This from Chris Mayer writing for the Daily Reckoning:

Of all the crazy events in 2008, seeing the Taj Mahal Palace hotel in flames on TV is one I’ll remember for a long time.

Last year, when I traveled throughout India, my first stop was Mumbai (or Bombay, as people still call it). I stayed at the Taj Mahal Palace. I remember what an oasis of calm that hotel was after spending a day in bustling Bombay. I remember its onyx columns and archways and domes, its hand-woven carpets and crystal chandeliers, its exceedingly polite staff and impressive Sikh doormen.

Built in 1903 by a Tata, the Taj was a place of grace and old-world charm. From the hotel, you got a panoramic view of the bay, where the fabled Elephanta Island is a short boat ride away. And the hotel was within sight of the historic Gateway of India, where the last of the British troops departed in 1947.

Poor India, the old stomping grounds of the great Hindu kings, the playground of the Mughal Empire, had a rough year in 2008. India has had such a good run – five years of nearly 9% economic growth and a booming stock market – that it had reason to feel it was Fate’s spoiled darling. But in a long and checkered life, a good many things come unstuck. And so India has.

In 2008, it stock market lost 60% of its value. The rupee lost 20% against the dollar. Foreign investors pulled out in record numbers. India’s best companies struggle. The global economic freeze walloped India hard.

So the question is should you buy India or forget it?

India is a place of staggering contradictions. On the one hand, there is “the Indian miracle.” There are the booming companies and spotless IT campuses. The many millionaires minted daily. Yet there is also awful poverty. The World Bank estimates some 420 million people live below the poverty line. That statistic doesn’t capture the awfulness of it at all.

I’ll never forget the train station in Agra. The mass of poor people lying on the ground in blankets, the beggars and human misery in that place. Yet it has been this way for eons. Mark Twain wrote about the squatters in Following the Equator (1897), about the crowds with their “humble bundles and baskets and small household gear.” Twain would probably still recognize the place.

In India, you’ll see a man in a suit chatting away on a cell phone and on the ground next to him a snake charmer. You’ll see elephants pottering down roads in Rajasthan alongside buses and scooters and hand-pulled carts. You’ll see beautiful buildings right next to absolute squalor.

In Paul Theroux’s new book Ghost Train to the Eastern Star, he retraces a route he took 33 years ago, when he was 33 years old. Part of that trip goes through India. And so Theroux, now 67, is in a good position to judge the changes in India. He is mostly unimpressed. “We drove through the streets of Mumbai, past the slums, the sidewalk sleepers, the lame and the halt. Was the miracle, I wonder, just an illusion?”

Theroux writes about the constant presence of the poor. “Unlike the poor in Europe or America or even China, the poor in India are a constant presence. Where else do people put up with plastic huts on the sidewalk of a main road – not one or two, but an entire subdivision of humpies and pup tents? They inhabit train stations, sleep in doorways, crouch under bridges and railway trestles.”

The biggest slum in all of Asia, Dharavi, lies right in the heart of India’s Manhattan, Bombay. Over some 520 acres live 600,000 people, with one public toilet per 800 people. It is a place of unbelievable filth.

Yet many people in India seem to ignore such slums. I remember sitting in a presentation in which some official from Bangalore showed us slides of new buildings and smooth, functioning roads – a modern city – as he talked up the investment potential of his rapidly changing city. Yet right outside was a completely contrary view: dusty, uneven roads; derelict buildings; and extreme poverty.

Yet there is a lot of good in India. These episodes recount how much more there is to do.

It doesn’t neglect all the progress. And the promise of India, even now, is still enormous.

Consider that even as growth forecasts come down from 9% to 5%, India is still one of the world’s fastest-growing economies. Its people are young and hungry for a better life, unlikely to unbutton the old waistcoat and put their feet up. Half of India’s population is under 25 years old. There are many English speakers. The savings rate is near China’s lofty levels. “The crowning reason for optimism,” opines The Economist “is the savings rate.” Unlike the U.S., India is a nation of savers.

And there are many needs and opportunities. India’s road network is the world’s second largest, but in need of further upgrades. Power outages are common in Indian cities, too. India plans to spend nearly $500 billion on infrastructure over the next five years. Power generation alone should increase 14% annually over that span.

On a more micro level, there are good companies here available on the cheap. The economic deepfreeze won’t last forever. If you can sit on Indian investments for a few years, my guess is you will be amply rewarded.

Source: India: Buy or Sell?

Take Libya, for instance. In 2006, the U.S. State Department removed Libya from its list of “state sponsors of terrorism.” That opened the door to over a hundred million dollars worth of U.S. investment into Libya. However that wave of investment funds now exposes foreign investors to multimillion-dollar terrorism judgments.

Lawyers representing victims of terrorist attacks that Libya allegedly sponsored before 2006 have notified at least a dozen corporations of pending lawsuits. Since Libya was sued prior to 2006 in connection with these attacks, the lawyers believe they can go after companies that invested in Libya after the State Department took Libya off the terrorism list. If a federal court in Washington, D.C. agrees, it will be open season on any of these companies.

The same logic would presumably apply to investments in any other country that’s removed from the blacklist in the future. What that means is the same lawyers who troll the Internet looking for deep pockets could come after anyone with even the most remote connection to a “state sponsor of terrorism.” If you fit the criteria I mentioned yesterday, a plaintiff’s attorney could serve you with a notice of a costly lawsuit – whether you win or lose.

When President Bush campaigned for reelection in 2004, he promised to protect Americans from what he called “the explosion in frivolous lawsuits.” So it’s very ironic that as he leaves office, plaintiff’s attorneys are gearing up for an orgy of such lawsuits.

MARK NESTMANN, Privacy Expert &
President of The Nestmann Group
www.nestmann.com

Source: Next Time You’re Sued, Be Sure to Thank Mr. Bush

A dollar crash will have disastrous implications for global financial markets. At the end of 2001, the euro was worth $ 0.8915, but it has been on a steady upward march since then. On the last trading day of the third quarter in 2007, the euro hit a high of 1.4282. A target of 1.50 is very much within range.

How do all of those surplus countries play into this falling dollar picture? Remember, former Fed chairman Alan Greenspan observed that in economics, the sum of all surpluses equals the sum of all deficits.

So when a surplus country stops investing that surplus in U.S. dollars, its currency will increase against the dollar. This realization has profound implications. Not only does the dollar continue to fall against other currencies; as it does so, it accelerates the undesirability of pegging currencies to U.S. currency or investing in Treasury bonds and other debt. In other words, it becomes less and less viable for foreign investors and central banks to fund ever – growing U.S. debt.

This is not just a problem of U.S. consumer debt trends. We may be the addicts, but we have codependents and enablers around the world. Just as the U.S. consumer is addicted to spending excesses, foreign exporters have become addicted to selling goods to Americans. The problem is with sellers, as well as buyers. The governments in those other markets are as concerned about the U.S. dollar’s fall as Americans are (or should be). Why? The fall of a dollar is the same thing as a rise in other currencies. So the competitiveness of the foreign export economy is damaged more and more as their own currencies increase in value. Just as a falling dollar hurts the buyer (Americans), a rising currency hurts the seller (foreign economies) in the same degree.

The United States is only one side of the problem. As the consumer, our dollars have tremendous influence throughout the world, if only because so many central banks (e.g., China’s) have pegged their currency to the dollar – and at the same time many exporting nations are seeing their currencies going up in value, making it untenable to continue exporting at the same rates as in the past. So we have, through trillions of dollars of debt accumulation, created a de facto dollar standard in much of the world economy.

The debt is based, however, on a worldwide bubble economy, perhaps the biggest bubble in world history. The whole theory behind this comprehensive “bubblization” (a new word for you, referring to the combination of federal deficit, trade, mortgage, housing, dollar, and credit bubbles all working together) has grown out of the economic theories of the Fed. Although Mr. Greenspan was the chief culprit behind the theory that spending is good, more spending is better, and the most spending is best, we can’t pin the whole thing on him. Like the U.S. consumer, he had enablers and codependents everywhere. His helpers include an array of bankers, corporate executives, and investors – all buying into the Greenspan version of the U.S. economy and how it just might work.

Now Mr. Bernanke, who happily puts himself out there as the leading economic forecaster and wise man, also contends that bubbles can’t be recognized until they burst. That’s like saying you can’t tell that your house is on fire just because smoke is billowing from the windows; you have to wait until it bursts into flame. The truth is, bubbles are easily recognizable well in advance of bursting, but we cannot know when they will burst. The dollar bubble is going to burst, and that is inevitable. The effects on the economy of that burst are going to be serious. As long as investors, consumers, and business managers continue to base our financial decisions on assets of inflated and unrealistic value, we are denying this inevitable outcome. The more we depend on those inflated values, the more damage we will suffer when the bubble bursts.

In the case of Japan in the recent past, its pattern was somewhat different from the U.S pattern of today. Japan’s deficit budget spending went into business investment, which in turn expands productivity and trade profits. Spending on business equipment and plans, commercial buildings, and other production – based infrastructure had a specific effect: When Japan’s economy slowed down, it merely came to a halt and has remained chronically slow ever since. In comparison, U.S. deficit spending is overwhelmingly going into consumer spending with very little business investment or consumer savings to offset that trend. Thus, the U.S. trend in GDP is led by consumption and not by investment. So the use of deficit spending has everything to do with the consequences of deficits, and ultimately with the effect of a dollar crash. Unlike Japan’s economy, which merely flattened out as a consequence of deficit spending, the U.S. economy is likely to see a more devastating change in the entire economic landscape – with the accompanying price inflation we have to expect as an outcome.

Addison Wiggin
for The Daily Reckoning Australia

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Source: A Dollar Crash Will Have Disastrous Implications for Global Financial Markets