Friday, 31 October 2008

Dollar Shortage? and Mergers

A shortage of Dollars in India is a comical thing happening around here. The government in US is busy printing dollar bills and handing them out to all and sundry who have CDOs and other dirty liabilities (oops! Assets). I would advise people wanting the dollars to stand back, wait and watch. you'll find dollars strewn allover your backyard in the next nine months. Another tsunami of credit card defaults is on the way in US, which will require more doles from the US Govt and will help large banks gobble up more smaller banks.

When these large banks gobble up smaller banks they are getting a large customer base, acquiring which would have cost them a bomb. Many times this comes gratis and that's the great thing about crisis and acquisitions during crisis. (Remember Bear Sterns was bought over for a song, lock stock, barrel and clients included!)

The Indian markets will rally another 5 - 10% in the next week and then we should expect another bout of selling from FIIs and a correction.

Look forward to a hard take on the state of Indian markets in the next post.
Till then, have a nice weekend.

Wednesday, 22 October 2008

Where is the Bottom for the markets?

I have been flooded with calls on "where is the bottom for the markets?" frankly I believe the bottom should be anywhere between 2600 to 2800 for the nifty. If that means another 10% fall, so be it. But can you really catch the proverbial knife? It is better to start picking and choosing your investments from now onwards. a cursory look at the indices and a comparison of the prices of the stocks with their 14th June 2006 levels reveals a very interesting story. Only the reliance family, Infrastructure stocks are higher than those levels rest all are beaten down to lower levels. If this is not the opportunity to buy then when is it time to buy?
On Indices I would like to remind about the famous Samuelson "Indices are prepared by a committee which looks for the popular stocks and unpopular ones are eased out of the calculations, making the indices go up when the constituents are going down." So, whats the moral of the story? Start buying ETFs on the nifty (NIFTYBEES) and accumulate slowly. That will mirror the growth in the indices in the next bull run. All of us have a chance to participate in the next bull run as this bearish phase will be painful and long drawn up to the end of June 2009 when the new government takes over in India. Regardless of the colour of the government, the freshness of the incumbent will lead to better and clearer thinking on the policy front and may be, we will find the same policies continued forward as new initiatives. Nevertheless they will be from a new face in the Government and therefore will have a good feel about them.
So, start accumulating stocks for the next nine months and be ready to participate in the next bull run.

Saturday, 18 October 2008

The oracle speaks once in a while

The Oracle speaks once in a while he does not have the identity crisis that I have to blog often, nor does he have to call for attention like me. The Oracle from Omaha said yesterday that one should be fearful when others are greedy and greedy when others are fearful in the financial markets. he also said "BUY AMERICAN I AM". what does this show? Dr. Mark Mobius said in the middle of September when the fed started the bail out drive that this is the end of the bearish phase as people have realised that there is a problem and the "doctors" are working on it.
What happens when you go to the doctor when you are ill? he treats you to make you feel better first and then treats you to actually make you better. Our doctors have tried hard to make us feel better but we have not been feeling better at all . they have also started the dose of medicine and have started treating the symptoms. We only hope that they start some homeopathic treatment which will go to the root of the problem and remove the ailment.
Indian markets seem to have gone back three years and there is a consensus building up about further losses. FII's have been pulling out of the markets in a big way. Retail investors are coming in with hordes of cheques for buying, but selective buying has emerged outside the ambit of the Indices. A look at the PE ratios tells us that the prices are compelling and the most industry PEs are around 10. that's the time to buy. Of course you can expect volatility of 15% but can anybody really catch the bottom therefore...
BUY BUY for Now.

Wednesday, 15 October 2008


CRR has been cut to 6.5% bringing in 40000 crores in the market. Banks have been asked to lend the money. Lets see where they could end up lending....
If you were running a bank...
Would you lend to the farmers for buying seeds, tractors, harvesting equipment, hauling equipment, etc. only to be told later that you can forget the loan and it will converted to a 10 year govt bond earning you a measly 7%?
Would you lend to a small scale industrial entrepreneur who does not know what are accounts and who would hide all his misdoings as stock/inventory in his balance sheet. would you finance his junk called inventory and wait till he defaults and then reschedule his loan so that it does not pop up as NPA on your books?
Would you lend to the sophisticated corporate who would indulge in speculation in real estate setting up useless malls in the remotest of places, where people do only window shopping?
Would you lend to Mutual funds who are facing redemption pressures and holding stocks which have come down 80% of their purchase price. Most of them junk as they were bought chasing unrealistic dreams?
Would you lend to salaried class who are already peeved at their finances and are in no need of more loans?
Would you raise credit card limits, lend for two wheelers, personal loans, etc and write away all the money?
What would you do with this liquidity?
Is liquidity the problem? Is Inflation the problem? Is complacency that "India has slowed its growth to 7.5%" a problem?
This Diwali seems to be more of a Diwala than Diwali.
By the way expect some relief from the markets tomorrow on the back of the CRR cut. But global cues will be bad as always and will act as dampeners.

Tuesday, 14 October 2008

Hold your money, its still not time to buy

Markets rallied today but the worst is not yet over. Tomorrow too the markets will rally on the back of good cues from the world markets. This does not in any way mean that the worst is over for the markets and we will see a one way street from tomorrow. This sucker rally will continue for two to three days until the liquid injected banks and financial institutions fritter away the money thrown at them in dabbling the stock markets. This is just patch work. The stronger solution lies in actually cutting out the bad debt and writing them off. the govt of USA will have to take over these bad loans and the so called home assets and then auction them off to the highest bidders. This would ease the crisis easily. Only the govt can do this as only they can create money.
A Student of mine has posed a question: He asks "why is the dollar appreciating when the US govt is busy printing and doling out "helicopter money"?". The answer is simple the supply of dollars is less than the demand for the dollars by those financial institutions who are selling hard in the emerging markets and taking the dollars home in search of great bargains in the ruins of the American Stock Exchanges. But the student has a point. This strengthening of the dollar is a temporary phenomenon. Wait till the chickens come to roost. The unprecedented money supply to create liquidity for worthless paper will boomerang into too much money supply and plunge the dollar to its correct PPP value. (One square meal in India costs $2 in a decent place in the countryside. How much does it cost in the US?)
As far as India is concerned we have a curious 12% inflation meaning a lot of money chasing few goods and the finance minister wanting to ease liquidity situation??? another paradox right? How can there be high inflation and low liquidity? My teachers taught me that high liquidity leads to inflation and to control inflation we either need to control liquidity or increase supply of goods.
So, in conclusion, wait till the wind blows over, This is a speculators world people only want to make a quick buck, nobody is interested in the long term well being of the country. US and India are in the election year the election has to get over, only the new govt will take medium term if not long term measures to stabilise the economy.

Wednesday, 8 October 2008

MELTDOWN? What does that mean?

The Indian markets are being beaten black and blue in the last two weeks and the government is constantly at its wits end, coming up with knee-jerk reactions.
Some fresh thinking needs to be done. We need to fix the supply side of the economics and bring in some sanity in thinking about the economy.
Indian economy will not experience the shocks to the extent that other economies are vulnerable as we are an inward looking economy and India is where the growth is for the moment.
The Nifty should bounce back from the 3350 levels and if something unfortunate happens then it will bounce back from 2800 levels (i.e. 9500 levels on the sensex).
The markets this time will bounce back because of retail buying emerging at these levels. The best bets will be again Infrastructure (we still need to build a whole lot of infrastructure), Cement, metals and energy.

Tuesday, 7 October 2008

Some prescriptions

A reduction in CRR and lifting of ODIs on participatory notes in by SEBI show the bankruptcy of ideas in the present government and its policy making bodies.

Dear Sirs, please consider these suggestions, may be you need these simple ideas.
1. Anounce an ambitious program of Government Investment at least while leaving office. After haveing squandered nearly 1 lakh 50 thousand crores on farm loan waiver, sixth pay commission, raising individual tax slabs, etc. You owe it to the country to do something constructive too.
2. Speed up the process of approving SEZs and pester promoters to hurry up on setting up these SEZs.
3. Please take interest to allot land for the NANO project. Here interest means applying mind and not extending HAND.
4. Speed up the process of UMPPs and allot them to sincere corporates who want to implement projects.
5. NHAI has been forgotten. Let them do their work of six laning the the golden quadrilateral and let them take a few more projects.
Reduce CRR further and persuade banks give loans to people who want to pay back and not to those who want a waiver.

Do this and I will come upwith some more prescriptions.

Thursday, 2 October 2008


This week saw the first spate of nationalization of the century. Loss making investment banks were "bailed out" by congressional votes. Do we now assume that this paves way for calibrated risk taking or unbridled risk taking? A glance at the history of financial business in particular shows that the cycle of nationalization, liberalization, privatization and globalization continues unabated. As Institutions take high risks and fail! nationalization raises its head. low level of risk taking and ultra conservatism leads to lower profits (but PROFITS) and prepares for liberalization and as the risk taking propensity of Institutions increases, this liberalization leads to privatization and globalization until the institutions fail after taking unbridled risks which paves way for nationalization again!! That in short is the cycle of economics.
This also props up a pertinent question. Does the state need to bail out private business and absorb losses? Does the state need to disinvest while making profits? The answers are obvious: The state cannot take risks but can underwrite all risks and the STATE is the INSURER OF LAST RESORT.