Understanding food prices

As food prices have suddenly increased so much , that common middle class people like me are feeling the impact now.. There is limit to everything and beyond that one starts feeling that "This is not worth it". I found an intersting article in Financial Express Understanding food prices, although it is old one(2008).

Warren Buffet

In

2002 annual report of Berkshire Hathaway , Warren buffet has given lot of meaningful inputs on lot of financial things especially derivatives....

Following are edited excerpts from the Berkshire Hathaway annual report for 2002.

I view derivatives as time bombs, both for the parties that deal in them and the economic system.Basically these instruments call for money to change hands at some future date, with the amount to bedetermined by one or more reference items, such as interest rates, stock prices, or currency values. Forexample, if you are either long or short an S&P 500 futures contract, you are a party to a very simplederivatives transaction, with your gain or loss derived from movements in the index. Derivatives contractsare of varying duration, running sometimes to 20 or more years, and their value is often tied to severalvariables.Unless derivatives contracts are collateralized or guaranteed, their ultimate value also depends on thecreditworthiness of the counter-parties to them. But before a contract is settled, the counter-parties recordprofits and losses – often huge in amount – in their current earnings statements without so much as apenny changing hands. Reported earnings on derivatives are often wildly overstated. That’s becausetoday’s earnings are in a significant way based on estimates whose inaccuracy may not be exposed formany years.The errors usually reflect the human tendency to take an optimistic view of one’s commitments. But theparties to derivatives also have enormous incentives to cheat in accounting for them. Those who tradederivatives are usually paid, in whole or part, on “earnings” calculated by mark-to-market accounting. Butoften there is no real market, and “mark-to-model” is utilized. This substitution can bring on large-scalemischief. As a general rule, contracts involving multiple reference items and distant settlement datesincrease the opportunities for counter-parties to use fanciful assumptions. The two parties to the contractmight well use differing models allowing both to show substantial profits for many years. In extremecases, mark-to-model degenerates into what I would call mark-to-myth.I can assure you that the marking errors in the derivatives business have not been symmetrical. Almostinvariably, they have favored either the trader who was eyeing a multi-million dollar bonus or the CEOwho wanted to report impressive “earnings” (or both). The bonuses were paid, and the CEO profited fromhis options. Only much later did shareholders learn that the reported earnings were a sham.Another problem about derivatives is that they can exacerbate trouble that a corporation has run into forcompletely unrelated reasons. This pile-on effect occurs because many derivatives contracts require thata company suffering a credit downgrade immediately supply collateral to counter-parties. Imagine thenthat a company is downgraded because of general adversity and that its derivatives instantly kick in withtheir requirement, imposing an unexpected and enormous demand for cash collateral on the company.The need to meet this demand can then throw the company into a liquidity crisis that may, in some cases,trigger still more downgrades. It all becomes a spiral that can lead to a corporate meltdown.Derivatives also create a daisy-chain risk that is akin to the risk run by insurers or reinsurers that lay offmuch of their business with others. In both cases, huge receivables from many counter-parties tend tobuild up over time. A participant may see himself as prudent, believing his large credit exposures to bediversified and therefore not dangerous. However under certain circumstances, an exogenous event thatcauses the receivable from Company A to go bad will also affect those from Companies B through Z.In banking, the recognition of a “linkage” problem was one of the reasons for the formation of the FederalReserve System. Before the Fed was established, the failure of weak banks would sometimes put suddenand unanticipated liquidity demands on previously-strong banks, causing them to fail in turn. The Fed nowinsulates the strong from the troubles of the weak. But there is no central bank assigned to the job ofpreventing the dominoes toppling in insurance or derivatives. In these industries, firms that arefundamentally solid can become troubled simply because of the travails of other firms further down thechain.Many people argue that derivatives reduce systemic problems, in that participants who can’t bear certainrisks are able to transfer them to stronger hands. These people believe that derivatives act to stabilize theeconomy, facilitate trade, and eliminate bumps for individual participants.On a micro level, what they say is often true. I believe, however, that the macro picture is dangerous andgetting more so. Large amounts of risk, particularly credit risk, have become concentrated in the hands ofrelatively few derivatives dealers, who in addition trade extensively with one other. The troubles of onecould quickly infect the others.On top of that, these dealers are owed huge amounts by non-dealer counter-parties. Some of thesecounter-parties, are linked in ways that could cause them to run into a problem because of a single event,such as the implosion of the telecom industry. Linkage, when it suddenly surfaces, can trigger serioussystemic problems.Indeed, in 1998, the leveraged and derivatives-heavy activities of a single hedge fund, Long-Term CapitalManagement, caused the Federal Reserve anxieties so severe that it hastily orchestrated a rescue effort.In later Congressional testimony, Fed officials acknowledged that, had they not intervened, theoutstanding trades of LTCM – a firm unknown to the general public and employing only a few hundredpeople – could well have posed a serious threat to the stability of American markets. In other words, theFed acted because its leaders were fearful of what might have happened to other financial institutionshad the LTCM domino toppled. And this affair, though it paralyzed many parts of the fixed-income marketfor weeks, was far from a worst-case scenario.One of the derivatives instruments that LTCM used was total-return swaps, contracts that facilitate 100%leverage in various markets, including stocks. For example, Party A to a contract, usually a bank, puts upall of the money for the purchase of a stock while Party B, without putting up any capital, agrees that at afuture date it will receive any gain or pay any loss that the bank realizes.Total-return swaps of this type make a joke of margin requirements. Beyond that, other types ofderivatives severely curtail the ability of regulators to curb leverage and generally get their arms aroundthe risk profiles of banks, insurers and other financial institutions. Similarly, even experienced investorsand analysts encounter major problems in analyzing the financial condition of firms that are heavilyinvolved with derivatives contracts.The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply invariety and number until some event makes their toxicity clear. Central banks and governments have sofar found no effective way to control, or even monitor, the risks posed by these contracts. In my view,derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, arepotentially lethal.

It is so interesting to note that he is writing letters to his shareholders from past 20 years....

MAIN KHUD SE HI VAADE NIBHOUN...!!!

VAADA... PROMISE!!!
Often in life we feel betrayed wen somebody else commits something to us and do not fulfill it...
that pains a lot... and we do not forget that for the rest of our lives...
isn't it??

but have we ever given a thought that how many times have we fulfilled the promise to our own self??
we say ki hum exercise karenge,gym jayenge,fit rahenge, apni skills enhance karenge, life mein zyada focus rahenge, but we ofetn break the promise to ourselves?? and how easily do we forget ourselves for this?? Right!!
agar hum khud se hi vaade nibhayein toh shayad zyada kamyab ho sakte hain...!!!zyada khush rah sakte hain...zyada satisfied...!!!


MAIN KHUD SE HI VAADE NIBHAOUN..
MAIN VO HUN JO CHAHUN VO PAOON..!

As I write this,,, I hope that I will able to do this.... i will be able to fulfill promises to my own self..
May God bless!!

Shares and stocks..

Off late, My interest in this field has been increased..
I still do not have complete faith in its results, but I do believe that if markets ,environment are religiously tracked and analyzed and a constant vigil is there on Ur portfolio, u can earn some good amount provided u have invested with a long term goal in mind not a short term...
ofcourse i hv just started and there is along way to go..before I could say that I really know smething about this field...
but really ..a new found passion in ur life..do remove the boredome and monotonous feeling which arises out of repeated daily chores..

(Read.. sleeping.eating,cooking,going to office etc)

Re-Inventing my blog

I m a lazy blogger.. actually I cannot say myself as as blogger... considering nothing substantial has been added to this blog from a long time.....
But suddenly
A thought came across my mind...y not jot down some of the many things that keeps on going across my mind.. This ways at least I can keep track of my own thoughts to some extent.
No doubt,blog is a wonderful and powerful medium..
Today as the times r changing and many big personalities like Mr.Amitabh Bachan, many big shots like yogesh chabaria,
ajay shah and amit agrawal kind of people r blogging to address a large group of people . So can i use this blog to at least address MYSELF.
Hence,I hv decided that I will try to write down some of the thoughts in my mind as and wen i get time to do so.
Hoping to succeed... :)

A TRIBUTE TO THOSE SOULS...

I feel sad wen I remeber some of those people who where a part of my extended enviornmnt. With whomI worked and who sudeenly left this world.
DONT KNOW,Y GOD IS SO CRUEL AT TIMES...the family who this people left behind always feel at unexpressable pain in there hearts....
This blog is my tribute to those souls...
SHIVA-- MY FIRST PROJECT TEAM MATE..USED TO SIT JUST DIAGONALLY TO ME..AN HANDSOME, EVER SMILING AND HELPING TAMILIAN..
PANKAJ-- MY BIT CLASSMATE
AKASH--MY BIT CLASSMATE
MADHAVI-- MY TCS COLLEUGE,FRIENDLY AND SMILING...

THE RIGHT DIRECTIONS

Sometimes I really wonder .....wen I sit still...Very silent ...no sound coming frm anywhere...My mind starts rambling...unexplored indiscreet thoughts starts running through my mind......about past,present and future....!!!
I wonder ..I get astonished about lot of things....Lots of questions are there in my mind whih i feel are unanwered..My minds tries and start searhing .....for those answers....
I wonder as to wat is the purpose of onces life...And whether our lives are meant to have a purpose..Are not we all the puppets of some unknown thread or string which are forcing us to dance on the rythm of destiny....

Destiny did I say destiny..???

So does anything like destiny exist or its all karma....Over the time leading my life I have realized that destiny do exist......But that should not stop us from putting our efforts in the right direction..Yes the direction has to be right and accurate,,then only one can acheive wat he or she really wants in life....But often the problem which I face is that I dont know which is the right direction..I strive to see it..some times I am able to ..some times not...And it goes on.....
Then I realized that there are clues..there are signals everywhere to make u understand that right diection..the correcty path to traverse along......But most often our mind,,,,,clouded by uncertainty ...by our own temptations...inhibitions is not able to see them clearly...and this is where I believe the role and belief in that super power comes into play...There has to be some way out to come out of this illusionary world of ours which each one of us has built around oneself.....One has to be vigilant and cautious not to fall in that trap....to really understand oneself..
I remember wen I was a kid ........I had lot of interest in understanding the behavioral pattern of other people around us...I believe that it will helped me in filtering out the negativity around me and choose the right people to go along with...I still believe the same..But always my father used to say one thing ..that Its gud that u want to cultivate the habbit of differentiating between the right and wrong..But out of all these the most important thing is that .. We all should be able to understand ourself first....once u really know urself is only wen u can really understand the world around u.....becoz the world is nothing but the reflection of our own thoughts... Over the years I have realized that how true he was.....I have to learn to first understand myself..My dreams ..my aspirations..Not short term but long term.....
and I have realized that this process is not easy....Initially lot of trifle goes ,,,the initial inertia I guess....the sooner we overcome it the better...let urself be a silent spectator of all that is happening and slowely u will realize that ur thoughts aren't troubling u anymore...and after that starts the process of unveiling ones own self..I felt that its so difficult to encounter usrelf only sometimes..and we ourself start defending from our own self..justifying to oneself ones wrong actions...
and this process goes on endlessly through out our lives..we dont even realize that this is happening with us....bahout zaroori hai khud ko pehchana..it will help us to gain which will always find lagging in our lives....have we ever thought that y the quest to have sthing never ends..Its becoz we are unaware of that hidden thing which we really want...actually want..........& So our direction is never accurate.... not steady.....
I am striving to understand myself..to choose the right direction....to make the RIGHT CHOICES..WAT ABOUT U....????