http://www.pune360.com/posts/list/6.page JForum - http://www.jforum.net 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 ]]> http://www.pune360.com/posts/list/127.page#333 http://www.pune360.com/posts/list/127.page#333 GMT