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Vishal Bhatia security analyst.. his viewpoints
stories..
wealth creation
wealth destruction
magicians
hubris vandals
wealth
money
economics
finance
trade should be profitable trade profitable if company profitable at least demand should exist have capacity to supply at profit
2200 / Ton 1500 / Ton 850 / Ton 200 / Ton 100 / Ton
Total Op Cost
2550 / Ton
Industrial Grade
Food Grade
demand rises
supply constant
=>
=> => => =>
prices rise
prices fall prices steady prices fall prices fall
demand constant supply rises demand rises demand falls demand falls supply rises supply constant supply rises
=>
=>
prices rise
prices steady
demand rises
supply falls
=>
vultures
30125 27458
price/quintal
10000
5000 0
588%
supply India + Pakistan India global monopoly (80%) total prod = 1.5 mt
demand wealthy American oil cos weak rupee $2,000 Mar 11 $28,000 Mar 12 1400%
hubris
Pride, self confidence, arrogance
what happened?
until 2006 any RE agent in USA would tell you that nationwide prices go up
since great depression housing prices in US have risen @ 1% a year
year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2007 2007 qtr Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q3 Q4 shiller 77.74 79.61 81.82 85.71 98.08 100 109.27 116 130.48 146.26 169.19 186.66 185.45 180.45 170.64
population
+
incomes
>
populati on
~1.5%
incomes
Incomes = 3% ____________________________________
Money Pool = ~ 1.4%
Maybe new homes did not keep pace with population increase.. lets check!
2000
->
In 2000s US was building 1.5 m homes a year Then it started accelerating. By 2004 they were building roughly 2m homes a year
On average 1.8m homes a year So 1.8 x 4 = 7.2 m new homes So 7.2 / 115 = 0.06xxx = ~ 6% new homes built Housing stock = ~6%
basic eco
Dig Deep
1970s House Price = $60,000 Down Payment = 25% Down Payment = $15,000 Loan = $45,000 Interest 9% = $4050 / yr or $340 /month Rent = $900
Important Cash flow - Steady job ? Discipline - X Rent - X Good Credit score 700+ Biggest Barrier down payment
Cut to - 2000s
2000s
2002s Down payment 0% Down payment - $0 Job you can lie Credit score = 500
2005s
Still More people eligible Suddenly a lot of people Became eligible to buy a house
Demand came from lowering of standards. Sub primes Poor migrant laborers earning $40,000 a year were able to buy $1,000,000 houses
That is someone earning Rs. 20 lakhs a year could buy a Rs. 5 cr house
interest
Fee
SECURITIZED LOANS
Fee
+
interest MBS
+
Fee
Investor gives 1m for home purchase. In return has claim on interest Does not know me. Thousands or millions. Then how would investors put up the money Have to rely on someone.. Who? Rating agencies
CDO AAA MBS Historically there have been low default rates We know why ? So there is a high likelihood that you will be paid
7%
Still no defaults
Vicious cycle
Housing prices go up
Lower defaults Lower standards Easier financing Perceived lending risk low More people willing to lend
Phata poster nikla vulture 100m 1000 borrowers 1m each Total borrowing = 1b 1b
1b 100m 1.1b
100m Share entitlement $100 yearly $1000 repayment SPV 1m shares High IPO Demand Price rises to 1100
Ideal -None defaults - no prepayment Everyone knows -It will not going to be exactly 10% How much lower? -Some will default some will prepay Computer models Historical data
population
State history
Recovery patterns
Real return?
Simplified model 20% or 200 default 10% overall losses Real return = 10 (10% of 10) = 9% VAR
50% recovery
wealth destruction
1995
E 20 2005
100k
L 80 1m
100k
100k
hettich Audi 1m
100k
100k
1m
E 0
300 k
L 1m
1m
Macau
500k
8%
1m
1m
Bubble peak
2008
580k
580k
580k
580k
600k??
2009
Bubble burst
250k
250k
250k
Honest effort Wealth wiped off: Short sale? Bank = 500k - 250k = 250k Borrower = 250k 80k = 170k 250 k Total = 420k boom!! Kaput!
Khanacademy.org
magician
Post mba 7 to 20 lakhs / year 10 years into management job 40-60lakhs / year
Currency Market
Peg to USD
Black Wednesday 16 sept 1992 EERM European Exchange rate mechanism Predecessor of euro Pegged to deutsche mark. Band 6% movement Commitment to ERM required that BOE doctor interest rates higher Economy demanded lower rates
Millionaire?
33%
1500 x 1920 = 28.8 L
Kingfisher 66 planes
Marginal cost concept will not work. DGCA will ground the airlines if scheduled altered Or if the airline is kingfisher
.. Another magician
to his shareholders the worst sort of business is one that grows rapidly, requires significant capital to engender growth and then earns little or no money. think airlines
1 configuration 1 type
38 years of profit
Vandal
.. Jala kar rakh kar doonga..! Saara paisa! How much money destroyed?
Kya kareen..?
Thyan thyan!!
Phantom punch
Inflection point
Disruptive innovation
Mechanical engg from imperial college London Frustrating attempts at making metal furniture in Calcutta. 1980s
2000 - 2004
357 cr
Second largest in the world 3 billion discs a year 17% global share
Tried increasing capacity Idea was to kill the competition from Taiwan
cmu
Dresses impeccably
No hobbies workaholic Finishes project before time
PE Funded
Raised debt
What happened?
Vandal?
Industry
Green power
Renewable
..on crutches!
Govt funded
How much we pay for 1 unit of electricity in india? Rs. 3.5 to 4.25 depending on state How much does solar electricity cost per unit rs. 7 Babaji kya aap hari bijli ke liye jyada paisa denge..?
Beta hari ko ni.., lal ya peeli.. Ek paisa bhi nahi doonga!! vote doonga..
Grants / subsidy
Demand erratic.. Must service any demand that arises.. However high it is..
then why did people put $3b or $13000 cr.. In power - 2008
Monopoly
Per unit price should be regulated such that the return on asset should be equivalent to similar businesses in India having a similar risk profile and investment requirements
Hats off!
Thanks!
Write to me vishalrpb@gmail.com