Sequel to Leveraging lives for fulfillment- Role of Debt in a common man’s life

The fresh developments over last couple of days are pointing to the fact that the credit crisis (note the shift in my approach of not terming it as “financial crisis”) that started last year is not over yet. Dubai World has requested a re-structuring of its debt payable to its creditors.

Over the years until 2 days back, I have been made to believe that middle-east is the where the richest of the world resides. I recall discussion with school friends (around the time of Iraqi crisis) that how a desert where nothing grows can be so rich. Drawing learnings from geography taught in class VIII and IX we knew that India compared to Middle-east (that only produces oil) is rich in natural resources, abundant water, has 4 seasons in a year and is a leading agricultural producer of the world. Most of us believed India will be a superpower due to its engineers and its agriculture produce.

Iraqi crisis (the Kuwait incident) saw fuel prices rise and I came to believe that middle-east countries will continue to be rich and India will have no chance, except when I recalled the concept of “renewable” and “non-renewable’ sources of energy. I believed- one day middle-east countries will have their oil wells running dry and then they will have to purchase everything from outside world with the wealth accumulated over a century or so.

The realty boom in Dubai was totally missed out by me except getting to know about Indian celebrities buying the property in Dubai- the Zoom channel was one such source. What I understand is that development of Dubai as a shopping hub over the last decade or so was an attempt to develop other sources of income and what better idea that getting into retail business which is directly linked to realty business.
So what’s in store from a common man- recall what I wrote on June 26, 2009. Please visit archives on my blog (http://thinkin-blog.blogspot.com).

I reiterate that as an individual with limited understanding of the finance world- debt is more of a disciplining measure…refer to the capital structure theories…..but what has happened is, debt has predominantly funded the growth of economies around the world. Equity investors, the key product of the capitalism have always worked towards one goal of wealth maximization while the risk is limited to the amount invested as an equity shareholder.

As a common man always remember the concept of “Leverage”- be careful. Go slow.

SLOW and STEADY ALWAYS WINS THE RACE..Cheers and be happy if you have no debt in life…

I will always like to be known as conservative. But not risk averse. Conservatives take risks at tactical levels only..

NO EXPOSURES…

Key developments to watch out for: Hershey’s counter bid for Cadbury and repercussions of appreciating currencies of BRIC countries

One:
Hershey Co. is lining up USD 17 billion funding from Bank of America and JP Morgan Chase to make a counter bid for Cadbury. Kraft Foods Inc. had offered USD 16.5 billion to shareholders of Cadbury which was turned down by board of Cadbury.
Quoting from Business Line Nov. 22, 2009 edition, “A key figure in any Hershey bid is Byron Trott, a favorite banker to legendary investor Warren Buffet, whose Berkshire Hathaway is the largest investor in Kraft. The Kraft connection goes further, as West is formerly an executive of the World’s no. 2 food maker.” West here is David West CEO of Hershey and Kraft Foods is the world’s no. 2 food maker.
What is Nestle thinking?…We have an interesting read over the next few weeks

Two:
Stronger currencies of BRIC countries may be one of the outcomes of the recent financial crisis. How will BRIC countries counter the appreciation of their currencies against USD? Why should they at all try to do this?
Market determined pricing…..Where is it now when Brazil tries to control the appreciation of Real.

I was always apprehensive of some of fundamental assumptions underlying some of the key finance theories…let’s see what in store here…..