They want to eat their cake and have it too

It’s amusing to hear the cricket community say that endorsements do not affect performance. The argument given is that the shoot days are so few, that it cannot possibly impact performance. A second argument is that players get their endorsement value from performance on the field and hence there is no conflict of interest. These are nice arguments, but completely miss the important points where interests do conflict.

From the above arguments, it should follow that if a player has given match-winning performances regularly over long periods (say 1990 to 2006) the player should be leading in the endorsement sweepstakes. However, any casual observer can tell you that in very small windows people like Ajay Jadeja, Yuvraj Singh and Mahendra Dhoni have easily outperformed people like Anil Kumble and Javagal Srinath in the endorsement sweepstake. It is obvious that endorsement value depends on star value and not necessarily to contributions to the team’s cause.

It is evident that the things that matter in endorsements are number of centuries that a player scores, sixes hitting ability and other things that catch the public eye. These things may actually help the team, but at times they may not.

Let us take a few examples. A Pakistani team came to India. They were 2 down in a 6 match series and then went on to win the series 4-2. The Pakistanis had a simple strategy for the flat tracks – send in youngsters up the order to do the kamikaze operations (score fast). If they succeeded, the team got off to a flier, if they didn’t the experienced hands of Younis, Yusuf and Inzamam would take on the responsibility of taking the side to safety. Earlier during the 1996 world cup Sri Lanka had done the same and experienced players took the middle order.

Contrast this with the Indian scenario. Here, the team exists to play around the century record-breaking existence of a few players. The players want to bat in the top three to keep the centuries count. If they fail, it is up to the youngsters to re-build!

There is this strong desire to be the star, the Hercules. We all know that all the century projections will go haywire (and so may the star value or the endorsement value) if a player drops down the order.

Also note that the same players do not want to open in test matches. Here they want youngsters to take the responsibility of playing through 20 overs of the new ball, so that they can be in a good position to pile up centuries. They want to eat their cake and have it too.

Historical Price Behavior of oil

In the recent times, crude oil prices have hit the highest level not seen during the past 20-25 years. This is for several reasons. International factors such as Gulf war II, US-Iran tensions, Organization of Petroleum Exporting Countries (OPEC) micro-managing supply etc, have contributed significantly to the crude oil price hitting $75 a barrel mark in 2006. Since then prices have retreated but still hover above 30- year average level.

Crude oil prices behave like any other commodity with wide price swings in times of shortage or oversupply. The crude oil price cycle may extend over several years responding to changes in demand as well as OPEC and non-OPEC supply. However, crude prices also respond violently to political shocks owing to the concentration of supplies in politically sensitive regions.

The diagram below depicts the price behavior over the last 45 years. The chart is in terms of 2006 USD to factor out inflation.

Prices ranged between $2.50 and $3.00 from 1948 to the end of the 1960s. When viewed in 2006 dollars, crude oil prices fluctuated between $15 - $17 during the period, and fell below $10 levels by the end of the sixties. The 20% nominal price increase just kept up with inflation.

From 1968 to 1970 prices were stable at about $3.00 per barrel, and in real terms the price of crude oil declined from above $15 to below $12 per barrel.

OPEC was formed in 1960, which was to influence the oil industry significantly. By the end of 1971 11 members had joined the group. All this was happening while the member countries were experiencing a steady decline in the purchasing power of a barrel of oil.

The Yom Kippur War started with an attack on Israel by Syria and Egypt on October 5, 1973, and this led to the first oil shock. In 1972 the price of crude oil was about $3.00 per barrel and by the end of 1974 the price of oil had jumped to over $12.00. Several Arab nations imposed an embargo on the countries supporting Israel. Arab nations curtailed production by 5 million barrels per day (MMBPD). Only about 1 MMBPD could be made up by increased production in other countries. The net loss of 4 MMBPD extended through March of 1974 and represented 7 percent of the non Soviet Bloc production. Prices increased 400 percent in six months.

From 1974 to 1978 world crude oil prices were relatively flat ranging from $12.21 per barrel to $13.55 per barrel, in nominal terms.

In 1979 and 1980, the Iranian revolution resulted in the loss of 2 to 2.5 million barrels of oil per day. Subsequently, Iraq invaded Iran in September, 1980 and by November the combined production of both countries was only a million barrels per day which was 6.5 million barrels per day less than a year before. Worldwide crude oil production was 10 percent lower than in 1979.

The combination of the Iranian revolution and the War resulted in crude oil prices more than doubling from $14 in 1978 to $35 per barrel in 1981. Even today, Iran's production is only two-thirds of the level reached in pre revolution Iran.

From 1980 to 1986 non-OPEC production increased 10 million barrels per day, this helped prices stabilize. The price cycle then turned up on the back of a strong US economy and the great boom in the Asia Pacific region. From 1990 to 1997 world oil consumption increased 6.2 million barrels per day. Asian consumption accounted for virtually all that gain.

The price increases came to an end with the economic crisis in Asia. In 1998 Asian Pacific oil consumption declined for the first time since 1982. The combination of lower consumption and higher OPEC production sent prices into a downward spiral.

Russian production had declined significantly since the Soviet era. It started its recovery in about 2000. Since 2000 Russian production increases dominated non-OPEC production growth and has been responsible for most of the non-OPEC increases. This could have moderated the price rise, but 9/11 was the next major event which was to have a big impact on oil prices.

In 2002, problems in Venezuela led to a strike at PDVSA causing Venezuelan production to plummet. In the wake of the strike Venezuela was never able to restore capacity to its previous level and is still about 900,000 barrels per day below its peak capacity of 3.5 million barrels per day.

In 2003, just as some Venezuelan production was beginning to return, military action commenced in Iraq. Asian recovery was complete by this time and demand for crude oil was growing at a rapid pace. The loss of production capacity in Iraq and Venezuela combined with growing international demand led to the present boom in prices. During the last 5 years, India has joined the Asian party and its rapid economic growth is beginning to impact global demand significantly.

Oil Price Spurt in last Five Years

The following political events have influenced oil prices since 2000:

• September 11attack on the World Trade Center, USA.
• Gulf War II begins and ends in early 2003
• Insurgency in Iraq takes a toll on Iraqi oil production (2003 to 2006)
• Iranian Nuclear debate that started in 2005 with no end in sight.

Notable economic reasons, which prompted the price rise in last five years, are:

• Russia’s entry into the world oil market in a big way from 2000 onwards
• Hurricane season of year 2004 in the US.
• Hurricane Katrina and Rita in the year 2005.
• Rising demand, which the controlled supply could not meet.

All the above factors have played their role in pulling up the price to $75 a barrel. Some events have impacted more significantly than the others, but the net impact has been that the world’s consumers are paying a huge price for their oil consumption.

Development of alternative fuel sources is a factor that can impact oil price. Many alternative fuels are profitable if the crude oil sustains above $50/barrel

Importance of Producing Stuff

The Importance of Producing Stuff
This is nice post by Atanu Dey.
I like the build up and the conclusion is well put
"We need to distinguish between employment and production, between money and income, between aggregate production and distribution. India’s economic policies have stressed employment and not production. That, in no small measure, is why India is poor."

Indian Meat Consumption

Trends in meat consumption
Broiler meat is the fastest growing segment, whereas bovine meat is the slowest segment.

Meat consumption has grown at about 4.8% pa. Poultry (broiler) meat has grown at nearly 20% per annum from a level of 478,000 tpa to 1.4 million tpa. Mutton segment has grown at almost the same rate as the overall meat consumption, whereas pork has grown at a slower pace. The bovine meat segment is virtually stagnant.

Per capita availability has grown from 11.9 grams/ day to 14.65 grams/day during the same period (CAGR = 3.52%)

How does India’s consumption compare with the rest of the world?

There is no straight comparison to derive the potential. However a look at the values, does give an indication of the gap. India’s consumption levels are very low and malnutrition and hunger are prevalent. It can be argued that as long as income levels keep increasing, the demand is likely to keep on growing in the foreseeable future.

The diagram depicted below maps the per capita consumption of meat of India and the rest of the world, for the year 1998. It is in the form of the classical S-curve, with India yet to be at the high growth inflexion point. The diagram would indicate that the inflexion point (at which demand starts accelerating) would be somewhere around 20-25 kg pa.

The position of Japan at low consumption levels could be explained by the fact that Japan is a high fish consuming community, which inhibits its meat consumption.

India’s consumption levels (currently 5.35 pg/ annum) are so low that it can only be explained by low incomes and high relative prices.

The horizontal axis indicates per capita consumption of meat (kg/ annum)

Data source: FAO

The total world consumption of meat is estimated to be of the order of 240 million tpa and India’s share of consumption is only 2.2%. On the other hand, India supports nearly 17% of the world’s population

Crude Oil - Balance of power

Production and Consumption centers of crude oil

The United States and The EU account for 43% of the world demand. Russia and Saudi Arabia account for 23% of the production.

Data source: CIA website

The consumption is heavily skewed towards developed countries. The USA, Japan, The EU, Korea, China and India are heavily dependent on imports since the demand far outstrips the domestic production. Saudi Arabia, Russia, Iran, Mexico and Venezuela are the leading producers with a very significant part of their produce being available for exports. Asia is also the region which is experiencing the fastest growth on the back of rapid economic development of several countries including two large economies India and China.

Key players in International Trade of crude

Apart from Russia, most of the leading exporters are OPEC nations. The US, The EU, Japan, China, Korea and India are the leading importers

Data source: CIA website

The EU figures in the above list, because it consists of several countries trading amongst themselves. Norway is the most significant exporting nation in Western Europe. Most of the leading exporters are part of OPEC. China, India and Korea have emerged as significant importers and their import requirements are growing fast.

Proven Reserves of Crude oil

Seven OPEC nations control 62% of the world’s proven resources

Figures in Billion barrels

Data source: CIA website

62% of the world’s proven reserves are controlled by Saudi Arabia, Iran, Iraq, UAE, Kuwait, Venezuela and Libya. Saudi Arabia alone controls 20%, and Iran and Iraq account for 18.5% together, while UAE and Kuwait account for another 15% together.

Humans are hardwired for consistency over reason

I read this interesting post by Scott Adams

Today I Will Improve Your Sex Life

The portions that resonated were
"According to the research, humans are hardwired for consistency over reason. You already knew that: People don’t switch political parties or religions easily. What you didn’t know is how quickly and easily a manipulator can lock someone into a position."

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