For 4 years now this government has been dancing with the Devil. As has the previous government. And while the music was playing, the dancing was joyful. But the music has stopped now. The dancing has stopped. We look up to see who we were dancing with. And we see the Devil. The joy has given way to pain and anguish We should be celebrating. An economy that has grown at a rate of 6.2% each year for 27 years is a big achievement. Only China has had a rate of growth higher than that of India. Yet, for the all the spiritual joy this growth rate should have offered us, we wanted something more. We wanted to be seen at conferences in Tokyo, Hong Kong, London, and New York. Our leaders wanted to be there. Which is all fine: it is good to let the world know that India is doing well. To attend a celebration. But we went to meet the Devils. For all their knowledge and all their wisdom, our wise men lost their sense of balance. They wanted to be "modern"; they wanted India to be "accepted" so they allowed the brokers to talk them into allowing P-Notes to be issued to short term investors. For all their understanding, they did not recognise the character of the investors whose money they have taken. Every "ooh" and "aah" they heard after a speech on India's achievements was mistaken to be a compliment of their India policy. In actual fact, the "ooh" and the "aah" was the sound of pleasure these short term investors emit when they make money. They don't care how they make that money. It could be profits from trading in India, China, or wheat or steel. Profit is what matters. Short-term, month-end profit.
Imagine a man who wishes to get married to a wonderful lady – someone who will be a mother to their children. What qualities would a man look for in such a woman? You would need her to be caring, to be comforting, and to be committed – for the long term. Not someone who would head for the door at the first sign of difficulty. Given all this, would you go out and marry the lady who rents her body to the highest bidder? On a daily basis? India did just that. We married someone looking for an hourly wage. Our policies encouraged the P-Note punters. The Reserve Bank of India said "no" to P-Notes in December 2003. Everyone ignored that warning sign. USD 52 billion of money flowed into India. Over 50% of that was P-Note, mostly short term money. The Index zoomed. Every news channel was blowing whistles, beating the drums, and waving the India Incredible! flag as the markets hit a series of new highs. The music has stopped. Wake up and see who you were dancing with. The financial policies adopted in India were designed to encourage speculation. The Devil was in encouraging short term money flows. The Devil was in rewarding a short term, almost speculative, attitude to investments in the Indian stock market. Look at the great financial innovations that gave us these wonderful songs and allowed us to dance late into the night. Futures. Options. Leverage: the ability to borrow more, so that one could speculate more. P-Notes: the disguised route to smuggle short term money pools into the country. Worse, the Indian taxation regime encouraged people to shovel their money into stock market trading. The tax on profits from short term trading is less than the tax on money earned from starting a real business. Dwell on that for a moment. You build a business, you hire people, you try to contribute to society and the profit you make attracts a tax rate of 30%. But if you punch a few buttons on your rented trading terminals and make a profit from speculation, the profits you made attracted a tax rate of 10%. This short term capital gains tax is proposed to be increased to 15% in this budget. What would most sensible people do: face the endless bureaucracy and corruption and struggle to start a new business or learn how to punch buttons on a trading terminal in an air-conditioned room? A tax rate of 30% after a lot of hard work, or a tax rate of 15% from watching TV channels? All this innovation and reform was justified by a need to have better liquidity. And why is liquidity important? Because theory has it that, the more people buy and sell, the more "correct" the price. The more correct the price, the more accurate is the Price Discovery. That is theory. Practice, in a speculation driven environment, was a little different. Liquidity only tells you how much money people are willing to throw into a game at any point in time. It does not tell you whether the price point established is "correct". The price may be totally incorrect, but the people playing the game may have a different perspective on what is "correct" or not. A BSE-30 Index level of 16,000 in September 2007 attracted USD 6 billion of foreign money flows. The Index is now struggling to stay above 16,000 and there is no USD 6 billion of foreign money pouring in. Money is moving out. The "price" is still the same but there are no buyers. Not because India has gone through some crisis. Rather, because India has taken money from short-term investors who need to scramble their money back home. Or need to get on that plane to Polaris to find new sources of funding. The lady just got a better hourly rate from somewhere else. She may not have the time to kiss the children goodbye. Sorry about that. The shattered husband has to reflect on what he has done wrong and redefine his criteria of a companion. The attitude towards investing has to change. The tax regimes have to change to punish short-term activity. Impose a higher capital gains tax on short term gains. Shut down the P-Note facility. Widen – and speed up – the facility for long-term Foreign Institutional Investors. Make India boring for the rent-me-by-the-hour crowd. Send the senior members of the government to towns in India on delegations to discuss the potential of the Indian economy. No more foreign trips to visit the owners of P-Notes. Allow the Indian pensions to invest up to 40% of their assets in equity. India is on a wonderful long-term trajectory of positive economic growth. The stock markets have become an end – they are supposed to be a means to an end. In the final analysis, a growing economy will result in an expanding stock market and in wealth creation. While the policy makers figure out the true character of the woman they have married, there is some irrational "price discovery" going on in the stock market. Use this sell off as an opportunity to buy. But, yes, please do read the offer documents and understand why you are doing what you are doing. Dancing with the Devils - with the unknown - can be an expensive experience.
Bulls
Get Ready...for a Bull Ride !!!
Thursday, March 13, 2008
Why US attacked IRAQ???? Why the Dollar Bubble is about to Burst - Little lengthy but worth every bit !!!
This article which had appeared more than a year back has some stark realities which the world is facing now. It also corroborates the hypothesis that the REAL reason why the US attacked Iraq was because Saddam Hussein had decided the move Iraq 's Oil trade from US$ to Euro.
London - 24 May, 2006
The Voice (issue 264 - 11th May) ran an article beginning, " Iran has really gone and done it now. No, they haven't sent their first nuclear sub in to the Persian Gulf . They are about to launch something much more deadly -- next week the Iran Bourse will open to trade oil, not in dollars but in Euros." This apparently insignificant event has consequences far greater for the US people, indeed all for us all, than is imaginable.
Currently almost all oil buying and selling is in US-dollars through exchanges in London and New York . It is not accidental they are both US-owned.
The Wall Street crash in 1929 sparked off global depression and World War II. During that war the US supplied provisions and munitions to all its allies, refusing currency and demanding gold payments in exchange.
By 1945, 80% of the world's gold was sitting in US vaults. The dollar became the one undisputed global reserve currency -- it was treated world-wide as `safer than gold'. The Bretton Woods agreement was established. The US took full advantage over the next decades and printed dollars like there was no tomorrow. The US exported many mountains of dollars, paying for ever-increasing amounts of commodities, tax cuts for the rich, many wars abroad, mercenaries, spies and politicians the world over. You see, this did not affect inflation at home! The US got it all for free! Well, maybe for a forest or two. Over subsequent decades the world's vaults bulged at the seams and more and more vaults were built, just for US dollars. Each year, the US spends many more dollars abroad that at home. Analysts pretty much agree that outside the US , of the savings, or reserves, of all other countries, in gold and all currencies -- that a massive 66% of this total wealth is in US dollars!
In 1971 several countries simultaneously tried to sell a small portion of their dollars to the US for gold. Krassimir Petrov, (Ph. D. in Economics at Ohio University ) recently wrote, "The US Government defaulted on its payment on August 15, 1971. While popular spin told the story of `severing the link between the dollar and gold', in reality the denial to pay back in gold was an act of bankruptcy by the US Government." (1) The 1945 Bretton Woods agreement was unilaterally smashed. The dollar and US economy were on a precipice resembling Germany in 1929. The US now had to find a way for the rest of the world to believe and have faith in the paper dollar. The solution was in oil, in the petrodollar. The US viciously bullied first Saudi Arabia and then OPEC to sell oil for dollars only -- it worked, the dollar was saved. Now countries had to keep dollars to buy much needed oil. And the US could buy oil all over the world, free of charge. What a Houdini for the US ! Oil replaced gold as the new foundation to stop the paper dollar sinking. Since 1971, the US printed even more mountains of dollars to spend abroad. The trade deficit grew and grew. The US sucked-in much of the world's products for next to nothing. More vaults were built. Expert, Cóilínn Nunan, wrote in 2003, "The dollar is the de facto world reserve currency: the US currency accounts for approximately two thirds of all official exchange reserves. More than four-fifths of all foreign exchange transactions and half of all world exports are denominated in dollars. In addition, all IMF loans are denominated in dollars." (2)
Dr Bulent Gukay of Keele University recently wrote, "This system of the US dollar acting as global reserve currency in oil trade keeps the demand for the dollar `artificially' high. This enables the US to carry out printing dollars at the price of next to nothing to fund increased military spending and consumer spending on imports. There is no theoretical limit to the amount of dollars that can be printed. As long as the US has no serious challengers, and the other states have confidence in the US dollar, the system functions." (3)
Until recently, the US-dollar has been safe. However, since 1990 Western Europe has been busy growing, swallowing up central and Eastern Europe . French and German bosses were jealous of the US ability to buy goods and people the world over for nothing. They wanted a slice of the free cake too. Further, they now had the power and established the euro in late 1999 against massive US-inspired opposition across Europe, especially from Britain - paid for in dollars of course. But the euro succeeded.
Only months after the euro-launch, Saddam's Iraq announced it was switching from selling oil in dollars only, to euros only -- breaking the OPEC agreement. Iran , Russia , Venezuela , Libya , all began talking openly of switching too -- were the floodgates about to be opened?
Then aeroplanes flew into the twin-towers in September 2001. Was this another Houdini chance to save the US (petro)dollar and the biggest financial/economic crash in history? War preparations began in the US . But first war-fever had to be created -- and truth was the first casualty. Other oil producing countries watched-on. In 2000 Iraq began selling oil in euros. In 2002, Iraq changed all their petro-dollars in their vaults into euros. A few months later, the US began their invasion of Iraq .
The whole world was watching: very few aware that the US was engaging in the first oil currency, or petrodollar war. After the invasion of Iraq in March 2003, remember, the US secured oil areas first. Their first sales in August were, of course, in dollars, again. The only government building in Baghdad not bombed was the Oil Ministry! It does not matter how many people are murdered -- for the US , the petrodollar must be saved as the only way to buy and sell oil -- otherwise the US economy will crash, and much more besides.
In early 2003, Hugo Chavez, President of Venezuela talked openly of selling half of its oil in euros (the other half is bought by the US ). On 12 April 2003, the US-supported business leaders and some generals in Venezuela kidnapped Chavez and attempted a coup. The masses rose against this and the Army followed suit. The coup failed. This was bad for the US .
In November 2000 the euro/dollar was at $0.82 dollars, its lowest ever, and still diving, but when Iraq started selling oil in euros, the euro dive was halted. In April 2002 senior OPEC reps talked about trading in euros and the euro shot up. In June 2003 the US occupiers of Iraq switched trading back to dollars and the euro fell against the dollar again. In August 2003 Iran starts to sell oil in euros to some European countries and the euro rises sharply. In the winter of 2003-4 Russian and OPEC politicians talked seriously of switching oil/gas sales to the euro and the euro rose. In February 2004 OPEC met and made no decision to turn to the euro -- and yes, the euro fell against the dollar. In June 2004 Iran announced it would build an oil bourse to rival London and New York , and again, the euro rose. The euro stands at $1.27 and has been climbing of late.
But matters this month became far, far worse for the US dollar. On 5th May Iran registered its own Oil Bourse, the IOB. Not only are they now selling oil in euros from abroad -- they have established an actual Oil Bourse, a global trading centre for all countries to buy and sell their oil!
In Chavez's recent visit to London ; he talked openly about supporting the Iranian Oil Bourse, and selling oil in euros. When asked in London about the new arms embargo imposed by the US against Venezuela , Chavez prophetically dismissed the US as "a paper tiger".
Currently, almost all the world's oil is sold on either the NYMEX, New York Mercantile Exchange, or the IPE, London 's International Petroleum Exchange. Both are owned by US citizens and both sell and buy only in US dollars. The success of the Iran Oil Bourse makes sense to Europe, which buys 70% of Iran 's oil. It makes sense for Russia , which sells 66% of its oil to Europe . But worse for the US , China and India have already stated they are very interested in the new Iranian Oil Bourse.
If there is a tactical-nuclear strike on - deja-vu - `weapons of mass destruction' in Iran , who would bet against a certain Oil Exchange and more, being bombed too?
And worse for Bush. It makes sense for Europe, China , India and Japan-- as well as all the other countries mentioned above -- to buy and sell oil in Euro's. They will certainly have to stock-up on euros now, and they will sell dollars to do so. The euro is far more stable than the debt-ridden dollar. The IMF has recently highlighted US economic difficulties and the trade deficit strangling the US-- there is no way out.
The problem for so many countries now is how to get rid of their vaults full of dollars, before it crashes? And the US has bullied so many countries for so many decades around the world, that many will see a chance to kick the bully back. The US cannot accept even 5% of the world's dollars -- it would crash the US economy dragging much of the world with it, especially Britain .
To survive, as the Scottish Socialist Voice article stated, "the US , needs to generate a trade surplus to get out of this one. Problem is it can't." This is spot on. To do that they must force US workers into near slavery, to get paid less than Chinese or Indian workers. We all know that this will not happen.
What will happen in the US ? Chaos for sure. Maybe a workers revolution, but looking at the situation as it is now, it is more likely to be a re-run of Germany post-1929, and some form of extreme-right mass movement will emerge.
Does Europe and China/Asia have the economic independence and strength to stop the whole world's economies collapsing with the US ? Their vaults are full to the brim with dollars.
The US has to find a way to pay for its dollar-imperialist exploitation of the world since 1945. Somehow, eventually, it has to account for every dollar in every vault in the world.
Bombing Iran could backfire tremendously. It would bring Iran openly into the war in Iraq , behind the Shiite majority. The US cannot cope even now with the much smaller Iraqi insurgency. Perhaps the US will feed into the Sunni v Shiite conflict and turn it into a wider Middle-East civil-war. However, this is so dangerous for global oil supplies. Further, they know that this would be temporary, as some country somewhere else, will establish a euro-oil-exchange, perhaps in Brussels .
There is one `solution' -- scrap the dollar and print a whole new currency for the US . This will destroy 66% of the rest of the world's savings/reserves in one swoop. Imagine the implications? Such are the desperate things now swimming around heads in the White House, Wall Street and Pentagon.
Another is to do as Germany did, just before invading Poland in 1938. The Nazis filmed a mock Polish Army attack on Germany , to win hearts and minds at home. But again, this is a finger in the dam. So, how is the US going to escape this time? The only global arena of total superiority left is military. Who knows what horrors lie ahead. A new world war is one tool by which the US could discipline its `allies' into keeping the dollar in their vaults.
The task of socialists today is to explain to as many as possible, especially our class, that the coming crisis belongs purely to capitalism and (dollar) imperialism. Not people of other cultures, not Islam, not the axis of evil or their so-called WMDs. Their system alone is to blame.
The new Iranian Oil Bourse, the IOB, is situated in a new building on the free-trade-zone island of Kish , in the Persian Gulf . It's computers and software are all set to go. The IOB was supposed to be up and running last March, but many pressures forced a postponement. Where the pressure came from is obvious. It was internationally registered on 5th May and supposed to open mid-May, but its opening was put off, some saying the oil-mafia was involved, along with much international pressure. Just google `pertroeuro', and the story lies before you.
From now on, anyone in the know will wake up every morning and, even before coffee, will check out the latest exchange rate between the euro and dollar.
London - 24 May, 2006
The Voice (issue 264 - 11th May) ran an article beginning, " Iran has really gone and done it now. No, they haven't sent their first nuclear sub in to the Persian Gulf . They are about to launch something much more deadly -- next week the Iran Bourse will open to trade oil, not in dollars but in Euros." This apparently insignificant event has consequences far greater for the US people, indeed all for us all, than is imaginable.
Currently almost all oil buying and selling is in US-dollars through exchanges in London and New York . It is not accidental they are both US-owned.
The Wall Street crash in 1929 sparked off global depression and World War II. During that war the US supplied provisions and munitions to all its allies, refusing currency and demanding gold payments in exchange.
By 1945, 80% of the world's gold was sitting in US vaults. The dollar became the one undisputed global reserve currency -- it was treated world-wide as `safer than gold'. The Bretton Woods agreement was established. The US took full advantage over the next decades and printed dollars like there was no tomorrow. The US exported many mountains of dollars, paying for ever-increasing amounts of commodities, tax cuts for the rich, many wars abroad, mercenaries, spies and politicians the world over. You see, this did not affect inflation at home! The US got it all for free! Well, maybe for a forest or two. Over subsequent decades the world's vaults bulged at the seams and more and more vaults were built, just for US dollars. Each year, the US spends many more dollars abroad that at home. Analysts pretty much agree that outside the US , of the savings, or reserves, of all other countries, in gold and all currencies -- that a massive 66% of this total wealth is in US dollars!
In 1971 several countries simultaneously tried to sell a small portion of their dollars to the US for gold. Krassimir Petrov, (Ph. D. in Economics at Ohio University ) recently wrote, "The US Government defaulted on its payment on August 15, 1971. While popular spin told the story of `severing the link between the dollar and gold', in reality the denial to pay back in gold was an act of bankruptcy by the US Government." (1) The 1945 Bretton Woods agreement was unilaterally smashed. The dollar and US economy were on a precipice resembling Germany in 1929. The US now had to find a way for the rest of the world to believe and have faith in the paper dollar. The solution was in oil, in the petrodollar. The US viciously bullied first Saudi Arabia and then OPEC to sell oil for dollars only -- it worked, the dollar was saved. Now countries had to keep dollars to buy much needed oil. And the US could buy oil all over the world, free of charge. What a Houdini for the US ! Oil replaced gold as the new foundation to stop the paper dollar sinking. Since 1971, the US printed even more mountains of dollars to spend abroad. The trade deficit grew and grew. The US sucked-in much of the world's products for next to nothing. More vaults were built. Expert, Cóilínn Nunan, wrote in 2003, "The dollar is the de facto world reserve currency: the US currency accounts for approximately two thirds of all official exchange reserves. More than four-fifths of all foreign exchange transactions and half of all world exports are denominated in dollars. In addition, all IMF loans are denominated in dollars." (2)
Dr Bulent Gukay of Keele University recently wrote, "This system of the US dollar acting as global reserve currency in oil trade keeps the demand for the dollar `artificially' high. This enables the US to carry out printing dollars at the price of next to nothing to fund increased military spending and consumer spending on imports. There is no theoretical limit to the amount of dollars that can be printed. As long as the US has no serious challengers, and the other states have confidence in the US dollar, the system functions." (3)
Until recently, the US-dollar has been safe. However, since 1990 Western Europe has been busy growing, swallowing up central and Eastern Europe . French and German bosses were jealous of the US ability to buy goods and people the world over for nothing. They wanted a slice of the free cake too. Further, they now had the power and established the euro in late 1999 against massive US-inspired opposition across Europe, especially from Britain - paid for in dollars of course. But the euro succeeded.
Only months after the euro-launch, Saddam's Iraq announced it was switching from selling oil in dollars only, to euros only -- breaking the OPEC agreement. Iran , Russia , Venezuela , Libya , all began talking openly of switching too -- were the floodgates about to be opened?
Then aeroplanes flew into the twin-towers in September 2001. Was this another Houdini chance to save the US (petro)dollar and the biggest financial/economic crash in history? War preparations began in the US . But first war-fever had to be created -- and truth was the first casualty. Other oil producing countries watched-on. In 2000 Iraq began selling oil in euros. In 2002, Iraq changed all their petro-dollars in their vaults into euros. A few months later, the US began their invasion of Iraq .
The whole world was watching: very few aware that the US was engaging in the first oil currency, or petrodollar war. After the invasion of Iraq in March 2003, remember, the US secured oil areas first. Their first sales in August were, of course, in dollars, again. The only government building in Baghdad not bombed was the Oil Ministry! It does not matter how many people are murdered -- for the US , the petrodollar must be saved as the only way to buy and sell oil -- otherwise the US economy will crash, and much more besides.
In early 2003, Hugo Chavez, President of Venezuela talked openly of selling half of its oil in euros (the other half is bought by the US ). On 12 April 2003, the US-supported business leaders and some generals in Venezuela kidnapped Chavez and attempted a coup. The masses rose against this and the Army followed suit. The coup failed. This was bad for the US .
In November 2000 the euro/dollar was at $0.82 dollars, its lowest ever, and still diving, but when Iraq started selling oil in euros, the euro dive was halted. In April 2002 senior OPEC reps talked about trading in euros and the euro shot up. In June 2003 the US occupiers of Iraq switched trading back to dollars and the euro fell against the dollar again. In August 2003 Iran starts to sell oil in euros to some European countries and the euro rises sharply. In the winter of 2003-4 Russian and OPEC politicians talked seriously of switching oil/gas sales to the euro and the euro rose. In February 2004 OPEC met and made no decision to turn to the euro -- and yes, the euro fell against the dollar. In June 2004 Iran announced it would build an oil bourse to rival London and New York , and again, the euro rose. The euro stands at $1.27 and has been climbing of late.
But matters this month became far, far worse for the US dollar. On 5th May Iran registered its own Oil Bourse, the IOB. Not only are they now selling oil in euros from abroad -- they have established an actual Oil Bourse, a global trading centre for all countries to buy and sell their oil!
In Chavez's recent visit to London ; he talked openly about supporting the Iranian Oil Bourse, and selling oil in euros. When asked in London about the new arms embargo imposed by the US against Venezuela , Chavez prophetically dismissed the US as "a paper tiger".
Currently, almost all the world's oil is sold on either the NYMEX, New York Mercantile Exchange, or the IPE, London 's International Petroleum Exchange. Both are owned by US citizens and both sell and buy only in US dollars. The success of the Iran Oil Bourse makes sense to Europe, which buys 70% of Iran 's oil. It makes sense for Russia , which sells 66% of its oil to Europe . But worse for the US , China and India have already stated they are very interested in the new Iranian Oil Bourse.
If there is a tactical-nuclear strike on - deja-vu - `weapons of mass destruction' in Iran , who would bet against a certain Oil Exchange and more, being bombed too?
And worse for Bush. It makes sense for Europe, China , India and Japan-- as well as all the other countries mentioned above -- to buy and sell oil in Euro's. They will certainly have to stock-up on euros now, and they will sell dollars to do so. The euro is far more stable than the debt-ridden dollar. The IMF has recently highlighted US economic difficulties and the trade deficit strangling the US-- there is no way out.
The problem for so many countries now is how to get rid of their vaults full of dollars, before it crashes? And the US has bullied so many countries for so many decades around the world, that many will see a chance to kick the bully back. The US cannot accept even 5% of the world's dollars -- it would crash the US economy dragging much of the world with it, especially Britain .
To survive, as the Scottish Socialist Voice article stated, "the US , needs to generate a trade surplus to get out of this one. Problem is it can't." This is spot on. To do that they must force US workers into near slavery, to get paid less than Chinese or Indian workers. We all know that this will not happen.
What will happen in the US ? Chaos for sure. Maybe a workers revolution, but looking at the situation as it is now, it is more likely to be a re-run of Germany post-1929, and some form of extreme-right mass movement will emerge.
Does Europe and China/Asia have the economic independence and strength to stop the whole world's economies collapsing with the US ? Their vaults are full to the brim with dollars.
The US has to find a way to pay for its dollar-imperialist exploitation of the world since 1945. Somehow, eventually, it has to account for every dollar in every vault in the world.
Bombing Iran could backfire tremendously. It would bring Iran openly into the war in Iraq , behind the Shiite majority. The US cannot cope even now with the much smaller Iraqi insurgency. Perhaps the US will feed into the Sunni v Shiite conflict and turn it into a wider Middle-East civil-war. However, this is so dangerous for global oil supplies. Further, they know that this would be temporary, as some country somewhere else, will establish a euro-oil-exchange, perhaps in Brussels .
There is one `solution' -- scrap the dollar and print a whole new currency for the US . This will destroy 66% of the rest of the world's savings/reserves in one swoop. Imagine the implications? Such are the desperate things now swimming around heads in the White House, Wall Street and Pentagon.
Another is to do as Germany did, just before invading Poland in 1938. The Nazis filmed a mock Polish Army attack on Germany , to win hearts and minds at home. But again, this is a finger in the dam. So, how is the US going to escape this time? The only global arena of total superiority left is military. Who knows what horrors lie ahead. A new world war is one tool by which the US could discipline its `allies' into keeping the dollar in their vaults.
The task of socialists today is to explain to as many as possible, especially our class, that the coming crisis belongs purely to capitalism and (dollar) imperialism. Not people of other cultures, not Islam, not the axis of evil or their so-called WMDs. Their system alone is to blame.
The new Iranian Oil Bourse, the IOB, is situated in a new building on the free-trade-zone island of Kish , in the Persian Gulf . It's computers and software are all set to go. The IOB was supposed to be up and running last March, but many pressures forced a postponement. Where the pressure came from is obvious. It was internationally registered on 5th May and supposed to open mid-May, but its opening was put off, some saying the oil-mafia was involved, along with much international pressure. Just google `pertroeuro', and the story lies before you.
From now on, anyone in the know will wake up every morning and, even before coffee, will check out the latest exchange rate between the euro and dollar.
The Physiology of Fear
Daily Reckoning Australia
By Dan Denning
Hey it’s not all bad news. At least the footy season starts in eight days. Go the Saints! Go the Demons! We can’t decide on which team to barrack for. So we’re hedging our bets for now, betting on both extremes.
Where will the market be eight days from now? Will it look back on Tuesday’s Fed action as the turning point in the great credit crisis of 2008? Or will yesterday’s action be just another failed attempt to halt the rampaging bear market in credit?
You have to give it to Ben Bernanke. For an academic, he sure has a great sense of theatre. It may not last long. But Tuesday’s 416 point rally on the Dow Jones was kind of refreshing, wasn’t it? It’s like coming up for air after you’ve been holding your breath under water… for two months.
Inhale. Did you know that by inhaling and exhaling three times-calmly and fully-you actually reduce the chance you will lose your temper? Fear and anger are physiological as well as psychological. Calm, deep breathing lowers your heart rate and prevents the chain reaction of neurochemical events in your brain that leads to bouts of anger and panic. Perhaps oxygen tanks should be made available in the trading pits.
Then again, traders were quite happy with their Fed-induced high on Tuesday. U.S. investors sent the indexes up by over three and half percent thanks to a new plan of attack by the supreme allied commander in the war against deflation, U.S. Fed governor Ben Bernanke.
General Bernanke-or perhaps we should call him Air Marshall, in honour of his arsenal of money-dropping helicopters-bombed the markets with an innovative new strategy. It’s called a Term Securities Lending Facility (TSFL).
Starting 27 March, the Fed will loan prime brokers (big banks) up to US$200 billion in U.S. Treasury bonds. In exchange for the Treasuries, the banks will deposit with the Fed collateral in the form of AAA rated residential mortgage backed securities (RMBs) and agency debt issued by Fannie Mae and Freddie Mac.
The prime brokers, you’ll recall from yesterday’s Daily Reckoning, are putting the screws to hedge funds. After years of virtually no-questions-asked lending, the prime brokers are now engaged in no-answers-accepted margin calls.
For example, the hedge fund run by Carlyle Capital is trying to prevent its creditors from selling US$16 billion in collateral. The fund pledged the assets as collateral for loans last year. The banks (prime brokers) want their money back, and are antsy to get it. The trouble is, in their rush to sell the collateral, the banks risk collapsing prices for all sorts of other assets that have been pledged as collateral. More selling leads to falling prices leads to more selling. You can see where all that goes. Down.
Into this no-trust zone between borrowers and lenders steps the Fed. The Fed hopes that by taking the illiquid collateral off the prime broker’s hands, it can prevent cascading asset sales. But will the prime brokers begin lending again? Hmmn.
The prime brokers could simply keep the Treasuries on the balance sheet for a month and boost their own capital. This would prevent them from having to borrow more capital from the Gulf States. Or they could lend against the Treasuries. In a fractional reserve banking system, $200 billion worth of new assets can quickly become $2 trillion worth of new lending (lending at 10x reserves).
If the banks expand lending on their comfy new Treasury capital base, well then the Fed will have achieved its goal of loosening up the credit markets. But here’s a question for you… if the new term securities lending facility leads to an expansion in bank lending, why hasn’t the gold price reacted? Hasn’t the Fed indirectly increased the money supply?
For starters, the Fed’s action today makes it less likely to cut rates by 50 or 75 basis points next week. That’s one reason gold didn’t move more today. But the bigger reason is that we have to wait and see if the Fed’s action has the intended reaction, namely restoring liquidity to the financial system.
Stocks sure liked what they saw. But stocks always behave impetuously. The stock market and the credit market are two different animals. It’s too early to tell if banks will actually change their lending behavior because of the new lending program. We walk past a magic shop on St. Kilda Road every day. But that doesn’t mean we have a closet full of wands and white rabbits.
Maybe banks will use the TSFL. Maybe they won’t. The banks know a third new wave of mortgage debt is already facing higher delinquency rates. They may not be in any hurry to loan more money at all, knowing that a lot more collateral is about to go bad.
What do we know? Not much. But it does seem safe to say the Fed has solvency in mind as much as liquidity.
The TSLF is supposed to allow prime brokers to exchange illiquid assets for liquid ones for 28 days. But that 28 days… could just as well be 56… or 84… or three years. That is, the Fed has shown us it’s willing to take de facto ownership of bad mortgage debt in order to restore order to the system and guarantee that banks don’t become insolvent due to inadequate capital.
Of course the Fed can’t come right out and say its willing to own bad debt. If it did, the U.S. dollar would tank even more. But the bond market isn’t stupid. “The risk of losses on U.S. Treasury notes exceeded German bonds for the first time ever amid investor concern the subprime mortgage crisis is sapping government reserves, credit-default swaps prices show,” reports Abigail Moss at Bloomberg.
The bond market realises that the Fed has wandered down a path that may lead to the natonialsation of a huge amount of bad American mortgage debt. At the very least, this means inflation. And there may be bigger plans in the offing.
Here’s a thought: what does a thirty year U.S. Treasury bond have in common with a thirty year, fixed-interest rate mortgage?
They both, quite obviously, have the same duration (30 years). Is it inconceivable that the Fed would buy up (at some discount) a large portion of Fannie and Freddie’s mortgage portfolios, and then, as the new lender, allow Americans to refinance into 30-year fixed mortgages? The Fed could then either hold onto the new mortgage portfolio, or foist it off on some new government agency.
It’s not inconceivable, because we just conceived it. In any event, this drama isn’t over yet. Monetary intrigue aside, the world’s central banks are fighting debt deflation with all the tools of inflation. As a result, you’re getting inflation.
In China, inflation is growing at its fastest pace in 11 years. Chinese consumer prices were up 8.7% in February. Food costs were up a staggering twenty three per cent.
U.S Vice President Dick Cheney has been dispatched to the Middle East to try and talk down oil prices from $108. Good luck with that Mr. Cheney. Gulf States are importing inflation through their dollar pegs. Keeping oil prices high by refusing to increase supply may be the Saudi’s way of getting back at Bernanke for gutting the dollar.
An eventful day, all in all. The local market will probably follow New York’s lead. For the day, that means up. For the year? We reckon stocks better enjoy the fresh air while they can. Inflation sucks out all the oxygen in a room like a greedy fire.
By Dan Denning
Hey it’s not all bad news. At least the footy season starts in eight days. Go the Saints! Go the Demons! We can’t decide on which team to barrack for. So we’re hedging our bets for now, betting on both extremes.
Where will the market be eight days from now? Will it look back on Tuesday’s Fed action as the turning point in the great credit crisis of 2008? Or will yesterday’s action be just another failed attempt to halt the rampaging bear market in credit?
You have to give it to Ben Bernanke. For an academic, he sure has a great sense of theatre. It may not last long. But Tuesday’s 416 point rally on the Dow Jones was kind of refreshing, wasn’t it? It’s like coming up for air after you’ve been holding your breath under water… for two months.
Inhale. Did you know that by inhaling and exhaling three times-calmly and fully-you actually reduce the chance you will lose your temper? Fear and anger are physiological as well as psychological. Calm, deep breathing lowers your heart rate and prevents the chain reaction of neurochemical events in your brain that leads to bouts of anger and panic. Perhaps oxygen tanks should be made available in the trading pits.
Then again, traders were quite happy with their Fed-induced high on Tuesday. U.S. investors sent the indexes up by over three and half percent thanks to a new plan of attack by the supreme allied commander in the war against deflation, U.S. Fed governor Ben Bernanke.
General Bernanke-or perhaps we should call him Air Marshall, in honour of his arsenal of money-dropping helicopters-bombed the markets with an innovative new strategy. It’s called a Term Securities Lending Facility (TSFL).
Starting 27 March, the Fed will loan prime brokers (big banks) up to US$200 billion in U.S. Treasury bonds. In exchange for the Treasuries, the banks will deposit with the Fed collateral in the form of AAA rated residential mortgage backed securities (RMBs) and agency debt issued by Fannie Mae and Freddie Mac.
The prime brokers, you’ll recall from yesterday’s Daily Reckoning, are putting the screws to hedge funds. After years of virtually no-questions-asked lending, the prime brokers are now engaged in no-answers-accepted margin calls.
For example, the hedge fund run by Carlyle Capital is trying to prevent its creditors from selling US$16 billion in collateral. The fund pledged the assets as collateral for loans last year. The banks (prime brokers) want their money back, and are antsy to get it. The trouble is, in their rush to sell the collateral, the banks risk collapsing prices for all sorts of other assets that have been pledged as collateral. More selling leads to falling prices leads to more selling. You can see where all that goes. Down.
Into this no-trust zone between borrowers and lenders steps the Fed. The Fed hopes that by taking the illiquid collateral off the prime broker’s hands, it can prevent cascading asset sales. But will the prime brokers begin lending again? Hmmn.
The prime brokers could simply keep the Treasuries on the balance sheet for a month and boost their own capital. This would prevent them from having to borrow more capital from the Gulf States. Or they could lend against the Treasuries. In a fractional reserve banking system, $200 billion worth of new assets can quickly become $2 trillion worth of new lending (lending at 10x reserves).
If the banks expand lending on their comfy new Treasury capital base, well then the Fed will have achieved its goal of loosening up the credit markets. But here’s a question for you… if the new term securities lending facility leads to an expansion in bank lending, why hasn’t the gold price reacted? Hasn’t the Fed indirectly increased the money supply?
For starters, the Fed’s action today makes it less likely to cut rates by 50 or 75 basis points next week. That’s one reason gold didn’t move more today. But the bigger reason is that we have to wait and see if the Fed’s action has the intended reaction, namely restoring liquidity to the financial system.
Stocks sure liked what they saw. But stocks always behave impetuously. The stock market and the credit market are two different animals. It’s too early to tell if banks will actually change their lending behavior because of the new lending program. We walk past a magic shop on St. Kilda Road every day. But that doesn’t mean we have a closet full of wands and white rabbits.
Maybe banks will use the TSFL. Maybe they won’t. The banks know a third new wave of mortgage debt is already facing higher delinquency rates. They may not be in any hurry to loan more money at all, knowing that a lot more collateral is about to go bad.
What do we know? Not much. But it does seem safe to say the Fed has solvency in mind as much as liquidity.
The TSLF is supposed to allow prime brokers to exchange illiquid assets for liquid ones for 28 days. But that 28 days… could just as well be 56… or 84… or three years. That is, the Fed has shown us it’s willing to take de facto ownership of bad mortgage debt in order to restore order to the system and guarantee that banks don’t become insolvent due to inadequate capital.
Of course the Fed can’t come right out and say its willing to own bad debt. If it did, the U.S. dollar would tank even more. But the bond market isn’t stupid. “The risk of losses on U.S. Treasury notes exceeded German bonds for the first time ever amid investor concern the subprime mortgage crisis is sapping government reserves, credit-default swaps prices show,” reports Abigail Moss at Bloomberg.
The bond market realises that the Fed has wandered down a path that may lead to the natonialsation of a huge amount of bad American mortgage debt. At the very least, this means inflation. And there may be bigger plans in the offing.
Here’s a thought: what does a thirty year U.S. Treasury bond have in common with a thirty year, fixed-interest rate mortgage?
They both, quite obviously, have the same duration (30 years). Is it inconceivable that the Fed would buy up (at some discount) a large portion of Fannie and Freddie’s mortgage portfolios, and then, as the new lender, allow Americans to refinance into 30-year fixed mortgages? The Fed could then either hold onto the new mortgage portfolio, or foist it off on some new government agency.
It’s not inconceivable, because we just conceived it. In any event, this drama isn’t over yet. Monetary intrigue aside, the world’s central banks are fighting debt deflation with all the tools of inflation. As a result, you’re getting inflation.
In China, inflation is growing at its fastest pace in 11 years. Chinese consumer prices were up 8.7% in February. Food costs were up a staggering twenty three per cent.
U.S Vice President Dick Cheney has been dispatched to the Middle East to try and talk down oil prices from $108. Good luck with that Mr. Cheney. Gulf States are importing inflation through their dollar pegs. Keeping oil prices high by refusing to increase supply may be the Saudi’s way of getting back at Bernanke for gutting the dollar.
An eventful day, all in all. The local market will probably follow New York’s lead. For the day, that means up. For the year? We reckon stocks better enjoy the fresh air while they can. Inflation sucks out all the oxygen in a room like a greedy fire.
Cash Is Bad?
Many years ago - in the days when Doordarshan was a monopoly and we all sat around the family black and white TV set to watch serials like Rajni, Chhaya Geeth, and I Love Lucy - I recall hearing a joke on what may have been a Benny Hill (a UK comedian) show.
The joke: A man enters into a bar, wishes to order a drink, and shouts loudly, “Mine’s a large one”.
The financial services industry, worldwide, seems to be obsessed by size. Financial analysts and commentators, too, seem to believe that the sole objective of any business is to be large. The power and the influence of being recognised by a media obsessed by rankings based on size, makes most CEOs dream of walking up to the bar and saying, “Mine is the largest”.
In an interesting article by a CFA (someone who knows more about financial matters than I ever will), the author was suggesting that Infosys had to use its extra cash (and borrowed funds) to grow and that cash in the bank was a waste. Similar arguments have been used against Bajaj Auto, too, in the late 1990’s: cash in the bank is a waste grumbled every analyst, please give it back to us. Japanese companies, too, are often criticised for having excess cash which should be returned to shareholders.
The discovery of the power of Excel sheets has made us financial types pretty powerful people. From never having run any real business - or facing the challenges of even starting one – the financial analysts and investment bankers have emerged as the new leaders who can guide the world – and all the companies in it – to some sort of economic nirvana.
So, cash is bad because it does nothing? Maybe cash is good to keep till there can be some useful use for it, eventually. Having cash in the bank is good for a rainy day – for those who think long-term enough to know that we can have storms. Like writing off bank loans to poor farmers is good because it will reduce the suicide rate (two farmers every hour) and prevent the growing influence of rural rebel armies. Maybe Rs 60,000 crore on farm loans is cheaper than spending tens of thousands of crore in a war with Naxalites. I don’t know the right answers, but others are confident that they have the solutions.
There are a few companies that, thankfully, seem happy to let this obsession with “large” remain in newspaper articles and the spreadsheets of young analysts. Over the past five years, HDFC has “surrendered” its market share leadership position in the home loan business to ICICI Bank. But HDFC remains focused on profits. On being the flag bearer for corporate governance and “goodness”. It has little interest in standing by the bar and saying, “Mine is a large one.”
So, it came as a surprise – since HDFC is the largest shareholder – when, on February 23rd, HDFC Bank issued a press release announcing a proposed merger with Centurion Bank of Punjab (CBoP). On February 25th the boards of both banks met again to consider the swap ratio (1 share in HDFC Bank : 29 shares in CBoP) and on February 28 decided to move ahead with the merger. The rationale: the larger we are, the bigger we will be.
All this, just as the global financial giants are witnessing the pain of having grown too large. UBS went from being a small Swiss bank, to the world’s largest wealth manager and then began worrying about its rankings in the league tables for other financial businesses and did silly things – at bad prices. They bought Paine Webber, Dillon Reed, hired a bunch of investment bankers and planted flags in every business in any part of the world. J. P. Morgan, Merrill Lynch – you read about them every day now. They all chased size and “opportunity”. The market shares matter more than a control on risks. Cultural differences and differing styles of management were brushed aside. The numbers mattered, not the people that built the numbers.So as of December 31, 2007, HDFC Bank had a network of 754 branches and 1,906 ATMs in 327 cities. CBoP had 394 branches and 452 ATMs in 180 cities. Add up the two banks and, bingo, bigger is better. Maybe. Maybe not.
ICICI Bank is the private sector bank standing tall at the bar with the largest tag around its neck. That tag excites some people, and does not excite others. The recent announcements by ICICI Bank that it has been hit by some fallout of the global sub-prime crises are reason to pause. The joke in the retail borrower space reportedly is: if you cannot get a home loan from HDFC, go to ICICI Bank.
Not that mergers are bad or growth is bad.It is good to aspire for growth – and to achieve it.Infosys has grown – with “extra” cash in its balance sheet.
But in an acquisition there has to be a cultural fit. Because any merger is like a marriage, there has to be a “suitable match”. And even on that count, the HDFC Bank and CBoP merger sort of fails the test. HDFC has one set of cultural values, the stand-alone HDFC Bank another still-evolving set of values: the press often talks about a merger between the two HFDC entities. Such an event would throw up its own challenges and a need to iron out a “value” fit. Not impossible, but something that needs to be worked on. But this proposed merger between HDFC Bank and CBoP could probably take the new, merged banking entity even further away from the core HDFC culture.
On a personal level, I am saddened by the merger. The financial ratios and rationale for the merger don’t sound that compelling. It seems to be an obsession with size. HDFC has taken 30 years to build itself into one of India’s most respected institutions. It has never had a desire to be on the top of any ranking list. Yet, as a shareholder in HDFC Bank, HDFC’s support for the merger with CBoP suggests that size seems to matter. While that may be true, there is another fact: India needs more institutions, we have enough companies. HDFC is an institution, and I hope it remains one.
By Ajit Dayal- Equity Master
Cabot Wealth Advisory: The Market Is Not A Movie
Stock market old-timers will often tell newbies that "the market wants to take your money," which, on the face of it, isn't all that credible. After all, lots of people make lots of money onWall Street. Still, there's something to the warning, and the quicker you learn about it, thequicker you can start printing your yearly results in black ink, rather than red.
The education of a stock investor isn't exactly the stuff that Hollywood movies are made from. (No, that's not what "Wall Street" was about!) There's not a lot of excitement in digging into business models, studying chart patterns, and tracking revenues andearnings.
Investing does have its moments, of course. I'm thinking specifically about how some of the action in the stock market in the past couple of months has looked like Matt Damon driving a Mini-Cooper down those stone steps in Paris in "The Bourne Identity."
And there are always a few exhilarating days every year when markets take off, giving you the same thrill that you got when the Millennium Falcon first went into hyperspace in "Star Wars: Episode IV."
But I digress. The point is that learning to invest in stocks isn't a barrel of laughs.
On the other hand, it's a tough world out there, with lots of people working more than one job and scrambling just to stay even with their mortgage and the bills ... and not even managingthat. It's hard to get ahead.
This feeling of powerlessness sends some people to convenience stores in search of lottery tickets or to a gambling casino, where the odds are astronomical (in the first case) and inexorable (in the second). In those cases, at least, people know the odds are againstthem.
Unfortunately, desperation also sends some people to the stock market ...with the same results. People who go into stock investing in desperation often bring with them the same mindset (and the same lack of preparation) that accompanied them to the lottery window orthe blackjack table. What they find out is that (as the title of this section notes) The MarketWants To Take Your Money.
Some people treat this truism as a general warning about equity investing. They don't believe that the market is actively, forcefully and intentionally trying to take their money away.
They're wrong, and here are three reasons why.
- Institutions want to take your money away. Large institutional investors control a wide majority of the equity capitalization in U.S. and global markets, and they count on individuals being both over-enthusiastic and over-discouraged. The individuals who pushstocks up the last 10% or so to their tops are setting the table for institutions to sell and begin the stock's decline. And the last individuals who finally capitulate and sell a stock down to its low are tying a bow on the gift package for institutions, who will then quietly begin to buy up the discounted bargains.
- The bandwagon wants to take your money away. It's hard to commit to putting a chunk of cash into a stock. As a result, a lot of investors wait to invest ... and then they wait some more, trying to be sure that the stock they're buying is the real deal.
Eventually, as the stock rises, more and more people are reassured by the stock's performance into actually pulling the trigger. It's fun to grab a piece of one of thesestocks that's going through the roof, and some people actually make some money this way. But the last few people who jump on the bandwagon are doomed to go over the cliff with it. It's the law.
- Good stories want to take your money away. Every great stock has a great story. Stories are how entrepreneurs win funding for their startups and how rising companies get the capital to expand. The trouble is that a lot of absolute mutts have stories that make themsound like the next Apple and Google and Microsoft all rolled into one. The guy who starts telling you about his favorite stock at a party will probably give you 95 cents worth of story with just a nickel's worth of information about the company's revenues, earnings and the performance of its stock.
There are other things in the market that want to take your money, but you get the picture. So what can you do about it?
As any of our longtime readers know, the answer is: have a system.
If you like the idea of buying stocks at a discount and then holding on for years while they appreciate to fair value (the Warren Buffett way), then you are a value investor and you should follow that system. You'll make money.
If you're more comfortable with the idea of buying dividend-paying large-cap stocks that are closely tied to the progress of the U.S. or global economy, then you're a blue-chipbuy-and-hold investor, and that's exactly what you should do. You'll make money.
If you cherish the thrill of finding hot, young stocks that are climbing like rockets and riding them to huge gains--and you can tolerate--and minimize--the losses that inevitably accompany this strategy--then you're a growth investor, and you should stick to yourguns. You'll make money.
Whatever system you use, a strict sell discipline needs to be an integral part of it. If you ever forget that the market actively wants to take your money, the value of your portfolio will be glad to remind you.
By Paul Goodwin
The education of a stock investor isn't exactly the stuff that Hollywood movies are made from. (No, that's not what "Wall Street" was about!) There's not a lot of excitement in digging into business models, studying chart patterns, and tracking revenues andearnings.
Investing does have its moments, of course. I'm thinking specifically about how some of the action in the stock market in the past couple of months has looked like Matt Damon driving a Mini-Cooper down those stone steps in Paris in "The Bourne Identity."
And there are always a few exhilarating days every year when markets take off, giving you the same thrill that you got when the Millennium Falcon first went into hyperspace in "Star Wars: Episode IV."
But I digress. The point is that learning to invest in stocks isn't a barrel of laughs.
On the other hand, it's a tough world out there, with lots of people working more than one job and scrambling just to stay even with their mortgage and the bills ... and not even managingthat. It's hard to get ahead.
This feeling of powerlessness sends some people to convenience stores in search of lottery tickets or to a gambling casino, where the odds are astronomical (in the first case) and inexorable (in the second). In those cases, at least, people know the odds are againstthem.
Unfortunately, desperation also sends some people to the stock market ...with the same results. People who go into stock investing in desperation often bring with them the same mindset (and the same lack of preparation) that accompanied them to the lottery window orthe blackjack table. What they find out is that (as the title of this section notes) The MarketWants To Take Your Money.
Some people treat this truism as a general warning about equity investing. They don't believe that the market is actively, forcefully and intentionally trying to take their money away.
They're wrong, and here are three reasons why.
- Institutions want to take your money away. Large institutional investors control a wide majority of the equity capitalization in U.S. and global markets, and they count on individuals being both over-enthusiastic and over-discouraged. The individuals who pushstocks up the last 10% or so to their tops are setting the table for institutions to sell and begin the stock's decline. And the last individuals who finally capitulate and sell a stock down to its low are tying a bow on the gift package for institutions, who will then quietly begin to buy up the discounted bargains.
- The bandwagon wants to take your money away. It's hard to commit to putting a chunk of cash into a stock. As a result, a lot of investors wait to invest ... and then they wait some more, trying to be sure that the stock they're buying is the real deal.
Eventually, as the stock rises, more and more people are reassured by the stock's performance into actually pulling the trigger. It's fun to grab a piece of one of thesestocks that's going through the roof, and some people actually make some money this way. But the last few people who jump on the bandwagon are doomed to go over the cliff with it. It's the law.
- Good stories want to take your money away. Every great stock has a great story. Stories are how entrepreneurs win funding for their startups and how rising companies get the capital to expand. The trouble is that a lot of absolute mutts have stories that make themsound like the next Apple and Google and Microsoft all rolled into one. The guy who starts telling you about his favorite stock at a party will probably give you 95 cents worth of story with just a nickel's worth of information about the company's revenues, earnings and the performance of its stock.
There are other things in the market that want to take your money, but you get the picture. So what can you do about it?
As any of our longtime readers know, the answer is: have a system.
If you like the idea of buying stocks at a discount and then holding on for years while they appreciate to fair value (the Warren Buffett way), then you are a value investor and you should follow that system. You'll make money.
If you're more comfortable with the idea of buying dividend-paying large-cap stocks that are closely tied to the progress of the U.S. or global economy, then you're a blue-chipbuy-and-hold investor, and that's exactly what you should do. You'll make money.
If you cherish the thrill of finding hot, young stocks that are climbing like rockets and riding them to huge gains--and you can tolerate--and minimize--the losses that inevitably accompany this strategy--then you're a growth investor, and you should stick to yourguns. You'll make money.
Whatever system you use, a strict sell discipline needs to be an integral part of it. If you ever forget that the market actively wants to take your money, the value of your portfolio will be glad to remind you.
By Paul Goodwin
The Psychology of Losing - Explaining Investors' Bear Market Behaviors
Confession time. This is the first bear market I understand as a loser. Imagine that. I was in Magellan Fund when Peter Lynch ran it. I write newsletters, for heaven's sake. I have a record of finding great stocks before they get hot. And I've seen plenty of bear markets before this one. And for the first time ever, I open my account and feel like a loser.True, only one position bugs me. But it is the single investment that may be most like the investments thousands of people make. It's become an amazing window into how a "market" thinks.I bought the losing stock because someone I trust told me about it (you know who you are, love of my life). This is someone with a record of finding phenomenal global stocks that go up hundreds of percents … an expert in Asia. But the buzz led him to this little penny stock that was supposedly capturing attention.First mistake - I don't buy penny stocks. They're OK for those who enjoy wild-eyed speculation based on what they think other people are doing. But they don't fit my long-term value profile. Or even my "reasoned and disciplined speculation on major stocks for good reason" profile. I shouldn't have done it. I don't know beans about penny stocks. Second mistake - I did no research of my own. Not even checking to see if I liked what the company had done so far, what it made or sold, or even what its plans were. Stupid, stupid, stupid. Did I mention that was really dumb of me?Third mistake -I had no reason for investing. "Because someone said it's going to go up" does not count. There has to be a cause. It's going to go up because … pick one: sales are rising, a new contract is a big deal, the new product will grab market share, margins are improving, or even there's momentum, which I can see because MACD just crossed positive and the stock had a point-and-figure triple-top breakout. Even speculations need some facts underfoot. Refer to Chart_3.jpgThe other 99 percent of my positions are terrific. That includes those that are down recently, because their short–term price action doesn't alarm me. They are great companies in a bad market. Big deal. I wasn't planning on selling them this year, anyway. So I feel good about their long-term outlooks, and their recent business performance backs up everything I believe. But this one stock has taught me how it feels to invest not knowing enough. Millions of investors are in my shoes. They bought something because their broker had it on the hot list to push, because they read a magazine article about it, because Yahoo! Finance keeps pushing it, or because someone they know recommended it. The most enlightening thing about this is that suddenly I really understand all those technical patterns that happen in a bear market or in a single stock that has plunged. In theory, I know stocks that come off their bottoms have setbacks. This is the first time I've found myself thinking in ways that would cause such a thing. I'm down so much that when the stock came up a couple of pennies, I thought maybe I should sell and take what gains there are. That is exactly what happens in a bear market when stocks hit their final (or significant) bottoms and begin to rise. Millions of people are watching, and at least some of them think, "at last, I get a little more than I had last week, better take it now." Then the rising stock falls again. But if the bottom really was the bottom, then before the stock hits it or gets close, it begins another rise. This time, it may go past its recent sell-off spot because those people already got out. This time, if you look at a chart with volume-by-price bars along the side, you can almost guess where another sell-off is going to happen - at the spot where the largest blocks of buying occurred before the bottom. At that point, millions are watching and some of them are thinking, "thank gosh I'm back to even, and I've had enough pain. I'm getting out." Similar reactions happen when stocks get to old support areas, which are spots the stock kept falling to, but not through, for a long time. Sell-offs of rising bear-market stocks also occur where very large and sudden drops happened in the past. In all these cases, the mental tape is the same, "I'm finally better off than I was, and this stock still scares me. I'm outta here before it goes down again." The chart for Sears Holdings (not the stock I bought) shows how that works.You notice that none of those reactions has a single thing to do with the company itself. Not its earnings, its prospects, its competitors, its discoveries, its patents, its contracts, or its market conditions. Nothing. When it comes to a loser like the one that's bugging me, it makes sense to sell out at any of the emotional points. Or at least it makes more sense than it did for me to buy the fool thing in the first place.But for most of your stocks - which I hope are like most of my stocks - a different bear market strategy is in order. You should acknowledge that the selling on the way up from a bottom is not necessarily a sign that anyone knows something you don't. Most likely, it is caused exactly by people who don't know nearly as much as they should - people who are easing their emotional pain, not behaving in any rational way. If you know why you bought your stocks, what you expected from the company and whether it's on track, then you can hold intelligently at those places where others panic. You'll get the rest of the ride up. They won't. Now I have this stock to sell, because I can't stand feeling like a loser.
By Lynn Carpenter (US Stock market analyst)
By Lynn Carpenter (US Stock market analyst)
UBS: Recessionary Risks Are Rising
UBS Investment ResearchThe conflict between "moral hazard" considerations and the need to stabilize real estate prices via a comprehensive reduction of foreclosures poses a public policy dilemma that could delay agreement on and limit the effectiveness of public policies on foreclosures. However, in the view of UBS mortgage strategists: "a bailout of some sort is an appropriate policy response to themounting credit crisis. A slight improvement in expected losses on outstanding subprime and Alt-A deals would go a long way toward restoring stability." Downside Risks Rattling Fed More recession evidence The latest data, including the 63,000 decline in payrolls in February, added to theevidence that the economy is in recession, setting the stage for an easing ofinflation pressures. So far, the rate of contraction implied by the broad growth datalooks fairly modest. We are not forecasting a deep recession, due in large part toonly a small drag from inventories this time. Still, even if the recession isultimately "milder than average," as we project, data in coming months are likelyto show additional weakening. Meanwhile, ongoing financial markets problems raise the risk of greater-than-expected weakness. Against that backdrop, Fed officials showed concern by announcing new liquidity boosting measures for shortterm funding markets. We expect that concern will also be reflected in another large cut in the funds rate at the March 18 FOMC meeting: we now expect a 75 bp cut at that meeting (to 2.25%), instead of 50 bps. In addition, we now forecast an eventual lowering of the funds rate to 1.5% (by August) instead of 2.0%. When will it end? We believe the latest back-to-back nonfarm payroll declines are a prelude tofurther recessionary news at least through mid-year. Whether a mild recoverystarts, as we currently expect during Q3(08), hinges on materially reducing theexcess vacant inventories that are depressing home prices. That requires furtherreductions in homebuilding, a positive sales response to more affordable homes,and public policies starting to trim recently elevated foreclosures. The week ahead We expect the February CPI report to show tamer overall and core inflation thanthe January report a month ago. Retail sales were probably neither especiallystrong nor weak in February, consistent with consumer spending slowingsignificantly but not collapsing. More recent confidence data likely showed acontinued downtrend into early March. The rate of growth in employment-based withheld taxes hasslowed sharply, consistent with weakening in wage income andemployment growth in the last few months. At the end of last year, almost one in every 12 mortgages waseither delinquent for over 30 days or in foreclosure. More Recession Evidence The latest data added to the evidence that the economy is in recession, setting the stage for an easing of inflation pressures. The February employment report showed a second consecutive decline in total payrolls (-63,000 after -22,000) and a third straight decline in private payrolls (-101,000 after -26,000 and -14,000). More positively, the unemployment rate fell 0.1 point in February, to4.8%, although the improvement reflected a larger decline in the labor force(-450,000) than in the household survey measure of employment (-255,000). At 4.8%, the level of the unemployment rate is still up significantly from the low of 4.4% in March 2007. Meanwhile, the trend in employment and growth broadly looks more than weak enough to push unemployment up further. (We continue to forecast a 6.0% unemployment rate by year-end.) Along with the payrolls data, that is the message from the latest ISM surveys (including the composite indexes and the employment components), consumer confidence surveys (including the labor market related parts), and employment-based tax receipts. So far, the rate of contraction implied by the broad growth data looks fairlymodest. We are not forecasting a deep recession, due in large part to only asmall drag from inventory cutting this time. Still, even if the recession isultimately "milder than average," as we project, the data in coming months arelikely to show additional weakening. Meanwhile, ongoing problems in financial markets raise the risk of greater-than-expected weakness. Credit spreads have been widening sharply and equities have been falling. Against that backdrop, Fed officials showed their concern by announcing a plan to increase lending through the new Term Auction Facility (TAF) program to $100 billion from $60 billion and to add another $100 billion of liquidity toshort-term funding markets through 28-day term repurchase agreements. Theannouncement came 15 minutes before the February employment data werereleased. According to the Fed's statement, the two initiatives were intended to "address heightened liquidity pressures in term funding markets. " We expect that aggressive effort to prevent disarray in financial markets and a severe recession will also be evident at the March 18 FOMC meeting: we now expect a 75 bp cut in the fund rate at that meeting (to 2.25%), instead of 50 bps. In addition, we now forecast an eventual easing to 1.5% (by August) instead of 2.0%. After that, we expect the Fed to go on hold for almost a year before starting to push the funds rate up again in late 2009 (to 2.0% by the end of 2009). A Fed staffer emphasized that the increased funding through TAF and repooperations would largely be offset elsewhere on the Fed's balance sheet,consistent with what has been occurring already. (Otherwise, the funds ratewould plunge.) Securities held outright by the Fed will likely continue to decline sharply (see charts below). However, the TAF and repo operations will enable the Fed provide more targeted liquidity for term funding markets. Effective End to Debate Over Whether in Recession? According to the National Bureau of Economic Research's (NBER) web site:"A recession is a significant decline in economic activity spread across theeconomy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." That is not a very precise definition, and use of the word "normally" allows discretion in interpretation. Although recessions are usually marked by at least two consecutive quarters of declining real GDP, the most important requirement has typically beensustained, outright contraction in employment. Indeed, based on current (as well as originally reported) data, real GDP did not show back-to-back declines in the 2001 recession, reflecting exceptionally strong productivity growth after the late-1990s' business investment boom. That scenario seems unlikely in the current cycle, with the trend in productivity growth more modest now than in 2001: A declining trend in employment would most likely be associated with contraction in GDP, at least eventually, after revisions. Weak and Weakening So far, total payrolls show only two months of decline and, in part, the declinecould have reflected mere volatility. Private sector payrolls have declined inthree straight months, but significantly in only one month. Still, as noted earlier, other employment as well as non-employment data are also showing clear weakening in the last couple of months, making a "turning point" highlycredible. Along with the unemployment rate, other economy-wide data showing significant weakening include the employment and composite indexes in the ISM surveys and tax receipts. Meanwhile, the financial markets backdrop provides little basis for believing the downward momentum will soon bereversed.Declining Employment The table below shows details for the payrolls data in recent months. The netdecline in payrolls in the last three months has been quite broad-based,extending to the manufacturing, construction, wholesale trade, retail trade,information, financial, and "temps" sectors. While the household surveyemployment data have been exceptionally volatile, they also show a net decline in the last three months. If anything, we suspect the weakness in payrolls is being understated; there has been a tendency in the past for payrolls gains to be overstated initially when growth is slowing significantly, with downward revisions later. That tendency can be seen in the tables below, which show the pattern around the start of the last two recessions. Estimating payrolls is especially challenging at turning points because of sharp changes in the number of jobs gained and lost from firms starting up and shutting down, respectively. BLS officials have changed their methods over time, and currently apply a model-based "net birth-death adjustment" to the data, but they acknowledge there is still plenty of scope for miscounting initially. The 450,000 decline in the labor force in February helped lower theparticipation rate to 65.9% from 66.1%. As noted, employment in the household survey also fell, albeit by "only" 255,000, and the number of unemployed fell 195,000. The labor force participation rate is cyclical, tending to weaken relativeto the secular trend during recessions (with workers effectively giving uplooking for a job amidst a weak job market), albeit not to the degree of the 0.2point February decline; a 0.2 point drop in a single month likely reflectsvolatility. The cyclicality has not prevented the unemployment rate fromtrending higher in past recessions. On a smoothed, 13-week moving average basis, the y/y growth rate in employment-based withheld taxes has slowed to around 3% from 4 1/2% in early January and 6 1/2% on average in 2007. The recent slowing appears to be much more dramatic than can be explained by weaker growth in bonus income alone. Excluding tax rate changes, the pace slowed from 8.2% y/y in 2000 to 7.6% y/y in Q1(01) and 3.4% in Q2(01). (The recession officially began in April 2001.) Until recently, initial jobless claims were showing virtually no rise. However,they have risen sharply since mid-January, with the four-week average up to360,000 from a low of 316,000 in January. Continuing claims have continued to rise. Broader Growth Data Also Show Clear Weakening Our estimated overall all-economy ISM index rose to 49.1 in February from45.6 in January, but that level was still low enough to suggest contraction inoverall real GDP (see chart). The non-manufacturing ISM index rose to 49.3 inFebruary from 44.6 in January. The manufacturing index fell to 48.3 from 50.7.The index of hours worked in the employment report declined 0.1% m/m inFebruary following a 0.4% decline in January. The index is down at a 1.7%annual rate so far in Q1 (versus the Q4 average). Consumption Likely to Decline for First Time Since 1991 Until recently, the drag from housing was still being offset by growthelsewhere--with strength in exports, solid growth in overall business fixedinvestment (led by structures), and moderate growth in consumer spending. So far, export growth still looks strong, but consumer spending and businessinvestment appear to be weakening. Real consumer was roughly unchanged in December and January but consumer confidence has continued to fall, suggesting a declining trend soon. In part, the weakening in confidence and spending likely reflects a fading boost from home-equity extraction as home prices decline and lending standards are tightened. We estimate "active" homeequity extraction, including home equity loans and cash-out refis, fell to 1.7% of disposable income in Q4 from 3.2% in Q3 and 4.0% in Q2 (see chart below). Real consumer spending last showed a quarterly decline in 1991; it continued to rise during the 2001 recession. Light at End of Tunnel? If, as seems highly likely, a downturn is now under way, then data are likely tocontinue to look recession-like for at least several months. The following article focuses on "When Will it End?" The housing sector triggered the recession and will most likely be key to the eventual turnaround. When Will It End? In our view, the back-to-back nonfarm payroll declines in the first two monthsof this year will be followed by more downbeat recession news through midyear. We continue to foresee annualized real GDP growth of -1.0% in Q1(08) and -1.5% in Q2(08) before a recovery to 1.5% in Q3(08) and 2.8% in Q4(08). However, if there's a second-half recovery that is correctly anticipated by the financial markets, the bad news for investors may not extend too much longer. (For instance, see historical lead times between troughs in the stock market and the economy in accompanying table.) Whether the recession ends during Q3(08) hinges critically on evolving conditions in the housing market--the recession's primary causal factor. Recessions importantly reflect inventory corrections, which must be well on the road to completion before an overall business downturn can end. Whetherexcess inventories represent manufactured goods, as has often been the case in past recessions, or structures, as in the current setting, the business cycle mechanics are similar. In a market economy, over-supply generates downward price pressures prompting suppliers to reduce production below demand levels. However, as excess supplies are whittled and downward price pressures abate, output recovers toward demand even if demand is at less than its earlier peak levels due to negative spread effects emanating from the output reductions. In the current setting, unusually high levels of vacant residences for sale havegenerated sharp reductions in home prices. (See accompanying chart.) Thus,housing starts must temporarily fall beneath underlying demand until excessinventories are reduced enough for currently falling home prices to stabilize. Given the unusual severity of the earlier over-production of housing units, theaccompanying corrections in housing and related production and in home prices have been enough to drag the overall economy into recession. And a recovery in the overall real GDP will not begin until this major drag on overall economic activity considerably abates.So far through early 2008, some important information has not indicated an imminent end to the housing correction. For instance, the sharp 3.0% Januarydecline in private residential construction (see accompanying chart) raises the possibility that housing's direct subtraction from quarterly real GDP growth might be even greater than the 1.25 percentage points that it subtracted from just 0.6% Q4(07) real growth. And on March 6, it was reported that in Q4(07) there were further rises in home mortgage delinquency and foreclosure rates. (See accompanying charts.) According to Fed Chair Bernanke's remarks on March 4,over half of foreclosure starts result in the sale of the mortgaged property--one of the critical factors currently depressing home prices. However, when the Fed fosters lower interest rates during a recession, theclassic query is whether the Fed is only impotently "pushing on a string." Inother words, when interest rates fall in recessions, it is frequently said that "you can lead a horse to water but cannot make it drink." In the current setting, one doubt about the efficacy of monetary policy stems from bank tightening oflending standards. Nevertheless, in the specific circumstances of the current recession, lower interest rates should be helpful for the housing industry. (1) Tighter lending standards entail reducing maximum allowed debt service burdens. For home mortgage lending, more restrictive lending standards areaccompanied by reductions in the allowable ratio of monthly debtrepayments to income. And as lower borrowing costs reduce monthly debtrepayments, more borrowers can meet the more restrictive standards.(2) For the just over 1 million subprime borrowers with adjustable rate mortgages re-setting in 2008, a lower Fed funds rate reduces incrementalreset debt burdens. (See accompanying table on next page.) This, in turn,should make delinquency and foreclosure rates somewhat lower thanotherwise. And containing foreclosures and the accompanying home salesis a key to stabilizing house prices. However, as Fed Chair Benanke discussed in his March 4 remarks titled"Reducing Preventable Mortgage Foreclosures," new public policies outside of monetary policy are necessary to address the foreclosure problem. Indeed, as discussed in the March 4, 2008 edition of the UBS Mortgage Strategist weekly report, there have been high default rates even before interest rate resets. This partly reflects the behaviour of investors and resident owners who eitherfraudulently obtained their loans or made unwise personal financial decisions. In the view of UBS mortgage strategists: "Any bailout plan that excludes most of these homeowners will almost by definition have only a marginal impact on the 'subprime housing crisis.' We believe that many authors of bailout plans fail to take this into account. In order to be effective, a plan will have to help many homeowners that most would prefer not to help." Meanwhile, amidst the debate over public policies addressing the residential real estate crisis, could there be an evolving "market solution" to the excess supply problem in residential real estate? Until recently, most observers believed that it was impractical to rely much on lower prices to clear residential real estate markets, because national average home prices historically have been sticky. However, U.S. history is replete with examples of significant downwardreal estate price adjustments where there have been depressed local real estate market conditions. And on a national basis, in Q4(07), there was a faster rate of decline in the S&P/Case Shiller home resale price index.(See accompanying chart.) In principle, as prices fall, the incremental supply (i.e., production) ofhousing declines and unit demand is aided by improved affordability. (Seeaccompanying charts.) And once excess supplies are sufficiently trimmed, home prices should start to stabilize. While the price system will play a role in helping clear the excess supply ofresidential real estate properties, new public policies will remain critical.Relying solely on the pricing mechanism to clear the residential real estatemarket runs the risk of potentially quite significant negative real estatewealth/borrowing effects on household spending. Also, as home prices decline, more households experience negative home equity, which can trigger higher loan defaults and foreclosures and related further downward pressures on home prices. On the demand side, unit home sales need to start recovering. A key wildcard is household formation. On the supply side, homebuilders' output needs to continue declining. A combination of higher sales and lower levels of housing output and foreclosures should result in reduced excess inventories. In our view, the inventory measures best correlated with prices are measures calculated with the quarterly vacancy data available a month after a quarter. These are the homeowner vacancy rate and the months' supply of unoccupied housing units. On a more timely monthly basis, the monthly new and existing home inventories statistics will continue garnering considerable investor interest. And on an even timelier basis are our proprietary weekly data on residential real estate listings.
Wednesday, February 27, 2008
How can Budget make us richer -by Rajesh S
There are great expectations being built up around Budget 2008, as it is the last Budget from this government before the general elections. People are looking to it for relief in an economy where inflation and taxes leave little to be enjoyed.
The significant increase in direct tax collections in the current financial year has also raised the expectations of individual taxpayers. According to the latest data releases from the Central Board of Direct Taxes, direct tax collections have recorded a robust growth of over 40% for the April to 15 January period.Salary earnersRe-introduction of the standard deduction could be an easy option to give the salaried section a boost and encourage them to spend more. There are also hopes being voiced in certain sections about the fringe benefits tax (FBT). Salaried taxpayers are wondering if the rate of FBT will be eased on some perks and if employee stock options will be exempt from this tax. Another welcome sop will be an increase in the exemption limit for medical reimbursements by employers (currently capped at Rs 15,000). It is also time that the tax exemptions available on payment of interest and repayment of principal on home loans are revised. An increase in the exemption limits would encourage investment in property. Coupled with some moderation in home loan rates, this may aid the real estate business.InvestorsCurrently, the ceiling for investment of capital gains in infrastructure bonds is Rs 50 lakh. The government should increase the limit or completely withdraw the cap, which is considered very restrictive, especially when the funds are directed towards infrastructure growth. The finance minister may also consider including bonds of other companies that promote growth of important sectors of the economy like education, agriculture, manufacturing and real estate.It is also necessary to clarify the tax positions applicable to individuals who are taxed in India on their worldwide income. Indian tax laws exempt capital gains derived from the sale of a long-term capital asset when an individual invests the gains in specified assets, including a house property. However, it is not clear whether investments made in a house property outside India will be eligible for this exemption.GeneralThe ceiling, as well as number of investments that qualify for tax exemption under Section 80C could be raised. Also, higher deduction could be permitted towards insurance premium payments by individuals (currently Rs 15,000; for senior citizens Rs 20,000). As with every Budget, this time around too, taxpayers expect income tax slabs to be aligned with the rate of inflation and the pace of the growth in other sectors of the economy. Relaxed rates might work as an incentive towards voluntary compliance. Hopefully, no further elements (i.e cess, surcharge) are added to the rate. Taxpayers are also hoping for some steps taken towards a simplified tax regime. For instance, improving administration in PAN allotment, tax refund and assessments will be welcome. It would also help if the government introduces a joint tax filing system for married couples, giving them additional tax concessions, similar to the system followed in the US.
-The author is Director-Tax Practice, Ernst & Young, India
The significant increase in direct tax collections in the current financial year has also raised the expectations of individual taxpayers. According to the latest data releases from the Central Board of Direct Taxes, direct tax collections have recorded a robust growth of over 40% for the April to 15 January period.Salary earnersRe-introduction of the standard deduction could be an easy option to give the salaried section a boost and encourage them to spend more. There are also hopes being voiced in certain sections about the fringe benefits tax (FBT). Salaried taxpayers are wondering if the rate of FBT will be eased on some perks and if employee stock options will be exempt from this tax. Another welcome sop will be an increase in the exemption limit for medical reimbursements by employers (currently capped at Rs 15,000). It is also time that the tax exemptions available on payment of interest and repayment of principal on home loans are revised. An increase in the exemption limits would encourage investment in property. Coupled with some moderation in home loan rates, this may aid the real estate business.InvestorsCurrently, the ceiling for investment of capital gains in infrastructure bonds is Rs 50 lakh. The government should increase the limit or completely withdraw the cap, which is considered very restrictive, especially when the funds are directed towards infrastructure growth. The finance minister may also consider including bonds of other companies that promote growth of important sectors of the economy like education, agriculture, manufacturing and real estate.It is also necessary to clarify the tax positions applicable to individuals who are taxed in India on their worldwide income. Indian tax laws exempt capital gains derived from the sale of a long-term capital asset when an individual invests the gains in specified assets, including a house property. However, it is not clear whether investments made in a house property outside India will be eligible for this exemption.GeneralThe ceiling, as well as number of investments that qualify for tax exemption under Section 80C could be raised. Also, higher deduction could be permitted towards insurance premium payments by individuals (currently Rs 15,000; for senior citizens Rs 20,000). As with every Budget, this time around too, taxpayers expect income tax slabs to be aligned with the rate of inflation and the pace of the growth in other sectors of the economy. Relaxed rates might work as an incentive towards voluntary compliance. Hopefully, no further elements (i.e cess, surcharge) are added to the rate. Taxpayers are also hoping for some steps taken towards a simplified tax regime. For instance, improving administration in PAN allotment, tax refund and assessments will be welcome. It would also help if the government introduces a joint tax filing system for married couples, giving them additional tax concessions, similar to the system followed in the US.
-The author is Director-Tax Practice, Ernst & Young, India
Budget Outlook- Look out
World's biggest democracy India's budget is going to be announced on 29th Feb.'08 from the bags of Shri P.Chidambaram, finance Minister. Common people of India, Media, Industrialists of India & abroad, FII's,Inst.Investors, Mutual Funds, HNIs, all are looking towards eyes of Shri P.Chidambaram. Whole World's Big Financial Heads are keenly waiting for 29-02-2008,cause U.S. and Euoripean Economies are struggling against fear of economy and industrial slowdown, Where as Emerging Markets like India, China,Brazil, Russia are doing good since last 4-5 Years.
Lawyer from Chennai, Shri P.Chidambaram had given the budget for the financial year 1997-98 & since last 3-4 years. All were super-duper budgets for all common people, Industrialists, Economy,Development & also for the Stock-Market. This year also, people from all over India & abroad hoping for repetition of history. Even I also believe that Central budget would be as good as P.Chidambaram's & Dr. Manmohansingh's image .Simultaneously he has to take care of Inflation,Sub-prime effect to Indian Economy, Rising Crude Oil Prices, Slowing Economic as well as Industrial growth,Further push to Agriculture growth so as to achieve agri sectors targets,Volatality of Foreign Markets & its effect on indian economy,market, Tax-payer's Expactations,Liquidity Flow Control,Interest Rates and Keep GDP Growth above 8.5 or 9 in coming years...etc.
This time finance minister will get the full support of Prime minister who himself was a finance minister & was the promoter of the Economic Reforms.Lalooprasad's Rail Budget is going to favourable.It seems that, this Central Budget is also people,Investor,Industry & Market Friendly. But he has to take care of Left parties, Tax plannings,Inflation,Economic Reforms,PSU Disinvestments,Employment,Fresh investments,support to Indian industries for development & growth in India & abroad. Many Sectors are Waiting for good announcement. Many sectors are struggling against severe competition, so that sectors really needs to boost up and some good relief in taxation. Last few figures of Economic data, Industrial Data was poor but Tax Collection data is coming out with mind blowing figures... roughly 42% up…Record Break tax collection which fullfills Finance Minister's last year budgetary expactations. 29-02-08's budget will be well balanced,likely to focus more on Employment,Rural Development,Agriculture growth,Infrastructure Growth. Coming Budget can be called as " Comman-Man Budget "....In coming budget following Industries likely to gain on good announcement from the FM. Keep a close eye on stocks belonging to these sectors.Undoubtly this year budget is likely to focus more on common people,Farmers cause of Elelctions are nearby in India & Shri P.Chidambaram has to take care of Smt. Sonia Gandhi's view for forthcoming political events.
Here are the few hot scripts sector wise. If these sectors related news is positive then these companies will be in lime light & may create firework in coming days.
Sector : Co.'s Will Be benefited if Good Announcement : Oil and Gas :HPCL,BPCL,IOC,ONGC, Cairn,Gail, Essar OilInfrastructure :IVRCL, Nagarjuna
Construction, DLF, Jai Corp, Telecom :MTNL, R Com, Bharti Tele, IDEA,Spice Tele, GTL
InfraAviation :Jet Air, Air Deccan, Spice Jet
Media & Entertainment :Cinemax, Zee, NDTV,Dish Tv, Zee news.
Banking : SBI, ICICI, HDFC, Union Bank, BOI, Dena, Vijaya, Indusind Bank, Fedral Bank
Agriculture : KS Oil, Ruchi Soya, Zuari Agro, Excel Crop, Usher Agro, Nutraplus Products
Pharma :Surya Pharma, Sandu Pharma, Glenmark,Ranbaxy, Nutraplus Products, Wanbury
Biotech :Jupitor Bio, Sharon Bio, Biocon, Mediaman
IT : TCS, Zensar, Prithvi, Infosys, Tutis Tech, Aftek Info, D-link, Tech Mahindra, Fin.Techno
FMCG :Colgate, ITC, Hind.Lever, Nestle
Oil Exploration :Hind.oil, Selan Exploration
Fertilizers :RCF, GSFC, GNFC,Nagr.Fert, Godavari, Chambal
Tyres : TVS Shrichakra, CEAT, MRF, Apollo
Gems & Jewellery :Rajesh Export, Vaibhav Gems
Finance :Continental Credit, TFL, Ind.Lease
Mining & Minerals :Hind.Copper, RNRL, Kachch Mineral, Sesa Goa, Hind.Zinc,GMDC,VBC Ferro Alloys
Metals :Tisco, Jindal Stainless, Kaamdhenu,Ferro Alloy, Hindalco
Retails & Textile :Arvind, Life Style Fashion, Timex, Santogen Export, Super Spinning, Suryajyoti
Shipping :Mundra Port, SCI, GE Shipping, SEAM
Const. Material :Hyderabad Industries
Chemicals,Paints :Asahi Songwan, Vikram Thermo
Hotels & Tourism :Hotel Leela, Indian Hotel, EIH Associated, ITH
Insurance & Housing Finance :LIC Housing, HDFC, ICICI, GIC, Ind. Lease
Sugar :Renuka, Riga Sugar, Bajaj Hind.,Uttam Sugar
Cement :OCL, ACC, India Cement, Birla Corp
Engineering :Rolta, Hind-Door, Batliboi
Food( Agri Base) :Britannia, Nestle,GTC,ITC, Nutraplus,ADF Food
Logistics :Aegis Log., Gati, GDL
Irrigation :Rungta Irrigation, Jain Irrigation
Elect.Goods : Salzer Electr.
E-Governance & IT Education :Prithvi Info,NIIT, Aptech, NIIT Tech
Auto :Maruti,Telco, Punjab Trac, M&M, VST Tillers
Pumps :KSB Pump,Roto PumpPaper :BILT, AP Paper, Sirpur Paper
Medical Services :Indraprasth Mediacal, Apollo Hospital, Span Diag.
Leather: BATA, Mayur Leather, Liberty Shoes
Pesticides :Excel Crop, Zuari Agro, Bayer Crop
Plastics :Nilkamal,
Printing & Stationery:Navneet Publications
Food Processing:Usher Agro, Agro Dutch Ind., Ravalgaon Sugar, Quality Dairy, Satnam Overseas, Dawat.
Also Keep Eye on Jayaswal Neco, Hitachi Home, Rohit Ferro, Asian Oil Field, Assam Co., Sathwahna Ispat,Pyramid Retail, Ankur Drug, Oswal Chem, Crest Animation, Mphasis, DCB, Kabra Extrusion, India Glycol, VIP Ind,Viceroy Hotels, Max Ind, Voltas, Amar Raja, Garware Off, Sunil Hi-tech, GTL, BRFL, Jyoti, Tata Sponge, Shilp gravures, Avental Soft, Gujarat Gas from respective sectors. May u all get profits in all scripts u have or u r going to trade.
-- Nextresearch
Lawyer from Chennai, Shri P.Chidambaram had given the budget for the financial year 1997-98 & since last 3-4 years. All were super-duper budgets for all common people, Industrialists, Economy,Development & also for the Stock-Market. This year also, people from all over India & abroad hoping for repetition of history. Even I also believe that Central budget would be as good as P.Chidambaram's & Dr. Manmohansingh's image .Simultaneously he has to take care of Inflation,Sub-prime effect to Indian Economy, Rising Crude Oil Prices, Slowing Economic as well as Industrial growth,Further push to Agriculture growth so as to achieve agri sectors targets,Volatality of Foreign Markets & its effect on indian economy,market, Tax-payer's Expactations,Liquidity Flow Control,Interest Rates and Keep GDP Growth above 8.5 or 9 in coming years...etc.
This time finance minister will get the full support of Prime minister who himself was a finance minister & was the promoter of the Economic Reforms.Lalooprasad's Rail Budget is going to favourable.It seems that, this Central Budget is also people,Investor,Industry & Market Friendly. But he has to take care of Left parties, Tax plannings,Inflation,Economic Reforms,PSU Disinvestments,Employment,Fresh investments,support to Indian industries for development & growth in India & abroad. Many Sectors are Waiting for good announcement. Many sectors are struggling against severe competition, so that sectors really needs to boost up and some good relief in taxation. Last few figures of Economic data, Industrial Data was poor but Tax Collection data is coming out with mind blowing figures... roughly 42% up…Record Break tax collection which fullfills Finance Minister's last year budgetary expactations. 29-02-08's budget will be well balanced,likely to focus more on Employment,Rural Development,Agriculture growth,Infrastructure Growth. Coming Budget can be called as " Comman-Man Budget "....In coming budget following Industries likely to gain on good announcement from the FM. Keep a close eye on stocks belonging to these sectors.Undoubtly this year budget is likely to focus more on common people,Farmers cause of Elelctions are nearby in India & Shri P.Chidambaram has to take care of Smt. Sonia Gandhi's view for forthcoming political events.
Here are the few hot scripts sector wise. If these sectors related news is positive then these companies will be in lime light & may create firework in coming days.
Sector : Co.'s Will Be benefited if Good Announcement : Oil and Gas :HPCL,BPCL,IOC,ONGC, Cairn,Gail, Essar OilInfrastructure :IVRCL, Nagarjuna
Construction, DLF, Jai Corp, Telecom :MTNL, R Com, Bharti Tele, IDEA,Spice Tele, GTL
InfraAviation :Jet Air, Air Deccan, Spice Jet
Media & Entertainment :Cinemax, Zee, NDTV,Dish Tv, Zee news.
Banking : SBI, ICICI, HDFC, Union Bank, BOI, Dena, Vijaya, Indusind Bank, Fedral Bank
Agriculture : KS Oil, Ruchi Soya, Zuari Agro, Excel Crop, Usher Agro, Nutraplus Products
Pharma :Surya Pharma, Sandu Pharma, Glenmark,Ranbaxy, Nutraplus Products, Wanbury
Biotech :Jupitor Bio, Sharon Bio, Biocon, Mediaman
IT : TCS, Zensar, Prithvi, Infosys, Tutis Tech, Aftek Info, D-link, Tech Mahindra, Fin.Techno
FMCG :Colgate, ITC, Hind.Lever, Nestle
Oil Exploration :Hind.oil, Selan Exploration
Fertilizers :RCF, GSFC, GNFC,Nagr.Fert, Godavari, Chambal
Tyres : TVS Shrichakra, CEAT, MRF, Apollo
Gems & Jewellery :Rajesh Export, Vaibhav Gems
Finance :Continental Credit, TFL, Ind.Lease
Mining & Minerals :Hind.Copper, RNRL, Kachch Mineral, Sesa Goa, Hind.Zinc,GMDC,VBC Ferro Alloys
Metals :Tisco, Jindal Stainless, Kaamdhenu,Ferro Alloy, Hindalco
Retails & Textile :Arvind, Life Style Fashion, Timex, Santogen Export, Super Spinning, Suryajyoti
Shipping :Mundra Port, SCI, GE Shipping, SEAM
Const. Material :Hyderabad Industries
Chemicals,Paints :Asahi Songwan, Vikram Thermo
Hotels & Tourism :Hotel Leela, Indian Hotel, EIH Associated, ITH
Insurance & Housing Finance :LIC Housing, HDFC, ICICI, GIC, Ind. Lease
Sugar :Renuka, Riga Sugar, Bajaj Hind.,Uttam Sugar
Cement :OCL, ACC, India Cement, Birla Corp
Engineering :Rolta, Hind-Door, Batliboi
Food( Agri Base) :Britannia, Nestle,GTC,ITC, Nutraplus,ADF Food
Logistics :Aegis Log., Gati, GDL
Irrigation :Rungta Irrigation, Jain Irrigation
Elect.Goods : Salzer Electr.
E-Governance & IT Education :Prithvi Info,NIIT, Aptech, NIIT Tech
Auto :Maruti,Telco, Punjab Trac, M&M, VST Tillers
Pumps :KSB Pump,Roto PumpPaper :BILT, AP Paper, Sirpur Paper
Medical Services :Indraprasth Mediacal, Apollo Hospital, Span Diag.
Leather: BATA, Mayur Leather, Liberty Shoes
Pesticides :Excel Crop, Zuari Agro, Bayer Crop
Plastics :Nilkamal,
Printing & Stationery:Navneet Publications
Food Processing:Usher Agro, Agro Dutch Ind., Ravalgaon Sugar, Quality Dairy, Satnam Overseas, Dawat.
Also Keep Eye on Jayaswal Neco, Hitachi Home, Rohit Ferro, Asian Oil Field, Assam Co., Sathwahna Ispat,Pyramid Retail, Ankur Drug, Oswal Chem, Crest Animation, Mphasis, DCB, Kabra Extrusion, India Glycol, VIP Ind,Viceroy Hotels, Max Ind, Voltas, Amar Raja, Garware Off, Sunil Hi-tech, GTL, BRFL, Jyoti, Tata Sponge, Shilp gravures, Avental Soft, Gujarat Gas from respective sectors. May u all get profits in all scripts u have or u r going to trade.
-- Nextresearch
Railway Budget: Record outlays may benefit a host of cos
Armed with a cash surplus of Rs 25,000 crore, the Indian Railways hasannounced several initiatives towards easing infrastructurebottlenecks in the Railways. These moves may open up a host ofbusiness opportunities for many companies.
Backed by the largest ever annual plan outlay of over Rs 37,500 crore,the Railways Minister's growth initiatives appear promising.Rolling stock
The Budget has laid down plans to procure an all-time high number of20,000 wagons, 250 diesel and 220 electric locomotives for the comingyear. This opens up sizeable potential revenues for wagonmanufacturing companies such as Texmaco, BEML and Titagarh Wagons (thecompany has recently filed for an initial public offering with SEBI),which derive a significant portion of their revenues from themanufacture of wagons for the Railways.
Besides revenue growth, these companies may also benefit by way ofmargin expansion over the long-term, given the proposal to migrate tohigh-end stainless steel wagons starting from 2011. The Government'sfocus on setting up public-private partnerships to furtherinfrastructure growth may also help keep the demand for wagonsbuoyant.
That apart, introduction of a wagon leasing policy and the wagoninvestment scheme may reduce the capital outgo for the buyers andboost demand. Nonetheless, this could also breed competition. Attemptsby established foreign players such as General Electric, Alstom andBombardier, with a superior technology backup to expand theiroperations in the Indian market, may raise competition for existingplayers.
In this context, the fact that Indian companies enjoy access to lowermanufacturing cost offers some respite.Freight corridors
Kalindee Rail Nirman, a frontrunner in railway related infrastructureworks such as construction of new line and gauge conversion, maybenefit significantly from the setting up of dedicated freightcorridors by the Railways. This may translate into topline growth forthe company from the next financial year, with the work on both theEastern and Western dedicated freight corridors slated to begin by2008-09.
The thrust on setting up of freight corridors, rail-port connectivityand increased investments expected in container rolling stock andinland container depots by Container Corporation and other operatorsmay also open up opportunities for logistics players such as GatewayDistriparks and Allcargo Global.
With newer schemes in place for procuring wagons, these players may beable to expand at a faster rate. This could have marginally negativeimplications for Container Corporation, which stands to lose itsmonopoly in rail logistics. The proposal to form special purposevehicles to establish rail links to ports such as Mundra, Kandla andKrishnapatnam may help Mundra Port and SEZ scale higher growth by wayof improved connectivity.Other initiatives
Kalindee Rail Nirman may also benefit from the railways' target to setup new lines spanning 350 km and gauge conversion for over 2,150 km.Notably, these have been planned for an outlay of Rs 1,730 crore andRs 2,489 crore respectively.
Further, the Government's focus to strengthen railway safety throughautomatic devices such as anti-collision device (ACD) and signal andtelecommunication (Rs 1,520 crore) also holds potential. Companiessuch Kernex Microsystems, which manufactures ACDs and other companiessuch as Integra Hindustan, Kalindee and Siemens, which are involved inproviding signalling equipment to the Railways stand to gain fromthis. Among other beneficiaries of the rail budget are companies suchas Stone India, Hind Rectifiers and Simplex Castings.IT push
Apart from capital goods suppliers, the Railway Budget offers someopportunities for domestic IT hardware and software companies as well.Proposals ranging from increased mobile ticketing, augmenting ITinfrastructure, fleet tracking, having CTV and LED displays at Railwaystations to having complete call-centre infrastructure by 2008-09gives companies operating in these segments significant opportunity.
For example, while Bartronics might benefit from greater RFIDdeployment, proposals to increase mobile ticketing may benefit CMC.
MIC Electronics being a strong LED and video display manufacturer maybe a beneficiary.
HCL Infosystems with its complete IT infrastructure offering andexisting Government clientele could make inroads into Railways. Alongwith CMC, it could also look to tap into system integration projects.
All these companies are used to working with the relatively smallermargins that domestic deals provide. But it remains to be seen if tier-I IT companies will look at entering this fray, as a means to increasetheir domestic footprint.
Source : Business Line
www.thehindubusinessline.com/2008/02/27/stories/2008022752331700.htm
Backed by the largest ever annual plan outlay of over Rs 37,500 crore,the Railways Minister's growth initiatives appear promising.Rolling stock
The Budget has laid down plans to procure an all-time high number of20,000 wagons, 250 diesel and 220 electric locomotives for the comingyear. This opens up sizeable potential revenues for wagonmanufacturing companies such as Texmaco, BEML and Titagarh Wagons (thecompany has recently filed for an initial public offering with SEBI),which derive a significant portion of their revenues from themanufacture of wagons for the Railways.
Besides revenue growth, these companies may also benefit by way ofmargin expansion over the long-term, given the proposal to migrate tohigh-end stainless steel wagons starting from 2011. The Government'sfocus on setting up public-private partnerships to furtherinfrastructure growth may also help keep the demand for wagonsbuoyant.
That apart, introduction of a wagon leasing policy and the wagoninvestment scheme may reduce the capital outgo for the buyers andboost demand. Nonetheless, this could also breed competition. Attemptsby established foreign players such as General Electric, Alstom andBombardier, with a superior technology backup to expand theiroperations in the Indian market, may raise competition for existingplayers.
In this context, the fact that Indian companies enjoy access to lowermanufacturing cost offers some respite.Freight corridors
Kalindee Rail Nirman, a frontrunner in railway related infrastructureworks such as construction of new line and gauge conversion, maybenefit significantly from the setting up of dedicated freightcorridors by the Railways. This may translate into topline growth forthe company from the next financial year, with the work on both theEastern and Western dedicated freight corridors slated to begin by2008-09.
The thrust on setting up of freight corridors, rail-port connectivityand increased investments expected in container rolling stock andinland container depots by Container Corporation and other operatorsmay also open up opportunities for logistics players such as GatewayDistriparks and Allcargo Global.
With newer schemes in place for procuring wagons, these players may beable to expand at a faster rate. This could have marginally negativeimplications for Container Corporation, which stands to lose itsmonopoly in rail logistics. The proposal to form special purposevehicles to establish rail links to ports such as Mundra, Kandla andKrishnapatnam may help Mundra Port and SEZ scale higher growth by wayof improved connectivity.Other initiatives
Kalindee Rail Nirman may also benefit from the railways' target to setup new lines spanning 350 km and gauge conversion for over 2,150 km.Notably, these have been planned for an outlay of Rs 1,730 crore andRs 2,489 crore respectively.
Further, the Government's focus to strengthen railway safety throughautomatic devices such as anti-collision device (ACD) and signal andtelecommunication (Rs 1,520 crore) also holds potential. Companiessuch Kernex Microsystems, which manufactures ACDs and other companiessuch as Integra Hindustan, Kalindee and Siemens, which are involved inproviding signalling equipment to the Railways stand to gain fromthis. Among other beneficiaries of the rail budget are companies suchas Stone India, Hind Rectifiers and Simplex Castings.IT push
Apart from capital goods suppliers, the Railway Budget offers someopportunities for domestic IT hardware and software companies as well.Proposals ranging from increased mobile ticketing, augmenting ITinfrastructure, fleet tracking, having CTV and LED displays at Railwaystations to having complete call-centre infrastructure by 2008-09gives companies operating in these segments significant opportunity.
For example, while Bartronics might benefit from greater RFIDdeployment, proposals to increase mobile ticketing may benefit CMC.
MIC Electronics being a strong LED and video display manufacturer maybe a beneficiary.
HCL Infosystems with its complete IT infrastructure offering andexisting Government clientele could make inroads into Railways. Alongwith CMC, it could also look to tap into system integration projects.
All these companies are used to working with the relatively smallermargins that domestic deals provide. But it remains to be seen if tier-I IT companies will look at entering this fray, as a means to increasetheir domestic footprint.
Source : Business Line
www.thehindubusinessline.com/2008/02/27/stories/2008022752331700.htm
Martin T Sosnoff: If You Still Have A Head Hanging On Your Shoulder, then do the following:
-Sell Real Estate Stocks
-Sell Banks
-Sell Stock Brokerages
-Sell All Growth Stocks
-Pull Money Out Of Mutual Funds
For neither will Real Estate get sold at artificially inflated prices, nor will the Banks ever get their money back from Real Estate related mortgages. Worse, not a single guy or research analyst in Bombay will tell you that earnings this year will not be growing 20 per cent, but may dwindle down to low teens. In such a scenario, not a single mutual fund will get spared as the market itself caves down by mid-summers to levels not considered possible in February 2008.
Six weeks ago, former President Bill Clinton stood in my living room and told me he expected Hillary would wrap up the nomination by Super Tuesday. He added that Mitt Romney looked presidential to him. All this from one of the greatest politicians of the 20th century.
Even the Federal Reserve Board and U.S. Treasury run scared as the contagion in credit markets leeches out of bounds. First, subprime paper deconstructed; then all kinds of collateralized debt obligations, unplaced leveraged-buyout paper and high-yield bonds already outstanding. Even investment-grade corporate debentures now yield 5.7%, and auction bonds find no buyers.
The municipals market is skittish, too. Mortgage insurers belch black blood from their disastrous diversification, guaranteeing subprime mortgage credits. They need enormous infusions of capital to cover losses from this still-deteriorating paper.
The size and scope of our financial markets' upset goes beyond the $200 billion savings-and-loan disaster and the south-of-the-border lending fiasco of our reserve city banks decades ago. The U.S. Treasury made savers whole on their savings deposits and ended up guaranteeing much of the sovereign loans to Mexico and South America.
Citigroup (nyse: C - news - people ) touched down around $10 a share; it's presently trading at $25, down from $50. Let's hope its broad-based franchise in worldwide consumer banking stabilizes the flagship office's trading writeoffs.
The market prices Citigroup, Merrill Lynch (nyse: MER - news - people ) and other financial houses on what it believes is core earning power--this is shaky ground. American International Group (nyse: AIG - news - people ) was forced by its auditors to take a $5 billion writedown on junk paper, and the stock dropped 10% overnight.
Additional writedowns by Wall Street houses won't go unnoticed. Their equities will be marked down in proportion to the hits their net asset values have suffered.
I liked the old Wall Street better. There were no PhD mathematicians triggering massive programmed trades, and house traders had limited calls on capital. Société Générale's trader could not have sustained a $70 billion open position in the futures market undetected by the bank. CEOs didn't award themselves $30 million bonuses one year and then face dismissal the following year when their businesses blew up.
Wall Street houses weren't public until Donaldson, Lufkin and Jenrette broke the ice. Before then, if the business collapsed, partners lost all their capital and moved to garden apartments in New Jersey. The elongated recession of 1973 to 1974 was a killer for anyone undercapitalized--there was no one swooping in from Saudi Arabia or China to bail out the Street.
The Heartland doesn't care that Wall Street and a bunch of banks shot themselves in the foot--but it should care. It's harder to qualify for a mortgage, credit card debt is still expensive, and the yield on money market paper--even on two-year notes--is under 2%.
The Federal Reserve Board has already signaled lower money market rates are in the cards. As the economy falters, I can see Federal Funds at 2%. So the real yield on money market paper falls below zero. Not good for all the country's widows parking capital therein.
The underwriting capacity on Wall Street now is strictly prescribed. You can't sell leveraged buyout paper, so deal activity is on hold. Alternative investment players like Blackstone and Fortress stand sliced in half by the market. Only well-heeled corporate giants, like Microsoft (nasdaq: MSFT - news - people ) and Google (nasdaq: GOOG - news - people ), carry the wherewithal to make mega deals.
Wall Street, littered with the carcasses of wounded beasts, impacts the stock market. Deal excitement carried the market through much of the 1980s, before Black Monday. Today, there's no speculation in the air. The backlog of old deal paper that never get placed runs into the hundreds of billions. It may take all this years to clear it out of brokerage house inventory--at a discount up to 20%.
The Street's security analysts are behind their economists in accepting recession as the most likely scenario this year. Earnings estimates for the market are coming down slowly.
I'm on the low side with a $90-a-share projection for the S&P 500 Index. If the recession bites deeply, I could drop down to the low $80s. The multiplier for the market will hang tough in the mid teens, with interest rates so low, but the possibility of a market in the low 1,200s, alas, is real.
I'm talking about taking another 10% off family wealth, which already sustained a $6 trillion hit from financial assets and real estate. Statistics on home inventories disturb me. The home builders' run rate on construction looks to be around 600,000 new homes.
Normalized demand is 1.2 million, but there are approximately 2 million homes in inventory for sale. And it could take a couple of years to clear at lower price points. To rationalize home prices bottoming out this year--even in 2009--remains a stretch.
I'm not the only one who believes the bottoming of home prices is the leading indicator for the end of recession and the beginning of a new bull market. It will quicken consumer sentiment and cap the rising rate of mortgage delinquencies.
Wall Street firms then have their day in the sun. But I don't believe it's around the corner, and thus premature to discount as a probability for the second half of 2008. Too many money managers are in this camp.
The month of January was a very bad year for me. There weren't 10 big surprises, but three or four were enough. Growth stocks abruptly started to underperform value properties. This wasn't my call.
Oil prices surged the past few weeks while I expected a fall to the $80-a-barrel level, not the $99 price point we're seeing now. Super growth stocks like Apple (nasdaq: AAPL - news - people ) and Google caved in. There's just no other descriptive terminology.
Airlines and natural resource properties outperformed high-valuation growth. You wouldn't expect this in a weakening economy.
I bought Delta and Continental because I thought oil was heading south. When talk of mergers in the industry stirred the pot, I got lucky. Vale (RIO) remains my top natural resource play--iron ore earmarked for China's steel mills.
Many of the health care stocks I bought as recession hedges lay dead in the water--Merck (nyse: MRK - news - people ), HMOs like Wellpoint and Aetna (nyse: AET - news - people ), even Celgene (nasdaq: CELG - news - people ) and Gilead are stalled out.
Sooner or later the market humbles all its players. The proper frame of mind is that if your reasoning is sound, the market will come your way, sooner or later. If your working hypothesis is wrong, you'll pay for it, and then change. Rationalizing yourself into the poor house is not exactly a viable option.
-Sell Banks
-Sell Stock Brokerages
-Sell All Growth Stocks
-Pull Money Out Of Mutual Funds
For neither will Real Estate get sold at artificially inflated prices, nor will the Banks ever get their money back from Real Estate related mortgages. Worse, not a single guy or research analyst in Bombay will tell you that earnings this year will not be growing 20 per cent, but may dwindle down to low teens. In such a scenario, not a single mutual fund will get spared as the market itself caves down by mid-summers to levels not considered possible in February 2008.
Six weeks ago, former President Bill Clinton stood in my living room and told me he expected Hillary would wrap up the nomination by Super Tuesday. He added that Mitt Romney looked presidential to him. All this from one of the greatest politicians of the 20th century.
Even the Federal Reserve Board and U.S. Treasury run scared as the contagion in credit markets leeches out of bounds. First, subprime paper deconstructed; then all kinds of collateralized debt obligations, unplaced leveraged-buyout paper and high-yield bonds already outstanding. Even investment-grade corporate debentures now yield 5.7%, and auction bonds find no buyers.
The municipals market is skittish, too. Mortgage insurers belch black blood from their disastrous diversification, guaranteeing subprime mortgage credits. They need enormous infusions of capital to cover losses from this still-deteriorating paper.
The size and scope of our financial markets' upset goes beyond the $200 billion savings-and-loan disaster and the south-of-the-border lending fiasco of our reserve city banks decades ago. The U.S. Treasury made savers whole on their savings deposits and ended up guaranteeing much of the sovereign loans to Mexico and South America.
Citigroup (nyse: C - news - people ) touched down around $10 a share; it's presently trading at $25, down from $50. Let's hope its broad-based franchise in worldwide consumer banking stabilizes the flagship office's trading writeoffs.
The market prices Citigroup, Merrill Lynch (nyse: MER - news - people ) and other financial houses on what it believes is core earning power--this is shaky ground. American International Group (nyse: AIG - news - people ) was forced by its auditors to take a $5 billion writedown on junk paper, and the stock dropped 10% overnight.
Additional writedowns by Wall Street houses won't go unnoticed. Their equities will be marked down in proportion to the hits their net asset values have suffered.
I liked the old Wall Street better. There were no PhD mathematicians triggering massive programmed trades, and house traders had limited calls on capital. Société Générale's trader could not have sustained a $70 billion open position in the futures market undetected by the bank. CEOs didn't award themselves $30 million bonuses one year and then face dismissal the following year when their businesses blew up.
Wall Street houses weren't public until Donaldson, Lufkin and Jenrette broke the ice. Before then, if the business collapsed, partners lost all their capital and moved to garden apartments in New Jersey. The elongated recession of 1973 to 1974 was a killer for anyone undercapitalized--there was no one swooping in from Saudi Arabia or China to bail out the Street.
The Heartland doesn't care that Wall Street and a bunch of banks shot themselves in the foot--but it should care. It's harder to qualify for a mortgage, credit card debt is still expensive, and the yield on money market paper--even on two-year notes--is under 2%.
The Federal Reserve Board has already signaled lower money market rates are in the cards. As the economy falters, I can see Federal Funds at 2%. So the real yield on money market paper falls below zero. Not good for all the country's widows parking capital therein.
The underwriting capacity on Wall Street now is strictly prescribed. You can't sell leveraged buyout paper, so deal activity is on hold. Alternative investment players like Blackstone and Fortress stand sliced in half by the market. Only well-heeled corporate giants, like Microsoft (nasdaq: MSFT - news - people ) and Google (nasdaq: GOOG - news - people ), carry the wherewithal to make mega deals.
Wall Street, littered with the carcasses of wounded beasts, impacts the stock market. Deal excitement carried the market through much of the 1980s, before Black Monday. Today, there's no speculation in the air. The backlog of old deal paper that never get placed runs into the hundreds of billions. It may take all this years to clear it out of brokerage house inventory--at a discount up to 20%.
The Street's security analysts are behind their economists in accepting recession as the most likely scenario this year. Earnings estimates for the market are coming down slowly.
I'm on the low side with a $90-a-share projection for the S&P 500 Index. If the recession bites deeply, I could drop down to the low $80s. The multiplier for the market will hang tough in the mid teens, with interest rates so low, but the possibility of a market in the low 1,200s, alas, is real.
I'm talking about taking another 10% off family wealth, which already sustained a $6 trillion hit from financial assets and real estate. Statistics on home inventories disturb me. The home builders' run rate on construction looks to be around 600,000 new homes.
Normalized demand is 1.2 million, but there are approximately 2 million homes in inventory for sale. And it could take a couple of years to clear at lower price points. To rationalize home prices bottoming out this year--even in 2009--remains a stretch.
I'm not the only one who believes the bottoming of home prices is the leading indicator for the end of recession and the beginning of a new bull market. It will quicken consumer sentiment and cap the rising rate of mortgage delinquencies.
Wall Street firms then have their day in the sun. But I don't believe it's around the corner, and thus premature to discount as a probability for the second half of 2008. Too many money managers are in this camp.
The month of January was a very bad year for me. There weren't 10 big surprises, but three or four were enough. Growth stocks abruptly started to underperform value properties. This wasn't my call.
Oil prices surged the past few weeks while I expected a fall to the $80-a-barrel level, not the $99 price point we're seeing now. Super growth stocks like Apple (nasdaq: AAPL - news - people ) and Google caved in. There's just no other descriptive terminology.
Airlines and natural resource properties outperformed high-valuation growth. You wouldn't expect this in a weakening economy.
I bought Delta and Continental because I thought oil was heading south. When talk of mergers in the industry stirred the pot, I got lucky. Vale (RIO) remains my top natural resource play--iron ore earmarked for China's steel mills.
Many of the health care stocks I bought as recession hedges lay dead in the water--Merck (nyse: MRK - news - people ), HMOs like Wellpoint and Aetna (nyse: AET - news - people ), even Celgene (nasdaq: CELG - news - people ) and Gilead are stalled out.
Sooner or later the market humbles all its players. The proper frame of mind is that if your reasoning is sound, the market will come your way, sooner or later. If your working hypothesis is wrong, you'll pay for it, and then change. Rationalizing yourself into the poor house is not exactly a viable option.
Reliance Powered???
Business: R POWER.
The company claims that it will be developing power generation projects of 28200 MW over the next decade.
According to the IPO RHP, some of the projects that it will be developing are:
Rosa-I (to be commissioned in March 2010) - 600 MW - Coal based.
Butibori (to be commissioned in June 2010) - 300 MW - Coal based.
Rosa-II (to be commissioned in September 2010) - 600 MW - Coal based.
Shahpur Gas (to be commissioned in March 2011) - 2800 MW - Gas based.
Shahpur Coal (to be commissioned in December 2011) - 1200 MW - Coal based.
Dadri (to be commissioned in March 2013) - 7480 MW - Gas based.
Krishnapatnam (to be commissioned in September 2013) - 4000 MW - Coal based.
Urthing Sobla (to be commissioned in March 2014) - 400 MW - Hydropower based.
Tato II (to be commissioned in March 2014) - 700 MW - Hydropower based.
MP Power (to be commissioned in July 2014) - 3960 MW - Coal based.
Siyom (to be commissioned in March 2015) - 1000 MW - Hydropower based.
Kalai II (to be commissioned in March 2016) - 1200 MW - Hydropower based.
Sasan (to be commissioned in April 2016) - 3960 MW - Coal based.
If
everything goes as planned, capacity of Reliance Power at end of each year till 2016 will be:
2008: 0 MW.
2009: 0 MW.
2010: 1500 MW.
2011: 5500 MW.
2012: 5500 MW.
2013: 16980 MW.
2014: 22040 MW.
2015: 23040 MW.
2016: 28200 MW.
=======================================
Other Similar Companies:
I can think of two companies in the power generation sector that Reliance Power can be compared with:
NTPC and Tata Power.
NTPC has current capacity of 28000 MW and has target to achieve 66000 MW by 2017. ( See this thread on NTPC).
Tata Power has current capacity of 2300 MW.
It will be adding 10000 MW of capacity more by 2012. Thus, it will have a capacity of around 12300 MW by 2012 end.
The additions will all be coal based.
-Mundra Ultra Mega Power Project -4000 MW.
-Power plants in Maharastra - 3000 MW.
-Captive power plants for Tata Steel - 2000 MW
-Maithon Power Plant at Jharkhand - 1000 MW.
Tata Power also has other smaller business and also wants to enter shipping and logistics. Besides that Tata Power has investments valued at Rs 400+ per share of Tata Power. This works out to be Rs 10000 crore.
Around 2012 - 2013, both Tata Power is expected to have similar capacity as Reliance Power.
The interesting thing is at current price of Rs 1457, Tata Power is valued at just Rs 30000 crore. Remove Rs 10000 crore of investments and you can have it only for Rs 20000 crore.
At Rs 900, Reliance Power will have market value of 200000 crores....6.67 times that of Tata Power. .
========================================
Financials:
With 2300 MW capacity, Tata Power made standalone profit of Rs 700 crore in FY 2007.
With 28000 MW capacity, NTPC made standalone profit of Rs 6900 crore in FY 2007.
Lets assume Reliance Power turns out to be much more efficient than these two companies. Add to that increased power rates.
With 28200 capacity, assume Reliance Power makes Rs 15000 crore of net profit in 2016-2017. Power companies are considered as utilities and worldwide trade at 10-15 times their earnings.
Lets assume 15 times ratio for Reliance Power in 2016.
What will be its market value?
15000 X 15 = Rs 225000 crore or Rs 995 per share.
This is an optimistic view:
-there will be no further equity dilution till 2016.
-assuming nearly twice as much efficiency as NTPC.
-that all projects will be completed before 2016 end.
-the company would have paid back all debt by then and interest costs would be in similar range as NTPC.
(NTPC already has established 28000 MW capacity and comparatively much lesser interest costs. (NTPC's P&L account states Rs 1800 interest cost for FY 2007).
So what about the debt?
The RHP mentions estimated cost of six projects Rosa I, Rosa II, Butibori, Sasan, Shahpur Coal, Urthing Sobla as Rs 30000 crore+.
Analysts estimate that Reliance Power will need Rs 70000 crore of debt to finance its projects which are estimated to cost 100000 crore+.
Rs 70000 crore of debt is not going to come at 2% interest rate. Even a 6% interest would mean an annual interest cost of Rs 4200 crore. Only in 2013, the company's capacity will cross 10000 MW. Thus, I do not expect any major debt repayment before 2014. If things don't go as planned, the debt burden will make a mockery of the balance sheet.
With Rs 12000 crore raised in equity and Rs 70000 crore of debt, these whole business will become a high-risk venture.
Any unforeseen delay/derailment of plans may create major problems for this company.
========================================
Reliance Power - The Overlooked Fact:
Is Reliance Power just "Reliance Power"?
No.
It is actually "Reliance Power Limited" - a limited company.
So what does this mean for Reliance Power Limited?
It means if in the rare case, the calculations of the management go wrong and the company somehow goes to insolvency, none of the shareholders will lose anything expect the value of the shares.
If you are a share holder of Reliance Power and it goes into insolvency (unable to pay back debts), what do you stand to lose?
Rs 430 per share.
Lot of money....right?
What does Anil Ambani's AAA Project or REL lose?
Both of them had got their 45% (post-IPO) stake for Rs 1000 crore each. Plus they will each subscribe to 1.6 crore shares each at Rs 450 in the IPO......which works out to be Rs 720 crore.
Thus, AAA Project will be getting 101.6 crore shares of Reliance Power for Rs 1720 crore and REL will be getting 101.6 crore shares of Reliance Power for Rs 1720 crore.
Little less than Rs 17 per share.
This is what both the promoters are risking in this project.... Rs 17 per share ; while investors will be risking Rs 450 per share .
This is exactly the reason why Reliance Power was created.
First, by contributing just Rs 1720 crore each to Reliance Power, the promoters have shifted all risk to investors.
Second, by getting 45% stake (in REL's projects) to AAA Project for a mere Rs 1000 crore, AAA Projects (and Anil Ambani) have created wealth out of thin air.
Anil Ambani's Rs 1000 crore investment will be worth Rs 100000 crore when Reliance Power lists at Rs 900.
If the gamble works, the promoters (holding 90% stake in Reliance Power) will be worth billions of dollars.
If the gamble doesn't work, the promoters will lose Rs 1720 crore each and investors will lose Rs 10000+ crore which they will be paying for a mere 10% stake in Reliance Power.
What a way to create wealth...!!!....I don't have words to describe the brilliance of Anil Ambani's plans... .
========================================
First, other companies are much cheaper.
Why should I keep a company valued at Rs 200000 crore -
when another company (with similar capacity by 2013) is available at Rs 30000 crore with much smaller debt burden and Rs 10000 crore worth of investments ...........referring to Tata Power.
If Reliance Power (at Rs 900) is available for Rs 200000 crore, why not buy NTPC for a similar price ......Rs 225000 crore. NTPC plans to have a capacity of 66000 MW in 2017, while Reliance Power will have 28200 MW capacity in 2016.
Second, the risk is higher than other existing companies.
With marginally cash flows for next 5 years and Rs 70000+ crore of debt, the risk for Reliance Power is high. Tata Power and NTPC have existing cash flows to handle expansions....Reliance Power does not.
Third and the biggest factor is....the valuation of the company doesn't make much sense.
Why should Reliance Power be valued at Rs 200000 crore, when in highly optimistic scenario, it will not make more than Rs 15000 crore of profit in 2016 ? Even if it touches that figure of Rs 15000 crore, its market value in 2016 will not be much more than 225000-300000 crore. (if given a 15-20 times multiple).
A fixed deposit will make more money than that in 8 years.....and that too without any risk.
Also, I got the optimistic Rs 15000 crore figure by assuming two times margins as NTPC.
The fact is..... at least till 2014, Reliance Power will still be carrying most of its Rs 70000 crore debt and its interest costs will squeeze margins to a large extent.
Author: Dr. Kamlesh Agarwala
Source:
--~--~---------~--~----~------------~-------~--~----~
www.groups.google.com/group/aiii
www.smsgupshup.com/groups/EagleEyeTrade
-~----------~----~----~----~------~----~------~--~---
The company claims that it will be developing power generation projects of 28200 MW over the next decade.
According to the IPO RHP, some of the projects that it will be developing are:
Rosa-I (to be commissioned in March 2010) - 600 MW - Coal based.
Butibori (to be commissioned in June 2010) - 300 MW - Coal based.
Rosa-II (to be commissioned in September 2010) - 600 MW - Coal based.
Shahpur Gas (to be commissioned in March 2011) - 2800 MW - Gas based.
Shahpur Coal (to be commissioned in December 2011) - 1200 MW - Coal based.
Dadri (to be commissioned in March 2013) - 7480 MW - Gas based.
Krishnapatnam (to be commissioned in September 2013) - 4000 MW - Coal based.
Urthing Sobla (to be commissioned in March 2014) - 400 MW - Hydropower based.
Tato II (to be commissioned in March 2014) - 700 MW - Hydropower based.
MP Power (to be commissioned in July 2014) - 3960 MW - Coal based.
Siyom (to be commissioned in March 2015) - 1000 MW - Hydropower based.
Kalai II (to be commissioned in March 2016) - 1200 MW - Hydropower based.
Sasan (to be commissioned in April 2016) - 3960 MW - Coal based.
If
everything goes as planned, capacity of Reliance Power at end of each year till 2016 will be:
2008: 0 MW.
2009: 0 MW.
2010: 1500 MW.
2011: 5500 MW.
2012: 5500 MW.
2013: 16980 MW.
2014: 22040 MW.
2015: 23040 MW.
2016: 28200 MW.
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Other Similar Companies:
I can think of two companies in the power generation sector that Reliance Power can be compared with:
NTPC and Tata Power.
NTPC has current capacity of 28000 MW and has target to achieve 66000 MW by 2017. ( See this thread on NTPC).
Tata Power has current capacity of 2300 MW.
It will be adding 10000 MW of capacity more by 2012. Thus, it will have a capacity of around 12300 MW by 2012 end.
The additions will all be coal based.
-Mundra Ultra Mega Power Project -4000 MW.
-Power plants in Maharastra - 3000 MW.
-Captive power plants for Tata Steel - 2000 MW
-Maithon Power Plant at Jharkhand - 1000 MW.
Tata Power also has other smaller business and also wants to enter shipping and logistics. Besides that Tata Power has investments valued at Rs 400+ per share of Tata Power. This works out to be Rs 10000 crore.
Around 2012 - 2013, both Tata Power is expected to have similar capacity as Reliance Power.
The interesting thing is at current price of Rs 1457, Tata Power is valued at just Rs 30000 crore. Remove Rs 10000 crore of investments and you can have it only for Rs 20000 crore.
At Rs 900, Reliance Power will have market value of 200000 crores....6.67 times that of Tata Power. .
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Financials:
With 2300 MW capacity, Tata Power made standalone profit of Rs 700 crore in FY 2007.
With 28000 MW capacity, NTPC made standalone profit of Rs 6900 crore in FY 2007.
Lets assume Reliance Power turns out to be much more efficient than these two companies. Add to that increased power rates.
With 28200 capacity, assume Reliance Power makes Rs 15000 crore of net profit in 2016-2017. Power companies are considered as utilities and worldwide trade at 10-15 times their earnings.
Lets assume 15 times ratio for Reliance Power in 2016.
What will be its market value?
15000 X 15 = Rs 225000 crore or Rs 995 per share.
This is an optimistic view:
-there will be no further equity dilution till 2016.
-assuming nearly twice as much efficiency as NTPC.
-that all projects will be completed before 2016 end.
-the company would have paid back all debt by then and interest costs would be in similar range as NTPC.
(NTPC already has established 28000 MW capacity and comparatively much lesser interest costs. (NTPC's P&L account states Rs 1800 interest cost for FY 2007).
So what about the debt?
The RHP mentions estimated cost of six projects Rosa I, Rosa II, Butibori, Sasan, Shahpur Coal, Urthing Sobla as Rs 30000 crore+.
Analysts estimate that Reliance Power will need Rs 70000 crore of debt to finance its projects which are estimated to cost 100000 crore+.
Rs 70000 crore of debt is not going to come at 2% interest rate. Even a 6% interest would mean an annual interest cost of Rs 4200 crore. Only in 2013, the company's capacity will cross 10000 MW. Thus, I do not expect any major debt repayment before 2014. If things don't go as planned, the debt burden will make a mockery of the balance sheet.
With Rs 12000 crore raised in equity and Rs 70000 crore of debt, these whole business will become a high-risk venture.
Any unforeseen delay/derailment of plans may create major problems for this company.
========================================
Reliance Power - The Overlooked Fact:
Is Reliance Power just "Reliance Power"?
No.
It is actually "Reliance Power Limited" - a limited company.
So what does this mean for Reliance Power Limited?
It means if in the rare case, the calculations of the management go wrong and the company somehow goes to insolvency, none of the shareholders will lose anything expect the value of the shares.
If you are a share holder of Reliance Power and it goes into insolvency (unable to pay back debts), what do you stand to lose?
Rs 430 per share.
Lot of money....right?
What does Anil Ambani's AAA Project or REL lose?
Both of them had got their 45% (post-IPO) stake for Rs 1000 crore each. Plus they will each subscribe to 1.6 crore shares each at Rs 450 in the IPO......which works out to be Rs 720 crore.
Thus, AAA Project will be getting 101.6 crore shares of Reliance Power for Rs 1720 crore and REL will be getting 101.6 crore shares of Reliance Power for Rs 1720 crore.
Little less than Rs 17 per share.
This is what both the promoters are risking in this project.... Rs 17 per share ; while investors will be risking Rs 450 per share .
This is exactly the reason why Reliance Power was created.
First, by contributing just Rs 1720 crore each to Reliance Power, the promoters have shifted all risk to investors.
Second, by getting 45% stake (in REL's projects) to AAA Project for a mere Rs 1000 crore, AAA Projects (and Anil Ambani) have created wealth out of thin air.
Anil Ambani's Rs 1000 crore investment will be worth Rs 100000 crore when Reliance Power lists at Rs 900.
If the gamble works, the promoters (holding 90% stake in Reliance Power) will be worth billions of dollars.
If the gamble doesn't work, the promoters will lose Rs 1720 crore each and investors will lose Rs 10000+ crore which they will be paying for a mere 10% stake in Reliance Power.
What a way to create wealth...!!!....I don't have words to describe the brilliance of Anil Ambani's plans... .
========================================
First, other companies are much cheaper.
Why should I keep a company valued at Rs 200000 crore -
when another company (with similar capacity by 2013) is available at Rs 30000 crore with much smaller debt burden and Rs 10000 crore worth of investments ...........referring to Tata Power.
If Reliance Power (at Rs 900) is available for Rs 200000 crore, why not buy NTPC for a similar price ......Rs 225000 crore. NTPC plans to have a capacity of 66000 MW in 2017, while Reliance Power will have 28200 MW capacity in 2016.
Second, the risk is higher than other existing companies.
With marginally cash flows for next 5 years and Rs 70000+ crore of debt, the risk for Reliance Power is high. Tata Power and NTPC have existing cash flows to handle expansions....Reliance Power does not.
Third and the biggest factor is....the valuation of the company doesn't make much sense.
Why should Reliance Power be valued at Rs 200000 crore, when in highly optimistic scenario, it will not make more than Rs 15000 crore of profit in 2016 ? Even if it touches that figure of Rs 15000 crore, its market value in 2016 will not be much more than 225000-300000 crore. (if given a 15-20 times multiple).
A fixed deposit will make more money than that in 8 years.....and that too without any risk.
Also, I got the optimistic Rs 15000 crore figure by assuming two times margins as NTPC.
The fact is..... at least till 2014, Reliance Power will still be carrying most of its Rs 70000 crore debt and its interest costs will squeeze margins to a large extent.
Author: Dr. Kamlesh Agarwala
Source:
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www.groups.google.com/group/aiii
www.smsgupshup.com/groups/EagleEyeTrade
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Saturday, February 23, 2008
NIFTY and SENSEX Thru' 22-02-2008- EWI STU- Tom Denham
NIFTY and SENSEX Thru' 22-02-2008- EWI STU- Tom Denham
NIFTY and SENSEX Thru' 22-02-2008
[Beyond Western Europe]
Wave (3) on the monthly line chart of the [India National Nifty Index] displays 13 subwaves. The completion of 13 waves would make a top likely. In addition, price slipped below its 8-month exponential moving average in January and remains below it as of 22 February. Price gave a false bearish signal when it slipped under this long-term guide to the trend briefly in April 2005, but if wave (4) is in progress, the standard Elliott target would be a Fibonacci 38.2 percent retracement of wave (3) to 4364
The pattern of the [S&P CNX Nifty Index] suggests staying bullish until price pushes above 5545, but thereafter, the potential of another fall increases. Let me explain why. Price fell 30 percent to 4448 in one steep move. Sharp falls are often just the start of a move. In addition, the initial rebound to early February developed in three-wave form. These factors suggest that the January low was wave A and the current rebound wave B of an ongoing correction. If this view is correct, then wave C should fall to a new low sometime in the coming weeks.
Price rebounds often achieve two equal legs up and that would occur at 5900. However, any move above 5545 would satisfy minimum expectations for an ABC rebound. In addition, price may begin to encounter resistance from the top formation just above 5545.
On the other hand, the [S&P CNX Nifty Index (Singapore Exchange)] rebounded from trend channel support in May 2004, June 2006, and January 2008. On numerous occasions since 2004, price rebounded from above trend channel support. This performance is a reason to favor the upside from the January low. In addition, RSI is near historic lows, which has been a bullish condition in the past. Finally, trend continuation is a common surprise delivered by third waves, so I am reluctant to rule out the possibility of Indian stocks rallying while the trend channel remains intact.
This daily chart of the [India Sensex Index] highlights bullish potential from a near complete triangle correction. Triangles are not common in the Sensex, but it is a possibility worth considering while price is above 16,457. A fall under 16,457 would exceed the limits of a converging triangle and suggest favoring the downside instead.
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