Friday, October 31, 2008

PetroDollar ends???

With the blow on Twin Towers, USA attacked Iraq and Afghanistan to find out Terror head, Osama-bin-Laden, but ended up with just eradication of Taliban and Hang-till-death punishment to Saddam Hussain..

Years later, Talibanese have again regained their power over Afghanistan (this time there is no US help who demonstrated destruction as a national cause to restore peace in Afghanistan).
Also Saddam Hussain being in no fault was hanged, although people remember him as an Autocrat who used to rule the people of Iraq and used to regulate his policies whether or not ir was in interest of common man.

Coming on to the main point of discussion-> What is PetroDollar??
People do not realize the real reason for Iraq war and the current war threat against Iran by USA. We cant call it against Terrorism nor illegal use of nuclear weapons or chemicals nor even the oil. USA has been doing the same from late 70's and all other countries just be-fooled by this intelligence started supporting USA making it strongest economy for no real reason.

USA has been trying to protect and prop up the greatest con-job in recent history, its THE US PETRODOLLAR SCAM.

Back in 19771 when economies world wide were emerging and US was no doubt the fastest to grow, the USA printed and spent far more paper money then it cover to buy gold.
Few years later, French demanded redemption of its paper-dollar holdings in gold. But the USA rejected as it actually didn't have enough gold for the dollars it had already printed and spent all over the world, thus committing an act of bankruptcy.
Seeing the future economy leading to starvation US started to make humble relations with Saudis for sole motive to promote its Dollar. Saudis and US cut a deal – OPEC denominate all sales of oil in US dollars.

From that point, every nation that needed to buy oil had to firstly hold US dollars, which meant that they exchanged their goods and services for dollars, which the Americans just printed. This lead to increase in demand of US$ in the global economy making US economy strong and stable.

The Americans brought their oil literally for free by printing those dollars. The ultimate free lunch for the Americans at the expense of the rest of the world.

Howerver many were against this scam but didn’t have enough power and resources to resist it until late 1990s.

Saddam Hussain understood the situation and started selling Iraq's oil directly for Euro, abrogating the cozy arrangement the Americans had with OPEC. Thus Saddam had to be stopped. How? This has been clear to u by now!!

USA concocted up a pretext to wage war (drama of twin tower blast) and invade Iraq and the first thing the Americans did was to revert sales of oil back to dollars. The currency crisis was averted for the moment. After Saddam's arrest price of Oil in locale increased by nearly 2000% and the market was full of American products, those sold at highest prices than in any other country. But Asian countries still were not getting the point and supported US blindly.

Hugo Chavez (Venezuela President) also started selling Venezuelan oil for currencies other than dollars, so there were a number of attempts on his life and "regime change", traceable right back to the CIA. The petrodollar cat was out of the bag and busted.

Iran President (Ahmedinejad), watching all of this, decided to kick The Great Satan in the goalies and do the same thing - sell oil for every currency EXCEPT US dollars. This decreased the demand of dollar in global market leading to weakening of US$.

The shell game is coming to an end for the Americans. As the nations of the world find that they can buy oil for their own currencies instead of holding paper US dollars, more OPEC nations will abandon the dollar. The worst thing for the Americans is that eventually, they will also have to buy their oil with Euro or Rubles instead of just printing paper money to get it. That will be the end of the American Empire, the end of funding for the US military and the destruction of the US economy. The great scam is coming to an end and there's not a lot that the USA can do about it, except start another world war!!!

Wait and Watch… Only few years/months ahead.......................

Thursday, October 30, 2008

G7 and G20 countries

G7 Countries

The G7 was an informal gathering of heads of state and governments of the world's most advanced economies (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States).

In the early stages, members of the G7 were accompanied at meetings by their foreign and finance ministers. In 1998, the British Presidency decided to separate the ministerial meetings from the original summit in order to keep the original concept of a small, informal gathering. In the same year, Russia joined what then became the G8. Since 2005, the G8 has been holding dialogues with the major emerging economies of Brazil, China, India, Mexico and South Africa.

G8 finance ministers meet once a year before the actual summit. However, finance ministers also meet in general three more times (early in the year, and at the margin of the spring and annual meetings of the international financial institutions), but in a G7 (instead of a G8) framework. . Since the introduction of the euro, the European Central Bank (ECB) and the President of the Eurogroup also attend. (Courtesy:Wikipedia)

The G7/8 deals with such issues as: global economic outlook and macroeconomic management, international trade, energy, climate change, and relations with developing countries.

G20 Countries

The G20 (Group of 20) is a group representing 19 of the world's largest economies plus the European Union that are strategically important and influential in the world economy. The G20 was formed as a new forum for cooperation and consultation on matters pertaining to the International Financial System (IFS).

The membership of the G20 comprises the finance ministers and central bank governors of the G7, 12 other key countries, and the European Union Presidency (if not a G7 member); the European Central Bank; the Managing Director of the International Monetary Fund; the Chairman of the IMFC; the President of the World Bank; and the Chairman of the Development Committee.

The G20 is an informal forum that promotes open and constructive discussion between industrial and emerging-market countries on key issues related to global economic stability.

The members of the G20 are the finance ministers and central bank governors of 19 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States of America. The European Union is also a member, represented by the rotating Council Presidency and the European Central Bank.

Morgan Stabilising by Liquefying!!

Morgan Stanley, eager to secure more stable sources of funding in volatile times especially in US and India, said on Wednesday its brokerage division sold $3 billion in certificates of deposit (bonds, futures etc.) during the past week as part of its broader plan to build up deposits.

Morgan Stanley listed itself as a R-Bank (Retail) so as to get rid of bankruptcy kind situation leading to downfall of Lehmann Brothers.

Morgan Stanley has listed itself as a Federal Bank-regulated enterprise trying to hold on the acquisitions and crude options listed at a good enough prices (crude hit 36 months low on Monday).
MS would now be entering low risk and low gain schemes by collaborating with a Swiss Bank unit to introduce new saving accounts and global currency accouts and increase international banking.

MS has to reprimand on the subprime and speculative approach which came as a consequence of extra money invested in high risk and volatile market!!

But liquefying isn't that easy, as the market price of stock dipped to 52 week low by witnessing a cut off of nearly 70% in price in the last 12 months...Such selling will not fetch profits to that extent as expected................

Saturday, October 25, 2008


Investors will remember October 24, 2008 as the blackest Friday the Indian stock market has ever witnessed and would never like to witness or experience thew same feel again in their lifetime..

Friday was one of the most hopeless session where the investors were mere spectators and just saw their so called ASSETS being washed off in the vast sell-off which took place on friday..

The gains of the four-year bull-run were lost in just eight months. The biggest damage being suffered in last one month, with the indices losing over 36 per cent

Indian equities were the worst performers. Bombay Stock Exchange’s Sensex plunged 11 per cent or 1070.63 points to close at 8,701.07. The index touched a low of 8566.82. National Stock Exchange’s Nifty ended at 2584, down 12.20 per cent or 359.15 points. The broader index touched a low of 2525.05.

Advance to decline ratio was less than 12%, such a figure itself shows the way the market has behaved.

Even Foreign Market got slaughtered and went down by almost 10% intraday.
The Dow Jones Industrial Average futures slipped 550 points, or 6.27 percent and Standard & Poor's 500 futures shed 60 points or 6.56 per cent.
Japan’s Nikkei 225 ended -9.60 per cent lower, Kospi fell 10.57 per cent and Hang Seng declined 8.30 per cent.

Experts view it as the worst impact on big established companies who witnessed an average fall of 20% per share including Unitech loosing approximately 50%, DLF joining with 245 loss also including Ranbaxy Lab. with a fall of 18%..
Experts also stressed on the fact such a fall would shake the top 30 stocks of the Exchange as almost all of them have witnessed a fall of almost 70% in past few months with L&T scoring at more than 400% loss(from 5500 to 970 approx)..... Such a correction has made these large scale stocks comparable to small cap stocks. Providing a due recognizition to the prevailing economic errata many companies have been washed off with Reliance Industries made a new world record in intraday loss(not even Lehman lost that percentage of their value intraday).

In today’s trade, foreign funds provisionally sold equities worth Rs 1,431 crore while domestic institution bought equities worth Rs 514 crore.

Reason for such a fall can be many....
One of them is most predictable Sell-Out by FII's. They have sold thier stocks in market at any price so as to get rid of liquidity crunch at global level...
Another can be the underperformance of Indian Stocks listed n Foreign Exchanges.....
But the most important is revision in GDP growth forecasts. This led to panic among investors, already shaken by the relentless sell-off by foreign funds.
There were market reports that long only funds and domestic institutions were too on sell-side.

FM has asked people not to panic but how can a person feel free if his stake inMarket has reduced to mere 30% for nono of his ill-doings......................

Wednesday, October 22, 2008

The Last Days Of Lehman Brothers

Richard S. Fuld Jr. was under siege in mid-July. His renowned investment bank, Lehman Brothers, was barraged with questions about whether the expanding credit crisis would engulf the bank and wipe out investors.
Signs of worry abounded. The company’s shares had plummeted, its debt had been downgraded, and investors were increasingly worried about a Lehman default. It was a downward spiral that mirrored the demise of Bear Stearns(A very strong Investment Bank) four months earlier.
In the months leading up to Lehman’s downfall, the proposal was just one of many floated by Mr. Fuld as he embarked on a frenetic and increasingly desperate attempt to keep his 158-year-old investment bank alive.
To save Lehman, Mr. Fuld called blue-chip companies and discussed mergers with a competitor, the worst situation in which a company would like to be.
Mr. Fuld is likely to face some tough questions about the final months and days of Lehman, the company collapsed last month and was sold off in pieces to buyers including Barclays and Nomura.

Though Lehman was the smallest investment bank when it failed — and regulators decided it was not too big to fail — its demise set off tremors throughout the financial system that reverberate to this day. The uncertainty surrounding its billions of dollars of transactions with banks and hedge funds contributed to the freezing of credit markets that has forced governments around the globe to take steps to try to calm panicked markets, including guaranteeing bank deposits.
Lehman executives complain bitterly that any chance of keeping the firm alive began to dissipate rapidly just after Labor Day when JPMorgan Chase, which handled Lehman’s trades, came calling for more money. Lehman had put down securities it believed were worth $6 billion during the summer to assuage the bank’s concerns that its trades were risky. But JPMorgan thought those securities had deteriorated in value, and asked for $5 billion in cash or liquid assets.

So we can say that JPM had assets but conspired against Lehman's dislocating a very big International Firm.

Questions have been ploughing around Fed bank as it brought reforms to save Banks like Morgans and Goldmans(although the same remidies were required to stabilize Lehamns).

So as to keep up in market Lehman officials approached many banks including Ping An International and HSBC.
Lehman also proposed to sell some of its assets to Mr. Warren Buffet who actually bought some assets of Goldman Sachs, but rejected the deal as policy said by Buffet was unacceptable..

At last it can only be summed to say that if due steps would have been taken the Lehman's would have been in the market with the market more stable then it is now....................

Tuesday, October 21, 2008

Reform the Debt Market

INDIAN policy makers have been quick to ease restrictions on foreign investments in corporate bondsas well as in government debts.
The immediate intent ofcourse is to attract more foreign debt inflows which are to some extent drying up. However, the reform of the debt market was suggested long ago to allow greater flexibility to overseas investors so that they could switch to debt when equities market faced a downtown.

The opening up of the debt market to foreign institutuional investors(FII) may have got delayed because of worries that excessive flows could impact yields of government paper may have shaped their views earlier. Also, reluctance to have foreigners holding too much of government papaer may have shaped their views earlier.


The latest changes in the debt market only need to reinforce the need to quickly refocus on building a vibrant market for private debt in India. Indian corporates are still captives to Bank Financing, especially in absence of functional bond market.

A major blame for strict defragmentation of Bond Market has been overdue to RBI which guarded this turf for time until SEBI overtook the proceedings.
In the last decade or so, Indian Market has shown up to global standards . In recent times it has developed into a good settlment and clearing system, affording decent volumes and derivatives.

Globally the Debt Market has been a counter to what was expected, but countering the global response, response on India has been somewhat overwhelming. But seeing the experts opinion this market has not favoured India to a big extent.....

There is a need for restructuring of bond market according to the need and size of the market..............

Wednesday, October 15, 2008


Dot-Com is a company that does its work using an Internet Interface usually a Website using .com previliges...........

Dot-Com Theory

There are many ways by which a company makes money out of businesses...

Dot-COms used the 3Cs Strategy, which stands for Connection, Commerce and Content.

Commerce is about selling the products.

Content refers to placing contents on Internet.

Connection refers to supplying Internet Connection to have a swift flow of company work.

Dot-Com had a theory of survival as Expanding the customer base as fast as possible to survive any kind of hitting in the market..

Later with the increase in IPO's and public oriented bidding the Dot-Com's had a huge amout of money to invest resulting in Demand increament in the Market and thus leading to bulling prices of the Land Rates in 2005-06.

Now the effect was that customers became rare as all were enrolled and the international market was not that interested(Specially India where we find a 500 Rs book at about 50 Rs).

This lead to the shortening of the bubble or domain of Dot-Com's leading to downfall.

Also as the economy grew growth of Dot-Com came to a saturation leading to downfall of many such businesses. With its downfall losses were incurred and people were forced to sell their flats.

Demand increased in the market leading to decrement in prices of land rates and thus bringin recession.....

The most witty survived the collapse with selling their assets(not in creame use) at the time of Boom and others were hard hit....

Dot-Com-Fin Markets

In financial markets a stock market bubble is a self-perpetuating rise or boom in the share prices of stocks of a particular industry. They increase the prices of the stocks abruptly, but are harmful as like Hedge Funds they too can lead to dramatic reshaping of the Stocks leading to Bannkruptcy.

People in US invested largely in Dot-Com industry and the eople who exited at right time were the true winners.... Others just succumbed in the vast Crisis and Recession type activities.

After such a drastic impact on the markets Dot-Com's are now also referred to as Dot-Bombs.............


Following the so called sub-prime crisis and the hard hitting by the internal operators, countries like India and Brazil have come back strongly...

Though speclated at a CALL of 2800 and PUT at 3400 the market was an obvious marker to 2800 mark or so......... With no such great good news and with a handful-some speeches of FinMin and other big Tycoons including Mr. Sood, Mr. Ambani, Mr. Mallya, Mr. Goyal and many others the market has come up strongly..

This punches a question out to how come the market wasn't visible to effect of signing of the so called Important N-Deal??

Can we conclude that the bulling is just due to these speeches and some reforms of RBI!!!

Indian BOP has been imbalanced by many forces and is more imbalanced than it was previous.....
Then how did this impact bull the Market?
Such Cuts and speeches were there at time of downfall... Then how did such a boost came up this week!!!
External pressures have yet not been settled down!!!
Still now Japanse Banks are hit and one of them has been declared Bankrupt(on Saturday)......
Seeing such a big bank succumbed(that too Asian) its sibblings too not doing the great job adding on the Near 10% decrement in each Foreign Market on Monday our Exchange Bulled up!!!

Such a gamble can happen only in India.....

I would still prefer to keep my money safe out as the CALL strategy can any time hit the market!!

Friday, October 10, 2008


Desperate to avoid a depression like the one witnessed in 1929, the US Fed in coordination with other central banks today announced a cut in key rates to stimulate consumption and economic activity. This has been a suffix to the recent hapennings and recession type liabilities, not so true but imposed due to heavy speculation in global markets.

Who knows the markets have been slaughtered on the condition basis or due to heavy speculation and rumors of global stagnation.

Steps taken also include some Joint unprecidented(to be precise) actions and consultation such as to increase liquidity in market to reduce financial crisis.

This will have an impact on Inflation. But according to me, decline in energy and other commodity prices has reduced the upside risk of Inflation to a much greater extent.

Stats say that

The Fed has reduced the federal funds rate by 50 basis-points to 1.5 percent.

Chinese Central bank has cut interest rates for the second time in less than one month reducing it to 6.93 percent, to increase money availability in the market.


The European Central Bank's main rate is now 3.75 per cent, Canada's benchmark rate fell to 2.5 per cent, Bank of England's rate dropped to 4.5 per cent and Sweden's rate declined to 4.25 per cent.

Now comes RBI's Interception....

Speculators have been discussing the slashing in interest rates as a negative impact as this is following the same trend the Fed did about 2 month ago to maintain or retain stability in Financial Markets.

The Cash Reserve Ratio (CRR) will fall to 8.5% from 11 October and the move would release about Rs20,000 crore into the financial system.

Observing the current liquidity situation in the context of global and domestic developments, it has been decided to reduce the CRR by 50 basis points to 8.5% of net demand and time liabilities (NDTL).

Thus increasing the total market liquidity to Rs90,000 crore.

Recently the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit

Speaking in Finance Minister's Language the depression will have no effect on the nation's economic stability, but stats have as usual performed differently.

Monday, October 6, 2008

Short Selling BANNED!!!

On September 19th, the U.S. Treasury Secretary Paulson issued a statement in which he said that the Federal government “must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy”. He called it the ‘Troubled Asset Relief Program’. Many have taken to abbreviating to TARP and from there, it is a short leap of imagination to call it a TRAP.

But, even before the bill is passed and its ramifications known, stock markets around the globe heaved a sigh of relief and rallied hard towards the end of week. It is a delightful irony that most markets showed a flat profile from Friday, September 12th to Friday, September 19th at the end of an unprecedented week. It is not so much the news of the proposed U.S. government bailout that stock market investors welcomed. The squeeze on short-sellers that regulators around the world applied worked its magic.

Short-selling banned but SEC created the conditions

Bulls are taken by their horns but I do not know how bears are tamed. Try banning short selling. Well that is what authorities in the U.S. and the UK did on Thursday. UK banned all short-selling of financial stocks up to January 2009. The Securities and Exchange Commission (SEC) in the US banned all naked short-selling in all stocks. Hedge funds have to swear under oath their short positions. Canada, Germany, Ireland, Holland, Taiwan and some others have joined.

That is a shame!! There was no reason for many authorities to impose restrictions on short-selling. It is not only unprecedented but also largely unnecessary.

Forgotten in this persecution of short-sellers is a matter of tiny detail that in 2004, the SEC made two important changes to its rules on the amount of leverage that broker-dealers could take on.
One, it removed the discounts it applied on the assets that these institutions own, in calculating their net capital.
Two, it allowed five broker-dealers to increase their leverage from 12:1 to 40:1. Those five were Merrill, Lehman Bear Stearns, Goldman and Morgan Stanley. Four of them are not around any more. Goldman has reduced itself to a mere Retail Bank.

It is not clear what role the institutions themselves played in this rule change. It appears that the retribution for the egregious errors of the regulators and the regulated entities would be paid by the shortsellers who seek to throw a spotlight on such behaviour. Strange are the turns that American capitalism has taken in the last few years.

Banning short-selling is to akin to "blaming the mirror for the ugly image". But then, these days, one is a suspect capitalist if one does not cheerlead rising asset prices even if the means are not exactly fair.

Any recovery in global equities and the U.S. dollar would eventually turn out to be a comic interlude in an, otherwise, tragic drama except that the comic interlude could last long enough to make us all feel like we were watching a new play all over again.

Friday, September 12, 2008

Lehmann Splits in 2 Brothers

It is now almost imminent that Lehman Borthers will join the growing list of victims from the sub-prime crisis. ""The NYT Reports say that ailing firm is considering a proposal to split the bank into a "good" bank and a "bad" one. The proposal would essentially involve placing about $30 billion of troublesome commercial mortgages and real estate that it owns into a new publicly traded company — the "bad" bank. The rest of Lehman — the "good" one — would then be able to carry on with the help of a cash infusion from one or more investors"".(Sources:Economic Times) The logic behind the proposal - NYT writes, "Creating the separate company, the thinking goes, would strengthen the confidence of people who do business with Lehman every day — other banks, hedge funds and institutions like pension funds — thereby encouraging them to continue doing business with the firm. Shareholders, who would own shares of both the real estate portfolio and the new unencumbered Lehman, could bet on whether the commercial real estate market recovers or gets worse and sell its "bad bank" shares".The logic is self-evident.

The only problem is that in the real world, it rarely ever gets translated into results. Something else happens. Stripped off all the jargon, is this not precisely the definition of "asset stripping"? Privatizing the gains, while socializing the losses? The "smart" investors and promoters get away with their profits intact, leaving the "dumb" others to shoulder the debt burdens? Or set the stage for the private equity directory to swoop down and takeover the weak assets at knock away prices, and then experiment with even more impenetrable and complex financial engineering?

Tuesday, September 9, 2008

Problem Is not the Bond but its Segmented Market

Why did the RBI choose to create a special oil bond, forcing a segmentation of the bond market?

The answer, most likely, is that this was done to contain the fiscal deficit.
The huge oil subsidies are putting tremendous pressure on the government budget, imperiling the fiscal targets. Paying the subsidies by issuing bonds has the signal advantage that such spending is kept off budget. But it has the disadvantage of increasing the government's interest expenses. Expenses increase because the amount of government debt increases. Then, they could go up some more because the increase in government debt might lead to a rise in interest rates. It's a simple matter of supply and demand: the higher the supply of bonds, the lower the bond price -- which means the higher the interest rate.
"By making oil bonds a separate category, not eligible for the SLR, the RBI could preserve demand and supply in the regular bond market. Banks would ignore the oil bonds and bid aggressively for regular government bonds to meet their SLR requirements, thereby keeping interest rates low and keeping the government interest burden down.
But this "solution" created two new problems. First, it segmented the government bond market. There are now two completely different prices for government bonds, depending on whether they are SLR-eligible or not(sources: Economic Times)". This is a major impediment to market efficiency and development. For how can private firms price their bonds accurately, when even government bonds for similar maturities have two different prices?
The second problem is that the special oil bonds failed to solve the original problem. The oil companies still need cash.

Monday, September 8, 2008

Indian Perspective!!!

This time I heard a new word like AIDS taken by World Bank and IMF in my Economics lecture..
As I was going through google I learned some facts about how India views the two institutes.....and on interest views where do we see India wrt these institutes!!

An Indian perspective on the IMF

Many in India view the Fund as a potential source of assistance in the event of a future currency crisis, as was the case in 1981 and 1991. This thought process leads to concerns about a better relationship with the Fund or Monetary credit(as they say) in a future crisis scenario.

I think that India's globalisation has gone so far that it will not be easy to mount a 'rescue' in the event of a currency crisis. The IMF lacks the resources to cope with a currency crisis for a country of this size.
More importantly, the tools are at hand for largely eliminating the risk of a currency crisis. If we embrace a policy framework comprising a floating exchange rate, convertibility, and a narrow inflation-targeting central bank, then the contest between currency speculators and central banks (for which the IMF was designed) does not arise. It is better for India to walk down this path, where there will be no need for an IMF program in the future. "Once we start thinking like a mature market economy, we lose interest in issues of who controls the IMF" as said by William Woodridge.

An Indian perspective on the World Bank

As far as the World Bank is concerned, there is a consensus on two issues. Gross capital formation in India is nearly $200 billion a year. In this, $1 to $3 billion from the World Bank is just not a big deal, even after the problem of India's current account surplus is firmly out of the way. More generally, the market-oriented economics that has transformed India's growth opportunities and thus poverty reduction is now sustained by a domestic process of policy reform, where the World Bank is not an actor. The core business of Indian GDP growth, leading to poverty alleviation, seems to be driven entirely by private capital and the domestic political economy that sustains liberal economic policies.

Can the World Bank help by improving monitoring and evaluation? I didn't see that happening with SSA. It was Pratham - and not the World Bank - which discovered (at a tiny cost) that the kids getting enrolled through SSA aren't learning much. The bureacratic incentives of the World Bank are probably as unfriendly to discovering bad news as are those within the GOI.
Another perspective is that of incentives. Compare private sector financing versus World Bank financing in an infrastructure setting. Suppose a expressway project is packaged by Goldman Sachs(my fav company) and has private sources of equity and debt. Compare this against a traditional World Bank financed expressway project. I think the private sector version is superior for two reasons. First, there is generally less leverage with greater private sector involvement, which leads to more healthy project structure. Second, the private owners have an incentive to fight on all aspects of project success, from effective execution to O&M to revenues. In contrast, a World Bank bureaucrat is more likely to lose interest in a project once it is signed. It is better for India to have private financing rather than World Bank financing.
Finally, I instinctively dislike bundling. It is hard to think rationally about either knowledge services or cost of capital when the two are bundled together. The Indian project would be better off separately procuring the best knowledge services, and then procuring the lowest cost equity and debt capital. Mixing them up hinders clear thinking.
Hence, I'm unable to see an important role for the World Bank in a country like India or China, where high growth rates have already been ignited. High GDP growth, and thus poverty reduction, now rides on the domestic political problems of economic policy in these countries.
On the other hand, there are much more daunting problems with "failed states" which could merit a focused effort on institution building through an agency like the World Bank. I know, the World Bank's mandate prohibits involvement in political issues. But there is plenty of low-intensity work to be done in building a State, that is not present in what we say World bank's charter.

All around us, India has countries in dire need of nation building: Pakistan, Afghanistan, Central Asia, Nepal, Bangladesh, Burma, Sri Lanka. It is in India's best interest if these countries are able to achieve sound institutions and ignite high GDP growth. From a selfish Indian perspective, that's a great role for the World Bank - to give us a safer neighbourhood and enormous trade growth in our immediate neighbourhood.

That leaves the problem of a funding model. At present, the World Bank needs customers like India and China to make ends meet. If the Bank reorients itself to focus on nation building, it needs new sources of financing. In resolving this problem, I think it helps to see that nation-building in Afghanistan or Sudan is about producing global public goods. Everyone benefits when these countries are set on track. Placing the brunt of financing of these global public goods upon India and China does not sound like a fair arrangement. A reasonable solution could be to pass the hat around to the 25 biggest countries of the world, and ask for contributions in proportion to GDP.

Saturday, September 6, 2008

India Which Direction!!

Since mid-2007, the global economy has been unravelling in disconcerting fashion. That has taken governments and `aam aadmi' by surprise in most countries. The nature and speed of this `unravelling' has been discomfiting. It affects everyone: i.e. individuals, poor, middle-income, or rich, multinational and domestic firms, academics, governments or regulators.
Global turbulence is certainly affecting India. We can see that in sudden changes in our inflation rate, growth rate, exchange rate, and in our capital markets. "We can see it in the stresses and strains it is putting on fiscal, monetary and social policy"-as said by Prayag Ved. But, by and large, the impact of global ructions has so far been less on India than on other energy importing countries. The continental dimensions of the Indian domestic market are now generating a powerful internal growth dynamic with rising domestic incomes. That provides India with some shelter from this global storm.
Energy exporters are, of course, booming. They cannot absorb the huge surge of funds that are flooding into their small economies. "Energy exporters in the Middle East have built up incremental reserves of over $3 trillion in just the last five years"-as said in Business Standard. This huge imbalance in global financial flows and in rapidly accumulating financial stocks represents both a cost and an opportunity for India. But we risk exacerbating the cost and blowing the opportunity.
India is not as dependent as China is on the US and EU for manufactured exports. But that gives us little comfort. Our service exports are facing headwinds. Remittances may fall if the US and EU go into recession. But that may be offset by remittances from Gulf countries. Yet, paradoxically, India will weather this storm with less damage than the US, EU or Japan; and most developing or transition countries.
Regardless of what is happening in the world, we are building up many problems of our own by default. We do not seem to have either the political consensus or the administrative capacity to address simultaneously that large number of urgent issues that confront us.
Our deficit on merchandise trade is approaching 10% of GDP. Despite export income from services and remittances we now have a current account deficit of 2.5 to 3% of GDP. We have a `real' fiscal deficit approaching if not exceeding 10% of GDP taking all off-budget items into account. These are not good signs; especially in an external environment that is not benign.
We now have significantly lower growth than we thought we would -- from 9% to 7%. It is a reflection of how far we have come in the last five years that not just government and industry, but even common man the bhala manush, is now concerned about GDP growth falling to 7%. We face much greater economic and financial uncertainty. Our stock markets have lost 40% of their value in just six months. No one knows when we will get back to January 2008 levels.
Our inflation rate seems to have gone from 5% to 12.5% almost overnight! That seems to have come upon us suddenly and caught us all by surprise. We seem to be in denial about the extent to which our growth rate might be hit in the next 18 months.
Such discontinuities will be presented as we cant create a perfect market where the FII is more than the Economic strength.

Saturday, July 19, 2008

"MarKET"AN Parekh Watch

I would introduce to you one of the biggest speculator ever produced by Indian Stock Exchange -->None other than Ketan Parekh.......

Ketan formed a network of brokers from smaller exchanges like the Allahabad Stock Exchange and the Calcutta Stock Exchange, and used benami, or share purchases, in the name of poor people living in the shanty towns of Mumbai. Ketan rose to fame at the same time as the worldwide dot-com boom (1999-2000) and he relied primarily on the shares of ten companies for his dealings (now known infamously as the K-10 scrips).

Ketan's modus operandi was to ramp up the shares of select firms in collusion with promoters. Interestingly, around the time when Ketan started taking long positions in his favorite K-10 scrips, SEBI concluded a 3-year old case against Harshad Mehta, who had colluded with the managements of BPL, Sterlite and Videocon to ramp up their shares.

At the time, a group of traders known as the Bear Cartel (Shankar Sharma, Anand Rathi, Nirmal Bang) were making money from falling stock prices. Bears sell stocks at high prices and buy back at low prices. Around February end in 2000, this cartel placed sell orders on the K-10 stocks and crushed their inflated prices. All of Ketan's borrowings could not rescue his scrips.

He was arrested in 2000........for gambling in more than 25 scrips...

The Supreme Court directed the application of Ketan Parekh, seeking exemption from surrender, to be listed before a chamber judge.

On 15th July, the apex court had refused to extend time for Ketan Parekh to pay Rs 26 crore to Madhavpura Cooperative Bank, which was defrauded by him in connivance with the CMD of the Bank to the tune of Rs 1000 crore.

Market professional once said

"Market Bears for its own essence"

It would be my pleasure to get comments on this topic as the last line has the essence of the blog and needs to be understood nicely.........If my friends have the perfect answer to the q asked they are free to comment!!!

Wednesday, July 16, 2008

N-Deal Uncertainity Continues

Many of economic experts have provided their review, reports arising as a consequence of the Nuclear-deal. I would like to provide my view on the effect of this deal.

According to me, this deal needs to be translated into economics, commerce, trade, development, FDI and mutual admiration. At the moment, Indian Opposition politicians think that the country’s independence and prestige has been sold out. The US politicians are thinking a bit differently but much worst (according to my opinion). They are thinking that a gapping hole has been punched into the NPT regime. Yes, both are right, although the Indian side is stretching it a bit. In US, the Nuclear Lobby Group has gained an upper hand. They confidently are predicting to scuttle the deal. These few former US State Department officials are idealists. They wish to remove all nuclear weapons from India’s hands, hence will precipitate a crisis prior to the deal’s approval(This is a true saying by a Senate in during an Interview at BBC).

When Manmohan – Bush finalized this deal in July of 2005, the Lobby Group mounted an instantaneous opposition. Unable to persuade the Bush administration to renege the deal, they changed tactics and started a campaign against it with the US Congress (the elected body). This resulted in US sending a tough negotiator in Nicholas Burn to negotiate further details and possible concessions to salvage the deal in the US Congress. He did well and ended up in getting ironclad concessions prior to President Bush’s visit to India. The opposition to this agreement is not dead yet. The Nuclear Lobby Group is making a last ditch effort to scuttle the deal in the Congress. But full backing of the President Bush and his able Secretary of State Condi Rice will ultimately help to get this deal through.