Archive for the 'World Matrix' Category

World Matrix-Destruction of capital worldwide has made the rest of it shy away

October 25, 2008


Bernanke’s team may announce lowering of bench-mark rate to 1 pc, it will be lowest since May 2004. His other tools would be to purchasing securities directly from treasury and that way injecting a dose of cash in to economy. Fed balance sheet size will grow at good pace as it has been lending and buying assets(absorbing risks too).

Japan had to fight, only a decade or so back, deflation and banking collapse and its Central Bank saw the balance sheet size growing to more than 30 pc of GDP.

Bernanke has, for the first time since 1930s, made loans available to investment firms(it rescued AIG and Bear Stearns) while he lowered interest rates to 1.5 pc from 5.25 pc.

The world write down of 659 billion dollars have made the firms also raise 642 billion dollars of capital. The rescue package of 700 billion dollar should help the situation a great deal together with other measures.

Now, I have to tell you some thing of importance. The destruction of capital worldwide has made the rest of it shy away. The result is the prices of assets falling. This is making stock markets to tumble. The govts are filling the gap left by the absenting capital to let the economies not derail. The absentee capital will become bolder with stability returning and will want itself to work rather than remain shy and unproductive for long. The tide will have turned then. This is the time when markets have become unhooked and float in the direction of push without an opposing force controlling the movement.

The fact of the matter is why would the capital go for making itself in to a receivable, in times of low interest rates. It has to prefer its conversion in to assets directly, such assets may be productive or unproductive or be rights in to natural resource pool of the world. Equity shares therefore qualify best from the angle of ease of transfer, tax relief, no nursing, yield through dividend and no costs involved in holding. It is a good asset, only if bought at right price. This situation has arrived.

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


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.

Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

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

October 14, 2008


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.

Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

World Matrix – The fear factor in markets

October 13, 2008


The fear factor is responsible for the 50 pc of slide in markets since the position exactly an year back for most markets in the world. The down turn in industrial fortune accounts for 25 pc of the slide and the rest 25 pc is on account of the turmoil in financial markets. Now have look at which market slid how much over one year and half of this bound to cover back when the normalcy returns and the tempers get cooled:

DOW lost 36 pc at 8451.
FTSE lost 39 pc at 3932.
BOVESPA lost 44 pc at 35609.
CAC lost 43 pc at 3176.
DAX lost 43 pc at 4544.
NIKKEI lost 46 pc at 8276.
HANGSENG lost 47 pc at 14797.
TAIWAN lost 40 pc at 5130.
KOPSI lost 35 pc at 1241.
STRAITS TIME lost 44 pc at 1948.
JAKARTA lost 47 pc at 1452.
SHANGHAI lost 62 pc at 2001.
SENSEX lost 44 pc at 10528.
NIFTY lost 40 pc at 3280.

So, now, you may see the movements in light of above in coming time. The world has got unified at least in respect of emotional mack up or we may say the FII hold the cue to trading and hence this situation. Further, the coming year will stand the basically stronger market apart from the basically weaker markets ie markets representing stronger economies and weaker economies. The time has come for the delink in the markets because the future stock picking will be on the basis of company and economy related developments. Isn’t it surprising that while nothing substantial has happened in some of the economies and the slide has been more or less similar. The USA has been the eye of storm but seems to have still kept more balanced closing. The 7 pc jump in leading indices has set the pace of future expectations.

Nothing happens ordinarily and nothing extra-ordinary stays.

Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

World Matrix – Advantage India

October 11, 2008


The US President announced last day from the public platform and in no uncertain terms that the financial crisis will be set right, come what may. He meant to convey that the govt is besieged of the problem and has planned to take comprehensive action along with the G7 nations and also under consultation with G20 (India included). The G7 finance ministers have arrived in US, our FM has dropped plan to go there.

We have had trouble on our bourses due to portfolio investments by FIIs who have just one thing in mind and that is to get whatever they can for the stocks held as the need to meet obligation at home is over-riding (you may recall my warnings at the peaking market time last year that the FIIs exit is not normally done, it is done in a rush). When the exit is without evaluation of the item being sold, the panic naturally sets in. The settlements going smoothly in such scenario is for some to praise and the withstanding of the such windy times by the Indian banking and financial universe is going to make it a more preferred centre of financial exchange.

You may also recall that the shadow of the crisis was there last year itself and I had reported it while also admitting that the extent and the timing is difficult to judge. However, I maintain that troubling times in west will eventually have no bearing on India and if at all some thing happens it is going to be accelerating economic development of India and more particularly its being a nation worthy of absorbing the world’s saving surpluses which found no ‘safe parking places’ in developed nations of the world. The forced parking of such funds by the investment bankers is the root cause of trouble. When it will be analysed as to who got hurt the most, it will be noticed that while the investment banks got out of business and equity holders of the same institutions got nothing for their share-holding in some cases and got some pittance for the transfer of equity to the bailing out entity (govts included). The group suffering the most would be the ones who placed their money for management to these investment bankers who would get what ever is salvaged after making the borrowers (mortgage holders) some concessions and after suffering the loss on transfer of investment to new buyer (at current lower rates) after the market is established by the injection of funds by central bankers. These owners of funds under management kitty of the investment banker belonged to savers (the savings for future consumption). Such times came for the world order and did not allow the savers of yesteryear to have claim on future production of goods and services to the extent expected/desired or planned for (remember the adage ‘Laxmi is Chanchalaa’ ie riches are nimble footed). The greed to not only preserve value for the future consumption but also to grow it more on the strength of high interest albeit at high cost had to and did boomerang. The investment bankers created faulty atmosphere of optimism and all in the interest of earning hefty commission and fees by promising to increase wealth through sheer foolhardy and speculation.

The other cross current was that the world represented by two big ancient nations ie China and India had woken up to have their rightful share in world’s mineral wealth and and retaining their own for self use by increasing productivity of labour and capital and through benefits flowing on account of size of market domestically. Isn’t India ready to be the hub of export of vehicle of every size and use in a span of fifteen years. It is the result of optimum level of production achievable here. This advantage is not going to go away and would increase so the slow down fears are basically un-founded in India. However, China may go with some years of adjustments and pains due to the need to organise the markets more based on natural exchanges and make them more free. There is only a muted resentment for its controlled exchange regime which will be openly decried by USA and the rest. We Indians have therefore an edge over every body else. The shot in arm has come in the form if the Nuke freedom is used for peaceful uses. There is an immense scope for absorption of world’s saving as every unit of capital invested here in infrastructure projects (like railways, roadways, air-ports, dams, power projects,sea terminals and the tourist sites related) at nominal rate of interest (not high) which will be generating surplus to be shared by all the stake-holders. It is for this reason that FDI has not slowed down even in face of such crises, the world over. Indian markets for the goods and services are not going to shrink due to millions in villages. It is going to form the buyers’ universe as opposed to city centres based demand. There may be a slow down like in 1998 and 2001 but it will only be for creating some gap for breathing after running at high pitch. This would not be bad for a marathon running spree.

Now, visualise that the sellers in markets were coming perforce and were selling willy-nilly while the buyer was coming reluctantly due to the atmosphere confusing him. Has there ever been such a grand opportunity for making an entry. Haven’t you wondered that more than the real decline in earnings it is possibility of slower growth that is weighing heavily on minds of people. Further, the crisis at hand of the world economies has created an atmosphere of sudden impulsive growth due to increase in money stock. As the normalcy will return, the case of too much money chasing too few goods and investibles will follow suit. Again I would say that the inflation in India is working as friend of investor not otherwise. The welcome gesture finally to happen is the lowering of bench-mark interest rates by RBI. Didn’t you read earlier that increasing money supply is easiest of task for the govts, it is taxing every pocket without having to collect it effort fully. When this is may save economies why would they think twice, no body is going to blame them for this for it will be for a noble cause.

Now, one thing is clear that we have to have central bank of the world and a world currency which should have some controlled issuance and which should be currency for international trade and local currencies may have there own conversion rates under guidance from the local central bank. Why do we need to base international trade in currencies of countries who have fragile financial systems themselves.

Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market