The Beginning of The End

I was reading an Article in Economist.com about the Credit Crisis in Emerging Markets. In the views section people are still thinking that India is not effected much and it is just the corrupt American banks that got busted. There was much boasting about surreal achievements and Economic Growth of India. But, I had a different opinion.

Are we not seeing The Beginning of The End...??

May be we need 6 more months to see the true picture of the Economic crisis in the Emerging markets.

In India every Home / Personal / Other kind of loan given by the banks to the people are 'SUB PRIME'. There is nothing like Credit history for anybody there. Till last year a Fresh College Graduate with 6 month payslips got a Home loan to buy a 200 SqYr land in a remote non living area at an unaffordable price .

Lets assume that the Economic Turmoil is going to continue for another 6months or a year. What do you think is going to happen?

1. Job losses / Salary cuts.
2. Investment losses in Stock Markets.
3. Rising commodity prices -- Inflation.

Defaulter toll goes up. Already the Interest rates are quite high. Companies in US are planning to reduce salaries for their employees to cut costs. This impacts the Job holders pay checks in India as well and paying loan becomes a nightmare.

It takes time for the Indicators to show up RED because till the Defaulter count goes up to 10% or so, they do not come into the radars or news and media.So I would assume wait for 6 more months and see the real picture of Credit crisis.

We Pay for our own Greed

The ongoing Economic Crisis, Inflation, Stock Market crash and the turmoil in the Wall Street has broken the Backbone of many Investors like me back home. The question that is haunting me.. 'Am I Paying for my Greed....??'

Back then, a couple of years ago, our own 'Visonary' Capitalist Reliance came up with a huge 3 Billion Dollar IPO. It got oversubscribed to the max. FII's, QIB's, Retail Investors, Mom and Pop shops, you name an X - subscribed for the IPO. When these Foreign Investors were playing big in the field we were Cheer leading for them. We were thinking that India is Growing, we are the best Developing Economy, there is no looking back and all Bull$hit.

Question:
Had there been a Red Tape, FII's are not allowed to Invest in Primary Markets, would there been a sufficient Subscription for Reliance at all...??

Answer:
A simple 2 letter 'No'. Though we have enough money, we do not have enough confidence to raise 3 Billion. Domestic Investors would not have fulfilled "Mere Baap ka sapna.."

What happened now..??
Dollar is 49/- now. Lame question - How is it related in the current context...??

FII's withdrew their Investments. Dollars are going out of the country and that is the reason for the spike in Exchange Rate. They sold all those Reliance shares which are not worth more than a Toilet paper now in the Secondary Market to all of us and took their return flights.

Greed Blinds Wisdom and We pay for own Greed.

The Freddie - Frannie Story

Freddie - Frannie Story

Last Friday FRE and FNM crashed 40% each. Immediately on Sunday Fed has come up with a rescue plan to bail out these big brothers with Capital Injection.

It’s a tragic Death of Capitalism in America… now ppl need Communism to live in US.

Lessons learnt:

• Charminar Bank is no different from Freddie Mac - It doesn’t matter where we invest / save the money – It finds its own way out.
  
• 2008 Freddie Mac / Fannie Mae are 2015 ICICI Bank and HDFC - Wait for an Indian Housing Market collapse and don’t expect Govt to Bail out with a rescue plan.
  
• Power is getting discharged slowly and US may not stay as a super power for very long – Get rid of the Green Pasture fever and stop acting like an American by going to Mc Donalds.
  

Moral of the Story:
Irrespective of Economy / War, Government stays – Join Chiru’s Political party and beat the wave.


Consumer confidence is at an all time low now. This is one kind of a time where in trusting a 3rd person [Bank] and depositing money is like gambling.
If Investment Banks are making losses, where do people Invest / Save their money..??

Answer is Gold. Open a locker, buy Coins of Pure Gold and put them there. That way you are not giving ur money to anyone. Even if Bank closes down, you can take ur property back.

Also keep doing short term partial risk investments. Bcoz Americans are not lazy to sit on their asses and watch the Economy fall, they will come up with new Financial Instruments and some robust laws / derivatives to make more money. Keep following the news and look for directions and indicators. One such indicator is Energy stocks.

Look at the chart of this company:

CSIQ went up by 18% yesterday bcoz they raised their Earnings estimates for the coming quarter. Read the news next to the chart.

http://finance.google.co.uk/finance?client=ob&q=NASDAQ:CSIQ



Fannie, Freddie Crisis

Fannie Mae and Freddie Mac? Heard of them? Sounds like some burger? Well, these are the two names which are now looming large over an impending financial crisis in USA. These are the two names why the US and the Asian markets have been down. Maybe two years ago, we in India, would have never ever thought of getting into such micro economics of USA. But after the sub prime crisis, to which India was insulated to a large extent, yet had to bear the indirect consequences, anything which even smells of a scandal or a financial crisis in USA, sends around warning bells.

So what exactly are Fannie and Freddie? Well, they are two of the largest and the oldest US mortgage companies; they finance most of the home loans being made in America. Sub prime loans are not within their purview as they are legally not allowed to do so. Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income. Together, the two companies touch more than half of USA’s $12 trillion mortgages by either owning them or backing them. They hold more than $1.5 trillion of the mortgages as securities. Others are sold to investors in the form of mortgage-backed bonds.

Fannie and Freddie are private companies with stockholders and profits, but yet, they hold the status of being "government-sponsored enterprises" established by federal law. This means that they are like some quasi Govt organization but with special privileges. The special privilege means that when in trouble, the US Fed would come to bail it out, meaning the tax payers would pick up the tab. This means, that when the companies make profits, the shareholders have a jolly good time but when in trouble, shareholders continue to make merry as they know that they will be pulled out by the taxpayers.

What then is the crisis right now? These two companies have been hit hard by the mortgage foreclosure crisis. Last Thursday, both the stocks were battered down to new lows after a former central banker made comments that the companies might not be solvent. There is news that the losses suffered by these two companies would now be much larger than the $11 billion they are already reported to have lost. The impending crisis is that foreclosures are growing, borrowing costs are going up and housing prices are declining. Given these facts, there is growing concern that Fannie and Freddie would soon start defaulting on their debt. And if the problems of these two companies are not resolved soon, it would hit large companies across the globe as securities of these two are held by large overseas financial institutions, central banks and investors.

Asia is one of the largest holders of both Fannie and Freddie debt, outside the U.S., so the implications are huge. Taiwan's largest financial companies said they hold more than US$11.5 billion in securities linked to Fannie and Freddie. Japan's three biggest lenders held a total of US$44 billion in debt securities issued by U.S. government- backed mortgage finance companies including Fannie and Freddie.

The general perception is that this would not be allowed to break out into a major crisis, wherein the US Govt would step up rescue efforts. Yet there is concern about getting some sort of confirmation on the probable steps the Treasury department would take for the bail out. Some also feel that even if the U.S. government works out a rescue plan, no quick resolutions are expected to follow. And it is this uncertainty which has spread panic.

The biggest question – will Freddie and Fannie take down the US economy? After the rescue of Bear Stearns and JP Morgan in March, this rescue plan for Fannie and Freddie seems larger as it affects economies across the world and more than half of the American population. But with the Govt backing the companies, there is no danger of it collapsing. Fannie and Freddie are a part of American history and culture now, and the Bush administration cannot afford to have one more failure on its report card, especially with elections scheduled in November. With the collapse of the sub-prime crisis and given the state of the US housing market, there is no alternate but to rescue Fannie and Freddie. Yet, there is no denying that there does exist a major financial crisis in USA and the going would get only tougher for the tax payers.

Would this have an effect on the Indian markets? Market is all about sentiments. So when the moods are jittery across the world markets, can Indian markets stand aloof? Though the sub prime crisis did not cause a collapse of our banking system, it did affect the sentiments. And with FIIs now being a big part of the Indian investing fraternity, surely, there would be some more downward effect of Fannie and Freddie if the issue is not resolved soon.

Oil - Holy Cow

My Stupidity

Oil is Trading at $145 per barrell. I got a tip to buy Oil when it was $90. But I invested in Merrill, Citi Bank and Goldman Sachs. Thinking that worse is over, my little brain started dreaming Dollars... Merrill numbers will beat the street and I will make a killing. But the fact is...... 'BULLS make Money, BEARS make Money and only HOGS get Slaughtered'. You guessed it right, I am Stupid... Let me start Drinking..!!

The Question

My stupidity asked me this question, Why is the Oil price going up..?? Reading various news articles and using some horse sense, I satisfied myself with these answers from Analysts:

• Attacks on Nigerian Oil Fields is effecting Production.
• Russian Oil wells are drying out and it is expensive to explore new Oil wells.
• Consumption of Oil has gone up in Emerging Economies like India and China.

But, though all these reasons sound correct, why a sudden spike..?? In one Article there was a reference to Hunt Brothers in America who created a Silver Bubble taking the Silver prices from $2 an Ounce to $50 an Ounce before it crashed back to $10. They physically warehoused Silver. But stacking is not possible with Oil. The current prices are Futures Contracts for the next month deliveries.... so SPECULATORS are driving Oil North.

Optimism

Optimism says that there will be an Energy Revolution in the coming years. All the existing modes of Utilities and Transportation that depend on Fossil Fuels will be replaced by Renewable sources of Energy like Solar, Nuclear, Hydro, Tidal and others. This Energy transition will create new Economic Opportunities that the Consumer will be interested or made to buy.

Pessimism

Pessimism says 'Expect a World War III'. It is highly unlikely for countries to cope up with the current Inflation in the world. Darwin's Theory of Evolution says 'Survival of Fittest'. If US can take over Iraq, one small Ignition will give enough confidence for other countries to follow the Big Brother.

Realism

Reality is the only Truth. And Truth is Share prices are falling down.

When Rape is inevitable, Lay back and Enjoy