Archive for the 'US Stock Markets' Category

Market Matrix – Prevent markets from free fall in times of crisis

October 30, 2008

Friends,

The beauty of the market is in its being free. The stock markets are supposed to be left free and here the flow of information is also supposed to be unhindered and made available to all. There are still some impediments in the free flow of information due to some technical difficulties and some obstructions deliberately put in place by the interested.

What ever the case be the markets should be left without intervention but is there a need to control the markets when prices tend to hugely deviate from the seemingly normal price for the day?

In my opinion the intervention by govt should never be by any such rule. There is ,however, an implied obligation on the part of govt to see that the market does not attack the price levels beyond the reasonable level in a short time. It is necessary from the point of view of not letting any body unduly suffer just because market condition coincides with ones requirement of withdrawing cash. It is also necessary from the angle of not making the risk capital pooling to difficult or too costly. The participants would account for higher risk in the pricing if such times come about in markets or may come. This is a cost best saved by having some mechanism by which the absurd pricing on the up or down side is prevented. If an economy can reduce the risk element in risk capital due to abnormal conditions, it will be a great economic service to the nation at far lower cost than by any other means. I think these should be the only purposes and none else while the govt does something to stabilise the market. I repeat that intervention in free trading by rules will be negative.

How can it be done? In India it is very easy to do. The state owned banks should have some pocket where they have stocks and funds ready for use in terms of their researcher’s advice. The second is that RBI can have sovereign fund allowed to be funded in times of such need by RBI’s large kitty at the shortest notice while its stocks related economic researchers should be updating the applicable action plan on a regular basis.

There is a further need of having a board which may order entry into market when need arises. Top secrecy should be maintained about the intended size of fund deployed for the purpose . It should best be done by wide speed buying rather than in a concentrated fashion.

Another point that would save the markets is that there should be no funding by the banks for share purchase. The risk capital should be from out of only the owned funds and not borrowed funds. On private basis people may do whatever. In fact promoters also should not be funded on the strength of share holding in their own companies, neither the shares should be accepted as security for other advances. This will bring a balance and put a premium on the shares. The present day world crisis is due to faulty home mortgages, what would have happened had there been large scale lending backed by stocks. Since there always is necessary liquidity available one should meet his short term need selling stocks and buying back when the funds are spare.

The leverage obtained in market in ‘F and O’ section is not based on financing by institutions and is mostly private arrangement through the mechanism and hence it is Okay. The lending and borrowing of shares for sale etc should also be restricted
to individuals and direct owners like corporates and not be done by institutions who are not direct owners of shares like MFs and other such entities.

In fact leverage is mostly a tool in the hands of organised cartels in markets who try and take advantage by manipulation. There scheming goes to the extent of either perishing themselves or perishing those on the other side.

The US Fed has reduced rate by 50 bps with assurance that more will be done if required. It was a unanimous decision.The US market has not reacted up as it was already a known thing. However, the Asian stocks have shown good jumps as every passing day the stability is returning. The interest rate cut is the best medicine for ailing stocks, it works at many levels about which I have explained earlier. With rate cut here, our economy can enter in fast lane overnight but the RBI always wants to be seen as an elephant taking turns slowly while if Indian economy has to be tiger like the RBI will behave in a tiger like fashion. I despise Reddy’s raising of CRR and had raised alarm then itself. If he had been slightly imaginative India would have maintained its edge on the world scene. The present chief should at least see the light of the day.

These outpourings may seem scholarly but in fact are just for the purpose of giving back ground idea to the young.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Right level for Nifty is somewhere between 4100 and 4500

October 28, 2008

Friends,

Wish you all a very very happy Diwali and growth of what you invest in today’s ‘Moorat Hours’ at bourses.

The world’s indices are trying to regain a new respective real parity in terms of strengths they have with foreseeable future in sight, all in the aftermath of, US created and largely confined to US, financial crisis (partnered by those smaller economies of the west which sought expansion in overly internationalised economy of US). The rest of the world is also facing problems but more account of the loss of benefit that they were drawing form US markets and less on account of financial break-down. They are having to sigh more just in sympathy as they do not want to be seen drawing comfort out of the US and western losses. While their comfort is related to that only and is an ugly fact. The crude is an essential item to ensure continued growth of emerging market economies particularly India and China. These countries have all other advantages but less of oil. The most important advantage is large local market (more perfectly developed in India than in China). The requirement of a big unified market brought the European nations together who in fact don’t see eye to eye, in the most matters.

If deeply analyse, it turns out that in the near future times the China which integrated its economy with US in a large measure, will face some grave crisis. It may be that nothing comes out in terms of doctored statistics but the Shanghai Index is telling it all. The DOW is confused and goes up and down in an directionless manner as if there are some things known to few but unknown to the most. Those who are in the know may have to correct their view and those who would come to know may have to take fresh view of things. Did it not happen that the facts have taken a whole 12 months and more to come out and get assessed. What would have been discounted much earlier is still bothering and that is the reason I think the whole bundle of facts is yet to unfold. Either way, the US will have to face times of lesser advantage and will have to put up with lesser share of consumption of worlds riches. The high value of dollar is making China richer due to high dollar reserves with it but its edge will be lost, the US will import less and try and develop its real economy with lesser stress on financial industry which is pass-time of rich only. India on the other hand is seeing the turmoil in market because it is more integrated there but none of the severe ill effect any where is felt. The crude price drop is a real shot in arm. The recession will be taken care of by increased govt spending. Our PM confirmed it on Chinese soil saying that what we have done by way of govt spending without revenue is OK by Keynesian remedy in such times. Very much so but his team should make the markets go way up otherwise how else the seed (risk capital) will be raised for the fresh projects.

I have recounted only recently the strengths India carries viz a viz other economies of the world, I would skip it here.

There is a spate of good news, if only good news would start having positive effect. I recounted the possibilities about Nifty and related matters. The SEBI has, in fact in a surprise move, allowed the promoters to keep acquiring in open market up to five percent equity in one year till it reaches the 75 pc ceiling. This will not even trigger a public offer requirement. A reasonable announcement in good time. SEBI is initiating a probe into markets’ odd behaviour on 24th and 27th Oct. Power Minister said that global slump would not affect capacity creation of around 90000 MW by end of eleventh plan. A lay out of Rs 10 lac crs will be required and debt /equity ratio will be 70:30.

Porsche has bought nearly all free-stocks of VW and the stock vaulted up by 98 pc. Honda has upped production of fuel efficient cars. Electrolux AB has beaten estimated profit figures. FED chief may push overnight rate to zero (when borrowers have trouble and the lenders have danger of loosing capital, what better alternative can be found than making interest zero). US house prices are lower by twenty pc from peak and foreclosures are growing. This is not a very bad thing to happen unless accompanied by some other oblique arrangements between the involved entities. In any case the end to trouble shouldn’t be far. There are signs of thawing out in banking sphere. The rates paid by banks for borrowing are only half of what the most intense moments of panic saw them offer. The rescue package has been put to practice, banks have had money flowing it to US.

Those who follow this site would recall me having said in Oct 07 that the then Nifty level was wrong at 5500 and should have been at 4100, earlier when it was 1000 in 2002 I had estimated its value at 1700. In the same way I have reason to say that the right level for Nifty is somewhere between 4100 and 4500.

I commit myself rather too early but how can you not speak what you see or perceive. Also if you are not from the first ones to give a glimpse in to future, what are you of worth!

The learned should excuse me but my readers are of all ages and of all backgrounds. I have to some times repeat the points, say it in a different manner. Yet more is thrown into my writings because I want to give a piece of old history and record new history.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

World Matrix – Former US Fed Chief never estimated that the crisis will be so big

October 24, 2008

Friends,

Former US Fed Chief spoke yesterday that he never estimated that the crisis will be so big. He said that while he had some idea about that there is overplay but could not fathom the depth of it.

In hind sight it may seem that some thing could have been or should have been done by way of regulation but in an economy which is avowedly free market economy, how can suddenly a person can intervene unless there is change in policy. An early intervention would have spoilt the party then and he would have been blamed.

He was hopeful that the strong American nation would surely come out of the crisis given the rescue effort. He has endorsed the rescue efforts. In the end, the worth of highly paid Harvard (type) educated persons comes in to question. How and why they landed all their companies in such a situation. Only so much is clear that while fraud element is missing but ambition to earn mega-buck may have been at back of it. The role of rating agencies is however suspect.

China is in soup because only it had mostly benefited out of the buying power transferred to American public while the sub-prime crisis was in the making. India did not gain out of it but its markets are afflicted as the FIIs have had to withdraw money invested in India.

Now, the earlier Indian RBI chief, empowered with some exclusive powers sensed the excesses going on and acted by tightening money supply. This went too far and has strained Industry here. The new RBI Chief is acting to mitigate the hardship but as he is a bureaucrat, he is not being bold enough. The SLR and CRR should be brought back to levels in 2003. Didn’t we see the tremendous growth since 2003 (not artificial growth like China) and which may continue. This is the time when India can overtake other economies. The slow-down elsewhere does not mean that there should be slow-down here too.

Our concern was the high crude prices and rightly so but it has cooled down and allows us consume more in proportion. The gold is costly and India a traditional buyer of gold should stop investing in it at such high price. The govt should reduce interest rates to enable industry lower interest costs on sophisticated machinery and deliver manufactured goods cheaply and at internationally competitive prices. The increased supply of goods and services will take care of inflation too. This is how the nations become rich, its not by keeping enterpreneures starved of capital. Its also not by inducing people to walk away from investing in risk capital but in earning income passively by way of interest which should be domain for the widows and aged only.

The Pension and Provident Funds should be asked to go fifty-fifty in to equity and debt or at least 1/3 rd in to equities. This is necessary because it is business and industry only that will give the depositor the goods and services to be consumed in the late years. No business and no industry, there will be no capital and no interest , only books will show it as is the case with America. The future world financial order calls for greater importance being given to direct ownership of productive assets and not like having them as collateral security and asking for a fixed return by way of interest. This system actually is responsible to upset the financial apple carts as also spoiling savings of people by dilution in currency values. Both side suffer turn by turn but why should they because only some intermediaries make extra-ordinary gain through manipulation.

Not stopping here, all the saving through equity investing only should qualify for concession under section 80C. Nehru had provision of taxing unearned incomes through interest at higher levels.

The DOW was up yesterday and Indian market down, Asia is down this morning again. RBI has liberalised ECB norms and may take some policy initiatives today. The ban on short-selling through entities out-side India should not be minded because the possessor of equity should be basically free to do what ever with his equity holding. Equity market should free from every control however the exchanges should not let excesses happen and nature of transaction should be apparent to all.

SEBI has duty to ask for provisional monthly P/L figures by every 15th of the next months. In todays time of electronic accounting and information over Internet it should not be difficult, the progressive correction would automatically happen too but insider trading and manipulation would stop.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

World Matrix – Deliver the financial system of America out of woods

October 14, 2008

Friends,

Finance Secretary Paulson and FED Chief have been on air declaring that they have commitment to deliver the financial system of America out of woods. The President’s team has no confusion and it is showing too. The DOW futures index is up by good 300 pts. DOW would be in the vicinity of 10000, an unthinkable figure only a few days back. Back home, the leading indices went up and came to last days level. The bears seem to still be nursing their bias and why not because there were no big company results announced today. Here, the effort is also are some what mis-directed. We should be readying ourselves for the possible bad winds blowing, well in time.

It is, however comfort enough that the opinion today is not entirely negative. Also, the rest of the world including Asia is demonstrating through markets that the fear is on the wane as they have all been up for the second day today. Crude is trading at 82 dollars (up 2 dollars). The injection of liquidity so far and further doses in pipe line are bound to have salutary effect, once the multiplier effect has done the trick. Dollar demand from the funds liquidating stocks must have gone down as the rupee is further up by a slight margin and a dollar trades for 48.18 rupees just now.

I would like my readers to contribute freely their own frank opinion through the comments box.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

17 pc loss week ending 22 Jul 1933 vs 18.2 pc loss week ending 10 Oct 2008

October 11, 2008

Friends,

The DOW touched low of 7882 in the opening session of 10 Oct 2008 only to touch high of 8901 and then closed 8451 losing just 128 points. The week gone by is historic in the sense that it represented 18.2 pc loss for a week against 17 pc loss in the week ended 22 July 1933.

Special times need special treatment and the US govt is busy doing the same. Let’s see the outcome.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market