1. Global Crisis & Investment Planning
9/14/2009
Global Crisis & Investment Planning
--a presentation by R. Kuppanna
GM, Kuwait India
9/14/2009

2. The Broken Window
The art of economics consists in looking not merely at the immediate but at the long effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups – Henry Hazlitt
9/14/2009

3. Global Crisis - - Causes
US Government’s Encouragement of Risky Mortgages to “sub-prime” borrowers (Community Reinvestment Act, Federal Housing Administration’s lowering of down-payment standards, Dept. of Housing & Urban Development’s pressure on lending institutions)
Freddie Mac & Fannie Mae grew to own or guarantee about 50% of the $ 12 trillion mortgage market.
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All that is necessary for the triumph of evil is that good men do nothing - - Edmund Burke
9/14/2009

4. Global Crisis - - Causes
Moral Hazard caused by Freddie/Fannie
Cheap Money Policy of the Fed that fueled these risky mortgages
(fed rates down from 6.25% to 1.75% in 2001; reduced further to a low of 1% in mid-2003)
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Every step which leads from capitalism toward planning is necessarily a step nearer to absolutism and dictatorship – Ludwig von Mises (Omnipotent Government)
9/14/2009

5. Global Crisis - - Consequences
Riskier mortgages, irresponsible buying/lending of loans, rising volumes, skyrocketing housing prices, price crash, rising defaults, bankruptcies of major institutions, cascading effects on other markets, global meltdown, decline in income/savings, rising unemployment, risk aversion, massive wealth destruction…
Demand for more intervention, stimulus/bailouts and more of the same disastrous policies
Seeds for another, greater CRISIS
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Let’s not be stuck in the dreary desert sand of dead habit - - Tagore
9/14/2009

6. Your Choice
From a state monopoly on money, to state guarantees of bank liabilities, to state sponsorship of mortgages, to state ownership of banks ---the progression in the past century has been to move away from free markets toward socialist banking.
The welfare state and its main financier, the Federal Reserve, are ultimately “justified” on the grounds that the government has a moral duty to provide the needy with goods and services – from education to health care/insurance to mortgages.
Think!! The choice between the alternatives is yours. So are the consequences.
9/14/2009

7. Investment Planning
Against this global background, how does one plan investments? Protect savings and wealth? Is there hope?
Principles & Framework
Process : long term, systematic, patient, disciplined
No substitute for continual reading, research
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A public opinion poll is no substitute for thought - - Warren Buffett
9/14/2009

8. The Power of Compounding
A sum of Rs. 100 invested would add up to:
CAGR (%)/
YEARS 8 10 15 20
216
259
405
619
317
418
814
1541
466
673
1637
3834
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9. Risk – Return Graph
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10. Investing Framework Intelligence vs. Independence
Top Down vs. Bottom-Up Approach
Preparation:
> generate alternatives
> eliminate alternatives
> construct portfolio
Margin of Safety
Investor or Speculator?
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An investment in knowledge always pays the best interest - - Benjamin Franklin
9/14/2009

11. Conclusion
On a lighter note:
OCTOBER: This is one of the peculiarly dangerous months to speculate in stocks . The other months are July, January, September, April, November, May, March, June, December, August, and February.
- Pudd'nhead Wilson's Calendar
There are two times in a man's life when he should not speculate: when he can't afford it and when he can.
- Following the Equator, Pudd'nhead Wilson's New Calendar
(Both quotes from Mark Twain)
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12. THANK YOU
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