US Financial Crisis : Megatrend Remains Intact ... with a few new themes

Sirs,

Analysis ...

The Recent collapse of Lehman Brothers and the selling off of
Merrill Lynch has understandably alarmed the market ...

but ...

These are however just small events on the road to a much
larger prize.The west, in my view,will delay a comprehensive
policy initiative to rescue the world economy till unrest and
huge public demonstrations begin in China. The prize therefore
appears to be the end of communism in the Peoples Republic.

There is a compelling rationale for this.

Most people feel would naturally feel that the above ... does
not hold water because western commerce ( Companies and
the public

are bleeding.They ask ?Why should the US push
itself into a recession... Its a very valid point...except that it
misses the fact that a recession in America means going from
3 cars per family to 2 cars per family (They have 237 Million
Cars for a population of 298 Million people , 2006 data

...
There will also be corresponding decreases in demand in other
items that Europe and the US import. But ... in China ...in the
absense of a strong domestic market(which could absorb say
30 % of the 1.2 Trillion dollar export economy ...it means ...
loss of jobs on a massive scale ... and regime change.

Lehman is no longer around , its forward curve is destroyed...
but the people are still around ... and they are rich and some
of them are creative ... Its all going to bounce back in 1 - 2
years.

And what is a forward curve??... its just what you think the
price is at X time in the future...You can make it at will...(Ask
any derivatives trader

. When the west feels its objectives
have been achieved they will just get together and western
business counterparties will square off their books... thereby
restoring the equilibrium in a Post Peoples Republic world.

So what might happen to forward curves does not bother
me , be it in US treasuries or in anything else. If people go
to liquidate , traders will just take their bids down... So if you
have invested $ 600 Billion in US treasuries , you will lose 100
Billion in the liquidation ...Once you are taken out...the whole
curve goes up once again as does a giant mousetrap trapdoor.

We still have some time to go before we have protests on
Streets in Shanghai and other places on the Chinese east coast.
Right now...its just consumer confidence & demand destruction
that is taking place.As the above game plays itself out, there
is a need for companies us to be very cautious with expenditure
as the market will just keep going south.

Energy Business

Within the Energy Business , a whole new dynamic is taking
shape. Since I have a background in energy derivatives in
designing large clean energy projects , I will now dwell on this
and the future price of oil ...

Energy companies have not yet fully understood that the main
threat to their business comes not from other energy
companies ... like Exxon- mobil, Shell , BP and Chevron but
from companies such as Intel and Samsung which are going
to be next generation Energy Companies. (I had earlier written
a detailed note about why this will happen as Intel assigns
its pentium processor design team to work on the problem
of electron collection circuits on a Quantum Dot solar Cell...
thereby taking cell efficiencies to 45 % + and destroying
the last 1 million barrels of marginal demand based oil
Industry Model

. Please note that since price discovery in
commodities takes place at the margin , a newcomer has to
replace just that last million barrels of demand with an
alternate energy offering ( He does not have to touch the
remaining 79 Million barrels in to destroy the economics of any
new project that is coming online).

The financial implication of this move is that all new projects
in the smokestack energy business must now be viable at
US $40/Bbl WTI crude and 45 % plus efficiency on a Solarcell.

Are todays Energy companies prepared for these massive
changes ? ...To meet the huge challenge that comes from a
VLSI technology based business , there needs to be a new
strategy for the energy business across all disciplines to
combat not just the Intels of this world but the fundamental
problem of Climate Change which is driving innovation in Solar
Energy in the first place. I will not be surprised therefore if
Exxon Mobil makes a bid for Intel in the next 2 - 3 yrs in a
desperate bid to survive.

Never in their history, as at the present time, have energy
companies needed the knowledge worker as it does right now.
As Albert Einstein said 'We can't solve todays problems by using
the same kind of thinking we used when we created them ' . Its
an industry that will see innovation on the same scale as what
was witnessed in the semiconductor business over the last 25
years.

To those more rooted in the present ... there is some news too
... Oil will continue to fall and should be in the range of US $ 65
/Bbl by the first week of November 2008 ( In time for the US
Election

...That downtrend might however be interrupted by
a spike because of Iran. An attack is still very possible as
there has been no change in the Fundamental need for Israel
and the US to curtail the Iranian weapon.

South Asia : Geopolitics

The US and the west no longer see the viability of keeping the
Pakistani state together.

Recent events including Mr. Nawaz Sharif stepping out of the
government and the Pakistani Army ordering attacks on US
troops in the lawless west, point clearly towards an ever
increasing entropy. The fact that the US intends to continue
with the attacks within Pakistani airspace without informing the
Pakistani military ... says a lot ...

Countries are just like people.

No one in all of mans written history has been able to outrun
his destiny. In Pakistans case we can expect its unravelling into
4 small nation states within the next year (Sind,Baloch, Punjab
and NWFP which will remain lawless)... And ... the Kashmiri's
having thrown in their lot with a Pakistani state, will be all
dressed up with no-where to go.

The impact of all this turmoil could be felt in the states of
Rajasthan and Northern Gujarat ... as a civil war in Sind could
potentially send millions across the Rann of Kutch.

Conclusion

The very pace of change is Mind boggling. To compete effectively,
a company's business plan needs to be flexible. In the Energy
Industry , projects need to be conceptualized and designed for a
new degree of robustness.Engineering solutions need to be felxible
to allow migration to the next technology platform. Projects that
allow a company to learn at the lowest possible cost need to be
pursued... in preference to projects that involve getting married to
certain Technologies. I will write about Technologies and possible
new energy platforms later ...

On the geopolotical front, the extent of impact needs to be
quantified and planned for. In India's case we need to be ready to
Mobilize some 8,00,000 troops at short notice and move
them into Gujarat & Rajashthan to stop any huge attempts to cross
the international border and upset the economies of the States of
Gujarat & Rajasthan. There needs to be a strategy to counter
Indian Political parties which will seek to benefit from a new Muslim
votebank which could come to Gujarat & Rajasthan from Pakistani
Sind. The Migration of Refugees needs to be stopped with Military
action if necessary to ensure safety of refugees within the
Pakistani border itself.

Finally ... In the middle of all this doom and gloom ... I am
extremely bullish on India. India is going to emerge very strong
out of this crisis ... huge investments to the tune of US $ 600 Bn
will be made in Infrastructure in India over the next 6 - 8 years.
This will, in an obtuse way, force a sea change in the thinking
within the Indian political class mainly because the massive
demand for quality from their frustrated votebanks will result in
votes being given only to the most progressive among them.
The Indian economy is hitting every possible constraint in its quest
towards faster growth.The Mamata Banerjees and the Communists
need to see the writing on the wall. To win a Political Party has
just to make Infrastructure the central theme in its Election
Manifesto.

The effectiveness of ideas is clearly measured by the monetary
impact that they have and on how they affect decision making
within governments and corporations.If this one page makes people
think differently...I would have done some justice to the lonesome
art of strategy which I profess to peddle.

Ashish Puntambekar
Project Visualizer

www.nataraja.org.in ... The Primary School Megaproject
With a theme is Centered around the Status of the Teacher.
( 30,000 schools under PPP Scheme

Ps :

The Original Article dated Feb 2008 on China ' The Fall of the Dragon '
and explaining the Ju Jit Su Strategy is available on the Indian
Defence Review Website :

http://www.indiandefencereview.com/?p=221

The Article on Pakistan is available on the IDR website :

http://www.indiandefencereview.com/?p=190