (DXY) Agriculture India Crude Crude India BRIC Singapore India
Latam 98.1
90.2 12.1 6.6 19.1 73.9 32.0 46.3 49 56.1 -18.2 12.2

U.S (Nasdaq) USD (DXY) Asia Russia Russia Brazil Latam Real Estate Indonesia Agriculture BRIC Crude
85.6 7.5 4.2 13.9 70.3 30.5 44.9 42.4 50.8 -19.7 88.8 12.0

India Gold Gold Indonesia Chile BRIC Singapore Latam Japan Crude Indonesia
EM Bond 13.1
84.7 -5.5 2.5 70.0 24.6 39.8 41.9 46.9 -27.7 84.9 11.7

EM Europe U.S (Dow) EM Bonds US Treasury Latam MSCI EM Commodities Brazil Agriculture U.S (Dow) Chile BRIC
81.3 -6.2 1.4 11.5 67.1 22.4 39.1 40.5 41.2 -33.8 81.4 11.0

BRIC Crude Real Estate Korea EM Europe Honk Kong India Latam Commodities Chile EM Europe Chile
78.2 -9.4 -3.8 7.4 65.5 20.8 35.4 39.3 40.7 -37.3 81.1 10.9

Asia MSCI Europe Latam India Germany Korea MSCI EM Germany Asia U.S (S&P 500) Taiwan EM Bond
67.7 -9.9 -4.3 5.9 64.0 20.0 30.3 36.0 38.3 -38.5 75.1 10.5

MSCI EM U.S (S&P 500) MSCI EM EM Europe MSCI EM Commodities Asia EM Europe Honk Kong U.S (Nasdaq) MSCI EM Commodities
63.7 -10.1 -4.9 2.9 51.6 19.2 23.5 33.5 37.5 -40.5 74.5 10.4

Asia ex-Japan Germany Asia ex-Japan Real Estate U.S (Nasdaq) Singapore Japan Asia ex-Japan Asia ex-Japan MSCI World Asia Real Estate
61.9 -13.5 -5.9 2.8 50.0 18.8 22.5 30.1 37.1 -42.1 70.3 9.2

Brazil MSCI World Chile Asia Asia MSCI Europe Asia ex-Japan MSCI Europe MSCI EM Germany Korea Agriculture
61.6 -14.1 -6 -6.2 47.1 18.0 19.3 29.8 36.5 -42.8 69.4 8.1

Latam Brazil U.S (Dow) MSCI EM Asia ex-Japan Germany Chile Asia Germany Commodities Asia ex-Japan Korea
55.5 -14.2 -7.1 -8 42.7 16.8 18.4 29.8 36.4 -42.8 68.3 7.5

Honk Kong FTSE 100 EM Europe Japan Real Estate India Gold Agriculture Gold Real Estate Singapore MSCI EM
54.8 -16.9 -10.5 -9.9 40.7 16.5 18 29.6 31.0 -47.7 68.2 7.3

Japan Chile Indonesia Asia ex-Japan Taiwan FTSE 100 Agriculture MSCI EM Korea MSCI Europe China China
53.3 -17 -10.9 -10.2 40.0 15.5 16.4 29.2 30.0 -47.9 58.8 6.9

Taiwan Honk Kong U.S (S&P 500) USD (DXY) Japan Asia ex-Japan China Chile EM Europe Taiwan Honk Kong Europe
51.5 -17.0 -13 -12.8 37.7 14.4 15.9 26.4 27.8 -48.7 55.2 6.5

Commodities Latam Agriculture Singapore Singapore BRIC Real Estate Honk Kong Singapore FTSE 100 Commodities US Treasury
46.2 -18.4 -14.1 -13.1 34.2 13.6 15.4 26.2 23.9 -49.5 50.3 6.1

Chile BRIC Crude BRIC MSCI Europe MSCI World USD (DXY) FTSE 100 Russia China U.S (Nasdaq) Asia
36.5 -22.8 -14.4 -15.2 34.1 12.8 12.8 26.1 22.9 -51.9 43.9 4.9

U.S (Dow) India BRIC China Korea Asia Indonesia Gold Chile Latam Real Estate Asia ex-Japan
25.2 -22.8 -17 -16.2 32.6 12.2 12.6 23.0 20.8 -52.8 38.3 3.8

EM Bond Singapore MSCI World FTSE 100 Honk Kong Japan Singapore MSCI World MSCI Europe Honk Kong U.K Singapore
24.2 -28.6 -17.8 -16.4 32.5 11.8 10.8 18.0 10.6 -52.9 35.2 3.1

MSCI World Russia FTSE 100 U.S (Dow) MSCI World EM Bond Taiwan U.S (Nasdaq) Asia ex-Japan MSCI Europe Germany
EM Bond 11.7
23.6 -30.4 -18.4 -16.8 30.8 10.7 16.3 9.8 -53.6 30.6 2.0

Germany MSCI EM U.S (Nasdaq) MSCI Europe U.S (S&P 500) U.S (S&P 500) Germany U.S (Dow) US Treasury Asia EM Bond Honk Kong
20.1 -31.8 -21.1 -20 26.4 9.0 10.3 16.3 9.0 -54.1 28.2 1.0

U.S (S&P 500) China India Honk Kong FTSE 100 U.S (Nasdaq) MSCI World U.S (S&P 500) MSCI World MSCI EM MSCI World MSCI Europe
19.5 -32.2 -21.2 -20.6 25.8 8.6 7.6 13.6 7.1 -54.5 27.0 -0.6

MSCI Europe Japan Honk Kong MSCI World EM Bond Taiwan MSCI Europe Korea U.S (Dow) Crude Germany U.S (Dow)
15.3 -34.9 -21.2 -21.1 25.7 6.5 7.2 11.2 6.4 -55.5 25.8 -1.0

FTSE 100 EM Europe MSCI Europe Chile U.S (Dow) Gold Honk Kong EM Bonds EM Bonds Korea Gold MSCI World
14.5 -35.3 -21.3 -21.7 25.3 5.5 4.8 9.9 6.3 -55.9 25.5 -1.9

China Asia ex-Japan Brazil U.S (S&P 500) Gold Russia FTSE 100 U.S (Nasdaq) Taiwan Indonesia U.S (S&P 500) U.K
9.9 -36.3 -21.8 -23.4 19.3 4.1 4.7 9.5 5.4 -57.6 23.5 -2.4

Real Estate U.S (Nasdaq) Germany - Latam Agriculture US Treasury Taiwan Japan FTSE 100 Brazil U.S (Dow) USD (DXY)
8.9 -39.3 24.6 -24.8 12 3.5 3.3 5.9 5.2 -57.6 18.8 -2.6

USD (DXY) Asia Singapore Taiwan Commodities U.S (Dow) U.S (S&P 500) US Treasury U.S (S&P 500) BRIC Japan U.S (S&P 500)
8.2 -42.5 -25 -25.4 10.8 3.1 3.0 3.1 3.5 -60.3 16.4 -2.7

Gold Taiwan China U.S (Nasdaq) US Treasury China US Treasury Crude Japan India Agriculture Taiwan
0.1 -45.3 -26 -31.5 2.3 -0.8 2.8 2.1 -6.2 -65.1 14.7 -2.8

Agriculture Korea Commodities Germany Crude USD (DXY) U.S (Nasdaq) Commodities Real Estate EM Europe USD (DXY) - Japan
-10.4 -50.3 -31.5 -33.5 1.6 -7 1.4 0.4 -7.0 -68.6 4.2 -4.7

Indonesia Japan Brazil USD (DXY) Agriculture U.S (Dow) USD (DXY) USD (DXY) - Russia US Treasury U.S (Nasdaq)
-63.0 -33.2 -33.8 -14.7 -14.0 -0.6 -8.2 8.3 -74.2 -4.3 -5.7

Sundaram BNP Paribas Asset Management 25 The Wise Investor February 2010
 Quartile based on Periodic Table Global
No need to chase the top performer; asset classes in Quartile 1 & 2 should do the job
Number of years in each quartile
Asset Class 1 2 3 4 Q1+Q2 Q3+Q4

F MSCI EM 1 8 2 0 9 2
I
R Indonesia 7 1 1 2 8 3
S
T India 5 3 2 1 8 3
Q EM Europe 2 6 1 2 8 3
U
A Asia 1 7 2 1 8 3
R
T Asia ex-Japan 0 8 2 1 8 3
I
L Brazil 6 2 0 3 8 3
E
Latin America 5 3 2 1 8 3
S Russia 7 0 2 2 7 4
E
C Crude 6 1 1 3 7 4
O
N Korea 3 4 1 3 7 4
D
Chile 3 4 3 1 7 4
Q
U Real Estate 3 4 2 2 7 4
A
R BRIC 5 1 4 1 6 5
T
I Commodities 3 3 2 3 6 5
L
E Germany 0 6 2 3 6 5
T Gold 4 2 1 4 6 5
H
I Agriculture 4 2 1 4 6 5
R
D Singapore 3 2 5 1 5 6
Q Emerging Market Bonds 4 0 4 3 4 7
U
A
MSCI Europe 0 4 4 3 4 7
R
T
China 3 1 4 3 4 7
I
L
U.S Treasury 4 0 1 5 4 6
E
U.S (Nasdaq) 1 2 4 4 3 8
F Honk Kong 0 3 6 2 3 8
O
U Japan 1 2 3 5 3 8
R
T Taiwan 1 2 3 5 3 8
H
U.S (Dow) 2 1 3 5 3 8
Q
U USD 3 0 2 6 3 8
A
R MSCI World 0 2 8 1 2 9
T
I U.S (S&P 500) 0 2 4 5 2 9
L
E U.K 0 2 6 3 2 9
For every 100, Q1: ranks 1-25, Q2: ranks 26-50, Q3: ranks 51-75 and Q4: ranks 76-100
Analysis: S Vidhya
Data Source: Bloomberg; Analysis: Sundaram BNP Paribas Asset Management; Methodology: www.sundarambnpparibas.in

Sundaram BNP Paribas Asset Management 26 The Wise Investor February 2010
 Performance Tracker Global
Index Year-To-Date One Month Three Months Six Months One Year Three Years Five Years
Return Rank Return Rank Return Rank Return Rank Return Rank Return Rank Return Rank
S&P 500 -3.7 8 -3.7 8 3.6 13 8.7 15 30.0 19 -25.3 21 -9.1 24
Dow Jones -3.5 7 -3.5 7 3.7 12 9.8 12 25.8 23 -20.2 20 -4.0 22
Nasdaq Composite -5.4 13 -5.4 13 5.0 7 8.5 16 45.4 15 -12.8 15 4.1 20
Nikkei 225 -3.3 6 -3.3 6 1.6 17 -1.5 23 27.6 22 -41.3 -10.4 25
Dax -5.9 15 -5.9 15 3.6 14 5.2 19 29.3 20 -17.4 19 31.8 15
FTSE 100 -4.1 9 -4.1 9 2.9 16 12.6 6 25.0 24 -16.4 18 6.9 19
S&P GSCI Index Spot -7.3 21 -7.3 21 -2.1 21 6.3 18 44.6 16 13.8 7 46.7 14
MSCI World -4.2 10 -4.2 10 1.2 18 7.2 17 33.5 18 -25.4 22 -2.0 21
MSCI Europe -2.9 5 -2.9 5 3.9 9 9.4 14 28.1 21 -34.0 24 -5.9 23
MSCI Asia ex-Japan -6.1 17 -6.1 17 0.5 19 4.7 20 67.4 9 1.7 10 55.2 10
Crude -8.7 24 -8.7 24 -5.3 23 -0.6 22 56.8 13 23.2 4 53.6 12
Gold -1.5 4 -1.5 4 3.4 15 13.3 5 16.5 25 65.5 1 155.8 3

Emerging Markets (MSCI Indices)

BRIC -7.5 22 -7.5 22 -1.2 20 9.6 13 81.9 7 10.6 9 135.2 5

Brazil -11.0 25 -11.0 25 -2.5 22 16.6 4 88.5 5 45.3 3 216.8 1
Russia 2.4 1 2.4 2 8.2 3 33.2 1 132.1 2 -31.3 23 64.7 9
India -5.3 12 -5.3 12 6.2 4 11.5 8 94.0 4 10.8 8 133.1 6
China -8.6 23 -8.6 23 -6.0 24 -3.1 24 58.2 12 18.8 6 140.1 4
Korea -4.9 11 -4.9 11 3.9 10 10.4 10 69.3 8 -2.5 12 49.3 13
Taiwan -6.5 20 -6.5 20 5.4 5 9.8 11 82.1 6 -8.9 14 9.8 18
Singapore -6.1 16 -6.1 16 3.7 11 1.9 21 54.9 14 -13.6 16 30.2 16
Honk Kong -6.4 19 -6.4 19 -6.0 25 -3.7 25 44.5 17 -8.1 13 29.1 17
Indonesia 2.0 2 2.0 3 11.1 2 18.5 3 145.1 1 51.3 2 160.3 2
Mexico -6.2 18 -6.2 18 5.1 6 12.6 7 64.4 11 -14.3 17 77.2 7
South Africa -5.4 14 -5.4 14 4.6 8 11.4 9 66.3 10 -0.2 11 54.4 11

Turkey 1.6 3 19.2 1 13.6 1 22.9 2 96.8 3 20.2 5 72.3 8

Top Performer Russia Turkey Turkey Russia Indonesia Gold Brazil

Worstt Performer Brazil Brazil Honk Kong Honk Kong Gold Nikkei 225 Nikkei 225

Source: Bloomberg; P/E: Price-to-Earnings ratio; P/B: Price-to-Book ratio; 12-M: 12 Months; Returns is in percentage and in U.S. Dollar terms for each period and not on an annualised basis. Analysis: A Preetha
Sundaram BNP Paribas Asset Management 27 The Wise Investor February 2010
 Performance Tracker India
Index Trailing Year-To-Date One Month Three Months Six Months One Year Three Years Five Years
12m P/E Return Rank Return Rank Return Rank Return Rank Return Rank Return Rank Return Rank
Cap-Curve Indices
BSE Sensitive Index (Sensex) 24.5 -6.3 19 -6.3 19 2.9 20 4.4 19 73.6 19 16.1 18 149.5 7
S & P CNX Nifty 24.1 -6.1 18 -6.1 18 3.6 18 5.3 17 69.8 21 19.6 17 137.3 14
Nifty Junior 20.5 -3.8 8 -3.8 8 9.0 8 17.8 8 136.1 4 37.4 7 135.1 15
Nifty 100 23.5 -5.8 17 -5.8 17 4.5 17 7.1 15 78.3 17 22.1 13 — —
CNX Mid-Cap 17.9 -3.1 6 -3.1 6 9.5 7 21.0 7 114.5 7 36.4 8 151.4 6
BSE Mid-Cap 18.4 -3.1 5 -3.1 5 8.2 10 16.9 9 121.3 6 7.7 20 118.7 18
BSE Small-Cap 15.7 -1.5 3 -1.5 3 16.6 1 32.7 1 146.6 3 9.7 19 140.5 11
BSE 100 24.4 -5.7 16 -5.7 16 4.5 16 6.5 16 81.8 16 21.9 15 147.3 9
BSE 200 23.2 -5.3 15 -5.3 15 5.2 14 8.1 14 86.5 14 22.1 14 137.7 13
BSE 500 22.6 -4.9 12 -4.9 12 6.0 12 9.6 13 90.0 12 20.4 16 138.8 12

S & P CNX 500 21.2 -4.0 10 -4.0 10 7.9 11 10.4 12 88.1 13 22.5 12 135.0 16

Sector Indices

BSE Auto 49.9 -6.5 20 -6.5 20 10.2 6 21.7 6 178.1 2 26.1 10 147.9 8
BSE Banks 14.8 -3.8 7 -3.8 7 3.4 19 14.0 10 97.0 11 33.0 9 163.0 3
BSE Capital Goods 32.4 -7.0 21 -7.0 21 2.0 21 4.2 20 109.8 10 38.4 6 339.6 1
BSE Consumer Durables 12.6 0.4 1 0.4 1 13.5 3 21.8 5 113.7 8 0.0 21 162.3 4
BSE FMCG 31.2 -2.4 4 -2.4 4 -3.0 22 -0.5 22 34.1 23 43.0 5 142.9 10
BSE Healthcare 47.7 -5.0 13 -5.0 13 8.9 9 25.2 4 75.6 18 25.3 11 76.4 20
BSE IT 22.1 -4.0 11 -4.0 11 12.5 5 25.6 3 122.6 5 -6.0 22 93.7 19
BSE Metal #N/A -8.3 22 -8.3 22 14.5 2 28.8 2 213.0 1 71.9 1 161.5 5
BSE Oil & Gas 18.7 -5.1 14 -5.1 14 5.3 13 4.8 18 59.0 22 49.9 3 224.4 2
BSE Public Sector 18.4 -0.6 2 -0.6 2 12.8 4 13.2 11 85.2 15 50.4 2 122.9 17
BSE Power 31.1 -4.0 9 -4.0 9 5.0 15 3.1 21 70.8 20 45.7 4 — —

BSE Realty 19.1 -9.2 23 -9.2 23 -8.5 23 -10.5 23 109.8 9 — — — —

Top Performer BSE Consumer BSE Consumer BSE Small-Cap BSE Small-Cap BSE Metal BSE Metal BSE Capital Goods
Durables Durables
Worst Performer BSE Realty BSE Realty BSE Realty BSE Realty BSE FMCG BSE IT BSE Healthcare

Source: Bloomberg; P/E: Price-to-Earnings ratio; P/B: Price-to-Book ratio; 12-M: 12 Months; Returns is in percentage for each period and not on an annualised basis. Analysis: A Preetha
Sundaram BNP Paribas Asset Management 28 The Wise Investor February 2010
 Equity Chart Book
MSCI World MSCI Emerging Markets

1600
1600
1400
1400 1200

1200 1000

800
1000
600
800
400

600 200
Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10
Open 1422 High 1682 Low 689 Close 1120 Open 489 High 1338 Low 246 Close 934

MSCI Brazil MSCI Russia

1600
4300

1100

2300
600

300 100
Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10
Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Open 889 High 4728 Low 279 Close 3226 Open 223 High 1642 Low 139 Close 814

MSCI India MSCI China

780 100

680

580

480
50
380

280

180

80 0
Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Open 148 High 694 Low 71 Close 444 Open 33 High 104 Low 13 Close 59
Source: Bloomberg

Sundaram BNP Paribas Asset Management 29 The Wise Investor February 2010
 %

4
6
8
USD Million

10
12
14

3
5
7
%9
13
15

11
Dec/01 Jan/00
Jul/00

10000
70000
130000
190000
250000
310000
370000
Jun/02
Jan/00
Dec/00
Jul/00 Dec/02

Open 35.1
Open 8.15
Open 11.26
Jun/01
Jan/01 May/03
Jul/01 Dec/01
Nov/03 Jun/02
Jan/02
Jul/02 May/04 Dec/02
Jan/03 Jun/03
Nov/04
Jul/03 Dec/03

High 316.2
High 13.91
May/05

High 11.77
Jan/04
Jun/04
Jul/04 Nov/05
Dec/04
Jan/05
May/06 Jun/05
Jul/05
Nov/06 Dec/05

Sundaram BNP Paribas Asset Management

Jan/06
Jul/06 May/07 May/06

Low 34.7
Low 4.80
Low 4.99
Jan/07 Nov/06
Nov/07
Jul/07
10-Year G-Sec Yield (%)

May/07
Jan/08 May/08
Nov/07
Jul/08 Oct/08

India Forex Reserves ($ billion)

May/08
Jan/09
Apr/09 Nov/08

1-Year AAA Corporate Bond Yield (%)

Jul/09
Oct/09 May/09
Jan/10

Close 6.18
Close 7.59

Nov/09

Close 282.9

30
bp

0
2
4
%6
8

-2
10
12
14
Jan/00

10.0
0

100.0
bp 190.0
280.0
370.0
(100)
100
200
300
400

Jul/00 Dec/01 Jan/00

Jan/01 Jul/00

Open 210
Open 126

Open 2.81
Jun/02
Jul/01 Dec/00
Dec/02
Jan/02 Jun/01
May/03 Dec/01
Jul/02
Jan/03 Nov/03 Jun/02
Jul/03 May/04 Dec/02

Jan/04 Jun/03

High 423
High 341

Nov/04

High 12.82
Dec/03
Jul/04
May/05 Jun/04
Jan/05
Nov/05 Dec/04
Jul/05
May/06 Jun/05
Jan/06
Dec/05
Jul/06 Nov/06

WPI Inflation (%)

May/06
Low -16
Low -64

Jan/07 May/07

Low -1.01
Nov/06
Jul/07 Nov/07 May/07
Jan/08 Nov/07
May/08
Jul/08 May/08
Oct/08
Jan/09 Nov/08
G Sec 1-10 Year Spread (basis points)

Apr/09
Jul/09 May/09
Oct/09 Nov/09
Close 114
Close 299
Fixed-Income Chart Book

Close 7.31

The Wise Investor February 2010

5-Years G Sec AAA Bond Spread (basis points)

Source: Bloomberg
 Commodities Chart Book
Crude Oil Gold

170 1200
150
1000
130
110
$/bbl

800
90

$/oz
70 600

50
400
30
10 200

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10
Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10
Open 23.9 High 145.7 Low 16.6 Close 70.5 Open 288.0 High 1215.7 Low 255.6 Close 1080.9

Baltic Freight Index LME Metals Index

21700 5000

18700 4500
4000
15700
3500
12700
3000
9700
2500
6700
2000
3700 1500
700 1000
Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Apr-00

Apr-01

Apr-02

Apr-03

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09
Open 1782.0 High 19687.0 Low 830.0 Close 3494.0 Open 1254.2 High 4556.6 Low 958.3 Close 3125.4

S & P Goldman Sachs Commodity Index CRB Non-Energy Index

1000 700
900
600
800
700 500
600
400
500
400 300
300
200
200
100 100
Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10
Jul-00

Jul-01

Jul-02

Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10
Jul-00

Jul-01

Jul-02

Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Open 194.5 High 890.3 Low 162.0 Close 790.5 Open 162.8 High 499.2 Low 149.6 Close 327.8

Source: Bloomberg

Sundaram BNP Paribas Asset Management 31 The Wise Investor February 2010
 In a lighter vein
"'I want to see the boss.' 'What do you want to see him about?' 'About a job.' 'I'm sorry, but you can't see him; he's in an unemployment conference.'"

Patient - My nerves are worn to a frazzle. Doctor - Stop thinking about yourself - lose yourself in your work Patient - Gosh! And me a cement mixer!

Interior Sec. Wilbur has a large index on his desk to keep track of progress on the Hoover Dam, one of the largest projects ever undertaken. While showing it

to reporters the other day, he remarked "Yes, everything is fine about the book but its name." And he turned it over to show the cover "Dam Progress

Doctor - Did you put a mirror in front of the patient's face, to see if she is still breathing? Nurse - Yes, and she blushed and asked for her vanity case."

"'That man wants me to lend him some money. Do you know anything about him?' 'Why, I know him as well as I know you. Don't lend him a bean, old man.'"

Source: http://newsfrom1930.blogspot.com/

BackPage Investment Quiz

1 Name the foreign investor who picked up a small stake in Reliance Mutual Fund, a couple of years ago?

Compiled by S.Vaidya Nathan

2 The currency of this Latin American country was devalued by its government steeply last month. Which currency and country are we referring
to?
3 Who is the author of Too Big To Fail? (We had in November 2009 asked for the author of Too Big To Save)
4 What is the maximum fee + expenses that a fixed-income fund can charge according to SEBI regulation?
5 Which fund house was the first in India to launch an exchange-traded fund to track gold? Also which was the first fund launched to track gold-
mining stocks?
P
R Answers must be mailed to iq@sundarambnpparibas.in
I The first 25 responses with correct answers to all questions will receive a prize. Please mention your mailing address in your e-mail. Employees of Sundaram BNP Paribas
Z Asset Management, its Sponsors and Associates & Group Companies of the Sponsors shall not be entitled to prizes even if they participate and mail correct answers.
E

Answers for January 2010 Quiz

1 Who was India’s Finance Minister as we stepped into the last decade (We are looking for the person who held the portfolio in 3 Name the fund house that launched the first fund to invest in overseas securities in India?
January 2000)? Principal Mutual Fund
Yashwant Sinha 4 We all know Reliance Mutual Fund ended the decade as # 1 in terms of assets under management. Which fund house was #
1 at the start of the decade?
2 This is a sitter. Name the only IT stock that has regained the market cap that it enjoyed at the peak of the tech boom that ended Unit Trust of India
after Q1 2000? 5 Who is author of Lords of Finance:The Bankers Who Broke The World?
Infosys Technologies Liaquat Ahamed

Disclaimer
Mutual fund investments are subject to market risks. Please read the Statement of Additional Information of Sundaram BNP Paribas Mutual Fund and
Scheme Information Document of Sundaram BNP Paribas Mutual Fund carefully before taking an investment decision. Risk Factors: All mutual funds and
securities investments are subject to market risks.There can be no assurance or guarantee that a scheme's objective will be achieved. NAV may rise or decline, depending on factors and
forces affecting the securities market.There is risk of capital loss and uncertainty of dividend distribution. General Disclaimer: The Wise Investor, a monthly publication of Sundaram
BNP Paribas Asset Management, is for information purposes only.The Wise Investor is not and should not be construed as a prospectus, scheme information document, offer document,
offer solicitation for an investment and investment advice, to name a few. Information in this document has been obtained from sources that are reliable in the opinion of Sundaram BNP
Paribas Asset Management. Opinions expressed by authors may not necessarily represent that of Sundaram BNP Paribas Asset Management or Sundaram BNP Paribas Trustee Company
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or Sundaram BNP Paribas Mutual Fund. The detailed disclaimer/disclosures/risk factors, including that of BNP Paribas Asset Management, available at www.sundarambnpparibas.in must
also be treated as an integral part of this communication. Statutory: Mutual Fund Sundaram BNP Paribas Mutual Fund is a trust under the Indian Trusts Act, 1882 Sponsors (Collective
liability is limited to Rs 1 lakh): Sundaram Finance Limited & BNP Paribas Asset Management. Investment Manager: Sundaram BNP Paribas Asset Management Company Limited.
Trustee: Sundaram BNP Paribas Trustee Company Limited. Past performance of Sponsors/Asset Management Company/Fund does not indicate or guarantee future performance.
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Sundaram BNP Paribas Asset Management 32 The Wise Investor February 2010