The Stock Market.

Ben Bernanke is Every Gold Bug's Best Friend.

2012-02-11T03:46:00.000-08:00

After prices fell 10% in December, many investors wondered if the bull market in gold was running out of steam.

That was before Federal Reserve Chairman Ben Bernanke swooped in with a "red cape" and fired the bulls back up.

Since the Fed reassured the world that interest rates will remain at "exceptionally low levels" for another two years (till 2014), gold has jumped more than 3%.

UBS AG (NYSE: UBS) described the situation simply, "if investors needed a (further) reason why they should be long gold now, they got it yesterday ... a more accommodative policy is a very good foundation for gold to build on the next move higher."

To gold bugs, two more years of near-zero, short-term interest rates means negative real interest rates are here to stay, and this has historically been a strong driver for higher gold prices.

Bernanke and the Fed aren't the only central bankers in the fiscal and monetary bullring.

Brazil has cut its benchmark interest rate a few times and China lowered its reserve rate for banks in December. According to ISI Group, 78 "easing moves" have been announced around the world in just the past five months as countries look to stimulate economic activity.

One of the main weapons central bankers have employed is money supply, which has created a ton of liquidity in the global system. Global money supply rose 8% year-over-year in December, or about $4 trillion, according to ISI. I mentioned a few weeks ago how China experienced a record increase in the three-month change in M-2 money supply following China's reserve rate cut.

Together, negative real interest rates and growing global money supply power the Fear Trade for gold. The pressure these two factors put on paper currencies motivates investors from Baby Boomers to central bankers to hold gold as an alternate currency.

Courtesy: http://moneymorning.com/2012/02/09/ben-bernanke-is-every-gold-bugs-best-friend/

Money Market Funds Explained.

2012-02-11T03:21:00.000-08:00

Money market funds are mutual funds. Investors who buy shares are pro-rata owners of the underlying investments that funds hold.

Money market mutual funds are restricted by SEC rules under the Investment Company Act of 1940 to purchasing only the highest-rated debt of issuing companies. They also invest in government securities and repurchase agreements.

The duration of the debt instruments they hold cannot exceed 13 months and the average weighted maturity of their portfolios has to be 60 days or less. Additionally, funds can't hold more than 5% of one issuer, except for governments or repurchase agreements.

The first U.S. money market mutual fund, The Reserve Fund, was established in 1971 to directly compete with banks for investor deposits. At that time "Regulation Q" prohibited commercial banks from paying interest on checking accounts.

Money market funds quickly drew in investors looking to earn interest on cash positions.

By September 2008, the size of the oldest money fund in the U.S., the Reserve Primary Fund, was $64.8 billion. Total industry assets were $3.8 trillion.

Courtesy: http://moneymorning.com/2012/02/09/money-market-funds-are-in-the-fight-of-their-lives/

Buy Gold and Silver!!

2012-02-01T08:27:00.000-08:00

The U.S. dollar has enjoyed a rally since the middle of last year, partly as a result of the debt crisis erupting in Europe, taking the problems of the dollar out of the headlines. However, there are good reasons to believe that this rally is soon coming to an end as the dollar is back under attack again. First, Iran and India announced that they will start trading crude oil using gold instead of dollars. Then shortly after the Fed announced that it is going to keep interest rates low until 2014.

The announcement of the Iranian and Indian oil for gold exchange was a direct response to the sanctions put on by the United States and the European Union. The official line has been that Tehran must be punished for its ambitions to develop a nuclear weapon. This punishment has been in the form of sanctions against Iran's oil exports, and now further sanctions against its central bank.

These sanctions are nothing short of financial warfare. This latest sanction against Iran's central bank caused an immediate shortage of dollars, and as a result, the Iranian rial plummet 40% overnight, causing hyperinflation. But, for every action, there is a reaction and Iran retaliated by announcing that it will use gold as an alternative payment system. India has a large amount of gold and it is willing to trade it in exchange for oil.

These actions taken by Iran and India are not enough to severely damage to the dollar. The damage would come if this development becomes a trend and other countries follow suit. It would substantially hurt the dollar if large economies like China and Russia abandon the U.S. dollar payment system and use alternative payment methods like gold or commodities; effectively bringing an end to the dollar as the world's reserve currency.

With the U.S. dollar (UUP) under attack by the Fed domestically and by foreign nations overseas the dollar will continue to decline in value. I suggest investors seek safety in tangible goods such as physical gold and silver, and to some lesser extent financial instruments such as SPDR Gold Trust ETF (GLD), iShares Silver Trust ETF (SLV), and senior gold mining stocks like Barrick Gold Corporation (ABX), Goldcorp (GG), Newmont Mining (NEM), New Gold Inc, (NGD) and Yamana Gold (AUY).

Courtesy: http://seekingalpha.com/article/328272-the-u-s-dollar-is-under-attack

Mahindra Satyam Q3 Results.

2012-02-01T07:36:00.000-08:00

Technology firm Mahindra Satyam has reported a much better than expected growth of 29.4% quarter-on-quarter in its consolidated net profit of Rs 308 crore in the October-December quarter of FY12.

The company earned forex gain of Rs 66.3 crore in the quarter ended December FY12 as against Rs 33.7 crore in an earlier quarter.

Consolidated revenues rose 8.9% to Rs 1,718 crore from Rs 1,577 crore quarter-on-quarter.

Mahindra Satyam said the rupee revenue growth was largely due to rupee depreciation.

CNBC-TV18 had expected net profit of Rs 220 crore and revenues of Rs 1,735 crore.

Attrition rate declined at 16% in the third quarter of FY12 versus 25% in the corresponding quarter of last fiscal.

EBITDA margins came in at 16.2% as against CNBC-TV18 poll of 15.3%. EBITDA margin was improved by 10% in one year.

The company has appointed advisors for merger with Tech Mahindra. Merger may possibly happen by October, says company.

A share closed up 3.81% at Rs 76.25 on the BSE. Its traded volume increased 109% to 3,228,348 shares versus 5-day average of 1,545,545 shares.

Courtesy: http://www.moneycontrol.com/news/results/mahindra-satyam-q3-net-spikes-29-to-rs-308-cr_660705.html

5 US Stocks to be Avoided.

2012-01-10T20:16:00.000-08:00

1. Sears Holdings Corp. (Nasdaq: SHLD) - Long a bastion of American retailing success, I've been leery of the company for a long time. In fact, I've steered clear of it since hedge fund investor Eddie Lampert used more than a little financial wizardry to create Sears Holdings. At the time, his goal was to tap into the vast real estate empire underlying Sears and subsequently K-mart when that company emerged from bankruptcy and he snapped up shares. The stock hit $190 a share in early 2007 on the assumption that it would.

Now, though, it's a very different story. With real estate in the toilet and the value of his "collateralized" debt circling the drain, he plans to fire employees, cut more than 120 stores and sell property. Same store sales are down sharply as is profitability. Fitch Ratings Inc. has cut the company's bond to junk status, and it's likely to have hundreds of millions in writedowns ahead. I think the company is going to restructure, and net income is going to fall to the tune of billions when now-litigation conscious accountants have their day.

2. Research in Motion Ltd. (Nasdaq: RIMM) - Once the darling of connectivity and a status symbol for the cognoscenti, RIMM's share of the smartphone market continues to evaporate like fog on a hot morning. I recommended shorting the company a few years back but was early to the party on several occasions; somehow the stock seemed to fight back. The stock is down 89.52% from its peak of $144.56 in early 2008 and up a creek without a paddle...and you know which creek I am talking about.

Dual Chairmen and CEOs Mike Lazardis and Jim Balsillie, who are also co-founders by the way, couldn't fix things, and with iPhone and Android users on the rise, I don't believe they will. Long-termgovernment contracts prized for their encryption and steady cash flow are falling by the wayside. Small businesses are dropping the company like hotcakes because of the constant updating, technical complexity and brain damage - mine included. We switched to Droids more than a year ago and have never looked back. The technology has simply had its day, and this is yet one more innovator that's about to head into the sunset. They'll be lucky to find a buyer.

3. Eastman Kodak Co. (NYSE: EK) - Speaking of sunset companies, it doesn't get any more painful than this. Having become nearly synonymous with the photographic industry itself, Kodak is truly on "death watch" having dropped to a mere $0.4001 and a total market cap of only $108.01 million as of Monday's close. Rumors are flying about bankruptcy filings. Three board members have hit the eject handle in the past two weeks. And earnings...well there aren't really any to speak of.

Hopelessly outclassed by the digital world, I think the brand belongs in a museum. The company has very little to pin its future on save the sale of more than 1,100 digital imaging patents and patent-related lawsuits aimed at harvesting earnings from those who - in Kodak's opinion - quite literally have stolen them including Apple Inc. (Nasdaq: AAPL) and Research in Motion. The former is understandable. The latter is itself on death watch, so this is like squeezing blood from a turnip.

The one shining star, if there is one to be had, is that the value of those patents may be $2 billion to $3 billion; however, that's a Pyrrhic victory in my opinion. The company doesn't appear to have the cash necessary to survive the judicial process. But, if you want a flyer, that's about how this one should be evaluated -- and then only with money you can afford to lose.

4. Microsoft Corp. (Nasdaq: MSFT) - It looks cheap, as usual. I remember growing up in Seattle when the company occupied just one tiny corner segment of an office park in Bellevue. And I recall the initial public offering (IPO) all too well - because I passed on it in one of the biggest mistakes of my investing life. I've owned Microsoft off and on over the years and have been pleased, but I wouldn't buy it again today.

The company is stuck in the $20 range, and has been since 1998 if you're not counting the dot.bomb years when it rallied to nearly $60 before flat-lining again. Over the past ten years, the company has returned little more than 10% versus the Standard & Poor's 500 Index, which has posted more than a 36% gain including dividends.

The problem, as I see it, is not that the company's core products don't work - they do. But they can't seem to figure out who they are, which seems more than a little futile to me given that Microsoft has outspent Apple 10:1 over the ten years. Still, it's been outclassed, outmaneuvered and out-innovated at every turn. An appealing 2.4% dividend just doesn't warrant trapping my money for years to come when the company is sitting on a $55.94 billion cash hoard, according to Yahoo! Finance.

5. Facebook Inc. (and almost any other social media company) - Many people think I'm a Luddite or some sort of curmudgeon for saying this. To be fair, I'm probably a little of both. But there is no way that a company like Facebook is worth the $50 billion-$100 billion being batted around. Well, not to anybody other than Goldman Sachs Group Inc. (NYSE: GS) and their privateinvestment clients who invested via a highly anticipated "private" IPO last year, let alone the public IPO when it hits.

The company has the same old problem salesmen the world over have - monetizing eyeballs. Sure there's a tremendous amount of marketing data, and the biggest single voluntary collection of people in recorded history using it, but that doesn't necessarily translate into revenue -- nor does it equate to value. Tire kickers don't spend a lot of money.

Don't get me wrong. I like Facebook. It's innovative. It's created an entirely new form of communication that's quite literally revolutionary. And I can't help but admire the fact that the company has more than 800 million users, more than 50% of which log on in any given day. But when push comes to shove, Facebook will have to struggle to keep people interested in a never-ending race against "freemium" apathy.

Courtesy: http://moneymorning.com/2012/01/10/five-stocks-to-avoid-like-the-plague/

Indian Banking Sector Outlook - 2012

2012-01-10T07:59:00.000-08:00

Q: How much are you expecting the bad loan problem, in the aggregate, to grow by for the banking sector in the next 15 months, say up until March 31 FY13?
Agrawal: Our expectation is that we will now start to see reversal in the stable gross non-performing asset (NPA) position that we have been seeing for the banking sector over the past few years. We have already seen in the first six months that the gross NPAs have already increased.
They currently are at about 2.8% of the overall advances. Our expectation is that they should be around 3% by March 12. They should cross a little above 3% in March 13, should the economic environment remain a little more stable and we are expecting a growth of about 7-7.5% next year.
However, the vulnerabilities in the external environment still remain. Domestic economy also remains vulnerable to the lack of investment and high interest rates. Should that happen, it is likely that that figure can be higher. Our estimate at this stage is that March 12 the overall gross NPAs should be near Rs 1,50,000 crore.

Q: Do you have a number for March 13?
Agrawal: March 13, the scenario is still evolving. Our expectation is that they should remain stable at about 3-3.2%, should we see economic environment and growth and interest rate easing as is expected to happen. The situation can worsen and the numbers can be higher, if the growth trails down maybe below 7%, somewhere in 6.5-7% range.

Q: We have been talking about the stressed sectors- airline space or even the entire power space. Have you worked out any kind of numbers of how much the lender's exposure is potentially at risk in each of these individual sectors? Which banks perhaps are vulnerable?
Agrawal: On the power sector, we released a detailed study a couple of months ago. Should reforms do not happen over the next 12-18 months, our expectation is that nearly Rs 56,000 crore of loans that lenders - banks, specialised financial institutions and the infrastructure finance companies- have given. That represents about 12% of the overall loans that lenders have given to this sector. They are potentially at risk.
We have seen that some steps towards reforms have started to take place. Indeed two-three months is a short time for us to judge the efficacy of these reforms. But I think it is important that these reforms gather pace.
We see far higher progress on containing the distribution losses. We see far higher progress on charging of electricity rates which are consistent with the economic cost of supply. Should these two basic reforms do not happen, we are likely to see the exposure of lenders to be at risk.
In the aviation sector, the overall exposure of the banking system is estimated at about Rs 40,000-50,000. We are seeing that except one or two exceptions most of the airlines are making losses. High fuel prices are expected to continue. Therefore, we do not see the stress going away from the aviation sector either.

Q: What is your estimate of the worst impacted banks? Which are you singling out for maximum pressure from the NPL front?
Mehta: As a segment, PSU banks are looking more vulnerable. Within that, SBI has been named in case of lot of accounts as being a prime lender. Along with other midcap banks, specifically could be Bank of India , Union Bank of India . These three banks are more vulnerable as compared to the overall segment.
Amongst the private banks, I think Axis and then to an extent even ICICI Bank , given their high exposure to infra and power segment look a bit weak.

Q: In your estimate, in the second half of FY12, as well as in the first half of FY13, what will be the impact on the P&L? Would you see fall in net interest margins or would you see fall in profitability because of the pressure of higher provisioning? What will be the parameters that will be impacted?
Mehta: As far as margins are concerned, margins would typically correct by 10-20 bps for lot of banks in the second half, not just because of the higher NPAs but also because we think that tight liquidity would come into picture as far as the Q4 margins are concerned.
In terms of profitability, we think that provisioning will remain elevated even for PSU banks, given the fact that their reported slippages for Q3 will be lower than Q2, because Q2 had the one time impact of transitioning to the automated NPL recognition system. So, we think that provisioning would remain high in the second half. Overall, profitability would remain under pressure in the second half.

Q: How worried would you be about the credit growth of banks in this year? Do you expect any kind of slippage, but more importantly in FY13 as well?
Mehta: Ofcourse. We have already seen that the YoY growth run-rate in credit has come off from about 20% odd to 17%. Slowly it is catching up with the overall macro economic trend. We would see further decelerating to 15-16% by the end of the year. I think it could remain there for a while till we see a further deterioration in the underlying economy. I think a 15-16% credit growth rate, even in the first half of FY13, is a possibility.

Q: Can you name banks that you are particularly worried about? In the previous big slowdown, 1997-2003, we also saw a huge fall in interest rates. At that time policy rates fell from over 12% to under 5%. That gave a lot of treasury income and provision write-back for banks. That perhaps helped provisioning to some extent. Is any such gain possible in the FY13 period?
Agrawal: Yes. I would not be able to specifically name any banks here. But I will give you some broad trends. I think the banks where we will starting to see weakness on the NPL front are where higher exposure to corporate loans are there, specifically the small and medium enterprises and the agricultural loans. We will see that those are the ones which will see higher slippages, primarily because of the economic environment as well as the high interest rates.
We released a study recently, our research team, which said that interest coverage of Indian corporate sector is near its five year low. That is largely going to impact the public sector banks.
The private sector banks will see some pressure coming from retail loans. We expect that some weakening will start to happen in commercial vehicles and construction equipment kind of segments. If it starts to spill over to infrastructure in a manner, I think banks which will have those exposures will be vulnerable.
Next year, we expect that interest rates will fall off. Clearly, we do not see them to fall off as dramatically as you have said in the period that you referred to. Clearly, there are also structural changes that have happened in the economy, interest rate environment structure and the ability of corporate sector in India in terms of ability to withstand some of these shocks.
Interest rates coming down hopefully will provide enough cushions to be able to absorb the pressure of higher provisioning and lower interest margins. That would be for next year.

Courtesy: http://www.moneycontrol.com/news/business/banking-sector-what-isoutlook_648107-0.html

What's Going On With Gold?

2011-12-22T07:53:00.000-08:00

There is a striking similarities between today's situation and what happened back in 2008.

Specifically, we're referring to the liquidity crunch that jolted the financial markets in the period that led up to the collapse of Lehman Brothers.

At that time gold was one of the last remaining sources of liquidity - and so it is today, which is why the yellow metal has been under such intense selling pressure lately. And this is happening even though all the fundamentals would suggest it should at least be retaining its value, if not be rising in price.

Gold was an important bellwether at that time, and again, so it seems to be now. Beginning in March of 2008, gold declined by about 15 percent while the S&P 500 moved sideways. Then it rallied briefly before falling once more along with stocks - which declined much more percentage-wise before bottoming.

Gold lost a third of its value during this episode, before recovering and heading steadily higher. But stocks declined by more than 50 percent at their lows, and to date have yet to surpass former highs.

Coming back to today, we see that despite the ups and downs of this past very volatile year, stocks have essentially traded sideways. Gold, though, has now fallen more than 15 percent from its previous highs and, as we pointed out two weeks ago, the gold shares far underperform the Midas metal.

Thus, we see how this price action may once again be signaling a sharp selloff in stocks in the near future. At the very least, gold and stocks could remain mired in a trading range for a time, at least until the ECB (most likely joined by our own Federal Reserve) take concrete steps to resolve the situation.

The shape of such a favorable resolution is likely to be a clear and definitive policy of easing by the Europeans, possibly accompanied by a QE3 from our own Fed.

That would help to light a fire under the stock market, which by and larger are trading at very reasonable levels relative to sales, cash flow and earnings. Moreover, the prospects for gold will then involve a rebound that should take the metal far higher than its 2011 highs.

Courtesy: Stephen Leebs

Moody's upgrades India's Sovereign Debt Ratings

2011-12-22T06:40:00.000-08:00

Upbeat finance ministry to announce supporting measures for boosting foreign investment by December-end.

At a time when sluggish growth and impending slippage in fiscal deficit target, intertwined with an atmosphere of policy paralysis, has been dampening economic spirits across the board, Moody’s on Wednesday changed the sentiment in India by upgrading the country’s sovereign debt ratings from speculative to investment grade.

The upgrade immediately injected adrenaline into the government machinery, especially the finance ministry.

Officials, now brimming with optimism over the shift in the foreign investors’ outlook for the country, have indicated announcement of steps soon after the close of the ongoing Parliament session — in the government’s efforts to boost foreign investment in the country.

INDIA’S REPORT CARD What rating agencies say about the nation
	Foreign currency long-term debt	Local currency long-term debt
DBRS	BBB (low) stable	BBB (low) stable
Moody’s	Baa3 (investment grade)	Baa3 (investment grade)
Fitch	BBB- (stable outlook)	BBB- (stable outlook)
S&P	BBB- (stable)	BBB- (stable)
Source: Rating agencies

The measures likely to be announced by December-end include relaxation in the lock-in and residual maturity norms for investments in the infrastructure sector, according to an official. “Also, there can be a hike in investment caps, wherever necessary.”

The lock-in period and the residual maturity are expected to be reduced to one year for all infrastructure investments.

The government says this will enthuse FIIs to look at India as an attractive investment destination. “The upgrade will have an amazing effect on sentiments in the short term,” says Thomas Mathew, joint secretary, capital markets.

Moody’s Investor Service upgraded the rating on long-term government bonds denominated in domestic currency and long-term country ceiling on foreign currency bank deposits, both, from Ba1 to Baa3 — speculative to investment grade.

Year 2004 was the last time Moody’s upgraded any Indian long-term sovereign debt instrument from speculative to investment grade.

In addition, the rating agency has also upgraded the short-term government bonds denominated in domestic currency from NP to P-3, again from speculative to investment grade. The rating has been upgraded in this case for the first time since it was assigned in 1998.

The upgrade follows a meeting last month between the representatives of the rating agency and finance ministry officials. The officials, led by R Gopalan, secretary to the department of economic affairs, impressed upon Moody’s to upgrade the country’s rating to Baa1 — two notches above its current rating.

The ministry, under a planned strategy for strongly presenting the India growth story and seeking better ratings, provided a detailed, data-based “India factsheet”, wealth in the public sector undertakings, and a cross-country comparison of long-term economic, fiscal and financial indicators to the rating agency.

Says an official, who was part of the presentation process: “We told them to analyse their India ratings in the last two decades and the country’s performance during the period and showed them that they didn’t match.

Despite problems, India growth story has remained intact since 1991.”

Mathew says the government will ask for similar upgrades from other rating agencies now. “Moody’s should revise its ratings further two notches upwards,” he adds.

Moody’s has now recognised that the “diverse sources of Indian growth” have “enhanced its resilience to global shocks”. The present slowdown in growth rates “could reverse some time in financial year 2012-13, as inflation cools from current 9 per cent levels”, it says in its report. The structural drivers of India’s growth momentum will not be damaged by the present cyclical downturn, it says

Moody’s also expect that growth, supported by savings and investments, will revive over the medium term. “In terms of economic size, diversity, growth as well as saving and investment rates, India is stronger that baa3 rated peers,” it notes.

The rating agency has, however, pointed out that India’s weak “fiscal metrics” remained a constraint for the nation’s rating as government debt levels were higher than similarly rated nations.

“Improvement in government finances, coupled with enhancements to the investment climate and a reduction in infrastructure bottlenecks, could lead to the rating being considered for an upgrade from current levels,” said the agency in its report.

Still, a sustained rise in debt or “continued worsening of the balance of payments well beyond the period of current global uncertainty could trigger a downgrade”.

Courtesy: http://business-standard.com/india/news/moodys-upgrades-sovereign-debt-ratings/459370/

Germany's History in Short.

2011-12-08T08:44:00.001-08:00

The Germans' strict opposition to the monetary financing of governments isn't just petty legalism -- it's a bedrock principle, based in history, which was purposefully built into EU treaties and Bundesbank policies.

It's worth revisiting why the memory of hyperinflation has seared itself into the minds of many Germans, and how it's shaping their thinking and the future of the euro itself.

Imagine yourself among the wealthiest people in the world in 1914, holding 4.2 billion marks (then about $1 billion) in safe government bonds. Those bonds would have been nearly worthless 9 years later -- easily payable with, say, a 50 billion-mark banknote signed by Reichsbank President Rudolf Havenstein. Of course, you would need 45.8 billion marks in change, which illustrates one of the great ironies of hyperinflation: Everyone was always short of cash in the midst of a blizzard of paper.

Havenstein justified the continuous purchasing of government debt on the grounds that there was little choice given the national emergency. Havenstein thought the real sources of inflation were the legislature’s inability to balance its budget and the burden of reparations placed onGermany by the Allies at the end of World War I.

Despite millions starving, the demobilization of millions of soldiers, and a near civil war in the Ruhr, inflation creeped till 1919, then “galloped” until mid-1922. Then, in late 1922, it spiraled into hyperinflation as Germany refused to continue payments on the 132 billion gold marks levied on it at the London Ultimatum of May 1921.

Because Germany halted reparation payments, France decided to confiscate goods in kind and occupied the Ruhr, the center of German coal and steel might, in January 1923. In response, the Germans began a campaign of "passive resistance" that all but destroyed the mark. Havenstein felt that he had no choice but to continue printing money to support the Reich.

Hyperinflation wreaked havoc on Germans. People on fixed incomes suffered terribly. One poor elderly woman, whose life savings in Deutsche Bank were wiped out, later discovered that the bank didn't inform her because the stamp would have cost too much. The propertied middle class lost their savings after suffering deprivation throughout the war. Many sold possessions to raise cash for increasingly expensive "real goods" such as bread or meat. Housewives stood outside factories to collect their husband’s pay and spend it as quickly as possible. Businesses needed sacks of cash to pay workers. Famous photographs show money being carted in wheelbarrows; one possibly apocryphal story has a robber stealing the wheelbarrow rather than the money.

Eventually, industrialists gave up paying in marks, sometimes creating their own substitute scrip or paying workers in “three breads.” Cities and organizations also created their own monies. Retailers had to continually adjust prices, which gave considerable room for misunderstandings. The response was sometimes violent. In November 1923, mobs attacked Jewish shops around Alexanderplatz in Berlin. Similar attacks occurred across the country.

“Speculators,” bankers, and black-market dealers came in for particular criticism. One small savings bank organized a swap meet for buyers and sellers to eliminate the dishonest profiteers. As one eyewitness, quoted in Gerald D. Feldman's "The Great Disorder," put it:

A walk through the small salesroom with its tables and glass cases is heart-rending. There lie spread out so many lovely things so pleasing to the eye ... everything in short that once decorated a house is assembled here ... There is some old piece, a picture, a porcelain dish, a vase, which appears to the loving but unskilled eye of the owner as a true rarity and who, if she must part with it, wants to receive as much as possible. One now has to tell her that it has neither material nor artistic value, and the sick, embittered souls are always inclined to take this as a personal affront and bad will ... A look out the window -- there slides by the restless life of the metropolis, the fine silk stockings and expensive furs, there sit autos with the fat figures of profiteers, and here inside, in the quiet room, an impoverished Germany quietly and painfully weeps in its silent misery.

The hyperinflation also fomented a new and dangerous activism in German politics. The prime minister of Bavaria declared martial law. In October 1923, federal troops marched into Saxony and Thuringen to depose radical communists from government. Then, in November, Adolf Hitlerand General Erich Ludendorff attempted a Mussolini-like march on Berlin, in what's now known as the Beer Hall Putsch.

The putsch failed miserably, but Hitler continued to seize on the prevalent economic despair. He was briefly sent to prison where he wrote "Mein Kampf." Although he didn't gain power until January 1933, the link between reparations, financial crisis and the destruction of the mark proved ready rhetorical fodder.

Hyperinflation didn't lead to the rise of Hitler, but it undermined the legitimacy of the democraticWeimar Republic.

Millions of disaffected middle-class voters soon drifted to various splinter parties on the right. The center hollowed out, and subsequent coalition governments ruled on a tolerated-minority basis. German politics never really regained its balance in the mid-1920s, a time of relative economic stabilization -- and then came the Great Depression, government austerity packages and, ultimately, the rise of the Nazis.

Never again, the thinking goes today. And rightly so. But the fate of the euro zone depends on which historical lesson one draws from this episode. Are there circumstances in which monetizing government debt is appropriate -- or not?

Courtesy: http://www.bloomberg.com/news/2011-12-06/the-long-shadow-of-german-hyperinflation-echoes.html

Short Term - Gold will again loose its shine.

2011-11-23T20:20:00.001-08:00

On Oct-18, I had posted that gold will be loosing its shine for the short-term. There was 3-4 day of capitulation and 20-Oct was the lowest for gold.

Gold has again raised it head and is at a all-time high of around 30K. Even though I am bullish on gold till Mar 2013 (Thanks to the FED announcement of keeping low interest rate regime till mid-2013). Its quite possible that gold may be stuck in a range for next 1 year with an upward bias.

But in next few days or weeks(before 15-Dec), I would expect another capitulation in Gold. Lots of Hedge Funds may have to liquidate their gold position in coming days/weeks. So folks who are still out expecting the gold to come down can load some of their truck with gold at 25K and lower.

There is another interesting, trade for the long term(3-years plus) and that's Silver. But I still don't have a good way to invest in Silver in India other than holding Silver in physical form. For US-folks its 'iShares Silver Trust (ETF)'. Silver price will be lot volatile in next 1 month but can be bought at dips (every month/week) as per your averaging strategy.

GOLD ETF is still my preferred way to invest in Gold in Indian Markets.

Land Deals from developers in India is still Risky.

2011-11-20T03:58:00.001-08:00

Buying Land in India have always been risky. Lots of developers have started emerging in Pune who are selling Agriculture Land to retail customers. The only hurdle is you need come from a farmer background.

Definition of ‘Farmer background’ is your paternal side (paternal uncle/dad/grand father) should hold a farm land.

Here is the business model that these developers have come up with.

Farmer’s Deal:

1. Create a Legal MOU with a farmer saying they will sell their land and will pay the farmer a fixed amount once they have sold the land.

2. Create a valid Search Title Report. There may be minor discrepancies with the report.

3. Create a Fancy Pamphlets promising plot fencing, street lights, etc.

4. Try to rope in customer with those fancy Pamphlets.

Customer’s Deal:

5. Once a customer is interested in the site. They are asked to pay around 20% amount as a booking amount and the documents are provided to the customer. If there are any discrepancies in documents the amount will be refunded. If you need a refund, even if the documents are correct, around 15% of the booking amount will be deducted.

6. The Customer is expected to verify their documents from an advocate.

7. Now the Customer's advocate will come out with the problems related to incomplete documentation.

8. The builder will delay the documentation.

9. The builder invests the booking amount and tries to delay the processing for incomplete documentation for 3 months.

10. The customer has 2 choices:

a. Buy the land since the developer does not agree with the incomplete documentation.

b. Worst case the developers will cut 15% of the booking amount and return the money to customer.

The concept is really good. Developer is making money without any major investment. Extreme innovation in Indian Real Estate is picking up.

I think this should soon pick-up in Listed Real Estate entities who have lots of land banks.

TechM Results Q&A

2011-11-19T21:42:00.001-08:00

BT’s share has come down from 80 per cent a few years ago to 37 per cent. Do you think this will be the level for BT?
When BT contributed to 80 per cent of our revenues, it accounted for less than $100 million. At current levels, BT’s contribution is around $450 million. So, while the percentage of BT in the overall pie has come down, we have been able to increase our share of business with BT. We have also been able to grow business from other telcos.

But BT has called for re-tendering. What will be the impact and would the stake sale of BT impact business?
I suppose as a percentage, BT will go down, but not in absolute numbers. That is what we hope to achieve. As for the re-tendering impact, we had a $6-million fall in revenue. That was the amount of reduction we had in the business from BT. But since the re-tendering, we have got more than what we were already working with BT. In the IT deal, we have got a larger chunk, except that the pricing that we have got is at a lower level. The BPO business with BT has grown and continues to grow. We will try and optimise the BT account by moving away from pure outsourcing work to more transactional work. The BT stake sell will impact our business with them.

How has the 2G scam and expose impacted your business with Etisalat?
We are very satisfied with our deal with Etisalat. We have been serving them and we have been compensated on time. So, from the business point of view, everything is the same.

With all the legal hurdles and issues solved, by when will the merger with Mahindra Satyam happen?
We hope to complete the process of merger by next year.

There are tax issues, but we are contesting them. As for the share swap ratio between the companies, it will be decided by the bankers.

Can you give us some details about the pending US SEC cases and when do you see a possible solution in Satyam.
Nayyar: That issue has been resolved. We have agreed to delist and the process is on. It will be completed by end of February.
On the class-action cases in the US, the federal court judge had accepted the settlement, and orders to that extent had been passed. But one case related to Abardeen, a particular investment fund, is on. And we will see how it turns out.

How many payment obligations do you have at present in Satyam?
Nayyar: About $125 million for class-action, $70 million for Upaid and $10 million for SEC have been paid .

At what stage is your battle with the Income Tax department that you are currently waging in Satyam?
Nayyar: Our statements have been very very open. We believe that the demand on that fictious income is unreasonable. At this stage, I can only say that it is sub judice and we are currently presenting ourselves. I don’t see this dialogue (with I-T department) getting resolved pretty easily.

Courtesy:
http://www.business-standard.com/india/news/qa-vineet-nayyar-tech-mahindra/455631/
http://business-standard.com/india/news/qa-vineet-nayyar-c-p-gurnanivasant-krishnan/455174/

A Short History of Assam.

2011-11-19T21:23:00.001-08:00

Pre-colonial Assam had a feudal economy. The Assamese king was the absolute owner of all land except the royal grants of land to the high officials in the administration and the grants to the temple and Vaishnavite Satras (monasteries). The peasantry had no private property (land). As there were plenty of land available with a sparse population, there was always a tendency of the Assam peasantry to shift their cultivation sites. The mode of business was barter because money was not in vogue. The people were self sufficient and agriculture was the main occupation. Though the kingdom of Kamrupa (ancient Assam) had international trade practice, the Ahom imperial Government did not encourage much trade with the outside world and foreigners were frowned upon. With a self sufficient feudal economy, with no money or coins introduced till the 16th century, with a very low volume of trade with foreign kingdoms, the market system did not develop in pre colonial Assam. There were of course a trading system between the hills and the plain’s people of Assam.

The revenue collection of the Ahom administration was based on thekhel system. The administration did not have a money oriented revenue system. The entire male population with the exception of the artisans, fisherman, gold washers and other non agricultural profession was divided into khel or clans numbering from 1000–5000 men in cash. The system was based on personal service and an article of produce rather than monetary taxes. The khels were then sub-divided into different gots or units. Eachgot consisted of three or four pikes or individuals. The paik was the lowest unit of khel system. These paiks were assigned to different jobs, such as building of roads, embankment etc and had to serve the country or the aristocracy for one third of the year. Except for a small batch of regular army guarding the capital and the royal household, the Ahom imperial administration had a peculiar Army system. During a war ever paik had to take part in war once called by the king. The paiks becomes the army and all the able bodied Assamese males go to war. The whole populace becomes the army. With the repeated Mughal invasion from 1615, the Ahom monarchy established a regular army.

But with the annexation of Assam and the introduction of British revenue rules and regulation of land rights to the peasants slowly disintegrated thekhel system and the paiks were freed from personal labor. The dismantling of the paik system had reduced the Ahom nobility to poverty because there was no body to serve them or cultivate their land. The cultivator of the soil and the aristocracy become the same. The paiks become the ryots under the British system. The British established the cash or money system of payment.

The Wasteland Grand Rules, 1838 was formed to attract foreign capitalists. The Assam Company, the first Indian Tea Company was flouted in 1839 in London and was granted about 33,665 acres under the Wasteland Grant Rules. Later it was modified to suit the British and the European tea planters and they slowly became the biggest land owners in Assam by paying the least revenue per acre land. Many tea planters encroached land belonging to the Assamese people. The ownership of Assam’s land right was transferred from the Ahom king to the British. By 1901, about one fourth of the total settled area of Assam Proper, i.e. about 6, 42,418 acres came under the tea gardens. Though the Assam land and Revenue Regulation of 1868 were introduced in Assam with their best intention of regularizing the land rights to the Assam peasantry who practiced shifting cultivation, the British became the absolute land owner. The dearth of paying land revenue on long term land leases forced many Assamese landless. The pre-colonial system of cultivating anywhere was stopped. The Assamese peasantry was totally confused with the sudden change of the land rights and the mode of cultivation. The Assamese learnt about the value of long term land leases when vast tracts of land were allotted to tea cultivation on one hand and with the land hungry East Bengali immigrants started settling in the chapori belts or flood plains used by the Assamese peasantry for shifting cultivations.

Though Assam was annexed in 1826 and wild tea plants were discovered in 1823 by Robert Bruce, the opium war with China diverted the attention to the newly conquered territories of Assam. Chinese tea was to be imported to England by The East India Company and it was a monopoly trade. The Charter of 1833 stripped the monopoly business of the East India Company but allowed Europeans to hold land on a long term lease outside the Presidency towns which opened the colonial plantation economy in Assam. When Assam tea was auctioned in London in 1839 it created the Assam Tea Mania.

Since 1840’s, the next few decades witnessed a global investment in far off remote Assam in the tea sector which gradually destroyed the Ahom’s feudal institutions and economy and led to the growth of the capitalist economy. The British introduced the monetized economy in Assam. The tea industry identified Assam with the commercial map of the world. The huge capital investment did help to the growth of modern capitalist economy in Assam by the turn of the 19th century. The tea economy not only changed the political and economic scenario, but also environmental changes. The tea plantation required huge plots of land. The tea planters cleared the jungles for tea cultivations. In the process destroyed most of the forest cover in Assam. The tea industry as well as the timber industry was mainly responsible for the rampant deforestation which permanently transformed Assam’s landscape and greatly affected the climate and the culture of Assam in the next century. The forest policy was also introduced to suit the colonial and the tea planter’s needs.

The growth of the tea industry necessarily led to the growth of communication and infrastructure network. The industry which was totally dependent on an external market required the basic routes to and from Calcutta. Building of roads and bridge were taken up. Navigation by the Brahmaputra river was introduced by the Assam Company by a steamer service from 1841. Railway lines were laid from Dibrugarh to Ledo in 1882 by the Assam Railways and Trading Company with the aim of joining the remote tea gardens to the streamer service.

The opening of the frontier land and the global investment led to an economic boom in Assam. European tea planters flocked in Assam by 1860s. The planters had faced difficulties because there was no basic infrastructure apart from the inhospitable terrain and epidemics. The transport and communication was mainly done by the rivers as there were no proper roads. The banking sector was in a very poor state. Though a few banks were set up by Govt. by 1870, there were always storages of coins in the treasuries.

The whole economy evolved around the tea industry even though the coal and the oil industry sprang side by side. From 1847 regular coal mining took place. The first refinery in Asia, the Digboi refinery was commissioned in 1901.By 1871, about Rs. 18.6 million had been invested in the Assam tea industry. The total investment by 1881 had touched Rs. 63.8 million. And the total investment in the organized economic sectors (tea, railways, coal, petrol and saw mills) from 1881-1901 was about 200 million rupees. It was one of the highest investments in a region in British India.

The transition of the pre-colonial feudal economy to a modern capitalist economy was too fast for the Assamese people to adjust to the new system. Suddenly the Assamese people faced land hungry East Bengali immigrants and tea garden labors from other Indian provinces in huge numbers. Bengali clerks, Marwari traders and Hindi speaking semi skilled labors flocked in the closed Assamese society. The population of Assam increased from an estimated 8 lakhs in 1826 to about 22.2 lakhs in 1901, out of which one third of the population were non indigenous . Modernization of Assam was accompanied with the formation of the Assamese middle class.

The huge British capital invested in Assam did not help in the growth of domestic capital of the Assamese people. The Assamese people remained mainly dependent on agriculture. The increased land revenue rendered the peasants poor and the savings was meagre. The economic situation hardly improved for the people. The tea planters made huge profit because the land tax was very nominal for them and the tea labors were poorly paid. The surplus income of the tea planters was usually remitted back to London or re-invented in the tea, timber, coal or oil industries. The immigrant labors, other professionals and the petty traders from India never invested their savings in Assam. In these ways, most of the income generated in Assam was drained out. The surplus of the foreign investment was never reinvested or diversified in the overall growth of the economy.

After 1901, foreign investments came down and the new investments came from income generated in India. But the land grabbing by the tea planters continued till 1947. The influx of the immigrants, specially from East Bengal began on a larger scale by 1911. The economic transformation of Assam witnessed the demographic shift in a big way encouraged by the colonial masters. After the partition of India in 1947, East Bengal became East Pakistan and then Bangladesh in 1971. The immigration continued unabated. The Indian state did nothing to stop the influx from the foreign country.

Assam’s present economy is simply a continuation of the British colonial economy. The transaction from the feudal economy to the modern capitalist economy without diversification to other traditional sectors hardly benefited Assam’s economy. The resource mobilization of Assam’s national wealth to fulfill the British interest was carried out in the same way under the Indian administration to benefit the Indian economy at the cost of Assam’s interest, which is already a most economically under developed region in the Indian sub-continent. In spite of its precious natural resources such as mineral oil, gas, coal, timber and tea, Assam remained basically an agricultural economy. Assam, which was previously internationally connected under British Raj became land locked in the post colonial period. Indian investment dried up by 1950s and after the Chinese intrusion in 1962 it was completely stopped. The Indian state started using Assam as its hinterland with neo colonial policies.

There was never an attempt to mobilize the natural resources internally for industrialization of the region. The Indian state, even after the liberalization of the Indian economy from mid 1991, never tried to maintain the priority and the trust applied by the British to boost the global investment in Assam. The economic liberalization and the new industrial policy of the Indian Government attracted huge foreign direct investment (FDI). From 1991 to September 2011, about 162.11 billion USD has been invested mainly in the services (financial and non-financial), telecom, IT, roads and highways, housing and real estate, construction and power sectors in the comparatively developed region in India. The under developed eastern region, especially Assam, was left out. The Look East Policy (LEP) was introduced as an extension of the economic liberalization policy of India to forge ties with South East Asia, but it is mainly guided by defense and strategic interests. No foreign country has invested in Assam. Foreign investment in Assam came only as loan through The World Bank (300.6 million USD), Asia Development Bank (420 million USD) and the Japanese Bank for International Co-operation (Rs. 1200 Cr) for development of rural infrastructure, agriculture, roads and highways, administrative and fiscal reforms, urban infrastructure, flood control, power sector, water supply and other urban services. The exploitative and the hegemonistic approach of the Indian state has to be abandoned for a healthy economic growth in Assam.

Courtesy: http://www.timesofassam.com/headlines/global-investment-impact-on-pre-and-post-colonial-assam/

How PIIGS Defaults Could Affect The Markets.

2011-11-16T18:48:00.001-08:00

PIIGS is not the most flattering acronym to describe a group of countries, but Portugal, Ireland, Italy, Greece and Spain may have to make due for the time being. The name is thrown around to describe a set of eurozone countries considered to be the most at risk when it comes to sovereign debt and has grown more popular by the frequency at which stories relating to their economic woes appear in the news. Images of rioters in Greece and protesters in the streets of Spain have come to symbolize both the follies of governments and the fear of future austerity.
Three "Little" PIIGS CrisesPortugal, Ireland, Italy, Greece and Spain are in trouble – this is a given – but looking at individual statistics doesn't show how complex the current situation is. There are really several crises occurring in rapid succession: a crisis related to PIIGS banks' exposure to debt, a crisis related to PIIGS government debt and a crisis related to non-PIIGS banks' exposure to PIIGS debt.

The first crisis is related to government debt. Take general government gross debt as a percentage of GDP. We've got some pretty high numbers: 83.9%, 82.3%, 75.5% and 94.3%. Those aren't for the European countries on the brink of collapse; they are for Germany, France, the United Kingdom and the United States, respectively. The figures for Ireland, Italy and Greece are 94.9%, 118.9% and 142.7%, respectively. They are much higher. Government debt levels are expected to increase in the coming years due to deficits, pensions and rising healthcare costs.

PIIGS banks' exposure to their own sovereign debt is troubling. Of the $763 billion in sovereign debt held by 90 European banks, 59% of it was held by banks in the country that issued it in the first place. Spanish banks hold 78% of their country's sovereign debt. As the risk of holding that debt increases, these domestic banks will find it increasingly difficult to get funding from other financial institutions. This is especially concerning because these banks rely heavily on wholesale sources of funding, and these sources will become more expensive as countries lose their creditworthiness. Suddenly you have sovereign risk becoming general bank risk.

The third crisis relates to non-PIIGS financial institutions exposure to PIIGS sovereign debt. Spreads on sovereign debt bonds over German bunds grew wider as investors' faith in PIIGS government wavered, and were hit especially hard by a Greek debt downgrade in April 2010. Yields on two-year Greek debt jumped from below 10% in October 2010 to above 76% in October 2011 and 10-year debt rose from 5% to 24%. European governments have certainly taken note of this, since they know that in order to preserve the euro they will have to prop up PIIGS governments or allow them to go through default in a semi-orderly manner. (For more insight to the correlation of risk and governments, read The Government And Risk: A Love-Hate Relationship.)

PIIGS and The BanksThen there are European banks. The European Banking Authority (EBA) conducted a stress test on 90 different European banks, including an examination of their exposure to government debt. When banks were not "allowed" to raise capital, their average Capital Tier 1 (CT1) ratio fell from 8.9% to 7.7%. If banks were required to raise capital, eight would have CT1 rates below the 5% threshold set forth in test, and a further 16 would be perilously close to falling behind. Without capital raising, 20 banks would fall below 5%, which is a frightening statistic because banks may very well lose access to capital if governments start to default. The EBA found that 42% of bank funding came from wholesale and interbank sources, rather than less risky consumer deposits. If markets freeze up, banks won't have access to capital. (To learn more about how the Tier 1 Capital Ratio measure a bank's health, check out Is Your Bank On Its Way Down?)

Sovereign DebtThis brings us to bank exposure to sovereign debt. The 90 banks reviewed by the EBA had gross exposure to PIIGS debt of $763 billion, with 80% coming from Italy and Spain. Fourteen of the 90 banks had more than $30 billion in individual exposure, including BNP Paribas (France), Intesa (Italy), Unicredit (Italy) and Banco Santander (Spain). If the EBA requires banks to shore up their Tier 1 capital, these banks could find themselves well short of the requirements. As the value of sovereign debt bonds declines, the balance sheets of these banks look worse and worse.

The more out of control this amalgamation of financial terror becomes, the worse off European businesses will be. This is especially true considering how some of the more healthy European economies wind up sending a lot of exports to PIIGS countries. In 2010, Germany exported $1,300 billion worth of goods, with Italy ($75.6 billion), Spain ($36.9 billion), Portugal ($10.10 billion), Greece ($6.1 billion) and Ireland ($4.65 billion) representing roughly 10% of all exports. Because this is a cascading problem, once exports start to fall so too will unemployment rise, tax receipts dwindle, unrest build and bank runs pop up. In short, it's a mess.

The Bottom LineThere is no easy solution to this crisis, but one thing that everyone can agree on is that no one wants disorderly government defaults. Banks will have to be recapitalized, just as they were in the United States in 2008. The composition of debt held by banks will need to become more diversified, since it was the reliance on "safe" sovereign debt that put them in the precarious position that they are in today. Banks will have to show their hand in terms of their debt composition, which will make investors more confident in the health of each bank. Government regulations will have to ensure that sovereign risk is kept separate from bank risk, which will require an end to implicit government guarantees of support for banks in times of trouble.

Courtesy: http://financialedge.investopedia.com/financial-edge/1111/How-PIIGS-Defaults-Could-Affect-The-Markets.aspx?partner=ntu11#ixzz1dvXieTBQ

Generating Green Energy from Coal Mines.

2011-11-10T09:11:00.001-08:00

The principle is simple. When a large amount of wind and solar energy is available, it is used to pump water out of the mine tunnels into an artificial lake on the former mine grounds. When there is an electricity shortfall or if the energy supply begins to fluctuate, the floodgates are opened and the water drops through the giant pipes to drive the turbines 1,000 meters below the surface. The entire output becomes available to the grid within a very short amount of time.

Courtesy: http://www.spiegel.de/international/business/0,1518,796399,00.html

10 Golden Rules that can make you an Millionaire.

2011-11-09T07:13:00.000-08:00

In my experience, lack of financial literacy has been the main reason why people have not made the best use of their money. Their potential to become millionaires has, therefore, unfortunately remained unrealised. Worse, they have repeatedly fallen prey to fraudulent schemes. If you want financial success, this has to change. You have to become more vigilant about your financial matters.

For your convenience I have listed below 10 Golden Money Rules that are the catalyst to your millionaire-aspirations.

1. Invest in financial lessons before investing in financial assets

You don't drive without learning driving and getting a license. Do you? Similarly, you need to first learn how to acquire good assets and manage them appropriately. Educate yourself. Books, internet, seminars . . . you have so many avenues to choose from. After all it is your hard-earned money. So please do take good care of it.

2. Have a detailed Financial Roadmap

Without one you could easily get lost in the financial maze and may not reach your goals. Get yourself a financial GPS.

3. You are unique. Hence, do what suits you

Blindly copying others is not a good idea. Your assets, liabilities, needs, desires, time-frame, risk-appetite are different from your friends, neighbours, colleagues, relatives. So naturally, your investment pattern too has to be different from them.

4. Keep things simple

A simple term plan, a simple mutual fund, a simple medical insurance plan, etc. will work well in most cases. Don’t be under the false impression that complicated products give better returns.

5. Start early, invest regularly and stay invested

Time makes money. Even Einstein was impressed by the power of compounding. Assets are merely the tools, which Time employs to make money for you.

6. Always pay your credit card bills before the due date

This will not only save you lots of avoidable interest charges, but also prevent splurging. It will ensure that you buy only what you really need.

7. Avoid Leveraging

A millionaire with debt is a fake millionaire. I am sure you wouldn't want to be one. All Debt is not bad. Understand good Debt and Bad Debt. Keep a check on your Debt to Networth Ratio. Also monitor the effect of the new loan on your monthly Cash Flow.

8. Avoid exotic products and derivatives

They have been rightly termed as Weapons of Mass Financial Destruction. Look what happened even to the mighty USA.

9. Seek guidance from professional financial advisors

Right directions will save you a lot in terms of time, efforts and money.

10. Beware of scams and scheming agents

If anything sounds too good to be true, it usually isn't true. Don't trust anyone. Triple-check every deal offered to you. Internet is a great tool to get right information.

This list should, however, be your starting point, not end-point. Educate yourself. Books, internet, seminars . . . you have so many avenues to choose from. After all it is your hard-earned money. So please do take good care of it.

In fact, I would go to the extent of saying that if you just follow one rule - KEEP THINGS SIMPLE - you will not go wrong with your financial decisions. (The financial lessons will be easy, the roadmap would be simple, you will not need any experts, you will avoid scams and exotic products, you will keep away from debt, you will not have any problems in paying your bills on time, etc.).

Courtesy: http://www.moneycontrol.com/news/investing/10-golden-money-rules-that-can-make-youmillionaire_613019.html

Papandreou's Master Plan.

2011-11-02T10:42:00.000-07:00

Germany and France seemed genuinely shocked by Papandreou's decision to call for a referendum. This morning, officials from both countries telegraphed that there would be no alterations made to the plan and that Greece was going to have to accept it in its entirety or lose the billions of euros in aid it needs to keep paying its bills.

So who holds the advantage here? If Greece goes ahead with the referendum, its citizenry would most probably reject the plan, creating a wave of instability in the region. In response, the EU would probably cut its lifeline to Greece, forcing the nation to default on its debt. That would cause all of the major Greek banks to collapse, as they are the largest holders of Greek debt. But at the same time, it would cause several European banks to take billions of euros in write downs, as they too hold significant amounts of Greek debt.

Snowball effect

It doesn't end there. Since the Greeks were forced into default, credit default swap contracts on Greek debt would be triggered. That means the banks and hedge funds that were short Greek debt would now be owed billions of euros in insurance payments by those that were long Greek debt. It is widely believed that the large banks, which issue and sometime hold on to all those CDS contracts, have not set aside enough capital to payout claims. This could lead to an AIG-style meltdown of many financial institutions. That explains why bank stocks around the globe fell hard yesterday, especially those that play big in the CDS market like Bank of America (BAC) and JP Morgan Chase (JPM) in the U.S., which were both down around 6%, as well as those in Europe like Societe Generale, which was down over 16%.

This CDS chain reaction is one of the major reasons why the Europeans have kept Greece on life support for so long. The total collapse of the Greek economy would be a sad event, but a confidence crisis in the word banking system, three years after the fall of Lehman Brothers, would be a catastrophe. One of the major planks of the latest fix-it plan was to get the banks and other major holders of Greek debt to agree to take a 50% haircut on their bonds. Since such a cut would be voluntary "soft default," it would not trigger the CDS contracts, therefore limiting the fallout to those banks that physically held Greek debt.

A hard default would probably see all that Greek debt go to zero. While that would wipe the slate clean for the country, it would be a pyrrhic victory as its economy would be decimated. Papandreou is fully aware of this fact, as are members of Greece's main opposition party in parliament, which has blasted the prime minister for being reckless. If Papandreou survives a vote of no confidence Friday, the stage will be set for months of further market instability. The referendum would take place probably at the end of December or beginning of January.

To avoid all of this, the French and the Germans may need to swallow their pride and work out a better deal for the Greeks with the banks. Under the current plan, Greece's debt-to-GDP ratio is projected to be around 120% by 2020. While that is an improvement from the projected 190% ratio projected by 2013, it's still very high. The plan assumes further cuts in Greek government spending and a positive economic growth rate. Those assumptions are generous, since the cuts in spending, coupled with a strong euro, would probably lead to much slower economic growth. To dig itself out of this hole, Greece needs to cut its debt by more than 50%. The banks have balked at taking a larger haircut, but the threat of a hard default may scare them into accepting a greater loss.

Warren Buffett once called derivatives financial instruments of mass destruction. The CDS contracts attached to Greek debt are proving to be quite a destructive force indeed. Papandreou is now threatening to push the button. To avoid a nasty surprise, the Europeans will probably need to yield to Greece's demands.

Courtesy: http://finance.fortune.cnn.com/2011/11/02/greece-referendum-bluff/

How to Value Commodities?

2011-11-02T09:50:00.000-07:00

You cannot analyze commodities apart from their relationship to other commodities.

It's a simple mathematical truism: say you have a closed system, for example, an island, with fixed amounts of critical resources such as food, energy, base metals, even labor. And each of those resources is used in some way to obtain, refine or simply process all other resources. In that case, you can never really talk about peak oil, peak zinc or peak anything as a separate, unitary factor; you're really talking about peak resources.

For when one resource that's critical becomes increasingly scarce, that resource by virtue of its relationship to all other resources will in turn make all those other resources scarce as well.

Again, the idea is that each resource is necessary, but not sufficient, to produce any other resource.

Obviously, this is an outline of a trivial mathematical proof concerning commodities.

Why Satyam and TechM went up today??

2011-11-02T09:06:00.000-07:00

In 2006, CanvasM took shape due to the determination of Motorola, Tech Mahindra, and Mahindra Satyam to test the waters of the dynamic VAS market. CanvasM has emerged as one of the key contributors in shaping the VAS ecosystem. The company is spearheaded by Jagdish Mitra, chief executive officer, who came with over 15 years of rich experience in various areas, including business development, IT program management, and marketing. CanvasM's major focus is on VAS applications across multi-access networks, including fixedline, cable, wireless, Wi-Fi, WiMax, GSM, CDMA, and UMTS.

Fact Sheet:
Revenue: Rs 105 Cr.
CEO: Jagdish Mishra.
Founded: 2006
Key Products: Mobile Coupon, Content Aggregation, Content Hosting.

The company offers services in various segments such as system integration, application hosting and outsourcing services, service delivery platform, mobile virtual network enabler (MVNE) services, content aggregation, content hosting and delivery, OSS/BSS integration with VAS applications, application engineering and certification, and joint go-to-market programs. It serves different segments of the ecosystem such as global telecom service providers, content owners, media houses, and application vendors and developers. CanvasM gets a competitive edge from its state-of-the-art lab to demonstrate VAS applications, global support and presence, facilitation of third party VAS application development and deployment, and integration of Global Applications Management Architecture (GAMA)-a service delivery platform and framework. The prominent solutions offered by the company include commerce enabled platform (CEP), which offers a range of real-time transactions. It provides mobile banking services on its unique and patented mobile transaction platform (MTP). Its mobile couponing application helps the registered users to select the preferred category of purchase. Coupons specific to the categories are sent to the user. During purchase of any of the chosen category, the user can redeem the acquired coupons from the counter.

The company functions through many engagement models such as traditional license based, project based, transaction based, or revenue sharing based models. These models ensure lower barriers of entry for its customers. It has focused on the models of build, operate, and manage VAS solution. The organization draws upon Motorola's significant investment in R&D as a technology leader and Tech Mahindra's expertise in integration and service delivery. The company has targeted APAC, MEA, Europe, and North America regions; it has set up a leadership and sales team in these regions. It is working with tier-1 and -2 providers in the US, Middle East, Europe, and India.

CanvasM operates on an open-innovation concept through 3 programs. Firstly, on an 'Idea Factory', a platform for all employees of the Mahindra Group to post their ideas about VAS segments, turning mobile end users into customer satisfaction consultants who can tell us exactly what users want and need from their VAS. Secondly, it has initiated the InnoVAS University Outreach Program to cooperate with colleges and universities across India to generate new ideas. Lastly, the company's ideas on apps platform-it organizes collaboration with external developers to create new VAS products. It intends to take content delivery service to customers located worldwide. Therefore, this solution creates tremendous opportunity for CanvasM-not only in the telecom industry-but also in industries such as media/broadcast, where rich content is stored.

In June 2011, CanvasM joined hands with Rashtriya Rozgar Mission to offer employment services by connecting job seekers and employers directly through phone. To avail this service, customers have to dial 1860 180 1100 to register and get details of the service. This service targets blue collar workers primarily. At this point, the service provides jobs in Delhi NCR region. The pan-India rollout of the services would be extended from the second quarter of 2012. The service has already collated a database of 25,000 job seekers and 500 employers, with more than 4,000 jobs on board across 100 categories and 200 vacancies are from Mahindra Group companies itself. In December 2010, the company tied up with Qualcomm and established the first 3G device test lab in Noida (India). This lab provides quality testing to 3G handsets and devices for compliance with regulatory, technical, and international performance standards.

Source: http://voicendata.ciol.com/content/vas/111110103.asp

Satyam ADR

2011-11-01T19:52:00.000-07:00

Summary

I believe that the ADSs of Mahindra Satyam are misunderstood and mispriced. Early next year, the ADSs will be canceled and converted to India-traded shares (which trade at a 5% premium at current exchange rates). Another catalyst is Satyam’s impending takeover by Tech Mahindra. Satyam has scored contract wins and partnerships with major firms such as EMC (EMC), Oracle (ORCL) and Mastercard (MA). Earnings are growing quickly and ROE is now over 30%. This is no longer a turnaround story with fleas. This is an opportunity to buy one of India’s leading businesses before it is rerated as a growth story. Satyam trades at just 1.6X FY2011 sales vs. 4-6X FY2011 for other Indian IT companies. This would be a perfect pitch, if not for the potential tax liability (more on this near the conclusion of my writeup).

Background

You probably last heard about Satyam Computer Services in January 2009 when the Chairman and founder admitted to falsifying the company’s financial statements. Satyam lost several important clients and the stock declined by over 80%. Tech Mahindra, the software unit of Indian manufacturing conglomerate Mahindra & Mahindra, then installed its own management at the company in April 2009 after winning a government-led auction. The ADSs were delisted from the NYSE in October 2010 because Satyam could not file with the SEC on time, adding further downward pressure on the stock.

Recovering From the Fraud

During the financial year ended March 31, 2010, Satyam, under new management, took several steps including the appointment of a new Audit Committee, the revision of the Code of Ethical Conduct and the nomination of a Corporate Ombudsman. The internal audit function was also strengthened by appointing Deloitte, Haskins and Sells as the internal auditor.

In September of 2010, Satyam released restated audited financials. This was an important step in the recovery, as clients often consider a service provider’s financial resources when awarding contracts.

Business Description

Satyam is an information technology consultant to mid-size and large corporations. It helps clients become more efficient and more profitable. Competitors include Wipro and Infosys. I do not profess to be an expert on the IT business so here is a link describing Satyam’s various services.

I spoke with two employees of Infosys: one is an IT consultant; the other is a business analyst. They are paid rather well since their work involves a lot of technical knowledge about computer programming. Their managers are Americans who went to business school to learn management skills, but it is really the Indians who do all the real work. Cliches aside, the most important asset of this business is people. (Incidentally, this is an ideal business to own during inflationary periods because capital investment is minimal.) My Infosys contacts said that Satyam is full of talented employees.

Catalyst for the ADSs

Satyam’s ADSs represent two shares of common stock trading on the Bombay Stock Exchange, which last traded at 66.9 rupees. At current exchange rates, this means that the ADSs should trade at $2.94. The ADSs last traded at a 5% discount, which is much larger than usual.

The reason for the mispricing is that Satyam plans to delist its ADSs and convert them into common shares trading in Bombay. As a result, I believe that retail holders and perhaps some institutions are selling their positions. The idea of owning a stock trading in India may be too awkward. Moreover, even some large clearing firms such as Penson cannot facilitate the conversion as they do not have trading desks in India. ADS holders do have the option of receiving cash in lieu of Indian shares, but they need to pay a fee of 5 cents per ADS, or almost 2%.

The reason for the ADS Delisting is Disclosed here:

The Company’s equity shares underlying its American Depository Shares (ADSs) and the ADSs themselves have been registered with the US Securities and Exchange Commission (SEC) since 2001, when the Company began trading on the New York Stock Exchange (NYSE). The registration obligates the Company to file annual and other reports with the SEC. The Company has, however, been unable to file the required reports post September 2008, because the financial irregularities identified for earlier years were substantial in amount, perpetrated across multiple accounting periods affecting many areas and due to non-availability of required information/documentation relating to several unexplained transactions and amounts pertaining to the period affected by the financial irregularities. This has a resultant continuing impact on the Company’s ability to prepare the financial statements under U.S. GAAP and to achieve a form of audit opinion thereon that would comply with the SEC’s requirement that such opinions contain no audit qualifications including scope limitations arising from the Company’s inability to provide required information/documentation relating to the period affected by the financial irregularities as indicated above. Accordingly, the Company has now determined that it will not be able to become current in its SEC filing obligations.

This disclosure seems a little unsettling, but I think Satyam’s restated financials are fine. It is simply not worth the time to satisfy the SEC’s requirements as Satyam is soon going to be merged into Tech Mahindra.

The Merger Catalyst

Satyam shareholders will inevitably own shares of Tech Mahindra after the merger, so it is important to look at what the combined business will look like. This article provides an excellent description. More information on Tech Mahindra can be found here:

Tech Mahindra is an above average business, with 20% EBITDA margins. Unlike Satyam, however, its earnings and revenues do not grow. Moreover, the customer base is much more concentrated. There is the potential for the combined entity to cross-sell and thereby increase revenues.

Satyam Standalone Turnaround in Middle Innings

I spoke with someone who advises the board of Tech Mahindra, and he said that Satyam is a great turnaround story. Revenues are improving, margins are improving. Deals are being signed with EMC, Oracle and other big names. Despite its comparable quality to other Indian IT companies, Satyam trades at 1.6X FY2011 sales vs. 4-6X FY2011 for competitors. Here’s what some local sell-side analysts have to say.

Tax Liabilities Depress Stock Price

Alas, this fat pitch is not perfect. In late August, the Indian tax authorities sent Satyam a draft notice (not a final notice) that it owed $463 million for years 2002 and 2007. Satyam has argued that since taxable income was fictitiously inflated during these years, the actual tax liability should be much lower. Satyam’s legal team is preparing to appeal the case to the Andhra Pradesh High Court.

I expect the High Court to resolve this case in Satyam’s favor. First Satyam needs to prove that the former Chairman did in fact fictitiously inflate earnings. The income tax department’s view is that this has not yet been proven. Apparently they don’t read the paper. Ramalinga Raju has been sentenced to prison for several years, and the Andhra Pradesh High Court (the same court in which Satyam is arguing the tax case) previously denied bail for Raju, presumably because he is an evil man. Second, Satyam needs to argue that taxes cannot be levied on income that does not exist. This point I believe is self evident. To argue otherwise would be unjust and nonsensical. You can watch Vice President Vineet Nayar argue this point here.

Satyam has reserved about $87 million for tax liabilities related to a similar tax notice covering 2003-2009. It has no reserve set aside for the $463 million claim received this past August. In a worst-case scenario, which I find very unlikely, Satyam would still be able to earn its way out of this taxing problem.

Valuation

Obviously Satyam’s earnings have been obscured by many non-recurring gains and losses (mostly losses) over the past few years. Here I will try to estimate the company’s normalized earnings as difficult as this task may be.

In the fiscal year ended March 31, 2011, Satyam earned 5.67 billion rupees, or $124.2 million. This is before charges for class action lawsuit settlements and other non-recurring charges related to the fraud. I would argue that the $124.2 million figure understates earnings going forward, as the company continues to win new clients, and QoQ earnings will probably continue to grow in the mid-teens percentage-wise. This compares with a low single-digit increase in Infosys’ QoQ earnings.

There is a clear upward trend in Satyam’s earnings. As you can see below, earnings grew 16% MoM from March to June of this year. There is no seasonality in this business that would explain the increase.

Quarter ended June 30, 2011: 2.7 billion rupees, or $59.2 million
Quarter ended March 31, 2011: 2.3 billion rupees, or $51.2 million
Quarter ended December 31, 2010: 1.3 billion rupees, or $29 million

Again, it is difficult to estimate Satyam’s normalized earnings, but I am confident that the company will earn at least $50 million per quarter going forward as the operating momentum continues.

Satyam’s capitalization consists of the following: (a) 564,222,092 common shares publicly trading at 66.9 rupees–equivalent to $829,406,475, (b) 501,843,740 non-encumbered shares–equivalent to $737,710,297 and (c) 110,604,486 ADSs trading at 2.77–or $306,374,426. Total market capitalization is $1.87 billion.

Based on my $50 million quarterly earnings assumption, Satyam is trading at less than 10X forward earnings. This compares with 13-14X for its Indian peers.

Conclusion

Satyam is a prime candidate for rerating. Now that impact of the scandal has diminished, new perceptions will emerge. This is a rare opportunity to buy a leading company at a cheap price (on an absolute and relative basis). It may soon be perceived as a secular growth story Or a great emerging markets story. There are at least three catalysts. You even get a 5% discount by buying the ADSs. If you believe as I do that the Indian tax authorities have no case, this is a fat pitch.

Courtesy: http://seekingalpha.com/article/291238-a-look-at-satyam-computer-services-ltd

Working Capital Concerns.

2011-10-22T07:22:00.000-07:00

The flow of cash through this channel of events gives rise to the working capital requirement for a company. The ability of a company to manage its working capital in all market conditions influences its rate of growth.

THE CONUNDRUM

Companies either borrow short-term loans or use internals cash accruals to procure raw materials and to meet day-to-day requirements. These loans are paid once the cash is received from customers. This process is termed as the working capital cycle of a firm. The lesser the number of days in which the company earns back the cash invested in operating activities, better is its working capital management. Companies, which have smaller working capital cycles, tend to deliver better profitability since their short-term borrowing requirement is lower compared with firms that have longer working capital cycles. Working capital efficiency assumes greater significance during tough economic situations. During a low-growth phase, demand for goods and services erodes thereby increasing the amount of average inventory at hand.

For companies that undertake execution of turnkey projects, investments made to procure materials are blocked until the execution of the projects. When the implementation of such projects is delayed, the short-term borrowing requirement of such players shoots up. When working capital remains tied up in receivables or inventory for longer than the average period, the company will have to borrow additional capital to meet daily expenses. Given the current scenario of rising interest rates, higher borrowings will increase interest outgo thereby putting pressure on net margins. When working capital cycle deteriorates, the company would either have to slow down its operations or increase borrowings. In either case, it will not be able to meet its profit targets. Let's look at companies whose working capital requirement has increased in the past one year.

Patel Engineering
Patel Engineering is a construction and engineering company operating in hydropower, roads and irrigation segments. The working capital requirement of Patel Engineering has increased due to a delay and stoppage of work in a few of its projects. The company's largest irrigation project in Andhra Pradesh worth more than Rs 1,500 crore was delayed due to political turmoil in the state. The hydropower project at Loharinag Pala in Uttarakhand, where work had commenced and which was expected to be a major contributor to revenue growth was cancelled by NTPC due to environmental issues. Work at two big hydro electric projects had to be stopped for a certain period in the last financial year due to floods. However, work on the projects has commenced since the last quarter of FY11.

Excluding the delayed projects, the company's current order book stands at Rs 6,500 crore which is nearly two times its FY11 revenues. It has failed to receive any major orders since the last two quarters. This gives a low revenue visibility for the company. The pace of execution and clearances for the delayed projects will be the points to look out for in future.

HDIL

The country's largest transfer of development rights (TDR) player has high working capital requirement as close to half its exposure is to slum rehabilitation projects. Even though the company has lower debt as compared to its peers, the high gestation period of its projects poses a risk for earnings.

On the flip side, income from the TDR, which has relatively insulated cash flows can provide a cushion to the company's earnings. The company will take at least 2-3 years to record reasonable cash flows since it's expanding in the mid-housing segment to diversify its earnings mix.

Courtesy:
http://economictimes.indiatimes.com/features/investors-guide/companies-that-are-facing-working-capital-issues-and-the-impact-on-their-bottom-lines/articleshow/10368352.cms?curpg=1

Short Term: Gold may loose it shine.

2011-10-18T08:38:00.000-07:00

Stocks and other commodities were being dragged down Tuesday by slowing growth from China, which is a mixed bag for gold. China grew 9.1% in the third quarter, which was below estimates. The number combined with slowing export results have made investors nervous that the country, a voracious consumer of all commodities, will stop buying.

Goldman Sachs wrote in a note that downside risks to growth remain, with external demand expected to weaken in the fourth quarter but that China might shift its monetary policy as a result. China has been aggressively raising interest rates and raising reserve requirements to try to drain money from the system with inflation at 6.1%. Goldman estimates that inflation could fall to 5% in the next quarter and that the lower level plus growth pressure could trigger a relaxation, by either stopping rate hikes or freeing up more cash.

Interest rates are at 3.5% and even if inflation falls to 5%, interest rates would still be a negative 1.5%, which typically has been good for gold. When an investor's money is losing value in the bank, gold becomes an attractive alternative asset to own. On the flip side, if slowing growth means less inflation in China, then gold will also become less attractive as a hedge against rising prices.

Courtesy: http://www.thestreet.com/story/11280688/1/crumbling-euro-clobbers-gold-prices.html

The Derivatives Bomb.

2011-10-12T09:44:00.000-07:00

In 2009, five banks held 80% of derivatives in America. Now, just four banks hold a staggering 95.9% of U.S. derivatives, according to a recent report from the Office of the Currency Comptroller.

The four banks in question: JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC) and Goldman Sachs Group Inc. (NYSE: GS).

Derivatives played a crucial role in bringing down the global economy, so you would think that the world's top policymakers would have reined these things in by now - but they haven't.

Instead of attacking the problem, regulators have let it spiral out of control, and the result is a $600 trillion time bomb called the derivatives market.

A governmental default would panic already anxious investors, causing a run on several major European banks in an effort to recover their deposits. That would, in turn, cause several banks to literally run out of money and declare bankruptcy.

Short-term borrowing costs would skyrocket and liquidity would evaporate. That would cause a ricochet across the Atlantic as the institutions themselves then panic and try to recover their own capital by withdrawing liquidity by any means possible.

And that's why banks are hoarding cash instead of lending it.

The major banks know there is no way they can collateralize the potential daisy chain failure that Greece represents. So they're doing everything they can to stockpile cash and keep their trading under wraps and away from public scrutiny.

Although American banks have limited their exposure to Greece, they have loaned hundreds of billions of dollars to European banks and European governments that may not be capable of paying them back.

According to the Bank of International Settlements, U.S. banks have loaned only $60.5 billion to banks in Greece, Ireland, Portugal, Spain and Italy - the countries most at risk of default. But they've lent $275.8 billion to French and German banks.

And undoubtedly bet trillions on the same debt.

There are three key takeaways here:

There is not enough capital on hand to cover the possible losses associated with the default of a single counterparty - JPMorgan Chase & Co. (NYSE: JPM), BNP Paribas SA (PINK: BNPQY) or the National Bank of Greece (NYSE ADR: NBG) for example - let alone multiple failures.
That means banks with large derivatives exposure have to risk even more money to generate the incremental returns needed to cover the bets they've already made.
And the fact that Wall Street believes it has the risks under control practically guarantees that it doesn't.

Seems to me that the world's central bankers and politicians should be less concerned about stimulating "demand" and more concerned about fixing derivatives before this $600 trillion time bomb goes off.

Courtesy: http://moneymorning.com/2011/10/12/derivatives-the-600-trillion-time-bomb-thats-set-to-explode/

USA: Its not a Recession. Its a Balance Sheet Recession.

2011-10-12T09:25:00.000-07:00

I view share prices of many companies as having become generally more attractive over the last two months, but, at this point in time, there are four factors that keep me from being more heavily committed to equities:

the stock market's continued volatility and instability;
the growing sovereign debt contagion in Europe (and failure of their leaders/central bankers to respond intelligently);
continuing political partisanship (and failure of our leaders to properly confront our fiscal imbalances and to promote pro-growth policy); and
an inability to gauge whether the erosion in the August sentiment measures (impacted by U.S. stock market and domestic/overseas economic uncertainties) will translate into weakness in hard domestic economic data.

I see the following four potential outcomes:

Scenario No. 1 (probability 15%): The pace of U.S. economic recovery reaccelerates to above-consensus forecasts based on pro-growth fiscal policies geared toward generating job growth), still low inflation, subdued interest rates and the adoption of aggressive plans by the government to deplete the excess inventory of unsold homes. Corporate profits meet consensus for 2011, and 2012 earnings estimates are raised (modestly). Europe stabilizes, and China has a soft landing. Stocks have 25% to 30% upside over the next 12 months. S&P 500 target is 1500.

Scenario No. 2 (probability 15%): The U.S. enters a deep recession precipitated by a more pronounced negative feedback loop, a series of European bank failures and likely sovereign debt defaults in the eurozone. While 2011 corporate profits and margins disappoint somewhat (we are already well into full-year results), 2012 earnings estimates are materially slashed. China has a hard landing. Stocks have a 20% to 30% downside risk over the next 12 months. S&P target is 885.

Scenario No. 3 (probability 30%): The U.S. and Europe economies experience a shallow recession. Earnings for 2011 are slightly below expectations, but 2012 corporate profits are cut back to slightly below this year's levels. Stocks have 10% to 15% downside risk over the next 12 months. S&P target is 1030.

Scenario No. 4 (probability 40%): The U.S. and European economies "muddle through" in a modest expansion mode (hat tip for the term to John Mauldin). Profits for 2011 meet consensus expectations, but slippage in margins brings down 2012 corporate profit growth projections somewhat. Stocks have 10% to 20% upside over the next 12 months. S&P target is 1355.

While I appreciate the uniqueness of the current balance sheet recession and the growth-deflating impact of deleveraging, I am also mindful that the typical conditions that precede a recession are not in place:

large private payroll drops in excess of 175,000 a month (adjusting for nonrecurring issues, payrolls are still averaging about 95,000 growth over last four months);
an inverted yield curve (it is positively sloped);
acceleration in inflation (inflation is contained and so are expectations);
an increase in real interest rates (anything but!);
bloated corporate inventories (low inventories to sales in place now);
retreating retail sales (they are expanding);
negative year-over-year leading economic indicators (advancing now);
a drop in factory orders (also rising) and;
outsized durable spending relative to GDP (housing and autos remain at or near cyclical lows).

Courtesy: http://www.thestreet.com/story/11245827/1/kass-where-i-now-stand.html

Buy Lanco Infratech, target Rs 30: Nomura

2011-10-11T10:06:00.000-07:00

Pushback in project timelines, materially lower near-term realisations and higher cost of funds largely explain the sharp earnings downgrade.

Nomura has given a buy recommendation on Lanco Infratech with a target price of Rs 30.

"In our view, Lanco's current market price ignores potential value accretion from its project pipeline beyond FY12; instead it partially reflects the risk of a funding gap and overhang from unresolved contractual/legal issues. We expect FY11-13F EBITDA and normalised EPS CAGR at 70 per cent on the back of higher contribution from power generation. At 0.7 times P/B and 4.5 times P/E on FY13F earnings, multiples are arguably ‘distressed’ and at a discount to its peers. We maintain a buy on the stock, but cut the 12-month target price to Rs 30 (from Rs 51) on reduction in value of power business (down from Rs 41 to Rs 22) and higher CoE," the brokerage said.

Pushback in project timelines, materially lower near-term realisations and higher cost of funds largely explain the sharp earnings downgrade.

"In our view, earnings sensitivity to these variables entails a fair risk-reward payoff from our base case; lingering contractual/legal issues remain a risk," the brokerage said.

As much as 82 per cent of equity required for its 5.9GW pipeline (ex-renewables, Udupi) is already invested; while group cash flows would suffice for the balance equity funding and AU$250 million required for Griffin Coal. Loan disbursals are on schedule; AU$483 million loan repayable in FY15/16 will require refinancing.

Commissioning of 1870MW capacity by March 2012 and operating its 3.9GW diversified capacity at healthy utilisation levels would restore execution credibility. Other catalysts include visibility on gas allocation/availability for KP-III and resolution of project-specific contractual/regulatory/legal issues, it added.

Courtesy: http://www.moneyguruindia.com/article.php?cid=2258&id=4