Cunning Paulson and Idiotic Americans

1)
When I wrote a few months back that total losses in banking system was about $8 Trillions, many criticized and even laughed at my figures, quoting my lower figures from IMF. Now, let us see the facts today:
$ 512 Billions – Already written off by banks and brokers
$ 59 Billions – Given to Bear Stearns and JP Morgan combine
$ 200 Billions – given recently to Fannie Mae and Freddie Mac
$ 85 Billions – given to AIG as capital
$ 2,400 Billions – Needed by Fannie Mae and Freddie Mae
$ 1,300 Billions – Needed by AIG for future provisions
$ 700 Billions – Requested by Paulson – Bernanke for immediate need for Buying Bad debts
$ 400 Billions – Requested by Paulson – Bernanke for funding Money Market Fund Brokers
$ 5,656 Billions – TOTAL
$ 600 Billions – Losses of Lehman Brothers not yet written off
$ 6,156 Billions – Updated Total

Even if you ignore the future obligations of AIG and Fannie Mae/Freddie Mae, the amount comes to staggering 2,456 Billions or 2.4 Trillions or Rs 11,052,000 Crores in Indian rupee. My calculated forecasts were extremely accurate.

Failure of Morgan Stanley – Goldman Sac and making them Banks”

Looks good news - both MS and GS have become banks. And why did they become banks overnight? Because their take over by Wachovia, Chinese Banks etc broke down. No one wanted to buy MS or GS, and they would have become bankrupt this week. By giving them status of bank, their status changed overnight. They know nothing about commercial banking. The license to become a bank, which usually takes over 6 months, was given in 24 hours. Mr. Paulson is now portrayed as “savior of America”

Where was Paulson only 10 days back when Lehman Brothers and Merrill failed?

Cunning Paulson is from Goldman Sac. He was the President and obviously has lot of stock holding in that firm, directly or indirectly. He did not want competitors to Goldman, so he allowed the demise of Bear Stearns, then Lehman Brothers and then crucified Merrill Lynch by forcing them to merge with Bank of America.

Now that field was clear, he permitted MS and GS to become banks. He destroyed the whole economic fabrics of United States of America. He knows that most of the bad assets have ZERO value, and yet he portrays that the value is still 80% (only 20% loss – if that was so, any one can afford). Against this valuation, he wants FED to pay 65% (discount of 35%) to all holders of Bad Debts, prominent of whom are Goldman Sac, Morgan Stanley (to lesser extent) and other banks. He is going to write the check for $ 700 Billions with no questions asked. So he will buy those trash assets and dump them into FED Trash House. He will save the Goldman Sac, destroy all other brokers, and he will be the most powerful KUBER in the world with power to print as much as $ 1.3 trillions of dollars in just under 3 months and distribute them to anyone he likes.

President Bush is a man with retarded intelligence. He is exhorting Congress to approve the package to buy trash assets, whereas almost all local governments of 50 odd states are clamoring for $ 200 billions collectively, which is denied to them. He spent $ 500 billions in Iraq and murdered 1 million Iraqis in addition to killing over 5000 Americans in Iraq and Afghanistan, and now he wants Congress to approve $ 1.3 trillions in less than 7 days. The Americans blindly support their leaders – they are Intelligent Idiots. They have no idea what their leaders are doing and how their and future generations lives are destroyed.

Bernanke has become a Gate keeper for Paulson. He opens the gate to the treasury to the person nominated or permitted by Paulson. He also signs and delivers the tons of dollars to anyone coming to him with Warehouse Delivery Order duly signed by Paulson. These three musketeers – Bush, Bernanke and Paulson have virtually gone berserk. They are the most powerful people in the world today with virtually no accountability. Democracy in America is ruined by them.

Arnold Schwarzenegger, Governor of California and very sincere worker, is refusing to travel out of capital even for a campaign; unless his budget, deficient for a few billions, is passed by the Democrats dominated Congress. He has virtually imprisoned himself to ensure that his state does not suffer. He is not getting $ for his genuine needs. Various state/Municipalities are borrowing from the market @ 10% to 20% whereas FED rate is just 2%

GOD SAVE AMERICA

Kalidas, Hong Kong
Ref: 08-085-O

2)
for shubgurudirect,

The credit crisis is only deepening. If trillion dollar crisis were to be resolved with the announcement of just Paulson Plan, the crisis would not have seen dire days. The correction in DOW is not even 20%, that is, from peak. The real correction is said to be nearly 70% when the stocks could be considered really cheap.

The correction in US market is limited to only financial stocks. However, when the money disappears into black hole, other companies too will suffer belatedly. that is called 'lagging effect'.

The broad outline of Paulson plan does not indicate anything concrete, except that he will need $ 700 billions - without mentioning how they would be repaid. He is relying on buying Bad Assets that have ZERO value for which he will pay not less than $500 billions. We have to wait for his detailed plan to be released at the end of the week.

sub Prime has no similarity with the mortgage in India. Both are miles are apart. No comparison at all.

Yes, the property prices in Bangalore has gone very high and almost unaffordable as seen from the rent itself. 'RENTAL NEVER LIES' is the unwritten principle of property market. I have my own rule - The possible value of the property is arrived at as under (This rule apply universally in every center)

Bargain property Price = 120 times x Annual Rental value
Reasonable Property Price = 160 times x Annual Rental Value
High Property Prices = 200 times x Annual rental Value
Absolute Bargain property Price = 100 time or below x Annual Rental Value.

Example, if the rental in Bangalore apartment is Rs 12000/month or Rs 144,000 per Annum (Monthly maintenance is borne by the owner), then the equation is settled as under:

Absoute Bargain price = 100 x 12,000 = Rs 12,20,000
Bargain Price = 120 x 12,000 = Rs 14,40,000
Reasonable price = 160 x 12,000 = Rs 19,20,000
High Price = 200 x 12,000 = Rs 24,00,000

If you want to be sophisticated, use the projected Rental value which is generally not accurate. Present rental is a FACT so it is reliable. Above prices apply to built in apartments. If they are houses, some allowance may be made for upside for vacant plot. However, I use the fully permissible built in area as guide. If prices are higher than above, the prices may come down or rental has to go up. Mostly, the prices come down.

If you are buying Commercial or Residential Land, then find out fully built up ratio and number of units. check the possible rental value currently and then use the above formula to work out the cost or selling /buying price.

Use the above formula anywhere - any you will find it incredibly accurate. You do not have to go to the Architect to find out the true value.

If the interest rates go higher, as they are now over 10%, the mortgage becomes unaffordable as you have said. In that case, the rental has to come down, so also the property prices. Above formula is just a guide and not absolute truth, because in property often the location also counts. However, better location also attract higher rental that increases the property price.

I disagree that India will see the kind of correction seen in US property market. There is a myth about US property Market - the property market has hardly dropped by 15%. Which is normal. however, the 5 to 6 times the leveraged derivatives were issued against those properties that have come into default. The absolute property market in USA are as good as in India even today.

I returned from USA recently. My daughter bought very expensive property worth $1.8 Million and placed her old home for sale for $ 420,000 against possible market value of $ 460,000 (highest peak was $ 535,000) She found almost 15 buyers and within 15 days, the property was sold. This was in Orange County, California where the crisis is at its peak with most foreclosures.

Kalidas, Hong Kong
22/9/2008

3)
Correction to above article:

Use Monthly Rental instead of Annual Rental Value
If you are using the Annual Rental Value, divide the multiplier like 80,100,120, 160, 200 by 12.

The correct formula is n x monthly rental value
or n/12 x annual rental value

sorry for the error

Kalidas, Hong Kong
22/9/2008

4)
for DUstocks,

As I have said - RENTS NEVER LIE - the prices prevailing in Delhi is incredibly high - either Rental has to go up or the property prices have to come down. 250 times Annual Rental value is considered high end of the prices. 550 times is a screaming sell. Right now, the property market in India is extremely high by any standard. The prices have doubled or even trepled. The rentals have not kept pace with the higher capital cost. If I have Rs 1 crore and the rental is not even Rs 3 lakhs per year which is just 3% yield, it does not make sense, because the bank deposits yield over 10%.

for example, in Mumbai where I own two apartments. One fetching a rent of Rs 18000/month. 200x 18000 = Rs 36 lakhs and 250 x 18000 = Rs 45 lakhs which is the current market. However, same flat was bidded for Rs 65 lakhs by one buyer only because no new buildings are coming up. Only last December, I wanted to sell it to the existing tenant for Rs 48 lakhs but he could not raise the loan from his bank in time. My rentals are low, compared to similar part on East side, because my property is old and does not have Elevator.

In another apartment in NRI complex, Mumbai, my rentals are again Rs 18000 n the complex of 1600 apartments. I did let out almost 18 months ago, and current rentals are almost Rs 35000. At 200 times, the value comes to Rs 70 lakhs, and I am offered Rs 1 crore which is 286 times. The rentals are low because of many vacancies. Reliance bought about 200 apartments in that complex which shot up the price. This is one time event.

In Banglaore, my friend bought an apartment for Rs 24 lakhs, now quoted at Rs 40 lakhs. He gets a rental of Rs 14000/month in block built up by L&T. The ratio comes to 286 times. When the old tenant vacated, he is not getting new tenant offering same rent or even lower. Finally, he let it out in distress for just 8 months @Rs 8000/month which makes the valuation Rs 20 lakhs (250 times), lower than his purchase cost. If he tries to sell for Rs 40 lakhs, I doubt he can get that price due to soft market in Bangalore.

In centers like New Delhi, higher floor apartments are sold at cheaper price than on the first 2 floors, due to extreme weather. In Mumbai, new buildings command the rent premium of Rs 100 per floor on base price. that is if the lower floor price is Rs 5000, the tenth floor price will be Rs 6000/sft. This holds good for sale by builder. When they come to secondary market, no one bothers about per floor premium.

In Hong Kong where I live in rented apartment, the rental is HK$ 11200 per month + Maintenance $800 = HK$ 12,000 per month. 200 times = $2.4 millions which is high. The price is about HK$ 2 Millions which makes it nearly 167 times. However my rental is low because I am old tenant for over 21 years.

I returned from USA where my own daughter sold an apartment for $ 420,000 which, if let, would have got the rental of $2,400 per month. This is nearly 175 times - a fair value. She bought a bungalow for $ 1.8 Millions (bare value without furniture was $ 1.4 millions). If let out, it will bring the rental of $ 6500/month. Taking a base of US$ 1.4 millions, the ratio works out 216 times - still relatively high price on the face of it, but it is a house with extra 6000 feet open space for patio, s/pool etc. House always command 25% to 40% higher premium than apartments.

The formula that I have given is for adhoc valuation. You do not have to engage the services of an Architect for oficial valuation spending a fortune. Often, when you try to purchase property, the seller quotes incredibly high price and the brokers too will say that they handled the sales near that value. They would lie about it. However, if you ask that you want to rent the same or similar apartment, same broker will quote you the real Rental. Now, you are in a position to work out the potential price of the said apartment.

Kalidas, Hong Kong
23/9/2008

5)
for bubbu64,

Oil prices were recently brought down by Oil future Index/dollar index manipulation presumed to be by Robert Rubin of Citicorp who manipulated oil prices lower in the past. However, he could not continue to buy dollar index to boost US$ - Citibank had no money - so he abandoned it on settlement day, where he has to physically make the payment in USD and deliver the Oil shorted by him. Earlier, the group of 3 Arab nations were buying oil contracts and selling dollar index in London market. This is why the oil was going up.

US financial system is under attack by a group of nations operating from outside of USA where US jurisdiction does not reach. There was no imblance between demand and supply as many ignorant analysts or economists are talking about.

In my book, where I have devoted entire chapter to Oil prices, I have expalined graphically, how certain nations are attacking the US financial system and getting away with it.

Nevertheless, I do not think that Oil prices will reach $200/brl.

Gold prices are likely to go North. A time will come when the spike in Gold prices could be as high as $ 100 to $ 500 per day, because of one secret reason that I have disclosed in my book where one chapter is titles 'Where is Mackenna's Gold?'

Kalidas, Hong Kong
23/9/2008

6)
for psgs,

NEVER ever think of buying US companies, you will always lose. I had always advised my customers, if you want to lose entire money in direct investments, invest in China and USA

The Ambanis, Tata, Birlas are just kids so far as US market is concerned. They are still in their shorts. It would not take more than 12 months to make them go bankrupt.

Look at TATA. When I wrote against Tata's takeover of Corus, people pounced on me that how can I sitting from cozy office in Hong Kong could pass judgement on successful businessman like Ratan Tata. Look at his stock prices and his take over. The steel prices have been rolling down, his debt cost is soaring and rupee is depreciating making him an idiot, that is what I had projected. Just because he is Ratan Tata does not mean he is not prone to mistakes. Big firms make the biggest mistakes - look at all big names on Wall stree and Banks.

It is more like an ODI Cricket match - top 5 batsmen are out in quick succession - Bear Sterns, Lehman Brothers, Fannie Mae, Freedie mae, Merril Lynch and now Morgan Stanley and Goldman Sach. In other words, only tail enders are remaning.

You know in cricket what happens when the top order batsman are out for less than 50 on the score board. We call it Cricket Collapse and blame the Captain or Tendulkar or Ganguly. We have replacement on the Washington. Bush, Paulson and Bernanke replaces Ganguly, Tendulkar and Dhoni.

I saw an interesting sign - Wall Street ends here.

Kalidas, Hong Kong
23/9/2008

7)
for DUStocks,

Thanks for evaluating my simple formula. I am aware that in certain centers, the formula may show properties very high priced considered to be reasonably priced. But the formula, that I have been using for 21 years, is incredibly true. It gives fairly accurate gauze (85%) of the property prices.

I have following explanation for your general information:
1. The property is a long term investment. The crash or correction in this market is not on day to day basis. The property market generally goes for correction after every 12 years. This is approximation.
2. There may be certain New Delhi specific factors that keep the rental value low. I am not aware what.
4. The figures of yesteryears are not strictly comparable in India. The reason is about 10 years ago, the mortgage or bank lending on property was non-existent. The people used to sell old dwellings and buy new one from their own savings. The landscape has changed especially in last 5 years, when the Mortgage financing has become one of the principal source for buying home. Due to availability of more finance, more demand is created, that pushed up the price of the property.

Example: while I was in India, and working in a nationalized bank, there was a craze to take up the job. Because the Staff Housing Loan at cheaper rate (2% for RBI and SBI, 6% for other nationalized banks) was the most attractive reasons for such employment. There was no facility for Mortgage for non-bank employees. At that time, the only other lender was Citibank, lending at the rate of 15% up to Rs 20 lakhs. Even in nationalized banks, the loan amount was restricted to Rs 3 lakhs (in our bank)

This has materially changed. Today, anyone can approach ICICI bank, HDFC, SBI or other banks and get the loan up to Rs 1 crores for self use apartment. Due to availability of funds to general public, their demand for home has increased. They do not have to sell their other savings to buy the home (except for margin amount)

This is why the prices in major metro cities have doubled or tripled, without corresponding rise in rentals, that placed the factor at 550 as you have said. This is unsustainable figure. As you have said, when the flat cost Rs 8 lakhs, the rental was Rs 1500. the rental did rise to Rs 4500 and capital value rose to Rs 24 lakhs. Your old rent was catching up with the old capital value. 180 x 450 = Rs 810,000 which was your old value.

In cities like Mumbai, the capital value rose more than Delhi and other metros for the reason that Rental Law in Mumbai were stringent that forced the landlord not to take risk in letting out their flat, for fear that tenant may not vacate. My own apartment in Ghatkopar, Mumbai was kept vacant for 20 years (from 1984) for the fear that the tenant may not vacate on expiry of lease.

Over 100,000 apartments owned by NRI were vacant. It is only recent years that rental law are more accommodative that investors have started renting out. As recently as now, It took me 2 years to let the existing tenant move out. I have decided not to let the apartment again - but simply sell it out and buy the property in USA or Hong Kong

As result, there was only one option for Mumbai residents BUY the property, because no other property was available for rent. In other centers like Delhi, Ahmedabad, Banglaore, Chennai, there were options - either Buy or Rent. If rental is cheaper than the bank interest, people will rent. This is why the property prices in Mumbai rose faster than other centers.

Another reader Mohan just returned reply that my formula holds good for him in Mumbai.

My formula gives you 'approximate' value whether it is high or low. There are many other factors affecting valuation, like location in same building. For example,my own apartment in NRI Complex in Mumbai command 6% higher price due its location opposite club house and swimming pool with 180 degree view.

Kalidas, Hong Kong
23/9/2008

8)
for bubbu64

Agreed that Oil prices are manipulated through derivatives nowadays. Arab nations are pushing up and Americans most possibly led by Robert Rubin are pushing it down. I can amplify on this who did what and how - but it being the subject matter of my book, I am not dilating right now before publication.

Read the following article in Bloomberg today. Only extracts are produced here:

BLOOMBERG QUOTE:
Crude oil for November delivery fell as the dollar rebounded from a one-month low and after the October contract climbed more than $25 a barrel in its final trading day yesterday, a record one-day gain.

Oil rose to its highest since Aug. 21 yesterday as traders scrambled to unwind positions on the October contract, the dollar declined the most against the euro since January 2001...contd.

The October contract rose $16.37, or 17 percent, to expire at $120.92 a barrel yesterday on the Nymex. It touched $130 in intraday trading, as traders who sold the October contract last week, when oil dipped close to $90, had to buy the futures back.

Traders `Squeezed'

In a squeeze, a trader has gone short by selling contracts betting that the price will decline. In the last days before the contract expires the trader must buy back the same number of futures or be forced to deliver the underlying oil.

UNQUOTE
What is happening is Oil derivatives are being played against dollar index derivatives. Near settlement day on NYMEX, the traders have to reverse their bets.

You have to be very active traders. Everyday, there is some or other newsflow. the market is driven by such newsflow.

Yes, the demand for Gold is genuine, still dollar index is the key. If the dollar moves up in paper, Spot gold goes down. there is one news I have, that only I have after months of research, if it is known to the world, the Gold price may rise to $3000 in no time. However, I do not know whether my investigation will really be accepted by the market. You should be careful in trading gold, because if the Paulson Plan details are better than expected, the dollar may rally that may dampen the precious metals. Watch for October 2 which is the day on which major announcement will be made and the ban on short selling may ease or prolonged. If short selling is allowed, the financials will fall very fast that may cause Gold to go higher.

I do not think SENSEX will move to 3500 at all. there will be strong buying if it falls to 8000 key level. Of all the markets in the world, SENSEX and Brazil are the only markets with real strength. Domestic demand is finally outpacing the FII in SENSEX.


Current situation is purely a Trader's Dream Market. The trader loves the volatility. They buy on great dips and sell on rally. It is more like Butterfly swimming.

Kalidas, Hong Kong
23/9/2008

9)
for Guest (Ashish Saxena)

In meltdown, there will be mayhem and there will be no targets. It will be like 'ODI' , the batsman comes and go wielding his bat from the first ball he faces in.

Only today, CNBC - USA showed the acute conditions on the main street (the real business is called Main Street as different from Wall Street which relate to only finance, stocks and bonds). A giant and most reputed corporation like McDonald was refused the credit line by his banker Bank of America.

The bank like BOA has paper money (all stock deal of $50 billions) to buy Merrill, but have no money for blue chip like McDonald for expansion of their franchises that require the purchase of restaurant equipments like Coffee Machine (to counter starbuck), and other kitchen equipments.

there is a report or say rumor that credit agencies will be hard pressed to downgrade the credit rating of US government from AAA to AA or even below with negative implications. If that happens, the hell will be let lose, because the Pension funds under their charter are not permitted to invest in any securities less than AAA.

there were also reports in Financial Times today that there is acute crisis in Money market where the customers have been withdrawing the money in billions. Here is the extract.

QUOTE from Financial times
Money market funds in the US suffered an estimated $197bn of net outflows last week as confidence in their safe-haven status weakened after one fund “broke the buck” and others closed.

The outflows mark a new and potentially dangerous phase for the $3,400bn money market fund industry as continued redemptions could result in forced selling of their securities into illiquid bond markets
UNQUOTE

Further there is a real possibility that -
1. GM may file for Bankruptcy
2. GE or General electric may come into serious problem
3. there could be riots even before election. May be a Civil War in the third week of October,
4. If US does not take right actions now, it may go USSR way - Break Apart in less than 3 years (reduced from 5 years earlier)
5. The Senate should not under any circumstances permit the Paulson to buy the bad debts from the banks, but the let the banks file for bankruptcy.
6. Instead, it should pump in $400 billions to smaller banks to encourage lending to genuine business like McDonald and other $200 billions to various state/local governments so that their government runs in normal course and they manage and clean the towns as always, otherwise health conscious Americans will simply revolt.
7. The majority of Americans possess guns that may come handy in riots. US government should cancel all Gun License under emergency rule so that the situation does not go out of control.
8. Under the extreme circumstances, it is difficult to give direction of SENSEX. If the market in US take serious downturn, the margin related calls will force FII to sell the Indian equities and migrate the funds to their respective homes.

Kalidas, Hong Kong
23/9/2008

10)
for sambala

Thanks for quoting. It reinforces the fact that the Congress and Bush Administration's response to crisis is indiscriminate. While it took 95 days to pass the Californian budget having $15.2 billions deficits, Paulson-Bernanke combine want to give just 7 days to the Congress to pass the bill authorizing creating a deficit of $ 700 billions with unchecked powers or accountability. There will be additonal spending of $ 400 billions for Money Market funds which are under extremely heavy stress.

Only yesterday, it was reported that Caterpiller had to raise commercial borrowings at whopping interest rates unheard of for a blue chip company, so also denial of credits to another safe blue chip McDonald for whom doors were slammed by Bank of America who took over the Merrill Lynch.

If all of you who heard the proceedings at the Senate where the Paulson and Bernanke testified, would have known that almost everyone was still groping in the dark without knowing the what the future holds for them and how much money will ultimately require to settle the crisis.

Is it not amazing that President Bush himself did not appear before Senate with his team when extra ordinary sum of $ 1.1 trillions is discused for immediate spending? ($700 billions for buying bad debts + $400 billions for Money market).

Bernanke was also opposing for the sake of market not to buy the bank's bad assets at "fire sale" prices. This means that he wanted to pay higher than the current price of a few cents just to restore the confidence in the market. Wow, the American Tax Payers's money may be spent to pay for bad debts far excess in the current prices (there is none or just a few cents per $100).

In Gujarati, we have a saying " Ko na Baap ni diwali?"

Kalidas, Hong Kong
24/9/2008