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 – 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

Market Matrix – These times have no parallel in economic history

By krsna Khandelwal – A veteran market analyst

Friends,

These times have no parallel in history because the economies were not all this big, the communication was not so effective as to let news travel at the speed of light and the trading was never so costless and organised as to impart everybody interested an opportunity to trade in any kind of market ranging from currencies,equities,dated security,interest rate futures,commodities and derivatives of every complexion. In such times and in spite of the regulation of high order (supposedly) the giant amongst all economies USA is facing the kind of financial turbulence of such high magnitude as can not easily be imagined. If things have come to such pass, there ought to be some people responsible to let it happen this way or some others were unable to stop it from happening. The truth and theories will come out only after the dust is settled.

My whole purpose of feeding this blog is to help the ordinary class of investor and money managers on one hand and to record the current economic affairs with equity arena as main reference point for future reference along with my own interpretations and logical conclusions. In this light I observe the following viz a viz the happenings:

-the banking and financial institutions failure in USA has triggered a down slide in equity markets around the world (this is natural outcome of such and event in an integrated world but when it stop and equal or more fierce rally should take place for the such failures necessarily require the central banks to increase liquidity to save the day for the banks etc on brink. The liquidity eventually will take all the markets shooting up)

-the commodity markets have seen bearish times (it is again in the same way that eventually commodities and commodity producers will see brighter times for the demand from consumers is not going to go down, on the contrary the people will find it more desirable to consume more rather than see their money’s worth going down)

-the lending and borrowing for projects will be affected (this will delay the commissioning of the upcoming production facilities hence future competition will be postponed)

-speed of money is reduced because of distrustful atmosphere and disruption in chain (this is one factor that is seeing absence of deployable fund and liquidity crunch in spite of liquidity injection by central banks and this rough patch will be soon removed and normal times will be restored)

-the losses suffered by the bulls are forcing them to offer held stocks to make up for losses on positions and drying up their monetary resource (this proves that further supply of stocks will be diminishing)

-the cheaper crude will be helpful in surplus creation in hands of all (again a good thing for the markets and will keep govt finances in good shape)

-the dollar is strong now (for Indian companies it is an incentive to export more and and import less which is sort of a good factor for share price rise)

-the FII holding in companies is being liquidated ( this is a major cause of Indian markets sliding but this can not go on and would have to stop when prices are lower as PEs would become too attractive for buyer and would create demand and absorption of stocks)

-the deluge is continuing, DOW has lost 449 points on 19th Sept 08 and at today’s level it has lost over 25 p.c. over its Oct 07 high.For economies of low interest this is huge loss which be recovered over decades if the stocks are converted into money and converted in bonds/deposits (India also has lost 40 p.c. Since heady days but there is chance to recover money in both streams ie equities or the dated securities)

-in US too the inflation is high and therefore equities which are falling only may recover lost ground and save your money from loosing value over time (this is true for Indian investors too,gold,real estate may at best appreciate as much as the inflation or less and bonds will not return even an equivalent of the erosion on account of inflation.Here it will be the equity universe that will ensure safety of capital in medium to long term in terms of value.the other benefit comes in form of tax savings which have to borne in other cases)

-the PE for Indian equities on average has come down to about 15 after seeing high of beyond 25 (this is the ticket to secure investing for if the PE goes further down the value of the company concerned will gain in value and if the PEs improve it will show that the re rating is being done.this way the prices keep improving. Supposing that the earning go down, it will see PEs improving rather than prices falling due to value of the enterprise giving support)

-Asian market this morning are in worse mood than DOW has been. This is case of bystanders loosing consciousness seeing an accident on the road. The fear is the worst enemy of the people as it takes away the thinking power in the same way as anger does ( one should think normally, calculate risk and take the plunge for these are special times to make money and provide leadership)

-the crude has demonstrated that it can’t be kept low and has rebounded to 97 dollar/bbl (the crude is now keeping range-bound trading at lower levels and this is just the best thing to happen . In fact present needs should comfortable be met and an incentive for the development of alternative energy sources should remain in tact too)

-Nifty PCR is at low of 0.82 and therefore there is low build up of positions in expectation of huge slide.It also says that put writers have been reluctant to write puts and premium on put has increased.It is therefore the time to enter the market with writing puts and save on cost and enter at a level lower than the prevailing albeit to stomach the premium,for further safety you may buy a lower put.you may sell in the money put option in nifty and buy out of money put option , this way you will gain in market going up but loose only a limited amount. (With your gain in hand you may buy a suitable call and sit pretty)

-when I look at the Nifty universe I find each of the company is a leader in the field and has tremendous asset treasure and in such lines of businesses that have future and the competition to these companies may not be offered by the new entrants unless the entry is with blessing from a company from amongst these.what is wonderful is that none of these companies too leveraged and has been doing with minimal borrowed capital)

-the result season is round the corner and the advance tax payment by corporates has been as much or higher in many cases (this is good tiding)

-there were plans afoot for the capacity additions and these capacities would be ready for operation this year or next ( this will see volume of sales of companies go much higher up,profits have keep pace albeit at lower rate of operating margin for the time being)

-our currency is only half the worth of 2004 when the nifty ruled at 2000 so in a way what we pay is the same value in real terms but hefty addition to companies reserves has taken place during last four years and half (this should make one a firm footed player in market.

-elections are some eight months away but the time has come when the concealed war kitty of most politicians finds way in to markets and percolates, this will make liquidity crunch getting over)

-Chinese market is down 67 p.c. YTD and ours is only 37 p.c. (we stand better chance of negotiating any rough patch without injury)

-the DIIs are buying an equal or more worth of equities than is sold by the FIIs ( the balance when turned in favour by entry of retail people will see continuous up-trend)

-once again I tell you that the volatility at these low level would indicate that market is to shoot up (buy after you notice this phenomenon)

-’Prithvi Veer Bhogyaa’ (an Indian saying meaning the brave will enjoy planets wealth)

With best wishes to you being able to trade profitably with a cool mind and busy hand.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market matrix – All result of excessive liquidity

By krsna Khandelwal – A veteran market analyst

Friends,

My regular readers would recall that last year I had expressed surprise at all asset classes and commodities going up simultaneously. Then the world encountered the sub-prime crisis of no ordinary nature. In fact both have the same source responsible for such behaviour. It was excessive liquidity in USA (by liquidity I mean unabsorbed monetary stock with people around the world and denominated in dollar like leading currencies). The busting of positions in commodity market has seen that money getting lost, rest of it saw diminishing in the aftermath of sub-prime crisis. The final acts of drama have been played out in the episodes concerning Freddie and Fannie bail out, the bankruptcy filing by Lehman Bros and take over of Merrill Lynch by BoA. The AIG is now offer succour by US Fed. We in India saw the exit of FIIs not on account of prospects getting worse but because the overseas investors were under pressure of the not yet known financial pressure back home and had to willy-nilly get out of India. So the period of past 12 month is a period of unnatural trading patterns in equities,bonds,commodities,real estate and currencies. That’s why I have been advocating to every one of you to get hold of healthy productive assets represented by the share of a good company at reasonable to lower than reasonable prices.

It is 0730 hrs IST while I am writing this and Hengseng is up 283 points, Nikkei up 241 points, Taiwan up 141 points, DOW up 141 points, Straits up 10 points, Kospi up 45 points and crude is 94 dollars after seeing low of 91 dollars yesterday. Would not see the Indian indices opening gap up by 2 p.c. or so. Your chance is to gradually deploy your cash in market for there would be a day showing up swing of over 6-7 p.c. Along the bullish path and would make further investment difficult. The rupee is weakened to 46.88 and RBI would have to intervene by selling dollars which will mop up liquidity and therefore next policy may announce reduction in CRR and banks would have reason to rejoice.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – A day after US financial troubles

By krsna Khandelwal – A veteran market analyst

Friends,

This is 920 hrs in Indian time and Nikkei has lost 565 points, Hengseng 1060 points ,Taiwan 263 points ,Shanghai 65 points and Kopsi 79 points since opening today.The DOW lost yesterday 503 points while all European markets also suffered. The crude is at under 92 dollar/bbl. Since an extraneous matter is affecting the market and the reaction is overly strong an equally forceful rally in a basically sound market may also be expected. Indian banking securities are loosing ground for reason as our exposure to US and foreign markets is minimal. The currency trading on NSE platform before full convertibility had given me a restless feeling and I would now cry foul for it. In these times of turmoil very many gullible people of ordinary class may have trapped themselves as nothing is happening in ordinary ways and on expected lines. I may, however, give a solid idea to you and it is that when the level of market is low after earlier weak times and you notice any thing of extraordinary nature i.e. too high trading volume, too high premium on options, futures either ruling at substantial premium or discount, cost of carry is either negative or too much, the put-call ratio is out side the normal range, the result season is around the corner, there is policy announcement expected or the trading is too volatile and the like, then the market would rebound shortly and you may go long and encash a quick buck.

So, once again telling you that gut feeling is more important and gutsy would win.

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

World Matrix as on 25 Jan 2008

By krsna Khandelwal – A veteran market analyst

Friends,

People expect that the rate cut (by US Fed) would be seeing turn in direction of market and economy immediately. However, I would say that any cut or rise in interest rates is a very powerful weapon, albeit, effective over a longer time. Those who understand the effectiveness of this weapon in long run do rush to markets with their mood changed but are then swamped by the people of spoilt mood who will like to first see the signs of recovery in statistical form. In the end the Fed action will initiate the healing process surely.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market