A Nation on the Grill

1) Dear Baorders,

I have posted highly investigative article "US- A Nation on the Grill". There are many questions like instead of such mesmerizing troubles in USA, why $ is going up and Gold/Oil going down (Gold went up only yestersay)

WHAT THE HELL IS GOING ON is the subtitile of my article. Please visit my website http: //anilselarka.wordpress. com (remove the blank space)

Following are the few paragraphs of myarticle. Since it contains many graphics, it may take little more to load.o have the patience.

Quote:
Oil down, Dollar up, Gold Down
What the Hell is Going On?

A true nature of a person or nation comes to the fore, when it comes under extreme duress. A bankrupt person, corporation or a nation tries very hard to project itself as a person of extra ordinary means, contrary to facts, figures and market rumors, and go on shopping spree.

This is why billions of dollars are being paid by one bankrupt bank or corporation to the other in take over process lasting only a few hours. No due diligence, no submission of bid to the board, No minority interest, no news out – just black out.

Today’s scenario reflects “blind game”. No one knows about self or other party. The suitor does not know what he has, and the target does not know what it is worth. The vultures circling on the prey, ask for $700 billions with no questions asked.

The President of United States, Senators, and Congressmen are stunned at the attack of unknown origin and extreme brutality. This is an act of extortion of $700 billions. Call it “Blackmail of Greenback” if you like.

With worsening scenario being played out every day, no one in right mind will ever buy US dollar. Look at the box under Dollar Up and consider the following:
• Fannie/Freddie Mae got $200 Bln,
• AIG $85 Bln,
• JP Morgan got $59 billions ($30 Bln for taking over Bear Sterns and $29 Bln given to Bear Stearns itself),
• Washington Mutual Bank (WaMu) was given $230 Bln in last 3 months, all zero now,
• $673 Blns flooded into the market on Dow’s fateful day losing 778 points, and
• Billions of others not yet declared but given to host of banks, brokers and investment banks.
• $700 billions are now planned to be spent to buy the rotten and Zero value assets of the bankrupt banks.
• Bernanke opened up the empty treasury and also opened up largest currency printing press in the world, working 247365 or 24 x 7 x 365 (24 hours a day, 7 days a week and all 365 days a year) Never before in the history of United States, the dollar was printed with such intensity and also disappearing with the speed of hurricane category 6 into a giant black hole

No foreigner in right frame of his mind would at this point of time buy US dollar against his own currency, be it Euro, Pounds, Yen, Yuan, Aussie Dollar or any damn local currency.

With Dow falling, bonds collapsing, properties dumping, interbank dealing sine die, who is buying the US dollar? Why Euro, the most alternative currency for US dollar is falling, when it should have gone to almost magic 2.00 figure?

If any foreigner wants to buy stocks or bonds or $ class assets, he has to sell his own currency and buy $. Then only $ could go up. But when the foreigners are not buying $, in fact they are dumping dollar assets. In that case who is buying this bankrupt dollar?

About 10 years ago, whenever Dow rose, dollar also used to rise, because foreigners have to buy $ first before buying stocks or bonds. For the last 5 years, especially in last 3 years, dollar is falling while the Dow and Bond rising. This means that there is no demand for $ from overseas, it is only from within. The dollar so printed by FED is being used to manage (or manipulate) various sensitive commodities like Oil and other foreign currencies like Euro.

Who is Buying Dollars, Why and How?
Of course, the Americans by themselves. Not the ordinary resident Americans. They are just naïve and innocent law abiding citizens. The crooks are in the corporate world.

Some US institutions, in US and newly floated off shore corporate entities, under the ostensible authority from US administration, are now buying US$ index and shorting Oil heavily on NYMEX. They appear to have been commissioned to search and destroy the vicious circle of oil price rise which is the major cause of inflation.

This is similar to the practice being adopted during the days of Clinton Administration when the Rupert Rubin was the Treasury Secretary. He was a proponent of strong dollar policy, and during his administration, the Asian crisis unfolded, Enron was created and busted, LTCM with over $1 trillions of exposure to the market was bankrupted. His policies and practice were known as “Rubinomics”. He engineered the rescue package for LTCM with the help of local and foreign banks and brokers, raising $ 3.6 billions .....

The article is long; contains charts and flow diagram, please visit my blogsite.

Kalidas, Hong Kong
7-10-2008

2)

for diliphm - Agreed that domestic Corporate Tax rates are very high at almost 35%. This is disincentive. However, the US corporate contribute very little to taxation. Most of the taxes are paid by the Individuals. In my book I have suggested complete overhaul of taxation system. - We can not take into billions of dollars of drug and other vice money. However, US may announce Amnesty scheme to ask all American corporations and citizens to declare their income and pay once say 25% to legalize the money, so that official money supply is more. - Off shore is the main problem. They should de-legalize activities of all corporations and citizens operating in Off shore - Unaccounted money portion is very small in USA. We can not take the money out of drugs, prostitution etc for officializing them Kalidas, Hong Kong 7-10-2008

3)

	Consumers never leverage themselves into billions as the banks and brokers do. The banks, brokers and Investment Banks deal with other people`s money (OPM) whereas the individuals deal with their own, even if it is creadit card. How many times in the history of the world, the consumers have played so havoc as the few banks did this time? Kalidas, Hong Kong 8-10-2008

4)
Gold is certainly going to blow up on upside, and personally I would not be surprised if it moves up by $100 or 300 a day if major bank collapses.

I would keep 30% of total investment assets into Gold and Silver ( I love Silver). However, at the moment I am more bullish on gold for few reasons - leas storage cost, higher demand from Central Banks, higher demand from Individuals for safe heaven when even treasury pays nothing, then why not Gold? and there is strong possibility that FED and Central banks do not have as much gold as they claim to have. And that, future reformed financial system will see more backing of gold to the paper currency. The era of low priced gold is effectively gone. This will be known when the demand will be made on the Authorities to sell the Gold when they will have to come out with the truth.

Never keep entire investable amount in one item, even if it is Gold. I do not know how much is your portfolio, but Yes, Gold will make money under current circumstances, but it can not make that much money as the equity can make if you have bought it during most depressed period. The present market is very fluid and every one is sitting on huge losses. they are more willing to average down the price of their holding, so any good news will be used by them to invest more in equities. Kalidas

5)

You have to consider Gold to Oil ratio rationally. In normal cicumstances, the ratio may work, but there is no steadfast rule. In present scenario, the Oil prices rose from $ 70 to $140 in matter of months due to manipulation from Middle East countries versus dollar. When the oil prices were jacked up artificially twice, the Gold to Oil ratio no longer hold good. If the oil goes back to $70, then your ratio of 14 will give the price of gold to $980 against current price of $880. Please note that oil is manipulated against dollar. In 1984 or about, Gold rose to $ 800 and Silver rose to $50 before Hunt Brothers collapsed. that gave the ratio of gold to silver at 16. If we use that ratio, then silver prices sholud be $55 (present price about $11.35 only). The silver is most undervalued precious metal today. Once it runs, it will go to $60/oz. However, it is most volatile and dangerous metal to trade. I have been accumulating physical silver from $4.19 onwards (Average cost about $5) for over 5 years now and sold some when it was around $19. I am not selling any more. In fact, I bought some in last few days. What I am telling you that “ratio” is relative term - it is not a rule. Kalidas

6)

Oh my God! You have bought the whole market!. There are 34 scrips on your list. How many children do you have? 2 or 3 or 34? There used to be a slogan - Small family is happy family - or Laan kutumb sukhi kutumb during days of Indira Gandhi. That applies to even stock market. One should not have more than 12 stocks in their portfolio, because you lose the focus. it is more like shephard in charge of hundreds of animals pulling out in different directions.

Do the following:
1. Identify the stocks you want to keep (where you are comfortable)
2. Sell the stocks where you have least loss (say 10%) and buy the desirable stocks where you have maximum loss (say 20% to 70%). By doing so, you are not investing new money, but just reallocating the existing money by booking the least losses and average down the costly purchases.
3. Prune down the list to 20 first, and then in every rally, sell other undesirable stocks until the list is reduced to just 12 stocks.
4. Do not fall in love with any stock and also never count the average cost. Treat every transaction as a separate one. For instance, if you have bought stock A at Rs 70 that has come down to Rs 30, and you are buying 3 times at Rs 30, then when the stock goes to say, 40, sell the 70% of new purchase at Rs 40 and retain the cash. Do not reemploy. If the sold stock comes down to Rs 30 or about again, buy back again with same amount of money. Example: you bought 3000 @ Rs 30 and the stock goes to Rs 40, sell 2000 at Rs 40 (realized 80,000) and hold the cash. If the stock goes to Rs 50, sell the other 1000 and if it comes down to 30 or about, buy back the 2700 shares (utilize 80,000). Do not count the average cost. This is the biggest mistake an investor makes.
5. Manage the situation like this for other stocks without investing new money. When the market recovers from all time low by 10% in sufficiently longer time (say 3 months of more), then only decide to put in new money. The reason is that in bear market, it is easy to see jump in index by 8% in single day. That is not the indicator of rising trend.
5. Treat each stock as Book Entry. This will help you avoid falling in love in any stock. Display your loyalty to your wife, children or pets, not the stock.
6. Prepare a list of stocks held by you. Play a demo game, when you are unable to decide. This will help you sharpen your skill to understand the particular stock and its trend. Please note that catching the trend is more important than actual price you pay up.
7. Do not try to buy the stock at absolute bottom and sell it at absolute peak. There is only one person in both cases.
8. Also, do not keep “round figures” as your target. “Round figures and beautiful girls never come to one’s hand” When you want to buy at 8, try to buy at 8.10 and when you want to sell at 8, sell it at 7.85.

7)

Ashish,

Qn:For three State owned refineries (HPCL, BPCL, IOC)

I must have missed your post or possibly may not have replied because I wrote at length how State Owned Refineries stocks like HPCL, BPCL, IOC would behave. These stocks have already outperformed the entire market by yards. When oil reached the peak of $145, I had mentioned that the SOE stocks were good long term investment for minimum 24 months horizone. HPCL came down to Rs 180 , BPCL to Rs 230. Even after the Sensex’s fall of over 35%, these stocks reached recently Rs 240 and Rs 380 respectively (up 30% to 50%) though they corrected only on previous day.

Refinery stocks have inverse relationship to oil prices. If oil prices go higher, they go lower, and if the oil prices go lower, they go higher. The reason is these companies can not pass on the increased cost to the consumer due to price control. similarly, when the price falls, they benefit because they do not pass on benefits to consumers as fast as the oil [rices fall.

On 2-Jan-2008 I wrote to one boarder as under:
“I am taking the view that Oil prices are near peak and will come down to US$ 70 or about, because if there is a market correction, the money will flow back to US, which will result in demand for the currency, regardless the state of economy. If the $ rises, the oil will also fall. Also there is a perception that recession will reduce the demand for oil. Although India and China are major player for oil consumption, they are no way match for US for at least another 20 years.”

I also wrote on 24-Dec-2007
“HPCL/BPCL/IOC
These trio are gem. I hold HPCL about 2K but my favored one is BPCL that I sold because selling BPCL gave me 33% more shares in same industry via HPCL with same valuation. All these stocks will quadruple in next 3 years. The Dec Quarter should be good, depending on how Oil bonds income accounted. These are the stocks for retirements. Oil price policy may change soon. Better than MRPL or RPL, though Essar Oil is in different category (like ONGC - Oil production + Refinery combined”

When there is equity crash, there will be margin calls. and almost all large funds will run for exit. they are the holders of these large cap stocks, so they also come down regardless of fundamentals.

You are witnessing the equity market crash today. In last 15 minutes, 500 points were wiped out. This is what I mentioned on 2-jan-2008 to one boarder:

“Further, credit market is extremely bad, and in my personal judgement, we are steadily heading towards massive equity crash. A leading American bank and a large Investment bank in USA are near collapse and may wind up before January 2008 in spite of massive investment promised by Abu Dhabi and Singapore government by way of Convertible Bonds at very very high interest rate.

With this collapse, there may be collateral damage to other banks directly involved with these bankrupt banks. Please note that “there is no Chapter 11 remedy applicable to Banks and Investment Banks, including Brokers. For them compulsory winding up is the only possibility under Chapter 7″”
further…
“You are merely looking at Indian markets, ignoring the tremendous risk developing at very fast pace in the world market, especially USA which will have immediate fall out in Europe and also arrive at India with full tsunami like force. Remember, while FED pumped in only USD 40 Billion in the system, ECB (European Central Bank) pumped in US$ 360 Billions and massive subsequent US$ 460 Billions in two trenches (Total US$ 820 Billions) clearly reveals that derivative risk has traveled outside USA with massive force and wreck the whole banking system.”

Also in same post
“The situation is extremely scary, and any rally now will be a good opportunity to raise the cash. Stay invested only up to 25% of your Cash in Indian equities. Do that before 26/1/08 as advised earlier.

Forget Shah consult, forget Kalidas, forget Udyan or CNBC, and host of tipsters; and forget what FM,PM, RBI will say about IFCI and India’s prospects - we are heading towards massive equity crash. I am, for one, reducing my position from high flyers and will more aggressively before 10 Jan 08 ”

This has what happened today. Tsunami struck today with massive force with no buyers on hundreds of counters.

With regard to your mention that your gains of 45% has been reduced to 25% (that may turn into 10% possibly today when BSE opens today after yesterday’s holiday), I can only say that in very uncertain market you should go on booking profit for 70% of your holding, even if intention is to hold for 3 to 5 years. You can always buy back with same money large quantity than before. that opportunity is lost. I doubt very much these stocks will come down more because oil is falling that is big plus for these stocks.

This is the last time, I write long reply over here. It seems that you did read my earlier posts while buying SOE companies as above.

Kalidas, Hong Kong
10-Oct-2008

8)

On TISCO reaching kalidas predicted target of 250

for chchch

Yes, Also predicted Reliance at 1200 and LT at 600 (after split the target is 300). Some Kalpesh from Mumbai was poking fun at me that Reliance will never come to that level - and lo - it is at within 10% of striking distance.

There is nothing like in stock market 'this can never happen' James Bond figuratively said - 'NEVER SAY, NEVER AGAIN'

Kalidas, Hong Kong
17/10/2008