1)
For Arshia,
I have been engaged in my business recently and travelling a lot. This is the reason I am unable to post anything right now.
I do not know about your two stocks - What is their full name?
Current market conditions are extremely bad. My broker told me many of his customers have not settled in full after the steep fall of 3000 points around 23 January, 2008
It is more like a choppy market where you will make money a couple of times. However, the market risk is tremendous. There will be severe fall after the failure of almost 4 to 6 leading banks in the world. I will not be surprised, if the market tanks to 8000. There is no limit to when the market falls globally or called Crash. The best you can do it to buy on dips and sell it on two rallies. Play only with the most liquid stocks. After a long time, I bought UCO (below 45), Abhishek Industries, NOCIL and GV Films. I have sold most of IFCI upto 65 level and have not bought back because finance sector is very weak. I have bought not because I am bullish, but to sell them within next two days to book the losses before 31/03/08 so that I do not have tax liability.
Oil Refinery stocks will perform better. ONGC should do better. I am holding them well. Other cash rich companies like Hindustan Lever, MTNL, ITC, and high tech companies like Infosys and Ranbaxy might do well. PLEASE NOTE that if the market falls steeply, all stocks will fall without exception. I still suggest holding 80% of cash level and wait silently for massive fall to re-enter again.
US Administration and also FED are in a Fix. They have no idea the extent of damage and how to come out of it. This is the reason the USD is sinking.
I commented earlier in this column that ICICI had very large exposure to the sub-prime related derivatives, They call it CDO or CLN (Collateralized Debt Obligations or Credit Linked Notes which is same.
These notes had basis of sub-prime only. These are highly leveraged instruments. If basic losses in sub prime increases just by 1%, these derivatives will lose over 10% to 20%.
ICICI Bank did not provide for it fully. further their losses were as at 31/01/2008 since when the losses have multiplied several times. This is the main reason that ICICI bank had been raising large amount of debt and Capital by right issue for over 6 months. This was done to conceal the losses. While they were losing money, and came out with right issue without disclosing their substantial losses, the investors in India were buying this counter left and right.
This is the reason that I mentioned in this column in January that ICICI bank is the most susceptible bank to fall in India. Although it is a private bank, not nationalized one, it should have on its own come out with full statement. There was no need for Minister to disclose their losses in the parliament belatedly - it was not their business. Thus, for all practical purposes, ICICI bank is actiong more like a nationalized bank.
There is no market for CDO or CLN now. Since ICICI ADR is listed on NYSE, they will be forced to provide fully according to US regulations, not according to Indian law of convenience. These are off balance sheet items - no one knows their real exposure (they pretend that they do not know - all these banks do know everything)
The fact that State Bank of India was forced to come out with rights issue for Rs 16000 crores (more than even Reliance Energy), it is obvious that they too have very large exposure to sub prime or related instruments - they just do not tell you because their big father Finance Ministry have asked them to keep their mouth shut until crisis is over. This crisis will not be over. After raising money, they will probably disclose their losses. SBI is also forced to fund the Corus deal of Tata Steel Ltd where almost all banks have dropped out - leaving big stone around the neck of SBI.
Kalidas, Hong Kong
5/3/08
2)
Jefferson County of Alabama state is on verge of bankruptcy and met the FED and Bush Administration for information (that is, they went for bail out)
The county's interest cost has soared to $250 Millions from $138 Millions on its sewer bonds. The interest cost has risen to over 10%
But when the county's revenue is so small, read their other exposures as under:
QUOTE (from Bloomberg today)
Jefferson County's financial problems have been compounded by $5.4 billion of interest-rate swaps with JPMorgan Chase & Co., Bank of America Corp., Bear Stearns Cos. and Lehman Brothers Holdings Inc. that were intended to shield it from higher borrowing costs
UNQUOTE
Read the numbers - $ 5.4 Billions for a county that could not pay even $138 million of interest cost?
And who sold them these swaps? The dirty foursome - JP Morgan Chase + Bear Stearns + Lehman Brothers + Bank of America
They bought the instruments they never understood - and now face a massive loss of $5.4 Billions!
Their collapse will set off chain reaction - 80% of Counties do not have money - so the whole country is going down the drain which has already clogged.
When sewer does not get cleared due to lack of money, what will happen to Americans who wash hands at every minute they touch some foreign object, even if it is clean. And when sewer overflows, they will feel that they are in Parel, or Curry Road or Chinchpokli in Mumbai.
Kalidas, Hong Kong
10/4/2008
3)
Reply to ysb on (10-Apr-08 21:49 )
You are seeing only rally - not the underlying quality.
In yesteryears, whenever Dow rose, US$ used to go up against major currencies like Euro, GBP, and YEN. That means that Investment houses in Euro Zone, UK and Japan were buying US stocks or bonds or treasuries, by buying US$ first and selling their own currencies.
Over last 4 years, the scenario has completely changed. The Dow is either rising or maintaining higher level whereas US$ is continuously plunging. That means, US market strength is dominated by domestic money and not foreign money.
FED has created so much paper money that the large investors have no other option but to invest in US stock market. They can not buy other markets, because they are already expensive by 20% to 60% in US$ terms, commodities are rising, Gold is not attractive to US investors, as they are fond of white metals like Platinum or jewellery made of diamond. They can not invest in property more because they are coming down very fast, with more falls to come. They are afraid of keeping money in banks because they do not know how deep they are in mud and when will they close down.
The bonds, main bastion of investment, is also falling due to sub prime related mess. Insurance companies are also showing massive losses.
So they are parking their money in stock market, based on Analysts report that the things are improving and these may be last days of correction, without realizing that most investments in this area is big ZERO.
US government never admits openly to support the falling market. It does ask major funds to invest mainly near close of the market so that the market ends up or recover the losses from day's low.
A day before CNBC reported that the volume has come down so dramatically that it is almost 33% of normal trading volume. Traders are shown yawning in their seats or supporting their forehead with their palms in exasperation.
If the market rise is not supported by rising volume, it is not a 'real rally' but a 'sucker's rally'
So do not read only figures - read the underlying quality to arrive at proper conclusion that helps in decision making. This is what I do all the time - reading behind newsline and scratching the surface to see what is inside!
Kalidas, Hong Kong
11-04-2008
4)
Reply to Guest on (11-Apr-08 14:55 )
Europe has even more trouble than US. When the FED pumped in $64 billion, Europe pumped in $ 900 billions in two installments - showing extraordinary problems down there.
Accounting standard is lax in Europe. Further, they being non-English speaking, not much is known to the investors in the world.
The losses are slowly emerging from Europe and Japan. One small German bank filed for bankruptcy only day before; Mizuo bank of Japan - second largest in Japan, declared today losses of $ 5.5 Billions, and banks like Deutsche reported losses over 4 billions, SocGen over $7.2 Billions etc.
Deutsche is most sensitive bank towards losses as they were almost second or third largest in the world as 'derivative operator'. Over 50% derivative issued in USA found their course to Europe, China, Japan, Singapore and Hong Kong, and also AustralAsia.
European Banks would have lost over $ 5 trillions - what is revealed is just tip of iceberg.
Kalidas, Hong Kong
11-04-2008
6)
Reply to chchch on (12-Apr-08 10:56 )
After a long time, I am seeing an intelligent question.
Right you are. ICICI yardstick apply to SBI as well. I had mentioned in my earlier posts that SBI may have had exposure of Rs 16000 crores or US$ 4 Billions.
If SBI really wanted hard cash, Government of India would not have given 8% + bonds in payment instead of hard cash. It is obvious that SBI wanted to shore up the capital base before losses are announced. If SBI does not raise the capital, it would not be meeting BIS norms (Bank of International Settlements) with regard to Capital requirements. Even rating agencies like Moody or S&P would have lowered the credit rating, thereby raising its borrowing cost.
Many private investors subscribed to 'right issue' on the premise that Government of India would have subscribed to SBI equity in same manner. However, Government of India did not give cash but paid them in kind. This clearly shows that they were not in the market for working capital - but to replace the capital lost same way ICICI Bank lost.
SBI, the largest bank in India, has BSE weighting of 5.2% and ICICI Bank, second largest, 4.4%. Between them they contribute 10% of index weighting. What happens when their actual losses are revealed?
SBI is 10 times safer than ICICI Bank. It is directly owned by Government of India under special charter. Losing 16000 crores will put a big hole into its balance sheet, but it is repairable.
Kalidas, Hong Kong
12-04-2008 Ref: 09-012R
7)
Reply to lion_king on (12-Apr-08 11:52 )
THANKS
Whenever some one says his portfolio is Rs 1 crore (or any damn amount), I presume that he is losing 80% and makes perhaps 20% - I call it as my own 80:20 rule. It is the tendency of any investor to book the profit and let the losses run. I am telling you from practical experience of 16 years as stockbroker.
Such investors, you included, having large exposure want to hear only positive news or events or analysis, so that they derive solace what they did was not wrong - it was just market.
Almost all investors are like that - even me included when I was in beginning of my career. But I learnt hard way that it was not to be. I am just sharing my experience with other boarders. Those with open mind will embrace it, and those who are not, will severely bounce on him because they do not want to hear anything bad about their portfolio. This is perfectly natural.
A prefessional investor is one who retraces his mistake, when known. Obstinate investor always lose money, often big times. What they earn is their own ego which ultimately prove self destructive
Kalidas, Hong Kong
12-04-2008
8)
Dear Victorjunior,
I know that you are reading my posts diligently, but it looks you have missed a few one.
I never said that ICICI Bank is or will be bankrupt. I merely mentioned that it has serious problems regarding CDO which it has not yet disclosed fully. This is why it is delaying filing of 10K/20F with SEC of USA. If my intention for ICICI Bank to go bankrupt was ever mentioned or understood, then I would not have given its share Price target to Rs 180, which I still maintain.
However, having known their problems, even on surface, leads me to believe to diversify savings to more than one bank. Never believe that ICICI Bank is not infallible - there was a run on this bank a few years ago during Ketan Parekh affairs, and it was saved by RBI by granting liberal cash line.
However, the present scenario is different. Its exposure to sub prime related debt, by whatever name called, appears to be extra-ordinarily large.
There is nothing wrong in having more than one bank account - everyone does have more than one account. I have accounts with 8 banks - 3 modern and 5 nationalized banks.
SBI is of course safer betm, but again its problems are still hidden and known to Government alone. Why should Government have given them Capital of over Rs 8000 crores ( even if it is in kind - like Bonds). Again, SBI is too large and has diversified income base. It was also floatd by the Act of Parliament and judging by its Balance sheet size, it can wither any storm.
So relax and do not panic. Open account with non-controversial banks who are more localized and may not have CDO type of exposures. There is nothing wrong in being cautious, so do open accounts with nationalized banks, and avoid so called modern banks until the controversy is set to rest by passage of time or by adequate and acceptable disclosure.
I will avoid so called 'Modern Banks' as quality of their MBA staff is very poor ( I have experienced personally) because lack of their exposure to real banking world. I was a banker for 19 years, and having worked at International centres like Hong Kong, can reasonably judge the quality of staff manned at various modern banks in India.
Kalidas, Hong Kong
15-04-2008
9)
The reasons for my success all through my life is my ability to discern the numbers churned out by various companies, media or even government. If all numbers we accept at their face value, there would not have been any LTCM, Enron, and present economic crisis.
The real trouble is not me, but my call for SELL and prediction that Indian markets are destined to fall to 6000 level, ICICI Bank to drop to Rs 180 level, which is not liked by many. Hundreds of boarders have admitted that they are sitting on mountain of losses. My own broker tells me that many of his clients have not settled their dues after steep fall in January.
This is why everyone wants to hear good comments about their portfolio, that the market will recover. They do not want to face the reality but want to dance in the dream world.
They simply have no idea the gravity of the crisis, where every bank, investment banks, insurance company come out with the losses running into billions of dollars, And when they announce that they will raise capital, the boarders and analysts believe those fake stories. Are you willing to lend even a cent to UBS or Citibank, Merrill Lynch and others after having known how much they lost? If not, who is willing to lend them billions of dollars? And how could you believe them? When CNOOC of China raised $ 10 Billions, they found tough going in spite of being an oil producer and making billions of dollars in profit.
Then, how come all these boarders believe that banks like UBS, Citibank, Merrill Lynch, Wacovia, Lehman Brothers, Morgan Stanley, Credit Suisse could raise nearly twice or three times the size of CNOOC from the market?
Do you have idea that they lost nearly 5 times the total equity capital of entire banking system in India and they will lose nearly 50 times what they have just disclosed?
A business friend of mine recently reported that UBS, Singapore suddenly withdrew his $2 Millions line of credit overnight without any reasons and in spite of his account being regular all the time with no default at any time in his credit history of over 8 years.
Except for Warren Buffet of USA (not in India) and Microsoft and number of Oil refineries, producers in USA, no other person has access to money. Banks have seen their coffers drying up, and that no bank in USA or London is willing to lend even a million dollar to their best clients easily. Even TATA was denied even s single dollar after his Corus deal.
I was therefore surprised to receive the call from many boarders to apologize to stroy tellers. What for? Why? I was not wrong - and I proved that beyond doubt. If they do not want to accept the reality, it is their problem.
The difficulty with boarders here is that they equate savings with investment. They do not know that stocks are heavily financed by the banks like HDFC, UTI, ICICI etc running into thousands of crores. These investments are result of borrowings, not absolute savings. In India, the people from their savings usually buy home first, gold next, then status symbols like car or scooter, then bank deposits, and the remaining portion in stocks, and that too by borrowing from banks or from brokers.
So, my apology - just forget it. It is unfortunate that even some knowledgeable boarders have fallen victim to those story tellers who believed figures that India has 24% savings rate and China 50%! It is just bullshit
Kalidas, Hong Kong
15-4-2008 Ref: 09-017R
10)
FED's folly and Beggar's delight
FED's folly, Beggar's delight, employees' nightmare
Announced today, that JP Morgan Chase (JPMC) will dismiss almost 9000 to 10,000 employees of Bears Stearns.
So FED who doled out $ 30 Billions to JPMC at 2.5% interest rate, to create more employment, more growth, finds it money going down the drain almost within a month.
So by giving JPMC - non-Recourse funding, that is JPMC does not have obligation to repay, FED created unemployment of 9000 people, and FED will have to pay unemployment allowance for next 6 months.
So FED's folly in giving beggar JPMC $ 30 Billions has become the nightmare of employees of Bear Stearns.
The Senators and even President Bush should ask FED - are you there to create employment or unemployment? The total wage bill of dismissible employees will be just $ 36 Millions per month. FED has to ask JPMC where you are going to spend $ 30 Billions when you are firing 9000 employees and send them over to FED to claim the "unemployment allowance" for next 6 months?
FED will also lose Tax @ 30% or $ 130 Million by letting tax paying employees of Bear stearns to go.
A question arises, why did then FED helped $30 Billions to save Bear Stearns? If bear stearns was saved, why do their employees to go - why not from JPMC itself?
Okay, you are not going to pay any interest, you are also under no obligations to pay even the principal, then why the hell are you firing BS employees and deprive FED of tax income from them? (BS Employees). It is more like "someone's dewali others' holi"
The real news is that FED did not save Bear Stearns BUT saved JP Morgan instead from complete disaster, using defamed Bear Stearns as cover. Why?
JP Morgan and Chase have highest number of derivative exposres compared to any bank. When I left stockbroking 5 years ago, JPMC reportedly had derivative exposure of over $ 30 Trillions.
The merger of JPMC and BS is similar to merger of UBS and SBC (Swiss Banking Corporation) when LTCM failed. Both UBS and SBC had derivative contracts outstanding against each other. If they did not merge, both would have become bankrupt. So they merged with each other, so that cross contracts could be cancelled against each other. It is more like Branch and Head Office accounting, where upon integration, cross entries of branch and HO gets cancelled out.
Same thing appear to have happened in merger with JPMC and BS. It is more than likely, and I am almost 100% certain, that both institutions have had cross derivative contracts outstanding against each other. By merging them, those cross contracts could be cancelled out, leaving only net postion to the outsiders.
It was FED who saved JPMC from disaster, not JPMC saved BS
Stupid FED - they lost $ 30 Billions, then it created unemployjment of 9000 employees, then it will pay them "unemployment allowance of $ 18 Millions per month or $108 Millions for 6 months (maximum period of unemployment allowance) and it also lost Tax revenue of $129 Millions (30% of annual salary of $ 48000 of BS employees x 9000 - that is number of employees fired)
Besides, it will also lose extra interest income of 3.5% (market rate 6% - FED loan rate on $ 30 Billions), that is $ 30 Billions x 3.5% = $ 1 Billlion per year or $ 30 Billions over 30 years (30 x $ 1 Billions)
In short, FED has written of entire $ 30 Billions by creative accounting or called fraudulant accounting. On one hand it gave $ 30 Billions, on the other it gave license to JPMC not to pay by way of obligations, and defintively lost extra interest income of 3.5% per year.
King does no wrong - so do the FED - the most venerable institution of United States.
And Americans go on believing that FED saved Bears Stearns. They do not know that FED has defrauded American tax payers by not disclosing the truth. Americans should throw rotten eggs and tomatoes on FED building to vent their anger.
Kalidas, Hong Kong
16-04-2008 Ref: 09-018
11)
My answer is still NO
It is always tempting to invest immediately when you know that your neighbor is making money, and that is what he tells you. No one tells how much they lost. When Merrill Lynch says that they provided for $6.5 Billions again this quarter, and that their revenues have fallen by 69%, that indicates that their customers are departing, and much larger is ahead. I have written elsewhere - Dying flames always shine at its brightest when little oil is left. Read last two days rally in this context.
Do not forget that Oil prices have reached record again at $ 114 and are still rising. All eatables are still rising at their fastest pace - wheat, soyabin, sugar, cotton, orange juice, milk etc. These are all signs of hyper inflation. When these commodities start rising, they are first leading indicators of major fall in market and speedy rise of interest rate in the market - which is the stock market's biggest ememy.
However, take your own decision whether you should re-enter it. I am still 100% cash, and I am not at all perturbed.
Kalidas, Hong Kong
17-04-2008
12)
STRONGER RUPEE THE ONLY SOLUTION TO OIL INDUCED INFLATION....
Current inflation is not demand induced or wage induced, but "Oil Induced". India imports "Oil" which constitute one of the largest import component. There are only two ways to reduce the import bill - Either lowering Import volume (which will severely affect the growth) OR reduce the import cost by allowing Rupee to rise to its natural level, without RBI's sterilization drive. The second option is growth oriented and also non-inflationary. It is most preferred choice.
Following of my comments appeared in Economic Times which may be of interest to the readers:
QUOTE
Article: Sensex falls to 2008 low; banks, realty plunge
(20 Jun, 2008, 1452 hrs IST, ECONOMICTIMES dot COM)
1
Kalidas,Hong Kong,says:
Regretfully, FM, RBI and SEBI lack imagination in managing India's economic affairs. The solution to India's current problems, including Inflation, lies in stronger rupee, that was hated by the Commerce Minister (who has nothing to do with the finance), RBI and SEBI, who ultimately brought in disastrous P-Note measures with a view to arresting rupee rise. They succeeded in driving out the foreign investor and weakening rupee from Rs 39 to Rs 43 (10%) with the result that India's oil import bill rose by Rs 8000 crores in a flash.
Now, they are wondering why FIIs are getting out of the country. When FII come, they say "you are not welcome" and when they go back home, they plead " Don't go away. Please stay in - you are always welcome".
While EURO rose from low of 0.84 to 1.55 or about 90%, in spite of low growth, Indian rupee rose merely 12% from Rs 48 to Rs 43, in spite of double the growth of EU.
Had India allowed Rupee to rise without intervention, Rupee would have been at Rs 31 at least or by 40% from current level, which would have reduced Oil Import cost by at least Rs 32000 crores. All problems related to oil subsidy would not have arisen had India permitted Rupee to rise to its natural level.
India persistently followed "weaker rupee policy" for over 60 years, allowing it to fall from just Rs 8 per dollar to Rs 43 now. It did not work, and still like obstinate persons, the FM/RBI/SEBI officials go on promoting the concept of weaker rupee.
Why not for a change allow Rupee to rise to Rs 31 or below and see its beneficial effects? On one hand, India is embracing "free market" principles, and in case of rupee, it just throws out of window same ideas.
Such fickle minded officials in FM/RBI/SEBI have to pave the way for new generation people with fresh ideas to mange the country's financial affairs.
20 Jun 2008, 1619 hrs IST
UNQUOTE (Some spellings have been corrected)
Kalidas, Hong Kong
21-06-2008 (Ref: 09-058)
13)
NUKE deal, India's credit rating......
United State's reminder to India to speed up the civilian Nuclear deal is a very serious warning having tremendous implications.
It may be noted that India's credit rating was upgraded to Investment grade only after Nuclear deal in principle. This caused exodus of US Pension Funds and other similar funds who are authorized to invest only in investment grade country.
If Nuke deal does not become a reality, there is serious risk to India for losing its investment grade status. If that happens, there will be mass exodus of Hedge and Pension funds from India. This will also push down Indian rupees to Rs 48 or further down, increasing the Oil Import bill by another 10%.
Indian growth story will be severely dented. It is important for all political parties to reconcile their differences and at least approve the deal so that catastrophe does not happen.
This will be the most important event. Watch for the early approval of the deal or rush to the exit gate to sell the stock at whatever the price. Recovery of stock market will be highly impossible, except for high tech stocks.
As hedge, stay with the high tech and BPO stocks. who will be least affected. Their fall from grace during such market meltdown will be the best buying opportunity.
Kalidas, Hong Kong
23-08-2008 (Ref: 09-061)
14)
for brb-1
Impossible scenario. You do not know the leftist. This party should be banned altogether as they are found to be undemocratic and totally destructive. They simply do not know what they want.
If BJP has any decency, and places the national interest ahead of politics (as they constantly beat the drum), then leftist will have no effect at all. Congress should unite with BJP and ditch the leftist to continue with the political stability and maintain the hard earned economic progress.
But the ranks in BJP like Advani are extremists. They like 'padyatra' more than the national interest. I used to be BJP supporter for long, but now consider them as totally useless and unprincipled organization. I would never vote them back to power.
I reiterate that if NUKE deal is not signed, forget the SENSEX - it can go down to any level. FII will simply get out en masse and India's FOREX reserve will go out of the country with big bang. Most of NRI may also withdraw from stock market, bank deposits and real estate due to powerful adverse effect on rupee. They burnt the finger once, and they will be hard pressed not to return to India again.
To me NUKE deal is extremely important matter, and I give priority even on inflation.
Kalidas, Hong Kong
24-06-2008
15)
for Blue Violet,
Thanks for taking pain to produce the message containing the views of the 3 prominent Atomic Scientists against the deal. Yes, I do respect Arun Shourie, former editor of Indian Express.
There are two issues. Science and Commerce follow parallel lines, but never meet like a railway track. Producing electricity via coal at cheaper cost is a good idea, but with coal prices rising at fastest pace, and India being a net importer of coal, the recurring cost is going to be very high, which may increase the cost of electricity.
Nuclear energy is one of the most efficient one where capital cost is high but recurring cost is low. Look at Japan and France (who has maximum nuclear reactors) who are able to supply electricity at much lower cost to their own industries. The very fact that Japanese goods are produced with best quality at cheaper cost underscores the fact that even high cost oriented Japan finds cost of nuclear energy acceptable proposition. Have you ever heard Japan complaining against Oil price rise affecting Japanese industries like steel or chemicals? It is due to availability of cheaper and continuous supply of electricity from its nuclear reactors.
Coal may be a good source, but it is highly pollutive and anti-health input. What use of electricity if it powers your home but fills up your lungs with smokes and toxic gases? Even coal fired locomotives are discontinued because they are pollutive.
You are 100% right in that we should have better bargaining strength in negotiating with US in finalizing the deal.However, please note that the agreement is only 'preliminary' and on 'principle'. Same principles are applied in case of Japan or France or Canada or even Britain who are all democratic and prosperous countries.
Last month I was in India at Amravati (in Vidarbha, near Nagpur) where MIDC (Maharashtra Industrial Development Corporation) has developed 5 star industrial estate admeasuring 5500 hectare or 11000 acres. It is just vacant. Even in old MIDC in the middle of the city, nearly 70% of units are closed.
Main reason is lack of adequate power. I saw city of 2.5 millions going without power for almost 6 to 8 hours a day. There can not be any hydro-electric, coal or oil powered stations, since the place is far away from raw input centers. Only Nuclear reactor can rejuvenate to make it vibrant industrial city creating thousands of employment.
Due to lack of job opportunities, and despite 26 universities around, the average wage earner makes about Rs 3000 to Rs 4000 per month which may be 50% to 75% below similar level in big cities like Mumbai.
When you are in growth stage with almost 1 billion people to take care of, you must be prepared to make compromises. Try to make Nuclear power stations without the approval of major powers like USA, and you will be outcast, not only that, a time will come when those powers may seek to destroy your facilities on military ground. Look at Iran which is a shining example. Saddam tried for Iraq and see the beautiful country of Iraq in a rubble state.
I agree with your other viewpoints. There has to be a very healthy debate, similar to one in Northern Ireland, who refused to honor Lisbon treaty and opted out of European Nation.
You have two choices - Growth or Poverty. Mere signing up of a nuclear deal does not deprive the nation of its sovereignty or its freedom. You are entering into agreement with a democratic country, where everything is done under open sky. You know more about America and its systems, politics, likes, dislikes etc only because their media is open and widely broadcast in India in English.
What the Government should do is to include some of those Atomic Scientists in its negotiating team so that interests of all are preserved. This is the right approach - not out of hand rejection on the basis of nationalism or false sense of insecurity.
Kalidas, Hong Kong
25-08-2008
16)
for rtoshniwal1,
Honestly, I do not know much about the stock you mentioned. In fact, I do not know much about IT stocks, because they are difficult to follow. They are more internal news driven and there is little to verify their information by public record.
I never bought any IT stocks nor I intend to except very large ones, such as Infosys & Wipro in severe correction.
Kalidas, Hong Kong
26-03-2008
17)
DISASTER: India's Credit Rating downgrade
Finally, my fear of Credit rating downgrade due to nuclear issue is finally coming true. Read my original article "NUKE deal and India's credit rating....." dated 23-08-2008. After 22 days, my fears"ditto" is coming true. The article is reproduced after a few Para.
S&P released today that it might reduce India's credit rating from Investment grade to Junk grade. This will cause mass exodus of money from India. All pension funds, retirement funds, hedge funds will run for the exit because they are not authorized to invest into non-investment grade country.
S&P mentions the deteriorating fiscal discipline as one of the cause. But these credit rating companies are goddamn "Opportunist" and have always political agenda. They go by the dictates of the United States establishments.
By terming as "non investment grade". what they are telling you is that you are not friendly to the US government. Nearly 1/3rd reserve of India is also not parked with the US government - it is outside USA. These are not friendly signs for them. These are all untold reasons. You have to read what they mean rather than reading it in strict literary sense.
FII funds flow, especially long term investment money from US Pension funds were the main reasons for SENSEX's meteoric rise.
"Easy it comes, Easy it goes" said Danny DeVito in one his witty movies - OPM (Other People's Money).
Now those of Indians who have false pride of patriotism, I want to tell them once for all - This is not a war that you have to display your patriotism - this is financial world where you have got to be "realist" like me.
Expect SENSEX to fall very hard, and Indian rupees to go to Rs 48 at least if not 60.
Government of India was "IDIOT" . When the SENSEX rose to almost 21000, it had the perfect opportunity to sell various Public Sector Unit's stakes, realizing more than 400,000 crores. It could have then give the Tax benefit to the citizens after 50 years of hard work. But no, even Manmohan Singh and P Chidambaram are not visionary. They are good people, but very dumb. If they can not capitalize on screaming opportunities , they lose their right to leadership, I really wanted to use much stronger word, but would not.
Those of you aspiring for SENSEX to rise to 21000 or 40000 within next 3 years, forget it. Forget India's growth story - you need the capital but the SEBI, RBI, and Government of India has killed that very source. Sooner these bad guys leave the throne, better it is for India.
Here is my old article:
QUOTE
Title: NUKE deal and India's credit rating.....
United State's reminder to India to speed up the civilian Nuclear deal is a very serious warning having tremendous implications.
It may be noted that India's credit rating was upgraded to Investment grade only after Nuclear deal in principle. This caused exodus of US Pension Funds and other similar funds who are authorized to invest only in investment grade country.
If Nuke deal does not become a reality, there is serious risk to India for losing its investment grade status. If that happens, there will be mass exodus of Hedge and Pension funds from India. This will also push down Indian rupees to Rs 48 or further down, increasing the Oil Import bill by another 10%.
Indian growth story will be severely dented. It is important for all political parties to reconcile their differences and at least approve the deal so that catastrophe does not happen.
This will be the most important event. Watch for the early approval of the deal or rush to the exit gate to sell the stock at whatever the price. Recovery of stock market will be highly impossible, except for high tech stocks.
As hedge, stay with the high tech and BPO stocks. who will be least affected. Their fall from grace during such market meltdown will be the best buying opportunity.
Kalidas, Hong Kong
23-08-2008 (Ref: 09-061)
UNQUOTE
Kalidas, Hong Kong
14/07/2008 (Ref: 09-078)
18)
Totally disagree.
What Ambani Brothers' disputes have anything to do with the market? Their stocks have fropped due to (1) overrating and over valuation and (2) worsening global market. RIL stock is not worth Rs 900 - where is the question of it rising above 3000 as before. It was just hyped up.
Ambani brothers are coming up with newer and newer company all the time and then pass on the begging bowl around to raise money. I never like companies that go on inventing newer and newer companies. That is the first sign of financial trouble. Their almost all other new ventures have failed - Retails (vegetables), real estate, infrastructure etc etc
Have you ever heard solid company like IBM to go on buying totally diverse companies, not related to their field. IBM has even stopped advertising. 10 years ago, the IBL logo was found on every bus stand, water tank, street lights and every where. Today, IBM without any non repated take overs, and without advertising, earns more than what is used to earn before. This is called a Company, not RIL
Take the example of Apple. These are all single focused company. These Ambani brothers have become multi focused companies, one day they want Newspaper, or TV media (TV Today), then movie business (Spielberg association) or Cricket sponsorship or selling Vegatables like Bhaiyaas, then power plants, then telcom, then airport building, then Metro building, then real estate development, now they are eying Bank (because money dried up elsewhere). It is written all over it that this group has started Count down for its failure. Such companies do not last longer.
LT is a kind of stock should not trade at over 8 times PE and it is trading at 33 times. This is the most expensive stock one would have. Those who hold it or buy it should be rated as Fools. Watch for its downfall, if yu disagree. I will not buy this stock unleess it has come down to less than Rs 600 prebonus basis.
When these biggies are going to go down heavily, they will tank SENSEX or NIFTY accordingly. Between them, they will bring down index by 1800 points
Both are USELESS stocks to own. They are too pricey and too much diversified. Both are less focused. This is why LT lost over Rs 1400 crores in Forex losses. They are losing control of their operation - this is a warning light.
Kalidas, Hong Kong
15/7/08
19)
for novice1000
I disagree. US is also a growing market. Only growing markets can have rising stock market. US is a mixture of Innovation and also Commercialism. If US is also the biggest consumer nation in the world. If there is no US, neither China nor India will have any growth - their domestic market is too poor to pay the kind of price one gets in US. If US stops buying from China, 80% of factories will close down.
There is demand supply gap all the time every where. Apart from supply, you have to look at the quality as well. Can India make a simple passenger plane like Boeing? Can India make a Rail car (Dibba) like the one made by France and Germany? Can India make a metro like British did in Hong Kong and in UK?
Low prices encourage producers to make shoddy goods. It is only the presence of US, UK and Europe that people have conscious of quality. EU picks up from what is left by USA
EXXON, Royal Dutch Shell, British Petroleum, Total (France) never felt urge any need for diversification inspite of reaching the size nearly 3 to 10 times of Reliance.
Dhirubhai Ambani was innovative and also single focused. He did forward and backward integration, never went for diversication. He was single focused, so he succeeded. His MBA sons will fail, because such things are not taught in business schools.
Diversification is a much abused word. When one can not expand through innovation or runs out of idea, he borrows the idea of others and go for that business of which they have little knowledge.
This is called speculation. They call it diversifcation. It merely says that \\
20)
For guest,
Normally I do not reply to unidentified guests. It seems that you are either new, never read anything about my posts, do not know my timings, or nothing at all. It was me who said in December to sell 70% of stocks before 16/1/2008, and Index slumped by 3000 pts in 2 days from 23/1, Again I told everyone to sell everything before 31/3 and remain 100% cash. On 31/12/2007 and 28/3/2008, the index position were as under:
Date......Open......High.....Low.......Close.......Volume Adj Close*
31-Dec-07.20,323....20,484...20,239....20,286......10,400...20,286
28-Mar-08.16,100....16,452...15,884....16,371..... 23,800...16,371
Current
15-Jul-08.13,067....13,067...12,607....12,676......30,000...12,676
Now tell me, my calls were much ahead than others. SENSEX is down by 40% from the date of my first call. and 33% from second call. Check the facts before passing angry remarks. Everyone is losing if they are still long,that includes you, otherwise you would not have been so angry.
And when you say that 'The market or stocks are down due to poor politics here, poor global cues, high crude oil rates & high inflation rates', then let me ask you which factor is left out?
Don't be so naive, and do not tie me up with others in the animal farm. Read properly before you vent out your feelings.
Kalidas, Hong Kong
21)
for guest,
Pick any Investment Bank. When they are in distress, they merge with others. you will get the best experience in such banks. After two years or so, when the things begin to stabilize, you may get better oppportunities.
Kalidas, Hong Kong
16/7/2008
22)
for karthik (Guest)
Please make your enquiries specific. You are asking one question related to US and other buying some agricultural properties - in India or USA
Agricultural property prices are not falling to my knowledge. Further, it all depends on location, water availability etc.
Generally speaking, the Agricultural property prices are rising except those near city which were bought by investors for speculation purpose.
In USA the Ag land prices are rising, not falling. In India too, they are rising near the center where I have lot of farm interest.
Kalidas, Hong Kong
17/7/2008
23)
for Ranbir Mehta(Vododara) Posted By Guest
Yes, It will happen everywhere. More than stock market crash, there will be precipitate bank failures where people may lost lot of money. In some countries, including United States, there could be even Civil War.
Take protective measures if you are living in independent bungalow.
Kalidas, Hong Kong
18/7/2008
24)
for Jayesh Mange (Guest)
It is not the time to buy property in Mumbai. The prices have corrected in Ghatkopar (I was borne in Ghatkopar and have my property interest there) - especially in new constructions. In old Ghatkopar or on Ghatkopar (West) near 60'/90' Road or Garodia Nagar. the supply of vacant land is very limited. You can get only resale flats. There prices may not have come down.
Near Vidyavihar, where Punjalal Dave built property, where my own brother has bought for Rs 33 lakhs (@ Rs 2800/sft), the rates were said to have gone to Rs 8000/sft
In neighboring location, where Neelkanth group is building the new complex where booking rate was over Rs 7500, they have scaled down to Rs 6000 or so, one of the investor having relationship with the builder told me recently.
The interest rates are too high, and stock market is still very high. There should not be any rush to buy the property at this point of time. Let the market drop by another 6000 points and 3 months after that you search for the property - you may get about 25% cheaper from current level.
You are right. One BHK flat used to cost Rs 35 lakhs. only in old buildings, you may get between Rs 25 lakhs to Rs 30 lakhs now or may be less (these buildings do not have lift)
Kalidas, Hong Kong
18/7/2008
25)
Banking License in USA - 2 yrs to 24 hrs
Financial times reported today (22/9/2008)the following:
Industrial and Commercial Bank of china,, state owned 2nd largest bank in China, known as ICBC, was disappointed with the American regulatory system.
It took 2 years for ICBC to get the license to open its first branch in USA
It took just 24 hours for Morgan Stanley to obtain the become a full fledged bank with full recourse to FED funds and retail deposits.
Debt is the King - China should have learnt by now. Do not be a bank to become a bank in USA - become bankrupt to be transformed into a bank in the United States of America
Kalidas, Hong Kong
22/9/2008
26)
No one is too big not to fall
Last few months' and a few years' events show that "No one is too big not to fail"
See the following list:
1. Baring Securities (Failed after almost 100 years of history due to rogue traders)
2. Bear Stearns
3. Lehman Brothers
4. Merril Lynch
5. Fannie Mae
6. Freddie Mac
Nearly Saved list:
6. Morgan Stanley
7. Goldman Sachs
Others in Parade:
8. UBS
9. Washington Mutual
10 Wachovia
11. Citibank
12. JP Morgan Chase
13. General Electric (GE)
14. General Motors, (GM)
15. Ford Motors
16 Chrysler
17. American Airlines
18. United Airlines
19. Delta Airlines
In UK
20 Northern rock
21 Royal Bank of Scotland
22. Barclays (on the way)
23. HSBC (on the way)
And last one in the parade:
24 United States of America
Those who say in India that Ambani, Tata or Birla are solid businessmen and are infallible, read above and judge yourself. Do not elevate them to the status of God.
There was a James Bond movie called " Never Say Never Again". does it apply to America?
Kalidas, Hong Kong
23/9/2008
Friday, July 18, 2008
ICICI Bank delays 10K/20F filing with SEC
Report says ICICI Bank delayed filing of Annual Report with SEC -10K/20F - reasons unknown
SEC requirements requires the bank to file 3Q and also 10K/20F with SEC within prescribed time, generally 3 months from the closure of Annual Accounts.
This raises the eyebrow - WHY? There could be following reasons:
Point 1
ICICI Bank will be required to report hefty loss by marking its CDO/CDS/CLN exposure, by marking to the market (MTM). The current MTM is almost ZERO because underlying collateral assets have been seized by the primary lenders who own the property and also entire profit/loss therefrom. Thus, the value of collateral is ZERO
ICICI has provided for negligible amount so far, on the premise that it will hold the security until maturity (generally 30 years). However, whether the bank holds until maturity or not make no difference to amount lost - which is entire exposure of CDO
Bank has not disclosed actual exposure to CDO by stating that it does not have direct exposure to subprime loans. In fact, there can not be direct exposure to subprime loans. That belongs to original mortgage lender. It is the derivative exposure that counts.
It was reported sometime ago that ICICI bank exposure could be US$ 2.64 Billion (so they provided only 10% or US$ 264 Millions or Rs 1050 crores). The entire valuation could be ZERO
Following is the Times of India report:
QUOTE
Subprime crisis hits ICICI Bank - 5 Mar 2008, 0059 hrs IST,TNN
NEW DELHI: The subprime loan crisis in the US has taken its first toll in India with ICICI Bank's profit taking a hit of more than Rs 1,050 crores ($264 million) in 2007-08.
UNQUOTE
INCOME FROM CDO
When the original subprime lender issues the derivatives, he is transferring the risk to the buyer of the derivatives. The seller pays the Fees which may be around 1% to 3% of derivative amount depending on maturity left.
The buyer (ICICI Bank) will be required to issue guarantee for receiving the fees for entire derivative of $2.64 Billions. Looks like ICICI Bank would have stood as "guarantor". This is how CDO normally works.
Source HSBC Annual Report 2006 Page 69
QUOTE
.....Credit derivatives are arrangements that provide for one party (the “beneficiary”) to transfer the credit risk of a ‘reference asset” to another party (the “guarantor”). Under this arrangement the guarantor assumes the credit risk associated with the reference asset without directly purchasing it. The beneficiary agrees to pay to the guarantor a specified fee. In return, the guarantor agrees to pay the beneficiary an agreed upon amount it’ there is a default during the term of the contract.
UNQUOTE
In short, ICICI Bank stood as guarantor for entire CDO exposure by receiving the fees (1% to 2%). It would have received a fee of about $ 24~$48 Millions (Rs 96 ~192 crores). Against this fee, it assumed "guaranteed obligations" of about $ 2.64 Billions.
POINT 2
What is the actual exposure of ICICI Bank. If published report is any guide, it will be $2.64 Billions or Rs 10,500 crores
or could it be more?
ICICI Bank raised massive amount $ 6.7 Billions (Rs 27000 crores) by capital and bonds by way of right issue, bond offering in $, Euro and Yen. Why such large amount?
Did it want to shore up the capital already lost? The actual loss could be between Rs 10500 crores and Rs 27000 crores. This is guesstimate, by linking news event and capital raising exercise without any perceptible need.
As at 31-12-2007, ICICI Bank reported profit for 9 months at Rs 3000 crores (Annualized Rs 4000 crores or $ 1 Billion) and Capital shown Rs 41703 crores ($10.42 Billions)
If the loss is as above, the bank can not report profit for 2 1/2 years to 6 1/2 years. The capital would have been reduced by Min 25% and Max 64%.
POINT 3
To avoid disclosure of massive loss, the alternative is to de-list from NYSE to skip US laws.
Wait for some more days for confirmation.
Kalidas, Hong Kong
11-04-2008 Ref: 09-009
SEC requirements requires the bank to file 3Q and also 10K/20F with SEC within prescribed time, generally 3 months from the closure of Annual Accounts.
This raises the eyebrow - WHY? There could be following reasons:
Point 1
ICICI Bank will be required to report hefty loss by marking its CDO/CDS/CLN exposure, by marking to the market (MTM). The current MTM is almost ZERO because underlying collateral assets have been seized by the primary lenders who own the property and also entire profit/loss therefrom. Thus, the value of collateral is ZERO
ICICI has provided for negligible amount so far, on the premise that it will hold the security until maturity (generally 30 years). However, whether the bank holds until maturity or not make no difference to amount lost - which is entire exposure of CDO
Bank has not disclosed actual exposure to CDO by stating that it does not have direct exposure to subprime loans. In fact, there can not be direct exposure to subprime loans. That belongs to original mortgage lender. It is the derivative exposure that counts.
It was reported sometime ago that ICICI bank exposure could be US$ 2.64 Billion (so they provided only 10% or US$ 264 Millions or Rs 1050 crores). The entire valuation could be ZERO
Following is the Times of India report:
QUOTE
Subprime crisis hits ICICI Bank - 5 Mar 2008, 0059 hrs IST,TNN
NEW DELHI: The subprime loan crisis in the US has taken its first toll in India with ICICI Bank's profit taking a hit of more than Rs 1,050 crores ($264 million) in 2007-08.
UNQUOTE
INCOME FROM CDO
When the original subprime lender issues the derivatives, he is transferring the risk to the buyer of the derivatives. The seller pays the Fees which may be around 1% to 3% of derivative amount depending on maturity left.
The buyer (ICICI Bank) will be required to issue guarantee for receiving the fees for entire derivative of $2.64 Billions. Looks like ICICI Bank would have stood as "guarantor". This is how CDO normally works.
Source HSBC Annual Report 2006 Page 69
QUOTE
.....Credit derivatives are arrangements that provide for one party (the “beneficiary”) to transfer the credit risk of a ‘reference asset” to another party (the “guarantor”). Under this arrangement the guarantor assumes the credit risk associated with the reference asset without directly purchasing it. The beneficiary agrees to pay to the guarantor a specified fee. In return, the guarantor agrees to pay the beneficiary an agreed upon amount it’ there is a default during the term of the contract.
UNQUOTE
In short, ICICI Bank stood as guarantor for entire CDO exposure by receiving the fees (1% to 2%). It would have received a fee of about $ 24~$48 Millions (Rs 96 ~192 crores). Against this fee, it assumed "guaranteed obligations" of about $ 2.64 Billions.
POINT 2
What is the actual exposure of ICICI Bank. If published report is any guide, it will be $2.64 Billions or Rs 10,500 crores
or could it be more?
ICICI Bank raised massive amount $ 6.7 Billions (Rs 27000 crores) by capital and bonds by way of right issue, bond offering in $, Euro and Yen. Why such large amount?
Did it want to shore up the capital already lost? The actual loss could be between Rs 10500 crores and Rs 27000 crores. This is guesstimate, by linking news event and capital raising exercise without any perceptible need.
As at 31-12-2007, ICICI Bank reported profit for 9 months at Rs 3000 crores (Annualized Rs 4000 crores or $ 1 Billion) and Capital shown Rs 41703 crores ($10.42 Billions)
If the loss is as above, the bank can not report profit for 2 1/2 years to 6 1/2 years. The capital would have been reduced by Min 25% and Max 64%.
POINT 3
To avoid disclosure of massive loss, the alternative is to de-list from NYSE to skip US laws.
Wait for some more days for confirmation.
Kalidas, Hong Kong
11-04-2008 Ref: 09-009
FED's folly and Beggar's delight
FED's folly, Beggar's delight, employees' nightmare
Announced today, that JP Morgan Chase (JPMC) will dismiss almost 9000 to 10,000 employees of Bears Stearns.
So FED who doled out $ 30 Billions to JPMC at 2.5% interest rate, to create more employment, more growth, finds it money going down the drain almost within a month.
So by giving JPMC - non-Recourse funding, that is JPMC does not have obligation to repay, FED created unemployment of 9000 people, and FED will have to pay unemployment allowance for next 6 months.
So FED's folly in giving beggar JPMC $ 30 Billions has become the nightmare of employees of Bear Stearns.
The Senators and even President Bush should ask FED - are you there to create employment or unemployment? The total wage bill of dismissible employees will be just $ 36 Millions per month. FED has to ask JPMC where you are going to spend $ 30 Billions when you are firing 9000 employees and send them over to FED to claim the "unemployment allowance" for next 6 months?
FED will also lose Tax @ 30% or $ 130 Million by letting tax paying employees of Bear stearns to go.
A question arises, why did then FED helped $30 Billions to save Bear Stearns? If bear stearns was saved, why do their employees to go - why not from JPMC itself?
Okay, you are not going to pay any interest, you are also under no obligations to pay even the principal, then why the hell are you firing BS employees and deprive FED of tax income from them? (BS Employees). It is more like "someone's dewali others' holi"
The real news is that FED did not save Bear Stearns BUT saved JP Morgan instead from complete disaster, using defamed Bear Stearns as cover. Why?
JP Morgan and Chase have highest number of derivative exposres compared to any bank. When I left stockbroking 5 years ago, JPMC reportedly had derivative exposure of over $ 30 Trillions.
The merger of JPMC and BS is similar to merger of UBS and SBC (Swiss Banking Corporation) when LTCM failed. Both UBS and SBC had derivative contracts outstanding against each other. If they did not merge, both would have become bankrupt. So they merged with each other, so that cross contracts could be cancelled against each other. It is more like Branch and Head Office accounting, where upon integration, cross entries of branch and HO gets cancelled out.
Same thing appear to have happened in merger with JPMC and BS. It is more than likely, and I am almost 100% certain, that both institutions have had cross derivative contracts outstanding against each other. By merging them, those cross contracts could be cancelled out, leaving only net postion to the outsiders.
It was FED who saved JPMC from disaster, not JPMC saved BS
Stupid FED - they lost $ 30 Billions, then it created unemployjment of 9000 employees, then it will pay them "unemployment allowance of $ 18 Millions per month or $108 Millions for 6 months (maximum period of unemployment allowance) and it also lost Tax revenue of $129 Millions (30% of annual salary of $ 48000 of BS employees x 9000 - that is number of employees fired)
Besides, it will also lose extra interest income of 3.5% (market rate 6% - FED loan rate on $ 30 Billions), that is $ 30 Billions x 3.5% = $ 1 Billlion per year or $ 30 Billions over 30 years (30 x $ 1 Billions)
In short, FED has written of entire $ 30 Billions by creative accounting or called fraudulant accounting. On one hand it gave $ 30 Billions, on the other it gave license to JPMC not to pay by way of obligations, and defintively lost extra interest income of 3.5% per year.
King does no wrong - so do the FED - the most venerable institution of United States.
And Americans go on believing that FED saved Bears Stearns. They do not know that FED has defrauded American tax payers by not disclosing the truth. Americans should throw rotten eggs and tomatoes on FED building to vent their anger.
Kalidas, Hong Kong
16-04-2008 Ref: 09-018
11)
My answer is still NO
It is always tempting to invest immediately when you know that your neighbor is making money, and that is what he tells you. No one tells how much they lost. When Merrill Lynch says that they provided for $6.5 Billions again this quarter, and that their revenues have fallen by 69%, that indicates that their customers are departing, and much larger is ahead. I have written elsewhere - Dying flames always shine at its brightest when little oil is left. Read last two days rally in this context.
Do not forget that Oil prices have reached record again at $ 114 and are still rising. All eatables are still rising at their fastest pace - wheat, soyabin, sugar, cotton, orange juice, milk etc. These are all signs of hyper inflation. When these commodities start rising, they are first leading indicators of major fall in market and speedy rise of interest rate in the market - which is the stock market's biggest ememy.
However, take your own decision whether you should re-enter it. I am still 100% cash, and I am not at all perturbed.
Kalidas, Hong Kong
17-04-2008
Announced today, that JP Morgan Chase (JPMC) will dismiss almost 9000 to 10,000 employees of Bears Stearns.
So FED who doled out $ 30 Billions to JPMC at 2.5% interest rate, to create more employment, more growth, finds it money going down the drain almost within a month.
So by giving JPMC - non-Recourse funding, that is JPMC does not have obligation to repay, FED created unemployment of 9000 people, and FED will have to pay unemployment allowance for next 6 months.
So FED's folly in giving beggar JPMC $ 30 Billions has become the nightmare of employees of Bear Stearns.
The Senators and even President Bush should ask FED - are you there to create employment or unemployment? The total wage bill of dismissible employees will be just $ 36 Millions per month. FED has to ask JPMC where you are going to spend $ 30 Billions when you are firing 9000 employees and send them over to FED to claim the "unemployment allowance" for next 6 months?
FED will also lose Tax @ 30% or $ 130 Million by letting tax paying employees of Bear stearns to go.
A question arises, why did then FED helped $30 Billions to save Bear Stearns? If bear stearns was saved, why do their employees to go - why not from JPMC itself?
Okay, you are not going to pay any interest, you are also under no obligations to pay even the principal, then why the hell are you firing BS employees and deprive FED of tax income from them? (BS Employees). It is more like "someone's dewali others' holi"
The real news is that FED did not save Bear Stearns BUT saved JP Morgan instead from complete disaster, using defamed Bear Stearns as cover. Why?
JP Morgan and Chase have highest number of derivative exposres compared to any bank. When I left stockbroking 5 years ago, JPMC reportedly had derivative exposure of over $ 30 Trillions.
The merger of JPMC and BS is similar to merger of UBS and SBC (Swiss Banking Corporation) when LTCM failed. Both UBS and SBC had derivative contracts outstanding against each other. If they did not merge, both would have become bankrupt. So they merged with each other, so that cross contracts could be cancelled against each other. It is more like Branch and Head Office accounting, where upon integration, cross entries of branch and HO gets cancelled out.
Same thing appear to have happened in merger with JPMC and BS. It is more than likely, and I am almost 100% certain, that both institutions have had cross derivative contracts outstanding against each other. By merging them, those cross contracts could be cancelled out, leaving only net postion to the outsiders.
It was FED who saved JPMC from disaster, not JPMC saved BS
Stupid FED - they lost $ 30 Billions, then it created unemployjment of 9000 employees, then it will pay them "unemployment allowance of $ 18 Millions per month or $108 Millions for 6 months (maximum period of unemployment allowance) and it also lost Tax revenue of $129 Millions (30% of annual salary of $ 48000 of BS employees x 9000 - that is number of employees fired)
Besides, it will also lose extra interest income of 3.5% (market rate 6% - FED loan rate on $ 30 Billions), that is $ 30 Billions x 3.5% = $ 1 Billlion per year or $ 30 Billions over 30 years (30 x $ 1 Billions)
In short, FED has written of entire $ 30 Billions by creative accounting or called fraudulant accounting. On one hand it gave $ 30 Billions, on the other it gave license to JPMC not to pay by way of obligations, and defintively lost extra interest income of 3.5% per year.
King does no wrong - so do the FED - the most venerable institution of United States.
And Americans go on believing that FED saved Bears Stearns. They do not know that FED has defrauded American tax payers by not disclosing the truth. Americans should throw rotten eggs and tomatoes on FED building to vent their anger.
Kalidas, Hong Kong
16-04-2008 Ref: 09-018
11)
My answer is still NO
It is always tempting to invest immediately when you know that your neighbor is making money, and that is what he tells you. No one tells how much they lost. When Merrill Lynch says that they provided for $6.5 Billions again this quarter, and that their revenues have fallen by 69%, that indicates that their customers are departing, and much larger is ahead. I have written elsewhere - Dying flames always shine at its brightest when little oil is left. Read last two days rally in this context.
Do not forget that Oil prices have reached record again at $ 114 and are still rising. All eatables are still rising at their fastest pace - wheat, soyabin, sugar, cotton, orange juice, milk etc. These are all signs of hyper inflation. When these commodities start rising, they are first leading indicators of major fall in market and speedy rise of interest rate in the market - which is the stock market's biggest ememy.
However, take your own decision whether you should re-enter it. I am still 100% cash, and I am not at all perturbed.
Kalidas, Hong Kong
17-04-2008
STRONGER RUPEE THE ONLY SOLUTION TO OIL INDUCED INFLATION....
Current inflation is not demand induced or wage induced, but "Oil Induced". India imports "Oil" which constitute one of the largest import component. There are only two ways to reduce the import bill - Either lowering Import volume (which will severely affect the growth) OR reduce the import cost by allowing Rupee to rise to its natural level, without RBI's sterilization drive. The second option is growth oriented and also non-inflationary. It is most preferred choice.
Following of my comments appeared in Economic Times which may be of interest to the readers:
QUOTE
Article: Sensex falls to 2008 low; banks, realty plunge
(20 Jun, 2008, 1452 hrs IST, ECONOMICTIMES dot COM)
1
Kalidas,Hong Kong,says:
Regretfully, FM, RBI and SEBI lack imagination in managing India's economic affairs. The solution to India's current problems, including Inflation, lies in stronger rupee, that was hated by the Commerce Minister (who has nothing to do with the finance), RBI and SEBI, who ultimately brought in disastrous P-Note measures with a view to arresting rupee rise. They succeeded in driving out the foreign investor and weakening rupee from Rs 39 to Rs 43 (10%) with the result that India's oil import bill rose by Rs 8000 crores in a flash.
Now, they are wondering why FIIs are getting out of the country. When FII come, they say "you are not welcome" and when they go back home, they plead " Don't go away. Please stay in - you are always welcome".
While EURO rose from low of 0.84 to 1.55 or about 90%, in spite of low growth, Indian rupee rose merely 12% from Rs 48 to Rs 43, in spite of double the growth of EU.
Had India allowed Rupee to rise without intervention, Rupee would have been at Rs 31 at least or by 40% from current level, which would have reduced Oil Import cost by at least Rs 32000 crores. All problems related to oil subsidy would not have arisen had India permitted Rupee to rise to its natural level.
India persistently followed "weaker rupee policy" for over 60 years, allowing it to fall from just Rs 8 per dollar to Rs 43 now. It did not work, and still like obstinate persons, the FM/RBI/SEBI officials go on promoting the concept of weaker rupee.
Why not for a change allow Rupee to rise to Rs 31 or below and see its beneficial effects? On one hand, India is embracing "free market" principles, and in case of rupee, it just throws out of window same ideas.
Such fickle minded officials in FM/RBI/SEBI have to pave the way for new generation people with fresh ideas to mange the country's financial affairs.
20 Jun 2008, 1619 hrs IST
UNQUOTE (Some spellings have been corrected)
Kalidas, Hong Kong
21-06-2008 (Ref: 09-058)
Following of my comments appeared in Economic Times which may be of interest to the readers:
QUOTE
Article: Sensex falls to 2008 low; banks, realty plunge
(20 Jun, 2008, 1452 hrs IST, ECONOMICTIMES dot COM)
1
Kalidas,Hong Kong,says:
Regretfully, FM, RBI and SEBI lack imagination in managing India's economic affairs. The solution to India's current problems, including Inflation, lies in stronger rupee, that was hated by the Commerce Minister (who has nothing to do with the finance), RBI and SEBI, who ultimately brought in disastrous P-Note measures with a view to arresting rupee rise. They succeeded in driving out the foreign investor and weakening rupee from Rs 39 to Rs 43 (10%) with the result that India's oil import bill rose by Rs 8000 crores in a flash.
Now, they are wondering why FIIs are getting out of the country. When FII come, they say "you are not welcome" and when they go back home, they plead " Don't go away. Please stay in - you are always welcome".
While EURO rose from low of 0.84 to 1.55 or about 90%, in spite of low growth, Indian rupee rose merely 12% from Rs 48 to Rs 43, in spite of double the growth of EU.
Had India allowed Rupee to rise without intervention, Rupee would have been at Rs 31 at least or by 40% from current level, which would have reduced Oil Import cost by at least Rs 32000 crores. All problems related to oil subsidy would not have arisen had India permitted Rupee to rise to its natural level.
India persistently followed "weaker rupee policy" for over 60 years, allowing it to fall from just Rs 8 per dollar to Rs 43 now. It did not work, and still like obstinate persons, the FM/RBI/SEBI officials go on promoting the concept of weaker rupee.
Why not for a change allow Rupee to rise to Rs 31 or below and see its beneficial effects? On one hand, India is embracing "free market" principles, and in case of rupee, it just throws out of window same ideas.
Such fickle minded officials in FM/RBI/SEBI have to pave the way for new generation people with fresh ideas to mange the country's financial affairs.
20 Jun 2008, 1619 hrs IST
UNQUOTE (Some spellings have been corrected)
Kalidas, Hong Kong
21-06-2008 (Ref: 09-058)
NUKE deal, India's credit rating.....
United State's reminder to India to speed up the civilian Nuclear deal is a very serious warning having tremendous implications.
It may be noted that India's credit rating was upgraded to Investment grade only after Nuclear deal in principle. This caused exodus of US Pension Funds and other similar funds who are authorized to invest only in investment grade country.
If Nuke deal does not become a reality, there is serious risk to India for losing its investment grade status. If that happens, there will be mass exodus of Hedge and Pension funds from India. This will also push down Indian rupees to Rs 48 or further down, increasing the Oil Import bill by another 10%.
Indian growth story will be severely dented. It is important for all political parties to reconcile their differences and at least approve the deal so that catastrophe does not happen.
This will be the most important event. Watch for the early approval of the deal or rush to the exit gate to sell the stock at whatever the price. Recovery of stock market will be highly impossible, except for high tech stocks.
As hedge, stay with the high tech and BPO stocks. who will be least affected. Their fall from grace during such market meltdown will be the best buying opportunity.
Kalidas, Hong Kong
23-08-2008 (Ref: 09-061)
14)
for brb-1
Impossible scenario. You do not know the leftist. This party should be banned altogether as they are found to be undemocratic and totally destructive. They simply do not know what they want.
If BJP has any decency, and places the national interest ahead of politics (as they constantly beat the drum), then leftist will have no effect at all. Congress should unite with BJP and ditch the leftist to continue with the political stability and maintain the hard earned economic progress.
But the ranks in BJP like Advani are extremists. They like 'padyatra' more than the national interest. I used to be BJP supporter for long, but now consider them as totally useless and unprincipled organization. I would never vote them back to power.
I reiterate that if NUKE deal is not signed, forget the SENSEX - it can go down to any level. FII will simply get out en masse and India's FOREX reserve will go out of the country with big bang. Most of NRI may also withdraw from stock market, bank deposits and real estate due to powerful adverse effect on rupee. They burnt the finger once, and they will be hard pressed not to return to India again.
To me NUKE deal is extremely important matter, and I give priority even on inflation.
Kalidas, Hong Kong
24-06-2008
15)
for Blue Violet,
Thanks for taking pain to produce the message containing the views of the 3 prominent Atomic Scientists against the deal. Yes, I do respect Arun Shourie, former editor of Indian Express.
There are two issues. Science and Commerce follow parallel lines, but never meet like a railway track. Producing electricity via coal at cheaper cost is a good idea, but with coal prices rising at fastest pace, and India being a net importer of coal, the recurring cost is going to be very high, which may increase the cost of electricity.
Nuclear energy is one of the most efficient one where capital cost is high but recurring cost is low. Look at Japan and France (who has maximum nuclear reactors) who are able to supply electricity at much lower cost to their own industries. The very fact that Japanese goods are produced with best quality at cheaper cost underscores the fact that even high cost oriented Japan finds cost of nuclear energy acceptable proposition. Have you ever heard Japan complaining against Oil price rise affecting Japanese industries like steel or chemicals? It is due to availability of cheaper and continuous supply of electricity from its nuclear reactors.
Coal may be a good source, but it is highly pollutive and anti-health input. What use of electricity if it powers your home but fills up your lungs with smokes and toxic gases? Even coal fired locomotives are discontinued because they are pollutive.
You are 100% right in that we should have better bargaining strength in negotiating with US in finalizing the deal.However, please note that the agreement is only 'preliminary' and on 'principle'. Same principles are applied in case of Japan or France or Canada or even Britain who are all democratic and prosperous countries.
Last month I was in India at Amravati (in Vidarbha, near Nagpur) where MIDC (Maharashtra Industrial Development Corporation) has developed 5 star industrial estate admeasuring 5500 hectare or 11000 acres. It is just vacant. Even in old MIDC in the middle of the city, nearly 70% of units are closed.
Main reason is lack of adequate power. I saw city of 2.5 millions going without power for almost 6 to 8 hours a day. There can not be any hydro-electric, coal or oil powered stations, since the place is far away from raw input centers. Only Nuclear reactor can rejuvenate to make it vibrant industrial city creating thousands of employment.
Due to lack of job opportunities, and despite 26 universities around, the average wage earner makes about Rs 3000 to Rs 4000 per month which may be 50% to 75% below similar level in big cities like Mumbai.
When you are in growth stage with almost 1 billion people to take care of, you must be prepared to make compromises. Try to make Nuclear power stations without the approval of major powers like USA, and you will be outcast, not only that, a time will come when those powers may seek to destroy your facilities on military ground. Look at Iran which is a shining example. Saddam tried for Iraq and see the beautiful country of Iraq in a rubble state.
I agree with your other viewpoints. There has to be a very healthy debate, similar to one in Northern Ireland, who refused to honor Lisbon treaty and opted out of European Nation.
You have two choices - Growth or Poverty. Mere signing up of a nuclear deal does not deprive the nation of its sovereignty or its freedom. You are entering into agreement with a democratic country, where everything is done under open sky. You know more about America and its systems, politics, likes, dislikes etc only because their media is open and widely broadcast in India in English.
What the Government should do is to include some of those Atomic Scientists in its negotiating team so that interests of all are preserved. This is the right approach - not out of hand rejection on the basis of nationalism or false sense of insecurity.
Kalidas, Hong Kong
25-08-2008
16)
for rtoshniwal1,
Honestly, I do not know much about the stock you mentioned. In fact, I do not know much about IT stocks, because they are difficult to follow. They are more internal news driven and there is little to verify their information by public record.
I never bought any IT stocks nor I intend to except very large ones, such as Infosys & Wipro in severe correction.
Kalidas, Hong Kong
26-03-2008
It may be noted that India's credit rating was upgraded to Investment grade only after Nuclear deal in principle. This caused exodus of US Pension Funds and other similar funds who are authorized to invest only in investment grade country.
If Nuke deal does not become a reality, there is serious risk to India for losing its investment grade status. If that happens, there will be mass exodus of Hedge and Pension funds from India. This will also push down Indian rupees to Rs 48 or further down, increasing the Oil Import bill by another 10%.
Indian growth story will be severely dented. It is important for all political parties to reconcile their differences and at least approve the deal so that catastrophe does not happen.
This will be the most important event. Watch for the early approval of the deal or rush to the exit gate to sell the stock at whatever the price. Recovery of stock market will be highly impossible, except for high tech stocks.
As hedge, stay with the high tech and BPO stocks. who will be least affected. Their fall from grace during such market meltdown will be the best buying opportunity.
Kalidas, Hong Kong
23-08-2008 (Ref: 09-061)
14)
for brb-1
Impossible scenario. You do not know the leftist. This party should be banned altogether as they are found to be undemocratic and totally destructive. They simply do not know what they want.
If BJP has any decency, and places the national interest ahead of politics (as they constantly beat the drum), then leftist will have no effect at all. Congress should unite with BJP and ditch the leftist to continue with the political stability and maintain the hard earned economic progress.
But the ranks in BJP like Advani are extremists. They like 'padyatra' more than the national interest. I used to be BJP supporter for long, but now consider them as totally useless and unprincipled organization. I would never vote them back to power.
I reiterate that if NUKE deal is not signed, forget the SENSEX - it can go down to any level. FII will simply get out en masse and India's FOREX reserve will go out of the country with big bang. Most of NRI may also withdraw from stock market, bank deposits and real estate due to powerful adverse effect on rupee. They burnt the finger once, and they will be hard pressed not to return to India again.
To me NUKE deal is extremely important matter, and I give priority even on inflation.
Kalidas, Hong Kong
24-06-2008
15)
for Blue Violet,
Thanks for taking pain to produce the message containing the views of the 3 prominent Atomic Scientists against the deal. Yes, I do respect Arun Shourie, former editor of Indian Express.
There are two issues. Science and Commerce follow parallel lines, but never meet like a railway track. Producing electricity via coal at cheaper cost is a good idea, but with coal prices rising at fastest pace, and India being a net importer of coal, the recurring cost is going to be very high, which may increase the cost of electricity.
Nuclear energy is one of the most efficient one where capital cost is high but recurring cost is low. Look at Japan and France (who has maximum nuclear reactors) who are able to supply electricity at much lower cost to their own industries. The very fact that Japanese goods are produced with best quality at cheaper cost underscores the fact that even high cost oriented Japan finds cost of nuclear energy acceptable proposition. Have you ever heard Japan complaining against Oil price rise affecting Japanese industries like steel or chemicals? It is due to availability of cheaper and continuous supply of electricity from its nuclear reactors.
Coal may be a good source, but it is highly pollutive and anti-health input. What use of electricity if it powers your home but fills up your lungs with smokes and toxic gases? Even coal fired locomotives are discontinued because they are pollutive.
You are 100% right in that we should have better bargaining strength in negotiating with US in finalizing the deal.However, please note that the agreement is only 'preliminary' and on 'principle'. Same principles are applied in case of Japan or France or Canada or even Britain who are all democratic and prosperous countries.
Last month I was in India at Amravati (in Vidarbha, near Nagpur) where MIDC (Maharashtra Industrial Development Corporation) has developed 5 star industrial estate admeasuring 5500 hectare or 11000 acres. It is just vacant. Even in old MIDC in the middle of the city, nearly 70% of units are closed.
Main reason is lack of adequate power. I saw city of 2.5 millions going without power for almost 6 to 8 hours a day. There can not be any hydro-electric, coal or oil powered stations, since the place is far away from raw input centers. Only Nuclear reactor can rejuvenate to make it vibrant industrial city creating thousands of employment.
Due to lack of job opportunities, and despite 26 universities around, the average wage earner makes about Rs 3000 to Rs 4000 per month which may be 50% to 75% below similar level in big cities like Mumbai.
When you are in growth stage with almost 1 billion people to take care of, you must be prepared to make compromises. Try to make Nuclear power stations without the approval of major powers like USA, and you will be outcast, not only that, a time will come when those powers may seek to destroy your facilities on military ground. Look at Iran which is a shining example. Saddam tried for Iraq and see the beautiful country of Iraq in a rubble state.
I agree with your other viewpoints. There has to be a very healthy debate, similar to one in Northern Ireland, who refused to honor Lisbon treaty and opted out of European Nation.
You have two choices - Growth or Poverty. Mere signing up of a nuclear deal does not deprive the nation of its sovereignty or its freedom. You are entering into agreement with a democratic country, where everything is done under open sky. You know more about America and its systems, politics, likes, dislikes etc only because their media is open and widely broadcast in India in English.
What the Government should do is to include some of those Atomic Scientists in its negotiating team so that interests of all are preserved. This is the right approach - not out of hand rejection on the basis of nationalism or false sense of insecurity.
Kalidas, Hong Kong
25-08-2008
16)
for rtoshniwal1,
Honestly, I do not know much about the stock you mentioned. In fact, I do not know much about IT stocks, because they are difficult to follow. They are more internal news driven and there is little to verify their information by public record.
I never bought any IT stocks nor I intend to except very large ones, such as Infosys & Wipro in severe correction.
Kalidas, Hong Kong
26-03-2008
RBI, Reddy and Indian economy...
1) RBI Governor, Y V Reddy, is a big liability for Indian economy and needs to be removed from the scene. Sooner the better.
He is unimaginative, unintelligent, reactive, impulsive and extremely bad adviser to the Government of India, especially FM P Chidambaram and PM Manmohan Singh, and never has pro-active approach to any problem. He does not have ability to foresaw the events or troubles, and deals with it on "reactive basis"
He wrongly advised all these years to weaken the Rupee (to boost the exports - sic)
He deliberately encouraged "artificial intervention" in a free economy to "sterilize the rise of a rupee"
He advised PM and FM to go strong against FII inflow, and in company with SEBI's Damodaran, actively promoted the P-Note issue that finally drove down the FII from India. He was standing with "EXIT" board at Sahar International Airport, Mumbai to wish good bye to FII.
Due to his stubborn, ill fated and illogical actions, borne out of his limited knowledge of finance, and lack of ability to judge the world events, like troubles in banking centers in USA having cascading effect on Indian outfits and Crude oil shocks, the Indian inflation rose to the highest level of 11%.
Until such time, he was beating the popular drum of India's growth story in which he was the least participant.
He murdered thousands of investors in Global Trust Bank by letting it die and handed over to Oriental Bank of Commerce on a golden plate at ZERO cost, in spite of the fact that there were high quality buyers like Newbridge capital, Sinsui Bank etc who were prepared to pay as much as Rs 1500 crores in equity and more in debt.
The only reason that he killed the GTB deal was that he did not like or even hated to extreme, Ramesh Gelli, founder and Chairman of GTB and ex-founder of highly successful Vysya Bank, who was from Andhra - same state of Mr. Y V Reddy. It was not a battle of right and wrong but one Andhrite not liking another Andhrite.
While GTB was still alive under RBI scheme, with 12 years of gestation period to reward the GTB investors with distribution later, he provocatively asked SEBI to write off the GTB shares from DEMAT accounts, so that no one claims anything after 12 years. He cheated out the GTB investors in perhaps biggest fraud on investors in India.
Such persons are "parasite" on Indian economy. Sooner they are removed from the scene, even if you have to pay him millions dollar to get him out, it is worth it. He is a sucker and will continue to damage Indian economy so long as he is at the helm of RBI
Kalidas, Hong Kong
26-06-2008 (Ref: 09/063)
2)
for ravindra321
you did a good job in reproducing the article describing Reddy's overblown credentialsm hopes and expectation. Those who are inefficient land up the job in IMF or World Bank which is a zoo of unwanted animals.
My article described credibility of the same person. I relied more on his deeds and kartoots. We all know what happened to Global Trust Bank and this MMB is full of messages where irate investors are asking what happened to their shares, which no longer exist even on books at the instance of SEBI, who acted under RBI (or Reddy's) directive, in spite of the fact that GTB still had a life of 12 years from the date of its sale.
Reddy rufused to accept the offer of Newbridge Capital (NBC) for about 1500 crores infusion or about Rs 125 per share. Obviously, NBC did not consider the GTB asset value as zero. Had this offer been accepted, the stock of GTB would have risen to over Rs 300
Most of the bad assets of GTB were in the form of shares during Ketan Market episode. The market since then rose nearly 400%, which would have made the share value nearly 5 to 10 times. Oriental Bank of Commerce in very first year of taking control, reportedly realized Rs 900 crores of almost Rs 75 per share. That means that the good assets were deliberately blown off as 'bad assets' otherwise there could not have been that much recovery.
And the question is - where those Rs 900 crores gone? They rightfully belonged to GTB shareholders. When the losses were written off, P/L was debited; so when they were realized, they should have been written back to P/L of GTB and paid to its shareholders.
However, it appears that entire Rs 900 crores were credited to the accounts of Oriental Bank of Commerce, instead of GTB. All shares outstandings were obviously transferred to OBC, whereas they belonged to other private shareholders like you and me.
All officials like RBI, Reddy, SEBI, Damodaran, OBC Chairman Narang, Statutory Auditors of IBC and GTB were involved in this massive cover up and ate away thousands of crores at today's market value.
This is why I rate GTB/OBC affairs as the worst Financial Scandal of Indian stock market, 10 times higher than Harshad Mehta and Ketan Parekh. There should be full parliamentary enquiry, CBI investigation and audit by Auditors Comptrollers of India to ferret out the truth and compensate all bonafide shareholders of GTB
Who says that India is in democracy where judicial system is equitable. It favors only those in power. What the hell BSE and NSE are doing. They are supposed to protect the interests of all investors. All listing conditions, statutory requirements of liquidation under Companies Act and Banking Regulation Act were thrown out of window. India is still a myth and the reality is that it is perhaps most corrupt place in the world.
Kalidas, Hong Kong
26-05-2008
3)
for ravindra321
It is not as difficult as to find a real pace bowler out of 110 crores of population. There is a saying in Hinduism - ' You get even God if you really search for him truthfully with full efforts'
We are talking about searching a human. Are we to believe that Indian DNA is so bad that we can not find even a single person to head RBI in spite of having so many business schools like IIM, Bajaj Institute, Administrative Staff College in Hyderabad etc etc?
The only disqualification should be IAS - they are the ones who are creating chaos in the country with their old school of thoughts and pedestrian approach. We need real pro active Executives not glorified 'babus' from all over the India.
Kalidas, Hong Kong
26-05-2008
4)
for XD
I am not in a position to reply individually - almost impossible. My views on IFCI were well known and I also gave SELL call for all equity in early January and also a couple of months back, when almost everyone got jolted.
We are no longer in bull market. We are in bear hug and grip is tightening. All stocks will go down as fears of acute recession in USA is taking a firm hold. Banks are in serious trouble, and the first sector that investors avoid today is finance sector.
IFCI is unfortunately a 'Finance stock'. It had the best days which were not capitalized by the Government. It is not going to be affected as much as others, but when the market goes down, everything drops.
Buy some at Rs 39.85 and more between Rs 31 to 33. The lowest point I foresee is Rs 29 at the moment.
Kalidas, Hong Kong
27-06-2008
5)
My views are well known - you should read all which contain most of the answers to your query.
To be brief - yes, the market will go down severely - may test 9200 minimum. I mentioned this almost in December and gave the SELL call in last week to sell at least 70% before 16/Jan/2008 - SENSEX plunged over 3000 points with no buyers on hundreds of counters.
That scenario will be repeated again, sooner than later, and this time around, the force will be more severe in January. What you see today is 'slow poisoning' of the market, without patient knowing that he is dying.
Kalidas, Hong Kong
27-06-2008
6)
I follow the events broadly and do not follow them in 'micro manner' because we may not know news on minute to minute basis as you do.
Bull run in Indian market is now at least year away. It may go down severely, regardless of nuclear deal due to global crisis. lack of Nuclear deal will make the correction 'market specific'
India is in the middle of severe market contraction. Another 30% fall is in card, if present global scenario is the guide. On its own, India's fundamentals have been severely dented.
India Growth Story no longer holds good. When overseas markets contract severely, the money will flow out there when the market will begin to recover.
Only domestic money can save the Indian market. However, what I find is that most of Indian investors are in F&O Segement - out of Rs 77000 crores turnover, only 17000 crores are in cash segment. Rest is speculation.
Indian growth rate will come down to less than 5%, may be below 4%. Unless the market corrects very severely, I am not so keen to re-invest into India. As non Resident, we have other markets too at out disposal. Our views may not be in sync with local investors like you.
Kalidas, Hong Kong
27-06-2008
7)
for jinal,
Firstly, I am not playing to the gallery to please everybody, whether they are my fan or not. I never write having what kind of audience I get. I just present my views which may be accepted or ignored.
Right you are that Reddy could not have predicted sub prime crisis. However, it is his job, as Governor of RBI, to have very good knowledge of global market, especially the banking crisis, which is one of his field. India is now relatively free economy, and a global participant. He is expected to know the developing stage of crisis which is in fact unfolding since the August 2007 - he was busy driving out FII to weaken the rupee by controlling the demand.
He is the Governor of RBI - not a subservient slave of Government of India. The change in Government does not cost him his job - he will still be there. He has to follow the policy of independence for which RBI was created at first place. If everything is in control of Finance Ministry or Government, we do not need RBI
Most of the government actions come in after receiving the advice from the concerned bureaucrat. He is a key adviser to the GOI, and he has to tell them specifically what is right or wrong for the country on exchange front, be it to the liking of GOI or not. He did not do his job.
If he has to follow what his bosses in Ministry tell him to do, then we do not need IAS officers to man the top financial institution like RBI. Highest post invite highest level of responsibility and accountability. If you think that it is not so, you are living in the bullock cart age.
You were silent for his role in the collapse of Global Trust Bank where he deceived all investors by his crooked belief. He also drove out the FII for which he gave the advice to the GOI, and this is why SEBI came into picture with P-Note.
He was in charge of money - he should have known how the money flows from one place to another. Money is like water in a flowing river. If dam is to be built on, the concerned Engineer works out everything - how much water the dam can hold, what should be the height, what is the critical points in the event of flood etc.
He as Governor knew of FII flow or flooding of foreign money. Even you would not have come to the stock market if you knew that it was not going to rise. Does it mean that you are a speculator, and should be restrained or driven out not to let rupee rise.
And what the hell he did. If he had allowed the Rupee to rise, the ill effect of oil prices would have been less - but no - he was goddamn fool in building the barriers when the foreigners were flooding with cash to let India grow further and faster. He was instrumental in killing the momentum. And you must know that stock market or capital market thrives to the maximum when the momentum gains.
When China with almost 100 billions of inflow every year for over 12 years did not impose such barrier, why did RBI set up barriers when only $15 billions stuck the Indian store? If China with 1.3 billion population could manage it, why India with 1.1 billion population could not manage it under his leadership?
He also advised the government to allow Indian corporates to invest overseas, just to dilute the pressure on rupee. When the entire world wanted to invest in India, why did he want to advise GOI to increase the investment of Indian corporates overseas especially when the markets the world over in critical shape? Just to weaken the rupee?
He also allowed Indian residents to send out as much as $ 100,000 abroad for any purpose just to reduce the pressure on rupee.
China never said No to foreign investments for 13th year in a row nor permitted its Companies to invest into overseas market just to avoid adverse effect on its Yuan exchange rate. that too, after almost 1. 5 trillions having entered China, and India got tired with just $ 15 Billions?
Kalidas, Hong Kong
27-06-2008
8)
for victorjunior,
You have to be stock specific. Where you find that pace of fall has slowed down put them on your radar.
No need to put fresh money now; but if I were you, I would do the following:
- examine the stock you believe are good in your opinion and select them.
- in your portfolio, see which stock loses the most and the one which loses the least.
- sell the stock with least loss and buy the one with maximum loss. Yes, you are taking loss, but you are buying the stock with even more losses, so it averages down.
- sell high value stocks and buy relatively low value stock, provided the value is not below Rs 20. for instance, if you are losing more in stock A with Rs 200 CMP (losing say Rs 40 or 20%), buy the stock B in your portfolio having value say Rs 40 (against purchase of price, say Rs 80 or 50%). By selling 1 share of A will get you 5 shares of B and at the same time you are averaging down the stock B without fresh money.
What you are doing is the capital raised from 20% losing position is transferred to 50% losing position, without using extra funds. Do not bother much even if the stock B goes down further. Had you invested fresh money in B, you would have felt more pinch than above strategy.
Do not send my your stock list - make your own decision. And do not go on reminding me that you have put in money reserved for your child's education. In stock market you are taking risk. The market does not think whether it is your money or your wife's money or parent's PF or your Child'e education money.
So be practical. No one wants to lose money in stock market - but it does not happen that way.
Good stocks always make money. This is universal idiom. The situation globally is so bad, that even I am thinking again to reenter the market in spite of provocation to put in at least 15% of my 100% cash money.
Kalidas, Hong Kong
27-06-2008
9)
for Guest CJ
You are caught in the mousetrap. Keep open mind and get out of anti-rhetoric and phobia. Every currency faces a problem due to excesses at one time or other - but the nation lives on, so also the currency. You are falling to rhetoric that Indian corporates were using P-Notes to whitewash the black money - those days are almost gone. There are hundreds of ways within India itself to whitewash the black money at cheapest cost.
At one time, Russian Rouble was considered the worst currency to own, and its bond prices went down 80%, currency dropped 400% and interest rate on Government bonds rose as high as 45% - today everything reversed. The oil and commodity boom saved the Russia.
Kalidas, Hong Kong
28-06-2008
He is unimaginative, unintelligent, reactive, impulsive and extremely bad adviser to the Government of India, especially FM P Chidambaram and PM Manmohan Singh, and never has pro-active approach to any problem. He does not have ability to foresaw the events or troubles, and deals with it on "reactive basis"
He wrongly advised all these years to weaken the Rupee (to boost the exports - sic)
He deliberately encouraged "artificial intervention" in a free economy to "sterilize the rise of a rupee"
He advised PM and FM to go strong against FII inflow, and in company with SEBI's Damodaran, actively promoted the P-Note issue that finally drove down the FII from India. He was standing with "EXIT" board at Sahar International Airport, Mumbai to wish good bye to FII.
Due to his stubborn, ill fated and illogical actions, borne out of his limited knowledge of finance, and lack of ability to judge the world events, like troubles in banking centers in USA having cascading effect on Indian outfits and Crude oil shocks, the Indian inflation rose to the highest level of 11%.
Until such time, he was beating the popular drum of India's growth story in which he was the least participant.
He murdered thousands of investors in Global Trust Bank by letting it die and handed over to Oriental Bank of Commerce on a golden plate at ZERO cost, in spite of the fact that there were high quality buyers like Newbridge capital, Sinsui Bank etc who were prepared to pay as much as Rs 1500 crores in equity and more in debt.
The only reason that he killed the GTB deal was that he did not like or even hated to extreme, Ramesh Gelli, founder and Chairman of GTB and ex-founder of highly successful Vysya Bank, who was from Andhra - same state of Mr. Y V Reddy. It was not a battle of right and wrong but one Andhrite not liking another Andhrite.
While GTB was still alive under RBI scheme, with 12 years of gestation period to reward the GTB investors with distribution later, he provocatively asked SEBI to write off the GTB shares from DEMAT accounts, so that no one claims anything after 12 years. He cheated out the GTB investors in perhaps biggest fraud on investors in India.
Such persons are "parasite" on Indian economy. Sooner they are removed from the scene, even if you have to pay him millions dollar to get him out, it is worth it. He is a sucker and will continue to damage Indian economy so long as he is at the helm of RBI
Kalidas, Hong Kong
26-06-2008 (Ref: 09/063)
2)
for ravindra321
you did a good job in reproducing the article describing Reddy's overblown credentialsm hopes and expectation. Those who are inefficient land up the job in IMF or World Bank which is a zoo of unwanted animals.
My article described credibility of the same person. I relied more on his deeds and kartoots. We all know what happened to Global Trust Bank and this MMB is full of messages where irate investors are asking what happened to their shares, which no longer exist even on books at the instance of SEBI, who acted under RBI (or Reddy's) directive, in spite of the fact that GTB still had a life of 12 years from the date of its sale.
Reddy rufused to accept the offer of Newbridge Capital (NBC) for about 1500 crores infusion or about Rs 125 per share. Obviously, NBC did not consider the GTB asset value as zero. Had this offer been accepted, the stock of GTB would have risen to over Rs 300
Most of the bad assets of GTB were in the form of shares during Ketan Market episode. The market since then rose nearly 400%, which would have made the share value nearly 5 to 10 times. Oriental Bank of Commerce in very first year of taking control, reportedly realized Rs 900 crores of almost Rs 75 per share. That means that the good assets were deliberately blown off as 'bad assets' otherwise there could not have been that much recovery.
And the question is - where those Rs 900 crores gone? They rightfully belonged to GTB shareholders. When the losses were written off, P/L was debited; so when they were realized, they should have been written back to P/L of GTB and paid to its shareholders.
However, it appears that entire Rs 900 crores were credited to the accounts of Oriental Bank of Commerce, instead of GTB. All shares outstandings were obviously transferred to OBC, whereas they belonged to other private shareholders like you and me.
All officials like RBI, Reddy, SEBI, Damodaran, OBC Chairman Narang, Statutory Auditors of IBC and GTB were involved in this massive cover up and ate away thousands of crores at today's market value.
This is why I rate GTB/OBC affairs as the worst Financial Scandal of Indian stock market, 10 times higher than Harshad Mehta and Ketan Parekh. There should be full parliamentary enquiry, CBI investigation and audit by Auditors Comptrollers of India to ferret out the truth and compensate all bonafide shareholders of GTB
Who says that India is in democracy where judicial system is equitable. It favors only those in power. What the hell BSE and NSE are doing. They are supposed to protect the interests of all investors. All listing conditions, statutory requirements of liquidation under Companies Act and Banking Regulation Act were thrown out of window. India is still a myth and the reality is that it is perhaps most corrupt place in the world.
Kalidas, Hong Kong
26-05-2008
3)
for ravindra321
It is not as difficult as to find a real pace bowler out of 110 crores of population. There is a saying in Hinduism - ' You get even God if you really search for him truthfully with full efforts'
We are talking about searching a human. Are we to believe that Indian DNA is so bad that we can not find even a single person to head RBI in spite of having so many business schools like IIM, Bajaj Institute, Administrative Staff College in Hyderabad etc etc?
The only disqualification should be IAS - they are the ones who are creating chaos in the country with their old school of thoughts and pedestrian approach. We need real pro active Executives not glorified 'babus' from all over the India.
Kalidas, Hong Kong
26-05-2008
4)
for XD
I am not in a position to reply individually - almost impossible. My views on IFCI were well known and I also gave SELL call for all equity in early January and also a couple of months back, when almost everyone got jolted.
We are no longer in bull market. We are in bear hug and grip is tightening. All stocks will go down as fears of acute recession in USA is taking a firm hold. Banks are in serious trouble, and the first sector that investors avoid today is finance sector.
IFCI is unfortunately a 'Finance stock'. It had the best days which were not capitalized by the Government. It is not going to be affected as much as others, but when the market goes down, everything drops.
Buy some at Rs 39.85 and more between Rs 31 to 33. The lowest point I foresee is Rs 29 at the moment.
Kalidas, Hong Kong
27-06-2008
5)
My views are well known - you should read all which contain most of the answers to your query.
To be brief - yes, the market will go down severely - may test 9200 minimum. I mentioned this almost in December and gave the SELL call in last week to sell at least 70% before 16/Jan/2008 - SENSEX plunged over 3000 points with no buyers on hundreds of counters.
That scenario will be repeated again, sooner than later, and this time around, the force will be more severe in January. What you see today is 'slow poisoning' of the market, without patient knowing that he is dying.
Kalidas, Hong Kong
27-06-2008
6)
I follow the events broadly and do not follow them in 'micro manner' because we may not know news on minute to minute basis as you do.
Bull run in Indian market is now at least year away. It may go down severely, regardless of nuclear deal due to global crisis. lack of Nuclear deal will make the correction 'market specific'
India is in the middle of severe market contraction. Another 30% fall is in card, if present global scenario is the guide. On its own, India's fundamentals have been severely dented.
India Growth Story no longer holds good. When overseas markets contract severely, the money will flow out there when the market will begin to recover.
Only domestic money can save the Indian market. However, what I find is that most of Indian investors are in F&O Segement - out of Rs 77000 crores turnover, only 17000 crores are in cash segment. Rest is speculation.
Indian growth rate will come down to less than 5%, may be below 4%. Unless the market corrects very severely, I am not so keen to re-invest into India. As non Resident, we have other markets too at out disposal. Our views may not be in sync with local investors like you.
Kalidas, Hong Kong
27-06-2008
7)
for jinal,
Firstly, I am not playing to the gallery to please everybody, whether they are my fan or not. I never write having what kind of audience I get. I just present my views which may be accepted or ignored.
Right you are that Reddy could not have predicted sub prime crisis. However, it is his job, as Governor of RBI, to have very good knowledge of global market, especially the banking crisis, which is one of his field. India is now relatively free economy, and a global participant. He is expected to know the developing stage of crisis which is in fact unfolding since the August 2007 - he was busy driving out FII to weaken the rupee by controlling the demand.
He is the Governor of RBI - not a subservient slave of Government of India. The change in Government does not cost him his job - he will still be there. He has to follow the policy of independence for which RBI was created at first place. If everything is in control of Finance Ministry or Government, we do not need RBI
Most of the government actions come in after receiving the advice from the concerned bureaucrat. He is a key adviser to the GOI, and he has to tell them specifically what is right or wrong for the country on exchange front, be it to the liking of GOI or not. He did not do his job.
If he has to follow what his bosses in Ministry tell him to do, then we do not need IAS officers to man the top financial institution like RBI. Highest post invite highest level of responsibility and accountability. If you think that it is not so, you are living in the bullock cart age.
You were silent for his role in the collapse of Global Trust Bank where he deceived all investors by his crooked belief. He also drove out the FII for which he gave the advice to the GOI, and this is why SEBI came into picture with P-Note.
He was in charge of money - he should have known how the money flows from one place to another. Money is like water in a flowing river. If dam is to be built on, the concerned Engineer works out everything - how much water the dam can hold, what should be the height, what is the critical points in the event of flood etc.
He as Governor knew of FII flow or flooding of foreign money. Even you would not have come to the stock market if you knew that it was not going to rise. Does it mean that you are a speculator, and should be restrained or driven out not to let rupee rise.
And what the hell he did. If he had allowed the Rupee to rise, the ill effect of oil prices would have been less - but no - he was goddamn fool in building the barriers when the foreigners were flooding with cash to let India grow further and faster. He was instrumental in killing the momentum. And you must know that stock market or capital market thrives to the maximum when the momentum gains.
When China with almost 100 billions of inflow every year for over 12 years did not impose such barrier, why did RBI set up barriers when only $15 billions stuck the Indian store? If China with 1.3 billion population could manage it, why India with 1.1 billion population could not manage it under his leadership?
He also advised the government to allow Indian corporates to invest overseas, just to dilute the pressure on rupee. When the entire world wanted to invest in India, why did he want to advise GOI to increase the investment of Indian corporates overseas especially when the markets the world over in critical shape? Just to weaken the rupee?
He also allowed Indian residents to send out as much as $ 100,000 abroad for any purpose just to reduce the pressure on rupee.
China never said No to foreign investments for 13th year in a row nor permitted its Companies to invest into overseas market just to avoid adverse effect on its Yuan exchange rate. that too, after almost 1. 5 trillions having entered China, and India got tired with just $ 15 Billions?
Kalidas, Hong Kong
27-06-2008
8)
for victorjunior,
You have to be stock specific. Where you find that pace of fall has slowed down put them on your radar.
No need to put fresh money now; but if I were you, I would do the following:
- examine the stock you believe are good in your opinion and select them.
- in your portfolio, see which stock loses the most and the one which loses the least.
- sell the stock with least loss and buy the one with maximum loss. Yes, you are taking loss, but you are buying the stock with even more losses, so it averages down.
- sell high value stocks and buy relatively low value stock, provided the value is not below Rs 20. for instance, if you are losing more in stock A with Rs 200 CMP (losing say Rs 40 or 20%), buy the stock B in your portfolio having value say Rs 40 (against purchase of price, say Rs 80 or 50%). By selling 1 share of A will get you 5 shares of B and at the same time you are averaging down the stock B without fresh money.
What you are doing is the capital raised from 20% losing position is transferred to 50% losing position, without using extra funds. Do not bother much even if the stock B goes down further. Had you invested fresh money in B, you would have felt more pinch than above strategy.
Do not send my your stock list - make your own decision. And do not go on reminding me that you have put in money reserved for your child's education. In stock market you are taking risk. The market does not think whether it is your money or your wife's money or parent's PF or your Child'e education money.
So be practical. No one wants to lose money in stock market - but it does not happen that way.
Good stocks always make money. This is universal idiom. The situation globally is so bad, that even I am thinking again to reenter the market in spite of provocation to put in at least 15% of my 100% cash money.
Kalidas, Hong Kong
27-06-2008
9)
for Guest CJ
You are caught in the mousetrap. Keep open mind and get out of anti-rhetoric and phobia. Every currency faces a problem due to excesses at one time or other - but the nation lives on, so also the currency. You are falling to rhetoric that Indian corporates were using P-Notes to whitewash the black money - those days are almost gone. There are hundreds of ways within India itself to whitewash the black money at cheapest cost.
At one time, Russian Rouble was considered the worst currency to own, and its bond prices went down 80%, currency dropped 400% and interest rate on Government bonds rose as high as 45% - today everything reversed. The oil and commodity boom saved the Russia.
Kalidas, Hong Kong
28-06-2008
Why Equity rises when the Bonds fall? (Ref: 09-049)
1)
Why Equity rises when the Bonds fall? (Ref: 09-049)
Bonds and Equity always have inseparable relationship. They tend to go together - sometime one step back or forward. Rarely they act out of step with each other.
The reason is Bond prices rise, when the interest rates fall. If interest rates fall, the Corporate profit also tend to go up, so the equity market picks up the clue and it rises too. Bonds are the leaders, Equities are the followers.
Further, bond market is several times larger than equity market for the simple reason that large investors are interested in yield, that is rate of return by way of interest. Solid bond investors never touch equity by 10 feet pole.
Of late, however, the relationship is faltering. The equities are rising and bonds are falling - in other words - equities are trying to lead the bonds - but it never happens - at least history shows.
When the banks are marching up in never ending parade of declaring losses into billions, why the equities are rising. The reason appear to be - equities are rising by default.
The mortgage market is almost dead and still worsening, the bond market is still reeling under the stress of sub-prime crisis, the banks are considered the most risky bet to park one's money because no one knows which bank is under water and how deep they are?
The large investors, pension funds, mutual funds, are finding increasingly difficult to find a place to park the money. They know that -
- Bonds are worst bets due to credit defaults.
- Market interest rates are rising. (do not look at FED rates) - not good for bonds as well as equity
- Mortgage markets are still faltering. It used to be one of the world's safest investments - but now - no longer
- Treasuries are not considered attractive, because of perception that FED is done with reducing interest rate. if the rates rise, the treasury yield rises ( or the bond prices start falling)
- Commercial Paper market is also dead.
- Banks are considered unsafe because no one knows how many skeletons are inside the closet.
- Gold, commodities, and food grains have gone up almost twice or thrice - making them risky bests
- the only remaining fort is "equity" so money flows down to equity.
How long this inverse relationship will last? No easy answers. If the credit crunch eases, the bonds will rebound and money which is parked in equities for so long, will flow back into bonds from equity.
So next time, when the bonds begin to rise, the equity may fall, although the equity too has to rise if history is the guide.
This time around, the history will not repeat itself. The excess money now found in equity will begin to flow into bonds from equities. So, when the general expectation is for equity to rise with the bonds, almost reverse will happen. That is called "Market Surprise"
Kalidas, Hong Kong
15/5/2007
2)
HPCL: When I mentioned the target of over Rs 2400 in 3 years time, why should there be hesitation to buy at Rs 230 level or so.
As per MYIRIS financial, HPCL made a profit of Rs 1571 crores and with only 33 crore shares outstanding, EPS is Rs 46 - pays Dividend of Rs 18 per share or 7.65% yield , higher than Savings interest.
HPCL do not appear to have accounted for Oil Bonds issued by GOI in lieu of oil subsidy. If you recall, I said clearly that all oil majors will have to account for either interest income from Oil Bonds (Investment) or as outright income (straight profit)
Due to taxation angle, these majors may not recognize this as outright income. However, HPCL did seem to have received oil bonds over Rs 6400 crores in 2007 alone as per the following figures: (This should have been recognized as outright income because these are non-refundable bonds.)
Investments...7127 Cr (2007)...825 Cr (2006)... 825 Cr (2005)
Total Debt....10517 Cr (2007)..6664 cr(2006)...2185 cr (2005)
In other words, the Investment is shown by increasing the total debt on liability. This is not company's debt to outside world, but Government of India's debt to these oil companies.
IF CORRECTLY ACCOUNTED FOR
If you divide additional Rs 6400 crores (as Income and not as Investment) with 33 crores equity shares, it works out to Rs 193 per share. Imagine, what will happen to the share price when this is accounted for as EPS later.)
I have no control how the company accounts for certain part of its operation, as Income or Investment (when it is not).
GOI is under pressure to do away with oil subsidy altogether. Social responsibility does not favor quicker actions, as primary concern of GOI is to fight inflation, and if oil subsidy is lifted at this stage, the inflation might spike up to double digits.
Note that Oil Bonds carry higher interest of about 8% to 10%. If that is the case, the extra investment of Rs 6400 crores will give this year extra interest income of Rs 640 crores or Rs 19 EPS against full year of normal EPS of Rs 46. The cash dividend of Rs 18 will multiply in years to come.
If there are few stocks in the market, which you can buy and forget for next 10 years, THIS IS IT with BPCL and IOC. They making tons of money and I will wager on them with my major investment into them.
Please note that intrinsic value of these oil major is extremely high. Their real estates were acquired at few paise per square feet and you know where the real estate value today after 60 years.
One share of Reliance (Rs 2650) earns Rs 85 EPS and pays a dividend of Rs 10 per share (0.37% Yield) . If one switches from 1 share of RIL into buying 11 shares of HPCL, he will earn Rs 11x18 = Rs 198 in dividend alone against Rs 10 paid by RIL.
HPCL has built in massive value whereas RIL is bloated. Its book value is Rs 432 (share prices are 6 times the book value) whereas HPCL understated book value is Rs 282 against share price of Rs 235, that is, it is trading at 4/5th of book value. If we take into account the oil bonds as income, the book value of HPCL will shoot up to Rs 475 - higher than RIL and the stock is trading at less than 10% of the value of RIL.
DO NOT buy LIC, keep money in banks, buy property, buy other stocks, invest into PPF: BUY only HPCL, BPCL and IOC with at least 3 to 5 years time frame.
If it does not work in 5 years, buy a gun and shoot me down with my written consent in your favor.
For Spicejet, yes, it is a good value. It has lots of takeover appeal. Right now, oil prices are against them, but traffic flow is rising at unprecedented level. This is the area of growth.
When bigger airlines want to expand, they will hunt for smaller air bird like Spicejet. Wait patiently. However, be discreet at your level of investment. Increase holding only when the company returns to profit in absolute terms. ( I have not seen their latest earnings)
Kalidas, Hong Kong
16/5/2008
3)
Reply to brb-1 on (16-May-08 11:26 ) Ref: 09-051R
Seasons and tax years are different in USA and India.
In USA, the Financial year is a calendar year (Jan-Dec) whereas in India, it is April-March. People having losing position sell in December and buy back in January, because US tax law allow only physically booked losses. In India, people sell in March and buy back in April (so the markets are rising in India now) to book the losses physically and buy back same stock again in April.
Similarly, seasons are different in USA and India. In India, Our children have holidays in April to May end and schools resume in June. This is why people travel more during this period. (summer vacation)
In USA, the vacation starts only in July and ends in September. This is the summer vacation for Americans and other Europeans as well. The Americans travel more during this busy season during which the gas consumption is at its peak. This is the period during which the funds manager take holidays with their families. The market begin to rise from first week of October in USA when the fund/pension fund managers return from holidays. The rally continues until second week of December when the tax related selling takes hold of the market.
One has to be discreet before applying other countries' norms or rules or practices to India. There are cultural preferences and also differences which need to be observed.
For example, the marriage season starts from November and peaks in January. In America there is no marriage season. They simply do not believe in stars or astrology. This is why Gold prices rise during marriage season in India.
When the Lever Brothers, parent of Hindustan Lever, invented a new famous add for 'Surf' in which there were 3 pictures close to each other. In the left, a lady frowns upon the dirty linen. In the second, she dips the dirty linen into Surf detergent. In the third on the right, she smilingly takes out the linen 'super white' with all dirt gone.
This AD was one of the most successful campaign. The sales rose almost 50% to 80% everywhere. However, in one of the major market, Middle East, it plunged by almost 90%.
Lever executives were baffled, so did were the British Advertisement companies, who were unable to understand the psyche of the Middle East consumers. Finally, they engaged one small marketing company in Middle East who gave the damning evidence.
He found that the Middle East were mostly Arabs and Moslems who read from 'Right to Left' and not from 'Left to Right' like in western countries. So the illiterate Arab / Moslem women thought that the super white cloth was dipped into Surf, which when taken out, it turned into dirty rag. 'Why should we buy such clumsy product?' complained these women to local marketing man.
Lever brothers then realized that they forgot to switch the pictures in conformity with Urdu / Arabic language. They corrected immediately, and the sales rose several fold, I was told.
Monsoon starts in India from June and continues till August end and up to Mid September. The demand of steel and cement ebbs during this season which moderate the growth of this sector. The food prices go down during successful monsoon and if the monsoon is not kind, the food prices gallop in months to come.
I hope you understand what I mean. Do not follow other countries blindly. This is where most learned scholars make the mistakes, in following charts and numbers, without correlating them with the country's preferences, likes, dislikes and other factors.
My father taught me one simple idiom, when I was a child. He told me ' Common Sense is rarely common, USE IT. And, he said further, DO not waste intelligence, when the commons sense will do.
Once the famous writer Carolene Baum of Bloomberg got very angry at my comments and she wrote me back to take her off the mailing list. Lack of space does not permit me here - some other time.
Kalidas, Hong Kong
16/5/2008
4)
for shia
Every bachelor waits too long for a beautiful bride. And finally, he finds himself over age, and selects whatever comes his way.
Ask Atal Bihari Vajpayee, he will confirm this. He did become Prime Minister at the fag end of the career and could not last more.
May be you are right. However, can you guess when the Government will change the policy on subsidy? Follow these stocks well and buy some when you feel that they are refusing to go down further.
Marriage is always preceded by engagement. So before you marry to Oil Majors, better engage with them for a while and take some position. Waiting is good, but too long wait is as much disastrous to wealth as the too much of smoking is injurious to health.
5)
for jasavi
Never touch any broker's or investment bank's stock during financial crisis or severe stock market correction. One can lose almost 90%. Look around you who is in trouble? UBS (investment bank), Citicorp (Investment bank + broker (Solomon Smith Barney); Lehman Brothers (Broker+Investment Bank); Merrill Lynch (Broker + Investment Bank); Morgan Stanley (Broker + Investment Bank) and failed Bears Stearns (Broker)
Recently, Bloomberg also reported that most of Indian brokers are in deep troubles because their customers did not pay up when the SENSEX tanked 3000 points. They are still not treating these bad debts as such or even NPA. they are advised by their Chartered Accountants not tp provide for another 8 quarters (or 2 years), possibly because Law of Limitation invalidates the bad debts after 3 years.
I would not even look at the name you mentioned. these are all story stocks and people talk them up by rumoring their relationship with one or the other Ambanis. Even house cleaner of Ambani, if he floata a company, may get boost for share price only because he is related to or involved in day to day activity of Ambanis.
Brokers strength is only 'people' who bring in the business. The computer terminals or glossy offices are all facades. If leading partner leaves the firm, he takes with him another 10 followers and their accounts.
Not much difference between a broker and a street woman. take your pick.
Kalidas, Hong Kong
16/5/2008
6)
for sonali thakur
ONGC? Not really. It is a bit pricey. Refineries are much cheaper than ONGC. for example, ONGC EPS is Rs 71/shr (after bonus issue) which places the P/E at 13.31 and Dividend payout is Rs 31/shr (the dividend yield is 3.26% - Dividend Amount/Current Market price %)
Compared to this consider HPCL P/E of below 6 and dividend yield above 7% which is almost twice than ONGC
Further, Oil prices have seen continuous rise for over 4 months.
Higher Oil prices help oil producers like ONGC who benefit from higher oil price. The Refineries suffer if the oil prices rise, because they can not pass on entire cost to the consumer due to price control.
Refineries have 'inverse' relationship to oil prices. If oil prices drop, the refineries benefit. If oil prices rise, they lose out.
It is anybody's guess whether oil prices will continue to rise inspite of 50% rise in last 6 months.
We therefore take a bet that they may correct or they may not go as fast as they did in the past.
The better bet is therefore 'refineneries'. However, ONGC is also having refining business under MRPL (87% stake). ONGC wanted to foray into 'retail outlets' but dropped the plan due to possible disqualification for claiming subsidy. Read the following news out (12/5/08) produced in MYIRIS
QUOTE
The public sector behemoth has decided to put on hold its retail outlets foray on the backburner. The company which has licences for 1,600 retail outlets, including 500 outlets under Mangalore Refineries and Chemicals (MRPL) has decided not to go ahead except its pilot retail outlet launched sometime ago adjacent to Mangalore Refinery project at Mangalore.
The government has been compensating only oil marketing Companies (OMCs) such as the Indian Oil Corporation, the Hindustan Petroleum Corporation and the Bharat Petroleum Corporation for under recoveries.
UNQUOTE
However, one can take some position in ONGC during oil price correction (Right now it is better to buy Refineries which are cheaper due to high oil prices) One can buy 85% in refineries like BPCL, HPCL or IOC and 15% for ONGC/MRPL combined.(with Essar Oil in non-GOI sector). I do not prefer RPL/RIL due to almost absurd valuations. They are more hyped up stocks than any other.
Kalidas, Hong Kong
7)
for guest,
Motilal Oswal's report is not forward looking. It relies on historical behaviur of the GOI, that the oil subsidy will continue unabated, and oil refiners will continue to be impacted by the nagative price control in India.
However, it ignores that the Government of India has started issuing Oil Bonds at high rate of interest to compensate the under recovery. If Oil Majors sell these bonds in the market, they will have to credit the proceeds to their P/L account, which was right thing to do.
Let us see how the entries originated, so that one will have clear idea what should have been and what should be in future.
1 Barrel of Crude oil = 159 Litres
Current Price = US$ 127/Brl or $ 0.80 per liter
Add transportation cost @ 10% + $ 0.08 per liter
Add Insurance (inflammable) + $ 0.02 per liter
TOTAL = $ 0.90 per liter
ADD ImportDuty @ 10% = $ 0.09 per litre (Customs+CVD+Cess)
Landed Cost = $ 0.99 per liter
Add Local Transportation 7% = $ 0.11 per liter (Port to Refinery)
CIFD - Factory = $ 1.06 per liter
@ Rs 42.50/$ = Rs 45.05 per liter
Operating Cost @4% = Rs 1.80 per liter
ADD Transportation cost 6% = Rs 2.70 per liter (Refinery to Pump)
TOTAL COST = Rs 48.55 per liter
ADD Refining Margin (presumed)= Rs 10.00 per liter
Normal Realizable Cost: = Rs 58.55 per liter (ignoring taxes)
Market Price of Refined Oil = Rs 54.00 per liter
Recoverable shortfall = Rs 4.55 per liter
There are two ways of accounting.
ONE:
Dr. Customer Rs 54.00 (Sale Price)
Dr. Government Rs 4.55 (Shortfall)
Cr. Sales Rs 58.55
In this case, the profit margin could have been 8% of sales (Rs 54-Rs 48.55 = Rs 4.4t5/54= 8.42%) The Balance sheets shows the NPM just 1.92%. That means that Government's liability is not physically brought on books, but kept 'off balance sheet'. We have to rule out this option.
SECOND:
Customer Dr. Rs 54.00 (Balance Sheet, Asset item)
Sales Cr. Rs 54.00(Profit & Loss Account)
Operating Cost Dr. Rs 48.55(Profit& Loss Account)
ADD Refining Margin Rs 4.45(Instead of Rs 10)
total Operating Cost Rs 53.00
Sales realization Rs 54.00
Profit Before Tax Rs 1.00 (or 1.85%-Rs 1/Sales Price 54 in %)
Actual Profit Margin as per HPCL report for 31/3/2007 is about 1.92%.
This is plausible. The difference of full refining margin of Rs 10 Less Margin Charged to the customer Rs 4.55 = Rs 5.45 is recoverable from the Government which is kept as 'Off Balance Sheet' item to be treated as income on Actual Cash receipt basis.
When the GOI issued compensatory oil bonds, they should have taken it to the P/L Account, but they did not. Instead, they appear to have accounted for as under:
Debit - Assets (Investment) - Value of Bonds received
Credit- GOI account (Liability) - value of Bonds Received
Now, this is not HPCL liability to the GOI. The government has given oil bonds to HPCL in compensation. The correct treatment should have been credit to P/L Account.
This is where most brokers and analysts, including Chartered Accountants, appear to make serious mistake in valuation of assets and the profits. They analyzed the surface only. They did not go beyond surface to find out the truth.
HPCL can keep it on its books or sell it out in the market without paying anything to the government. And when it realizes the cash, it will be forced to treat as Income because in the event of sale, HPCL has no liability to give the money back to government.There is nothing to prevent HPCL to sell these bonds in the market (for which LIC is reported to be biggest buyer)
Please note that my above figures may not be entirely accurate. It is based on reasonable guesswork with margin of error 10% on either side.
Kalidas, Hong Kong
17/5/2008
8)
for champion224
You are in best sectors - IT and Gas - and I have mentioned almost 3 months ago to go long strongly in Gas related stocks like GAIL, Petronet, GSPL (Gujarat State Petronet), IGL (Indraprashtha Gas Ltd) and perhaps RNRL if it wins the case against RIL for continuing supply of gas to its projects at concessionary rates.
I like Infosys than TCS and also ASDL oir Allied Digital (around Rs 900 now) who are now in the process of raising FCCB to the extent of US4 100 Millions for which road show is going on in USA.
Right now I do not have position in any of them as I am 100% cash and will not buy for another month or so. I will let the subprime crisis play out fully before I take a holy dip into ganges, what you call BSE and NSE
MTNL is one of the stock I will own. It is totally debt free company and received over Rs 2400 crores of Income Tax refunds. (The amount is between Rs 1600 crores and 2400 crores)
Regardless of the market it is one of the best stock to own, The companies who have least debt or debt free like MTNL in growing sector. ITC is another gem to own. In today's environment, Cash is the king, and there can not be better candiates than MTNL and ITC.
Food sectors and consumer sector is another defensive and yet aggressive sector because of rising food prices. We have to see their valuations though.
Phrmaceuticals is the next bet.
Kalidas, Hong Kong
18/5/2008
9)
for Guest,
Great! If it is already accounted for in the YE 31-12-2007 (9 months), that means that there are operational losses. How come?
I will have to look at the financial, especially notes, which are generally not available except in Annual Report.
I will reassess on the basis of information supplied by you and come back soon.
Thanks again.
Kalidas, Hong Kong
19/8/2007
10)
Reply to Guest on (19-May-08 12:03 ) Ref: 09-052R
REJOINDER
The following items appears in the accounts:
QUOTE
Oil Bonds issued by the Government of India towards under-recoveries suffered by the Corporation on sale of sensitive
petroleum products during 2006-07 for Rs.4,929.89 crores (2005-06 : Rs.2,344.86 crores), have been accounted under `Recovery under Subsidy Schemes'.
UNQUOTE
It does not say clearly whether it has been credited to Profit & Loss account. We also do not find any entry 'Recovery under Subsidy Scheme' under the Revenue head.
Had they been accounted for to the credit of P/L accounts, there would not have been any reference to this item, and it could have been shown as extra income after Sales
The reference in notes could have been 'off balance sheet items'
Following items are appearing under Investments (See Balance Sheets) for YE 31-03-2007 ( it will be much more in YE 31-03-2008)
INVESTMENTS: 1,756.84 (2005) ...4,027.64 (2006) 7,127.47 (2007)
As you can see that Investments have risen almost 80% in 2007 over 2006. Also the liability is shown to have increased by almost Rs 2300 crores in 2007 over 2006 (CL & Provisions) which is nearly value of Oil Bonds (2600 crores)2R
It very much appears that Oil Bonds are shown as Investments and not credited to P/L Account. We have to write to the Auditors or read very clearly from Annual Report for the YE 31-12-2008 when it is published.
Anyway, thanks for going into figures. My reading of figure is different. Unless they specify very correctly that they have been accounted for as 'Income' and not 'Investments' then only we have to reassess this counter. I hope you will agree to that.
Kalidas, Hong Kong
19-05-2008
11)
Reply for Guest (subbi) on (18-May-08 15:35 )
You have perfectly valid point. The yield from Crude Oil is not 100% as presumed by me. You are also right that many bye products are also made from the crude. Yes, my analysis is flawed to that extent.
I do not have idea what is the actual yield of Petrol, diesel, aviation fuel, Kerosene from Crude and how much each by-product (as named by you) is produced (% terms). Further, each by products has different value attached to it. I am not oil professional, and any input will be welcome so that very accurate picture could be presented to other boarders.
However, I do not think that subsidy is almost Rs 30 to Rs 35 per liter. Each by products also realizes some proceeds over which there is no price control.
May I mention that the purpose of my write up was from financial angle - how Oil Bonds are accounted for in the books of Refineries? It was just to determine how much the profit is understated, which hides the true value of the refineries. This has significant impact on the stock prices. To me, these refineries are unpolished gems highly undervalued in overvalued market.
Kalidas, Hong Kong
20/5/2008
12)
Reply to TVMonly on (18-May-08 13:55 ) Ref: 09-052R
J P Morgan Chase
I must complement you for one of the best question on banking, finance and sub prime crisis. Unless one reads the news thoroughly, then thinking over it, and comparing events happening around us, he would not have known why amongst all banks, J P Morgan Chase (JPMC) had been excepted. Are they really doing so well or is there something really wrong with them which they want to hide.
I have replied to this question long time ago, may be in late December 2007 or Mid January 2008. I will therefore avoid repetition except that -
- When I left the broking business 5 years ago, JPMC was reported to have derivative exposure of over US$ 30 Trillions. They were rumored to have 'shorts' on Silver, Rand, Oil and many other sensitive commodities which were not USA's domain.
- Citi and JPMC always move along together. What happens to Citi happens to JPMS. They were together in Latin American crisis, Enron, Crude oils, and precious metals like Gold, Silver, Platinum etc.
- Another major player was venerable GE (of USA) that is, General Electric, who also happens to be large derivative player. Troubles are coming to GE whose share price performance for over last 3 years is 'pathetic'.
- They were aided and abetted by AIG - the insurance giant who is also reeling under the weight of derivatives.
- I always maintained that JPMC was more susceptible to crisis than Citigroup. Somehow, the troubles at Citi was magnified and at JPMC pigmified.
- When Bear Stearns collapsed, the FED gave as much as $ 30 Billions to save the BS and gave this massive line of credit at abnormally low interest of 2% for over 30 years on virtually non-recourse basis. Almost everyone believe that BS was saved by JPMS, but I believe that real troubles were at JPMC and they were saved by FED under the guise of saving BS.
- And did JPMC save BS after getting $ 30 Billions? No, they fired 9000 top employees creating massive unemployment. BS employees were high end earners of $ 120K or more, paying about $ 30,000 taxes to the exchequer. The loss of tax revenue to the Treasury is as under:
Interest differential loss on $ 30 Billions per year:
$ 30 Billions ( Normal Interest Rate 5% - Concessionary Rate 2%)
= $ 30 Billions x 3% per year x 30 years = $ 27,000 Mln
ADD: Loss of Tax revenue on BS employees fired: = $ 270 Mln
( 9000 employees x $ 30K) counting for 1 year
ADD: Unemployment Allowance to these 9000
Employees @ 30K for 6 months = $ 270 Mln
TOTAL LOSS TO TREASURY = $ 27,540 Mln
In other words, FED would lose out $ 27.5 Billions over 30 years in financing JPMC presuming that they will pay back. Since the facility is 'non recourse', FED or American Tax payers would lose about $ 60 Billions in saving so called Bears Stearns whereas real beneficiary was JPMC
In other words, the real troubles were brewing at JPMC but BS was used as 'ploy' to save JPMC. In any case, BS was not worth $ 30 Billions at all, when the entire company was thrown away at less than $ 2 Billions.
In my opinion, the most troubled bank could have been JPMC but the finger was pointed to Citigroup. When the trouble comes, everyone manipulates.
Kalidas, Hong Kong
20/5/2008
13)
FED gave JPMS $30 Billions to save Bears Stearns and JPMC fired 55% of their staff.
Is is not the fact that it is FED who created 'unemployment'.
It is like 'someone' gives 'supari' to some 'bhai' and ask him to kill the 'target'.
Replace 'someone' with FED; 'supari' with $ 30 Billions; 'bhai' with JPMC and 'target' with Bear Stearns. Nice equation.
Kalidas, Hong Kong
21/5/2008
14)
Reply to hindlevernet on (15-May-08 22:37 )
Sorry for late reply.
I am not a technical analyst, though I happen to know some basic skills. Most technical analysts are backward looking, not forward looking. I read them because their analysis is read by most people who get influenced, and that is what make the market.
In stock market where 99 persons go one way, only remaining one, chooses the alternative route on his own, and that is where I belong.
It is not the question of reading the data or information. The skill lies on what to read (the question you asked), how to read, where to read and how to relate the other events which may have influence on the stock prices.
I read a lot on Bloomberg (My wife used to tell me that Bloomberg was my first wife and she second) - that is the most authentic source of factual data without any hype. I read Financial Times, Smart Money, INO, in USA and Capital market, MyIris, Moneycontrol in India. Of course Economic Times, Business Standard, Business India on Line (Hindu). I dislike the Indian media because there is always hype in the news and the figures are often suggestive, misrepresentative and misleading.
I read the leading news information sources like BBC and Financial Times which relay the news properly.
It is difficult for me to say that how did I acquire the strength in my analysis. I am originally a Science graduate with specialization in Chemistry and Physics. that was way back in 1968. Then I became a banker for 19 years and remained stock broker for over 16 years. meanwhile I became a Law graduate and also did Cost Accounting which trained me well in numbers.
However, my mentor was my father who taught me to observe the things around me, analyze why they happen and then relate with other news. He also taught me that ' forget Geometry, Calculus, Algebra and learn only Arithmetic - that is what will help you in your practical life'. This is how I learnt the numbers.
My advice to you is Read, think, digest and then act. Observation is the main strength for me, so develop that skill, which will be useful in almost every other faculty. Try to read the information source who disseminate bare data without any hypes, and relate them with other events. Ignore the source of media which have more Advertisements. Those media have lots of hypes in everything they broadcast.
Historical events are always important. That teach you why certain things happened. However, those events do not portray the circumstances in which they happened, so bare analysis in posteriority by today's Analysts are often speculative.
I also made number of mistakes; everyone does. that is the part of learning process.
Kalidas, Hong Kong
21/5/2008
15)
Reply to Guest on (18-May-08 22:05 ) Ref: 09-054R
When a person reaches the old age, his desire to make more money wanes, risk taking ability reduces, and instincts for capital preservation prevails over risk of even moderate kinds. Safety of capital is the motto for them. There were not much of equity investments during your father's prime days, so they do not want to take a risky bet on such investment. Share bazaar used to be called 'Satta Bazaar' only 2 decades ago.
There is nothing wrong the way your father makes investments now, in Fixed Assets or Land or renting out the properties to earn reasonable return on capital. Such investments rarely turn to Zero, and so long as there is not much borrowings in the property bought at high end, if at all, the downside is not as much as equity has.
it is like matured tree does not yield much fruits. People tend to nurture 'growing plants' which are relatively young which can give better yield. Compare yourself as 'growing plant' and treat your father as 'matured tree'.
This is why people tend to find hidden gems in the equity market, called the 'Growth Stocks' which are relatively young, not much known, have brighter prospects.
Since the equity markets have grown several folds in last 20 years or so, the old theory of not investing more than 25% of investable amount does not hold good any more. In old days, the return from Fixed Income like Fixed Deposits, Recurring Deposits used to be high because interest rates were in double digits.
Why others? I made my capital from Fixed Income instruments, like Fixed Deposits, during India' FOREX crisis in 1992, when the interest rates on our NR/NR deposits went up to 19% (23% on Cumulative Basis) and I made over 350% in Deep Discount Bonds (DDB) of IDBI and SIDBI and Sardar Sarovar. IDBI floated a scheme in which you can invest Rs 27000 repayable Rs 10 Lakhs in 25 years. When the interest rates started falling, IDBI redeemed the bonds at Rs 120,000 after ten years or Rs 93000 gain or 344% in 10 years or 34.4% Annual Average Simple return.
You invest in fixed income instruments, especially bonds, when the long term interest rates are very high. I used these gains to invest into Bank stocks that gave me 800% return in just under 4 years All these were possible because of fixed income investments.
Your father is not wrong, at the same time, he is not right because equity investments were virtually non existent in his prime days. You can not make him change his tracks now.
Instead focus on your investments. If you enter the market during very low end, you may increase equity weightage to even 80%.
I was almost 85% invested into equities when I bought equity shares of banks as above. The dividend yield was exceeding bank deposits, and that is why, instead of keeping the money with banks such as BOI or IOB or Syndicate Bank, it was wiser to invest them into same banks' shares earning tax free dividend income.
India is certainly on growth path than at any time in the past. People are more educated, earn more, have more investment alternative, yearning for knowledge has never been greater before, Internet changed the lives of many younger people than old people like your father.
May be you may invest more (80%) when the market corrects severely, If you do not want to wait, may be you can chose good quality stocks and invest up to 30% in equities.
So do not fight with the conservatism of your father with your liberal attitude. This is what called 'Generation Gap' and your children too will look upon you with same contempt as you do now, when you reach the age of your father.
% allocation between assets is a 'Dynamic Process'. You allocate more when the risk is less and reward more. you go on increasing or reducing % allocation to each segment of assets on merits
Kalidas, Hong Kong
21/5/2008
16)
for jasavi
No views on this scrip. Generally, I avoid buying any 'stock broker's ' stock during financial turmoil. A broker's business or strength or weakness is never known to even insiders.
I just do not look at the 'Brokers' Stocks' at this point of time. I buy them only when I see the distinct shift in the market sentiments on the upside.
Kalidas, Hong Kong'21/5/2008
17)
for mdbariwal
The target of IFCI at Rs 1000 in the midst of financial turmoil is 'irrational exuberance'. There is nothing to suggest upward swing in IFCI lending activity, and the only speculation revived now is the stake sale which may not add much value.
The stock is cheap relatively, but there are no specific events that merit attention.
Be modest in your target. Range is much narrower than even before.
Kalidas, Hong Kong'
21/5/2008
18)
Reply1 to Money_Bear+Bull (Ram) on (21-May-08 21:34 ) Ref: 09-055R
My present business is in primary metal (Steel, Stainless Steel etc) and to less extent in base metals like Aluminum, Copper, Zinc etc.
Being a finance man for almost 35 years, and having studied the pattern of future trades and derivatives from time to time, I have a feeling that :
- The current rise in metal prices is 30% fundamental, 40% due to weakness in US$ and rest of 30% due to derivatives.
- There is not much demand-supply imbalance as totted out by many analysts all around the world.
- The demand for primary metals increases several fold only at times of war, where warheads use steel. Due to tremendous economic crisis, the Warlord - USA does not have that much power or conviction to wage a war of large scale. The new President, if it is not McCain, but Obama (Democrat) will be more conciliatory like Bill Clinton.
- Steel and Cement are brothers and sister. They go together. Whenever you see massive rise in steel NOT accompanies by rise in consumption of cement, it is the first indication that the concerned nation is building more weaponry or WMD (Weapons of Mass Destructions)
I will tell you, and only I can tell you, that the present rise in metal, oil, precious metals is due more to reversal of derivative trades than imbalances in supply and demand.
This forum does not enable HTML message, otherwise I would have produced tables and charts to support the following facts. I will come to specific of your question later in this post.
Earlier, almost 5 years ago, the future trades ( 2 to 4 years forward) in these commodities were being conducted at massive discount, for the simple reason to depress the prices in spot market to control (or manipulate) the inflation index.
At the time of Iraq invasion, spot crude prices were $ 28 whereas 2 years forwards were traded at $ 18 ( I mentioned this before in this forum). Normally, the futures used to dictate the spot prices. However, the Arabs started controlling Spot market by constantly reducing output at that time with the result that 'Spot prices started dictating the Future prices' It happened in other metals notably in Zinc, Nickel and Copper where the futures (18 months forward) used to be at discount at 10% or more.
When the spot markets tightened, the future operators came under 'short squeeze' and they had to roll over the contract at higher prices, without paying cash difference substantially.
However, when the present fiasco in sub-prime emerged and derivative market collapsed, the roll over market came to an end, and the counter parties refused to roll over the contract and asked their clients to buy back the short position at heavy premium and settle in cash.
These reversal of future trades account for major rise in the metal, base metal, primary metal, precious metal, and Crude oil prices. for instance, today Oil Futures for 2015 and 2016 trades at premium at US$ 141 against spot price of $ 134. Imagine a short seller who sold 100,000 barrels of crude oil few years back at say $ 18 or $ 40, finds difficult to roll over, and has to settle in cash to close out the position, he will have to pay 100,000 brl x $ 94 or US$ 9.4 Millions or Rs 40 crores, against his original investment of 3% of contract value at that time (3% of 100,000 x $40 = $ 120,000) He not only loses his entire capital of Rs 60 lakhs but also additional Rs 40 crores.
Having said that the current rally will peter out as soon as short squeeze eases out. It is more like Harshad Mehta pushing up ACC stock price to Rs 10,000 by squeezing the shorts by insisting on physical delivery on spot market.
Coming to your specific stocks, read the rejoinder (not enough space here)
Kalidas, Hong Kong
22/5/2008
NOTE:
This is my last post except the Rejoinder, because of my overseas travel
19)
Reply2 to Money_Bear+Bull (Ram) on (21-May-08 21:34 ) Ref: 09-056R
REJOINDER
Coming to your specific stocks, please note the following:
- Normally, the commodity stocks command very low P/E - about 5 to 6, because of lack of excitement. Anyone can work out their earnings by multiplying their production capacity with current market prices of respective metals.
- The stocks move higher or lower due to expectation of surprises on upside or downside. Such element is absent in commodity stocks. It is more like ' a naked woman is seksually less appealing than a fully clothed one' Do you remember the famous 'Khalnayak' song - 'Choli ke pichhe kya hai?'
- Crude oil prices have gone up by over 40% in last 4 months without any consolidation, that poises it for massive corrections in very short time. When all brokers start clamoring for $ 150 or $ 200, the correction time is very near. These are the same analysts and brokers who were totting out oil prices at less than $ 10 when it was trading at $ 28 based on 2 years forward prices at $ 18.
- When the Crude falls precipitately, $ will rebound. Do not ever underestimate the 'Financial Re-Engineering skills' of Americans. All those professors, mathematicians, Nobel Laureates are busy in working out strategy how to crash the rising oil prices.
- If $ strengthens (though fundamentals are still against it) due to above event, almost all metals will fall flat, except the precious metals like Gold and Silver and Platinum (they too will suffer but less in % terms)
- Rupee at the moment is on downward trend. Refineries are buying crude by selling rupee and buying $ or Euro. This aspect is in favor of the stocks you specified.
- Some of your stocks are Government of India concerns, who behave like Bureaucrats. They do not capitalize on profit by selling aggressively in the spot market or in futures. They are downright stupid managements. They are guided more by Government directives to control the price rise, by not jacking up the prices, limiting the profit potentials.
- Are they good Buy? If they are not at their peak, and about 30% below the peak prices, Yes -otherwise ride the rally to get out to book the profit. Profit is yours if it is in your pocket, otherwise paper gains disappear as fast as they appeared.
- REMEMBER, there are always matching sellers and buyers in the market place. If you are buying, then someone is selling, from either from his own long positions (most cases) or from borrowed stocks (like hedge funds). They just take the opposite views of the buyer at all the time.
- Honestly, I have not personally studied the stocks you have mentioned. If you have studied them, remove the hype and consider the above factors before making buying and selling decisions. I would have loved to answer specifically, but I do not have much time at my command right now. My detailed write up should help you in any case.
This is definitely my LAST POST today. I will be absent for until 12/6/2008 and may possibly resume on 15/6/2008 or later. Kindly excuse me - right now the market is reeling under pressure in USA due to fears of high inflation, FED's stance not to reduce the interest rates (they may have to if the market corrects by 1000 points) and Dow Jones has fallen below the support level of 12780.
Kalidas, Hong Kong
22/5/2008
Why Equity rises when the Bonds fall? (Ref: 09-049)
Bonds and Equity always have inseparable relationship. They tend to go together - sometime one step back or forward. Rarely they act out of step with each other.
The reason is Bond prices rise, when the interest rates fall. If interest rates fall, the Corporate profit also tend to go up, so the equity market picks up the clue and it rises too. Bonds are the leaders, Equities are the followers.
Further, bond market is several times larger than equity market for the simple reason that large investors are interested in yield, that is rate of return by way of interest. Solid bond investors never touch equity by 10 feet pole.
Of late, however, the relationship is faltering. The equities are rising and bonds are falling - in other words - equities are trying to lead the bonds - but it never happens - at least history shows.
When the banks are marching up in never ending parade of declaring losses into billions, why the equities are rising. The reason appear to be - equities are rising by default.
The mortgage market is almost dead and still worsening, the bond market is still reeling under the stress of sub-prime crisis, the banks are considered the most risky bet to park one's money because no one knows which bank is under water and how deep they are?
The large investors, pension funds, mutual funds, are finding increasingly difficult to find a place to park the money. They know that -
- Bonds are worst bets due to credit defaults.
- Market interest rates are rising. (do not look at FED rates) - not good for bonds as well as equity
- Mortgage markets are still faltering. It used to be one of the world's safest investments - but now - no longer
- Treasuries are not considered attractive, because of perception that FED is done with reducing interest rate. if the rates rise, the treasury yield rises ( or the bond prices start falling)
- Commercial Paper market is also dead.
- Banks are considered unsafe because no one knows how many skeletons are inside the closet.
- Gold, commodities, and food grains have gone up almost twice or thrice - making them risky bests
- the only remaining fort is "equity" so money flows down to equity.
How long this inverse relationship will last? No easy answers. If the credit crunch eases, the bonds will rebound and money which is parked in equities for so long, will flow back into bonds from equity.
So next time, when the bonds begin to rise, the equity may fall, although the equity too has to rise if history is the guide.
This time around, the history will not repeat itself. The excess money now found in equity will begin to flow into bonds from equities. So, when the general expectation is for equity to rise with the bonds, almost reverse will happen. That is called "Market Surprise"
Kalidas, Hong Kong
15/5/2007
2)
HPCL: When I mentioned the target of over Rs 2400 in 3 years time, why should there be hesitation to buy at Rs 230 level or so.
As per MYIRIS financial, HPCL made a profit of Rs 1571 crores and with only 33 crore shares outstanding, EPS is Rs 46 - pays Dividend of Rs 18 per share or 7.65% yield , higher than Savings interest.
HPCL do not appear to have accounted for Oil Bonds issued by GOI in lieu of oil subsidy. If you recall, I said clearly that all oil majors will have to account for either interest income from Oil Bonds (Investment) or as outright income (straight profit)
Due to taxation angle, these majors may not recognize this as outright income. However, HPCL did seem to have received oil bonds over Rs 6400 crores in 2007 alone as per the following figures: (This should have been recognized as outright income because these are non-refundable bonds.)
Investments...7127 Cr (2007)...825 Cr (2006)... 825 Cr (2005)
Total Debt....10517 Cr (2007)..6664 cr(2006)...2185 cr (2005)
In other words, the Investment is shown by increasing the total debt on liability. This is not company's debt to outside world, but Government of India's debt to these oil companies.
IF CORRECTLY ACCOUNTED FOR
If you divide additional Rs 6400 crores (as Income and not as Investment) with 33 crores equity shares, it works out to Rs 193 per share. Imagine, what will happen to the share price when this is accounted for as EPS later.)
I have no control how the company accounts for certain part of its operation, as Income or Investment (when it is not).
GOI is under pressure to do away with oil subsidy altogether. Social responsibility does not favor quicker actions, as primary concern of GOI is to fight inflation, and if oil subsidy is lifted at this stage, the inflation might spike up to double digits.
Note that Oil Bonds carry higher interest of about 8% to 10%. If that is the case, the extra investment of Rs 6400 crores will give this year extra interest income of Rs 640 crores or Rs 19 EPS against full year of normal EPS of Rs 46. The cash dividend of Rs 18 will multiply in years to come.
If there are few stocks in the market, which you can buy and forget for next 10 years, THIS IS IT with BPCL and IOC. They making tons of money and I will wager on them with my major investment into them.
Please note that intrinsic value of these oil major is extremely high. Their real estates were acquired at few paise per square feet and you know where the real estate value today after 60 years.
One share of Reliance (Rs 2650) earns Rs 85 EPS and pays a dividend of Rs 10 per share (0.37% Yield) . If one switches from 1 share of RIL into buying 11 shares of HPCL, he will earn Rs 11x18 = Rs 198 in dividend alone against Rs 10 paid by RIL.
HPCL has built in massive value whereas RIL is bloated. Its book value is Rs 432 (share prices are 6 times the book value) whereas HPCL understated book value is Rs 282 against share price of Rs 235, that is, it is trading at 4/5th of book value. If we take into account the oil bonds as income, the book value of HPCL will shoot up to Rs 475 - higher than RIL and the stock is trading at less than 10% of the value of RIL.
DO NOT buy LIC, keep money in banks, buy property, buy other stocks, invest into PPF: BUY only HPCL, BPCL and IOC with at least 3 to 5 years time frame.
If it does not work in 5 years, buy a gun and shoot me down with my written consent in your favor.
For Spicejet, yes, it is a good value. It has lots of takeover appeal. Right now, oil prices are against them, but traffic flow is rising at unprecedented level. This is the area of growth.
When bigger airlines want to expand, they will hunt for smaller air bird like Spicejet. Wait patiently. However, be discreet at your level of investment. Increase holding only when the company returns to profit in absolute terms. ( I have not seen their latest earnings)
Kalidas, Hong Kong
16/5/2008
3)
Reply to brb-1 on (16-May-08 11:26 ) Ref: 09-051R
Seasons and tax years are different in USA and India.
In USA, the Financial year is a calendar year (Jan-Dec) whereas in India, it is April-March. People having losing position sell in December and buy back in January, because US tax law allow only physically booked losses. In India, people sell in March and buy back in April (so the markets are rising in India now) to book the losses physically and buy back same stock again in April.
Similarly, seasons are different in USA and India. In India, Our children have holidays in April to May end and schools resume in June. This is why people travel more during this period. (summer vacation)
In USA, the vacation starts only in July and ends in September. This is the summer vacation for Americans and other Europeans as well. The Americans travel more during this busy season during which the gas consumption is at its peak. This is the period during which the funds manager take holidays with their families. The market begin to rise from first week of October in USA when the fund/pension fund managers return from holidays. The rally continues until second week of December when the tax related selling takes hold of the market.
One has to be discreet before applying other countries' norms or rules or practices to India. There are cultural preferences and also differences which need to be observed.
For example, the marriage season starts from November and peaks in January. In America there is no marriage season. They simply do not believe in stars or astrology. This is why Gold prices rise during marriage season in India.
When the Lever Brothers, parent of Hindustan Lever, invented a new famous add for 'Surf' in which there were 3 pictures close to each other. In the left, a lady frowns upon the dirty linen. In the second, she dips the dirty linen into Surf detergent. In the third on the right, she smilingly takes out the linen 'super white' with all dirt gone.
This AD was one of the most successful campaign. The sales rose almost 50% to 80% everywhere. However, in one of the major market, Middle East, it plunged by almost 90%.
Lever executives were baffled, so did were the British Advertisement companies, who were unable to understand the psyche of the Middle East consumers. Finally, they engaged one small marketing company in Middle East who gave the damning evidence.
He found that the Middle East were mostly Arabs and Moslems who read from 'Right to Left' and not from 'Left to Right' like in western countries. So the illiterate Arab / Moslem women thought that the super white cloth was dipped into Surf, which when taken out, it turned into dirty rag. 'Why should we buy such clumsy product?' complained these women to local marketing man.
Lever brothers then realized that they forgot to switch the pictures in conformity with Urdu / Arabic language. They corrected immediately, and the sales rose several fold, I was told.
Monsoon starts in India from June and continues till August end and up to Mid September. The demand of steel and cement ebbs during this season which moderate the growth of this sector. The food prices go down during successful monsoon and if the monsoon is not kind, the food prices gallop in months to come.
I hope you understand what I mean. Do not follow other countries blindly. This is where most learned scholars make the mistakes, in following charts and numbers, without correlating them with the country's preferences, likes, dislikes and other factors.
My father taught me one simple idiom, when I was a child. He told me ' Common Sense is rarely common, USE IT. And, he said further, DO not waste intelligence, when the commons sense will do.
Once the famous writer Carolene Baum of Bloomberg got very angry at my comments and she wrote me back to take her off the mailing list. Lack of space does not permit me here - some other time.
Kalidas, Hong Kong
16/5/2008
4)
for shia
Every bachelor waits too long for a beautiful bride. And finally, he finds himself over age, and selects whatever comes his way.
Ask Atal Bihari Vajpayee, he will confirm this. He did become Prime Minister at the fag end of the career and could not last more.
May be you are right. However, can you guess when the Government will change the policy on subsidy? Follow these stocks well and buy some when you feel that they are refusing to go down further.
Marriage is always preceded by engagement. So before you marry to Oil Majors, better engage with them for a while and take some position. Waiting is good, but too long wait is as much disastrous to wealth as the too much of smoking is injurious to health.
5)
for jasavi
Never touch any broker's or investment bank's stock during financial crisis or severe stock market correction. One can lose almost 90%. Look around you who is in trouble? UBS (investment bank), Citicorp (Investment bank + broker (Solomon Smith Barney); Lehman Brothers (Broker+Investment Bank); Merrill Lynch (Broker + Investment Bank); Morgan Stanley (Broker + Investment Bank) and failed Bears Stearns (Broker)
Recently, Bloomberg also reported that most of Indian brokers are in deep troubles because their customers did not pay up when the SENSEX tanked 3000 points. They are still not treating these bad debts as such or even NPA. they are advised by their Chartered Accountants not tp provide for another 8 quarters (or 2 years), possibly because Law of Limitation invalidates the bad debts after 3 years.
I would not even look at the name you mentioned. these are all story stocks and people talk them up by rumoring their relationship with one or the other Ambanis. Even house cleaner of Ambani, if he floata a company, may get boost for share price only because he is related to or involved in day to day activity of Ambanis.
Brokers strength is only 'people' who bring in the business. The computer terminals or glossy offices are all facades. If leading partner leaves the firm, he takes with him another 10 followers and their accounts.
Not much difference between a broker and a street woman. take your pick.
Kalidas, Hong Kong
16/5/2008
6)
for sonali thakur
ONGC? Not really. It is a bit pricey. Refineries are much cheaper than ONGC. for example, ONGC EPS is Rs 71/shr (after bonus issue) which places the P/E at 13.31 and Dividend payout is Rs 31/shr (the dividend yield is 3.26% - Dividend Amount/Current Market price %)
Compared to this consider HPCL P/E of below 6 and dividend yield above 7% which is almost twice than ONGC
Further, Oil prices have seen continuous rise for over 4 months.
Higher Oil prices help oil producers like ONGC who benefit from higher oil price. The Refineries suffer if the oil prices rise, because they can not pass on entire cost to the consumer due to price control.
Refineries have 'inverse' relationship to oil prices. If oil prices drop, the refineries benefit. If oil prices rise, they lose out.
It is anybody's guess whether oil prices will continue to rise inspite of 50% rise in last 6 months.
We therefore take a bet that they may correct or they may not go as fast as they did in the past.
The better bet is therefore 'refineneries'. However, ONGC is also having refining business under MRPL (87% stake). ONGC wanted to foray into 'retail outlets' but dropped the plan due to possible disqualification for claiming subsidy. Read the following news out (12/5/08) produced in MYIRIS
QUOTE
The public sector behemoth has decided to put on hold its retail outlets foray on the backburner. The company which has licences for 1,600 retail outlets, including 500 outlets under Mangalore Refineries and Chemicals (MRPL) has decided not to go ahead except its pilot retail outlet launched sometime ago adjacent to Mangalore Refinery project at Mangalore.
The government has been compensating only oil marketing Companies (OMCs) such as the Indian Oil Corporation, the Hindustan Petroleum Corporation and the Bharat Petroleum Corporation for under recoveries.
UNQUOTE
However, one can take some position in ONGC during oil price correction (Right now it is better to buy Refineries which are cheaper due to high oil prices) One can buy 85% in refineries like BPCL, HPCL or IOC and 15% for ONGC/MRPL combined.(with Essar Oil in non-GOI sector). I do not prefer RPL/RIL due to almost absurd valuations. They are more hyped up stocks than any other.
Kalidas, Hong Kong
7)
for guest,
Motilal Oswal's report is not forward looking. It relies on historical behaviur of the GOI, that the oil subsidy will continue unabated, and oil refiners will continue to be impacted by the nagative price control in India.
However, it ignores that the Government of India has started issuing Oil Bonds at high rate of interest to compensate the under recovery. If Oil Majors sell these bonds in the market, they will have to credit the proceeds to their P/L account, which was right thing to do.
Let us see how the entries originated, so that one will have clear idea what should have been and what should be in future.
1 Barrel of Crude oil = 159 Litres
Current Price = US$ 127/Brl or $ 0.80 per liter
Add transportation cost @ 10% + $ 0.08 per liter
Add Insurance (inflammable) + $ 0.02 per liter
TOTAL = $ 0.90 per liter
ADD ImportDuty @ 10% = $ 0.09 per litre (Customs+CVD+Cess)
Landed Cost = $ 0.99 per liter
Add Local Transportation 7% = $ 0.11 per liter (Port to Refinery)
CIFD - Factory = $ 1.06 per liter
@ Rs 42.50/$ = Rs 45.05 per liter
Operating Cost @4% = Rs 1.80 per liter
ADD Transportation cost 6% = Rs 2.70 per liter (Refinery to Pump)
TOTAL COST = Rs 48.55 per liter
ADD Refining Margin (presumed)= Rs 10.00 per liter
Normal Realizable Cost: = Rs 58.55 per liter (ignoring taxes)
Market Price of Refined Oil = Rs 54.00 per liter
Recoverable shortfall = Rs 4.55 per liter
There are two ways of accounting.
ONE:
Dr. Customer Rs 54.00 (Sale Price)
Dr. Government Rs 4.55 (Shortfall)
Cr. Sales Rs 58.55
In this case, the profit margin could have been 8% of sales (Rs 54-Rs 48.55 = Rs 4.4t5/54= 8.42%) The Balance sheets shows the NPM just 1.92%. That means that Government's liability is not physically brought on books, but kept 'off balance sheet'. We have to rule out this option.
SECOND:
Customer Dr. Rs 54.00 (Balance Sheet, Asset item)
Sales Cr. Rs 54.00(Profit & Loss Account)
Operating Cost Dr. Rs 48.55(Profit& Loss Account)
ADD Refining Margin Rs 4.45(Instead of Rs 10)
total Operating Cost Rs 53.00
Sales realization Rs 54.00
Profit Before Tax Rs 1.00 (or 1.85%-Rs 1/Sales Price 54 in %)
Actual Profit Margin as per HPCL report for 31/3/2007 is about 1.92%.
This is plausible. The difference of full refining margin of Rs 10 Less Margin Charged to the customer Rs 4.55 = Rs 5.45 is recoverable from the Government which is kept as 'Off Balance Sheet' item to be treated as income on Actual Cash receipt basis.
When the GOI issued compensatory oil bonds, they should have taken it to the P/L Account, but they did not. Instead, they appear to have accounted for as under:
Debit - Assets (Investment) - Value of Bonds received
Credit- GOI account (Liability) - value of Bonds Received
Now, this is not HPCL liability to the GOI. The government has given oil bonds to HPCL in compensation. The correct treatment should have been credit to P/L Account.
This is where most brokers and analysts, including Chartered Accountants, appear to make serious mistake in valuation of assets and the profits. They analyzed the surface only. They did not go beyond surface to find out the truth.
HPCL can keep it on its books or sell it out in the market without paying anything to the government. And when it realizes the cash, it will be forced to treat as Income because in the event of sale, HPCL has no liability to give the money back to government.There is nothing to prevent HPCL to sell these bonds in the market (for which LIC is reported to be biggest buyer)
Please note that my above figures may not be entirely accurate. It is based on reasonable guesswork with margin of error 10% on either side.
Kalidas, Hong Kong
17/5/2008
8)
for champion224
You are in best sectors - IT and Gas - and I have mentioned almost 3 months ago to go long strongly in Gas related stocks like GAIL, Petronet, GSPL (Gujarat State Petronet), IGL (Indraprashtha Gas Ltd) and perhaps RNRL if it wins the case against RIL for continuing supply of gas to its projects at concessionary rates.
I like Infosys than TCS and also ASDL oir Allied Digital (around Rs 900 now) who are now in the process of raising FCCB to the extent of US4 100 Millions for which road show is going on in USA.
Right now I do not have position in any of them as I am 100% cash and will not buy for another month or so. I will let the subprime crisis play out fully before I take a holy dip into ganges, what you call BSE and NSE
MTNL is one of the stock I will own. It is totally debt free company and received over Rs 2400 crores of Income Tax refunds. (The amount is between Rs 1600 crores and 2400 crores)
Regardless of the market it is one of the best stock to own, The companies who have least debt or debt free like MTNL in growing sector. ITC is another gem to own. In today's environment, Cash is the king, and there can not be better candiates than MTNL and ITC.
Food sectors and consumer sector is another defensive and yet aggressive sector because of rising food prices. We have to see their valuations though.
Phrmaceuticals is the next bet.
Kalidas, Hong Kong
18/5/2008
9)
for Guest,
Great! If it is already accounted for in the YE 31-12-2007 (9 months), that means that there are operational losses. How come?
I will have to look at the financial, especially notes, which are generally not available except in Annual Report.
I will reassess on the basis of information supplied by you and come back soon.
Thanks again.
Kalidas, Hong Kong
19/8/2007
10)
Reply to Guest on (19-May-08 12:03 ) Ref: 09-052R
REJOINDER
The following items appears in the accounts:
QUOTE
Oil Bonds issued by the Government of India towards under-recoveries suffered by the Corporation on sale of sensitive
petroleum products during 2006-07 for Rs.4,929.89 crores (2005-06 : Rs.2,344.86 crores), have been accounted under `Recovery under Subsidy Schemes'.
UNQUOTE
It does not say clearly whether it has been credited to Profit & Loss account. We also do not find any entry 'Recovery under Subsidy Scheme' under the Revenue head.
Had they been accounted for to the credit of P/L accounts, there would not have been any reference to this item, and it could have been shown as extra income after Sales
The reference in notes could have been 'off balance sheet items'
Following items are appearing under Investments (See Balance Sheets) for YE 31-03-2007 ( it will be much more in YE 31-03-2008)
INVESTMENTS: 1,756.84 (2005) ...4,027.64 (2006) 7,127.47 (2007)
As you can see that Investments have risen almost 80% in 2007 over 2006. Also the liability is shown to have increased by almost Rs 2300 crores in 2007 over 2006 (CL & Provisions) which is nearly value of Oil Bonds (2600 crores)2R
It very much appears that Oil Bonds are shown as Investments and not credited to P/L Account. We have to write to the Auditors or read very clearly from Annual Report for the YE 31-12-2008 when it is published.
Anyway, thanks for going into figures. My reading of figure is different. Unless they specify very correctly that they have been accounted for as 'Income' and not 'Investments' then only we have to reassess this counter. I hope you will agree to that.
Kalidas, Hong Kong
19-05-2008
11)
Reply for Guest (subbi) on (18-May-08 15:35 )
You have perfectly valid point. The yield from Crude Oil is not 100% as presumed by me. You are also right that many bye products are also made from the crude. Yes, my analysis is flawed to that extent.
I do not have idea what is the actual yield of Petrol, diesel, aviation fuel, Kerosene from Crude and how much each by-product (as named by you) is produced (% terms). Further, each by products has different value attached to it. I am not oil professional, and any input will be welcome so that very accurate picture could be presented to other boarders.
However, I do not think that subsidy is almost Rs 30 to Rs 35 per liter. Each by products also realizes some proceeds over which there is no price control.
May I mention that the purpose of my write up was from financial angle - how Oil Bonds are accounted for in the books of Refineries? It was just to determine how much the profit is understated, which hides the true value of the refineries. This has significant impact on the stock prices. To me, these refineries are unpolished gems highly undervalued in overvalued market.
Kalidas, Hong Kong
20/5/2008
12)
Reply to TVMonly on (18-May-08 13:55 ) Ref: 09-052R
J P Morgan Chase
I must complement you for one of the best question on banking, finance and sub prime crisis. Unless one reads the news thoroughly, then thinking over it, and comparing events happening around us, he would not have known why amongst all banks, J P Morgan Chase (JPMC) had been excepted. Are they really doing so well or is there something really wrong with them which they want to hide.
I have replied to this question long time ago, may be in late December 2007 or Mid January 2008. I will therefore avoid repetition except that -
- When I left the broking business 5 years ago, JPMC was reported to have derivative exposure of over US$ 30 Trillions. They were rumored to have 'shorts' on Silver, Rand, Oil and many other sensitive commodities which were not USA's domain.
- Citi and JPMC always move along together. What happens to Citi happens to JPMS. They were together in Latin American crisis, Enron, Crude oils, and precious metals like Gold, Silver, Platinum etc.
- Another major player was venerable GE (of USA) that is, General Electric, who also happens to be large derivative player. Troubles are coming to GE whose share price performance for over last 3 years is 'pathetic'.
- They were aided and abetted by AIG - the insurance giant who is also reeling under the weight of derivatives.
- I always maintained that JPMC was more susceptible to crisis than Citigroup. Somehow, the troubles at Citi was magnified and at JPMC pigmified.
- When Bear Stearns collapsed, the FED gave as much as $ 30 Billions to save the BS and gave this massive line of credit at abnormally low interest of 2% for over 30 years on virtually non-recourse basis. Almost everyone believe that BS was saved by JPMS, but I believe that real troubles were at JPMC and they were saved by FED under the guise of saving BS.
- And did JPMC save BS after getting $ 30 Billions? No, they fired 9000 top employees creating massive unemployment. BS employees were high end earners of $ 120K or more, paying about $ 30,000 taxes to the exchequer. The loss of tax revenue to the Treasury is as under:
Interest differential loss on $ 30 Billions per year:
$ 30 Billions ( Normal Interest Rate 5% - Concessionary Rate 2%)
= $ 30 Billions x 3% per year x 30 years = $ 27,000 Mln
ADD: Loss of Tax revenue on BS employees fired: = $ 270 Mln
( 9000 employees x $ 30K) counting for 1 year
ADD: Unemployment Allowance to these 9000
Employees @ 30K for 6 months = $ 270 Mln
TOTAL LOSS TO TREASURY = $ 27,540 Mln
In other words, FED would lose out $ 27.5 Billions over 30 years in financing JPMC presuming that they will pay back. Since the facility is 'non recourse', FED or American Tax payers would lose about $ 60 Billions in saving so called Bears Stearns whereas real beneficiary was JPMC
In other words, the real troubles were brewing at JPMC but BS was used as 'ploy' to save JPMC. In any case, BS was not worth $ 30 Billions at all, when the entire company was thrown away at less than $ 2 Billions.
In my opinion, the most troubled bank could have been JPMC but the finger was pointed to Citigroup. When the trouble comes, everyone manipulates.
Kalidas, Hong Kong
20/5/2008
13)
FED gave JPMS $30 Billions to save Bears Stearns and JPMC fired 55% of their staff.
Is is not the fact that it is FED who created 'unemployment'.
It is like 'someone' gives 'supari' to some 'bhai' and ask him to kill the 'target'.
Replace 'someone' with FED; 'supari' with $ 30 Billions; 'bhai' with JPMC and 'target' with Bear Stearns. Nice equation.
Kalidas, Hong Kong
21/5/2008
14)
Reply to hindlevernet on (15-May-08 22:37 )
Sorry for late reply.
I am not a technical analyst, though I happen to know some basic skills. Most technical analysts are backward looking, not forward looking. I read them because their analysis is read by most people who get influenced, and that is what make the market.
In stock market where 99 persons go one way, only remaining one, chooses the alternative route on his own, and that is where I belong.
It is not the question of reading the data or information. The skill lies on what to read (the question you asked), how to read, where to read and how to relate the other events which may have influence on the stock prices.
I read a lot on Bloomberg (My wife used to tell me that Bloomberg was my first wife and she second) - that is the most authentic source of factual data without any hype. I read Financial Times, Smart Money, INO, in USA and Capital market, MyIris, Moneycontrol in India. Of course Economic Times, Business Standard, Business India on Line (Hindu). I dislike the Indian media because there is always hype in the news and the figures are often suggestive, misrepresentative and misleading.
I read the leading news information sources like BBC and Financial Times which relay the news properly.
It is difficult for me to say that how did I acquire the strength in my analysis. I am originally a Science graduate with specialization in Chemistry and Physics. that was way back in 1968. Then I became a banker for 19 years and remained stock broker for over 16 years. meanwhile I became a Law graduate and also did Cost Accounting which trained me well in numbers.
However, my mentor was my father who taught me to observe the things around me, analyze why they happen and then relate with other news. He also taught me that ' forget Geometry, Calculus, Algebra and learn only Arithmetic - that is what will help you in your practical life'. This is how I learnt the numbers.
My advice to you is Read, think, digest and then act. Observation is the main strength for me, so develop that skill, which will be useful in almost every other faculty. Try to read the information source who disseminate bare data without any hypes, and relate them with other events. Ignore the source of media which have more Advertisements. Those media have lots of hypes in everything they broadcast.
Historical events are always important. That teach you why certain things happened. However, those events do not portray the circumstances in which they happened, so bare analysis in posteriority by today's Analysts are often speculative.
I also made number of mistakes; everyone does. that is the part of learning process.
Kalidas, Hong Kong
21/5/2008
15)
Reply to Guest on (18-May-08 22:05 ) Ref: 09-054R
When a person reaches the old age, his desire to make more money wanes, risk taking ability reduces, and instincts for capital preservation prevails over risk of even moderate kinds. Safety of capital is the motto for them. There were not much of equity investments during your father's prime days, so they do not want to take a risky bet on such investment. Share bazaar used to be called 'Satta Bazaar' only 2 decades ago.
There is nothing wrong the way your father makes investments now, in Fixed Assets or Land or renting out the properties to earn reasonable return on capital. Such investments rarely turn to Zero, and so long as there is not much borrowings in the property bought at high end, if at all, the downside is not as much as equity has.
it is like matured tree does not yield much fruits. People tend to nurture 'growing plants' which are relatively young which can give better yield. Compare yourself as 'growing plant' and treat your father as 'matured tree'.
This is why people tend to find hidden gems in the equity market, called the 'Growth Stocks' which are relatively young, not much known, have brighter prospects.
Since the equity markets have grown several folds in last 20 years or so, the old theory of not investing more than 25% of investable amount does not hold good any more. In old days, the return from Fixed Income like Fixed Deposits, Recurring Deposits used to be high because interest rates were in double digits.
Why others? I made my capital from Fixed Income instruments, like Fixed Deposits, during India' FOREX crisis in 1992, when the interest rates on our NR/NR deposits went up to 19% (23% on Cumulative Basis) and I made over 350% in Deep Discount Bonds (DDB) of IDBI and SIDBI and Sardar Sarovar. IDBI floated a scheme in which you can invest Rs 27000 repayable Rs 10 Lakhs in 25 years. When the interest rates started falling, IDBI redeemed the bonds at Rs 120,000 after ten years or Rs 93000 gain or 344% in 10 years or 34.4% Annual Average Simple return.
You invest in fixed income instruments, especially bonds, when the long term interest rates are very high. I used these gains to invest into Bank stocks that gave me 800% return in just under 4 years All these were possible because of fixed income investments.
Your father is not wrong, at the same time, he is not right because equity investments were virtually non existent in his prime days. You can not make him change his tracks now.
Instead focus on your investments. If you enter the market during very low end, you may increase equity weightage to even 80%.
I was almost 85% invested into equities when I bought equity shares of banks as above. The dividend yield was exceeding bank deposits, and that is why, instead of keeping the money with banks such as BOI or IOB or Syndicate Bank, it was wiser to invest them into same banks' shares earning tax free dividend income.
India is certainly on growth path than at any time in the past. People are more educated, earn more, have more investment alternative, yearning for knowledge has never been greater before, Internet changed the lives of many younger people than old people like your father.
May be you may invest more (80%) when the market corrects severely, If you do not want to wait, may be you can chose good quality stocks and invest up to 30% in equities.
So do not fight with the conservatism of your father with your liberal attitude. This is what called 'Generation Gap' and your children too will look upon you with same contempt as you do now, when you reach the age of your father.
% allocation between assets is a 'Dynamic Process'. You allocate more when the risk is less and reward more. you go on increasing or reducing % allocation to each segment of assets on merits
Kalidas, Hong Kong
21/5/2008
16)
for jasavi
No views on this scrip. Generally, I avoid buying any 'stock broker's ' stock during financial turmoil. A broker's business or strength or weakness is never known to even insiders.
I just do not look at the 'Brokers' Stocks' at this point of time. I buy them only when I see the distinct shift in the market sentiments on the upside.
Kalidas, Hong Kong'21/5/2008
17)
for mdbariwal
The target of IFCI at Rs 1000 in the midst of financial turmoil is 'irrational exuberance'. There is nothing to suggest upward swing in IFCI lending activity, and the only speculation revived now is the stake sale which may not add much value.
The stock is cheap relatively, but there are no specific events that merit attention.
Be modest in your target. Range is much narrower than even before.
Kalidas, Hong Kong'
21/5/2008
18)
Reply1 to Money_Bear+Bull (Ram) on (21-May-08 21:34 ) Ref: 09-055R
My present business is in primary metal (Steel, Stainless Steel etc) and to less extent in base metals like Aluminum, Copper, Zinc etc.
Being a finance man for almost 35 years, and having studied the pattern of future trades and derivatives from time to time, I have a feeling that :
- The current rise in metal prices is 30% fundamental, 40% due to weakness in US$ and rest of 30% due to derivatives.
- There is not much demand-supply imbalance as totted out by many analysts all around the world.
- The demand for primary metals increases several fold only at times of war, where warheads use steel. Due to tremendous economic crisis, the Warlord - USA does not have that much power or conviction to wage a war of large scale. The new President, if it is not McCain, but Obama (Democrat) will be more conciliatory like Bill Clinton.
- Steel and Cement are brothers and sister. They go together. Whenever you see massive rise in steel NOT accompanies by rise in consumption of cement, it is the first indication that the concerned nation is building more weaponry or WMD (Weapons of Mass Destructions)
I will tell you, and only I can tell you, that the present rise in metal, oil, precious metals is due more to reversal of derivative trades than imbalances in supply and demand.
This forum does not enable HTML message, otherwise I would have produced tables and charts to support the following facts. I will come to specific of your question later in this post.
Earlier, almost 5 years ago, the future trades ( 2 to 4 years forward) in these commodities were being conducted at massive discount, for the simple reason to depress the prices in spot market to control (or manipulate) the inflation index.
At the time of Iraq invasion, spot crude prices were $ 28 whereas 2 years forwards were traded at $ 18 ( I mentioned this before in this forum). Normally, the futures used to dictate the spot prices. However, the Arabs started controlling Spot market by constantly reducing output at that time with the result that 'Spot prices started dictating the Future prices' It happened in other metals notably in Zinc, Nickel and Copper where the futures (18 months forward) used to be at discount at 10% or more.
When the spot markets tightened, the future operators came under 'short squeeze' and they had to roll over the contract at higher prices, without paying cash difference substantially.
However, when the present fiasco in sub-prime emerged and derivative market collapsed, the roll over market came to an end, and the counter parties refused to roll over the contract and asked their clients to buy back the short position at heavy premium and settle in cash.
These reversal of future trades account for major rise in the metal, base metal, primary metal, precious metal, and Crude oil prices. for instance, today Oil Futures for 2015 and 2016 trades at premium at US$ 141 against spot price of $ 134. Imagine a short seller who sold 100,000 barrels of crude oil few years back at say $ 18 or $ 40, finds difficult to roll over, and has to settle in cash to close out the position, he will have to pay 100,000 brl x $ 94 or US$ 9.4 Millions or Rs 40 crores, against his original investment of 3% of contract value at that time (3% of 100,000 x $40 = $ 120,000) He not only loses his entire capital of Rs 60 lakhs but also additional Rs 40 crores.
Having said that the current rally will peter out as soon as short squeeze eases out. It is more like Harshad Mehta pushing up ACC stock price to Rs 10,000 by squeezing the shorts by insisting on physical delivery on spot market.
Coming to your specific stocks, read the rejoinder (not enough space here)
Kalidas, Hong Kong
22/5/2008
NOTE:
This is my last post except the Rejoinder, because of my overseas travel
19)
Reply2 to Money_Bear+Bull (Ram) on (21-May-08 21:34 ) Ref: 09-056R
REJOINDER
Coming to your specific stocks, please note the following:
- Normally, the commodity stocks command very low P/E - about 5 to 6, because of lack of excitement. Anyone can work out their earnings by multiplying their production capacity with current market prices of respective metals.
- The stocks move higher or lower due to expectation of surprises on upside or downside. Such element is absent in commodity stocks. It is more like ' a naked woman is seksually less appealing than a fully clothed one' Do you remember the famous 'Khalnayak' song - 'Choli ke pichhe kya hai?'
- Crude oil prices have gone up by over 40% in last 4 months without any consolidation, that poises it for massive corrections in very short time. When all brokers start clamoring for $ 150 or $ 200, the correction time is very near. These are the same analysts and brokers who were totting out oil prices at less than $ 10 when it was trading at $ 28 based on 2 years forward prices at $ 18.
- When the Crude falls precipitately, $ will rebound. Do not ever underestimate the 'Financial Re-Engineering skills' of Americans. All those professors, mathematicians, Nobel Laureates are busy in working out strategy how to crash the rising oil prices.
- If $ strengthens (though fundamentals are still against it) due to above event, almost all metals will fall flat, except the precious metals like Gold and Silver and Platinum (they too will suffer but less in % terms)
- Rupee at the moment is on downward trend. Refineries are buying crude by selling rupee and buying $ or Euro. This aspect is in favor of the stocks you specified.
- Some of your stocks are Government of India concerns, who behave like Bureaucrats. They do not capitalize on profit by selling aggressively in the spot market or in futures. They are downright stupid managements. They are guided more by Government directives to control the price rise, by not jacking up the prices, limiting the profit potentials.
- Are they good Buy? If they are not at their peak, and about 30% below the peak prices, Yes -otherwise ride the rally to get out to book the profit. Profit is yours if it is in your pocket, otherwise paper gains disappear as fast as they appeared.
- REMEMBER, there are always matching sellers and buyers in the market place. If you are buying, then someone is selling, from either from his own long positions (most cases) or from borrowed stocks (like hedge funds). They just take the opposite views of the buyer at all the time.
- Honestly, I have not personally studied the stocks you have mentioned. If you have studied them, remove the hype and consider the above factors before making buying and selling decisions. I would have loved to answer specifically, but I do not have much time at my command right now. My detailed write up should help you in any case.
This is definitely my LAST POST today. I will be absent for until 12/6/2008 and may possibly resume on 15/6/2008 or later. Kindly excuse me - right now the market is reeling under pressure in USA due to fears of high inflation, FED's stance not to reduce the interest rates (they may have to if the market corrects by 1000 points) and Dow Jones has fallen below the support level of 12780.
Kalidas, Hong Kong
22/5/2008
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