Sunday, June 28, 2015

Russia ....Greece Gets is Strength From where????


The time has come when the world history is about to be written. The Greece banks are on the verge of collapse and it’s true that only austerity would no resolve the problem of the Euro countries. Don’t forget that France, Germany, Spain, Portugal and even Ireland all are there in the line where default and extension deadlines would hot the shore. Indian markets and its players have been saying repeatedly that they have already discounted the Greece matter. Well that’s easier say but when windup of capital start happening every one run away.

Today people in Greece as on 28th June 2015 are just simply withdrawing all their savings and money from the Bank ATM as they don’t want to have their savings to be kept their. Banks are getting liquidated and the situation is turning out to be worst. Shortfall of capital is going to pull the trigger of huge redemption of capital across the globe. But why Greece is not accepting the terms which will save the economy. I am not going into the old discussion of its macro numbers. Well as I am an economist I am also journalist and being that I find Greece has got immense time to plan for its economy right over the last 4 months. The important question over here is that what and forms where the Greece got its strength to refuse and remain intact to its own proposal despite of so many pressure and meetings.

Russia and China is backing Greece and US already fears the same. It’s a political rift which is going happen and they are already in the cards. The newly elected governments of Greece have been talks with Russia and China to get funds and exit euro. If you remember that Cyprus has already caused a political storm by offering to expand Russian access to its ports and airfields including military facilities.  China and Russia has huge foreign reserves and both the country is in the shopping spree over the last couple of years. Greece hasn’t outright asked Russia for a loan, but Russian FINANCE Minister Anton Siluanov has already a said in Jan and in Feb that if Greece approaches them they will help out taking care all the bilateral trade agreements . Russia has been chasing Greece for a long time. State-owned Russian Railways and Gazprom have been eyeing stakes in Greek assets. Russian Railways has held talks with TrainOSE, Greece’s state-owned passenger and cargo rail operator. In 2013, Gazprom made a €900 million bid for Greece’s state gas company DEPA, but backed out of negotiations at the last minute, citing concerns over the company’s financial stability. Russian INVESTMENT in Greek railways is estimated at up to $3 billion per year.

Even Russian President Vladimir Putin has said that Russia would be willing to supply loans to Greece for major infrastructure and transport works. Russia would be using its oil to be sold and Greece and other European countries. This is just the beginning of Col War between the developed economies. Russia would benefit more by providing aid to the Greece as they will get access to the European economy and slowly other countries would also exit the Euro in the same line creating a history in the political and economics.  Now I hope that everyone understands clearly about from where Greece gets its strength to fight and exit the Euro.

 If Indian markets have discounted the present Greece story then I would like to draw the attention that when an equity market keeps on discounting bad news then the risk level of trade becomes higher. Further we need to the level to which the Greece bailout matters have been discounted. Did Indian markets have discounted the catastrophic affect of euro exit by many more countries? Now think and get back to your broker, fund manager, analyst to get the precise clear map of the same. We Indians understand less of risk and return and more believe is on news of the herd community of investors. In 2008 Jan we discounted many bad news and the same happened until Lehman brothers came to close. What I want to say is measure your risk and keep an eye on the level of bad news being discounted by the market. Whenever market falls it falls in disguise. Know your risk and returns.

Friday, June 26, 2015

US RATE HIKE.....WHY ITS URGENT

Its being said that the world is preparing for the interest hike from US and emerging markets are prepared for the same. Equity analysts, Fund Managers and Stock brokers all have already started preparing their notes that interest rate hike would have short term mild affects and the world and more of India is prepared for the same. Well as an economist I find that rate hike is being created to hide the current weak potentiality of the US government and its weak policies to revive the economy. The US elections is the key factor behind the interest rates to hike and also to hide the long term weak strategy of growth adopted after 2008 collapse.  Its trying to save the face of US from another recession. Rate hike is being done so that more collapse happens in the economy and worldwide equity market goes for a tailspin and all asset bubbles get cleared out . After this they will again go for rate cut so as to spook economic growth and DowJones.New strategy for corporates to play  and make the shareholders more rich.

Economic data supports the same and also the socio political structure of US also supports the same. Rate hike under the current Obama government would create catastrophic affect on the economy this will lead to Jeb Bush to win as he will come as superman to save the economy form the downfall. This downfall would be for 1 year which will be equivalent to 5 years terms of economic slowdown. US economy is growing but is the growth sustainable that’s the trillion dollar question which is well knows NO. Now coming to some number game about how much strength does the stock brokers, Fund Managers and Equity Analyst have in their comfortable words that world economy and India and markets are prepared for the US interest rate hike we find that US  companies’ share prices have shot up, with the S&P 500 index rising by 95%.

According to Robert Shiller, an economist at Yale University suggests equities are valued at around 20 times earnings, more than 30% above their long-run average. The Forward PE is the most dangerous game which has been played by the US markets. The zero interest rarest have only widened the income inequality and created castle of Dow Jones growth made up of sand. NYSE data showing margin debt lending to invest in stocks rising by 14% since January from $445 billion to $507 billion. According to another research made by Dealogic, a consultancy it has been found that Companies are issuing debt at record rates, with $609 billion raised so far in 2015, up by $40 billion on a year ago according to Dealogic, a consultancy.

The story does not end here that as earning of the US companies have slowed down resulting a significant increase in the number of American firms with low credit ratings (BBB- or below) has risen, according to data from Moody’s, a credit-rating agency. Now the real truth behind Dow Jones creating historic highs is due to passing benefits of zero interest rates to the shareholders. According to Moody companies are reluctant to commit funds to capital expenditures have opted to pay for these buybacks and dividends by issuing new debt amid record-low interest rates. U.S. companies allocated 12 percent of their earnings before interest, tax, depreciation and amortization to dividends in the third quarter of 2014, up from 9.4 percent in 2013. In 2007 it was 4.5% only.

So if the US interest rates increases driven by US election and strategy to make Jeb Bush winner then the first correction over the next 1 year time frame would come from US stocks which will drag down the global growth momentum as Stock Markets are linked with economy. Now those who are saying that India is ready for the interest rate hikes do you really think we are ready. Do you think that when the earnings and steep decline of the credit quality of US companies would happen then in that case pull back of funds would be massive which is hardly taken into account? We are thinking about money flowing from emerging economies where as its clear that emerging economies story of collapse would be written later whereas US collapse would be steep. The US elections is the key factor behind the interest rates to hike and also to hide the long term weak strategy of growth adopted after 2008 collapse. Rates will hiked, to save the economy form another collapse of asset bubbles going for burst.  Remember US don’t have any more ammunition to fight for another recession coming out from cheap money hence lets add the flavor of politics and let Jeb Bush become superman and let interest rates hikes kill the asset bubbles which saves US from its weak policies and falsified growth stories and let again create a bubble of growth for another 5 years terms. The theory is wrong that growth has come so US interest rates needs to increase. It’s the best weapon to save from another recession.


Thursday, June 25, 2015

Why to blame RBI if they are cautious?

Where we are heading and what we are trying to do is a question of big thought. The latest report of the RBI raises many silent time bombs of financial explosion in India and across the globe. Stock brokers, Analyst and Fund managers are busy is critising  the reports of the RBI as RBI gave a very clear practical picture of the economy. Unpractical, illogical rate cuts expectation will only cheer the Forward PE but not the macros.

My readers are welcome to ignore the same or they might shut their eyes from reading the article. But I am compelled being an economist to depict the true picture of the global as well as where India is standing. Forward looking PE is the key concern and we are all busy in improving the projections story to be a love story rather a Hollywood movie. I am not going to give any statistical numbers neither I am trying to prove any theory. I am depicting what we all see and what our internal minds speak when we start the day each morning.As an economist my duty is to depict the truth and not a Forward PE based game.

The weak condition of the economy is very clearly shown through the eyes of the Finance minister who went to convince the US business society to do investments. This proves that fundamentals are not in position to bring investments and moreover today’s investors across all segments are well informed. India thinks that they will export and the global markets would be consumer markets. Well that’s a wrong philosophy. All employment and capital investments would come here and we will be the manufacturing hub and export can’t be in real terms. Every economy knows that drawing capital investments is the path to recovery. So we need to focus on internal demand creation and consumption of goods and services rather than going for begging to the foreign countries.

Lest get into glimpses of few facts:

Service tax hiked to 14%. Trillion logics to backup the same one logic say that inflation and consumption both takes hit. In a country like India having population of 130 billion, where more than 60% struggles to make a living don’t you think that taxation policies should be focused towards those 60% of the population. Inflation in coming months would shoot up since crop season timing was delayed and secondly service tax would spook the burden further. So better monsoon will not be suffice for the long term justification of the Forward PE.

We are expecting and also the fund managers, stock brokers are expecting that RBI will go for another rate cut so as to boost the sentiments of the stock markets. What is the use of such rates cuts if they are not passed to end users and secondly due to thing companies are in position for taking loans as their books are total under huge leverage positions.

Global markets are under pressure and will screaming under pressure. Reasons are simple they have also learnt how to fool people and hide and manipulate data at the optimum level.  Greece is not alone its all brothers are almost bankrupt and awaiting for their own turns.US dreams for rate hike but how many days they will keep the rate hike is a big question to  me. Growth etc all stories are okay as long as Jeb Bush and Hilary Clinton fights. Sustainable economic growth is the biggest question but understood less by the people across the globe.

 Current Export market of India is weak as demand is lackluster hence we need to focus on domestic consumption Now if service tax is high then obviously the manufacturing would not grow as consumers will consume less.

Further rate cuts would leads to restructuring of existing loans and private as well as PSU banks would get more hit. The stock market community is busy in just sketching stories of increasing the earning expectations.  Forward looking PE is the key factor.

We are aware that in a country like India where bank penetration is limited and access is limited we are not developing any robust and aggressive policies to bridge the gap. We are not focusing on developing products from the house of Mutual Fund and Insurance industry to cover the untapped segment. Well when a bull market begins we forget principles and we focus on repeating quarterly numbers and our salary numbers. We don’t focus on income inequality in India.  We are looking forward for Alternative assets for investments which will disappear once the equity and macro economic factors goes for a wild swing.

We don’t focus that Indian banks are skeptical in proving loans to entrepreneurs where the entire ministry of India across all segment are giving political lectures to develop and promote entrepreneurship. Chamber of commerce across all segments conducts seminars to promote entrepreneurship and innovation but how much support they get in terms of access to capital.

Well forget about capital. How many are educated enough to understand the innovation and entrepreneurs minds and their projects in India. Forget about the central government politicians since major of the research and innovation is dependent on the state government levels. How many ministers are there in various states to understand the innovation projects?

We are talking about India is going to be Defense export hub over the next decade. Well how much capability Indians have to understand the subject which is developed by an Indian. We doubt our own abilities. We want capitalism and also growth path designed for 5 years terms after that scam begins.
We are begging in other countries where as we are not exploring our won consumption demand which will create manufacturing demand. If India is low cost of producing country then imagine how economies of scale of business would help to reduce the income inequality in India  and help to grow the economy. If Investors are focusing to get positive clues my only advise look before you leap.
Why to blame RBI if they are cautious?

Sunday, June 7, 2015

OPEC EXPECTATION OF PRICE H2 2015...WHAT IS IT?????

The prime reason behind this research is to find out what will change in H2 2015 which has been predicted by the OPEC in its meeting related to crude prices. This research is not like the Big Giants-broking companies of the markets who influence the market and move according to the political instructions. But cant help world only follows the heard even if the herd is lead by idiots. Before that we need to understand many things. Part of the global economy must be waiting for some magic for the recovery of its inflation employment, commodity prices and GDP numbers. Well the magic lies only in a 3rd world war which could only increase all of them. The recent crude decision taken by OPEC shows clearly that they are all set for war against the Western world and western world on the other side have clearly understood that if war funding needs to come down then the middle east needs to be kept under pressure. 

OPEC took its decision based on this thought that they will throw out the western economies out of the crude production but they forgot that they are repeating the same mistake they did several decades ago that by throwing out the British they deprived themselves from technology. The Western economy is way ahead of technology which pushed down the cost of production and makes the companies more profitable despite of prices coming down. But among the cost measures job cuts were made so that they count rejuvenate their production process and investments. Many companies went for 20% to 30% cut down in work force to re balance their books of accounts and investments options. Well ancillary industries job growth percentage increases as production grows. I will discuss this in a broad manner later on. Well the research is to find that how US will react and how the US plans ahead. It’s finding out the connections of the route map of the plans of the US which they will be going ahead after the OPEC decision.

If we look into the history of cost of production of crude we find that according to EIA’s (Energy Information Administration) 2009 report shows the production cost of crude oil was $12 per barrel for the United States and $10 per barrel for the Middle East. But does this means that crude prices will remain low for 2015 and 2016. Well crude prices are currently under the position of having a mixed trend. OPEC decision will have impact on the US shale producers and others. The interesting part to watch out will be that how crude prices travel from where if dollar supports the crude price to climb. Since the whole world might have forgotten that US is under extreme advantageous place in term of crude production and dollar which is the international currency of crude trading.

 US crude is going to be the biggest job creator for the US economy as they have lifted the ban of export. Lifting a 40-year-old U.S. ban on crude exports would create a wide range of jobs in the oil drilling supply chain and broader economy.    This history behind the export ban is that in 1973, the United States imported an average of 3.2 million barrels of crude oil per day (million b/d) and 3.0 million b/d of petroleum products. By 2005, crude oil imports had more than tripled to 10.1 million b/d while petroleum product imports had risen to 3.6 million b/d. Reliance on oil and product imports as a percent of total petroleum consumption increased from 36 percent in 1973 to 66 percent in 2005. So now as US is big producer the cost of production and cost of consumption would come down which would lead to some support to the middle class to balance their income –inequality.

Getting deeper into the Job market dependent on crude segment its being found that according to HIS some 394,000 to 859,000 U.S. jobs could be created annually from 2016 to 2030 by lifting the ban. This reveals that US will focus on extensive cost effective methods of cost of production and also it will try to get the support of dollar so that profitability keeps on driving the investments for the crude production. If we drill further we find that only 10 percent of the jobs would be created in actual oil production, while 30 percent would come from the supply chain, and 60 percent would come from the broader economy. This is the key area where the US economy is focusing and if the employment issue is being resolved then US will find much easier ways to increase the interest rates. The biggest boon of the crude export would be that many industries in US will find job growth like oil field trucks, construction, information technology and rail. Many of the jobs would be created in Florida, Washington, New York, Massachusetts, and other states that are not known as oil producers.

Coming to the quality of crude which is being produced and exported we find that most of the increased production in recent years has been in the form of lighter (“sweet”) crude oil.  Light oil sells at premium compared to heavier oil in world markets. This is the key place for making revenue for the US crude players.

Now being a journalist I find that US politics plays a pivotal role behind the crude oil production. This is above economics but within the same subject of political economics. JEB Bush is a strong supporter of drilling oil rigs. The past  shows that George W. Bush’s close ties to Texas and connections with the oil industry which leads  to the future of prediction that crude industry is going to be a  strong foundation for the US economy to pull out of the slowdown.  The Bush administration's ties to oil and gas are as deep as an offshore well. President George W. Bush's family has been running oil companies since 1950. Further my theory that Jeb Bush will be supporting and crude prices would climb and also US will focus extensively on crude production is that according to history of  data compiled by the nonprofit Center for Responsive  George W. Bush and his allies have received more campaign contributions from oil companies than any other administration in history. oil and gas firms donated $1,889,206 to Bush's presidential campaign, making the industry among the top ten special interest contributors to Bush in Election 2000. Individuals connected with the oil industry contributed at least an additional $85,500 to the Bush campaign.

 The Bush Presidential Inaugural Committee received yet another $1 million in contributions from oil and gas firms. The oil and gas industry contributed at least $556,700 to Bush's 1994 and 1998 campaigns for Governor of Texas. Individuals connected with the industry contributed an additional $944,733. Hence how important is the crude production and its support of dollar to increase the price are well clear. 2ndly if the US economy and world economy is being believed that US is helping the developed economies by increasing production well no one does charity in today’s time. Now lest drill further into the history where we all know that the price of oil climbed from January 2 to July 14, 2008, repeatedly setting new price records until it peaked at $147 per barrel. The 2008 big oil profits bring the grand total under the two terms of the Bush administration to $656 billion, which is nearly two-thirds of a trillion dollars. Further the Iraq war and other wars added profitability boost up to the US economy and its corporate. This is the prime reason why I said in the beginning a war should boost the economic growth of US.

Hence it can be concluded that Crude Oil production will be increasing and price is bound to increase in whatever manner since it is linked with US election funding and also politics is an integral part of corporate economy. Just try to remember that what made OPEC to say that things will change in the H2 of 2015.Well it’s the change in number days getting closure to the US elections and also an invisible war might be in the pipelines. US oil rigs will vote them as their president who support them.

HIGH RISK HIGH RETURN...Where are we Heading Again

High Risk High returns where the end is. High Risk and high returns in the last decade of the bull market of the Indian equity market have lead many families to witness suicide cases, families getting broken, physiological and mental problems and even growth of alternative crimes. We have seen young fellow committing suicides due to margin funding based equity trading under the regime of High Risk High Return. I call it leveraged death created from high risk high return theory.  What type of product we need and what we are designing needs to have a deep look?

Bull markets of the Indian equity have spooked many investments options and more complicated structured products. The birth of these structured products have been due to two reasons primarily,1) Plain vanilla products were available too much and 2) We just copy pasted the financial products which did not work anymore in developed economies. Alternative investments funds in Indian are defined under two categories 1) Equity and 2) Real Estate. I fail to understand that why alternative funds definition is restricted to this as compared to the global developed economies. We don’t have metal basket ETF, neither crude basket ETF neither commodity ETF. We all know when equity markets go down the commodity markets goes up as they have a negative co-relation. But how many of us took the Commodity ETF based products as alternative product in India.  AIF segment have been growing in India after the new government came into force. But are we focusing on easy structure products where a broad segment of the investor’s community can come inside and invest. No we are not doing the same. We are creating products which high risk and the income from distribution are high and they are all somehow of the other are leveraged products. In equity we all know that there is saying that high risk high return. But will anyone tell me where the high risk ends and how long the high return will grow.

India lacks clarity on alternative product basket. We are more concerned about products where complicated mathematical formulas are created to back test the product so that approval can be taken form regulatory. My concern is that how many regulatory checkups are being done after the fund is launched in terms of the same back test. Back test methods are never correct in the real life. Secondly miss selling still happens as the seller discloses limited and structured stories which will help him to get the business. Down side risk are cooked and often structured to derive the sale from the investor. Secondly investors forget that when markets and economy goes for a toss no product can survive the down side. It’s the asset class diversification which survives the portfolio. Alternative investment funds also fail under this category. Recently after the Indian equity markets awaked from sleep AIF segment has again got back into shape. AIF managers raised capital commitments worth Rs.20,457.45 crore from affluent Indian investors till the end of December from Rs.11,186.36 crore in the previous year. Of this money that was committed by investors, asset managers raised funds to the tune of Rs.7,790.52 crore till December compared with Rs.2,883.49 crore collected a year earlier.

Well the numbers are impressive but how much return would be generated from equity and real estate segments as an asset class is a question.  The recent class of AIF category is the IDEA related business where growth is expected to be stupendous. Unlisted based company based products have come up in AIF segment. These products have been marked as high risk, high return products followed with structuring based on different investor segments.  The return mandate for investments in unlisted startup companies is that you may get return or may not. Max return based on FD rates. I find these AIF products of unlisted companies just as Chit Funds. We are creating products which are designed like professional gambles.  We all know that Indian real estate market is flooded with inventory and developers are having problem to clear and in between we have introduced AIF products in these segments. Don’t we sound crazy about the same. High Risk and High Return –investors should know the end of risk and end of return.

Don’t you think once the market goes for a toll then the risk appetite comes down to zero and spreads like wild fire among the investor community then these AIF will simply disappear. This will create problems for the genuine startups and ones who are simply created to dupe the markets taking advantage of the AIF segment.  Are we creating a market like US where high risked products lead to an massive erosion of wealth across the segment.  In the process of creating wealth we are simply strategizing the products where erosion of wealth will happen within a blink of an eye. We are developing products in a country where financial instruments itself are less penetrated and less understood. Where the population is focusing on increasing its wealth and getting into the category of wealth within the levels of developed economy why we are focusing on unpredictable investment options. 

This is one of the key areas where we need to focus. Financial companies are forgetting that these high risk products would lead to substantial loss of clients and long term business for the organizations. Indian markets and its investors are designed in some other way which is completely opposite of the developed economies and further when loss happens investor behavior remains the same.  What I find that in India financial power houses and their products houses have limited their product basket and there is lack of vision. When we all know that commodity prices and equity markets goes down then why don’t we bring ETF and create FOF of ETF’s. We have limited our products innovations to limit the segment and we are creating high risk products which will have devastating results.


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