Bank of America and India's Multi-Billionaire Mobster

Today I woke up to the following headline and did a double take: “BofA Board Adds Billionaire Ambani, Boosting Access to India.”  Mukesh Ambani?  THE Mukesh-corrupt-billionaire-who-barely-escaped-jail-on-insider-trading-charges-Ambani?  Wow.  BofA has really stretched on this one.



Mukesh's crib



Most Americans do not know the back story on Mukesh Ambani.  His family is known as the most powerful in India.  The press loves to "ooh and aah" about his recently completed Mumbai home, worth an estimated $1 billion, boasting 27 stories, equipped with 3 helipads (1 is never enough) and a parking garage for 160 vehicles.  His family business, a super-conglomerate empire called Reliance, was started by Ambani’s father in the 1960’s and covers the gamut as far industries go – biotechnology, infrastructure, solar power, financial services, retail, communications, blah blah blah. 

The dark side of the Ambani legacy is littered with government bribes, black-money malfeasance, and a family feud that combines the tomfoolery of the Kardashians, the Sheens, the Spellings, and the Hiltons altogether (talk about a reality show).  If you seek more on the topic of "Mukesh Ambani corruption" I am happy to google that for you (LINK).  In Anand Giridharas' recently released book entitled "India Calling," he writes that friends of Ambani think of him as a "nonviolent Don Corleone" who trades in the currency of "tip-offs and information".  Sounds like a perfect fit for the BofA Board of Directors, no?  Seriously, who makes these decisions?   

When I saw the headline, I immediately walked over to a handful of business students at Shanti Bhavan, to get “the Indian youth” perspective.  I prompted them with the following question:  “what would you say if the biggest bank in the United States invited Mukesh Ambani to join their coveted Board of Directors?”  The response was...immediate laughter. One child yelled out “he is a criminal!”  Another chimed in “he paid hundreds of crore (1 crore = 10 million rupees = $220,000) to stay out of jail.”  They were shocked to hear that Bank of America (a firm I have shared many past experiences about) would even consider such a notion.

What ever happened to background checks and due diligence?  I guess when BofA is competing to finance those high margin Indian government infrastructure projects they will pull out all the stops.

Closing the Wealth Gap: A Lesson from India



Sunrise in Southern India



India is a fascinating place.  I think it is really difficult to understand this country without seeing it for yourself and experiencing the culture in the first person.  Though I have only been on the ground for a short period, I have witnessed enough to convince myself that I made the right decision by coming here.  Before arriving, I heard varied opinions:  "India is beautiful with a spiritual wonder about it;" "India is home to the poorest people in the world...it's a sh*t hole and you will go once and never go back;" "India has an entrepreneurial quality about it...there is so much opportunity...it totally works for me;" "First suggestion about India:  DON'T GO (said to me by an Indian-American living in NYC)."  I actually have a bet with a naysayer friend in Hong Kong about whether I will return to this country after my first visit.  Nevertheless, I believe I will be back many times and he will lose the bet.

Rural village in Tamil Nadu

Some people believe India has already drowned in its own squalor and despair and will never have a meaningful voice on the world stage. They feel India's bureaucracy will further induce a snail-like climb out of poverty and the country will lag behind the widespread advancement and burgeoning growth that the rest of the emerging world is experiencing (particularly that of its neighbor China).  I am beginning to take a step back from this argument.  India's bureaucracy and dated ways of conducting business may prove to be its saving grace. Pardon? 

To put it into perspective, India's economy (in terms of GDP) is a tad smaller than Canada's, and its GDP per capita is about the same as Iraq's.  It is a country with a population that is 4 times that of the United States in a space that is one 1/3^rd  the size.  In today's world where economic growth is a necessity fueled by lax monetary policy and irresponsible credit expansion, India has marched to the beat of a different drum.  Their Reserve Bank is far more strict and less accommodating.  Their value system and work ethic is strong and they do not lean solely on exports the way the rest of Asia does.  India has real domestic demand (something quite foreign to Americans)!  They also have their own music (ranging from the ancient period of the Mughals to the modern age of A.R. Rahman), movie stars (Amitabh Bachchan is a combination of George Clooney and Robert De Niro…a legend here), sports teams and you can be sure that they will not be airing their own version of MTV's "Teen Mom" anytime soon.

So what is the point?  Despite some of the positives I mentioned above, India is the world's poster child for economic inequity and social inequality.  Some estimates state that 40% of the population falls below the poverty line (which is an income of about $1.25/day).  I recently spent some time interacting with Dr. Abraham George about the dynamics of this country and it led us to the impetus behind him founding Shanti Bhavan, a school located in Tamil Nadu, India.  The school aims to educate the children of India who come from the most dire conditions (these children come from the 'untouchable' caste, the lowest class of society that is highly discriminated against).  His belief, which has become mine too after having spent time at his school teaching the kids, is that in order to combat the widening gap between the wealthiest whales and the poorest paupers, one must introduce quality education to those who need it most...and this is precisely what he is doing.

This school is a model that can be applied not only in India, but anywhere in the world where the concept of "the rich get richer" is becoming a tiring reality.  Sound familiar?  Tunisia, Egypt, Iran, Albania, Yemen, Bahrain, Jordan and eventually the United States, can all afford to take a critical look at education for the poor (and even those who are slightly above the poverty line).  These countries want change right?  The voice of change can be found within EDUCATION.   

 

6:30 am: I come to class and find the 12th grade like this

Dr. George’s attempt to strike at poverty is worth exploring on a deeper level as there is something very unique about it.  He begins with the poorest youths.  The children are selected at the age of 4, based on their level of poverty and their intelligence quotient.  They receive an education at Shanti Bhavan absolutely free of charge.  There are 200 children here between ages 4 and 18 who are willingly participating in an intensive curriculum that would make most American college students blush.  All the kids go to school for 6 days a week and the older students frequently attend classes from 6:30 am until midnight.  The children are humble and respectful and almost all of them have career goals. They don't bully, they are well-mannered, extremely cultured and are knowledgeable about current world events (their teachers come from all over the globe).

Their fluency in English and social etiquette are head and shoulders above the children in the villages where they come from, making them celebrity equivalents back home.  If their performance lacks and they do not show improved effort, the kids can be asked to leave the school.  This is not a good outcome, of course,  and it happens to very few of them. These kids do not have any other viable options - receiving an education at Shanti Bhavan has saved their lives.  Many of them would have never been sent to school by their families who are trapped under the heavy thumb of destitution.  Without this opportunity, many of the kids would have been forced into hard labor at a young age or even worse, been victims of physical abuse.   Shanti Bhavan pulled them from the grasps of enduring ignorance and gave them the chance to live their lives another way - devoid of poverty, full of hope, and one step nearer to closing the gap.



For more on how you can get involved in Shanti Bhavan (they need volunteers to come out and teach everything from accounting to music) please visit their website (HERE) and read the personal statements of some of their upcoming graduating class (HERE).  If you would be willing to make a donation, you can find the orange DONATE button on the left hand side of this blog.  As you can see, we have had a number of donations so far and we appreciate your support...these kids appreciate it even more.  

If education in Africa is also of interest, check out our friends' organization called PROJECT A.B.L.E, dedicated to promoting literacy for African youth.

(This posting has been edited by Shilpa Raj - 12th grade student at Shanti Bhavan and future author and journalist...any mistakes are Justin Golden's fault :)

A Trillion in Tuition

With an overwhelming number of topics for discussion these days, I find myself running into information overload on what to write about (a form of writer's block= too much out there!).  I have a new simplistic way of organizing whether an issue is newsworthy:  pay attention when the number associated with the issue has a "T" next to it..."T" like TRILLION. In 2002, I worked for Deutsche Bank and I remember we celebrated being the first European bank to have assets over $1 Trillion Euros. Back then it was a huge deal. 

Today, it is the prioritization "line in the sand" for politicians, economists, and journalists trying to deal with issues that matter. Numbers that have a "T" next to them include:  bailouts, Federal Reserve money printing, US National Debt owned by foreigners, pension shortfalls, municipal liabilities, household debt, etc.  The item I would like to discuss today, however, is college debt.  This number, according to Alan Collinge from StudentLoanJustice.org, is nearing the $1 Trillion mark.  While Americans have tightened their belts, reduced some frivolous spending, and gone back to school to help their candidacy for employment, college debt has surpassed credit card debt! No small feat!  

I have seen tons of articles about the topic of higher education recently and wrote a little note about it a few months ago (Creative Economy).  There are a couple things I would like to share about why people should be paying attention.  Why is the government pushing us so hard to go to college and offering us financing at terms that appear too good to be true?  Well, it is one of the ways to get people under the proverbial "thumb" of Uncle Sam. These loans do not go away, the interest rates will go up, and the government is behind 90% of them.  "Take out a loan, go back to school...help our collective brain trust get smarter...lets show countries around the world that our education standards are the highest...Asians go to school 8 days a week, we have to step it up!" It seems logical to me.  After the housing bust, the government needs to somewhat modify the American dream.  What is the 2nd most expensive asset we buy, something we are told we cannot live without, and something the government can easily offer to us?  A COLLEGE DEGREE.



The competition is fierce.

 

No wonder this debt is piling up and the cost of college is rising at its fastest pace ever.  It is a way to balance the debtor-creditor relationship – if the students owe the government a trillion and the government owes China and Japan a trillion…hmmm.  Get the students to owe us more and then our national debts will not look so bad.  Follow me?  Some public universities are seeing double digit increases in tuition each year (LINK).  As you extrapolate those increases you will see why new parents have to start paying attention…TODAY!  Here is a helpful website (College Tuition Calculator) for all of the parents out there who plan on seeing their children go to 4 year universities.  If you want to be spared from doing the work, here is a theoretical scenario of a newborn:

-Current school tuition/room and board annual cost:  $20,000
-Years until college: 17
-Number of years attending the university: 4
-Expected annual tuition increases over the next 17 years:  6%
-Expected annual returns on investment for savings account: 2%

TOTAL COLLEGE COST:  $235,597

-Monthly savings required today in order to pay this amount once college begins: $939 (based on the 2% savings rate of return) (the math on these numbers)

Add a couple kids to the equation and you can see how this is becomes a monstrous problem quickly.  The sheer notional size of the numbers is staggering; that is not the only shocking part.  I found some other interesting "features" about student loans that I am willing to bet not everyone was aware of.  Student loan debts are precluded from the following protections that apply to traditional consumer debt (mortgage, credit card):

1.)  Bankruptcy protection (you go bankrupt and your student debts are NOT erased)
2.)  The right to refinance (government loans cannot be refinanced though private loans can)
3.)  Fair debt & collection practices (they can garnish disability and call you at odd hours)
4.)  Adherence to usury laws (interest rates have no limit)
5.)  Truth in lending requirements (disclosures can be vague)
6.)  Statutes of limitations (time does not run out on how long they can come after you)

(Source: Default-Student Loan Documentary)

I was surprised to find this was the case for college loans...then I thought about it for a second… then I was not surprised.  Either college will have to become more affordable or we better start saving now.  Either way the government is incentivized to make college more expensive.  You owe them more and they get to tip the terms on the debt in their favor.  At the end of the day, we do not want every kid in America trying to become the next Lebron James. Of course bailing out on college wasn't the worst bet for Henry Ford, Michael Dell, Bill Gates, and Mark Zuckerberg, but they may be the exception.  Is meritocracy and mentorship the answer?  If someone can get the job done without the degree, then they should not be viewed any differently.  For example, I am spending a year traveling, getting my version of a post-graduate degree in global entrepreneurship from the college of “the world.”  Should that not count as legitimate education?

Livin' off the Fatta the Land

If you take a look at the right hand side of this blog you will notice a few sites that I like to follow.  One of them is Sovereignman.com (introduced to me by @Shamrock5000).  Yesterday, Sovereignman posted a link to a Stansberry Research video that sounded like a doomsday "public service announcement."  The video took about an hour to get through and contains important information about the devaluation of the dollar, piling US government debt, and a lengthy teaser advertisement for you to become a Stansberry client (boring).  If you want to take an hour to watch this click here (LINK TO VIDEO), or you can just keep reading and I will sum it up for you.  

The main point is that the US has no way out of its deficit spending and federal debt load - the interest payments on the debt will become too great, thus, the liabilities will grow in such a way that the only solution is for the dollar to be devalued even further (it fell 8% in 2010).  What does devalued really mean?  In a nutshell: your savings will be worth less because the prices of goods and services will become much much higher in the future (see my post below on "The Frog").  Stansberry suggests we can take action to protect ourselves from such events by doing some or all of the following:

-Own physical gold (buy a gold coin or buy stock in PHYS)
-Own physical silver (buy a silver coin or buy stock in PSLV)
-Have access to a rural place (call Aunt Ida on the farm and tell her you have dibs on the extra bedroom)
-Own money in a foreign currency outside the US (this is trickier)
-Own stored food in your basement (twinkies can withstand nuclear holocaust)
-Own land

I want to focus on the last one for a second.  Land.  Maybe Lenny and George from Of Mice and Men had the right idea? I recently contacted a land broker because I am curious about the idea of owning land as a hedge to the aforementioned travesty that some the doomsayers are predicting.  The investment properties of owning land appear to be multifaceted.  First, if real assets appreciate (real assets meaning things you can touch, live on, or drop on your foot and they hurt) due to inflation, then the value of the land should rise.  Second, if you are growing crops on this land and the prices of those crops rise, you stand to gain by selling those crops to the people without land (this can also be achieved by leasing parts of the land to farmers).  Third, you can eat the food grown on the land so the "personal survival" box is checked as well.  If you think about alternative investments, few cover all of these bases.  Sure you can buy food with gold and silver but what happens when you eat all your food and spend all of your gold?  Land appears to be the better hedge.   

Rather than go out and borrow money to buy a massive tract of land, I think the idea of a land collective makes total sense - pool a group of people together to buy a piece of land. There really is power in numbers here.  If you ever NEED this land (and I say this because clearly we all see that the grocery stores are still fully functional and our money still works), you have a group of people that will be farming it with you and protecting it with you.  I will take it a step further.  You want land that has access to freshwater. You need water to grow food no?  If you live in Michigan you are in a great position because you are surrounded by the equivalent of a fresh water ocean.    

I am not saying commit your entire life savings to an idea like this but why not spend 5% of it on a share of farmland that is within 2-3 hours drive from your house.  This should not break the bank.  Others are jumping on the land grab as well.  George Bush just bought 100k acres in South America.  John Malone (telecom magnate) bought an $83million piece of land in New Mexico at around $300/acre.  Bill Gates bought a 500 acre ranch in Wyoming.  Of course these are not small purchases and they have the luxury of private jet escape pods to get them to wherever they need to go, but you can see that the "smart" money is involved in this.

I am curious what people think about this topic.  It is seldom talked about and is clearly not as sexy as investing in AAPL or some high yield bond fund.  But if you were to commit some of the money going into your IRA or 401k (which the government may have some influence on in the near future) to something like this, I think you get closer to whatever a "well rounded investment portfolio" should look like.  If anyone is interested in exploring some kind of land collective/partnership/mutual fund, please let me know.  We already have a few people on board.  Something to ponder for 2011.    

Take a Splice out of Life

For nearly a decade I was a deer stuck staring into headlights, frozen by the barrage of information coming at me from every corner of Wall St (for the record: none of it was inside information).  The financial software applications that occupied my desktop real estate continuously vomited mountains of information, giving me little time to learn about how the rest of the world was being launched into cyberspace.  Having spent a few months away from the streaming stock quotes, bloomberg terminals, and flickering bid-offers, I have discovered just how powerful (and critical) technology has become to businesses and the everyday user. 

It is shocking to see how much influence websites and apps have in changing the way we communicate, make buying decisions, entertain ourselves, educate our children, etc.  Entirely new industries are emerging overnight and staying on top of the countless new outlets is an arduous task to say the least.  Take Groupon for example.  Today, there are apparently some 500 Groupon copycat sites globally and if you gave me a penny for every business I have heard or read about in the past month that aims to be "the Groupon of (INSERT PRODUCT OR SERVICE HERE)," I would have a dollar.  The internet is growing and changing faster than we are able to process it because the content providers are no longer the cartel of tightly knit media elite...the new content providers are (get ready for it).......us!!  And there are a helluva lot more of you and I than there are Rupert Murdoch, Richard Branson, Sumner Redstone et al.   

"User generated content" or "consumer generated media" or whatever you want to call the process of freely posting information on the internet, is changing the way the world interacts as we speak.  It seemed like everyone watched "60 Minutes" with Mark Zuckerberg a couple weeks ago but I gather that few went online to catch "60 Minutes: Overtime" when Lesley Stahl interviewed Chris Cox, Facebook's head of product development. 

I thought this short interview was really thought provoking and it validates why websites like facebook, twitter, groupon, four square, quora, and kiva are in a position to give the power back to the people.  Content that is created by us (particularly by those within our network...i.e. anyone's email address we have) may be richer than content provided by the experts (who we no longer trust?).

The blending of technology and user generated content will create massive opportunity to "splice":  businesses must fuse themselves to the growing stream of information we (as in the collective we) are posting online.  This will allow business to become more competitive, understand their customers, identify new trends early on, innovate, get instant feedback, and the list goes on and on.  I am curious what people think about this short interview.

http://www.cbsnews.com/video/watch/?id=7120112n

For the Unemployed Turning Entrepreneur

A good friend sent me an article he pulled out of Worth magazine the other day.  The article summarized the 10 Rules of Successful Entrepreneurship from Bill Murphy Jr.'s new book The Intelligent Entrepreneur.  I enjoyed the piece and thought it would be worthwhile to share.  I am finding a high correlation between articles about how difficult the job market is and new startup business ventures friends and former colleagues are embarking on.  In addition, there are tons of talented "out-of-work" people who are teaming up to start businesses.  These folks gave up looking for the next mindless job... they are going out and creating exciting new careers.  

It is great to talk with enterprising people who are optimistic about the prospects of growth both in the developed and emerging worlds.  Even in Michigan (despite what you may read in the dreaded papers) at a recent entrepreneur's conference held in Dearborn, the halls were buzzing about alternative energy, life sciences, social media, mobile marketing strategies, etc.  I did not even hear the word "automotive" mentioned once.  Who says Detroit cannot reinvent itself?

For those of you who are considering taking the plunge into one of the many entrepreneurial ecosystems, here are the 10 rules that came from Bill Murphy's research and are flushed out in his book (which I am definitely going to buy):

1.)  Successful entrepreneurs commit to entrepreneurship rather than to a specific business.

2.)  Successful entrepreneurs look for market opportunities before creating business solutions.

3.)  Successful entrepreneurs focus on innovation and scale.

4.)  Successful entrepreneurs pick founding teams with a history of working well together.

5.)  Successful entrepreneurs realize that they play the most important role.

6.)  Successful entrepreneurs manage risk.

7.)  Successful entrepreneurs commit themselves to learning management skills.

8.)  Successful entrepreneurs learn to sell.

9.)  Successful entrepreneurs redefine failure.

10.) Successful entrepreneurs aren't in it just for the money.

A Frog Inquires: "is it hot in here or is it just me?"

The old adage says that if you throw a frog in boiling water he will quickly jump out. But if you place the frog in cold water and raise the heat ever so slightly to boiling, he will lay still and cook to death.  Replace the frog with “the American taxpayer” and make the water temperature the “level of prices” and you have a metaphor for the current US monetary policy.  It would most certainly not be in the best interests of politicians, or central bankers alike, to turn the inflation switch on overnight.  That would result in nothing short of riots.  In light of that, it is becoming increasingly obvious that the only way out from under the mountainous pile of government debt is through moderate price inflation and erosion of purchasing power over time.  The other alternatives would result in a US government default or debt restructuring and we can be sure that no President, Democrat or Republican, would concede to that under his or her watch.

Some economists will contest claims of higher price levels and lower purchasing power with the sagging level of the Consumer Price Index (CPI) relative to historical inflationary periods.  Contrary to some beliefs, one can argue that CPI is a manufactured index that is used as a benchmark for keeping wages, benefits, and cost of living indices in check, and fails to depict an accurate basket of goods.  While deflationists are constantly pointing toward the multitude of retail discounts and dollar menu offerings they come across during trips to the mall, they fail to mention rising prices in things like beverages, clothing, pharmaceutical drugs, utilities, transportation, college tuition, and most importantly, inputs like metals (hard commodities) and agriculture (soft commodities).

There appears to be a disconnect between where actual commodity prices are going, and where consumers expect the prices of goods made from these commodities are going.  Is it reasonable to think that the things we need to buy (food, clothes, cars, etc.) will miraculously become cheaper even though the inputs used to produce them are skyrocketing?  NO!  Some simple facts: corn is up 43% this year, soybeans are up 30%, wheat is up 34%, coffee is up 52%, cotton is up 100%.  Food and clothes will become more expensive unless the labor to make these items becomes much cheaper. Fortunately, East Asia is already under pressure to improve working conditions so do not expect labor to become less costly.  On the metal front: copper is up 18% year-to-date, silver is up 62%, platinum is up 20%, palladium is up 77%, and gold is up 28%.  ‘Nuff said? 

The laymen frequently combat these statistics with the “wealth” they are accumulating in their stock portfolios and retirement accounts.  “If the stock market is up, my portfolio rises, and I am getting richer,” they quip. It appears as if American taxpayers forget that they will lose if the dollar wins the race to zero.  After applauding the recent strong performance in the stock market, most Americans show no angst from the 13% decline in the dollar over the past 4 months.  “So we won’t go to Europe for vacation this year!” some might crack.  Unfortunately it is not that simple.  The US operates at a trade deficit and we consume many goods from other countries so cutting out vacations abroad will only alleviate part of the pain caused by the weaker purchasing power of the dollar.

To my fellow frogs I fear we must be realistic and face the facts that life will become more expensive. It could get a lot pricier should the Government and the Fed not perfectly thread the needle of igniting an economic recovery while giving our foreign lenders some semblance of confidence in the dollar.  We should prepare for higher prices domestically or find a way to denominate our assets in other stores of value to avoid getting cooked (buy some land or some Chinese yuan…or take my grandpa’s advice and buy 4 boxes of cereal before the price goes up!).