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

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

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

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

Debt to GDP ratio in India and US & Europe

Friends,

The debt to GDP ration in USA,UK and European countries is in high range of 200 to 250 pc while in India it is just 60 pc. This makes us pretty immune to the crisis of similar nature that Western countries are facing. Further, the mortgage related debt to GDP is between 80 to 100 pc in USA and Europe while in India it is pretty less. this also is going to keep India from facing a similar crisis.

This is a kind of de-link which will keep India in good state. Another point in favour India is the increasing give and take between cities and rural areas. The companies are readily planning forays with the rural areas in mind.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Hopeful Signs in the markets world over

By krsna Khandelwal – A veteran market analyst

Friends,

The DOW closed up nearly 500 points. There is a possibility that the rescue plan is okayed today itself. The world markets are saluting the developments in America. The gloom is giving way to bloom, Indian market which has seen triple bottom formation yesterday,is bound to be seen by the investors a better place than any other place in the world for investment. The FDI in last month has been the maximum. The FM the SEBI Chief have confirmed that there are no regulatory black holes here and RBI has endorsed the capital adequacy of ICICI Bank which was rumoured to have been affected due to American crisis directly. The freight rates are down and would give phillip to international trade and cheap transportation of bulk commodities. India imports in bulk coal and oil and exports in ores and other exportable. Sugar and food now form part of bulk commodities that are exported into and out of India as per the need. The USA is in process of loosing its clout in the economic and financial world while it may have retained its political clout for the time being after USSR demise. The China remains a mysterious state even after its rise in economic field, in financial field it is still in nascent stage. USA wants and has demonstrated that it wants to side with India against China in granting the second status in importance order. This may not have come as an open thing but is seen by the discerning eye. It is also a right thing to happen but India has to ready itself for it.It has to therefore take rapid strides in economic field. I hope the next govt is headed by a person of calibre of Vajpayee or Man Mohan. The small time politicians will remain but the country should have a balanced and non-partisan person as head of govt at least, the head of state here is not so important and may well reflect political remonstration.

I have to write all this for the feel of times while seeing this site recording economic and corporate history with share market in focus.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Bailout Bill voted down by US Congress

By krsna Khandelwal – A veteran market analyst

Friends,

The bailout bill presented for voting yesterday in US Congress has been voted down due to some Democrats voicing concerns about its use for the tax payers. The President has expressed his anguish at the failing of it which he sees as a must to the stressed American economy. Had it been in India that a finance bill presented for voting by treasury benches fails to get passed, the govt would have fallen. It may be put up for second time for voting and by that time Democrats may be convinced about its need. In any case if Bernenke is looking for its passing too, in case of its failure he can well help the matters by lowering interest rates etc.

The DOW got a very bad treatment in wake of these happenings and lost good seven percent to close at 10365. The Asian markets are down this morning but not too much for they had lost yesterday too. You can’t keep discounting some thing everyday by a greater margin which represents not only assets but also an input by way of managerial effort in organising businesses that make the assets owning companies value generating machines. This makes the asset acquisition through equity ownership more desirable than simply buying some assets here and there.

Also the equities’ returns are post tax where as the returns on dated securities are taxable. Thirdly, the inflation does not eat in to equity values but it may make the investment value go down over years very substantially in other case because the real rate of interest is lower in USA as it is in India and else where.

The great depression of 1930 was when gold standard prevalent. Today, there is scope of increasing money supply at will in the hands of govts and central banks. They are exercising their powers readily. Who on earth can afford to keep the equity market down. It is powerful and influential people who happen to own most stocks, so they may not shed tears for values lost due to inflation but would surely mind the decline in stock prices.

The bad conditions in stock market help as in such times the future competition is put off. Also when the speed of fall is great, the speed of rise would be great too. I reminded our people in govt to take stock of situation before its too long and keep a contingent plan ready. Those who are used to be vocal at drop of hat are silent and this is not understandable. Time has come to impart liquidity here also, the CRR as also SLR (if possible) should be reduced in October month exercise by RBI.

Let’s see what unfolds in next 24 hrs. Those who are not leveraged should have no worry, those who are should hedge.

The crude prices were first factor that had made market in India getting a beating,today it rules at just 96 dollar/bbl. This would at least see the oil under recoveries manageable and inflation under check.

The realty stocks have lost so much values that they are not capable of doing much damage by their poor performance. The IT scrips have lost excess values and now are near their value points. The auto stocks are again in the same category. The FMCG and Pharma stocks behave differently in any case. The infrastructure sector is saddled with a lot of orders to execute. The banking sector in India hardly has an affliction of the US kind. Steel and Cement have shown resilience as they had shed flab during the down ward times June/July. Sugar sector is behaving in an absurd manner but erratic behaviour at low point in price level lays foundation for the sudden upward move. Retailing is not yet a mature industry and I have been advising to keep out of it.

I have largely drawn a picture before you and now be your own master and take decisions. The result season has arrived and you would get post-result ‘panch-tattva points and strategy’ for most Nifty companies. You may individually ask for scrips of your choice.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

World Matrix – US may eventually finalise the rescue package

By krsna Khandelwal – A veteran market analyst

Friends,

US senators may eventually finalise the rescue package before long. The dissenting parties have understood the need although they have their own ideas to put forth. It is remarkable that while the country is besieged of the problem, its politicians are not eager to put blame on any body in a hurry and are only more concerned with immediate remedial measures and are in process of finding the best solution. This is a hopeful sign for everybody connected with the financial markets, this way or that, the world over.

I think that we in India should be now initiating a plan on the lines of pooling a kitty by a charge on every kind of financial transaction by institutions and banks. For this purpose the STT levied by Mr Chidambaram may be now transferred to such kitty instead of its enriching the exchequer. This will also set right the disenchantment with this levy which is felt to be burdensome so far. The pooled fund should allowed to be used in future as per the recommendation of an standing committee consisting of eminent economists and parliamentarians and govt officials when they see a need for it to subside any turmoil in the financial markets. The member should hold office for no more than nine months and may come back after a lapse of eighteen months. The strength of the committee may vary between seven to eleven members.

The integration of world markets may put the financial system of any country to strain without much notice. It is also possible that there are problem due to deliberate acts/acts by design of some. There is therefore a need to have an enactment where the key management people pay back to respective failing companies/institutions what ever they have received by way of remuneration and incentive during the current and previous one year. Since there is no ceiling on pay packages, it may also be possible that some enrich themselves seeing the forthcoming financial tightness. An act on the lines suggested above would ensure some balance. It may also be useful to disallow the tax concession to companies on payment to one individual beyond a certain ceiling. This will ensure that only those who are indispensable and utterly important for a company are paid very handsomely.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix- The bail out package of 700 billion dollars

By krsna Khandelwal – A veteran market analyst

Friends,

Its after a week that I have occasion to address you. The markets are very volatile and exceptionally so. The bail out package of 700 billion dollars for the rescue of the giant in USA is finding some blocks on the road and this may have triggered the fall on Friday along with the N-Deals still not through with the US congress approval. It is also that the slow down in retail and realty sectors is now more real and has been responsible for the shattered nerves. Should than we decide against the funds into equities! My view particularly in respect of the Nifty universe is that the slow down possibility in earnings for most companies is reflecting in the prices while the asset values of the companies (ie book values) will resist the prices from going down further. In other words there is very little scope for the fall in prices even if the earning actually take beating.The pharma and fast moving consumer goods sector which do not have the support from assets and rather are given values for the brands and processes, are not getting beaten down in any case (leaving exceptions). The whole thing is that when the weather is declared to be inviting, the catching of bus will be difficult and to save this situation we can only stay invested and ignore the lurking fears.

The central banks of US,Japan and EU have declared injection of funds in system and it totals up no ordinary figure, it may be some thing like Rs 50 lac crores in Indian currency. If this liquidity is made available there is no gainsaying that the triggering of bullish times can not be stopped. There is direct correlation in the two. I have already told you the present times are no ordinary times and have no parallel in history and equally true is the positioning of India in the whole economic scenario. My visit to west confirms that the technology is Indian’s second nature and the west has to imbibe it. If this statement is not generally true, it is true at least in respect of populations that are in the forefront of economic participation, here and in rest of the world.

Indian middle classes have an exceptionally good head start and are bound to maintain it. The oceanic proportions of every thing in India including possibilities are great. The elephant may not hiss like dragon but with keep covering ground in its beautiful gait. Why should we leave sight of these facts. I may be proved wrong but would not change stance unless I see some convincing developments to the contrary.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Bankruptcy of Lehman Brothers

By krsna Khandelwal – A veteran market analyst

Friends,

You have been listening to my loud thinking showing incoherence in thought pattern. In fact some unknown big event was about to take place and I was sort of having an inkling. It turn out that Lehman Bros. have filed bankruptcy petition and Merrill Lynch is going to be taken over completely in all stocks deal by Bank of America and the world should feel relieved. Some smaller banks may still go down under. This made the market in rest of Asia unnerved in early morning and we did no better and at one stage Nifty was down more than 5 p.c. but recovered towards end to close lower by a good margin at 4070 still.

In the mean time the crude is trading at 97 dollar/bbl and rupee is almost 46 to a dollar. This has subsided the inflation fears to some extent. So now the balance sheet is with some more positives for the Indian markets but the scary scene in USA is not letting a stabilised atmosphere be established. The DOW is trading lower by more than 300 points and I have to think out of gut rather than mind. So follow your gut feeling and retain guts. My last post should be taken as guidance. In fact it conveyed much of the scene that was enacted today. In fact inflation has been a saviour of India for lack of it would have surely put our banking net-work under strain. Its not that there will be no tomorrow and keep in mind if winter comes can the spring be far behind.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – The market paradox like last year

By krsna Khandelwal – A veteran market analyst

Friends,

I proved wrong in saying that Nifty would recover in light of a few favourable developments but strange are the moves who have been operating under-cover. For if it is FIIs withdrawal at work last week, it is hardly understandable in view of stronger dollar which let them have take away only value back home in dollar terms. The withdrawal would have been meaningful a month or two back when dollar was cheaper and when the Indian outlook was bleaker. Today we have lower interest rates and stable govt. It is no more threatening industry to check prices, the nuke-deal drama is over, USA has taken strong action against Pak embedded terrorists and has conveyed to govt. to act more sensibly, the IIP number has given back dwindling confidence, the inflation seemingly has no future threat , the oil is no more boiling, the busy season has arrived and the new RBI governor Mr Subba Rao is not supposed to be hawkish and Manmohan has greater respect and power to keep reforms process on. The moody ministers have been noticed to keep calm and not blabber at will in incoherent terms. The left is almost left out of the political race. It may never have an opportunity to support govt. of whatever hue. On the negative side is the real-estate prices going down , the organised retail seeing tough times now and ahead, the world’s commodity markets having developed cold feet (in a way it would help India). The balance-sheet is favourably balanced. Should I still speak in desperate tone and dejected mood, I think not. They say fortunes are made in bearish times and realised in bullish times .

Now see yet another dimension of prevailing paradox. The week saw Nifty lose 123 points along with 580 points loss for Heng Seng ( the right company to travel together), Nikkei maintained level while DOW added 201 points and FTSE 176 points (the ones with lesser spark in future of economy have shown positive move).

My attempt to convey is the sole matter of designs being at work rather the endorsement of reality in the same way that was happening in late last year and early this year when all asset classes were going up simultaneously and had sowed the seed of bad times to come . The reverse is the case now and those who weather the storms will be seeing bright sun-light.

I am ready to listen to counter argument, please favour me by sending them.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market