Kalidas on ( 18-Mar-08 13:36 ) Rating
Price : BSE: Rs 770.00 ( 1.66 % ), NSE: Rs. 773.00 ( 1.72 % )
Ref: 08074 of 18-03-2008
FED and JPMC rescue of Bear Stearns, CDO
I am amused to read that JP Morgan Chase has come to the rescue with the blessing of FED to take over the Bear Stearns for just $2/Share against Friday price of about $28, $ 80+ a month ago and $ 140+ a few months ago.
If the JPMC could pay only $ 2/share, then why should federal Reserve Bank give as much as US$ 30 Billions to JPMC in non-recourse financing? Why did not it allow Bear Stearns to just liquidate? When JPMC wants to pay just $236 Millions, why should FED become magnanimous to pay US$ 30 Billions or USA$ 30,000 Millions or cool Rs 120,000 crores?
"Non Recourse" financing mean that FED can not demand the repayment of $30 Billions from JPMC. It will be voluntary obligation of JPMC.
Many analysts have been commenting that JPMC is a savior and they are totally non-plussed as to why FED should have used this mode to rescue Bear Stearns. They are applauding JPMC move as though they were "Gandhi" to help the BS out of the woods. No one, I repeat, no one analyst is able to gauge the reasons and depth of the reasons for such transaction.
In America, there is bankruptcy law under which there are two prominent chapters - Chapter 11 which everyone is aware of and another Chapter 7.
Chapter 11 is being resorted to by non financial companies to help them avoid immediate liquidity problems. Example - United Airlines, Delta Airlines etc. Under this remedy, the borrowers are given "respite" by the Court to resurrect itself and come back to health in a few years. The borrower is not liquidated.
However, financial company including brokerages can not resort to Chapter 11. - They have only Chapter 7 which permits only "Compulsory Liquidation" The court appoints a receiver and then he liquidates Assets one by one. Everyone knows what Assets the bankrupt borrower has.
This is the main fear. If Bear Stearns is allowed to file for bankruptcy under Chapter 7, there will be sysmic upheaval. Every one will know who Bear Stearns dealt with , and which other brokers/banks/mutual funds/hedge funds will take a hit. Thus, if Chapter 7 is allowed to file, the entire financial market will be fed with disastrous rumours of one or the other company whose names will be no longer secret.
No that ordinary shareholders of Bear Stearns are charitable to help JPM Chase.
Further, JP Morgan Chase, considered and reported by many as strong bank, is in fact one of the weakest bank with trillions of derivative exposures, including extremely large SHORT position in Gold, Silver and South African Rand. About 5 years ago, they reportedly had derivative exposures of over US$ 30 Trillions or US$ 30,000 Billions or US$ 30,000,000 Millions or Rs 120,000,000 crores!
How could one bankrupt bank save another bankrupt investment banker even with the state help and whether they will succeed at all?
A few years ago when LTCM (Long Term Capital Management) busted with US$ 1 trillion or US$ 1000 Billions when Russian Bonds collapsed, the markets the world over crashed. Under the guidance of culprit Rupert Rubin (now Chairman of Citicorp) and former Treasury Secretary and also Former Vice President of Goldman Sach, FED and almost banks contributed US$ 26 Billions to deal with the price.
After 6 months everyone came out smiling of a Board Meeting to announce that LTCM problem was resolved successfully and all banks recovered their $26 Billions. Every fool believed it and until now even leading Professors from Harvard, Stanford, Massachusetts, and Nobel Laureate believed them.
No one asked, how these bankers recovered US$ 1000 Billions in just under 6 months with the help of additional capital of just US$ 26 Billions? That is whopping 3746% absolute or 7492% on Annualized basis?
Same banks were involved - Citibank, JP Morgan chase, UBS, Merrill Lynch, Morgan Stanley, Goldman Sach, Deutsche Bank, Barclays etc. They simply manipulated the books and passed on those dubious derivatives to their unsuspecting clients, mostly Insurance companies.
The losses remain in system, but it will explode now, because the swap market has come to an end. Now no more roll over - just lie down in a coffin and rest forever.
How much ICICI lost in such gamble is anybody's guess
Kalidas, Hong Kong
18-Mar-08
Reply Post for IFCI_Rocky
When ICICI provided just US$ 240 Million or about, it was considered about 10% of its exposure (Once the news appeared and then disappeared). Thus, their total exposure is US$ 2.4 Billions or Rs 9600 crores.
Exposure to Yen and other similar bonds do not count as they are not derivatives but direct instruments.
Wait for few days and when they file 3Q before SEC, we will know what they provided and what level of exposure they have. They have to follow US accounting standard under ADR listing rules.
Kalidas, Hong Kong
Ref: 08075R of 18-03-08
for Kalyanmitta - reply Compliments
Great comparison with Dinosaur.Epicenter is USA, tremours felt all around. When you stick your neck out, you see not only one Dinosaur but hosts of many.
Lehman, Merril, UBS, Morgan Stanley, Goldman etc etc. Each dinosaur is causing a range of terror. If collapse of Bear Stearns could result in selling of 900 crores of Indian equities, what if any or few of above names fall. How many points SENSEX will lose? What SEBI will do now? Stop outflow of dollars?
Who says that India is decoupled from USA? If anyone believes that India is less dependent on USA and our economy is strong, just reassess in the light of above.
Patriotism is a good thing - in war times - but realism is excellent virtues at all times.
Kalidas, Hong Kong
18-03-08
for Kissanbhai
Read the following excellent utterance from venerable Henry Kissinger:
QUOTE:
'Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world.'
Henry Kissinger
UNQUOTE
This is what AMERICA is all about.
Kalidas, Hong Kong
18-03-08
Reply to Vivek Dhariwal
How do the insurance companies earn? They collect premium from everyone and insure them against some future contingent event. They know that out of 1000 persons insured, the claim will be from hardly 1 person or less than 0.10%.
That is their payout and premium is their income. Their other expenses are only Agents commission and employees' salary. The surplus amount is huge and they need investment outlet.
There was a time, when the interest rates, especially long term rates, were high at 12% to 15% in India. They were all from Govt securities so the income was secured.
However, when the interest rates started going down, and such companies found that they no longer earn what they should, they appealed Government to allow them to invest into equities, instead of only bonds as prescribed earlier.
in order to earn more they started buying equities and also started buying derivatives which will yield them more than bank or Govt Bond interest, without knowing anything about derivatives and tremendous risk involved. Such derivatives were promoted by leading banks like Citicorp, HSBC, Bank of America, J P Morgan Chase, Deutsche Bank, Barclays etc, and in India, so called modern banks like ICICI Bank, HDFC Bank etc.
Bankers are generally regarded as 'Professionals' and 99 out 100 customer trust them for their expert advice. In fact, they are worst form of advisers - they are rats. They know nothing about investments. They earn salary and know that they are transferred from one place to another after about 3 years. So they do not have any sense of loyalty.
Now these relatively smaller banks receive proposals from giants like Merrill, Morgan Stanley, Goldman Sach, Citicorp etc. they get elated because they feel that they are given importance by such large institutions. They do not ask themselves why?
Same applies to Insurance companies. When they receive the derivative proposals from such giants, they accept them at face value and buy riskiest securities like CDO, Sub-Prime etc. When they lose money, those original sellers ask them to 'roll over' the contracts. The seniors in such insurance companies, who are eligible for VRS or otherwise are about to retire in 3 years, go on rolling over so that losses are not disclosed during their tenure.
Example, Alan Greenspan's deeds of over 20 years are now being exploded and the sufferer is Bernanke who I consider one of the most forthright FED governor I have ever seen.
Most insurance companies operating in other countries are outfits of their offshore entity. I have taken out insurance from one leading company in 1992 and since then its parents have changed 6 times. If something happens, they raise hand and offshore companies, so loosely regulated or not regulated at all, go bust and the policy holders suffer.
Before this crisis started, I advised my oldest customers (they are my friends now) to take out loan against their policy and keep them in banks in India (except ICICI Bank) so that in the event of Insurance company going under, their savings are saved. I asked them to adjust the loan after about 18 months, so that most of their losses will be interest differentials @1% per year or at the most 1.5% - that was in fact insurance against possible default by insurance companies.
I hope you will now understand why I said about insurance companies as innocent or stupid buyers of such derivatives.
Kalidas, Hong Kong
Ref: 08076R of 19-03-2008
Reply to Kalyanmitta on (19-Mar-08 10:05 )
I never believe in Insurance Companies. What will they do after you are dead will never be felt in our life time.
I, therefore, invest in Zero coupon bonds, which are rare nowadays. My real wealth was built on such bonds. If you recall, at the height of India's financial crisis, when IDBI, SIDBI and ICICI came out with a bond with almost 16% yield lockable for 30 years. IDBI issued bonds with a face value of Rs 10 lakhs with investment of Rs 27,000. Even smallest investor could buy it - they buy Rs 1 lakh bond with investment of just 2700
I was a stock broker at that time, and sold Rs 60 crores worth of bonds in just under 2 days by explaining all investors how will they benefit. I had lot of problem in getting Bond Certificates from IDBI. So I saw them personally during my visit, when Mr. Subramaniam was General manager (He was then shifted to UTI and subsequently kicked out leveling lot of malafide allegations - to me he was an absolute honest man and he could not have done anything of the sort he was charged of)
Mr. Subramaniam asked me what was the best investment for a small person like him - I told him BUY YOUR OWN IDBI DEEP DISCOUNT BONDS.
Later on, after 10 years, when the interest rate started falling, IDBI decided to call them back at Rs 120,000. So we made a gain of Rs 93000 over a period of 10 years on investment of just 27000 or annualized return of over 34.4% on simple interest basis. After realizing these proceeds, I invested in banks like IOB (Rs 8.50+), Bank of India (Rs 11+), IFCI (Rs 12.60) and Syndicate Bank (Rs 10+) and also Essar Oil (Rs 14.65). I sold all of them after about 5 years with almost 800% return. However, I ascribe this fabulous return to DDB which gave me the basic wealth.
About 6 years ago, I found another nugget. South African Rand Zero Coupon Bonds guaranteed by government of South Africa and issued by Development Bank of South Africa (DEVSA). I bought them @ 2.79% all the way up to 4.85% Rand (ZAR) when exchange rate was almost 12/$. I liked this idea because Gold and commodity prices were near 20 years low, currency was all time low and interest yield was almost 13% with no Calls, that is, the bond will be paid only on Maturity.
I paid for 10 Million Rand bonds @ 3.50% avg or ZAR 350,000 =US$ 30,000. Today, they are trading at about 19% or value of 1.90 Million Rand. Although Rand recently weakened,current parity is 7.10/$. My investment in $ terms at current market price is cool US$ 267,600 against just US$ 30,000.
So, I kept this bond as very long term investment, to be sold when Rand goes to 3/$ or below or wait for maturity. These bonds have been assigned to my wife and my children, instead of leaving them with Insurance Policy.
In spite of my recommending ZAR bonds only 3 customers bought these bonds - only one bought very large size ZAR 300 Million Face value or US$ 2 Million at the old rate. When the bonds rose in value and also in currency, my client sold 1/3rd, telling me -Anilbhai - I have never seen this kind of return in my life in such short time - so I want to enjoy the fruits when the season is so good. I don't know what is his position now.
Finding best investment product is not that easy. I worked so hard that for 6 years in a row, I never stepped out of Hong Kong, worked all 365 days, 16 hours a day, and that is what made my character and built my knowledge.
What I am writing here in this column is result of such hard work. Hard work, good work, and noble work never go to waste - the fruits are delayed but they do arrive finally. Lord Krishna said 'Karmane vadhika raste ma faleshu kadachina' - Lord was supreme and obviously right. Arjuna was fortunate that he learnt it on battle field.
Kalidas, Hong Kong
Ref: 08080R of March 19, 2008
Reply to Vivek Dharival
I really envy you - being an IIT graduate. I am also a Science Graduate in Chemistry, and it was my dream to join elite IIT in 1966 but failed due to some family circumstances.
I do opine that Science Graduates make the 'Best Finance Personnel' In Science, logic prevails, people do not mug up the formulae. Life and finance is all about.
Science gave me the best tools for the finance. Also Arithmetic. My father was insistent that I do learn Arithmetic as core tool of knowledge. He used to tell me - 'forget Algebra, Geometry, Trigonometry, Calculus - JUST LEARN Arithmetic - you will never fail in your life. And he was right'.
I do not know why you call your industry as 'Shit'. Every industry is Gold or Shit whichever way you look at it. Always derive pleasure in whatever profession you are - change your outlook for life at this young age.
If I were your father, I would have pulled your pant down and give you a thrashing with a lesson not to use these words again which pays you Rs 6 Lakhs per year! See beauty in every thing every where in life.
Kalidas, Hong Kong
Ref: 08082R of 19-03-2008
Reply to Shia Post of 19/3
Do you know swimming? When you climb down the well, you see the bottom and feel that it is very near. In fact it is much deeper, almost twice as deep as you thought.
In swimming pool, the water is much clearer - you see the bottom from 100 feet distance. However, when enter the pool, and you do not know swimming, you feel that the bottom is much deeper than you thought.
Current crisis is more akin to your climb down to 100 feet deep well. You are not down even by 20 feet and start guessing the bottom in dirtiest water. If this can explain, I will be happy. Sometime practical life examples work to bring clarity.
When a patient suffers a cancer and undergoes chemotherapy, he is bed ridden or walks around in a wheel chair. He lives on medications or UV rays, but the inside getting worse and worse. First he is unable to eat - so hole is driven to feed him down the tube. When that fails, he is transferred to ICU and finally Gangajal is ordered to let him die eventually.
Current patient USA suffers exactly same fashion - it lives on medication and chemotherapy. Rate cuts, Tax cuts are emergency medicines - they postpone the crisis, but eventually worse happens.
A country never dies. So USA will survive. Americans are the best race of the mankind. They are expert problem solver. They live in crisis, thrive in crisis. for them crisis is Oxygen. this is why they develop and maintain the crisis, and then call best firemen in their country to resolve or solve the problem. Americans are the Best Crisis Managers - so let the crisis deepen and best of them will come out - at that time you begin to invest.
Kalidas, Hong Kong
Ref: 08077R of 19-03-2008
Reply to aquarius5863 on (19-Mar-08 08:09 )
for ICICI Bank: - Savings Bank:
In India the deposits are insured up to Rs 100,000 only. However, Government of India is 'Kuber'. It will come to the rescue of depositors in case something happens to ICICI. At the moment it does not appear that they will have liquidity crisis, but we do not know where do they stand. What we have seen is some of their exposure.
When someone's pant is pulled down, he immediately places his hands as cover on his vital organs. In crisis, therefore, we see only the exposed portion - not the hidden ones.
DeMat account:
Nothing happens here. It is Government of India's depository. ICICI may be the only Agent.
Trading Account:
Here too, nothing happens - your exposure is only for two days - they you get either paid in your savings account or delivered into Demat account.
If something happens to the bank, it is possible that you may not have access to both trading and demat account. That is the only risk remains. Alternative is that you open immediately some other trading and demat account with some other banks like UTI bank or HDFC bank if you prefer online and do not have someone in India to service you.
Do not keep entire savings into one bank. Keep them in 3 or 4 banks. Use at least 2 nationalized banks, because if something happens, Government will compensate you - they can because they can print the notes and credit you account. Private banks can not do that.
Please note that I am not scaring you into doing something stupid. You should consult others and also watch for concrete signs for immediate actions.
Kalidas, Hong Kong
Ref:08078R of 19-03-2008
Reply to pkk07 on (19-Mar-08 10:32 )
1. All deposits are collectively insured up to Rs 1 Lakh under DIC (Deposit Insurance Corporation of India). That limit may have been raised, I do not know. Check with them. In USA, the cover from SPIC is USD 500,000 in the form of USD 400,000 for securities and USD 100,000 in the form of cash.
2. Until the money is applied for stocks, they still remain with the bank. So the normal risk continues as with the deposits.
Let me put to rest your anxiety. In worse scenario, the bank could be nationalized. Of all the governments in the world, Indian government is the only one who really cares for the depositors. It is the best Government for social security in this sense - otherwise there are many other drawbacks. No one lost when BCCI & GTB were liquidated. Similarly, no one suffered when some cooperative banks were also liquidated. UNLESS of course, the GOI change the tacks.
Kalidas, Hong Kong
Ref: 08079R of 19-03-2008
Reply to tamal on (19-Mar-08 16:59 )
I do not know the level of exposure of ICICI to CDO/CLN and other derivative market, and therefore to avoid spreading rumours, I would not comment whether they will go belly up.
There is one similarity between Citicorp and ICICI. Both had acute crisis before (for Citicorp around 1991 and for ICICI during Ketan Parekh when many cooperatives failed) and both suffered depositors' run on them. Citi was rescued by Saudi Arabian prince and ICICI was saved by RBI (or Government of India)
History repeats itself. Citicorp again in same hot water soup as before, so does ICICI, albeit partly to the extent their difficulties are known publicly. When foreign banks start withdrawing their credit line to ICICI and when their ADRs take very deep bath, then we can say that yes, they are in real trouble. These are the signs to be watched.
However, it must be recognized that ICICI (not ICICI Bank) was founded by the Act of Parliament. After the merger of ICICI with ICICI Bank, the said act has no significance. It is possible that Government of India may nationalize this bank if it faces acute crisis. Today's ICICI Bank is almost second largest bank in India, and like FED, Government of India can ill afford to let it go belly up.
However, before it is taken over by GOI, the bank remains private and publicly listed. It will go through same pain as Bear Stearns went through. The major difference is that ICICI Bank is a bank whereas BS was only an Investment banker.
Anything can happen in stock market. Today's Hero could be tomorrow's ZERO as Bears Stearns proved that. Similarly, reverse is also true. When one leader goes out, another comes in. So an astute investor looks for future new entrants as new leader regardless of today's losses.
A good investor always look for future income to compensate for the current losses. Losses come and go, so do the profits - that is the eternal truth. Any investor who rues the past for massive losses should be comforted to re-apply himself again to recover the losses. Stock market is like an ocean - what you throw in ultimately comes back, may not be on same shore but somewhere else. This is why we call Ocean as 'Darya Dil'. Ocean is always kind and magnanimous, though at times it is furious and brings Tsunami. Those who ride the Tsunami, survive and then thrive in the sunny ocean again. There is a saying that 'whatever happens, happens for good'
This reminds me of my wonderful friend in Ghatkopar, in Mumbai who died sometime ago. His name was 'Lakhpatia' and always smiling even in his worst crisis. He displayed a large banner in his home reading 'THESE DAYS WILL NOT BE FOREVER' (translation from Gujarati). I asked him what it means to which he replied - remember this for lifetime:
This means that -
CAUTION: GOOD DAYS do not remain forever; so save during your best days.
HOPES: BAD DAYS do not remain forever; never lose hopes - there is morning after every night, there is light after eternal darkness.
These GOOD DAYS and BAD DAYS were combined to rename 'THESE DAYS'
If Lord Vishnu had sent 'Kuber' - the Treasury or Fund Manager of the Heaven, he too would have failed to the wile of derivatives on the earth, whereas we are only human beings.
Let us not guess whether Lehman or Goldman are telling the truth. If they are making money at this point of time, they are of course Goddamn Liars.
However, there are some who must be making money. Your loss is my gain. Like Archimedes' inventive principal that 'Energy is converted from one form to another - never destroyed' , so it could be partly true and applied in Investment world. The only difference is that physical science is the creation of nature or God, whereas the derivatives are creation of wily human brains, located in the wonderland of America.
Kalidas, Hong Kong
Ref: 08081 of Wednesday, March 19, 2008
Reply to Arunkant on (20-Mar-08 05:08 )
Are you referring to Sardar Sarovar Deep discount Bonds? They mature on 11/01/2004 and trading at Rs 56000 or about on Bombay Stock Exchange in its Debt Segment against original issue price of Rs 5000 as Deep Discount Bond (DDB) repayable in 2014 at Rs 100,000 +5% premium.
These bonds ,when issued, carried almost 19% interest - I had bought them for my clients who consider it as Best Investment ever made by them.
For Example, if someone invested Rs 100,000, that is, 20 Bonds of Rs 5000 each, then he will be getting 20x56000=11,20,000 against his original investment.
There is heavy demand for this bond. The Company tried to redeem the bonds earlier, but their action was opposed by some holders and High Court too refuse to allow the company to redeem the bonds at least twice.
It seems that Gujarat Narmada Nigam is the new name of Sardar Sarovar. Check your bond certificates or original allotment letter. or check with BSE direct.
Following are the scrip details:
Scrip Name:SAR SAROVR -DDB-11/01/2014
Scrip Code :911545
Scrip ID :SARS053
Current MP: Rs 54094 Bid /55100 Offer
Kalidas, Hong Kong
Ref: 08083R of 20-Mar-2008
for geniusjaggu
This is no time to buy bonds. You buy bonds when the interest rates are very high and about to fall. If you buy the bonds now, and interest rates rise, the bond price will fall. Keep the money in bank deposits especially in Savings Bank so that you can use them at your discretion when some really good opportunity come by
Kalidas, Hong Kong
20-03-2008
for no trader
Be broad hearted and not miser. When you make decent gain - say about 700% - do not hesitate to pay taxes or STCG that is, short Term Capital Gain. Considering your price, you would have had only LTCG which is exempt of tax.
The stock slid from Rs 90 to Rs 41 or by about Rs 49, that is you lost gain of nearly 376% on your original purchase price (Rs49/Rs13 %). If you had sold at that time, you would have paid STCG of 10% of (90-13) or just Rs 7.70 by way of STCG.
You can avoid STCG whenever you are running into losses of any scrip which may be sold at the end of the day and buying back on next day morning. Keep quantity different to avoid any query.
The stock at Rs 41 is very attractive but too early to buy. There are rumours that Merrill Lynch may soon wind up. It had insured $3.1 Billion of bonds portfolio with an insurer who refuses to recognize their claim. Merrill wants to sue them. This is why its stock dropped by 11% yesterday.(19/3)
Use rally to get out of the market now and book as much loss as possible before 31/03/08, so that carried over losses can be set off against future STCG.
I am liquidating entire portfolio, some at good loss, and wish to liquidate entire holding to ZERO by 31/03/08. I will then buy back same stocks again afresh from 1/4/2008 progressively, because I am sure that the market is not going anywhere but down, down and down.
Gold which dropped from 1029 to 937 or almost 10% is temporary aberration. I will not be surprised if it jumps by $100 or $150 in one day.
Whole global system is now flooded with paper currency which will force IMF to re-introduce Gold Standard in next 12/18 months or so. This will prop up real demand of Gold from all central banks - right now only retails customers are buying.
Do not be surprised, if Gold goes to $3000/Oz or Rs 40,000/10g or tola in India. Allow +/- for Rupee appreciation or depreciation. Silver will rise faster than gold.
Kalidas, Hong Kong
Ref: 08084 of 19/3/2008
PS Hold the cash now and follow only those stocks you know. IFCI today is not as good as it was because almost entire holding of its equity have dropped in value by 70%. They were stupid in not cashing in when the grass was green.
for rashika nandlal,
It is good that your money is in RBI Bond and not in your sleepery hand. This is why you are saved, and let it remain that way. This is not the time to play the market, and since you are very active player, you have to have someone to control your trading instinct. Take it easy.
All bonds you are quoting are listed on BSE in retail debt segment (if it is Government securities) or under Corporate debt. You can also list them in your moneycontrol portfolio so that you are constantly updated, instead of logging onto BSE and then press various buttons.
Kalidas, Hong Kong
20-03-08
for safemil,
BSE Marketcap includes all stocks including those held by Promoters. Generally, over 50% stock is in promotors' hands and never change hands. Often they are given to bank as collaterals.
The real floating stock is hardly 25% to 30% - this is where trading takes place. In trading there are always two parties - seller and buyer, so if one loses, the other gains.
Total valuation of marketcap is only notional. No one loses 300,000 crores in India - no one in India has that much of money. Such figures are given to play to the gallery.
for Instance, take the example of stock of any nationalized bank where almost 75% is held by Government of India. Public float is just 25% where the active trading take place.
In the event of marketrise, entire 100% valuation increases, including 75% of GOI. However, this is just notional. Similarly when the market sinks, the entire valuation suffers. Again, loss of GOI for 75% of its holding is notional.
Kalidas, Hong Kong
20-03-08
for Guest
We are near major meltdown. I do not think the market recovery will be fast enough to get you the kind of gain you had before.
When the stock was at 120 and comes down to 30, it is known as 75% correction. However, when the stock is then aimed to go back to 120 again, we are talking about rise in value by 300%.
I would sell at least 80% of current holding whatever may be the price and use same money to buy after the intensity of storm has passed.
This is no time to show your bravery. Be practical and act.
Kalidas, Hong Kong
20-03-08
for Radhika nandlal,
To my knowledge all DDB were called back by IDBI, SIDBI and ICICI. In fact, ICICI was the first to call back. I do not know which series of bonds you have. All bonds were also listed on BSE. Check the debt segment of the BSE and see whether your bonds are still listed.
Originally, these DDB (IDBI and SIDBI) were not callable. This was the main reason that I invested in them very large amount and also sold almost Rs 60 crores of bonds to Hong Kong investors. I do recall my meeting with IDBI General Manager Mr. Subramaniam (who later was transferred to UTI and then sacked for UTI Bonds 1964 debacle) where I asked him how did IDBI take the view for such large interest rate for 30 years, and why did not have any clause to make it 'Callable'.
It looks to me that the debenture deed was later amended with retrospective effect to make it callable after 10 years.
ICICI did have 'Call' option and that was the reason I did not buy them. Therefore, it appears to me that your ICICI bonds were redeemed almost 6 years back and may be you got the notice of redemption and did not act on it. May be they are sitting on your money without interest for over 5 years.
I checked the BSE site (Debt segment) there is no reference of ICICI bonds in issue. The only live reference is Sardar Sarovar DDB. That means that all other bonds have been redeemed.
ICICI may not pay you interest from Post Redemption date. Better get all money you can because in the event of deep correction, you have money to invest.
Kalidas, Hong Kong
20-03-08
for bharathnaidu,
In stock market, the entry and exit point determine your overall gain. Further, if you are in good stock, it always make money.
If you buy a strong company stock A at Rs 100 and it went down to Rs 30 due to market trouble, buy 3 times at that time and hold it for long time.
If you have no faith in that stock, would you sell even today? If not when? When it will reach to your purchase level? If you have that patience, then why not buy more when it has become one/third and then hold it?
A friend of mine, formerly HSBC Senior Economist, was severley critical of Bank of India in which he invested Rs 60 lakhs in IPO @ Rs 60 or 100,000 shares. then the stock dropped down to Rs 10. He as telling me that he was losing Rs 50 lakhs and he would have been better off by investing into his own bank at HK$ 83 at that time.
I told him to sell part of HSBC and place more money in Bank of India between Rs 10 and Rs 15 and buy almost 400,000 shares so that his overall investment would be Rs 1.2 croes with average cost of Rs 20 per share
He did not agree but held his original position. Today, HSBC is at HKD 120 whereas Bank of India went as high as Rs 350 sometime ago, and even today must be over Rs 200, that is, nearly 20 times
When you picked right stock and wrong time, do not regret. Learn from the mistake. If you have lost in 3 or 4 stocks, work out where you have least losses, sell them and apply the same funds where you have most heavy losses but the scrip is still good. This way you are averaging down the stock, stay with better scrip and avoid putting in new money at uncertain times.
Desperation is sign of immature investor. We also learned from losses. Another factor is when you are too close to the market, you make more mistakes, because you easily get carried away by constant news, rumors, tips and contrasting opinions. The advantage I have here is that I am too far away and can not be carried away or bombarded by constant stream of news.
One can not make good investment by reading newspapers or watching CNBC or AAJTAK. They are selling their media, not the investment intelligence. Use them as tool and trust your own instinct and judgement. Your inner voice never lets you down
Kalidas, Hong Kong
20-03-08
for Guest-King Porus,
Low value of IFCI is not due to IFCI's bad performance internally. Right now, almost all banks and investment bankers/brokers/financial institutions are in trouble. There is melt down in financial stocks especially.
There is therefore no point of regretting investment in this counter or blaming it for poor performance. Almost all stocks have gone down, without exception.
Kalidas, Hong Kong
20-03-08
for aquarius5863
in investment, it is not only the case of value but also timing. Right stock, right price at wrong time can lead to significant losses.
When the market falls steeply, everything falls. This is the only reason that I advised SELL for the time being, not because the stocks are unattractive, but the timing may be wrong.
In USA, there is a rule of Quarterly reporting of numbers, known as 3Q, where along with the figues, the company management is required to discuss the performance at length.
This 3Q for March end will come out from mid-April, and all banks, investment banks and insurcance companies are required to value their investment in secutities 'marked to market'. Many houses have still not revealed their mega losses. for instance, Credit Suisse reported losses of US$ 2.5 Billion suddenly on the ground that their traders 'mispriced' the valuation. in short, everyone is trying to conceal the losses in the hope that the subsequent rise in the market might cover up their misdeeds. It is not happening.
Similarly, Merrill Lynch insured its one of the bond portfolio with an insurance company for $3.1 Billions. The insurance company has now backed out. Merrill is trying to sue the insurer. FINE, but the fact is that until now this $3.1 Billion was a good investment, because it was considered insured, but no it is not. So, Merrill will be obliged to provide for additional losses of $3.1 Billions.
The difference between India and rest of the world for the last 50 years was that 'WEST was spending first (credit card) and repay later' whereas in India, the principle was 'SAVE first(Bank deposit or Cash or Gold) and spend later'
This is why India is in much stronger position financially. Most households in India are not in deep debt. They are NET PLUS regardless of current losses in stock market.
However, India was a preferred destination for US houses. They invested heavily into stock market. Now that their house is burning fiercely, they withdraw money from India and taking back home. They are doing at every other center.
When the Amricans sell, they don't care what price they get. They simply get out. They are happy in India that SEBI does not allow the stock to fall more than 5/10/20% in a day (Stupid they are - they allow market to fall 10% to 20% but do not allow individual stock to fall more than 5% - they must be sued)
This is the reason that US$ is rising against Rupee. After selling rupee they have to buy US$, so US$ is rising inspite of problems back home. It is a question of 'fund flow' not other fundamentals.
In stock market, I always used to tell others - Profit is yours if it is in your pocket, so also the losses. Normally, investors allow losses to run and cut the profit, whereas correct strategy is to let the profit run and cut the losses.
So, I will agree that Rs 30 may be a good price, but the question is whether it is goo time?
Whenever the stock plunges by 30% or more in last 3 or 4 sessions due to bad market, not the bad company itself, it is always good time to buy.
I had sold out IFCI from 59 to 97 against my original purchase price of Rs 12.60. I bought again at 104 to 114 but then cut the losses in mid 90s. I bought again in 3000 point fall and made good money in short term, selling at 59 to 65 and only 1000 at 71
When the stock dropped to 47.70, I bought back only 2000 and again I am in red. So I am cutting the losses and liquidate entire portfolio by 31/03/08
I will buy when the most of the truth (60%) may come out in mid April when all companies will be declaring their losses (including ICICI and SBI in India whose ADR/GDR are listed there). I do not care what will be the price. We have to catch time, not the price itself.
Kalidas, Hong Kong
22-03-08
for novice1000
Why do you care for Zero Gravity pen for which NASA spend US$ 2.4 Millions? That is research expenditure.
GILLETTE spent US$ 100 Millions just to invent its mach3Turbo Triple Blade rezor, and they made billions out of it.
Spend Millions Make Billions is the motto of American Corporations. It works other way round too, like this time, but the law of averages is in their favour.
Kalidas, Hong Kong
22-03-08
for gogol,
My prediction for IFCI to reach 700 when it was in 60s was qualified in some brokerges like Goldman taking over. I also mentioned the target of Rs 300 to 350, if that does not work out. Those were the bull market days, and subprime crisis was not in sight.
Later on, when IFCI CEO destroyed all avenues for FII investment, and was flip flopping, I gave a sell call and many got angry that I wanted to buy back same scrips at lower price.
While evaluating a stock and its potential, there are following strengths which have to be taken into account, presuming other factors constant.
Global Market Influence .............- Importance 10%
Local Market Influence .............- Importance 20%
Respective Industry Influence........- Importance 15%
Government/Regulators Influence .....- Importance 05%
Individual Company strength .........- Importance 50%
There is a tug of war at all times between above factors, and whichever is stronger at one point of time, prevails.
Right now, Individual stock's strength takes a back seat. Global Market influence is greated, which worsens local market and it again influence the respective industry's performance.
When you evaluate IFCI, you see the strength not only of IFCI but also its industry - Finance industry - which is in very bad shape. As result, other weaknesses overshadow the intrinsic quality of individual stock.
Further, all along, everyone was evaluating IFCI on the basis of its holding of large equities of Indian corporates which went up several times. However, as I mentioned in this column several times, that 'Profit is yours if you take it and hits your pocket' Valuations are valuations - they change over times. In good market they are rosy, and in worst market, they are at best shabby.
for international investors, there is one more factor - Currency. I made most of my investments when Rupee was between 45 to 48. So, even if we lose 20% here, we make it up in currency. This may not apply to investors in India.
So focus on finding values in Indian stock market and then wait for the opportune time. Finding opportune time is as difficult as to find a beautiful girlfriend. But don't we try for it, inspite of being a herculean task?
Kalidas, Hong Kong
22-03-08
for Aquarius5863
If Toronto can have worst climate for 70 years, Stock market too have worst days since 1930.
India is safest place to keep money in the bank. Most of the banks are nationalized, and Government of India is not like any other western government who will raise hands and let depositors to go to dogs.
In Electronic age, it is always easy to transfer the money instantly from one bank to another. However, there is always limit - they allow only Rs 50,000 to Rs 100,000 per day. Further, in case of war, Internet will be first casualty.
Nevertheless, keep your money in India, not in western world for the time being. When the things work out well outside India, retransfer money there.
Debt Explosion is a phenomenon only overseas, not in India. It was in India 5 years ago, when almost all banks stocks like IOB, Bankl of India, Syndicate bank, vijaya Bank came down to less than Rs 10 and today they are nearly 10 times even after market correction.
This is the reason India is a pot of gold. indians have been buying Gold over 800 Tons/year for (US$ 10 Billions per year for over last 20 years, at the price of US$ 300 or below). Today, same Indians are sitting over 16000 tons of gold accumulated over last 20 years ( it could be over 25000 MT for over last 60 years - this is equal to US$ 900 Billion at current market rate of USD 35000/MT (when Gold was $1000/oz).
This is the private wealth of Indians. Since gold constitutes only 5% of total wealth of Indians, total wealth of Indians could be around US$ 18 Trillions - 1 1/2 times of entire US Economy (not counting wealth of Government who is sitting and controlling over 200 Publicly traded corporations).
These savings will save India from world disaster.
You may therefore keep your savings in any bank including Standard Chartered Bank. Just as you want to have at least 2 or 3 children, better keep 2 or 3 banks to maintain your savings.
I hope this may answer your query.
Kalidas, Hong Kong
22-03-08
for Vivek67
Who paid for this Article in ET and why?
All these writers are paid by some large funds to write the story so that the stocks do not fall and they can sell during the rally or period of stability. These are 'conman' - do simply opposite what they asked you do. They know that most investors follow their ancestors - moneky.
did you read the story of a man selling caps/hats and crowd of money? Ask your parents or someone elder who will tell you.
Kalidas, Hong Kong
24-03-08
for Karhikn
SEBI is a rat. They have ulterior motive - to stem the inflow of $ and prevent Rupee to rise. This is why they decided to allow the short selling.
But to implement the suggestion at this point of time is suicidal. Small investors will be killed, because they can not short the stock in cash segment. Large investors may have avenue to borrow the stock from fund and sell it.
SEBI's logic, intelligence, stupidity, dilemma is/will be:
1. When $ is coming, they ask why are they coming to India (and forcing Rupee to rise and our exports suffer?) Actions: Do everything to stop foreigners to invest into India. SEBI succeeded
2. When $ is going out, they ask why FIIs are not investing in India when it has good growth story and it is one of the fastest economy of the world? They are causing our Rupee to fall and our oil import bills go higher. (SEBI forget that it was its own actions which drove away the foreigners at first place)
After a few months, when the market falls steeply and when even UTI does not have money to pump in, SEBI will ask the questions again - these FII bastards, they short out country, our currency, our stock market and make the most money and you see - our small investors are losing a lot. Let us do something...
And God alone knows what will be cooking in its mind at that time.
You have to learn from SEBI and its No. (8) CEO, how to cause maximum damage to the investors and Indian economy.
Kalidas, Hong Kong
24-03-08
My take is ...
What did not happen in last 67 years, may happen now. Ask CEO of Bears Stearns and also Barings Securities, both of whom got busted.
Trusting ICICI is your choice. She is not your wife that you have to show your eternal loyalty. It is a stock, damn it, it is a stock. If you still do not want to learn from whatever happened until now, it is your choice. Misplaced trust kills ultimately.
Where there is smoke, there is a fire. When the traders in bank like Credit Suisse could conceal massive losses running into USD 2.6 Billions, what is ICICI or SBI? Employees do try to conceal their misdeeds or misjudgement - it is only later that people know what hit them.
I do not say that ICICI is not a good stock to own - it may be but not now until we know what is going on there? Can not you stay away about 2 months before all secrets are out? Re-enter again if there is nothing wrong.
Kalidas, Hong Kong
24-03-2008
for Vivek67
REJOINDER:
Crows are black everywhere, be they from Economic Times or Barrons.
CLSA may have bought ICICI Bank - they are the poorest investors and one of the riskiest gamblers in derivatives. This bank has all credentials to go 'Boom' Only French government saves them time and again.
Kalidas, Hong Kong
24-03-08
for Vivek67
REJOINDER 2 - CLSA and ICICI Bank
The reason that CLSA bought ICICI appears to be they want to sell the covered warrants on this stock. They take the view that this stock will go down, so they will issue 'covered warrants' at premium, say 30% for just about 12 months. CLSA is a specialist in this field.
So if the stock goes down, they buy back their warrants to make money. they usullay leverage the warrants nearly 3 times, that is, if they buy the stock say, 50 Million shares, they will issue warrants for 150 million shares.
At the same time, they may be shorting its ADR to the extent of 20% or so, so in case of bets going other way, their losses get reduced to some extent.
CLSA's buying of ICICI Bank is the first indication that the stock will go down... Writing is on the wall.
Kalidas, Hong Kong
24-03-08
For Harini12,
Agreed that 'short selling' under normal circumstances lead to healthy correction at times. it is not bad at all. Out of 100 investors, only 2 specialize in short selling, and they are generally more educated than others.
However, US and India are not comparable. There is no 'level playing field' in India.
In USA, anyone, retail or institutional investos, can short sell. If I want to short sell only 500 shares of say Bank of America, I can do that through my US broker, However, in India, it is not so. Only those professional institutional investors borrow the stock legally and short sell. In India, that practice is still primitive.
Further, in USA, they apply 'uptick rule' so that short seller is obliged to sell in a rally, not when the markets are going down. This protects the normal investors from 'short sellers' manipulations'
Again, the reporting of 'short position' is on real time in USA, whereas I do not know what is the position of SEBI in this case. Such data are widely distributed amongst investors, so they can make calculated guess.
SEBI wanted to introduce 'short selling' not because it wanted to introduce healthy practice. Its aim was to stem the flow of US$ which was having appreciative effect on Rupee. Now that when the market is on skid, they wanted to introduce this rule at most sensitive time, when the retails investors will be at disadvantage (because they can not short sell).
Further, in USA there is no 'circuit' for individual stocks - on upside or downside, but in India, there are 'circuit breakers' which act as 'speed breakers'
for instance, Bear Stearns fell over 70% in single day - can it happen to India where SEBI imposes arbitrary circuit of just 5% or 10% or 20%? What is the logic that you allow the market to fall by 20% but deny individual stock to fall only 5%? Supposing I need money for surgical operation and unable to sell the stock due to whimsical SEBI rules, who will be responsible if my close family member dies due to non availability of funds? Can you sue SEBI on this ground? Even if you do, can you get justice within few days.
My own Provident Fund and Gratuity is still pending in courts in India for over 21 years and the case simple does not come to the board. My claim has risen to US$450,000. Please note that in India, PF, Gratuity and Terminal benefits are NON ATTACHABLE even by Supreme Court, and still they take 21 years - My own money is payable at the whims and fancy of the employer and lousy courts in India.
Easy to say that India has fair, equitable and good legal system - but IT DOES NOT WORK. SEBI, in collusion with RBI and stock exchange deceived the investors of Global Trust Bank by paying 'nothing' and let it be taken over by Oriental Bank of Commerce free, when the investors like Shinsui bank, Newbridge Capital, were willing to take it over at almost Rs 100 per share. Can it happen in USA?
I know almost all markets in the world - I was stock broker for 16 years and know the US market simply too well. I was a former banker, stock broker, Cost Accountant, Journalist and also a Lawyer - in charge of legal department of a bank in Hong Kong.
thanks for your post anyway - you did raise the right question for which I believe that I gave the right answer.
Kalidas, Hong Kong
25-03-2008
for Radhika Nandlal
If retail and institutional investors can short sell in India easily, why does SEBI says it will allow short selling from 21-04-2008 - I do not understand.
My broker did tell me that we can not shortsell in India. Once my delivery was messed up by UTI bank with the result that the stock went into Auction and I had to pay much higher.
May be you can explain whether short selling is allowed officially in India, whether all stocks are eligible for short selling. Only a few lines are enough.
Kalidas, Hong Kong
25-03-08
rashika nadlal,
In India they prepare 4 balance sheets - one for Income Tax, one for Company Registry, one for stock market and last one and true one for the board of directors.
I never take any balance sheet at face value. If the company makes good profit but does not pay tax, I do not accept those balance sheets. Actual payment of tax will give me confidence in those balance sheets.
During earlier rally, profits were being shown by many just to book the share prices. When PC introduced NAT (Minimum Alternate Tax),all those companies started reporting massive losses. This is the power of tax payment. Trust those who really pay taxes - that income real - others are just hood winking.
I know many cases where some software companies remit the local money abroad through havala and then bring back officially as payment towards exports. They then make news release and the stock prices multiply.
Such transactions hardly cost over 3% - but the gain the stock prices could be over 50% to 60%
for Chief Kamani
Kamath will run away. His head will carry a reward of Rs 1 Million!
When someone in farther most place in snow valley begin to say 'everything is fine', it means that many are asking him that question. If everything was fine, he would not have faced the question in DAVOS which is the home of derivative records - Bank of International Settlement, Switzerland.
In an earlier post, I mentioned that CDO valuation in the hands of secondary mortgage holders will be ZERO. Some had indicated that ICICI Bank had exposure of US$ 2.4 Billions ( I do not know exact figure - Kamath does not uvach) of which only US$ 234 Millions was provided, that is, only 10%. More to go of course, that is, cool $2.2 Billions or Rs 9000 crores!
Anyway, what is he doing up there? Opening a swiis account for his retirement?
He will be followed by State Bank of India. How much deep they are only they, PC (FM) and Reddy (RBI) know.
Kalidas. Hong Kong
26-03-2008
Reply to KaiZen. on (26-Mar-08 17:29 )
I was wondering why someone did not get outraged and evoke strong reaction to my comments on Mr. Kamath. You ultimately satisfied my curiosity.
I am not in appeasement business. We write here real substance in just under 4000 characters. I am therefore blunt, fair and to the point on most occasions. Further, I am dealing with ignorant or less experienced boarders who can not understand technical language. I call spade a spade and use common sense approach.
People in high places are all well qualified to the brim, and those who succeed get the kind of accolades you just mentioned.
It is my solid experience that whenever a person gets elevated by magazines like FORBES, FORTUNE, CNBC, International renowned body etc, that is the first indication of a person's downward career and downfall. These media act last and out of popularity rather than substance. Because they elevate a person larger than life, the concerned person gets bold enough to get into misadventure. I simply throw away those magazines and sell the concerned stock because that is the point of climax.
I neither love or hate Mr. Kamath. You do not have to tell me who is the good banker - I was a banker for 19 years before becoming stock broker for 16 years.
The person who gets the kind of accolades ultimately assume the role of dictatorship in concerned organization he heads. There are less opposition, lots of sycophants, yes-men who are not willing to open their mouth lest it will anger the top guy.
The concerned person therefore listens, reads, watch and acts what he wants to like. He never gets an honest critic who can caution him or give him the word of real advice.
This is the stage when the concerned person changes track which does not go any railway station but to the back yard.
I do not go by the performance of a concerned person what he has done, but by what he is going to do. Stock market is future - not past. I evaluate the consequences of such person's present actions, not his past academic life.
People always read and then show respect. What appears in the print is most of the times 'shallow truth' written by journalists who do not even know ABC of finance. But the people believe them because they look beyond the person and the institution for which he is working.
Mr. Kamath became over-domineering in his ICICI empire. His stock worked well in a bull market. He took unusual risk. He will get the proposal from top banks and brokers directly which will be passed on to his subordinates with his small hand written notes in routine manner. However the persons attending those proposals feel that it would be unwise to tell the boss the truth and give him whatever he wants to read and see and get the things done.
My quotes you had quoted was written in witty manner. Sometime 2 liners carry more punch appeal than whole article. This is why Sant Kabir was very famous with his four liners
I do not take offence at your write up. I do not even regret that my write up offended you, because you are ignorant of the truth or experience which will lead you to wrong conclusions. That is not my fault. I regret only for my own fault or mistakes - not otherwise.
One simple observation on your note - If Mr. Kamath who preach transparency, why does not he come out with a clear statement as to what is the real exposure of ICICI to CDO market, how is he valuing the portfolio and how he is provisioning the losses. A best leader is never vague.
Kalidas, Hong Kong
Ref: 08087R of 26-03-2008
for Guest
Yes. you are right. US government is notorious to protect the bigwig in the name of democracy, non interference and capitalism. They always raise their hand in times of troubles.
Government of India is not of that kind. SBI, New York is a branch of SBI and therefore carry the obligations of both SBI Indian and Government of India (SBI was floated by the act of parliament, and if I remember right, it was known at that time as Imperial Bank)
Unless Government of India runs into trouble, there is nothing to fear about SBI. Further, Government of India's valuation of its stock holding of Public Sector Units is so high that even $25 Billion dent will not make much difference.
Let me very specific about ICICI - I never suggested to anyone to withdraw money from ICICI Bank - because in the event of serious trouble there, it can be nationalized by GOI. So there is enough safety out there in India.
This brings me to the sage of BCCI Bank which collapsed earlier. They used to open separate subsidiary (say BCCI (HK) Ltd or BCCI (India) Ltd. registered in those centres) This was a smart move, because in the event of trouble at subsidiary, the parent back home is not affected. They were distributing risk.
Indian banks are not so clever. They open the full dedicated branches without thinking that the trouble out there will hurt them eventually. If Mr. Kamath is as clever as he is made out to be, then I can say that he may be intelligent but lack common sense as to how to structure bank's international operations.
Kalidas, Hong Kong
26-03-08
for Harini12 (26-03-08)
I never said that SBI is in real trouble. They denied any involvement in light hearted manner. But I read their actions. They wanted to raise 16000 crores - for what? They lack loan demand, reduce the interest rates to spur the demand, then what forced them to borrow such large amount?
I do not know Government's holding in SBI - but must be 75% or more. so right issue will involve Government's infusion of 12000 crores in SBI equity. Are they replenshing what they have lost as capital? Wait for 6 months to know. But I am damn sure they lost or have CDO/CLN type of exposure over 16000 crores or USD 4 Billions, larger than ICICI. No one raises such huge capital without any need for it, unless they are trying to cover up their past losses.
SBI can withstand this loss, if at all there is any. It does make good money and most of the deposits they have are low interest bearing current account nature due to Governmental accounts.
I may not agree with you regarding clearing of cheques - the process is automatic and may be some problem at the brach you have account. Lodge a complaint with their management.
Kalidas, Hong Kong
26-Mar-08
for Jo,
There can not be any direct lending by way of mortgages or sub-prime lending directly by ICICI or SBI who are not in direct mortgage finance business abroad.
When those mortgages are converted into derivatives like CDO or CLN or similar tupe, they assume almost 90% exposure of the Sub-Prime loans which are then subordinated to prime debt. It is only after adjustment of Prime Lender's loans that they become eligible for further distribution.
In USA, 30 years mortgage loan is given to a borrower on following basis:
Interest only - 3 years
Principal + Interest = 7 years (Trench 1)..after ARM
Principal + Interest = 5 years (Trench 2)..after ARM
Principal + Interest = 5 years (Trench 3)..after ARM
Principal + Interest = 5 years (Trench 4)..after ARM
Principal + Interest = 5 Years (Trench 5)..after ARM
ARM = Adjustable Rate Mortgage
For first 3 years, the interest is fixed and thereafter interest is reset at the end of exh period, known as Adjustable Rate of Intrest.
If loan amount is say, US$ 200,000, then each trench is for US$ 200,000 or even more. Since the loans are forecloseable, the lender does not have right to sue the borrower for shortfall, but assumed ownership of mortgaged assets - all profits and losses go the lender.
Thus, if there is a default of first mortgage, the first mortgage lender assumes the ownership of the property under Foreclosure. Since all profits and losses belong to him, the secondary holders for various tranches have ZERO value of their investment.
If the first mortgage lender's loans is not defaulted, and the property does not get foreclosed, then only secondary lender may have some value, but again it operates in sequence. If there is a default in second stage, all lenders subsequent to second stage have ZERO value, because second stage lender get hold of property under foreclosure.
Most banks, including ICICI, bought those derivatives from second stage onwards - this is why you see lot of bad debt writing off. Basic sub prime lending constitute just 20% of entire loan outstanding, that is, say 6%/6.5% per year or about 20% for 3 years.
The very base of Collateral Debt is destroyed once the property goes into foreclosure.
We do not know what will be the composition of ICICI CDO and what were the terms, but whatever may be the terms, their so called Collateral property as asset backing does not exist. So their MTM (or Marked to Market) value is big ZERO
Such properties are being sold by Prime Lender at steep 30% to 50% discount to the market value. So all subsequent holders of CDO gets NOTHING and the loss is total.
This is my understanding based on various articles published on CDO. This is the reason I am of the opinion that both ICICI and SBI will need to provide for the total loss on instruments they never understood.
With regard to assertation of ICICI CFO that they do not have any exposure to Sub Prime loans, is acceptable, because there can be NO such exposure towards dirct lending. What she did not mention that there was exposure to CDO (collaterlized Debt Obligations) for which there is no collateral nor there is recourse to the borrower.
Do not believe the statement of such executives. Even Bear Stearns CEO in an intereview with CNBC Anchor David Faber asserted that BS did not have liquidity problem. CNBC started trumping cards that Banking stocks were cheapest for the last several years. AND very next day - BANG - BS declared insolvency and same CEO said, the situation in last 24 hours worsened so much, it was impossible to carry on the operation. This means that almost all clients and banks withdrew their support and withdrew money en masse.
All Banks, Lenders and Brokers survive on notion that all customers will not withdraw deposits from their account at same time. When those depositors decide to withdraw, en masse, there is a RUN on the bank and bank goes bankrupt
Kalidas, Hong Kong
27-03-08
for Small Investor1
Rest assured - I will not stop posting my views. I am used to this kind of reactions from others.
When I wrote once that IFCi will go below 50s, at the height of its CEO's gimmics, several boarders jumped on me that I wanted the IFCI stock price to come down so that I could buy back cheaper. I ignored that reaction.
A few days back, IFCI did go down to Rs 38 without my write up? Where are those boarders today?
Anything, I repeat anything, can happen in the stock market. There is nothing like a rock solid stock which will not falter. Look at Bears Stearns or Barings who inspite of being giants disappeared from the scene.
If there are no excitement, surprises, speculation or even manipulation, then it is not stock market.
Kalidas, Hong Kong
29-03-2008
for tamal in
There can not be huge FOREX losses to Indian corporates, because Rupee has moved in very narrow range - hardly 2% here and there. In order to book the losses of Rs 10,000 crores (which may be exaggerated one), then the exposure has to be 50 times of Rs 10,000 crores or 50 x 10,000 = Rs 500,000 crores!
No Indian corporate is so big, Reliance group included, who could contract such huge FOREX liability or contracts.
The fact of the matter is that these are NOT Forex losses; they are in fact CDO or CDS exposures which might have been sold off to these corporates by banks like, well you know who I mean...
Losses due to Sub Prime mortgages or CDO/CDS is most abusive word today. The Indian corporates know pretty well that if the losses were ascribed to these instruments, their share prices will simply collapse.
Anything related to overseas losses are ultimately FOREX losses, so they characterise these losses as FOREX losses, which are in fact CDO/CDS losses.
Kalidas, Hong Kong
4/4/08
for Tamal in,
The possible reason for NIFTY to rise was the beginning of new valan for the year 2008-09. People who sold to book losses for the year ended 31/3/08, bought back on following day, the beginning of new valan for the next financial year.
There does not appear to be any other possible explanation. It was just reversal of tax related selling on last few days of previous financial year (2007-08)
Kalidas, Hong Kong
4/4/2008
for gs 2007
Sit on cash if you have sold off everything. Sitting on cash is the most difficult discipline. If you can observe it, you have built a strong will power and powerful character in you.
I will post when is the time to move in. With billions of dollars now being written off, almost on daily basis, only idiots will invest even for short term investment.
Olympic Parade has just started outside Beijing. Every country is coming out in a parade with their team participants unfurling the flags marked with losses - $ 39 Billions (by UBS), $ 20 Billions (by Citibank from USA), US$ 25 Billions (by Merril Lynch of USA) etc etc.
Indian team is represented by ICICI bank and SBI with more participants in dressing room.
Kalidas, Hong Kong
4/4/2008
for shia,
Time is not right to move in. I am 100% Cash and will remain so in foreseeable future. I do not care about short term movements on upside, such as that of ICICI Bank, as one boarder has pointed out to make his point.
Right now, it is not the time of earning... It is time to preserve one's capital. If you can do that for a while, you have won half the war.
With regard to Rupee appreciation, which PC, FM and RBI seem to think to arrest inflation, the move is too late too little. Damage has been done on rupee.
When a fertile person continuously uses pills or condoms to arrest the pregnancy, he ultimately becomes 'infertile' over a course of time. Even if he stops using pill or other contraceptives, he just can not become reproductive again.
When Rupee was appreciating, these stupid gang of four - RBI, SEBI, FM and PC decided to 'sterilize' the appreciation. Well, you have succeeded - you have sterilized yourself permanently - you can not fertilize the egg again, even if you want to. You can not de-sterilize at your will, Mr. PC, Reddy and SEBI - are you listening?
I have maintained always that rising rupee was in India's interest, and that left to itself, in a free and bull market, rupee would have gone to Rs 31 at least. But No - RBI came up with 'sterlization' program in same manner Sanjay Gandhi embarked upon compulsory vasectomy in the past. Only players and grounds have differed - game is same.
Kalidas, Hong Kong
4/4/2008
for whatsup
FED is funded by US Administration ultimately, but through Senate. FED's annual budget is US$ 300 Million.(Alan Greenspan - Age of Turbulence)
FED acts independent of US Administration. Often, FED officials do not meet the administration for weeks. It is only of late that FED is more communicative to general public.
Contrary to belief that FED Chairman is ultimate decider, I would like to mention that FOMC (Federal Open Market Committee) is the final authority to set the interest rate. The FED Chairman merely sets the Agenda for the meeting. (Alan Greenspan - Age of Turbulence)
Kalidas, Hong Kong
4/4/2008
for pkk07
The derivative losses are simply huge. for every $100 of sub prime loans, the related derivatives are nearly 6 to 10 times. Presuming that Sub Prime defaulted or foreclosure loans amount to US$ 700 Billions now ( 2 Million defaulters/foreclosures last year + 700,000 defaulters/foreclosures in 2008 = Cumulative 2.7 Million defaulters/foreclosures.) Assuming average sub prime loans at about US$ 250,000, the quantium of sub prime default is 2,700,000 x 0.25 Millions or about 680 Billlions.
Now consider the leveraged derivatives at Minimum 6 times. that is relative derivatives outstanding and under default are 640 Billionc x 6 times = US$ 4,000 Billions or US$ 4 Trilions. USD 1 Million = Rs 4 crores or USD 1 Billion = Rs 4000 crores. That is, Rs 16,000,000 crores.
Now valuation of all CDO/CDS = ZERO because these are all secondary mortgages. As explained by me in previous posts, in USA, mortgage loans are mostly on 'non recourse basis', that is, the lender seizing the assets become the owner of the property and all profits/losses belong to him. The lender can not sue borrower due to 'non recourse mortgage nature' with the result that all secondary lenders are NOT entitled to any amount. The first lender or mortgager keeps all.
Thus, the losses in the system are of the order of US$ 4 Trillons or US$ 4000 Billions. So far the public disclosure is just US$ 100 Billion or less or just 2.5%. Imagine what will happen if all start disclosing losses one by one?
Further, current foreclosre rate is 250,000 per month or US$ 50 Billions per month. Assuming leverage of 6 times for the derivatives, the derivative losses are mounting at the rate of US$ 300 Billions per month on top of above losses.
This is simple arithmatic. It is your choice whether to take it or not to take it.
Most of such derivative contracts are being held by large banks and Insurance companies, Pension funds and Retirement funds all over the world. Thus, life time savings of almost 100 Million employees in the western world are under serious threat or about to diminish to less than 10% of original value.
This situation is so scary that there is every possibility that there may be Civil War. Chaos, robbery, killings, kidnappings, riots, may become order of the day. We are moving into this direction inch by inch now, but may accelerate in next 4 to 6 months.
All internet trades may be in serious threats. When the riots rage in full scale, the very first casualty is Communications or Internet, Broadband, TV and Radios.
This is why only real wealth GOLD and SILVER might rise to great extent. Whether such situation will develop in India is anybody's guess, but the global liquidity crisis will ultimnately hit India very hard, just below the belt and will be almost uncontrollable.
This is my scenario - may be some might call it a wishful thinking or just Kalidas's new invention of scare. It is your choice whether to take it or leave it.
I am 100% cash.
By the way, in previous post I had mentioned that Microsoft was making mistake in taking over YAHOO this time, inspite of being cash rich. Bill Gate is making his mistake of his lifetime. He just informed YAHOO board to accept Microsoft bid or he will revise it much lower if not accepted within 3 weeks.
If YAHOO board foolishly rejects such lucrative offer at this time, Microsoft will be saved from almost certain disaster. If YAHOO does accept Microsoft offer, then it will be last days of Bill Gate to remain as most wealthiest man on this planet. He is destined to lose billions of dollars in just under 12 months, which he has accumlated over last 40 years.
It takes very long time to build one's wealth, but takes just a few seconds or minutes to lose all. Investors in India know pretty well when SENSEX fell by 3000 points. What will happen when SENSEX falls by another 9000 points?
Writing is on wall - Read it or piss it over.
Kalidas, Hong Kong
07-April-2008
for Guest
I marvel at your logic. You should begin to change your approach; otherwise you will hurt yourself very badly.
FED is on suicidal course. They are just printing money. Market Interest rates are way above the FED discount or funds rate. FED rates are no longer any measure of pumping any more liquidity. What they are trying to do is to pump in more liquidity which has already dried up. There is no fresh surge of liquidity.
Don't you read how the banks and brokerages raises money nowadays? Citicorp raised over $ 9 Billion by paying 11% interest rate, UBS borrowed from Singapore Govt at about 9%, they may have to pay as much as 15% after declaring $19 Billion loss. They want to sell their equity - but who is going to buy them. it will be nearly 2 times the size of world's biggest IPO from Chinese company recently which was very profitable, and yet got less than expected response. So who will invest in UBS with such gigantic loss? I ask you - will you invest in UBS at this time?
Even Lehman brothers who raised over $4 Billions by paying 7.5% interest whereas FED rate is less than half. AND who did they sell these bonds/capital to? None of the major investor's name is disclosed, because then the cat is out.
Right now, it is only psychological warfare. Even if the Lehman Bros got any funding, it will be only through FED. Everyone is withdrawing money from Lehman Bros. By saying that they raised $ 4 Billions easily, they want to arrest the withdrawal by pumping confidence into unwary investors.
Smart investors will continue to withdraw and soon, their kitty of $ 4 Billions will be empty and they will be out in the street with begging bowl.
And why do you think that if the more money is printed by FED, it will come to India or China? There is no cash in the sytem in USA, so the money will go there first. This is why even today, FII are withdrawing money from India by selling into Cash segement. They are buying only in F&O segment only as hedge.
Do not allow your love for India to prevail over the logic and market rationale. Today, people are talking about billions not millions. Try to make even One million, and then you will know what is called Billion and how long does it take to make such fancy figure.
Kalidas, Hong Kong
7-4-2008
for Guest
You are not reading properly. I mentioned that total global derivative exposure (including those for FOREX, Commodities, Precious metails, Prime Mortgages and also sub prime mortgages) was over USD 517 Trillion.
The extent of outstanding is not necessarily total loss. Only affected part may be subject to loss.
The losses we are talking about is only relate to one section of those derivatives - such as Sub Prime. Most derivatives relate to FOREX and commodities and Precious metals.
Kalidas, Hong Kong
7-4-2008
for pkk07
Agreed and understood your problems.
1. You can still buy the gold from the bank which is 9999 purity. This can be bought by any gold dealer in India without any charge or deductions.
2. While buying, pay the tax and keep the receipt. No one will ever bother you.
3. Keep the gold in Safe Deposit Locker with any bank. If you do not have any locker with any bank, then you have a problem as most of the times the lockers are not easily available.
4. Agreed that buying gold from gold dealers is difficult for ascertaining purity. However, buying is not difficult as you can buy from the bank directly. Only for selling (if the banks are not buying back - this looks strange to me)you may have to approach the gold dealers who will not deduct any charges (known as 'kasar') because what you are selling is not ornaments of 22 carats but 24 carat gold duly certified by the bank.
5. If you still do not like this idea, and still wish to have gold exposure to ETF (WTF by itself is not derivative - it is expression of gold - but it may trade at premium or discount to its real intrinsic value). If you know any ETF in India which is not trading at much premium to its NET ASSET GOLD VALUE), then you may chose that option. I do not know about any ETF in India, so can not guide you in this regard.
When you buy the gold even from the gold dealers, make sure that it is 9999 purity (marked on gold bar itself) and that you buy it officially by paying taxes (just 2%) and retain the receipt until sold.
Kalidas, Hong Kong
7-4-2008
for Karthikn
Markets are like human body. We eat 3 to 4 times, digest and throw away in the morning only once. that is, in bull or normal market, 3 steps up and one step down.
However, when one contracts Cholera or diarrhea, he eats only one or not at all, but throws away by normal course or by vomitting 10 to 15 times. That is what we called 'bear market' where the 10 steps are down and one step up in acute cases. In less severe cases, they throw away 4 times and take in one time - so 4 steps down and one step up - which is beginning of bear market, if the medicines are not effective.
I do not follow market's movement from moment to monent or day to day or hour to hour. There are always more optimists in the market because they have lost money and want to see the market up.
Further, no one manipulates the markets. these are cheap talks. When no one can understand the movement, because of his lack of knowledge, they say that market is manipulates by some one. Who has time and resources to manipulate the vast market? Can one or two or even 100 rivers change the course of an ocean? NO, so do the market - which is nothing but a vast ocean.
Kalidas, Hong Kong
7/4/08
Reply to ysb on (07-Apr-08 13:28
)Firstly, This is guesstimate. The Home Prices in Mid west are low in the region of USD 150000 to 200000 but in Florida and California where the default rate is maximum, the prices range from USD 300000 to 400000. So the average is 250K
It really makes much difference which figure you take. give and take about 15%, and you get the crisis understood in real magnitude. Whether it is USD 3.5 trillion or 4.0 trillion does not make much difference in seriousness.
Secondly, we are talking about the sub prime mortgages, not Prime Mortgages where there is hardly any default. What figure provided was the Actual from Sub-Prime category where the lender usually lends 100% finance with no equity contribution from the borrower., In Prime Mortgages, you are right but there is no default and in this area, the borrower usually contributes about 10% to 15% equity. So, even if the prices dive, the net asset value is still positive for the lender. They are usually low risk low interest bearing loans which does not attract other lenders who are always eager to maximize the return in sub prime category.
Thirdly, it is difficult to say for which loan the derivatives are issued. In USA it is the practice to bunch together loans with same interest rates (say 5%) and then resell them at discount, so that the original lender releases his investment. These are not derivatives, but direct loans. These kind of loans do not fluctuate much.
Kalidas, Hong Kong
7-4-2008
for Guest
I have reiterated thousand times that the problem is not with sub-Prime loans but with related derivatives for which the current market value is ZERO. The underlying securities were seized and sold by the Primary Lenders. Nothing is left for other secondary holders who hold CDO/CDS
Now whether Accounting rules change make any difference or not is really irrelevant. Even the best accounting rule can not make ZERO market value to 10% or 50% of Original value.
The problem is with derivative. Direct Sub-Prime loans is made the 'Villain'. The real culprits are derivative issuers who want to get away scot free.
Please do not ask these kind of questions again and again. I do not want to rehearse what has been stated by me in previous posts. Please read them on continuous basis before venturing into repetitive questions. This will save my and others, including yours, time.
Regards
Kalidas, Hong Kong
7/4/2008
for Guest
Even if China, India and Japan combines, they can not match the size of USA. US is simply too big for them - this is why they go all the way across Atlantic and Pacific ocean to sell there. Without USA , they can not exist.
DO NOT UNDER ESTIMATE USA and its power - moral, legal, monetary, social, military or international. You better leave your Indian nationalism behind to understand what is USA. They are still Torch bearer and leader, no matter what.
Just because their TV media is more vocal and you listen to them every days - ABC, NBC, CNBC, CBS, you know more about USA. What do you know of Germany? Japan? China? Russia? Have you ever tuned into their TV media or print media? Why? Does it mean that they have no problem?
It is to the credit of the US media that you know everything about USA. You may not know even 10 major city's name in Germany, China, Japan or Russia, but you know more about USA and UK. That is the difference
Kalidas, Hong Kong
7/4/08
Reply for Guest on (07-Apr-08 14:19 )
Why do you want to come to Hong Kong to buy Gold bar which you can easily do in India from banks or MMTC at international rates? You can pay them in rupee. Contact MMTC - they allow you to buy Gold and Silver and let you keep the gold and silver with them in safe custody and issue you a receipt.
MMTC sells in larger lots. for instance, it sells 27 Kg brick of Silver. Easy to buy difficult to sell in the market - because the buyer will pay you after 3 or 4 days - so you take the trading risks for 27 Kg of Silver which is equal to Rs 6 lakhs at current value.
There is no problem in buying from Hong Kong during your visit. When you arrive at the Mumbai Airport, you have to declare the Gold and pay just 2% duty in foreign exchange or even in rupee if you are an domestic Indian.
It will be your folly to come to Hong Kong just to buy gold when you can buy same item in India from Banks at international prices.
Kalidas, Hong Kong
7/4/08
Reply to TVMonly on (07-Apr-08 21:54 )
Point 1
Yes, Government of India can print any number of notes. There are two ways of generating Currency Notes, some may take physical form and other in the form of book entry.
One, is through 'Deficit Financing' where the government of India's total expenditure exceeds total income from all sources - Income Tax, Excise duty, Central Sales Tax, Value Added Tax, Import duty etc. Supposing Net Expenditure for 2008 is say -80,000 crores. Since the GOI does not have money, it gives credit or print notes to the extent of Rs 80000 crores.
Secondly, through FOREX intervention. When the lot of dollars or other Forex currencies come to India, they need to be converted into rupees before they could buy stocks, bonds or make direct investment. The foreign investor has to buy Rupee from the market which will cause Rupee demand to exceed the demand, so the rupee appreciates. In this case, no currencies are printed.
However, when RBI at the instance of GOI decide to intervene in the FOREX market to 'sterilize' Rupee currency's rise, it ask the Foreign Investor not to go to the market and buy the Rupee. Instead, RBI give special rate to the foreign investor to buy dollars in 'off market' and give him the credit to his current account with any bank (book entry). For instance, if Citibank approaches RBI to sell US$ 500 Millions on behalf of its Mutual fund customer, it will get better rate, say Rs 41 instead of market rate of Rs 40, so it saves about 2.5% on exchange. RBI than gives credit of Rs 2050 crores by buying US$ directly from the Citibank. This avoids selling of dollar and buying of rupee in the market, so rupee exchange rate remain same. Had Citibank sold $500 Millions in the market, rupee might have appreciated to say Rs 39 or it would have got 5% less than what it would have got by selling to RBI.
In short, Money Supply (called M1) increases in the market. the book entry slowly gets converted into real money because when Citibank buys the stock, it has to pay in rupees, and that rupee will circulate in the marketplace.
This is a suicidal policy, it does not increase the good, but merely increases money supply. The equilibrium between Goods and Currency in circulation is adversely affected as result of which 'Inflation' in the system increases. Second type of practice is adopted by most Asian countries including Japan, which have highly inflationary effect.
Point 2
You can not pay Rupee to IMF to discharge the debt. The debt was contracted in US$, so you have to buy US$ by selling rupee in the marketplace to pay off the debt.
If what you say was possible, practically every country will discharge its debt by printing more notes.
USA is exception. Because it was used as Intervention Currency, or common currency, US government was encouraged to issue more notes and contract debts. Since the debt was issued in US$ or its own currency, it will pay off the creditors by printing more notes. This is what it is doing. It borrows from the world, and the President Bush go on giving Tax Rebates to its citizens at will, because he can afford to, because the world is goddamn fool to love the $ more than their wife, children, homes or even pets.
I can not write more than this. Above should help you understand some basics of Monetary Management, and it will also inform you how much RBI is reckless and how GOI uses RBI to manipulate the currency. There is no free market for currency in India.
Kalidas, Hong Kong
8/4/2008
Ref: 09002
Reply to jinal on (08-Apr-08 10:01 )
there is nothing like 'Right Time'. Time is always relative. You take chances. If you are proved right, then your timing was right and if you were proved wrong, then the timing was wrong. People might criticize you who asked you to invest at that time?
Investment is for 'risk takers'. If you can not take the risk, better stick to your job or business and try to make money there. Do not come here.
My target for Gold is $ 1800 short term and $3000 over 2 years horizon if the situation remains as fluid as they are now. When this is the target, whether I pay $ 920 or 910 or $980 make no difference to me. When you want to make good money, do not be chicken hearted - be lion hearted.
Any rally in USD will bring down the Gold prices and vice versa. so if you buy now say 1/3rd of original target, then buy more if it goes down to say $ 835 (which is my steel correction target), buy more. If gold does not correct, then it will go above $1000 in short time. In fact, the present prices are nearly 15% lower than recent peak.
Just as your Blood Pressure does not remain constant at all time during day or night, Gold prices too may not remain constant all the time. Variation of prices create anxiety, excitement and acute interest, which create demand or supply.
GOLD IS GOD under the present circumstances. To trust God or not, is individual's belief. So take some position even at this time and do not get worried. You are buying Gold, the real asset, which always have some value.
further, gold for investment should be in the form of Gold Bars of 9999 purity. Do not buy 'gold Ornaments' - it will cost you higher and your wife will never let you sell when you want to book the profit. Gold in raw form is investment, any other form is a 'deadlocked capital'
Kalidas, Hong Kong
08-April-2008
Ref: 09004R
Reply for Guest on (08-Apr-08 10:12 )
You should make a point of reading news content, rather than headline.
UBS, Citibank and Lehman Brothers did raise money either through Convertible Debt or though Convertible/Plain Preference Shares, both of whom carry interest.
UBS raised over US$ 9 Billion from Singapore government by way of Convertible Bonds carrying 9% interest. Generally, the Convertible debt carry very low interest rate, often 2% below market rates for 2 to 5 years. The fact that they paid 9% - well above market rates - clearly shows the gravity of situation. Further, this money was raised when UBS declared loss for the first time. Since then they increased the losses by another $ 8 Billions and now very recently $ 19 Billions. Just guess, how much interest rate they will have to pay after declaring nearly 3 times losses than one when they approached Singapore government?
CITI raised over $ 9 Billion ( I am not sure of this figure) from Middle East government fund by issuing Convertible Bonds @11% interest. This shows how desperate they were. Same argument apply as to UBS
Lehman Brothers reportedly raised $4 Billions by way of Preference Shares carrying 7.5% interest rate, again well above market rates. This again shows their desperation. only a few days ago, they reportedly borrowed by way of credit line USD 2 Billions from over 40 banks or US$ 50 Million per bank. This shows that no bank is willing to take risk in granting more loans to Lehman. This was merely announcement. Whether they really got the funding or not is not known. but judging for their approach to other investors to give them $ 4 Billion @ 7.5% interest, shows that all those 40 banks have backed out of the deal. Lehman did not disclose who were the investors behind $4 Billion loans. It looks like that FED saved Lehman by funding $ 4 Billion same way they did for Bears Stearns. Who sane investor will give even $ 1 Million to Lehman Brothers under the circumstances?
FED is not creating fresh liquidity. It merely tries to REPLENISH the liquidity that have dried up. Easy to say that they are giving away loans @ 2.25% - to whom? Investment Banks can not approach the FED directly. They have to go through only Banks. FED window is not open to everyone.
Even a solid bank like Credit Suisse raised over $ 2 Billions recently at 6% interest - much higher than the market rates.
Almost all banks are now paying interest rates generally applicable to 'Junk Bonds'. In short, all these banks have gone busted for all practical purposes. They are in scrap yard and all their credit ranks are downgraded to 'Junk Status' whatever Moody and Standard & Poor say - they are useless rating agencies.
I think that this thread is getting too long. I would end the discussion here.
Kalidas, Hong Kong
8/4/2008
Ref: 09002
Reply to Guest on (08-Apr-08 12:06 )
Big NO
1. Market at 9000 has nothing to do with the Petrol prices, now at Rs 52. Petrol prices are related to crude prices overseas and also strength or weakness of rupee. Further, Government goes on subsidizing Petrol/Diesel and kerosene prices, and if it doesn't, it will fall immediately.
2. Builder will go on constructing houses/roads so long as they get paid
3. America is everything for India. If there are no USA, no more FII, Pension Funds, Retirement Funds will invest into India and therefore no more capital inflow for Indian corporate. Interest rate will rise which will lower the growth rate.
further, software industry of which India is proud of, will fall flat. their earnings will come down dramatically with the result that software engineers may be retrenched en masse. They will find alternate jobs in less elated fields at much lower salary. And, any house they have bought, they may not have further money to pay for the mortgages. They will have to sell the house at depressed prices. NPA of banks will also rise
Textile industry, backbone of mass employment, will fall flat, especially Handloom sector. America is generous to allow duty free imports for handloom products from India. There is no other country in the world which is equally generous. So poor workers will find less orders or may have to starve to death.
Diamond industry will suffer most. Diamonds are bought by American consumers most - they never buy Yellow metal like Gold. Americans are used to wear diamond or white metal jewelry. So, expect lot of unemployment in Surat and other cities where diamond workers are employed.
Today's business is global, and global means more American. Even the Best paid employee in India may spend maximum Rs 40000 per month or US$ 1000 whereas poorest family in USA spend Rs 120000 per month (US$ 3000)
This is America and that is India - both are totally incomparable. I have mentioned thousand times in this column that stay away from false nationalism and pride. It will blind you from reading or seeing the naked truth.
Kalidas, Hong Kong
8/4/2008
Ref: 09-006R
REJOIMDER:
IMF says that losses may reach US$ 945 Billion or even US$ 1 Trillion. So they are steadily increasing the target losses which I estimated at over US$ 4 Trillions. slowly and steadily they will converge to my figure - I can guarantee you.
There is still time to get out NOW from the market. It is the question of NOW or NEVER.
SELL EVERYTHING if you love your wife and children.If at all, you want to remain in the market, be a 'short seller of NIFTY futures in any rally for 3 or 4 days.
READ THE FOLLOWING BLOOMBERG REPORT (8/4/2008)
QUOTE
April 8 (Bloomberg) -- The International Monetary Fund said financial losses stemming from the U.S. mortgage crisis may approach $1 trillion, citing a ``collective failure'' to predict the breadth of the crisis.
Falling U.S. house prices and rising delinquencies may lead to $565 billion in mortgage-market losses, the IMF said in its annual Global Financial Stability report, released today in Washington. Total losses, including the securities tied to commercial real estate and loans to consumers and companies, may reach $945 billion, the fund said.
The forecast signals the worst of the credit crunch may be yet to come, because banks and securities firms so far have posted $232 billion in asset writedowns and credit losses. Policy makers, concerned that lenders' deteriorating balance sheets will hobble economic growth, are pushing companies to raise capital.
``The current turmoil is more than simply a liquidity event, reflecting deep-seated balance-sheet fragilities and weak capital bases, which means its effects are likely to be broader, deeper and more protracted,'' the report said. The fund warned of the risk of ``a serious funding and confidence crisis that threatens to continue for a significant period.''
UNQUOTE
Kalidas, Hong Kong
8/4/2008
Reply to Khem cho on (08-Apr-08 20:26 )
My answer is big NO
The best way to make money in stock market is to cut the losses and let the profit run. The losses are simply going to multiply. Read the following excerpts:
QUOTE (Morgan Stanley Chief Mr. John Mack - Bloomberg 8/4/08)
Morgan Stanley's Mack Expects Credit Crisis to Last (Update1)
By Christine Harper
April 8 (Bloomberg) -- Morgan Stanley Chief Executive Officer John Mack said the credit crisis will last ``a couple of quarters'' longer as it spreads to commercial real estate, European lenders with sub prime holdings and U.S. mid sized banks.
``It's going to be a difficult year for the Street,'' Mack said to reporters before the company's annual meeting today in Purchase, New York. Mack, 63, told shareholders the markets are facing the most difficult conditions he's seen in 40 years.
The world's biggest banks and brokerages have reported more than $230 billion of losses and write downs since the start of last year because of the collapse of the sub prime mortgage market. Morgan Stanley, the second-biggest U.S. securities firm, said in a report earlier this month that turmoil in the credit markets may last an additional five to seven quarters, exceeding the Asia currency crisis and the bursting of the dot-com bubble.
UNQUOTE
Do you read the words - This crisis will exceed the Asian Currency crisis and the bursting of the dot-com bubble.
Note the following:
1. The Growth Story of India at 9% clip is a cheap talk. It is more like 'drum beating' during wedding ceremony. You quote 'Growth Rate' or GDP like many investors - but none of them know what are the basic components of GDP.
2. American funds come to India as last resort, when remnant money is available. They do not give importance to India. I am in Hong Kong and hardly CNBC - International gives any news relating to India during its 24 hours broadcast, except 30 minutes commentary on Sunday, when no one watches CNBC
3. OPEC too do not invest in Indian stocks. How many countries you know who invested into Indian market? The large Middle East Fund who gave US$ 9 Billion to Citibank did not invest even one dollar in Indian market - for them India does not exist. They believe India is a country of holy cows, dirty streets, dirty people, blood in the street during religious violence and they being Muslim countries, simply hate Hindu India.
4. What is huge market of India. Per Capita income in India is not even US$ 300 annually whereas in USA the per capita income is well over $ 24000 (Annual), that is, 80 times that of India. Just because India has 1 billion people does not mean that they have that much spending power.
5. When Pension funds, Mutual funds see the opportunity in their own country, they invest there first. Only when their stomach is full with US equity, they go elsewhere. In this connection, see for yourself. When do the second or third liners move - only when the Blue Chips have already run its course. during profit taking of blue chips the funds find way into second and third liners like IFCI.
6. Yes, it is difficult to digest the huge losses you are sitting on. Most investors make this mistake. They let the losses run. If you are a trader, you have to have strict rule to cut the losses once the stock goes down by 8% because considering expenses, your loss will be 10%, saving balance 90%. If 90% capital is alive, then it is easy to make 11% to recoup the losses. But if the losses are over 50% or 60%, then either they have to average down or sit over the losses for a very very long time.
You better sit in the corner one night and ponder over the various news items and what effect will it have on the market. If your own soul tells you to stay put, believe in that answer. Your soul is always pure and impartial - it will never let you down.
Kalidas, Hong Kong
08-04-2008
Ref: 09-007R
for radhika
Who told you that Arabs are buying miles and miles of real estate in USA? someone is exaggerating to boost the real estate markets.
Arabs are not known to invest in Real Estates anywhere in the world. Further their religion does not allow investment in interest bearing bonds.
Further, America will never allow Arabs to infiltrate their country. Even the Port of Dubai was denied take over or invest in one of the major seaport in the country.
Arabs too face inflation. They also have to pay 3 times for steel and 3 times for almost every food item now. They also lose on currency - that is US$ - as result of which their imports from Europe is very expensive.
This is why President of Iran quoted only yesterday urging OPEC country to quote oil prices only in other currency like Euro. This will cause US$ to fall precipitately.
The real reason for attacking Iraq was not WMD (Weapons of Mass Destruction). It was more due to Saddam's attempt to quote Iraqi oil in Euro instead of US$ when his money of over $1.6 Billions was blocked by US government.
s
Iraq used to produce 3 Million barrels of oil per day (bpd), that is, $8.4 billion per month or US$ 100 Billion per year at depressed oil price of US$ 28/barrel at that time. If Saddam quotes in Euro, there will be selling of US$ of 100 Billion and buying of Euro, which may cause US$ to tank heavily due to such heavy volume.
The worry for US administration at that time was - if Saddam's example was followed by other OPEC countries who produce nearly 5 times Saddam's Iraq, there will be selling of $500 Billion every year of US$ in favour of Euro or other currency.
At today's triple oil prices, the figure comes close to US$1.5 Trillion.
So to buttress the Sadam attempt, US attacked Iraq to stop it from quoting in Euro and let the US$ remain supreme. Since Iran has broached the similar issue now, there is every possibility that US might find some excuse to attack Iran - so expect another major war in Middle East - this time Iran.
Kalidas, Hong Kong
08/04/2008
for Victorjunior,
you know very well I do not generally give buy or sell recommendations to boarders because I do not have their complete profile and risk taking abilities.
You also know very well that I do not change my views on daily basis.
in your specific case, where your losses are just 20%, I would suggest - Just Do it. GET OUT completely. If your 80% capital is intact, it is easy to make 25% (20 /80 %) to recover lost money.But if you lose over 75%, then you have to quadruple the money, which is unlikely for another 5 years.
I also remind you that on paper it may seem that you are booking 20% losses. However, real losses will be much smaller when, if the market sentiment improves and you are forced to re-enter at higher than your sale price - the losses will be just your last sale price - reentry price.
For example, you bought IFCI at Rs 50 and now trading at Rs 40. You are booking loss of Rs 10 or 20% on Rs 50. If the market sentiment changes suddenly due to really authentic developments, and you are forced to buy back IFCI at say Rs,44, then you are losing only Rs 40 - Rs 44 or just Rs 4 or 10%. The journey from Rs 44 to Rs 50 is still yours.
Never be afraid of booking losses. It is a tough decision to make. But remember, decision making results in less losses rather than no decision at all which merely aggravates the losses.
Before 31/3/2008, I sold my 36000 shares of Abhishek Industries (/average buying price Rs 33) at Rs 16 or about, losing almost Rs 6 lakhs, that is, over 50% but I am not worried.
When I find that market has really improved on solid fundamentals, and Abhishek trading at say Rs 20, I will not hesitate to buy back. In that case, my loss will be just Rs 4 or 4/32 = 12.5% against originally envisaged 50%. Because from Rs 20 onwards till Rs 33, the journey is mine and my paper losses will be minimized.
Brooding over losses does not get back your money. In stock market, only decision makers make money. This is why they are called 'risk takers'. No decision or delayed decision always tend to lose money.
This also builds your character. Once you start making decisions, your entire life improves, and out of 10 decisions, may be 3 may go wrong but 7 correct decision will wipe out the negatives left by the other 3 wrong decisions.
And though unrelated, treat your stock market losses as cost of learning the art of decision making.
Kalidas, Hong Kong
9/4/2008
for Dhina,
Good question how did I lose over 50% in Abhishek Industries/ As advised to other boarders, I sold 72% of my entire holdings, keeping only 2 or 3 stocks, especially those having great value.
Abhishek unfortunately fell into last 28%. Further, I was travelling from mid January,and the market fell in one big swoon by 3000 pts.
When the situation worsened, I sold out entire holding for two reasons. If I sold before 31/3/2008, I will get set off of losses in Abhishek by Rs 6 lakhs which saves me short term taxes by 30% (some say it is only 10% - but this is my first experience), so I would be saving Rs 2 Lakhs in taxes.
By selling in March, I wanted to buy back in April or later when the market takes a big dive. If my guess is correct, Abhishek may drop down to single digit because it is illiquid stock - it took me 4 sessions to sell entire lot of 36000 shares.
I hope this satisfied your query.
Kalidas, Hong Kong
10/4/2008
for Googol,
I saw your question but at first I ignored it because this question is answered by me many times in the past. I reiterate same sentence again.
DEATH, ACCIDENT, STOCK MARKET CRASH AND NEW CUSTOMER CAN COME AT ANY TIME WITHOUT NOTICE. They are uninvited guests.
When the market falls steeply, you do not know the individual exposure of investors - some may be using their own cash -100% - so they do not become distressed sellers, and some highly leveraged one , who become distressed sellers due to margin call. Some may be overweight in overseas market, so they become seller of Indian equity to meet the margin calls overseas. In short, one fire will lead to another, and there will be wildfire like one you saw in California.
I wish I knew when exactly that crash may come. We know it will come in months, not years, but precise date is as difficult as to predict the death of a person in ICU - when even Doctor would say - do not pay us - better pray God to save his (patient's) soul.
Kalidas, Hong Kong
10-4-2008
for tamal
I replied on this subject on many times, so I avoid repetition.
Do not know about ETF in India. Ask others who know about it. I am a physical buyer of gold 24 Carat (9999 purity) in raw form or lagdi or bar. We can buy and sell easily in Hong Kong.
If you are buying Gold as ornament (22 carats), you pay laboir charges @ Rs 120 per gram or Rs 1200 per 10 grams or about 12.5% more than raw form. Further, if you buy as ornament, your mother or wife will never let you sell it, though they will welcome purchase.
When you try to sell 22 carats gold, the shopowner again deduct 'Kasar' and also deduct making charges. So again you end up losing additonal 12.5% or even 15%. In short, in two way trade you lose 25%.
So even if you buy Gold now, you will break even at $1175 ($940 basic price +25% buying/selling loss). When will you make money?
If you are not interested in buying gold in 'lagdi' or 'bar' form (do not buy Coins for same reason), then just forget it. Better focus on what you are doing right now or focus on your job/business to make more money.
Kalidas, Hong Kong
10-04-2008
for Victorjunior
Use rally, say 2 or 3 days in a row, as selling point on close of 2nd day (last 15 minutes) or in first half hour of third day.
How much should you sell is your discretion.
Kalidas, Hong kong
11-Apr-08
Reply to Guest on (10-Apr-08 10:23 )
I never said that I would stop writing only because some nerd writes against me. I am immune to such attacks. We live in democracy, and all have rights to say what they want, be they to our liking or not.
Regarding George Soros, his prime days are over. Of late, he has been making mistakes in his investments, because being a philanthropic, he has been focusing more on charity and politics. It looks like that this great and dynamic investor is resting for a while or has just tired of investment field. Those who are major investors, never give speeches; they just act and inform the world after their actions have borne fruit.
Finance is a serious business, it is as if you are a Pilot flying a plane. You have got to be alert at all times, in turmoil, bull run or consolidation phase. Opportunities come every day, every moment in the stock market. There is nothing like - this stock may never fall or never come to my hand at target price. Even mighty IBM fell at one time so did Apple which came down to $12 only last year (today at $154).
With regard to your poser for a rally, I made my point several times. In short, these are 'Sucker's Rally'. Before Tsunami arrives, the ocean withdraws itself big time, which is the first sign of lethal tidal wave in the making.
Observe nature at all times - it teaches you so much that even Harvard can not reach those horizon. The whole world moves in unison. Just as birds get first scent of imminent danger, human too should follow bird's instinct - that is called - sixth sense.
Kalidas, Hong Kong
11-04-2008
Reply to tamal in on (10-Apr-08 18:32 )
In 1960's, my mother bought gold @ Rs 260/tola (about 11 Gram) when my father's income was just Rs 300 per month. It was also considered expensive relative to income.
I started working for Standard Chemicals at Belapur, Navi Mumbai in 1968 with a salary of Rs 300 per month and then joined a nationalized bank @ Rs 330 per month. Even then we bought gold at that time at much higher price.
In 1980s the gold shot up to US$ 800/Oz. In 1984, upon transfer to Hong Kong for that bank, I bought gold at one stretch 94 grams because my income level increased.
Since then the persons of my caliber or seniority (which is more valid argument), their salary had multiplied 8 times.
The gold has in the meanwhile dropped to US$ 260/oz and then recently shot up to $929/Oz - which is just about 15% higher than level of 1980s (27 years ago) in spite of income having multiplied by nearly 10 times.
What I am trying to say that gold prices are relative to personal income, not in absolute terms. Considering the inflation for 27 years, the gold should have been trading at $3000 minimum to $ 5000 for proper valuation.
So I find difficult to accept your argument that middle income class will find hard to buy the expensive gold.
During my visit to India, I found that in almost every household, wasteful expenditure take priority - like Mobile phone, going anywhere by Auto (we used to walk down to Ghatkopar railway station in Mumbai at about 15 minutes walking distance) and spending lots and lots of money on so called necessities which are in fact not necessities at all.
One of my friend also does not walk much - he simply picks up the auto as soon as he gets down to the road. He does not walk and later in the evening, when he returns again by auto and going back to Gym by auto again, spending over Rs 800 per month for just walking exercise.
I asked him if you really want to walk, why go to Gym and pay Rs 800 every month and also spending Rs 1200 for auto transport per month, when you can as well walk down the street to station for 15 minutes? He felt shy and kept his eyes down, telling me only two words ' Social Status'
So Gold is not expensive compared to rise in income level for middle class. I find most of my friends donating over Rs 50000 just to get their grand children admitted in convent school, whereas I used to pay Rs 5 per month for my normal fees during 1955 to 1964 in secondary school.
Middle class will find ways and means to buy gold at any time, even if it is at $ 5000/oz level or Rs 50,000 per 10 grams.
I bought my apartment in 1976 during Indira Gandhi's emergency for just Rs 65000 (1000 sft) and today its market value is Rs 55 lakhs, suggesting that the middle class do have enough money to buy gold if they have any will to.
Kalidas, Hong Kong
11-04-2008
Reply to pkk07 on (11-Apr-08 17:07 )
Reg: Quantum Gold ETF.
Looks good to me, though I have to study Offer Document in detail.
The offer document link is (Use (.) instead of DOT)
w WW.quantumamc(DOT)com/schemes/GoldETF_Offer_Document.pdf
The Net Asset Value is worked out by following the link as below:
w ww .quantumamc(DOT)com/schemes/GPC.html
The Offer Document does permit investing in derivatives on Page 55 as under:
INVESTMENT IN GOLD RELATED DERIVATIVES
The Fund may use derivative instruments related to Gold only after the same is allowed under the Regulations.
'Regulations' has been defined as under:
SEBI Regulations or Regulations:
Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, as amended from time to time.
If one is sure that SEBI regulations do not permit investment into any other avenues except physical gold, then it is a good protection for the investors, and also good substitute of the physical gold:
Other things to note:
Point 1
They have worked out Import duty, VAT etc which is really not applicable, because the gold is parked in London. There is therefor no physical import, so no such charges are applicable. However, the charge is very small and may be ignored.
Point 2
If Rupee appreciates, the value of gold will fall to the extent of appreciation. For instance, current reference rate of 4/Rs as per RBI = Rs 40. Presume that Rupee rises to Rs 36 and Gold rises in international market to $1800.
The 100% gain will be reduced by adjustment of exchange rate by 10%, so real gain may be between 85% to 90%. However, same yardstick apply to buying of gold physically in India. So there is no difference for Indian investors
Point 3
If you buy directly from Quantum Gold fund, there will be LTCG (Long Term Capital Gain) @ 20% if you hold the fund over 1 year
If you hold the fund less than 1 year, the income will be added to your normal profits and will be taxed according to tax slab applicable to you at the time of filing return
IMPORTANT
In my opinion, it is not advisable to buy the fund from Quantum directly. Instead, one should buy it from NSE at the moment, because of two reasons:
1. The fund is trading at almost par
2. If you buy this ETF from NSE, it will be as if you are buying listed security from the market. In that case, if you hold this fund by buying from the NSE and sell it after one year, there will be NO TAXES because any security bought and sold through recognized exchange is free of LTCG (Long Term Capital Gain Tax) if held over one year.
3. Thus, if you buy directly from Quantum Gold Fund, you end up paying 20% tax and if you buy the same fund through NSE, you will not be subject to taxes at all, if held for one year and above.
Those who have bought the Quantum Gold Fund from the issuer directly, should sell it on exchange first, then re-buy it on following day and then hold it over 1 year. May be they will bear some brokerage around 0.5% TO 1%, but they save over 20% for holding it over one year.
The only caveat is if gold prices changes very much within one day, then the gain will be reduced to that extent.
There is an alternative. Sell the QGF through NSE or through the fund direct, which might have been held in your name (Say) and then buy back at same time in your son or wife name. You now save taxes by 20%.
The investors should consult their Chartered Accountant for advice.
If you are not holding any QGF from the issuer directly, the above caveat does not apply. Buy from the NSE directly instead of buying physical gold.
The important difference between DEMAT gold and Physical Gold is that in the event of War or riots or political instability, Internet will be first casualty, and you may not be able to trade through exchange. If you have physical gold, then you are the King even in turmoil. THIS IS REMOTE POSSIBILITY.
For all practical purpose, this appears good alternative to physical gold.
Kalidas, Hong Kong
11-04-2008
Ref: 09-004
for tamal in
If the prices rise, people put off the purchases. When they find that prices are not coming down they compromise with themselves and pay up the ruling price.
Social custom in India will never let gold demand to ebb. May be it slows down - but when the marriage season arrives, people do buy jewellery for their daughter/sister as obligation, not out of pleasure.
Again, I reiterate the gold price is not expensive relative to rise in income level in India. If they can not buy 20 gms, they will buy 5 grams, but they do buy. Quantitavie consumption may slow down, but value terms, it will rise.
Kalidas, Hong Kong
11-04-2008
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