Saturday, December 31, 2011

NEW FDI CHINA....CHALLENGE INDIA

INWARD FDI OF CHINA

China economy has always been in to tough policy decisions and decisions which will bring growth for other economies too. In fact china follows the rule of prosperity where I will not grow along but I will grow along the society. In its latest FDI policy China has opened up new gates where flow of investments will come.
China has added sectors which include high-end manufacturing like textiles and machinery, emerging industries that bring new technologies to China, as well as green businesses like battery recycling. Services industries such as auto charging stations, intellectual property rights service and career training will also be welcome. The below image depicts the GDP growth and the FDI growth of China from 2001 to 2006.I provided this old data since to make an clear understanding of the World Economic Boom Period.

This time their has been a turnaround in the policy framework designed by china. China has included rather removed protection cap from many sectors which were earlier were not allowed for FDI investments.
This removing of cap clearly depicts the change in cultural outlook being envisaged by china towards its economic growth. Overseas investment in medical institutions and financial leasing firms has been including in the new FDI policy of China. At the same time china has capped FDI investments in automobile, poly silicon and coal chemical plants due to its over capacity of production. Under the new policy FDI investments has been encouraged in the circular economy, the collection and treatment of waste electronic appliances and electronic products, mechanical and electrical equipment, and batteries.
Further the policy states attraction of FDI in energy-saving and environmental protection, new-generation information technology, biology, high-end equipment manufacturing, new energy, new materials, and new energy vehicles. The new FDI Catalog includes key component parts for new energy vehicles and next-generation internet system equipment based on IPv6, Along these lines, nine service industries have been added to the encouraged category in the new Catalog, including motor vehicle charging stations, venture capital enterprises, intellectual property rights services, marine oil pollution clean-up technical services, vocational skills training, Hence the new FDI policy is an compact and well designed to attract investments which will rule the world in coming decades.

The guidelines of the new FDI policy will come into effect on January 30, 2012. Further foreign capital in the energy sector involving exploration and development of unconventional sources such as shale gas and deep-sea gas hydrates have been deeply focused under the new guideline of FDI. At the same time foreign investors will possibly be encouraged to form joint ventures or to cooperate with Chinese companies to enter into these sectors.
In the side chart we find the historically china FDI utilization efficiency has only grown.
This new policy will also have the same affects as in the history it has created on the developed economies. This new policy in turn has led to continued loss of manufacturing industries and jobs, further weakening the vitality of these economies. From the pages of history we find many instances about the number of increasing unemployment across the globe due to China’s FDI policies. The extremely low Chinese labor costs lures multinationals to do investments away from other Asian and Latin American to low-cost export platforms created by China. FDI flows from the US dropped by 23.05 per cent year-on-year to USD 2.74 billion in November.
China is holding the No.1 position for nine consecutive years. A rising middle class followed with growing incomes, urban migration & increasing market demand are considered to be the main factors which enables China to attract FDI. Despite of the global economic turmoil, inflows into the Chinese economy came at US$175 billion in 2010, up 1% from last year, which was US$7 billion higher than its foreign investment peak in 2008. FDI in China’s services sector showed the fastest growth from January to May this year, increasing 31.3% compared to the same period in 2010.
There is a growing number of studies on the potential Chinese FDI diversion. In a series of papers, Chantasasawat, Fung, Iizaka and Siu (2003, 2004a, 2004b and 2004c), Eichengreen and Tong (2005) and Zhou and Lall (2005) provided econometric evidence concerning the impact of the rise of China on the FDI inflows to East.

China has again lead such an policy where other economies across the world will have to become more competitive to attract FDI. In fact India is the first one to whom the challenge has been thrown and it’s up to the famous political heads of India that how they will deal with the challenge. Currently India surged to the second place, passing the United States. India’s previous FDI peak was achieved in 2008, when it attracted US$43 billion, while last year the number dropped to US$25 billion. Hence the challenge for Indian FDI is now the biggest game. And in order to attract the FDI in India we need policies like Companies Bill, Land Acquisition Bill and DTC are the few which will help India to attract FDI. Special focus needs to be provided to SEZ which is currently reeling under pressure.SEZ is the one of the prime weapons which will help India to attract FDI.
Well China is poised for another round of growth where as developed economies will find some space for growth but the transfer of human capital is biggest requirement of the time.

Monday, December 26, 2011

China GOLD........Repeat History....


Gold will be back in action with a bang in 2012.Now many of my fellow friends will acclaim that I am opening up an old wine bottle. But the demand will come from many new emerging nations excluding the BRIC nations. China’s gold imports has spooked to 50 percent in October from September. The most shocking growth number is about the import made by china which soared to 4,000% from October of a year ago, to an all-time single-month record high of 85.7 tons. Now my friends will again claim me as lunatic to express that type of growth numbers. Its the real true number.

China is all set to rule the Gold market of the world. China will very soon soon-to-dominate the New York-London gold cartel. Currently, the majority of China gold reserves have been located in the United States and European countries. And this has lead Europe and US to suppress the real price of gold. Infact suppressed the price of gold from rising. Reason behind such an activity is want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Suppressing the price of gold is very beneficial for the U.S. in order to maintain the U.S. dollar’s to rule the world as an international reserve currency. So does this mean china is slowly planning to replace dollar with renminbi. Well china have been planning and working on this from a long term and it can be taken for believe that one fine morning they will do it just like they hold 60% of the U.S treasuries. Chinese imports of gold is about to hit 470-490 tonnes for the full year, up from last year’s 245 tonnes a near-double spike in volume anticipated at the close of 2011.China has spooked massive advertisements of its gold purchase and asking its citizens to convert their savings into gold from paper currency. As a result 1 billion Chinese consider buying gold as a hedge against inflation and to preserve values in a world where currencies can fall.

Gold Sell & Purchase might Begin.

Italy is having the worlds 4th largest reserves of gold at 2,452 tonnes. This is even more than France, and more than twice as much as China. Hence if Italy’s gold has a value of $123 billion enough to cover this year’s $80 billion budget shortfall. Portugal’s $19 billion in bullion is more to cover its $13 billion deficit. France has $122 billion worth of bullion, enough to make a massive dent in its $150 billion deficit. China might be the biggest buyer as it will try its all means to convert and shifts its $3 trillion dollar reserves into gold. At the moment, the richest Western countries, including the United States, Germany, Italy, and the Netherlands, hold between 60% and 80% of their entire reserves in gold. Where the reserve of Gold being held by China is 2%.Now this is not an misprint. Hence china has an fierce mind of competition which will exploit it to buy gold and increase its reserves.

Repeat of History.Get Ready...

In fact the world is going to witness another repeat of the history. When gold changes hands economic power also shifts. Like the one that happened century ago when plenty of that French, German and British gold ended up in the hands of the United States. We will be the part of the next biggest history which will be crated in this century. On the hand the world is set to dig more gold out of the earth. Now if we look into other emerging nations like Tanzania the land of South Africa. The government has requested mining firms in Tanzania to help in the creation of a gold reserve in the country. Now I am not an Financial Astrologer who will predict the Gold price. As an economist I can say only price will be worth by the purchaser hence all eyes on the Buyer.

Saturday, December 24, 2011

INDIAN PE FUNDS CONSOLIDATION...BEGINS

Quick money and quick return has increased the demand of Private Equity and Venture Capitalist to flood opens the gates of investments. Every one is scouting to find quick gains from investments. Investments in those projects where the government regulations will be low followed with less tax and more income generating avenues. Projects are designed accordingly where mouthwatering returns are being planned to attract the bees called Private Equity and Venture capitalist. We all the know the mechanism of how the Private Equity in Indian economy works out. One of the prominent ways of exit is either through Pre IPO exit or through IPO exit.

If we look historically we will get the proof of the demand of private equity and vc funds that had grown through the number of IPOs those came within the past decade. I will give a simple data of the number of IPOs came from 2001 to 2011.In the this below data you will find that from the period of 2004 to 2007 was the period where the Indian primary market was flooded with IPO. Now this is an separate ball game that majority of the IPO have astronomically returns in the initially days and later on hanged up. One of the prominent reasons is the exit of VC, PE and institutional investors. These institutional investors are the native of any other planet. They are the modified version of investors who reap benefits at the cost of retail investors.

But after ruling for an decade its now being witnessed that the market are flooded with VC and PE and now the numbers have grown up so much that we will find them sitting at every corner of the road. I find that there is going to be a huge turn around in their society in the form of mergers and shut down of ventures. In other words consolidation for the industry is about to begin. I find my community that is Cost Accountants have also come up with similar business model providing funding arrangements for projects. Reason quick money can be earned from being an intermediary between the project and the investor. But after ruling for a decade and when we all know that Indian economy is now being acclaimed as an emerging economy why we are going to witness consolidation.

Prime reasons is quick money formula is now available in the news papers which in the previous ten years remained a secret code. Indian economic situation, policy lags, delay is process of execution due to red tape policies and multiple and high level of greed has opened d the gate of consolidation. Current situation of the industry has resulted dead in IPO exit which is the most important return generating form. VC, PE are not finding the desired return and will falter in delivering back the owners of the original fund with the desired return.

In the year of 2006 I find many PE finding easy ways to raise funds now it has become a tough job. Within the next 12-18 months, many PE firms, mostly the newer ones will be scouting to exit from raising funds. In September 2006, PE firm Everstone Capital raised its first $425 million fund in barely 90 days. But it spent a year closing its second $550 million fund in March this year. They find the difficulty not in the slow process of Indian red tape movements alone. Returns a form value based project has also declined backed by stiff competition after 2008 debacle.PE and VC are scouting for lucrative sectors where govt. regulations are less and wealth can be maximized. Most importantly the exit route of PE and VC needs to be changed. With the decline in Indian stock market performance IPO will find its place very hard to find a proper valuation. Buying quality assets have become an fierce game. But if we look globally we are finding more overseas portfolio of VC and PE are looking forward to Indian markets making the deal tough for domestic PE and VC. At home consolidation is about to begin.

Monday, December 5, 2011

AFRICA CALLING

After independence we will have to stand on our own and rely on our own resources, the unifying force, the cement…which had hitherto been supplied by the United Kingdom Government will be removed, and will have to be replaced by new virtues of our own which must be capable of keeping all the diverse elements of the country together, in mutual trust and harmony and with a common national purpose."
Excerpt taken from Awo, the Autobiography of Chief Obafemi Awolowo of Nigeria.

After the Second World War people in Africa wanted change. Only Egypt, Liberia and Ethiopia were independent at that point. But it was Indian self-rule which triggered the momentum leading to independence. Everywhere the mood was hopeful as people were inspired by the vision of a new society free of European control. The year 1960 saw independence sweep across much of Africa. Fourteen countries ceased to be French colonies, while the Belgian Congo became Zaire and Somalia and Nigeria broke from British control.

After 50 years of Independence African economy is being declared the economy of growth the birth of 3rd generation of Emerging economies. In the last couple of years African has been on the map of every business house across the world. The country of Black where torture and pains were the emblems for the citizens has some thing interesting to fell about. In an a recent research finding it was found that Africa grew faster than East Asia, including Japan. Even IMF expects Africa to grow by 6% this year and nearly 6% in 2012, about the same as Asia. Nothing has changed except the perception of the world looking towards the growth and scare resources which Africa possesses. We all know that Africa is famous for Diamond a mine which is mostly smuggled to Europe and other parts of the world. Africa has felt the air of development and Technology. Technology is fast rooming and bridging the hurdles of poor infrastructure of Africa(which is yet to pick up. According to my research I find that Africa is still struggling with meeting its food supply demand in accordance to its population growth.

The three factors that will contribute in Africa to future increase in food supply are expansion of land under cultivation, irrigation intensive projects, and biotechnological increase in yield. Technology will play the pivotal role in upgrading the agriculture segment. But technology alone will not be sufficient to increase the output of African foods items. . The size of land currently under cultivation in Africa for all agricultural crops is about 76.1 million hectares. The agriculture sector accounts for 35 percent of the continents GDP and corresponds to 40 percent of its exports. About 72 percent of the people live in the rural areas and the sector supplies 70 percent of the employment opportunities We find vast amount of land which is not suitable for agriculture in Africa.

The first responsibility of technology will be to transform the barren land into productive and to stop Desertification. It has been found that Potential land for crop production under rain-fed but not in agricultural use, is more than twice the current harvested land. Hence use of hybrid seeds, modern irrigation facility are all in the dream run until the soil becomes fertile to produce. Hence Africa is being found as an immense potential country for development of agriculture giving a way out to the struggling developed economies to survive the de-growth phase. Irrigations stand to be another hurdle for African economy. Africa needs recycle use of water since the cost associated with developing irrigation infrastructure in Africa will increase the cost of production of agricultural output. Biotechnological food supply increase would not be sustainable in African countries without building systematic multidisciplinary strong institutions. Africa needs proper food storage facilities along with strong R&D built in-house to support the African agricultural growth. Moreover proper system needs to be developed for bridging the gap between the farmer and the end user of agri products. Reduction in the gap will enable improvement of farmer’s quality of living. We must not forget that only growth of companies from exploiting the growth of Africa will lead to development. Africa’s development lies within the citizens of Africa. This simple principal is often ignored and ruled out.

My research finding depicts that Africa will surpass Asian economies in the next decade in terms of agricultural growth. Reasons are simple lack of opportunities of growth in Developed nations and Emerging nations will lead all their resources to find growth in Africa. Cumulative technology transfer will improve the growth speed faster than these countries individual R&D. A simple example to prove my saying is that it has more than 600m mobile-phone users—more than America or Europe. Since roads are generally dreadful, advances in communications, with mobile banking and telephonic agro-info, have been a huge boon. Africa did not spend any amount on R&D in technology but cumulative transfer of technology has lead faster growth of Africa. In the same way I find through my research that Africa will be the next emerging nation propelling faster than Asia. Vocational and other agricultural technical education will further instigate and bring more stable growth in the macro levels of African development.

Africa needs to take out of communal ownership and title handed over to individual farmers so that they can get credit and expand. Developed nations are opening up the trade gates with Africa. America’s African Growth and Opportunity Act, which lowered tariff barriers for many goods, is a good start, but it needs to be widened and copied by other nations.

FDI will find its way to Africa and according to my finding I find 25% of Europe, US, China and India respectively are finding growth avenues and to built their foreign exchange and to diversify the change the too in Africa.

US Real Unemployment@8.6%

US unemployment came down to 8.6%.This news will bring smile on everyone’s face particularly on the face of speculators of the sock market. A question might come in your mind why I did not take the name of American people who have got job since I don’t trust the data. US political elections are going to be held in less that a year time and hence we will find many surprise numbers supporting to boost the economy and start of borrow and spend. America's employment report is based upon two type of survey reports: one of employer payrolls, which yielded the 120,000 gain; and a separate one of households, according to which employment rose 278,000.

It's the latter survey that's used to determine the unemployment rate. Unemployment drooped as more people are giving up looking for work, there’s the potential for rapid shrinkage in the pool of available employees. The number of people looking for a job fell by 315,000 and the number of people counted as not in the labor force (a different measure) swelled by 487,000 to a record 86.5 million. 120,000 jobs creation is not enough to uplift the growing unemployment in US. US are having an average of about 114,000 jobs a month for the last 6 months. Hence the recent data should be analyzed in a different way to find out the real growth of the US economy. After remaining obsolete for more than 3 years since 2008 most of the work forces of US have lost their skills of jobs.

From the below figures of the chart we can find about the movement in PMI (manufacturing production) which is just plummeting as months progress. Of the emerging world, only India and South Africa are growing and it seems that these tow countries are also going to loose the steam.



What we should Discount?
Hence drop in numbers is not to be taken in a big way. Consumer surplus and increase in manufacturing will be key data to be watched in 1st quarter of 2012 not for the 4th quarter of 2011.Since we all should discount the all the economic numbers of 2011 4th quarter since festive season will spook employment and consumption and manufacturing will also grow. But once the season of festive is over growth will slowdown. What we need to understand is that growth of economy of US should not be seasonal affair. We speculators are turning the economic data’s for a seasonal upside in the market. We economists need to look beyond the seasonal affairs. Further unemployment decrease is not the prime factor to be watched. Wage reduction has increased with the unemployment as demand for jobs are higher. The government reports that real average hourly earnings fell 1.6% from October 2010 to this October. Hence 8.6% unemployment from 9% should not be taken as a big improvement of US economy.

Saturday, December 3, 2011

INDIAN INFRASTRUCTURE ...FINANCING MODELS????

For many years India’s lack of infrastructure has been identified as one of the major constraints on sustaining a high growth rate. India is reeling under the low GDP growth due to improper infrastructure. For example if one Glass Factory plans to supply glasses by container traveling via road to a buyer who is located in an village then the buyer will get broken glasses at his end. Since the roads connecting the inner part of rural areas are still underdeveloped. Road infrastructure is so poor that we find medical facility in rural areas are improper and inadequate.

Since emergency supply remains unreachable due to lack of proper roads. Lack of infrastructure has also resulted many operation s to be localized in some particular states. This is partiality was gained since from time to time majority of Parliament members representing from those particular states. This has resulted too much dependency on particular state resulting imbalances from financial development to society development and finally ending up with ecological development.

But what takes to develop the infrastructure of India. Does its requires new generation of young bloods for reforms or policies for development. It needs land and capital the two prime wheels of any economic development. We all know that the 117-year-old Land Acquisition Bill, 1894 is still ruling India despite of its independence achieved over 65 years. Until the bill gets changed Indian roads and its infrastructure will not grow. But, what about capital? Do India have enough funds to finance its infra development.

One another reason for the gap is that private-sector participation has been lower than expected. All infrastructure projects have an element of risk, but in India structural impediments create additional dangers. The single largest factor in project delays is the difficulty in acquiring land along with regulatory delay has increased the burden of working capital financing and its cost of project. Banks has always played a critical role to Indian infrastructure but with the recent slow down in project execution has deterred them from investment to the sector. The below chart depicts the active participation of banks to infrastructure segment

This has also widened the gap of funding for infrastructure projects. The government can take and design many policies to stimulate capital flows into infrastructure like allowing banks to raise resources through long term bonds exempt from statutory requirements and easing norms for insurance companies and pension funds to investment in infra projects.

 
Allowing debt funds to buy loans from the banks for projects that have completed construction and entered into commercial operation. To protect investors from default, the funds would be backed by a government guarantee. Apart from this financiers also need to structure their business models to build high return business. NBFC should be allowed to partner up with banks for develop various financial models which will lead to provide financing infrastructure projects in India. Global banks with strong and healthy condition can develop a synergy with Indian banks to provide financing by developing new models for investment. To date debt financing for infrastructure projects has largely been confined to commercial banks. But with the increase in demand of infrastructure projects and opening upon the gates of investments banks became costly source of funding of the projects we need to come up with new models of financing.The below graph is related to ECBs/FCCBs/NBFC and other forms of capital contribution to infrastructure.

This will invite many other investors to invest. Foreign investors can diversify their risk by holding a portfolio of projects. The recent participation of FII’s investment in bond market, Credit Default Swaps & derivatives has been very impressive. The side graph depicts the growth and participation of FII investment in securities.

Where as domestic insurers and pension funds which have stayed away from infrastructure can take advantage of projects’ steady cash flows without being exposed to construction risk or default risk. Life insurance companies, which have access to long term money and should invest in this pace, are quite passive on it as they are averse to taking on project risk.

At the same time this will allow the banks to free up their balance-sheets to lend to new projects. Directly the government can allow banks to provide refinance support to lending by commercial banks by increasing the credit enhancement for infrastructure instruments or through direct investment in hybrid or equity issue by infrastructure companies through an Asset Management Company.

Utilization of the foreign reserve is an excellent way to finance the infrastructure growth of India. Take-out financing model this entails a bank transferring its long-term loans for infrastructure projects to term lending institutions after funding projects in the initial years. The government has also approved a take out financing scheme by the India infrastructure Finance Company (IIFCL) to encourage banks to lend more to the sector. The scheme aims to address the asset-liability mismatches faced by banks in financing long-term projects and because some banks were close to hitting the limit of group and single-entity exposure. The below graphs represents India foreign exchange reserves.

Lending institution should play a pivotal role development infrastructure project financing by offering advisory services. They should play a proactive role in terms of providing strategic analysis, evaluation and financial modeling of projects, tax planning making the project commercially viable.

Monday, November 28, 2011

INDIA'S MISTERY SHOPPERS...NEW EXTERNAL AUDIT MECHANISIM

Stiff competition on the streets among consumers has leaded every business to sales its products under various non festive promotional offers. So many brands and so many choices has lead consumers to choose from a wide variety of choices whereas companies has to face tough competition on the streets to sale their products. Online shopping has also been introduced in those places where it was not imagined once upon a time. Every company has kept no stone unturned for reaching to the doorstep of consumer in order to increase its sale. Business managers sit long hours to develop and find strategies which will push up their bonuses next year and year on year. We find market survey being conducted by companies to find their product values and consumer preferences and choices from time to time. This has helped companies to cut back on less demanded products and to develop new products matching with the consumer demand.

In an recent note it is being observed and practiced by many companies the application of mystery shopping. Now this stands to be an unique proposition in the product market. Mystery shopping is method through which the business owners evaluate the worth of the products or services offered by them. This shopping proposition is being applied in every consumer enjoyed product segments. From retail stores, caf├ęs, shops, hotels, banks, mobile stores or any other business providing product or services mystery shopping is being adopted.
In Mystery shopping a person who acts as a mystery shopper visits a store, survey the product or service they offer, analyze the quality of services provided, their way of dealing with the customer and provides all this information to the company. It helps the management to identify how the practical process of selling is improving the companies product value and its revenue too. This new mechanism has been applied since even despite of giving non festive offers product sales has not picked up for the respective companies dealing in that product segment.

Infact non festive offers are not the real players behind a product sale. Much of the game responsibility lies on the retail outlets or the departmental store and their managers who deal with them. The companies place a checking system on the employees or the departmental stores behind recommendation of products to the consumers. In most cases its being observed that sales people have less knowledge about an new product which finally leads to drop in sales or hindrance behind the growth of the new born product baby.

The query of the consumers is being left unanswered leading to drop out of the product by the consumer. This is way behind the market survey process. This is one of the most advanced mechanisms which help the company to identify its loops and design its strategies from the traditional process of offers. Companies are shifting their focus from prices sensitivity zone to value zone where special orientation and new product launches knowledge’s are being shared with the sales guys. Detail product features are being shared with retail outlets and departmental store fellows since they are the ones who play the main game behind a product success.

Mystery shopping stands to be one of the effective ways of external control system which is a part of the Auditors professions. Management comes to know from these type of external standards the loopholes in the system. Today the profession of Audit is no longer restricted to internal system. We are equally identifying external audit measures for growth of an business.

Saturday, November 26, 2011

INTEREST RATES 2012 ASIAN ECONOMIES

The world is facing the tremors of financial time bombs which are getting blasted from time to time. Europe has covered every country, states, town’s news papers and, TV channels and other media resources left on the globe with their ongoing crisis. Economists around the world are on the debate that does the world is coming to an end in 2012 through the economic disasters or will continue its fragile growth. I have no bets placed on this topic since I am not yet matured enough to comment on this topic. But all I can say is that till December 2012 we have to live and my job role is to write and depict to all of you the path till dead line of 2012.

We are almost come to the end of 2011 with one month left to celebrate Happy New Year. World has witnessed interest imbalances and the student of financial end economic subjects got live examples to understand how interest rates at Low end and Hind end affects every nation. We saw developed nations kept their interest rates to Zero with various strategies to grow inflation. Whereas Emerging economies witnessed the heat of Inflation rays and high interest rate cost. Interest rates and inflation has turned out to be the main problem of every economy. Western economies wanted to have inflation numbers to grow whereas as countries like India & china took measures to cut off inflation.
Interest Rates Asian Economies Excluding India & China Graph
In between all these the currency war also jumped up with yen getting depreciated against dollar. Indian also witnessed the same problem of depreciation against dollar. Fiscal measures of cooling inflation have spooked currency war. We have seen every economy in emerging nations has increased their interest rates at the beginning of 2011 to cool off inflation devil. Now when the slow down is affecting growth engines of the economy interest rates are coming down. Thailand’s Q3 GDP data show that the economy was struggling even before the flood situation worsened in late October. Thailand’s central bank will opt to cut its policy rate next week. Other central banks, including in Malaysia and Singapore, are also likely to loosen soon. It is expected that the Monetary Authority of Singapore (MAS) will loosen its policy settings in April. Philippines is also going to cut interest rates. While the big dragon China is also in the wings to cut down its interest rates since its economic growth has slowed. In the below image I have depicted only the South east Asian Economies since India and China are often read. We need to dig further to find the individual rates of inflation and interest rates which will reflect the whole economic condition of emerging economies.
Inflation Graph

Commodity prices remained on the higher side backed by global uncertainties of natural calamities. The recent flood situation in Thailand has erupted serious problems for the steel sector. The bulk commodity, the raw material for steel and one of the most important global natural resources markets IRON ORE, has leapt 27% in three weeks. Thailand is the largest supplier of the raw material and due to its flood the mines have been shut and in many cases the production has been slashed by beyond 50%. At the same time steel production and other linked products like automobile and others have also slashed their production.

Japanese steelmakers in particular have started shutting down some production. For example, Nippon Steel, Japan’s largest steelmaker, last week reduced its guidance for steel production to 15.25m tones for the October-March period, down 6 per cent from last year. This has also created markets for the greedy market players to hike prices internationally and take opportunity of the time. As metal remain one of the prime contributors to the emerging economies GDP growth, hence we wait for more down turn in inflation rates in the emerging economies and also interest rates are going to climb down. The bugle of interest rates to climb down has already blown. In 2012 we will find growth from low interest rates as GDP decline has started affected growth emerging economies. We need to find what developed nations do regarding inflation.

Where the MONEY & RISK Flows?

Their was a time when diversification was the prime strategy to alleviate risk. Diversification now stands to be safest bet for investors and a worst game for the financial market players. Diversification has resulted loss in pooling of funds for one single particular segment of financial products. Earlier Stock market was the alone place where all the funds used to get invested. Later on it shifted to fixed deposit offered by banks and by corporate. After this the era of Mutual funds came up where the book of diversification got released. From their journey went to other financial products with the theme of diversification. Distribution of risk is the bottom line of diversification. Rather than placing all the eggs in one basket distribution of the eggs in different basket is the main line of investments in financial markets in today’s world.

Today we have various types of financial avenues through which pone can do his investment planning’s. When mutual funds came into the streets of financial investments diversification was taught to the investors. It was made in order to increase the awareness among investors that through diversification risk can be mitigated and investors can get healthy return over the time.

In a recent study it has been found that today investors are moving away (in fact moved away) from direct equity investment. We find investment in Gold ETF which got an welcome fund inflow. The assets of gold exchange-traded funds in India, the world's largest consumer of the yellow metal, surged nearly three times at the end of October from a year earlier due to strong investment demand and rising prices.

Total assets of gold ETFs jumped to 90.90 billion rupees ($1.8 billion) as at Oct. 31 from 30.97 billion rupees a year earlier, showed data from the Association of Mutual Funds in India. In term of return we find in the one year time frame, all the Gold ETFs schemes have generated a return in the range of 32.62% to 33.76%..With unexpected fluctuations in the market, investors are always keen to park their portfolios in safe havens. Hence, Gold ETFs turn out to be a good investment option for investors to hedge their assets against the uncertain global market scenario. Where as at the end of October, spot gold prices in India were up about 38% (Return from investment in 1 year) at Rs.27,350 per 10 grams from Rs19,840 /10 grams last year.

Small savings has plunged by 66% where as insurance premiums by 15% in volume terms. Diversification of funds has resulted less flow of capital towards equity market. Today we find so many options neither of doing investments that no single product is able to have a monopolistic affects neither on the investors nor of that product itself. But there is one area where investors are still not well educated that is related to Risk management in financial investments. High inflation has compelled investors of various ages to go beyond the danger lines of risk. Over leveraged deals have been executed and still being continued.

Inflation has forced senior citizens to go for high levels of equity investments which is quite opposite of the principal of risk management in investment. Investment in equity should be based upon the age level of an individual. If some one age is 30 then the thumb rule of investment will be 30% in debt and 70% (30 age-100) should be in equity. But with the rising inflation making living cost to go up by many times has forced senior citizens of the age of 60 and also other within the age of 45-55 to do 100% investment in equity. Small savings schemes have failed to beat the hit of inflation over the returns being generated by them. Living till the age of 60 will be very soon a burden if proper financial planning and risk mitigation and management in early ages of life is not being adopted. For this we need quality financial planners and advisors on the streets. Unfortunately what we get now is simply Agents or advisors who are blood hound dogs. SEBI very recently is going to change the qualification for becoming financial advisors & planners. Hence no fools can become advisors for the sake of commission.

Diversification has made every financial product to be competitive and become oligopolistic rather than becoming monopolistic. We are yet to see how the new breed of financial advisors will educate investors for risk mitigation and management.

In my next article I will depict the story of Option strategies for doing Investments.

West Bengal Education needs a Relook.


It’s a welcome approach by the new West Bengal government to bring a sea change in the state education system after stained marks of exam paper leak out and it quality of education of West Bengal during the era of the old government. After a long time the West Bengal is making radical changes in its education system. Its new policies of educational development brought in the state will be acting as a boost to the youth of West Bengal. But their have been couple of places where the new policy seems to be failing while making a comparison with regard to quality.

I have some couple of reading which will depict that the state students will become less competitive in coming years when compared with other states.

Lottery system of admission is not at all a good initiative. Students should be asked to sit for an preliminary exam to so that the students don’t face any problem while catching up with the education at his own class. If all the students get admission on the basis of lottery then many good quality students may not get the chance of admission in quality schools. West Bengal government should schedule marks to which every school will have to admit students based upon the merit of the students. If say a student fails to get admission due to marks schedule then he will get chance from another school. Moreover if the a common exam system is being made then if a student say Mr. A gets admission test in School XYZ and fails to get admission in that school the same candidate can use the same exam mark sheet for other school. Hence making a uniform exam system for the students. Over here I am not raising any matter related to cast, political party or any such issue. Now the examination being taken by School XYZ will be same and at a fixed duration and at a fixed question (same question just like Common test).This will result that students will not have to read and prepare for multiple schools. One exam and one result & acceptance by any school depending upon the marks schedule. The marks schedule will be provided and graded by the West Bengal Education system. This modification of the policy is only for the quality of education.

Another place where the West Bengal Education new policy will fail in terms of quality is No pass No fail. Where it seems good but if students fail to achieve a certain threshold marks limit then education will be of no use and we will block the future of West Bengal. This will result to less competitiveness of students compared to other states. Students will face tough situations since they will take this for granted that even if I Fail I will get promoted to next class.

Conversion of marking system from grade to marks is another place where I find students will face tough times. In fact I can for see that students suicide rates will pick up in West Bengal through its new policy initiatives. We find students committing suicide in many states due to pressure of marks and intensive pressure of competitiveness in marks. Hence conversion of marks system of West Bengal from Grade to marks will spook problems for the West Bengal.

I find the above area needs to have a relook since we are not going to make frequent changes in the West Bengal Education system in coming days. West Bengal should focus for education with quality and as well as for every one. What the new policy suggests is lack of quality generation in coming days resulting students from West Bengal to be less competitive. The ministers of West Bengal and Shri.Mamta Banerjee needs to have re-look towards the ‘New Education’ policy of West Bengal. Policies should be designed keep the most worst to happen in future in mind.

Quality of Syllabus should be focused so that the students become more competitive from the initial days. Now quality doesn’t means here too much syllabus and too many books. Education has turned to be a business and also a tough challenge for the students. Shri.Mamta Banerjee should keep in mind that every policy should lead to quality improvement and not just a revolution.

Technology and Production Series1

The primitive old two prime factors of production (labor and nature) have taken a loud change with the blessings of technology.

Modernization of the industry was made to increase the productivity. Productivity not only of the quantity being produced but quality of product & labor force. But the prime reason for modernization and introduction of technology was to improve the quality of human labor has just turned opposite for the intended purpose. Standing in front of 2012 and starring back to the world it can be well seen that neither the problems of production was solved neither human labor quality has improved. Quality of products has improved by wide height backed by extensive use of upgraded technology applied and improved day after day. But the intended purpose for the application of technology for human labor improvement has ditoriated.

We have replaced heavy machines with chips and those chaps are cheaper that you don’t count while throwing them away instantly. Chips have replaced human labor force and also reduced the quality. Technology has now replaced the thought of doing production with less manpower or no human labor. Industrial revolution has forgotten the prime economic theory that is to improve the quality of production and society (which is the producer and consumer) should benefit and upgrade the human labor.

Economic situation of any country cannot grow without the growth of human labor and society. Technology up gradation has violated the rules of nature and now we are counting the punishment. This has happened due to conceiving the principle that Technology is the replacement of human labor. Technology will reduce manpower requirement and will enhance the productivity and process of production. My question stands that did Technology every tried to keep humans as the first person for the development.

I am not claiming that technology up gradation is bad and against mankind but its innovations have rules out the thought of human labor resulting growth of unemployment across the world. I am not discussing any thing related to any specific country I am talking on the global front. Did we ever thought that every day unemployment is increasing and politicians and industrialist all are finding hard to absorb the increasing manpower as well as absorbing the replaced manpower. What we will keep for the 3rd generation in this earth.

Technology was able to replace human man power due to treating the latter as an income generating force and not as a capital. Now a question will come how labor can be income and capital. Income is the product being generated and used from rigorous cycling and capital is a preserved and applied with cautious planning. I am not against of Technology. What I mean to express here that technology should be used to increase the productivity of every aspect of manufacturing and not to eliminate the main factors of production. Chips have replaced place of storage and has increased the speed of manufacturing. If any one ask what is the size of knowledge it might sound like a Lunatic question. Knowledge cannot be measured. Technology has replaced this thought line. Knowledge has taken the form of Chips resulting minuscule size of knowledge.

Today we are all scouting for coal and oil blocks. In fact we have been doing this and consuming too for the past 2 centuries. Energy demand is growing 3 times more than the birth of single child on the earth every moment. So we the increase in demand we are in quest of coal and oil reserves under the earth. Do we ever gave any thought that due to geographic reasons if all the coal and oil blocks come to an end suddenly then how we will run our earth. No need to think as long as we get. We are using these blocks of oil and coal as an income and not as a capital.

Technology has taught us that treat nature as an income and not as a capital. You exploit nature and make golden goose but one time the goose will not fetch any price since no one will be their to buy them. We must understand that the recent huge crisis of Unemployment being faced by the world is just in the initial days of the biggest crisis waiting to come. It may come soon may be in the next decade but its is bound to come. We need to solve the problem of manufacturing. Technology has made us believed that the problems of manufacturing has been resolved but it has just began the journey of end of nature.

Tuesday, November 1, 2011

China the Question of Necessity and Not Choices.

All set to go with the EFSF proposal of surviving the Euro banks and economy. But the biggest question within the proposal is who will buy the bonds and how the process will be executed. Europe need bond buyers and its domestic natives don’t have money to buy them hence its needs global buyers. Russia, Brazil and India are against purchasing ESFS bonds. Hence these countries have washed their hands from any burden of buying the bonds.
Japan has made promise of buying the bonds of EFSF giving relief to Klaus Regling, head of the European Financial Stability Facility. Japan till date has purchased around 20% of the debt issued by the continent's bailout fund. China is one of the best friends of Europe in terms of investments. The depth of the friendship is so strong that Europe will issue bonds in Chinese currency. China will invest in EFSF bond buying since china is an leading exporter of Europe and its recent slow down of economic growth will force china to head for investments making rooms for its own shipments.

Its not a Choice but Necessity
Persistent turmoil in US and Europe has slowed the economic growth engine of china. The country's exports grew 17.1 percent year-on-year (all figures on a YoY basis unless otherwise specified) in September, easing significantly from the 24.5 percent growth in August and 20.4 percent in July. In the first nine months, exports to the US rose 14.7 percent, down from 15.1 percent in the first eight months, while exports to the European Union grew 17.4 percent after rising 18.5 percent in the first eight months.
At home China is facing slowdown from domestic demand end. Manufacturing schedules and new plants are getting slowed up in China due to fall in export. This is very much visible form the import segment where it is found that imports of mechanical and electrical products and high-tech products also experienced some growth deceleration, from 18.9 percent and 16 percent in the first half of the year to 16.3 percent and 13.7 percent in the first nine months.

In order to keep the new factory orders to increase china needs to keep European economy alive and for that it needs to invest in EFSF bonds. China has already holds one-third of its total foreign currency reserves in euros. Further the recent turmoil situation of Europe will enable china to expand its investment in Southern and Central Europe. At the same time Europe will be looking for a healthy export market from China under the tag Made in Europe.

Europe is looking for cooperation on issues such as business licensing and legal transparency from china in order to promote and expand its Made in Europe goods. To me its stands out to be the best deal the two nations can work upon since Dollar and US economy both will be under pressure from the Chinese and Euro relationship. China will scout for infrastructure and transportation projects in Europe through the bond purchase avenue resulting economic growth for the former economy. Moreover Germany remains the heart of China in whole Europe in terms of export.

Last but not the least the success of the Cannes meeting and the forthcoming summit of Europe and China will depend on whether EU will be able to keep its promises made in Brussels recently. Moreover china needs the backup hand of euro for making Renminbi the trading currency in the near future. At the same time one should bear in mind that China alone will not be the savior of Europe crisis. The whole in the ;pocket is so deep that China will not take so much risks in name of diversifications of its huge foreign exchange reserves around &3.2 trillion.

EUROPEAN BANKS STILL NEEDS RESCUE.....

Shock Absorber to begin:
World market is happy with the recent funding mechanisms declared and agreed for the troubled European economies. Banks have been asked to absorb 50% of the pains of trouble assets. Another part of the funding will be provided by EFSF which will create a set of special-purpose vehicles financed by other investors, including sovereign-wealth funds & funds being raised via bonds. Together, these schemes are supposed to extend the value of the EFSF to €1 trillion ($1.4 trillion) or more. But this might look like an easy way out but in real terms it’s a tough game and more of expectation rather than granted game to win ahead

EFSF is betting on big game since it’s predict that banks will be free enough to dispose their assets and abide the road map of the rescue plan. ESFS depends partly on France for its rating as France finances the rescue fund and any rating below AAA of France will damage the EFSF ratings too making its bond programme to face stiff difficulties. The EFSF will issue bonds which will be backed by the credit ratings of the 17-member nations of the euro zone hence bonds credit worthiness will depend on these nations fragile credit ratings.

Who buys At what?
Selling the assets will be tough for banks as supply of assets are more and purchasers will go for optimum level of bargaining. Troubled banks across Europe have already started sell of to meet earlier regulatory requirements and funding issues. Franco-Belgian bank Dexia SA recently sold its Belgian unit to the country's government for EUR4 billion, is selling its Turkish unit DenizBank. Societe Generale SA and French rival BNP Paribas SA are both looking to sell their large aviation-financing businesses, and U.K. banks Royal Bank of Scotland Group and Lloyds Banking Group PLC are continuing to sell both non-core assets and non-performing loan portfolios, including packages of real-estate, aviation and shipping loans. So many assets are stock piled for disposition and buyers are aggressively bargaining to buy them out.

Banks are getting value for its assets around 50% to 70% of its original value due to extensive bargaining. Asian banks are already keeping an eagle eye on non-central assets being sold by European banks--for example, South Korean government-owned KDB Financial Group is in talks to buy HSBC Holdings PLC's Korean retail business, and Australia's QBE Insurance Group Ltd. and Japanese insurer MSIG are among potential buyers of the bank's Asia-based general insurance businesses.

No Lending No Growth
Moreover the banks have decided that they will eliminate dividends, retention of earnings & reductions in loans. But all these measures will fail miserably since few of the banks are on profitable ladders hence ruling out the factor of dividends and retained earnings. Reduction of loans is going to create double impact less support to GDP growth via loans and secondly banks don’t have enough position in their balance sheet extend loans further. Along with this we should be clear to understand that GDP growth of Europe will be less and consumption will take a major hit affecting US, India and other Asian economies.

Focus lies at 9%
Moreover the banks have been asked to maintain that by the end of June 2012, banks are expected to establish a core-capital ratio of 9%. Banks are already focusing on meeting the limit of 9% rather than focusing on how to deal with the 50% absorption of debt pile. Implementation of Basel III norms will create further pressure on the lending to the European economy EU leaders already are pressing banks to restrain payments to employees and shareholders until they meet the capital target. Well this will further accelerate the slow down process of the European economy since banks will be lending Zero to the economy resulting negative growth for Europe. Hence we should not expect any numbers of growths from Europe. And even if we get any number it should be taken for cooked numbers derived from political amour. There is no relief from pains only consolation and regret is yet to begin. What every one is trying and dreaming to do is that wipe out all the pains and start playing the old game in anew fashion. Borrow and live without knowing who pays.

Thursday, October 27, 2011

EUROPEAN BANKS THE REPEAT OF HISTORY.

By the time this article is being read by you the European deal makers will be meeting another obstacle in reducing the debt pains of Euro. In the last meeting it was agreed that the banks of Europe having exposure to the ballooning debt of Euro nations will be required to cut of 21% of its debts from the Balance sheet of the banks. But the real fact was kept hidden that the hole in the pocket was beyond 21% and even 70% cut consumed by the banks from its internal sources will not be sufficient.
Banks in France, Greece, Belgium and Germany are the most exposed to Greek sovereign debt. If Greece suddenly defaults on its debt, investors will demand their deposits from major European banks all at once. Since many of these banks are undercapitalized, they could run out of cash and declare bankruptcy -- prompting investors to cash their deposits at other banks at the same time, causing borrowing rates to spike and spurring more bank bankruptcies. Hence the conclusion is this that Euro banks are on the verge of bankruptcies and Lehman Brothers is on the way of repeating its history.
Europe accounts for about one-fifth of global economic output hence the world economy is just poised for the biggest recession phase to come up. Moreover the already passed austerity measures have created ripple affects for not only Europe but for also for the world economy. In response to budget cuts, the Greek unemployment rate has spiked to 16.5%, and Greece's deficit has grown 15% as a deeper-than-expected recession.
The biggest fall is about to begin:
Moreover it has fewer avenues for revenue collection and balances the payment structures and its economic growth wheel. Moreover many of the banks of Europe are undercapitalized and any further cut of debt around 60% to 70% will force many banks to open the gates of bankruptcies. After the Greek banks, the hardest hit would be those from France and the 11 German banks with stakes in the Europe. The below list will make you very clear that the type of crisis Europe will face the dept of banking crisis waiting in the sidelines to propel up. The list clear depicts the original stories much ahead of what is being cooked and presented to the world financial forums.

Without new development, without new jobs, without growth, the Greek economy will keep going down. All is needed to focus on new areas of growth rather than cutting and slashing budget and debts figures. Revenue earning should be one of the prime focus. Tax evasion needs to looped since its Greece alone loses as much as $30 billion per year to tax evasion. Just imagine what will be the figure the entire European economy in tax evasion.The biggest threat is the fall of the European banks and how they will be saved so that dooms day doesnt becomes real day.

Saturday, September 3, 2011

Last Chance Mr.Obama……

When I was reading in class 7 in my moral science class I read a story where Zero became the hero. After so many years again zero in real life has become hero. Zero employment is the figure that stands for the U.S. economy. Zero is also the hero even the interest rate of US banking system. Next Thursday Mr.Obama will get his last chance before the presidential election November 2012 to revive and bring faith into his supporters. This is his last chance.

For the world US unemployment stands at 9.1%-a simple number but for the US economy its stands out 14million people sitting at home. In fact the number is more reduced so that the world can sleep peacefully and speculators could carry on the show. Mr. Obama stayed silent after the job numbers came up. For the man Republicans quickly dubbed “President Zero. Its well clear that US is going to face and fight one of the toughest election any American has ever fought. Mr.Obama has made host of new initiatives like clean energy, tougher regulations, industrial policy and higher taxes on the rich. But he failed in implementation. One of his prominent initiatives which failed to attract and build the economic growth of US is the clean energy segment.

According to me US can find its growth in clean energy and can really build a strong economy but a vision alone cannot win. Recently one of the California-based solar power manufacturers Solyndra Inc which received $535-million (U.S.) loan guarantee under Mr. Obama’s 2009 stimulus package filed for bankruptcy.1100 workers ADDS the unemployment numbers. Mr. Obama said in a 2010 speech at Solyndra’s Fremont, Calif. plant. “The future is here.” Those words have come back to haunt the President. In other words republican are haunting the Mr.Obama. Republicans on the House of Representatives energy committee have started investigations to find out whether White House representatives have any connection with Solyndra Inc.

Now it’s well clear that US economy is going to face tough days not only on growth fronts but also on the political maps. By the time Mr.Obama comes up with his last testimonies for job market he is already accused of wasting time and taxpayer money. So the new policy is already discounted that it will hardly bring any growth in the Next one year. In simple mathematics what could not be achieved in 3 years cannot be achieved in 1 year in fact for such fragile economic position.

US should stop the R&D on its economy. They are again betting on the housing market which will never revive neither it can run the US economy through the 21st century. America doesn’t dream any more .If you formulate policies you need to make people believe and make them act on those visions to become realistic. His speech on Next Thursday will make Dow Jones rise by another 500 points but where the growth lies is not even know to the God. Well next weeks announcements will spook the investor’s sentiments and speculators gets more time to speculate and create bubbles.

Saturday, August 27, 2011

EUROPE….CAB DRIVER


Last week I went to a part of a European country where I found the lifestyle being lived over their after 2008.I remember that in 2009 January I came here and after that I am back again exactly after 2 and half years later. I wanted to travel to conference on Last week and hence I took a cab to travel around 80 km for attaining the conference. While travelling on the way I was having words with the cab driver and form their I am conveying the story prevailing over their. This story is hardly being covered by any media or print publication since stories of life are only heard and less recorded.

5 years earlier the cab driver was not cab driver. He was working and was drawing health amount to meet his expenses. He had lover who later on turned to be his wife. His wives also used to work in a company and were married very happily. They bought an residential apartment at 300000 euros and met the expenditures very easily. In other words life was really rocking for this 29 years old chap. The apartment was quite big and big enough to have the 3 children's under one roof with couples enjoying their happily married life. What a person can expect from his life other than having a peaceful life with a peaceful family. According to me it was a one of the best in fact ideal family in Europe.

Life changed dramatically within last one year. Wife lost her jobs and stayed at home. She is buys taking care of the children's. The residential apartment which he brought at 300000 euros is now juts 120000 euros and not a worth to live any more as all the residential property prices of that place has come to half. Banks have already asked to clear the payments and he is only having half the price to pay of the present value. He himself is struggling to run the medical expenses and other stuffs and whispers in his own eras how he will manage later on once the government goes for abolishment of the taxes on medical expenses and other stuffs. He calls himself I am on the way to become lunatic.

He cries often and curses himself for getting married. More he curses for having the twin's child and the other one so early. He cries for his good old happy days. The country of where I am narrating this story stands with this note that if you have lost your job you become cab driver. Now the city has too many cab drivers and less to travel. I requested the banks that I can't pay but all my words went in vain. He cries and only weeps with thousand of people across Europe.

What the hell you will do with knowing the name of state. It's a place on the world that's enough. Oh before I leave I forget to tell the identity of the cab driver. He was financial banker with whom I attained my last conference 2 and half years ago. No need of name since no real life stories comes to media for publication. I remembered my old days along with my cab driver.
the real story of the real growth of the European economy.I hope my story needs no furtehr analysis of the pains and the crsis being lived by the people of the europe.This is only one story their are thousands and thousands like this more painful and more torchruing.Who covers them what speculators has to say and what the government can say in Europe and US.Is this economic growth or growth of END OF THE WORLD.

Friday, August 26, 2011

MASSIVE DEATH ...GIFTED BY SPECULATORS

Mr. Ben S. Bernanke declares......
 
It’s a big day for Federal Reserve Chairman Ben S. Bernanke. In a much-anticipated speech in Jackson Hole, Wyoming the world expects that the US FED will come up with another round of QE3. The main hope of the world is that quantitative easing 3 Fed would either buy more government bonds or shift existing holdings toward longer-term securities.
 
It has been found that any Quantitative easing is supposed to help the economy three ways:
  • By weakening the currency (dollar), it makes. exports more competitive (U.S)
  • By lowering interest rates,
  • It boosts the housing market and allows owners to cut mortgage payments or borrow more; and by pushing investors into riskier assets such as stocks,
  • It prompts a rise in the stock market that puts consumers in a mood to spend more.
But I am very sorry to say hat even if Mr. Ben S. Bernanke declares QE3 there is negligible chances that it will see the daylight of the world. We have bailout that US economy is no longer having a monopolistic economy of Mr.Obama. Its belong to Republicans too where decision making is simply not tough but its WAR. Hence the probability of declaring cheap money on the streets is far away despite of having announcement from the FED chief. Even if the cheap money is being floated on the streets, investors will find other avenues of investments just like the previous utilization of QE1 and QE2.
 
Investments will find its way into commodities as international prices remain on the higher side, with more savings and less consumption as exploitation of Borrowed Spending is now a threat for every one.
 
The biggest question that’s stands in front of the world economy is that:
Does the Fed really want exploit borrowing and consumption and take more risk when they’re still struggling with too much debt?
And does the Fed really want to keep older Americans under punishment by keeping yielding close to zero for two years since they depend on safe, fixed-income investments . US economy needs policies to create jobs and no cheap money. Since cheap money will further pump the bubble of commodity prices and making inflation unbearable for emerging and other nations. Various financial assets will soar like any thing along with GOLD making new historic highs since dollar valuations will decline with QE3.
 
WHAT IS BEING AWAITED......
The World economy and its speculators are eagerly awaiting and already I the process of spooking stories that another flood of cheap moneys will sail US economy out of the woods of recession. This time its not going to be so easy game for the world economy. Short term speculations will kill the world markets more in the coming weeks and by the time my readers read the article the action might have been acted. Borrowing and Lending are no longer easy. Indian markets along with other Asian markets might be ready for another collapse which is being disguised by the market speculators.

Tuesday, August 16, 2011

US Real Growth Wheels.

What a Performance:
Companies across the United States have a record amount of cash that they have accumulated since the recession ended. They have increased their cash reserves every quarter for more than two years, and businesses in the S&P 500 index had a total of $963.3 billion at the end of March, according to the most recent data from Standard & Poor's. The growing cash hoard has been the result of stronger profits.

Companies have kept costs low by being slow to hire. Revenue, meanwhile, is growing, particularly from overseas customers. For the 460 companies in the S&P 500 that have reported second-quarter results, total earnings are up 12 percent from a year ago. Hence cost cutting measures have resulted profitability of US manufacturing. It’s well clear that US corporate are not inclined to hire manpower and also not inclined to increase productivity. Keeping all these factors how US economy expects that its unemployment rates will come down to below 9% when profitability growth of 12% for the 2nd quarter of US economy is derived on the wheel of less hiring and increased job cuts. The profitability earned via these routes is being deployed to investments avenues other than the real investments which will bring growth to the ailing US economy.

Game Awaited by Analysts:
At the same time US is expected to recover a little bit but that should not be taken that the US economy is growing and its back to pre recession levels. US economy doesn’t need any easy money to be flooded on the streets. They needs job creation. They need money to be generated and flowed from one to another and not getting it accumulated at one corner. They need to have circulation of funds which will finally lead to economic growth and will bring the wheel of US economy to move.

Wall Street Analyst is waiting for the following cues which will again help them to speculate the number games. Slow growth of US economy leads to drop in crude prices. Lower crude prices leads to more savings and less consumption expenditure. Hence consumption numbers will grow in coming weeks hence analysts will use this map as a growth picture. This is not the original economic growth mechanisms. Commodity prices will also come down resulting more savings and more dreaming of consumption. Lower oil prices will also help businesses at every level from manufacturers to transportation companies to electric utilities. But this savings will remain in the pockets and will not be utilized for capacity expansion neither for reduction of unemployment numbers. But yes my dear Wall Street analyst will be able to cook the game of numbers and scale Dow Jones to 12000 levels. Key commodities, such as copper, aluminum, cotton, wheat, corn, soybeans, oats and rye, has fallen; hence more savings in the hands of US consumers and exploitation of expenditure will be spooked so that consumption picks up.

The below image reflects the Exploitation of Borrow and Consume:

But over all these positives speculations one prime thing have been missed off that is the mind set of the US consumers,. The recent doldrums activity of US economy has shaken the faith of the US citizens .This will lead further to less consumption. And the old policy of US economy that is Borrow and Consume is no longer going to work for the growth of the US economy.

Once upon a time in US Economy:

Manufacturing has always been the bedrock of American economic might. Thirty years ago 20 million Americans worked in the sector. Today only 12 million do, and that number is falling by 50,000 a month. As manufacturing has declined, its place has been taken by new ''knowledge'' industries such as finance and IT. But these industries do not create the vast numbers of well-paid jobs that once provided the bedrock of American society. Instead they provide very high paying jobs for relatively few people. This produces the second big long-term change in America's economy - the stagnation in average incomes. US is loosing I term of technical know-how and knowledge. Their quality has dropped and the proof is that China gas emerged as a leader. One cannot blame China if their person has become more knowledgeable and more inclined towards development. US have died due its ego of being the ruler of the world economy. It never thought of the ways of how to repay back the borrowings. While I am writing there are series of questions coming into the mind of me and also of my readers.

• Can America's post-industrial knowledge economy support its global power?

• Can it create millions of well-paid jobs to replace those lost in manufacturing?

• How can the US maintain a high-wage economy without rebuilding manufacturing?

The below image reflect the Industrial production of US economy which is very much clear that growth was hardly striking in the past decade.

WHERE THE SHOE PINCHES?
But knowledge is free hence one cannot be stooped from procuring the know-how and building world class genius. They only way US can rebuild US manufacturing would be to drive American wages down to the point that they meet Chinese wages as they rise. Man-power resources need to be utilized efficiently by US in order to compete with the emerging nations. What other nations like India China are having is that they are having a huge uninterrupted flow of talents and qualified young manpower. US are lagging very much behind this and no monetary system can fill up this gap of the US economy. US manufacturing has shifted to China taking the advantage of low cost of production but did UD took its own manpower and transplanted them to China .no never. It never happened that way otherwise US unemployment should not have been a nightmare of 9% above. Today US have raised the voice over the valuation of the Yen over the dollar saying yen is manipulating currency. But did any one calculate the dollar over valuation over the yen. US needs to improve its quality of manpower. The door of globalization has increased the competition and its no longer feasible for US economy to dream that’s its manpower is undefeatable.What US needs is to competet and rebuild its manpower quality otherwise it will be too late to amend any thing for US economy.

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