Post on 03-Apr-2018
transcript
7/28/2019 Demand Supply and Markets v0.02
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Vishal Bhatia
security analyst.. hisviewpoints
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stories..
wealth creation
wealth destruction
hubris
magicians
vandals
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.. because of demand
and supply
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wealth
economics
money
finance
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what keeps a security
analyst awake..
trade should be profitable
trade profitable if company profitableat least demand should exist
duhh! Vish..
Off course!
have capacity to supply atprofit
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selling price no max the more the merrier
minimum selling price = Any greater thanmarginal cost
What is marginal cost? the cost of produzzzing oneezzzztra unit..zzzzz.zzzzz!!
Sponge Iron 2200 / Ton
Ore 1500 / Ton
Coal 850 / Ton
Electricity 200 / Ton
Operators 100 / Ton
Total Op Cost 2550 / Ton
Dem Supp
MP
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Not Necessarily a company
Takes positions on produce directly in the market
Industrial
Grade
Food Grade
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demand rises supply constant => prices rise
demand constant supply rises => prices fall
demand rises supply rises => prices steady
demand falls supply constant => prices fall
demand constant supply falls => prices rise
demand falls supply falls => prices steady
demand rises supply falls => hyper price rise
demand falls supply rises => prices fall
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supply
India + PakistanIndia global
monopoly (80%)
total prod = 1.5 mt
demand
wealthy American
oil cos
weak rupee
$2,000 Mar 11 -
$28,000 Mar 12
1400%
commodity
traders +
bankers/brokers
90% cornered
rs. 1000 cr
loans
42984439 4365 4576
3987 42774376
4263
5000 5745
1000011750
14800
30125
27458
0
5000
10000
15000
20000
25000
30000
35000
gaur gum seed
price/quintal
Perfect no consumer price resistance
Long run supply / short run supply
vultures
588%
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hubrisPride, self confidence, arrogance
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financial crisis or global financial crisis
what happened?
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fundamentally amazing or economically mind boggling
hubris challenged the simple laws of demand and supply
until 2006 any RE agent in USA would tell
you that nationwide prices go up
year qtr shiller
1995 Q1 77.74
1996 Q1 79.61
1997 Q1 81.82
1998 Q1 85.71
1999 Q1 98.08
2000 Q1 1002001 Q1 109.27
2002 Q1 116
2003 Q1 130.48
2004 Q1 146.26
2005 Q1 169.19
2006 Q1 186.66
2007 Q1 185.45
2007 Q3 180.452007 Q4 170.64
2004 46%
2006 86% almost doubled
since great depression housing
prices in US have risen @ 1% a year
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for prices to increase what has to happen?
demand has to rise faster than the supply
Possible theories?
what are demand drivers?
population
incomes
+
what are supply drivers?
new homes
built
>
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populati
on
incomes
2000 2004
Population = ~1.5%
Incomes = 3%
____________________________________
Money Pool = ~ 1.4%
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Maybe new homes did not keep pace with population
increase.. lets check!
2000 -> ~ 115 million housing units
In 2000s US was building 1.5 m homes a year
Then it started accelerating. By 2004 they were building
roughly 2m homes a year
On average 1.8m homes a yearSo 1.8 x 4 = 7.2 m new homes
So 7.2 / 115 = 0.06xxx = ~ 6%
new homes
builtHousing stock = ~6%
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Bizarre !!!!
demand falls supply rises => prices fall
basic
eco
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Dig Deep
Mortgage / Lending markets
1970s
House Price = $60,000
Down Payment = 25%Down Payment = $15,000
Loan = $45,000
Interest 9% = $4050 / yr
or $340 /month
Rent = $900
Important
Cash flow -
Discipline - X
Steady job ?
Good Credit score700+
Rent - X
Biggest Barrier down payment
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Cut to - 2000s
2000s
Down payment 10%
Down payment - $6000
Job is fine (ok if
unsteady)
Credit score = 600
Suddenly a lot of people
Became eligible to buy a
house
2002s
Down payment0%
Down payment - $0
Job you can lie
Credit score = 500
Still More people eligible
2005s
Down payment 0%
Down payment - $0
Job not required. We
have your house
Credit score = no credit
check
.. And more.. Lot more!
Absurd standards!!
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That is someone earning Rs. 20 lakhs a year could buy a Rs. 5 cr house
Demand came from lowering of standards.
Poor migrant laborers earning $40,000 a year were able to buy $1,000,000 houses
Sub primes
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bonus
growthHouse loan
interest
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House loan
Fee
SECURITIZED
LOANS
MBS
CDO
+
Fee
+
interest
investors
+Fee
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Investor gives 1m for home purchase. In return has claim on interest
Does not know me. Thousands or millions.
Then how would investors put up the money
Rating agencies
Have to rely on someone.. Who?
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MBS
CDO
Historically there have been low default rates
We know why ?
So there is a high likelihood that you will be paid
AAA
PBOC
Hedge funds
Pension funds
7%
Still no
defaults
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Vicious cycle
Housing prices go up
Lower defaults
Lower standardsEasier financing
Perceived lending risk low
More people willing to lend
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Phata poster nikla vulture
1000 borrowers
1m each
Total borrowing = 1b1b
100m
1b
SPV1m shares
100m
Share entitlement
$100 yearly$1000 repayment
High IPO Demand
Price rises to 1100
1.1b
100m
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Ideal
-None defaults
- no prepayment
Everyone knows-It will not going to be exactly
10%
-Some will default some will
prepay
How much lower?
Computer models
Historical data
populationState
history
Recovery
patterns
Real return?
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1000 borrowers @ 1m = 1b asset
Simplified model
20% or 200
default50% recovery
10% overall losses
Real return = 10 (10% of 10)
= 9%1980s
Down payment
25%
Steady Job
Credit score =
700+
VAR
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wealth destruction
1995
2005
2008
2009
100k 100k 100k 100k 100k
E 20 L 80
1m
Bubble peak
E 0 L 1m
1m300
k
Bubble
burst
1m
1m
1m 1m500k 8%
580k 580k 580k580k
600k??
Honest effort
Short sale?250
k
Audi
Macau
hettich
250k 250k 250k
Wealth wiped off:
Bank = 500k - 250k = 250k
Borrower = 250k 80k = 170k
Total = 420kboom!! Kaput!
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Plagiarist!
Salman Khan videos
Khanacademy.org
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magician
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Post mba 7 to 20 lakhs / year
10 years into management job 40-60lakhs / year
Ceos 4cr $70m $300m
How much did george soros earn in a day?
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INDIA
RBI
$
Stock
Currency
Market
$ga
tekeepers
Peg to USD
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Black Wednesday 16 sept 1992
EERM European Exchange rate mechanism
Predecessor of euro
Commitment to ERM required that BOE doctor interest
rates higher
Economy demanded lower rates
Soros flooded markets with pound how?
Shorting the pound
Pegged to deutsche mark. Band 6% movement
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Mind Numbing$ 1B
Rs. 5,000 cr.
The Man Who Broke the Bank of England
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Buys for Rs. 5 an apple
Sells for rs. 3 an apple
Millionaire?
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33%1500 x
1920
= 28.8 L
Operating costs
pilots
Ground staff Maintenance crew
airhostesses
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1 plane =
$200m
Or
Rs. 1000 cr.
4% of 28.8 L
= 1.15 L
100,000
days
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Kingfisher
66 planes
Cost per available seat mile
Marginal cost concept will not work. DGCA will ground
the airlines if scheduled altered
Or if the airline is kingfisher
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to his shareholders
the worst sort of business is one that grows
rapidly, requires significant capital to engender
growth and then earns little or no money. think
airlines
.. Another magician
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Evolution theory?
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Evolution theory?
Natural process
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hardnosed
Single mindedfocus
cost cutting
1 configuration
1 type
38
years
of
profit
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Vandal
How much money destroyed?
.. Jala kar rakh kar doonga..! Saara paisa!
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Kya kareen..?
Thyan thyan!!
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"The Century's Greatest Sports Photos"
Phantom punch
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Inflection point
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Disruptive innovation
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Mechanical engg from imperial college London
Frustrating attempts at making metal furniture in Calcutta.
1980s
Sensed opportunity in storage media business
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Sensed opportunity in storage media business
2000 - 2004
Second largest in the world
357 cr
3 billion discs a year
17% global share
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Vishal the procastinator
Ran out of time..
Number digging stops
Stories continue..
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Tried increasing capacity
Idea was to kill the competition from Taiwan
Prices fell from $1.2 to $0.2 per disc
US Europe Antidumping against India and china
Puri got india to apply anti dumping
Taiwan manufacturers moved to china
Dumping no dumping china kicks indias ass
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cmu
Dresses impeccably
No hobbies
workaholic
Finishes project before time
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Sensed inflection point
Started Moser Baer power pvt ltd
PE Funded
Raised debt
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What happened?
Vandal?
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Industry
..on crutches!
Govt funded
Green power
Renewable
Clean air.. Leave better earth to our children
How much we pay for 1 unit of electricity in india?
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Rs. 3.5 to 4.25 depending on state
How much does solar electricity cost per unit
rs. 7
Babaji kya aap hari bijli ke liye jyada
paisa denge..?
Beta hari ko ni.., lal ya peeli.. Ek
paisa bhi nahi doonga!!
vote doonga..
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If babaji will not pay.. Who will?
In form of?
Subsidy / grants / carbon credit / tax offsets
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Grants / subsidy
1. Security2. Food
3. Fuel
4. Investments
5. NREGA
6.
7. 8. Renewable!
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Will u do this business?
3 yrs for asset turnover
Demand erratic..
Must service any demand that arises.. However high it is..
If not you shall be penalized..
If you continue.. Govt will nationalize or sell you as
going concern..
Govt will regulate you heavily..
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Which business is it?
Power
..
No storage.. Consume while generated..
Such poor economics
then why did people put $3b or $13000 cr.. In
power - 2008
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Monopoly
Assured take off
Supreme court ruling..
Per unit price should be regulated suchthat the return on asset should be
equivalent to similar businesses in India
having a similar risk profile and
investment requirements
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Hats off!
Thanks!
If you hv nothing better to do
And there is some problem with 2+2..
Write to me vishalrpb@gmail.com