The new bubble - Oil

Most people here in India, do not know whats going on with Oil Prices. All they know is that their Petrol costs 10% more. And they are pissed off. Driving 20 miles daily on my Bike, I am too. But the distubing part is that - the Indian govt flush with the recent huge tax revenue increases and under the influence of the coming national elections in 2009, has blatantly increased the Oil Subsidy - causing huge long term problems for the Indian economy, and will result in downgrading of its Investment grade rating.

Anyway, this article tries to focus on the reason why Oil prices are increasing on a global scale. What most people do not get is simply this - If the oil demand and supply have not changed, then the simple law of demand and supply should dictate at most a marginal increase in prices to account for inflation maybe. But why are we seeing a 350% increase in under 4 years? Its not like the demand jumped suddenly, or the supply got throttled. (For all those who believe that emerging economies are contributing to the demand increase, note that both china and India consume only a fraction of the world's Oil supply. In fact, in face of the rise in prices, demand has come down multiple percentage points.)

The main problem here is the rampart speculation in the Oil Futures market. Money from Institutional Investors (like Hedge funds) needs to be invested in areas which give good returns. Until the 2001 recession, it was the technology firms, which resulted in the the dotcom bubble and the subsequent slowdown. That money shifted to the next best thing - Real Estate. But when real estate did not give the required returns, the Sub Prime mortgage market with its high risk, high returns profile was tapped, eventually resulting in the Subprime Crisis, which has still not completely blow over. Now the money is looking for a new place to be invested - and Oil is the answer.

So when the amount of money put into the futures market increases 31 fold from $9 billion to $280 billion in 8 years, you know where the problem is coming from. Too much money, giving an illusion of demand.

So what happens next? My guess is as soon as the rate of returns starts to slow down (when the most basic law of economics catches up), money start flowing out to the next area which gets a high rate of return. This will result in a slump in the Oil prices, back to the $80 a barrel level. Unfortunately though, this market is slightly unlike others, in that Oil has a very inelastic demand curve. But with the current prices, the demand will go down, eventually leaving many casualties like the Oil suppliers. (The last time this happened after 1970s Oil crisis - the 8 year Iran-Iraq war broke out, followed by the 1991 Gulf war)

The only silver lining is that - hopefully this crisis will bring to the fore the alternative fuel technologies. But if the US Govt behaves in a shortsighted way, like it did after the 1970s oil crisis, then we set the stage open for another bubble in the future.

Why I hate Indian movies - The Formula

Yesterday, I was able to watch the movie Dasavataram. Kamal was at his usual best. The 10 roles he played were in some form and degree related to the ten avataras taken by Vishu in Hindu mythology. The movie had a couple of mass elements in it. Although they were necessary to make it palatable to the masses, it is a pity that the movie had to stoop to those levels. It had potential. I know that to make any amount of money back, it has to do it. Every big budget movie that gets made in India has to follow the "formula" - a derogatory term for standard fare with different packaging - different people, same formula.

Lets see the formula for most telugu movies
- one or two mass songs (read as songs with busty babe(s))
- four or five fighting sequences (hero kicking ass)
- couple of sentimental scenes (hero feeling senti)
- hero is invincible, villan is evil
- Feel good factor

Although most hollywood big budgets are mostly mindless action packed fares, Sometimes you get to see some really good movies (Syriana comes to mind), played by good actors. There is a uniqueness to most movies. This is seriously missing with the typical Indian fare.

Another scourge of the Indian cinema is the "image". For an actor in the Indian industry, image is everything. A hero is a hero - he should be invincible in every movie... For the Indian movies, the word "protagonist" can be used interchangeably with the word, "hero". So most good actors do not get to do any roles other than those they have the "image" for. And those roles are always the macho man roles, because others carry the liability of at best addressing only a part of the market, and at worst destroying the image - rendering him "untouchable" in a bad way.

With respect to Indian movies, I see a beacon of hope in the Parallel cinema revolution that has arrived in Bollywood. These movies are sustained by the spreading multiplex culture in the Indian metros. But south Indian movie industry still has a long way to go, before big actors start acting in good movies.