Bailout Mania

It has been quite sometime, since I last wrote and a lot has happened since then in the financial markets. Oil fallen by 70%, Dow has hit 5 year low, Indian market has reached 8000 levels, Obama is now the President elect.

There are a couple of things, which I thought is getting the maximum attention, at least in the media recently. One is the daily talk on interest rates and the other is the bailout packages. I think the latter has become more of a rhetoric and is becoming increasingly fashionable now a days. US was the first to start the 'package mania' and as usual the whole world followed it. Our FM will soon become an outcaste in the global scenerio, if we also do not have a 'package' soon.
The problem lies not on the package but its clarity in direction and implementation. After the US package was announced, the Dow still hit it's low and markets are getting from bad to worse.

The problem I see with all these bailout packages across the globe, is that it primarily focuses on financial institutions and banks, and not on the real economy. Example is that US bailout was meant to help the housing sector, by buying the problem mortgages, so that banking capital gets freed up, and they are able to extend credit to the common man. But in reality what happened was that the Fed ended up buying equity of these banks!! So instead of doing what was intended, it landed up having more ownership of banks, in this falling market conditions. What a waste of money to help certain banks once again.

The other thing we see in the media is the hype that if interest rates comes down, demand for housing and cars will shoot up. What a wrong conclusion !! Demand is driven out of economic fundermentals, capacity shortages, increasing income. Neither of these are prevelant now. Interest rates are only a catalyst to growth and cannot be the only factor.
The need of the hour is incresed government spending and infrastructure project spending. This will increase demand for steel, cement, labour. Rest will follow.

The problem is that State govt in india is bankrupt and all depends on Govt of India for this funding.

Given the forthcoming elections, the Govt. will hopefully focus on increased spending to improve the growth...Let's wait and watch!

Nobody is too big to fail ( NTBF)!!!

The world financial market has undergone huge turbulence during the last few days... the biggest names of Investment banking- Lehman and ML exists no more.. The biggest insurance Company in the world AIG, has been nationalised for all practical purpose.. it is an institution with $ 1 trillion in assets and is one of the largest financial institutions in the world. So institutions which grew and and prospered for centuries had failed.. if we take the India equivalent it is something like LIC and SBI failing.

This brings out the moot question..what is the sort of regulation, risk management they have in the US? They are worse than any third world nation in terms of regulation.. US, the biggest economy and the most developed nation, has the control mechanism, which is shameful, to say the least. How can AAA rated papers by S&P, Moody turn into junk overnight? There will never be any answers.
I guess entire financial community is to be blamed - brokers, banks, rating agencies. The Dow is in bear market zone, which will have a huge impact on the real economy. India will also suffer, without any fault. The US Financials have successfully put the entire world at risk. The 1929 Great Depression started with the Wall Street crash.. This current mess will lead to job losses, and economic depression.
Hopefully, India will be able to avert the depression. But one can never say, as history shows that Dow levels and depression are greatly interlinked.

Saptarsi Mad Money Talk: Greed and Fear

Saptarsi Mad Money Talk: Greed and Fear

Greed and Fear

1. Back after a long hiatus.....
   The world has changed in the last quarter itself. Oil is back to sub $100 again, gold is back to 12 month's low, the commodity cycle is ending.
   Equity as an asset class, has underperformed during this period. Dow is close to bear market territory.
   The big boys of finance - Lehman Brothers, Freddie and Fannie have failed. It just goes to prove that no institution, how big and powerful it may be, is invincible.
   So greed is the cause of all failures in the world of finance.
   One point I want to make is that in US, "Losses are public and gains are private". I think this is a sheer desperate way to protect the 'interested' influential people in Wall Street.
   There is gloom and prediction of doom all around...
   So where do we go from here?
   My take is - if the world is to survive this credit crisis, which I am sure it will, Equity will again deliver. It may take time over the next 1-2 quarters. We will again have some storyline, just like films, and like the Pied Piper, all the mortal folks will flock back to equity.
   Let's wait and watch....
   Like-minded people please respond and share your viewpoints too!!!

Oil and Tale

Continuing the analyis on oil, which seems to be the hot topic of the world today, I thought of an old story of the farmer and the hen who laid golden eggs. The farmer got greedy and wanted to become rich overnight. He wanted all the gold eggs in one day. So as the story goes, he killed the hen and found that there is only one golden egg. The moral of the story - do not kill the customer on whom your existence depends.
It applies to oil as well. The farmer in this case are the OPEC countries ( Saudi, Iraq etc), the hen, no doubt is the US. High oil prices will kill the US, as recession steps in. So the farmer will also perish then.
The 'farmers' of the world know this very well. They will ensure prices comes down, so that they have jolly good lives, as well ...till eternity I suppose!!!

Saptarsi's Mad Money Talk: Herd Mentality in Equity

Saptarsi's Mad Money Talk: Herd Mentality in Equity

Herd Mentality in Equity

Some things are so common with human nature. We always tend to follow what our neighbours have done, what our relatives have done, what our collegues are doing in terms of cars, houses and even careers. So it is no wonder that investment manager across the globe have the same point of view at any given time. Either they are super bearish or bullish.

So when markets are done everybody is selling and when up everybody is buying.. how predictable.. we do not ever put our minds. We follow the pundit and the channels.

Always keep two things in mind. Do not always follow the herd and secondly ask yourself if you are comfortable putting your money in a particular stock for next 5 yrs.

Oil Madness

Today oil price has become the hot topic of discussion for everybody. The price of oil is boiling at $127 plus... why is there so much spike in the prices?
The US economy is going nowhere, Europe is contracting... the world growth is faltering.. The US is still the biggest consumer of the gasoline,and the economy is headed towards a recession!!
The experts will tell you that India and China are adding to the consumption story!! but if we see the demand and supply, we can make out that this 40% rise is not sustainable..
Then what is the real storyline... It's easy folks.. The big commodity and hedge funds cannot make easy money after the subprime mess!!
They put all the money on oil and took them out of equity..Simple!! too much hot money is pushing up prices..
Newton's law will prevail.. I see the oil prices falling to $ 100 -105 levels in next quarters..

In the meantime you will hear all these stormy weather, 'supply disruption' stories leading to price hike as if this is the first time in history this is happening..!!

My first day at Blogging

Hello All,

Finance, especially capital market, is my passion, apart from being my profession. I have more than a decade of experience in leading Investment Banking houses, management consulting firms and process outsourcing companies.

With the advent of the blog revolution I thought it is an ideal platform to share my ideas and view points, with the people at large. And hence this blog...

Enjoy my 'gyan' and let's interact!!