I think India has lots of potential to grow. But I do feel that India faces lots of hurdles too. The following are some pain points of Indian Economy. Few things to be noted before we go through the issues point by point are:
1. Some of these issues might be applicable to other nations as well(Including developed nations like US and countries in Western Europe).
2. I am looking at the economy from a long term(15 to 20 years) perspective. But as some famous economist said "In the long term everybody dies!!". So short term matters very much too. (and sometimes short term is much more important than the long term, depending upon your current state in life.). After all if you can keep making profits in the short term in the long term you will be well off too!! But this article does not concentrate about the prospects of the Indian economy in the short term(I mean next 5 years).
3. I did think through the following issues I am going to mention. But they might look random as I did not spend time on how to present them with a continuous flow.
Now coming to the actual problems:
Absence of the rule of law: In India it is a common occurence for rowdies and mafia dons to have control in many of the core businesses. The reason this is bad is it affects the core of capitalism. One important thing that is necessary for capitalism to survive is the rule of law. With out laws capitalism would become pretty destructive. Just as an example say there is a pharmaceutical company that comes up with some new medication. If there is no rule of law then the medicine would not be properly tested. Whichever company has the political clout would be able to release its drugs but the company that did the real research and development and testing, if it lacked political clout, would not be able to release its drug. That is not development. In fact that is making the life of people worse. I can give examples like this in every industry. But bottom line is with out the rule of law, in short term, companies with political/mafia power wins but in the long term these companies are detrimental for the growth of the economy.
Natural resources: In the long term the resources that matter are NOT petrol, gold, diamond etc.(But they don't hurt!! having them is good!!). But what matters in the long term is resources like clean water, clean air, fertile soil, good ecosystem etc. Problem with India today is more importance is given to resources like gold, diamond etc but people don't pay much attention to water, air, earth etc. If India keeps up with its current levels of unhealthy pollution then the future of our population is bleak(our food security is threatened). Which also means the future of our economy is bleak. The level of pollution in India in some sense is much worse than the developed world. After all pollution just does not mean carbon dioxide(developed world produces more of this) but it also includes how you take care of water(I remember reading lots of textile companies in India that donot treat their waste properly and just discharge them to water), how you take care of soil(deforestation is one reason because of which fertile top soil is washed away), how you take care of air etc. And global warming(assuming it is not a lie as claimed by some republicans) is only going to make things worse. This is a big threat for the entire world population.
Fair Accounting: Nobody knows how much one can trust the balance sheet of Indian companies. Remember not all companies are bad apples. But there are bound to be some. After all even in US with all the regulations there were companies like Enron. So I would not be surprised if there are a bunch of companies in India reporting false numbers. The problem is until the company fails on one of its financial commitments nobody knows something is wrong.So until the company is pretty close to bankruptcy people would think that the company is doing fine based upon the financial reports.
This is by no means exhaustive. As I mentioned earlier I did not spend time on the flow of this article. So it might look random. But I do feel one should consider these issues when evaluating the long term growth rate of Indian economy.
Saturday, November 22, 2008
Sunday, November 16, 2008
Bank Interest Rates in India
Currently the interest rates in nationalized banks in India for fixed deposits are pretty good. They are hovering around 11%. I personally have taken advantage by prematurely withdrawing some of my deposits and reinvesting them at the new interest rate and making new deposits.
Recently at a dinner party I had an interesting conversation with a friend about investing in a house in US versus the interest rate in India.
First off one has to understand that one must absolutely have to lock the safety money in India on a nationalized bank deposit. There is no argument about it. You need to calculate your living expenses and make sure you have enough amount to tide you over any crisis for exteneded periods of time. Assuming you have done that, does it make sense to invest in real estate in US?
Let us take a 10 year past history. First the exchange rate. (source of this information is federal reserve New York, http://www.ny.frb.org/markets/fxrates/historical/home.cfm). The exchange rate of Indian currency on 1998 was approximately 42 and it is approximately 48 now, about a 15% difference. So you would have gained if you had the money in dollars. But it did stay at 39 for some point a loss of about 8%. But let us assume you made NO profit or loss in exchange rate in the past 10 years, i.e., let us assume the exchange rate stayed same.(I want conservative estimates!! I guess 38 to 42 is a pretty conservative exchange rate for Indian rupees)
The bank interest rates have stayed any where from 7% to 12%. Let us take an average of 9%. At 9% your money would have grown approximately 2.4 times in 10 years.(so 1 rupee you invested would be worth 2.4 rupees in 10 years).
Let us take the home prices now. Remember this is one of the worst times to sell a house(and is one of the best times interest rate wise). But let us NOT make any special accomodations for that at all.
The 10 year home appreciation in Bellevue(from 1998 to 2008) is about 100%(source http://www.zillow.com/homedetails/charts/49015943_zpid,10years_chartDuration). Also this is a conservative number as 50% of the houses have higher appreciation than this and some times much higher appreciation!
Home prices have held steady in Bellevue despite the downturn. So I tried taking one of the worst affected areas like Los Angeles, Phoenix etc. Ironically they have a better appreciation rate in 10 years than Bellevue!! For example los angeles is like 200+%. But let us just stick with Bellevue as that seems conservative(And I want conservative numbers in any forecast!!).
Let us assume you buy a house for $250k in Bellevue in 1998. You generally invest 20% to buy a house. So your downpayment would have been $50k. For the moment forget the interest you pay on the mortgage every month. We will account for that towards the end.
If you had invested that $50k in a bank deposit 1998 you would now have $120k. so your gain is $70k.
If you bought a house at the same time, the house would be worth about $500k now(100% appreciation). You owe 200k to the bank. So your money in the house is 300k, subtracting your downpayment your gain is 250k.
Now coming to the interest you pay on the mortgage: Initially when you buy the house the interest you pay would be more than what you would pay on a typical house for rent. But over the course of 10 years your mortgage payment would have stayed the same but rents in your neigbourhood would have increased to allow for the inflation.
Take the above example. For a 200k mortgage your interest would be $1000 per month(this includes some principal too. But ignore that.) When you bought the house in 1998 this would have been a big amount. But at 2008, 1000 is typically the rent you pay in Bellevue for a two bedroom apartment(and that is not sufficient if you have 2 kids!!). But if you had bought the house in 1998 you would be living in a nice 3 bedroom house for the same amount.
Also there are other costs in owning a house like tax, maintenance etc. Let us add all this and subtract the rent you would have paid and say you had to fork out an extra $50k for owning the house(which is little high but let us stick with it). So from your gain of 250k subtract this and you end up with a 200k gain!! This is better than the $70k you would have gotten from the bank.
Again to reiterate, it would be stupid to invest in a house if you dont have money to tide you over the tough times. And bank deposits in India are an attractive and safe(and probably the right) way to save for that. But after doing that investing in a house is pretty attractive.
One more thing that I have omitted is the tax rate. You get tax advantage in owning a house. Unless you actually sell the house you dont have to pay any tax on your gains. Also for the mortgage and tax you pay on the house you can claim write off every year. But in a bank fixed deposit tax would be deducted every year if your interest is more than a certain amount, even if you dont withdraw your money.
Also one more thing to note is that in the above example I am just assuming you are investing only 50k as the downpayment. Assuming you invest the entire 250k would it still be attractive? The answer is it is not as attractive as the former. But it is still pretty good as you would pretty much save on all the money that you would pay on rent for 10 years(assuming an average of $600 per month that is equal to 72k for 1o years!!) . And also a house is more than just an investment, if you have kids etc. So it is probably worh it for most folks in any case!!
Recently at a dinner party I had an interesting conversation with a friend about investing in a house in US versus the interest rate in India.
First off one has to understand that one must absolutely have to lock the safety money in India on a nationalized bank deposit. There is no argument about it. You need to calculate your living expenses and make sure you have enough amount to tide you over any crisis for exteneded periods of time. Assuming you have done that, does it make sense to invest in real estate in US?
Let us take a 10 year past history. First the exchange rate. (source of this information is federal reserve New York, http://www.ny.frb.org/markets/fxrates/historical/home.cfm). The exchange rate of Indian currency on 1998 was approximately 42 and it is approximately 48 now, about a 15% difference. So you would have gained if you had the money in dollars. But it did stay at 39 for some point a loss of about 8%. But let us assume you made NO profit or loss in exchange rate in the past 10 years, i.e., let us assume the exchange rate stayed same.(I want conservative estimates!! I guess 38 to 42 is a pretty conservative exchange rate for Indian rupees)
The bank interest rates have stayed any where from 7% to 12%. Let us take an average of 9%. At 9% your money would have grown approximately 2.4 times in 10 years.(so 1 rupee you invested would be worth 2.4 rupees in 10 years).
Let us take the home prices now. Remember this is one of the worst times to sell a house(and is one of the best times interest rate wise). But let us NOT make any special accomodations for that at all.
The 10 year home appreciation in Bellevue(from 1998 to 2008) is about 100%(source http://www.zillow.com/homedetails/charts/49015943_zpid,10years_chartDuration). Also this is a conservative number as 50% of the houses have higher appreciation than this and some times much higher appreciation!
Home prices have held steady in Bellevue despite the downturn. So I tried taking one of the worst affected areas like Los Angeles, Phoenix etc. Ironically they have a better appreciation rate in 10 years than Bellevue!! For example los angeles is like 200+%. But let us just stick with Bellevue as that seems conservative(And I want conservative numbers in any forecast!!).
Let us assume you buy a house for $250k in Bellevue in 1998. You generally invest 20% to buy a house. So your downpayment would have been $50k. For the moment forget the interest you pay on the mortgage every month. We will account for that towards the end.
If you had invested that $50k in a bank deposit 1998 you would now have $120k. so your gain is $70k.
If you bought a house at the same time, the house would be worth about $500k now(100% appreciation). You owe 200k to the bank. So your money in the house is 300k, subtracting your downpayment your gain is 250k.
Now coming to the interest you pay on the mortgage: Initially when you buy the house the interest you pay would be more than what you would pay on a typical house for rent. But over the course of 10 years your mortgage payment would have stayed the same but rents in your neigbourhood would have increased to allow for the inflation.
Take the above example. For a 200k mortgage your interest would be $1000 per month(this includes some principal too. But ignore that.) When you bought the house in 1998 this would have been a big amount. But at 2008, 1000 is typically the rent you pay in Bellevue for a two bedroom apartment(and that is not sufficient if you have 2 kids!!). But if you had bought the house in 1998 you would be living in a nice 3 bedroom house for the same amount.
Also there are other costs in owning a house like tax, maintenance etc. Let us add all this and subtract the rent you would have paid and say you had to fork out an extra $50k for owning the house(which is little high but let us stick with it). So from your gain of 250k subtract this and you end up with a 200k gain!! This is better than the $70k you would have gotten from the bank.
Again to reiterate, it would be stupid to invest in a house if you dont have money to tide you over the tough times. And bank deposits in India are an attractive and safe(and probably the right) way to save for that. But after doing that investing in a house is pretty attractive.
One more thing that I have omitted is the tax rate. You get tax advantage in owning a house. Unless you actually sell the house you dont have to pay any tax on your gains. Also for the mortgage and tax you pay on the house you can claim write off every year. But in a bank fixed deposit tax would be deducted every year if your interest is more than a certain amount, even if you dont withdraw your money.
Also one more thing to note is that in the above example I am just assuming you are investing only 50k as the downpayment. Assuming you invest the entire 250k would it still be attractive? The answer is it is not as attractive as the former. But it is still pretty good as you would pretty much save on all the money that you would pay on rent for 10 years(assuming an average of $600 per month that is equal to 72k for 1o years!!) . And also a house is more than just an investment, if you have kids etc. So it is probably worh it for most folks in any case!!
Saturday, October 25, 2008
Leverage
Many big banks in US went out of business recently. If you dig through the reasons for it most of it is attributed to leveraging. I was thinking of the consequence of leveraging in our traditional businesses.
One of the traditional businesses for Chettiars community is money lending. Money is lent to people in exchange for a collateral. Usually only about 60% of the value of the underlying asset(which is usually gold jewellery) is lent. So if the borrower defaults then the lender gets the principle and interest back. Also this is an insurance in case the price of the underlying asset falls. So even if the price of the gold falls 40% the lender could still get back the principle.
I was thinking how one could leverage in money lending business and the following is one way of leveraging that I could think of(and there are many ways you can leverage!!):
Let us say you have $1000 to lend. When a borrower presents the lender with a jewellery the lender lends him the $1000. Now the lender has the jewellery and the borrower has the money. Lender can theoretically mortgage the same jewellery with another lender(Let us call this person the second lender) and get $1000 for it. Also let us assume the first lender can get a lower interest rate from second lender compared to the rate he lends the money to his borrower. So with this additional $1000 he can lend it to another borrower and make the profit on the difference of the interest rates. Also the first lender can mortgage the new jewellery "again" with another lender and can get another $1000 back and the cycle can continue.
On the surface it looks like a good plan. The first lender always lends money against gold. So even if the borrower defaults the first lender can ask the second lender(s) to sell the underlying jewellery and get his interest and principle back. It looks almost too good to be true!!
But the worst case scenario is: If the borrower defaults and at the same time the value of the underlying property falls. For simplicity let us assume all the borrowers of the first lender default and also the price of the gold falls to zero. Now if the first lender has leveraged 3 times it means he has invested $1000 of his own money and also has lent $3000 of borrowed money from other lenders. Assuming the first lender to be a law abiding citizen there are only 2 things he can do:
1) pay the other lenders the other $3000 making his total loss to $4000
2) Declare bankruptcy.
This is one way of leveraging!! There are multiple ways of leveraging in the international financial markets. They are complex to understand too. In the name of innovation all these high risk products have been introduced by these US banks. This just reminds me of a famous quote by warren buffett(this was quoted much earlier to the financial meltdown. I don't remember the words exactly but let me try to recollect the meaning of it!): " I don't understand why many new methods of "losing money" are being invented when the old method work just fine".
I also read somewhere that many of the big investment banks have leveraged in the ratio of 1:30. Meaning for $1 of their asset, they have a potential $30 of liability(meaning if the absolute worst case scenario happens then they owe 30 times their net worth). One thing to note here is that although these wall street firms lost a ton of shareholder money(and brought the western financial system to its knees) they did not do any thing technically unethical.(Although I am pretty sure they will be portrayed as villains just to satisfy the general population. In fact there is a good chance some of these executives might go to jail in the next several months). They reported all their transactions in their annual audit as per the law. But it just turned out that these deals were so complicated that most of the shareholders did not even know what the risk of these transactions were.
In finance I am generally suspicious if somebody comes up with a complex model to explain something. In general if it requires any thing more than high school math(and may be some accounting skills) and common sense I get suspicious. But the funny thing is even now people in wall street are coming up with these insane mathematical models that use calculus and many other complicated math to predict the future market returns!!
One of the traditional businesses for Chettiars community is money lending. Money is lent to people in exchange for a collateral. Usually only about 60% of the value of the underlying asset(which is usually gold jewellery) is lent. So if the borrower defaults then the lender gets the principle and interest back. Also this is an insurance in case the price of the underlying asset falls. So even if the price of the gold falls 40% the lender could still get back the principle.
I was thinking how one could leverage in money lending business and the following is one way of leveraging that I could think of(and there are many ways you can leverage!!):
Let us say you have $1000 to lend. When a borrower presents the lender with a jewellery the lender lends him the $1000. Now the lender has the jewellery and the borrower has the money. Lender can theoretically mortgage the same jewellery with another lender(Let us call this person the second lender) and get $1000 for it. Also let us assume the first lender can get a lower interest rate from second lender compared to the rate he lends the money to his borrower. So with this additional $1000 he can lend it to another borrower and make the profit on the difference of the interest rates. Also the first lender can mortgage the new jewellery "again" with another lender and can get another $1000 back and the cycle can continue.
On the surface it looks like a good plan. The first lender always lends money against gold. So even if the borrower defaults the first lender can ask the second lender(s) to sell the underlying jewellery and get his interest and principle back. It looks almost too good to be true!!
But the worst case scenario is: If the borrower defaults and at the same time the value of the underlying property falls. For simplicity let us assume all the borrowers of the first lender default and also the price of the gold falls to zero. Now if the first lender has leveraged 3 times it means he has invested $1000 of his own money and also has lent $3000 of borrowed money from other lenders. Assuming the first lender to be a law abiding citizen there are only 2 things he can do:
1) pay the other lenders the other $3000 making his total loss to $4000
2) Declare bankruptcy.
This is one way of leveraging!! There are multiple ways of leveraging in the international financial markets. They are complex to understand too. In the name of innovation all these high risk products have been introduced by these US banks. This just reminds me of a famous quote by warren buffett(this was quoted much earlier to the financial meltdown. I don't remember the words exactly but let me try to recollect the meaning of it!): " I don't understand why many new methods of "losing money" are being invented when the old method work just fine".
I also read somewhere that many of the big investment banks have leveraged in the ratio of 1:30. Meaning for $1 of their asset, they have a potential $30 of liability(meaning if the absolute worst case scenario happens then they owe 30 times their net worth). One thing to note here is that although these wall street firms lost a ton of shareholder money(and brought the western financial system to its knees) they did not do any thing technically unethical.(Although I am pretty sure they will be portrayed as villains just to satisfy the general population. In fact there is a good chance some of these executives might go to jail in the next several months). They reported all their transactions in their annual audit as per the law. But it just turned out that these deals were so complicated that most of the shareholders did not even know what the risk of these transactions were.
In finance I am generally suspicious if somebody comes up with a complex model to explain something. In general if it requires any thing more than high school math(and may be some accounting skills) and common sense I get suspicious. But the funny thing is even now people in wall street are coming up with these insane mathematical models that use calculus and many other complicated math to predict the future market returns!!
Saturday, October 4, 2008
DVR
I got a free offer of Digital Video Recorder from Comcast. They told me I can have it free for one year and they will charge me $9.00 per month after that, that is if I wish to keep it after one year. I took up the offer!!
It has been working for the past few days. It is not all I expected but it is not a complete disappointment either. I am able to record some of my favorite shows and play it back when I am free. Also it helps when my wife is cooking with the exhaust on, I can record the show and play it back later when the exhaust is not running. My wife likes Everybody Loves Raymond and she was unable to watch it regularly until the DVR came along. Also I can start watching the show 15 minutes after it begins and fast forward the commercials.
Now the "not so good" part! With a Tivo unlike a comcast DVR you get suggestions for shows. Tivo profiles the show you set it to record and starts automatically recording shows it thinks you might like!! With the abundance of television channel I think it would be a cool tool.
Also I find the user interface not that intuitive. There are many menus to go through to set it to record a show. The user interface does not take that long to learn though. But it feels tedious to navigate it.
So would I keep it after an year? I doubt it. At $9.00 it is pretty expensive. I think for a fancy VCR it is ridiculous to pay $9.00. If I want a DVR that badly I would rather go with a Tivo. After all it is only $3.00 extra per month.
Also some softwares for windows Vista in time might have this capability(who knows may be it is there today!!). Already if you have a TV tuner you can watch television on your computer. You can record shows too. It is only a matter of time(may be it is already there) when there would be a wireless way to "playback" your recorded shows from the computer to the TV(via may be a set top box that interfaces the wireless transmission from the computer to something the TV can understand). Also if they let me control the show with a remote control rather than a computer mouse I don't see the need for a Comcast DVR!!!
It has been working for the past few days. It is not all I expected but it is not a complete disappointment either. I am able to record some of my favorite shows and play it back when I am free. Also it helps when my wife is cooking with the exhaust on, I can record the show and play it back later when the exhaust is not running. My wife likes Everybody Loves Raymond and she was unable to watch it regularly until the DVR came along. Also I can start watching the show 15 minutes after it begins and fast forward the commercials.
Now the "not so good" part! With a Tivo unlike a comcast DVR you get suggestions for shows. Tivo profiles the show you set it to record and starts automatically recording shows it thinks you might like!! With the abundance of television channel I think it would be a cool tool.
Also I find the user interface not that intuitive. There are many menus to go through to set it to record a show. The user interface does not take that long to learn though. But it feels tedious to navigate it.
So would I keep it after an year? I doubt it. At $9.00 it is pretty expensive. I think for a fancy VCR it is ridiculous to pay $9.00. If I want a DVR that badly I would rather go with a Tivo. After all it is only $3.00 extra per month.
Also some softwares for windows Vista in time might have this capability(who knows may be it is there today!!). Already if you have a TV tuner you can watch television on your computer. You can record shows too. It is only a matter of time(may be it is already there) when there would be a wireless way to "playback" your recorded shows from the computer to the TV(via may be a set top box that interfaces the wireless transmission from the computer to something the TV can understand). Also if they let me control the show with a remote control rather than a computer mouse I don't see the need for a Comcast DVR!!!
Wednesday, October 1, 2008
Quality of Life in US
It is obvious that in many cases a person working in US would earn much more here than in India.. But I am interested in finding the difference in quality of life.
Income inequality in US is much lower than in India(of course not counting the super rich!!) So it is expensive to hire somebody to help you around the house. Any thing that involves labor is pretty expensive here. If you want to buy a furniture cheap then you must assemble it yourself!! But in a sense it is good because it promotes independence.
But what about the other indicators for quality of life? I define the quality of life by the following factors:
1. Food, clothing and shelter(the basic necessities)
2. Socializing(with friends and family)
3. Medical care.
4. Material comforts(Televisions, internet, camera etc)
5. Environment(quality of air we breathe, traffic)
6. If you have kids - school and friends of your kids
Now let us see how US and India fare against each of the above factors. For food, clothing and shelter I rate US to be the winner. It is true that I dont get some speciality south Indian food in US. But food here is generally cleaner and if you dont want pesticides you can go organic there is more variety etc.
Shelter(housing) is also better here(At least in Seattle). You can live in a comfortable place with out shelling too much money. Even for clothing I think US has better quality(in most cases) and comparable prices to India(little expensive but manageable)
As far as Socializing goes I would have to say India is the winner!! I think it is the mother tongue thing!! I have lots of friends from through out the world here. But I dont feel especially close to anybody other than who speak my mother toungue! Also I never remember planning on things to do for any week end in India.
As far as medical care goes I would have to say both US and India are comparable! Pretty much India has the same technology as is found in US(At least the expensive hospitals do). However there are certain differences. But both of them have advantages and disadvantages cancelling each other out.
For material comforts I would have to rate US as the winner. It is true that the same technology is available in India. But in most cases I think it is more affodable here than in India.(I mean compared to your salary)
Environment - I would have to say US as the clear winner here.
School - I would rate India as the winner here. It is pretty expensive in India to get into a good school. However it is usually possible to find good schools where they take special care for your kids. But in US not all shcools are good and you dont have much choice either.
So is there a clear winner? I would have to say No. At least I find that both places are in a tie!! But it is possible that for somebody some of the things are more important than others in which case they can pick a winner!!
Income inequality in US is much lower than in India(of course not counting the super rich!!) So it is expensive to hire somebody to help you around the house. Any thing that involves labor is pretty expensive here. If you want to buy a furniture cheap then you must assemble it yourself!! But in a sense it is good because it promotes independence.
But what about the other indicators for quality of life? I define the quality of life by the following factors:
1. Food, clothing and shelter(the basic necessities)
2. Socializing(with friends and family)
3. Medical care.
4. Material comforts(Televisions, internet, camera etc)
5. Environment(quality of air we breathe, traffic)
6. If you have kids - school and friends of your kids
Now let us see how US and India fare against each of the above factors. For food, clothing and shelter I rate US to be the winner. It is true that I dont get some speciality south Indian food in US. But food here is generally cleaner and if you dont want pesticides you can go organic there is more variety etc.
Shelter(housing) is also better here(At least in Seattle). You can live in a comfortable place with out shelling too much money. Even for clothing I think US has better quality(in most cases) and comparable prices to India(little expensive but manageable)
As far as Socializing goes I would have to say India is the winner!! I think it is the mother tongue thing!! I have lots of friends from through out the world here. But I dont feel especially close to anybody other than who speak my mother toungue! Also I never remember planning on things to do for any week end in India.
As far as medical care goes I would have to say both US and India are comparable! Pretty much India has the same technology as is found in US(At least the expensive hospitals do). However there are certain differences. But both of them have advantages and disadvantages cancelling each other out.
For material comforts I would have to rate US as the winner. It is true that the same technology is available in India. But in most cases I think it is more affodable here than in India.(I mean compared to your salary)
Environment - I would have to say US as the clear winner here.
School - I would rate India as the winner here. It is pretty expensive in India to get into a good school. However it is usually possible to find good schools where they take special care for your kids. But in US not all shcools are good and you dont have much choice either.
So is there a clear winner? I would have to say No. At least I find that both places are in a tie!! But it is possible that for somebody some of the things are more important than others in which case they can pick a winner!!
Sunday, September 28, 2008
Should I Buy a house in US on a work visa?
For the past 4 or 5 years the job market has been pretty robust for IT people. This has generated a wind fall of money for lots of Indians in US. In an informal survey of my friends I found that more than 50% of them actually make at least six digits a year!!! One thing that confronts these Indian techies is whether they should buy a house US or not!!
Most of my friends are in a work visa(like H1B). This is because of the huge waiting time in the green card process. Buying a house on a work visa definitely presents a dilemma. The problem is what would happen if the house owner is forced to go back to India. Would you lose all your money?
I personally tend to feel buying house in US at this point of time is a good idea even if you are on a working visa provided you do your research well and live well with in your means and you meet certain other criteria!! For the rest of this article assume that you are someone who does not voluntarily want to leave your job for the next 5 to 10 years.(I know some people want to go back. So for them buying a house is not a good idea)
The way I look about it is first you should make sure you save your emergency fund. This fund should be saved in Indian Rupees and preferably deposited in a nationalized bank. Calculate your expenses in India and make sure you have money for a couple of years living expenses.(Better yet see if you can save enough money that the bank interest from that money could fetch you a middle class living in India.)
Then you should buy a property India!! The rational behind this is if you are forced to go back to India on a hurry you should have enough money to sustain yourself for few years and a place to live.(Even if you dont live in the house you bought, the house you bought should generate some rental income which could partially or fully cover for the rent of the house you actually end up living).
I know getting the first 2 things right is pretty difficult in itself and is expensive as well. But I do feel if the above 2 criteria are not met then one should not invest in US unless they have a green card or citizenship. So assuming those 2 criteria are met and you dont have of any plans of leaving your job voluntarily for the next several years then you can start thinking about buying a house in US provided you have enough money left.
One thing that works in buyers favor right now is that the housing market is in a distressed state. So it should be easy enough to find a bargain. So assuming you have 20% for the downpayment of house and you are able to get a good deal, and you are not overextending yourself in mortgage payments(my rule of thumb is if you are paying more than 25% of your after tax disposable income on housing then you are overextending yourself)) I say go for it!! The following questions do pop up in people's mind:
1. What happens if the value of the house falls next year.
2. What happens if I am forced to quit my job and housing market is in a bad state(Because everybody is getting laid off and selling their house).
3. What happens if rupee appreciates against the dollar making your house worth less than what you paid for.
To answer the first question: Nobody knows what is going to happen to the housing market next month or next year. It is pretty difficult to predict the short term future. Even the so called experts get it wrong. Look at the state of the US economy today. They have people in wall street who have Noble prize in Economics and they still got it wrong. So people like us reading wall street journal cannot figure out the housing market.
However one thing that any body can predict is in the long term having assets in America is a good thing(As you extend your time of prediction your predictions become accurate!! It is the next 5 years that are difficult to predict). So it is more than likely that the property would raise in value in the long term. After all America has the right ingredients for a succesful economy.(Fair legal system, free markets, Creative bright people from through out the world). So even if there are intermediate glitches they will work themseveles out in the long term.
Ok even if the house prices increase in the long term what if you are forced to sell the house on the bottom of the market. This is pretty much our second question. There is a possibility that waves of lay offs might come out of this economic crisis. The answer to that question again is nobody knows what the future holds. First make sure your company is not in immediate danger and your performance in your company is good. Assuming those things are true the key then is dont overextend yourself in mortgage.
This naturally begs the question even if there is a small chance of this happening why do I even invest? The answer is some amount of debt and risk is good for you!! If you want to be absolutely certain then there is nothing you can invest in. Even bank deposits are not good enough because if the inflation is quite high then you lose money on bank deposits. So make sure your monthly mortgage payment is something that you can afford easily.
So what if the worst case scenario actually happens? Am I covered:? The answer is you probably will be fine. You already have the safety net in India. Nobody can confiscate that. However the money you paid for the downpayment and mortgage payment in US is lost. You will have to surrender the house to the lender. This is the risk you are taking upon yourself.
But I consider the possibility of something happening like that to be very low. The reason being if you were in a good position in a stable company and you are laid off and cant find another job then it means most of the US economy is down. Unemployment is probably in double digits. The so called experts in wall street and Washington should have predicted at least that scenario and should have taken steps to correct that. But who knows?!!
Which brings us to the third question. What happens if Rupee appreciates against the dollar. Again let us remind ourselves that nobody knows what will happen in the future in short term. But one thing that we can say for sure is both these countries would grow in the long term. However we dont know which will have the best growth rate(The thing in India's favor is it has lots of room to grow. But the problem is we dont have the right capitalistic ingredients. Meaning we dont have honest politicians, fair legal system to protect copyrights and trade secrets etc. People think these are important ingredients for any country to grow over a long period of time). But in a sense it does not matter which country has the better growth rate. If you have houses in both places you are getting the best of both places!!
I of course have to end this with the disclaimer. These are just my personal opinions. I am not responsible for any profit/loss you make out of this post!!
Most of my friends are in a work visa(like H1B). This is because of the huge waiting time in the green card process. Buying a house on a work visa definitely presents a dilemma. The problem is what would happen if the house owner is forced to go back to India. Would you lose all your money?
I personally tend to feel buying house in US at this point of time is a good idea even if you are on a working visa provided you do your research well and live well with in your means and you meet certain other criteria!! For the rest of this article assume that you are someone who does not voluntarily want to leave your job for the next 5 to 10 years.(I know some people want to go back. So for them buying a house is not a good idea)
The way I look about it is first you should make sure you save your emergency fund. This fund should be saved in Indian Rupees and preferably deposited in a nationalized bank. Calculate your expenses in India and make sure you have money for a couple of years living expenses.(Better yet see if you can save enough money that the bank interest from that money could fetch you a middle class living in India.)
Then you should buy a property India!! The rational behind this is if you are forced to go back to India on a hurry you should have enough money to sustain yourself for few years and a place to live.(Even if you dont live in the house you bought, the house you bought should generate some rental income which could partially or fully cover for the rent of the house you actually end up living).
I know getting the first 2 things right is pretty difficult in itself and is expensive as well. But I do feel if the above 2 criteria are not met then one should not invest in US unless they have a green card or citizenship. So assuming those 2 criteria are met and you dont have of any plans of leaving your job voluntarily for the next several years then you can start thinking about buying a house in US provided you have enough money left.
One thing that works in buyers favor right now is that the housing market is in a distressed state. So it should be easy enough to find a bargain. So assuming you have 20% for the downpayment of house and you are able to get a good deal, and you are not overextending yourself in mortgage payments(my rule of thumb is if you are paying more than 25% of your after tax disposable income on housing then you are overextending yourself)) I say go for it!! The following questions do pop up in people's mind:
1. What happens if the value of the house falls next year.
2. What happens if I am forced to quit my job and housing market is in a bad state(Because everybody is getting laid off and selling their house).
3. What happens if rupee appreciates against the dollar making your house worth less than what you paid for.
To answer the first question: Nobody knows what is going to happen to the housing market next month or next year. It is pretty difficult to predict the short term future. Even the so called experts get it wrong. Look at the state of the US economy today. They have people in wall street who have Noble prize in Economics and they still got it wrong. So people like us reading wall street journal cannot figure out the housing market.
However one thing that any body can predict is in the long term having assets in America is a good thing(As you extend your time of prediction your predictions become accurate!! It is the next 5 years that are difficult to predict). So it is more than likely that the property would raise in value in the long term. After all America has the right ingredients for a succesful economy.(Fair legal system, free markets, Creative bright people from through out the world). So even if there are intermediate glitches they will work themseveles out in the long term.
Ok even if the house prices increase in the long term what if you are forced to sell the house on the bottom of the market. This is pretty much our second question. There is a possibility that waves of lay offs might come out of this economic crisis. The answer to that question again is nobody knows what the future holds. First make sure your company is not in immediate danger and your performance in your company is good. Assuming those things are true the key then is dont overextend yourself in mortgage.
This naturally begs the question even if there is a small chance of this happening why do I even invest? The answer is some amount of debt and risk is good for you!! If you want to be absolutely certain then there is nothing you can invest in. Even bank deposits are not good enough because if the inflation is quite high then you lose money on bank deposits. So make sure your monthly mortgage payment is something that you can afford easily.
So what if the worst case scenario actually happens? Am I covered:? The answer is you probably will be fine. You already have the safety net in India. Nobody can confiscate that. However the money you paid for the downpayment and mortgage payment in US is lost. You will have to surrender the house to the lender. This is the risk you are taking upon yourself.
But I consider the possibility of something happening like that to be very low. The reason being if you were in a good position in a stable company and you are laid off and cant find another job then it means most of the US economy is down. Unemployment is probably in double digits. The so called experts in wall street and Washington should have predicted at least that scenario and should have taken steps to correct that. But who knows?!!
Which brings us to the third question. What happens if Rupee appreciates against the dollar. Again let us remind ourselves that nobody knows what will happen in the future in short term. But one thing that we can say for sure is both these countries would grow in the long term. However we dont know which will have the best growth rate(The thing in India's favor is it has lots of room to grow. But the problem is we dont have the right capitalistic ingredients. Meaning we dont have honest politicians, fair legal system to protect copyrights and trade secrets etc. People think these are important ingredients for any country to grow over a long period of time). But in a sense it does not matter which country has the better growth rate. If you have houses in both places you are getting the best of both places!!
I of course have to end this with the disclaimer. These are just my personal opinions. I am not responsible for any profit/loss you make out of this post!!
Wednesday, September 24, 2008
Reading Tamil Magazines online
I am subscribed to both Vikatan(paid) and kumudam(free) online. I read them whenever I am bored. This got me thinking about how this compares with reading those magazines in paper format.
Well first and foremost it is economical to get these magazines online rather than getting the paper copy. Also it is good for the environment because so much paper is saved!! And also there is no wait involved in getting the magazines.
However I find reading these magazines in their paper copy to be better than online(at least in the current form they are online).
First thing is trying to figure out what you would like to read. Of course for regular columns you remember the links and click it. But for content that is not regular, you have to click on the links. For some reason I find it tedious to check each link to see if there is any thing interesting rather than just flipping through the pages!!(May be they should just put up a thumnail image of each page as you mouse over the links!)
Second reason is by nature computer monitors are not suitable for reading long because of their backlight.(May be vikatan and kumudam should be available in Amazon's kindle!!)
Third thing is there is so much going on the screen distracting you from what you want to read. For example there is an animating advertisement on the right, all these cluttered links on your left, scrolling news on the top etc.
Fourth thing is for some reason I find myself to be a little restless when reading online compared to reading a real book. For example when reading online I tend to constantly move the mouse cursor over the pages, highlight portions of text that I am reading etc. However when reading a paper magazine I find myself to be more relaxed and fully concentrating!
Well first and foremost it is economical to get these magazines online rather than getting the paper copy. Also it is good for the environment because so much paper is saved!! And also there is no wait involved in getting the magazines.
However I find reading these magazines in their paper copy to be better than online(at least in the current form they are online).
First thing is trying to figure out what you would like to read. Of course for regular columns you remember the links and click it. But for content that is not regular, you have to click on the links. For some reason I find it tedious to check each link to see if there is any thing interesting rather than just flipping through the pages!!(May be they should just put up a thumnail image of each page as you mouse over the links!)
Second reason is by nature computer monitors are not suitable for reading long because of their backlight.(May be vikatan and kumudam should be available in Amazon's kindle!!)
Third thing is there is so much going on the screen distracting you from what you want to read. For example there is an animating advertisement on the right, all these cluttered links on your left, scrolling news on the top etc.
Fourth thing is for some reason I find myself to be a little restless when reading online compared to reading a real book. For example when reading online I tend to constantly move the mouse cursor over the pages, highlight portions of text that I am reading etc. However when reading a paper magazine I find myself to be more relaxed and fully concentrating!
Monday, September 22, 2008
Movie Review: When strangers appear
Radha Mitchell stars in this thriller movie. She owns a small diner. The story starts with a drifter appearing on her diner. Then a cat and mouse chase starts with the drifter claiming that 3 surfers are chasing him. But when the surfers show up the heroine has a difficult time figuring out whom to believe.
It is a heroine centric story. There is not much of a suspense but the plot is clever. There are a couple of good 'U' turns. But the story breaks down in some places. Especially in explaining why the cat and mouse game is taking place. But that being said it does keep the viewer fully interested in the movie. There is not a dull moment.
There is not much a drama or dealing with unncessary emotions. The chase starts in the first 10 minutes of the movie and director does a good job in maintaining the pace till the end of the movie.
All in all I would rate this as an average movie. I would give it 3 stars out of a possible 5.
(My rating system: 1 star - hated the movie. 2 stars - The movie is boring but I did manage to finish the movie. 3 stars - The movie is watchable at least once. 4 stars - very good movie. 5 stars - I find it a classic!!)
It is a heroine centric story. There is not much of a suspense but the plot is clever. There are a couple of good 'U' turns. But the story breaks down in some places. Especially in explaining why the cat and mouse game is taking place. But that being said it does keep the viewer fully interested in the movie. There is not a dull moment.
There is not much a drama or dealing with unncessary emotions. The chase starts in the first 10 minutes of the movie and director does a good job in maintaining the pace till the end of the movie.
All in all I would rate this as an average movie. I would give it 3 stars out of a possible 5.
(My rating system: 1 star - hated the movie. 2 stars - The movie is boring but I did manage to finish the movie. 3 stars - The movie is watchable at least once. 4 stars - very good movie. 5 stars - I find it a classic!!)
Sunday, September 21, 2008
A comparison of Tamil and English movies
I watch lots of English movies and a fair amount of Tamil movies. I always used to wonder about the similarities, differences and peculiarities. Here is my opinion.
Romantic Movies:
Surprisingly movies that would be classified in US as romantic movies(or chick flick if you want to be crude!!) do very well in Tamil. For example Kadhal Kottai(I know it is old!!) got a good review from both men and women. Whereas in US it would be branded a romantic movie.
Scenes that are impossible in real life:
Tamil and English movies have different ways of packaging impossible scenes into the movies. In Tamil it is usually achieved either by having a hero with mass appeal do them(for example heroes catching speeding bullet etc) or have it be done by some supernatural entity(Usually it is an Amman!). In English movies the same thing is achieved by introducing the scene as invented in some science lab!!(Like Jurassic Park). But neither of them care about how impossible the thing actually is. In Tamil they just put it open whereas in English they wrap it in Science hoping people would not probe further!!
Comedy:
Comedies in Tamil are usually laugh out loud comedies(Example ullathai alli thaa). Whereas in English they are more subtle(woody allen movies). Also I find some Tamil comedies dont have that much logic but usually people ignore them because they make you laugh out loud and in a way that is fine for comedies.
Sentiment:
The sentiments that are popular for a hero in English movies are afffection towards his child(ren) and affection to his wife. English movies rarely deal with emotional attachments of a hero with his mother or other parts of the family. Whereas in Tamil they have a rich variety to choose from. Mother/son, Mamaa/Marumagan, husband/wife, father/child, brother/sister(some of the movies done by Pabhu are examples of this) etc.
Emotions:
Surprisingly many English movies deal with a wide variety of emotions of the hero. Some of the finer emotions portrayed in movies include learning to adopt to a change, accepting defeat, reacting to bereavement, boredom of everyday life, ego, inferiority complex, superiority complex etc. Whereas in Tamil movies it is usually love(towards a girl, family member or country) hate and revenge.
Ages of actors:
In tamil movies usually heroes take roles that are lesser than their age whereas heroines are portrayed in characters that are older than their real age. In English most people are portrayed with whatever age suits the actor.
There are many more difference and similarities between Tamil and English movies. Some of them are obvious, some are subtle. I just presented some aspects that I think are underemphasized by Tamilians watching English movies...
Romantic Movies:
Surprisingly movies that would be classified in US as romantic movies(or chick flick if you want to be crude!!) do very well in Tamil. For example Kadhal Kottai(I know it is old!!) got a good review from both men and women. Whereas in US it would be branded a romantic movie.
Scenes that are impossible in real life:
Tamil and English movies have different ways of packaging impossible scenes into the movies. In Tamil it is usually achieved either by having a hero with mass appeal do them(for example heroes catching speeding bullet etc) or have it be done by some supernatural entity(Usually it is an Amman!). In English movies the same thing is achieved by introducing the scene as invented in some science lab!!(Like Jurassic Park). But neither of them care about how impossible the thing actually is. In Tamil they just put it open whereas in English they wrap it in Science hoping people would not probe further!!
Comedy:
Comedies in Tamil are usually laugh out loud comedies(Example ullathai alli thaa). Whereas in English they are more subtle(woody allen movies). Also I find some Tamil comedies dont have that much logic but usually people ignore them because they make you laugh out loud and in a way that is fine for comedies.
Sentiment:
The sentiments that are popular for a hero in English movies are afffection towards his child(ren) and affection to his wife. English movies rarely deal with emotional attachments of a hero with his mother or other parts of the family. Whereas in Tamil they have a rich variety to choose from. Mother/son, Mamaa/Marumagan, husband/wife, father/child, brother/sister(some of the movies done by Pabhu are examples of this) etc.
Emotions:
Surprisingly many English movies deal with a wide variety of emotions of the hero. Some of the finer emotions portrayed in movies include learning to adopt to a change, accepting defeat, reacting to bereavement, boredom of everyday life, ego, inferiority complex, superiority complex etc. Whereas in Tamil movies it is usually love(towards a girl, family member or country) hate and revenge.
Ages of actors:
In tamil movies usually heroes take roles that are lesser than their age whereas heroines are portrayed in characters that are older than their real age. In English most people are portrayed with whatever age suits the actor.
There are many more difference and similarities between Tamil and English movies. Some of them are obvious, some are subtle. I just presented some aspects that I think are underemphasized by Tamilians watching English movies...
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