Where is the Oil top?

Though nothing to conclude, but an interesting pattern to see-

Look at the chart below, it simply shows the relationship of the current oil bubble to the last 2 big bubbles - tech stocks and then the housing market. Now the rise in oil eclipsed the mammoth rise in tech stocks in the late 90s. Interesting - where is the top?

Cheap Chines Goods - End of an Era?

Why American consumers are about to start paying more for clothes, electronics, toys, and just about everything else.

For years, China fed the consumption hunger of Americans through its cheap exoprts. But it seems that $2 t-shirts era will soon end as china is witnessing an increase in cost of production across industries. Deceds ago when large Chinese population wanted jobs desperately, bulk manufacturing for cheap wages looked viable. As a result, labor & environmental laws were violated, people worked for 7 days a week, working environments were just pathetic & there were no respect for intellectual property rights. But economic evolution cycle goes on, wages increased. Also the effect of 1970's one-child-law led to a dwindling demographics in China. Those born then, now-workforce, demand better labor laws, medical insurance & a good working environment. These rising middle class in India & China will ensure that the cost of raw materials continue to increase throughout the world. Inflation grows more rapidly & chinese remibi appreciates against US. All this indicates one thing - era of cheap Chinese goods is coming to an end!

Now US is looking for alternatives - Vietnam, India, Indonesia, Mexico, or Malaysia?

Vietnam - American importers are now looking at Vietnam, for its lower wages. But Vietnam, how hard it tries, has only 85 million people—the size of one Chinese province. Moreover, prices are rising faster in Vietnam than anywhere else in Asia. Also the rising incidence of strikes and labor disputes, and Vietnam looks increasingly like a short-term alternative.

India - India has not yet managed to get its act together to take advantage of China's rising export prices. Importers say India is good at certain things—embroidery, for instance—but not at the volume production. India's road and port infrastructure, while improving, is nowhere near as efficient as China's.

So US importers are looking back to countries they once rejected in favor of China— Indonesia, Mexico, and Malaysia. But none can offers the one-stop shop appeal as China can, where factories make everything under the sun. For the time being, US consumers will still be buying a lot of "Made in China" products—and paying ever more for them - until......!

Mezzanine Debt - Balancing your Capital Structure

Capital Structures - While there are no hard and fast rules for optimizing a company’s capital structure, companies that areahead of the curve use an efficient combination of senior debt, mezzanine debt, and equity capital to minimize their true cost of capital.

Mezzanine debt capital generally refers to that layer of financing between a company's senior debt and equity - filling the gap between the two. It is subordinate in priority of payment to seniordebt, but senior in rank to equity. Thus using mezz capital has positive side: the owners face little dilution and maintain their control of the business; the companies total cost of capital is reduced; and the mezzanine debt has a flexible payment term that is structured as “self liquidating” and is paid off over time. On the negative side, this is a debt structure that requires interest payments over time.

India vs. other Asian Economies

There are few significant differences between Indian Economy and other major Asian economies, lets analyze few:

a). Current account deficit - India has a current account deficit. As oil and fertilizer prices go up, the deficit increases further. Other Asian economies (like China, Japan, Korea, Taiwan, Singapore, Vietnam etc) have a massive current account surplus which they can use to finance growth, India relies on capital flows - FDI and FII. During 1990s, the East Asian crisis emerged as those countries financed their growth through capital flows, not from any forex reserves (as they did not have much in their kitty then), they were devastrated as world pulled back their money out of Asia. India survived then and is not that worse even today - forex reserves are high and FDI flow remains strong. But still, its a concern.

Benefit of having current account surplus is that forex can be used to contain domestic inflation. So China can led yuan appreciate to control inflation because there is a massive current account surplus, India can't.

b). Fiscal deficit - With increasing wages of govt employees (6th pay commission) and subsidies on oil and fertilizer, the fiscal position of India can become very bad soon. If this continues longer, govt will need to cut down on its spending. Whether that will be subsidies or investments is anybody's guess. Most likely, it will be a mix of both.

Surviving a possible recission is important for an economy. But any recession requires multiple shocks. In 2001, there was tech meltdown, Corporate bankruptcies like Enron-Worldcom, junk bond blowup and Sept 11. This time, we had subprime blowup and the credit crunch. This time may be we are on the verge of an oil shock. Only time will tell how these mighty economies steer away from testing times.