USSR broke up physically in 1991…USA is breaking up economically now

It’s Uncanny really !

Two super Powers,USSR and USA being brought to their knees….the former suffering,both, physical and economic disintegration and the latter in the midst of it’s worst economic crisis…self inflicted,I daresay.

Breaking up of USSR in 1991

Vladimir Lenin founded the Union of Soviet Socialist Republics or USSR for short in 1918.It was born to die ! It collapsed into the Commonwealth of Independent States in 1991…The Soviet Communist Regime Lifespan lasted less than 75 years and died in the same Twentieth Century…The breakup was aggravated,provoked and prompted by the fast plunging economy and several area disputes between many republics that were leading to armed conflicts

Breaking up of USA in 2009

It’s July 4,2009 today and  USA celebrates it’s Independence Day…..Nothing really much to celebrate though,as  It’s first Afro American President has inherited a disastrous Economy…it’s States are fast disintegrating fiscally…..will each Independently fall !?….California is bankrupt.It is USA’s most populous state with 38 million people and a GDP of US $ 1.8 Trillion,twice that of India alone…as it’s celebrity Governor,Arnold Schwarzenegger pleads “ Our Wallet is empty.Our Bank is closed.And our Credit is dried up “

Expect California State Bonds to be downgraded to junk status…..It’s going to send Stocks crashing in USA ….Danger of other States and Counties living this Californian Nightmare too is very real

Unemployment figures in USA ,that were just released, show a further 467000 rendered jobless in June 2009 ….taking the Unemployment rate to 9.5%,the worst in over 26 years..the figures shoots over 15% if you consider the part time and discouraged workers

We have had 52 US Banks failing this year more than twice in number already from the 25 that collapsed in 2008 and we had three sinking in 2007.As of last quarter end the Federal Deposit Insurance Corp (FDIC) had 305 Banks on it’s troubled List with US $ 220 Billion in assets

Increasing Unemployment is leading to acceleration in Defaults to Banks…this compounded with Banks exposure to high risk Investments like CDOs is a double whammy…Banks have lend and they have invested and both Assets are in default mode with severe recovery problems

It is feared that Employment statistics will only improve and stabilise by 2012…only then will we begin to see a revival in the Real Estate market in USA as Citizens will have monies to invest in Houses…The Asset Bubble that developed in Real Estate is largely to blame for the near collapse of USA’s Financial System….High Unemployment is a hurdle to any Revival in the Real Estate Sector…It is estimated that in USA, the earliest that we’ll get to see Real Estate at prices of 2007 again,will be in 2017…five years after Employment is expected to stabilise 

The Dow has sunk 500 points in past few days reflecting this…No Green shoots visible at all…as Warren Buffett says jokingly “I can’t see any green shoots…maybe because I’ve just undergone a cataract operation !”

Dow’s Impact on our Sensex

So if Dow collapses from 8000 +levels to below 6000 as the second half of Calender year 2009 unfolds,I’m just thinking out aloud… will this affect our Sensex !?…wll we see a sub 10000 Sensex again ! ?  Are we now decoupled enough for it not to ! ?

Investment Prisms are different…If you look at USA,the Dow is set to weaken to reflect deteoriating fundamentals….If you look at Emerging India…the Sensex,despite short term hiccups in the offing, is itching to rise from even near 15000 levels….. to reflect the impact of fast track reforms from this UPA Government led by Congress enjoying a clear mandate and now undeterred by any serious opposition from coalition partners …the first official confirmation of this is expected from reform pronounements in the Union Budget to be presented on Monday

So maybe,a Bad Dow may not mean a Bad Sensex

India is better positioned

Infact we’ve already seen evidence of increasing FII Inflows…capital will flow to where returns are more certain and more visible and appear less risky…India qualifies well as an Investment Destination on this.

In challenging times,our GDP Growth rate dropped from 9% in FY 08 to below 6% in FY 09…the target is 8% for FY 10….relatively strong when mapped against recession hit developed countries which saw GDP declining in absolute terms

Ofcourse the Sensex may correct post budget euphoria,as I said in an earlier blog today,to reflect Valuations,high Fiscal Deficit,Impact of an erratic and less than Normal Monsoon,increasing supply of Primary Paper and our Export dependence on the recession hit and troubled developed markets of  USA and Europe

Patriotism aside,It’s about time we charted our own Independent course fuelled by a growing domestic consumption story…makes our 1200 Million population,excitingly most of them are young, our Dividend and not our Dilemma

We’ll soon see a time when our Deficit and Infrastructure Spending is not financed by High Borrowings,Printing More Currency or Selling off Public Assets but more by Increased Revenues,Controlled Expenditure,Decreasing Subsidies and raising Equity in India and Overseas in a vibrant Capital Market…opening up sectors and increasing Investment caps for FDI is a contentious issue…but is does speed up the Inrastructure building process…government,alone,cannot create sufficient capital formation for the hundreds of billions of dollars required to build our Nation’s Infrastructure…It will need Private participation too…Corporate Governance will be a winner as Accountability,Transperancy,Responsibility,Efficiency,Corruption and Productivity issues will be addressed…Air India’s sad plight comes to mind immediately….It’s bleeding badly and the Chairman now tells us that the choice is between Austerity and Oblivion ! The writing was on the wall years ago but tough decisions were deferred on political and vested interest compulsions

A lot to think about this weekend………before we hear Pranab Mukherjee’s Union Budget on Monday

Or would you just prefer to disappear into the expressway to Lonavla and enjoy the lovely rain induced weather……

Cheers !