Coffee and Competitiveness

Much has been talked about competitiveness of Asian economies. Somehow competitiveness of the east has been portrayed to be a direct consequence of half starving men and women working in sweatshop like conditions, scrambling for the dollars and euros thrown at them by “outsourcing” companies. Is that the true source of competitiveness for east?

Starbucks recently opened a coffee chain in India selling cafe lattes and mochas to the populace at Rs.80-Rs.160 per coffee (About $1.5-$3). This price is about 25-50% lower than the prices of UK starbucks stores, which retails about $3.75 per coffee. Western economists will gladly attribute this differential of prices to the conventional sources of eastern competitiveness – low costs, sweat shops, abysmal human rights etc.

The real price comparison, however is the local coffee which the majority of Indians drink at local shops at Rs.10-20 per cup. This unsung drink along with local chai at Rs.5-10 makes it 8-10 times cheaper than the western counterparts. Okay, agreed, unfair game – cannot compare a gourmet coffee (starbucks) with a local coffee, however, even a take away coffee in any cheap local place in the west still costs about 5-8 times a similar coffee in India.

The real source of competitiveness of east is – an alternate way of thinking and life style. East is competitive not because they can offer Starbucks coffee cheaper, it is because they have cheaper alternatives interweaved in the lifestyle that the population genuinely enjoys.




Should you buy Gold

Keep wondering why there is such a strong demand for ornamental gold. Rationally thinking, gold ornaments are a clear bad investment … here are a few reasons why.

  • You lose 5-12% in wastages and making charges.
  • Add other taxes, duties etc and you are already 10-15% behind you costs.
  • You lose some value while liquidating, leave alone the costs of safe guarding these!
  • Gold unlike share or bonds does not give any dividends or interest, so only way up (or down) is through capital appreciation.

Clearly this purchase seems more sentimental or emotional rather than any rational investment decision. However, how can collective wisdom of millennia of people be wrong? Gold has been and will be precious and sought after for thousands of years to come, isn’t it?

Well, you have to give one thing to gold – it is a preserver of value. Over larger period of times, gold on an average buys similar level of things. In short, if not anything, it preserves the value due to inflation. In other words, you can buy similar things with a gram of gold in 1970 as you can in 2012. Forget the real gains above inflation, what is a time tested reasonable assumption is that gold at least keeps up  with inflation.

The question is if you are building an inflation hedge with gold, are you willing to lose 10-15% on ornament charges?


How much more do I need for retirement

All the retirement planning calculators I have seen try to answer -”How much do I need” question. Some assume a percentage (say 80%) replacement levels of last income or others begin with your current expenses.  Undoubtedly both methods throw a very large depressing number.

The question which you are better off asking is – If I were to retire now, what will I have every year and work on increasing this number. eg) If your retirement accounts plus investments are worth $100,000, assuming a 3% draw down for perpetual income – you are already ready to retire now at a draw down of $3000 per year!

This is a “glass is half full” view of the problem as against a “glass is half-empty” view. Of course, you may choose not to retire as $3000 is too low, but this can be more inspiring –  can you set a goal to increase this to $4000 a year?

Christmas Cards

Noticed that my two primary school kids had 22 cards between them. They had given out another 30 to their friends. Considering that there are thirty kids in the class, that looks like an average of 750 cards! So much for sparing the trees!