How to suck money from poor farmers

Few days back, while googling EMU (Euopean monetary union), I came across a bird called emu – articles after articles claiming how this wonder bird is making poor farmers rich overnight. Eureka! No need to worry about the real EMU, just open an Emu farm and become a millionair, I said to myself, and started googling “emu bird” instead of EMU. Here is the story that I found.

There was once a farmer who had few exotic autralian birds-Emus. Its eggs were beautiful and sought after by artisans from all over country. Since they were in extremely short supply they sold for a fortune. So, he thought, why not make others rich too. He explained to his closest friend, “ Each pair of Emu gives 25 eggs every year and each egg sells for 1000 Rs. I will give you a pair only for 25000 and you can earn your entire investment in a single year. From next year onward every year you will earn 25,000 almost for free.” His friend was impressed and buys a pair. Lo and behold! a ponzi scheme has just been born. Why? Lets see what happens next.

The new owner is suddenly rich selling those eggs. This catches attention. Suddenly there is great demand for these birds and their price soars. This also reduces supply of eggs further because everyone wants to hatch the eggs and earn him 25 grand instead of selling the egg itself. So the price of eggs goes up further. This creates a chain reaction. Birds are in demand because eggs are in demand and eggs are in demand because birds are in demand! This attracts more people to buy these birds sustaining the demand. Of course, all owners get rich and soon media is all gaga over how smart farmers are transforming their life by farming Emu. This leads to explosion- from few farms, number of farms jumps to 1400 in a year.

Unfortunately, like all pyramids, farmers soon start to feel lack of new “suckers”. This reduces demand for birds. So, farmers start selling eggs without waiting for them to hatch. Egg’s prices crash too. So much so that last batch of farmers don’t even have money to feed the birds. They remember that even skin, meat and oil of these birds are valuable. Unfortunately, they don’t have equipments to slaughter and process these birds. Finally, when they manage to process it, they find that scarcity of these “valuable items” is gone and so is demand!

That is how it ends.

However much I sympathize with these poor farmers, rational thinking prints a bad picture. People just don’t change their age-old eating habbits easily. Also, “medicianal property” of Emu oil is all folklore if FDA is to be believed.

Still hoping for the best, I go back to google God to find out how emu farms are doing in their native place. I hear same ponzi scheme was played on Australian farmers few years back. In fact, according to a massive survey by Australian government, ALL of the surveyed Emu farms lost money the previous year.

How I wish our farmers had access to google.

Weekly stocks

NIFTY: Last week most of our picks missed our targets and turned back to hit SL. This is when tightening stop losses helps. Anyway, Nifty greatly respected our level of 5175 last week. There was a breakout trade when it broke above that level. I would watch trendline resistance at 5480 and then previous high at 5740. A close above 5740 confirms end of correction and resumption of uptrend. Next target will be previous top near 6340. There are no setups yet but we should try to enter long on breach of these resistances. One possible entry would be if it comes back to retest 5180. We can go long there with SL below 5100 targeting 5470.

Picks for this week-

1. Sell GITANJALI 375 SL 401 Targets 340 and then 300
2. Buy ABGSHIP 410 SL 375 Target 475
3. Buy ABAN 425 SL 388 Target 490

Weekly Stocks

Weekly take

NIFTY: I see no clear direction in nifty- Nothing tradable. However, large number of stocks are showing sell signals. That should drag nifty down to low of the recent range. Should be targetting 4730 as long as it remains below 5175.

BANKS: with large number of banks showing weakness, it might be a good idea to remain short in banknifty

Specifically: 1. Sell IDBI at 107 SL 120 Target 90

2. Sell UCOBANK at 65 Sl 70 Target 55

3. Sell UNIONBANK at 250 SL 270 Target 225

4. Sell YESBANK 285 SL 301 Target 255

OTHER sells: 5. Sell TECHM 575 SL 590 Target 540

6. Sell ROLTA at 75 SL 80 Open target

7. Sell RINFRA SL 430 Target 370

8. Sell ORCHIDCHEM 164 SL 174 Target 145

9. Sell JISLJALEQS 130 SL 150 open target for big crash

Only possible buy setup is in PATNI – Buy if it breaks above 350. SL 395 Target 400

Stocks for next week

Stocks analysis

Here is my weekly take. Take it with a inch of salt because I havn’t been in market actively for quite some time now

Sell TCS at 1048 Sl 1075 Target 910

Sell welcorp at 120 Sl at 130 target 105

Sell sintex if seen near 130, Sl 135 target 105

Sell L&T at 1440 Sl 1475 target 1305

Sell hindalco with sl at 135 target open.

Onmobile and orbitcorp are clear sells with high probability. Stop loss 70 and 35 respctively.

Against anti-corruption movement

One fine evening I saw one of my friends intently watching news channels showing “India against corruption”. He muttered, “ Efficiency has its price”. At that time, I found the comment shocking. But the more I think about it, the more I become convinced that our efforts to remove public corruption lack deep understanding of the malady. By public corruption I mean corruption that general public faces in his day-to-day business with government. Before bringing down a wall, it’s important to understand why it was put up in first place. Without this understanding, we may do much harm. So, why is there corruption in India? It’s simplistic to assume that Indians are inherently dishonest. In fact, corruption has evolved because of certain much deeper problems that must be solved first.

First, corruption is a natural response to shortages. In India, the demand for a service such as access to the courts, education, healthcare, or the attention of civil servants and politicians far exceeds the supply. To prevent the system from grinding to a complete halt, a way of rationing has to be found and corruption provides such a system. In effect it places a price upon a service and enables officials to prioritise the demand. This leads to economically efficient distribution of public resources by creating a capitalistic market, thereby bringing demand supply equilibrium.

Second, misguided socialist principles and lack of reforms in legal system have left us with complex and burdensome tangles of rules and regulations administered by huge inefficient state departments. This makes ordinary people highly dependent upon the actions of individual officials and gives the officials every incentive to exploit their power. This leaves common men with no choice but to bribe even to get their legal rights.

Finally, Corruption fights red tapism and speeds up the implementation of administration. Corruption gives incentive to poorly paid public servant to create a development-friendly system for the economy. As a result, corruption starts a chain of benefits for all the economic players, making obstructive bureaucracies much less harmful.

So what will happen if public corruption is suddenly stopped without addressing the real issues? My understanding is that economy will come to a grinding halt. First, poorly paid officials will have no incentive to do their work. Imagine the amount of time an entrepreneur will take in India to start his business? What incentive will babus have to clear licenses for his business?

Second, even if we believe that babus don’t need incentives, the overburdened government machinery will collapse. Our systems are simply not designed to cater to increasing demand. Most of public departments are badly mismanaged and are yet to see any computerization. So, if corruption goes away, demand for these services will shore as “price” reduces. This will lead to complete collapse of public machinery. Take for example, a totally corruption free RTO that is simply not able to cope with its job. If obtaining a Driving license or registering a vehicle takes years, will it do any good to economy?

Third, people will suffer greatly due lack of legal reforms. Take for example, an archaic law, The Bombay Prohibition Act that came into force on June 16, 1949 and is still in force in maharashtra. As per the act, a liquor permit is necessary for purchase, possession, transport, and consumption of liquor. The police can arrest anyone for consuming or buying alcohol in a restaurant or a store without the permit or even if the license of the store or restaurant is not valid. Now, how many people are aware of this law. Even if someone is aware of the law how is it possible for him to ensure that “all licenses and documents” of the restaurant are in order. So, what will happen if suddenly one fine day all the corrupt policemen become honest and start raiding bars and taking everyone one into custody? In fact, I may ask why they don’t do it when legally they must be doing it?. This is just one example of such laws. Indian laws are full of such examples. Indian Post Office Act 1898 confers monopoly on the post office for letter posts- can you do without courier services? That’s the “cost of efficiency.”

In the end, I guess, if corruption was removed without solving underlying issues, it’s the common man who will suffer. Rich have always found and they will always find a way around things. We must attack the basic problems that common man faces before taking away his only defence- bribing.

Let me make it very clear that i don't support corruption and i don't oppose anti corruption movements. But i just wanted to raise certain issues that are being ignored by us.

Probability, options, simple decisions and ignorance

I find it very funny that even well educated people are so ignorant of options and their implications. For example, a purchase is essentially an option that Indians often confuse with futures/forwards. A future/ forward is a binding agreement to execute a transaction in future. Whereas, an option is only an option to execute a transaction in future. An option holder has no “obligation” to execute the transaction in future.

Why is a purchase decision an option and not a forward/ future? And why exactly Indians confuse buying with forwards?

A buying decision is essentially a complex mathematical calculation based on calculation of cost of purchase and expected return. Cost of purchase is often straightforward but expected return is a mathematical nightmare. Expected return includes two variables and is defined as probability of the event multiplied by value of event. Here, both of the variables are highly subjective and indeterminate. Value of event is absolutely subjective. Of course, some mathematical calculation is possible for probability of event but its essentially indeterminate.

The problem with Indians is that they always forget that “probability of event” is an option. Indians somehow tend to think that whatever they have bought must be utilized to maximum. Historical deprivation maybe an explanation but I am not sure. The point I make here is that this probability essentially is an option, which you can exercise as per your convenience. It’s not a forward contract that you have to execute. That’s what Indians fail to understand.

Let me give examples. If a take house closer to office (costlier) instead of farther away, what am I buying? I am buying and option and not an obligation to save time when I travel to office. Does that mean I must travel to office every day because I have already “bought” time. Absolutely no. That’s foolish.

If I buy 5 different bikes what am I essentially buying? I am buying option to travel in my favorite bike when I feel like. Does that mean I must travel in every bike every day? What is weather is bad? That’s risky and of foolish.

What if join a gym? Must I go every day because I have already bought? Must I eat food everyday completely and finished every grain everyday just because it’s cooked?

But Indians just don’t get it. They want to get every penny out of their purchase. They have been deprived of things for so long that they have no concept of options. For them “wastage” is a sin. Even non-exercise of an option is a sin. If you buy an expensive shirt you must wear it every day. It’s not a choice. Its dictated by your purchase decision. Because, if you are not wearing it every day you are wasting!!! Only Gods knows when basics of Indians will be fully met so they can rise above all this.

The free versus paid anti virus

It seems that suddenly there are too many anti virus sellers- in India at least. If FM is on, I can’t drive home from office without at least few of them urging me to buy their products. That re-starts a perpetual debate between free versus paid anti virus in particular and freeware in general. The general impression that these ads try to create is that free security is just not good enough. But I will wait before parting with my hard earned money. Reasons-

1. There is not a shred of evidence to prove that paid anti virus provides better security. Numerous studies have been done and there is simply no way to prove that free anti viruses are worse than paid anti virus in basic security- that’s detecting and removing viruses. If you don’t trust me have a look here- http://news.softpedia.com/news/AntiVirus-Free-Vs-Paid-Detection-139005.shtml. My free avira was actually top detector.
2. Paid security systems somehow feel obligated to provide “complete” security. That means everything comes bundled- anti virus, anti spyware and firewall mostly. But sometimes more bell and whistle is like to be thrown in- like parental control and some other nonsense. But this is precisely what I don’t like. I don’t trust anti virus expert to manage my firewall. I would rather go for best in both individually.
3. Finally, I have found paid anti viruses to be a big resource hog. They provide too many useless features and clog my system. What I like is lean and fast machine. That’s what I get by using free security software.

So what do I use? Here is my free security system. I have been using them for many years without much trouble. Also rest assured that I have visited my fair share of Russian hacking sites. (I am not a hacker but I love to learn things)

1. Anti virus- Avira. I used AVG for quite some time before they decided that just because they are good in making anti virus they can make good firewall and bundled their anti virus into a “security suite”

2. Anti spyware- Spybot search and destroy

3. Firewall- Online Armour. I used to like comodo too. However they have also gone into security suite business. Still, you can get hold of old versions of standalone firewall if you do some search.

Finally, security is not ensured by software but by you. Use common sense-

1. Most of threat comes from Internet. Use a secure browser like firefox. Better still, use an unpopular browser- hackers have no incentive to target them. My browser is K-meleon. Its damn good and no hacker is likely to waste his time with it because very few use it and those who use it are most likely to be tough nuts to crack. There are easier targets!

2. Don’t install unnecessary software. Don’t click on executable files. When you do install something watch out- does it ask you to install some toolbar? Uncheck it. Periodically go to add and remove programs and see what all programs are installed.

3. Periodically check your startup queue and see which all programs are automatically starting up when you start your pc. Spybot has a tool to disable unknown startup programs.

Have a safe PC!