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

Friends,

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.

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

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

World Matrix – The fear factor in markets

Friends,

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.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

World Matrix – Advantage India

Friends,

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.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

World Matrix – Markets have demonstrated as if they have an umbilical cord

Friends,

The world markets have demonstrated as if they have an umbilical cord attaching them with USA. As if the nutrition used to come through this and now the infection is coming through it.

The markets round the world since morning have tumbled because DOW was lighter by 500 points yesterday. All the Asian markets are down between 2 pc to 4 pc at the moment. India did not dip yesterday but would it hold under such psychological assault from all over.

Now when the rationality has been given good bye, there are two ways to weather the storm. First, you may stay put and not do a thing. Second, you may convert your cash resources in to buying in to companies of your preference, of which you have full idea and know more than a common investor. This will be transfer of a valuable asset to someone who has value perception from someone who is skeptical because he does not know. Such transaction will abound and the fool this time will not soon part with money but with valuable asset.

Sticking to your areas of knowledge is the key today and rewards would be plentiful. So, don’t look at market rather look at specific companies. Its a time when you could buy three rupee worth of stock for just one.

Large pools of money are being released in to the ocean of world money. After it is noticed that the level has risen , there will fear that it will swamp the shores with furious waves and some will be caught unawares. I think , I told you that its not gold standard that is in place today , it is simply a system where the central banks do the balancing act between inflation , interest rates and look after needs of govts which have to borrow to meet budget deficites. This way any time the money supply may be increased or decreased. With more money as with more water people would splash and not store. However, this painful process is creating havoc with people , staying deliver aged is the need of the hour.

Look at Tata’s, they are in process of putting up new car plant, have they not seen if there is any sort of danger on the industrial road ahead. No, they could have seen, they have not been able see because there is none. Financial sector today revolves around the stock exchange hub, here also our Premji of Wipro has found it fit to pick up 5 pc stake in NSE for no small a sum, it is 100 million dollars.

Speaking at a business leadership award function PC told that India would clock 9 pc growth next year against 8 pc this year. Being FM, he should know. He also told there is nothing to fear but the fear itself. He confirmed that India has agile regulators and they would stand by public. Not stopping here, he further said that indirect tax revenues are growing by 14 pc.

Have you noticed that the gloom is there just before the results are going to come. This is the darkest hour before the sunrise, would any body question the sun rise! One can however say when it will rise the sky would be overcast, again does sky remain overcast all time to come.

HariOm,
Krsna Khandelwal

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

World Matrix – Japanese Market Syndrome

By krsna Khandelwal – A veteran market analyst

Friends,

The Federal Reserve was formed in USA in 1907 when a banking crisis caused a run on banks. It has, recently, served to avert a crisis afflicting banks though the crisis may not have been similar. There is no question that the central banks of today, the world over, have capacity to save the financial institutions from any kind of crisis as the money today is their creation and the contraction and expansion may be done at will as also the cost of money may be influenced to any extent, at least in the short run. On top of it all, today we have the markets, futures and ready, which are extensively pervading and penetrating. The news flow is continuous and fast and applies to also the news not containing truthful information. The influencing of the ordinary minds by the organised interests is easy and is resorted to more often than not. George Soros makes another point that the individuals have their own idea of interpreting the news and facts and therefore the predictability is that much impossible about that trends. You may have seen that nothing materially changed in the world and the oil and stock/bond prices have been on a journey in both directions to such distances (extent) in short time that would not be possible over a long period too. The DOW improved by 300 points yesterday while the discussion over the cup of tea in the economic corridors is still whether the USA is on a course of long term of long term recession or only for a while. I would like you to note the following about the Japanese economy and indices:

-Japanese depression of 13 years is greater than the great depression of USA in early thirties which lasted for three years.

-It took DOW, to go past 1929 high, 15 years.

-Historical highs of 1980 for NIKKEI are still to be crossed.

-Japanese depression happened in an era of falling interest rates.

-Gold went up five times in value since 2000, Yen is costlier by more times than this.

-Japan has 40 p.c. listed companies that are debt free, more than half are selling under very low(nearly one)P/BV ratio.

-The conservative Japanese banks have lost just about 2 billion dollars in sub-prime crisis while total worldwide losses amounts to 400 billion dollars.

You can clearly see that the Yen value is high i.e. Japan have had very little inflation and hence the indices have not been higher and companies are selling almost near to their book values. Since Yen is much more in value itself viz a viz other currencies over the year, it is immaterial that index is not higher in Yen terms as it is definitely much higher in terms of other currencies. What I mean to convey that inflation is not going to adversely impact the Indian markets also. The truth is that the inflation is still high and the index is higher since the time the inflation was made out to be a monster by analysts. This was done on account of its breaching the 5 p.c. mark about a few months ago on account of manipulated crude oil prices. The news and facts have to taken in to account in practical terms to be able to have some solid basis for decision making for investing and trading. The subjective analysis by the veterans, therefore, carries more weight than any objective sort of prediction. I referred to Soros for that matter only, he is also a votary of not basing anything entirely on the rule book analysis to derive meaningful results.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

World Matrix – Time has come for USA to have far higher growth rate

By krsna Khandelwal – A veteran market analyst

Friends,

The corporate profits in US were down by 3.3% in Q IV and the US growth slowed to just .6%. I think with Fed’s initiative , time has come for USA to have far higher growth rate . The only imperative is for US to have a very liberal immigration policy. They have natural resources , they have financial resources. They just have to have more of human resources, capable to produce the items of use in USA itself that USA presently imports. This will make their markets grow in volume. Would it be politically digestible is some thing else.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

World Matrix – World stock markets

By krsna Khandelwal – A veteran market analyst

Gentlemen,

The following piece was posted in Jan 2007 which I myself had occasion to go through it myself once again as it was referred to by some amongst you lately and I became curious too. It has been covered under ‘World Matrix’ earlier. Since then a lot has happened but the message it gave would make anyone stand up and ponder . The scenario has unfolded exactly and the markets in USA , China and India have come down with a thud.Please read on to refresh memory:

“The markets are at a juncture that it has become difficult to judge the markets’ course while it is not all that difficult to judge the strength of individual scrip. We have to assess the markets in terms of some macro level study. This time I am giving an idea about the strengths of different world stock markets as represented by their leading indices. This would be done by evaluating the going P/E ratio by adjusting it suitably against the prevalent inflation level and the real rate of interest in the respective economy. I am going to take the real interest rate as 3% which has been seen to be the real rate in most economies with the 10 year gilt yield as the bench mark. The following table gives the idea of the Relative Strength(R/S) or say denotes the level of exuberance or melancholy in different stock markets around the world (Please see the 1000 mark as the balanced position without bias).

Country	Index	Value	Cur P/E	Inflation	Factor	R/S
Brazil	Bovespa	43018	12.46	4.1	14.08	885
China	ShanghaiC	2218	33.41	2.2	19.23	1737
Hong Kong	Heng Seng	18907	14.65	2.5	18.18	805
India	Sensex	12995	22.69	5.3	12.04	1885
Indonesia	JakartaC	1754	22.13	5.9	11.23	1970
Japan	Nikkei	16637	39.6	0.7	27.02	1465
Malaysia	KLSE	1088	19.04	2.7	17.54	1085
Mexico	Bolsa	25828	14.6	2.7	17.54	832
Singapore	S’Times	2893	15.48	3.3	12.04	1285
South Korea	Kospi	1376	11.86	1.7	14.92	794
Thailand	SET	738	10.91	2.6	13.15	829
UK	FTSE100	6156	17.6	2.4	15.62	1126
USA	Dow Jones	12315	22.95	2.9	12.65	1814

You will notice from the above that while the variation in P/E ratio ranges from 10.91 for Thailand to 39.60 for Japan. There is however lesser variation in terms of relative strengths i.e. from 794 points for South Korea to 1970 points for Indonesia. Now we see the P/E ratios in a different light and find that the P/E for Indonesia is way up while for South Korea is way down. Either two are wrong or there would be some unknown facts/special matters regarding these two countries to come out in open. Indian and Chinese markets are also on the high side along with USA when seen from the angle of relative discounting of P/Es. These three economies are rated as the most important too and rightfully so and are therefore getting the substantial discounting. Seen against other economies it seems that the optimism here in India, in China and also in the United States is too highly pitched and therefore it may be said that the corrections would be fast and the room for decline is much in all these three cases. When you see the extraordinary trading pattern here in India, you must also be alarmed that this drama may not have much to deliver in practical terms. The value of Factor has been arrived by dividing 100 by the sum of rate of inflation and normal real rate of interest of 3%. I am not saying that this should be taken as the only and ultimate truth but what has come out is definitely of value and lets us make better sense of the P/E ratio for the indices in different economies with differing strengths and GDP growth possibilities.

Your Valuable comments are invited.”

Hari Om

BIRDINFO Stock Rx – A prescription for stock market