House rejects $700B bailout in stunning defeat - driving stocks down
In a vote that shook the government, Wall Street and markets around the world, the House on Monday defeated a $700 billion emergency rescue for the nation's financial system, leaving both parties' lawmakers and the Bush administration scrambling to pick up the pieces. Dismayed investors sent the Dow Jones industrials plunging 777 points, the most ever for a single day.
The bill went down, 228-205
US Markets crashed
The S&P 500 index tumbled the most since the 1987 crash, the Dow saw its biggest single day point fall in history and was down nearly 800 point.
Bond prices soared, dollar was mixed and credit remains frozen. Crude tanks and was trading below $ 96/bbl while gold prices zoomed.
The Dow plunged 777.68 points, or 6.98% percent, to 10,365.45.
The S&P 500 index fell 106.62 points, or nearly 9 percent, to 1,106.39. The Nasdaq slipped 199.61 points, more than 9 percent, to 1,983.73.
Oil Extends Biggest Drop in 7 Years on Rejection of Rescue Plan
Crude oil extended declines after falling the most in almost seven years yesterday as the U.S. House of Representatives rejected a $700 billion financial rescue plan, raising concern commodities demand will drop.
Yesterday, oil fell $10.52, or 9.8 percent, to $96.37 a barrel, the biggest slide in percentage terms since Nov. 15, 2001, and the largest dollar decline since Jan. 17, 1991, when U.S.-led forces expelled Iraq from Kuwait.
Indian Rupee's `Unprecedented' Decline Not Over, Treasurers Say
The rupee touched 47.115 a dollar yesterday, the lowest level since June 3, 2003, after reaching 39.185 on Nov. 7 last year, its strongest since February 1998.
India's rupee may extend yesterday's drop to a five-year low as the trade deficit swells and overseas investors dump local shares, said treasurers at Larsen & Toubro Ltd., Hero Honda Motors Ltd. and Essar Group.
The drop in the rupee is unprecedented and never have I seen such a move in my 28-year career, barring the devaluation in 1991,'' said N.S. Paramasivam, who trades an average $200 million a day as head of treasury in Mumbai at Essar, which has businesses in shipping, steel and oil. The downside risk to the rupee is mostly emanating from lack of dollar supply.
The rupee has dropped 16 percent this year, heading for its worst annual performance since 1991, when India devalued the currency as a balance-of-payments crisis forced it to pawn gold from its reserves.
Sources…
Bloomberg.com
Yahoofinance.com
Moneycontrol.com
Tuesday, September 30, 2008
Monday, September 29, 2008
Support & Resistance levels
Many times many people ask me how to find out Support & Resistance levels. But before going to techniques I would like to make it clear what is support and resistance?
Support is the level below which stock may not fall for a particular time frame. And Resistance is the level above which stock may not rise for a time being. These are purely subjective and time oriented.
Now coming to techniques to find out these levels, I can say there are various techniques. Depending upon once convenient one can use different techniques. And it also depends upon your experience with the charts, how you look at charts. Some times by looking at just price chart I can say what are the supports & resistance levels for that chart? And some times I need other techniques (indicators & indicators) which I am going to explain you guys. As usually I call myself BACCHHA in this area, I try my level best to explain whatever I know. And my non technical readers please bear with me on this topic.
The below mentioned technique is the observation method. By experience you can find out this one. The Resistance & Support levels of SBI scrip in the months of November to February are as shown. You can see that 2200 level acting as a support where as 2450 level is acting as resistance level. In mid February the scrip breaks the support level but trader’s thinks that price not worth, therefore trader’s remorse occurs. And once scrips breached the support level more confidently in the March month, from that point onwards it has become the resistance level.
Moving Averages
Moving averages are the major helpful indicators in the Technical Analysis area. Depending upon your requirements MAs can be used for multiple purposes. Now we will see how MAs can be used for resistance and support levels.
Here in MAs you need to decide whether you are Trader or Investor. If you are trader then depending upon up on your trading period you can choose the MA levels. Like 5DMA, 10DMAs, 15DMAs and so on. If you are the long term investor then you have to check out with the 200DMA. For convenient I am using 60DMA for the following chart
Here you can see that 60 DMA is acting as support in mid October @ 1600levels and resistance in mid February @ 2300 levels. And once again you can that once stock hits the 1600 levels stock nearly bounce back to 1800 levels.
Bollinger Band
Bollinger Bands are considered some of the most useful bands in technical analysis, for they vary in distance from the moving average of a security's price based on the security's volatility. During periods of increased fluctuation, the bands widen to take this into account, and when the fluctuation decreases, the bands are tapered for a narrower focus to the price range.
Even though Bollinger bands don’t clearly give an idea about the resistance and support levels they give you an idea about the stocks volatility. So through that range we can find out these levels.
As explained above, Bollinger band is most wide in the months of February and March, indicating higher volatility in the price. As you can see, the price moved from 2200 levels 1600 levels, Now you can see that in the April month the width of Bollinger band is narrowed maximum indicating calm market as not much price movement. And this indicates the upcoming volatility in the price as shown in the graph that from May month onwards again there is lot of volatility in the price movements.
Fibonacci Retracement
This is the most important tool in identifying the resistance and support levels is based on the key numbers identified by mathematician Leonardo Fibonacci. The principle behind a Fibonacci Retracement is that after a stock moves upward or downward, the price will often retrace or correct some of this movement. Many technical analysts believe that the amount of Retracement will often correspond to one of the Fibonacci levels. The five horizontal lines represent percentages of 100%, 61.8%, 50%, 38.2%, 23.6% and 0%
The Fibonacci sequence of numbers is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc. One of the remarkable characteristics of this numerical sequence is that each number is approximately 1.618 times greater than the preceding number.
The key Fibonacci ratio of 61.8% - also referred to as "the golden ratio" or "the golden mean" - is found by dividing one number in the series by the number that follows it. For example: 8/13 = 0.6153, and 55/89 = 0.6179.
The 38.2% ratio is found by dividing one number in the series by the number that is found two places to the right. For example: 55/144 = 0.3819.
The 23.6% ratio is found by dividing one number in the series by the number that is three places to the right. For example: 8/34 = 0.2352.
Even though 50% is not a Fibonacci ratio, many traders including me like using the 50% because of the overwhelming tendency for an asset to continue in a certain direction once it completes a 50% Retracement.
As graph indicates, at various point of time there are different levels of support and resistance.
Apart from these there are various other indicators like Stochastic oscillator (one of my favorite), RSI, MACD and so on… But I think these are sufficient for guys…
Bottom-line
It all depends upon how you look at charts…
Keep reading…
Keep investing…
Support is the level below which stock may not fall for a particular time frame. And Resistance is the level above which stock may not rise for a time being. These are purely subjective and time oriented.
Now coming to techniques to find out these levels, I can say there are various techniques. Depending upon once convenient one can use different techniques. And it also depends upon your experience with the charts, how you look at charts. Some times by looking at just price chart I can say what are the supports & resistance levels for that chart? And some times I need other techniques (indicators & indicators) which I am going to explain you guys. As usually I call myself BACCHHA in this area, I try my level best to explain whatever I know. And my non technical readers please bear with me on this topic.
The below mentioned technique is the observation method. By experience you can find out this one. The Resistance & Support levels of SBI scrip in the months of November to February are as shown. You can see that 2200 level acting as a support where as 2450 level is acting as resistance level. In mid February the scrip breaks the support level but trader’s thinks that price not worth, therefore trader’s remorse occurs. And once scrips breached the support level more confidently in the March month, from that point onwards it has become the resistance level.
Moving Averages
Moving averages are the major helpful indicators in the Technical Analysis area. Depending upon your requirements MAs can be used for multiple purposes. Now we will see how MAs can be used for resistance and support levels.
Here in MAs you need to decide whether you are Trader or Investor. If you are trader then depending upon up on your trading period you can choose the MA levels. Like 5DMA, 10DMAs, 15DMAs and so on. If you are the long term investor then you have to check out with the 200DMA. For convenient I am using 60DMA for the following chart
Here you can see that 60 DMA is acting as support in mid October @ 1600levels and resistance in mid February @ 2300 levels. And once again you can that once stock hits the 1600 levels stock nearly bounce back to 1800 levels.
Bollinger Band
Bollinger Bands are considered some of the most useful bands in technical analysis, for they vary in distance from the moving average of a security's price based on the security's volatility. During periods of increased fluctuation, the bands widen to take this into account, and when the fluctuation decreases, the bands are tapered for a narrower focus to the price range.
Even though Bollinger bands don’t clearly give an idea about the resistance and support levels they give you an idea about the stocks volatility. So through that range we can find out these levels.
As explained above, Bollinger band is most wide in the months of February and March, indicating higher volatility in the price. As you can see, the price moved from 2200 levels 1600 levels, Now you can see that in the April month the width of Bollinger band is narrowed maximum indicating calm market as not much price movement. And this indicates the upcoming volatility in the price as shown in the graph that from May month onwards again there is lot of volatility in the price movements.
Fibonacci Retracement
This is the most important tool in identifying the resistance and support levels is based on the key numbers identified by mathematician Leonardo Fibonacci. The principle behind a Fibonacci Retracement is that after a stock moves upward or downward, the price will often retrace or correct some of this movement. Many technical analysts believe that the amount of Retracement will often correspond to one of the Fibonacci levels. The five horizontal lines represent percentages of 100%, 61.8%, 50%, 38.2%, 23.6% and 0%
The Fibonacci sequence of numbers is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc. One of the remarkable characteristics of this numerical sequence is that each number is approximately 1.618 times greater than the preceding number.
The key Fibonacci ratio of 61.8% - also referred to as "the golden ratio" or "the golden mean" - is found by dividing one number in the series by the number that follows it. For example: 8/13 = 0.6153, and 55/89 = 0.6179.
The 38.2% ratio is found by dividing one number in the series by the number that is found two places to the right. For example: 55/144 = 0.3819.
The 23.6% ratio is found by dividing one number in the series by the number that is three places to the right. For example: 8/34 = 0.2352.
Even though 50% is not a Fibonacci ratio, many traders including me like using the 50% because of the overwhelming tendency for an asset to continue in a certain direction once it completes a 50% Retracement.
As graph indicates, at various point of time there are different levels of support and resistance.
Apart from these there are various other indicators like Stochastic oscillator (one of my favorite), RSI, MACD and so on… But I think these are sufficient for guys…
Bottom-line
It all depends upon how you look at charts…
Keep reading…
Keep investing…
Saturday, September 27, 2008
Liquidity Trap
First my belated birthday wishes to our Prime Minister Mr. Manmohan Singh. Yesterday he celebrated his 76th birthday. And today in our college three of my friends are celebrating their birthdays namely my room partner-Amit Chauhan, Secretary- Anurag and Brarji. Wishing all the very best of luck in their future, let’s start our usual business…
Day before yesterday I said that now RBI should start thinking about interest reduction. What do you think about US guys? What FED should do? Whether to keep it same as of present 2% or increase or decrease? Since while browsing through Bloomberg, I read that FED Chief Mr. Bernanke is hinting about reduction in Fed rate.
But I don’t think it’s a good move. Already they have reduced nearly 300-350 basis points. Presently Fed rate is 2%. By reducing the Fed rate he wants to boost the sentiments of the investors and Wall Street participants. But in this kind of situation it may act as negative news to the markets. First their financial institutions are bleeding like anything due to lack of strict regulations. Companies which are as old as 100 -200 years are going bankrupt due to excessive leveraging nearly 30-40 times of their assets. Yesterday Washington Mutual Inc. a holding company for the savings and loan that became the biggest U.S. bank to fail filed for bankruptcy protection along with its unit WMI Investment Corp.
Due to this, whole world stock market are crashed from their peak level for example Chinese market crashed nearly 45%, India almost 40% and so on. Now my point is they can’t reduce interest too low which may lead to possibility of liquidity trap.
Okay let me give brief idea about what is liquidity trap!!!
In economics, a liquidity trap occurs when the nominal interest rate is close to zero, and the monetary authority is unable to stimulate the economy with traditional monetary policy tools. In this kind of situation, people do not expect high returns on physical or financial investments, so they start hoarding their assets rather than making long-term investments. This makes the recession even more severe, and can contribute to deflation also.
In normal times, the monetary authorities can stimulate the economy by lowering interest rates or increasing the monetary base. Either action should increase borrowing and lending, consumption, and fixed investment. When the relevant interest rate is already at or near zero, the monetary authority cannot lower it to stimulate the economy.
Keynes is usually considered as the inventor of the liquidity-trap theory. In his view, financial participants fear the possibility of suffering capital losses on non-money assets and thus hold money instead. For example, the fear of default on loans can inhibit lenders from lending except to extremely credit-worthy customers. These fears are most likely after a financial crisis such as that associated with the Stock Market Crash of 1929. Further, if nominal interest rates are extremely low, there is no place for them to go but up. That implies that bond prices will likely fall in the near future, causing capital losses. Bond rates down means no (or less) long term investments. If investment start reducing then development will be hampered which leads to less demand leading to less production and overall leading to deflation
For your information guys, in Great Depression time, U.S. stock market fell from 1929 peak levels to 90% by 1931-32.
So present condition is almost same as that of Great Depression of 1929. Some other time I will post about the great depression and other crashes which rocked us.
So instead altering Fed rates, Fed need to think of how to get out of this present condition as early as possible and try to make the lending, leveraging & securitization regulations stricter.
Reference…
Bloomberg.com
Wikipedia.com
Day before yesterday I said that now RBI should start thinking about interest reduction. What do you think about US guys? What FED should do? Whether to keep it same as of present 2% or increase or decrease? Since while browsing through Bloomberg, I read that FED Chief Mr. Bernanke is hinting about reduction in Fed rate.
But I don’t think it’s a good move. Already they have reduced nearly 300-350 basis points. Presently Fed rate is 2%. By reducing the Fed rate he wants to boost the sentiments of the investors and Wall Street participants. But in this kind of situation it may act as negative news to the markets. First their financial institutions are bleeding like anything due to lack of strict regulations. Companies which are as old as 100 -200 years are going bankrupt due to excessive leveraging nearly 30-40 times of their assets. Yesterday Washington Mutual Inc. a holding company for the savings and loan that became the biggest U.S. bank to fail filed for bankruptcy protection along with its unit WMI Investment Corp.
Due to this, whole world stock market are crashed from their peak level for example Chinese market crashed nearly 45%, India almost 40% and so on. Now my point is they can’t reduce interest too low which may lead to possibility of liquidity trap.
Okay let me give brief idea about what is liquidity trap!!!
In economics, a liquidity trap occurs when the nominal interest rate is close to zero, and the monetary authority is unable to stimulate the economy with traditional monetary policy tools. In this kind of situation, people do not expect high returns on physical or financial investments, so they start hoarding their assets rather than making long-term investments. This makes the recession even more severe, and can contribute to deflation also.
In normal times, the monetary authorities can stimulate the economy by lowering interest rates or increasing the monetary base. Either action should increase borrowing and lending, consumption, and fixed investment. When the relevant interest rate is already at or near zero, the monetary authority cannot lower it to stimulate the economy.
Keynes is usually considered as the inventor of the liquidity-trap theory. In his view, financial participants fear the possibility of suffering capital losses on non-money assets and thus hold money instead. For example, the fear of default on loans can inhibit lenders from lending except to extremely credit-worthy customers. These fears are most likely after a financial crisis such as that associated with the Stock Market Crash of 1929. Further, if nominal interest rates are extremely low, there is no place for them to go but up. That implies that bond prices will likely fall in the near future, causing capital losses. Bond rates down means no (or less) long term investments. If investment start reducing then development will be hampered which leads to less demand leading to less production and overall leading to deflation
For your information guys, in Great Depression time, U.S. stock market fell from 1929 peak levels to 90% by 1931-32.
So present condition is almost same as that of Great Depression of 1929. Some other time I will post about the great depression and other crashes which rocked us.
So instead altering Fed rates, Fed need to think of how to get out of this present condition as early as possible and try to make the lending, leveraging & securitization regulations stricter.
Reference…
Bloomberg.com
Wikipedia.com
Why Warren Buffett invested in Goldman Sachs
Now everybody is talking about the crash in stock market, US financial crunch and how it is going to affect the India. But I don’t think it is going to alter foundation of the Indian Economy. Here I am not talking about the stock market. Stock market is one thing which runs by many factors like sentiments, FIIs’ inflow, countries fundamentals, speculations and many others. In present condition, Sentiments, speculations are riding on by sidelining Fundamentals/Technical. But where as our economy which is built by strong demand, development, knowledge, and very strict regulations (Unlike in the US).
Anyway I am not talking about the Indian economy or economics (but I would love to post on some basics of economics). Today when I was browsing through rediff I got this. I hope this boost the sentiments my readers and you may find it best opportunity to invest. So here we go…
When Warren Buffett's Berkshire Hathaway invested $5 billion in Goldman Sachs, it came as a major surprise.
Since the billionaire's massive investment comes at a time when the United States has been rocked by its worst financial crises and the country is still debating whether the $700 billion bailout plan should be cleared or not, it has set tongues wagging.
Was Buffett making a mistake? Should he have waited till a final decision on the bailout plan was taken?
On September 24, Goldman Sachs announced that it had reached an agreement to sell $5 billion of perpetual preferred stock to Berkshire Hathaway in a private offering. The preferred stock has a dividend of 10% and is callable at any time at a 10%premium. Berkshire will also receive warrants to purchase $5 billion of common stock with a strike price of $115 per share, which are exercisable at any time for a five-year term.
So, why would the world's greatest investor invest in Goldman Sachs, given that the other investment banking giants on the Wall Street have bitten the dust and fallen by the wayside, so to speak?
Obviously Warren Buffett practices what he preaches. His strategy to buy stocks whose prices have been driven down due to fear is very evident in his latest move. Wall Street is in the grip of unprecedented panic and stock prices have plummeted, even those of one of the world's most prestigious banks like Goldman.
"Be fearful when others are greedy. Be greedy when others are fearful," Buffett has often said. Buy when people are selling and sell when people are buying. His investment in Goldman Sachs stems directly from this investing principle of his.
Buffett's investment in Goldman not only boosted the bank's confidence, but also that of investors worldwide. Essentially, Buffett's investment is an endorsement of his faith in the stability of America's financial and banking system.
It is also his way of saying 'yes' to the $700 billion bailout plan that has been criticized by many a taxpayer, economist, and politician.
That his decision to invest $5 billion in Goldman was right was proven within hours as Buffett made a notional profit of $783 million (over Rs 3,620 crore) no soon than the deal was made.
So let’s have look at who is actually this person???
As a young boy, Buffett, the son of a stockbroker, always yearned to make more money. He started making pocket money by delivering newspapers.
When he was just eleven years old, Buffett bought his first stock. He purchases 6 shares of Cities Service preferred stock: 3 shares for himself, 3 for his sister, Doris, at $38 per share. The stock fell to $27 but went up to $40. Warren and Doris sold their stock for a small margin. Immediately after that, the stock zoomed to $200 per share, much to his disappointment.
That's when he learnt a very important lesson in life: Patience pays!
A staunch follower of value investing, he started with an initial fund of $105,000 in 1956, the rest is history. Over the next five decades, Buffett's wealth rose to over $50 billion.
At the age of 14, with the money he had saved from part-time businesses and delivering newspapers, he bought a Nebraska farmland, which he later leased to a farmer.
After his graduation from the University of Nebraska, he pursued further studies at the Columbia Graduate Business School under Benjamin Graham. He started his career with Graham where he learned a lot about stock investment.
After Graham retired, Buffett started a company in his native place Omaha funded by family and friends. It turned out to be a great success. Later, he bought a majority holding in Berkshire Hathaway.
Some of his success mantras are…
The first rule is not to lose. The second rule is not to forget the first rule.
An investor needs to do very few things right as long as he or she avoids big mistakes.
Want high value? Focus on return on equity, not earnings per share. Calculate "owner earnings" to get a true reflection of value.
How to choose the right companies to invest? In the 2007 letter, he says Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag.
The ability to say 'no' is a tremendous advantage for an investor.
Always invest for the long term. It is not necessary to do extraordinary things to get extraordinary results.
Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.
Price is what you pay, value is what you get. Prices keep changing. Don't get worried by the ups and downs. Investing is all about creating wealth. It's important to understand the value of a stock than its price.
Focus on not losing money rather than making it. Don't own any stock for 10 minutes that you wouldn't own for 10 years.
It is not necessary to do extraordinary things to get extraordinary results.
Buffett says one must invest in 'old economy' businesses, companies that have been around for fifty years and will continue to have a long innings.
You don't need to be a genius to succeed in the stock markets. People who can stay cool will succeed in the long run.
You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.
Invest in businesses with great management. Always keep a track of the management of the company.
Don't target just stocks, look at businesses.
Never be disappointed when markets fall. Take it as a buying opportunity.
Avoid diversification. Invest in companies with sound business models. Choose a few good ones and stay invested, it will give you the benefits.
Doing nothing pays at times! One must not jump at price fluctuations and take impulsive decisions.
I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.
If a business does well, the stock eventually follows.
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Source…
Rediff
Keep reading…
Keep investing…
Anyway I am not talking about the Indian economy or economics (but I would love to post on some basics of economics). Today when I was browsing through rediff I got this. I hope this boost the sentiments my readers and you may find it best opportunity to invest. So here we go…
When Warren Buffett's Berkshire Hathaway invested $5 billion in Goldman Sachs, it came as a major surprise.
Since the billionaire's massive investment comes at a time when the United States has been rocked by its worst financial crises and the country is still debating whether the $700 billion bailout plan should be cleared or not, it has set tongues wagging.
Was Buffett making a mistake? Should he have waited till a final decision on the bailout plan was taken?
On September 24, Goldman Sachs announced that it had reached an agreement to sell $5 billion of perpetual preferred stock to Berkshire Hathaway in a private offering. The preferred stock has a dividend of 10% and is callable at any time at a 10%premium. Berkshire will also receive warrants to purchase $5 billion of common stock with a strike price of $115 per share, which are exercisable at any time for a five-year term.
So, why would the world's greatest investor invest in Goldman Sachs, given that the other investment banking giants on the Wall Street have bitten the dust and fallen by the wayside, so to speak?
Obviously Warren Buffett practices what he preaches. His strategy to buy stocks whose prices have been driven down due to fear is very evident in his latest move. Wall Street is in the grip of unprecedented panic and stock prices have plummeted, even those of one of the world's most prestigious banks like Goldman.
"Be fearful when others are greedy. Be greedy when others are fearful," Buffett has often said. Buy when people are selling and sell when people are buying. His investment in Goldman Sachs stems directly from this investing principle of his.
Buffett's investment in Goldman not only boosted the bank's confidence, but also that of investors worldwide. Essentially, Buffett's investment is an endorsement of his faith in the stability of America's financial and banking system.
It is also his way of saying 'yes' to the $700 billion bailout plan that has been criticized by many a taxpayer, economist, and politician.
That his decision to invest $5 billion in Goldman was right was proven within hours as Buffett made a notional profit of $783 million (over Rs 3,620 crore) no soon than the deal was made.
So let’s have look at who is actually this person???
As a young boy, Buffett, the son of a stockbroker, always yearned to make more money. He started making pocket money by delivering newspapers.
When he was just eleven years old, Buffett bought his first stock. He purchases 6 shares of Cities Service preferred stock: 3 shares for himself, 3 for his sister, Doris, at $38 per share. The stock fell to $27 but went up to $40. Warren and Doris sold their stock for a small margin. Immediately after that, the stock zoomed to $200 per share, much to his disappointment.
That's when he learnt a very important lesson in life: Patience pays!
A staunch follower of value investing, he started with an initial fund of $105,000 in 1956, the rest is history. Over the next five decades, Buffett's wealth rose to over $50 billion.
At the age of 14, with the money he had saved from part-time businesses and delivering newspapers, he bought a Nebraska farmland, which he later leased to a farmer.
After his graduation from the University of Nebraska, he pursued further studies at the Columbia Graduate Business School under Benjamin Graham. He started his career with Graham where he learned a lot about stock investment.
After Graham retired, Buffett started a company in his native place Omaha funded by family and friends. It turned out to be a great success. Later, he bought a majority holding in Berkshire Hathaway.
Some of his success mantras are…
The first rule is not to lose. The second rule is not to forget the first rule.
An investor needs to do very few things right as long as he or she avoids big mistakes.
Want high value? Focus on return on equity, not earnings per share. Calculate "owner earnings" to get a true reflection of value.
How to choose the right companies to invest? In the 2007 letter, he says Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag.
The ability to say 'no' is a tremendous advantage for an investor.
Always invest for the long term. It is not necessary to do extraordinary things to get extraordinary results.
Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.
Price is what you pay, value is what you get. Prices keep changing. Don't get worried by the ups and downs. Investing is all about creating wealth. It's important to understand the value of a stock than its price.
Focus on not losing money rather than making it. Don't own any stock for 10 minutes that you wouldn't own for 10 years.
It is not necessary to do extraordinary things to get extraordinary results.
Buffett says one must invest in 'old economy' businesses, companies that have been around for fifty years and will continue to have a long innings.
You don't need to be a genius to succeed in the stock markets. People who can stay cool will succeed in the long run.
You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.
Invest in businesses with great management. Always keep a track of the management of the company.
Don't target just stocks, look at businesses.
Never be disappointed when markets fall. Take it as a buying opportunity.
Avoid diversification. Invest in companies with sound business models. Choose a few good ones and stay invested, it will give you the benefits.
Doing nothing pays at times! One must not jump at price fluctuations and take impulsive decisions.
I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.
If a business does well, the stock eventually follows.
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Source…
Rediff
Keep reading…
Keep investing…
Thursday, September 25, 2008
Updates from the world of business…
Inflation unchanged at 12.14%
Inflation remained unchanged at 12.14 per cent for the week ended September 13 even as the Finance Ministry said prices of essential items like cereals, pulses, sugar and edible oils declined on weekly basis.
High inflation of 12.14 per cent, which is the same as the previous week's figure, has prompted analysts to say that price rise will remain at double digits by the end of this calendar year due to base effect.
Inflation figure remained intact despite a low base of 3.51 per cent in the year-ago period.
The Finance Ministry said in a statement that inflation of 30 essential items declined to 7.58 per cent during the week under review compared to 7.72 per cent in the previous week.
While prices of food items like salt, sea fish, tea, fruits, condiments and spices rose, rates of imported edible oil declined, giving some relief to the government which was unable to control its prices because of rise in global rates.
My View:
I think inflation is peaking round about 12% level. Because, inflation remained same even though there was the low base of last year which indicates there is substantial decrease in the prices.
And one more reason for that can be oil prices. Oil prices are cooling down which will impact other things to settle down.
Fear of possible recession leading to less demand.
So as I stated in my earlier posts, immediately from the beginning of the next year or by the end of this year inflation starts coming down from it peak value due to BASE EFFECT.
So RBI should think of reducing the interest now. Since
World financial crunch is leading to drying of liquidity. That’s why government eased the ECB norms for core sectors like infrastructure which is going to be a major expansion sector in the next five year plan.
India’s Business Confidence Index (BCI) fell to 5 year low from round about 150 points to 125 points in a quarterly measurement. Steepest fall… In 2003 it was 125 and now its round about 127 points.
HDFC Bank in Forbes Asia's top 50 list
For the second year running, HDFC Bank has featured in the prestigious 'Forbes Asia's Fabulous 50 List of companies' chosen from 500 publicly traded (listed) companies in Asia Pacific with revenues or market capitalization in excess of $5 billion (Rs 22,330 crore)
HDFC bank is the only bank from India, and only four of the 'Fab 50' companies are banks, it said in a statement.
Nine other Indian companies -- Infosys Technologies, Wipro, Reliance Industries, Bharat Heavy Electricials Ltd, Larsen and Toubro, Tata Steel, Bharati Airtel, Mahindra and Mahindra and ITC -- also made it to the list, it said.
China topped the 'Fab 50' list with a representation of 13 companies followed by India with ten.
The 'Fab 50' companies have been stacked up on parameters of robustness like long-term profitability, stock price appreciation, sales and earnings growth and projected earnings.
Companies have been recognized for their sheer resilience, "It's easy to pick winners when business is booming," the magazine points out. "Many on this list have shown they can outperform in good times and bad".
Reference
TOI
Business line
Inflation remained unchanged at 12.14 per cent for the week ended September 13 even as the Finance Ministry said prices of essential items like cereals, pulses, sugar and edible oils declined on weekly basis.
High inflation of 12.14 per cent, which is the same as the previous week's figure, has prompted analysts to say that price rise will remain at double digits by the end of this calendar year due to base effect.
Inflation figure remained intact despite a low base of 3.51 per cent in the year-ago period.
The Finance Ministry said in a statement that inflation of 30 essential items declined to 7.58 per cent during the week under review compared to 7.72 per cent in the previous week.
While prices of food items like salt, sea fish, tea, fruits, condiments and spices rose, rates of imported edible oil declined, giving some relief to the government which was unable to control its prices because of rise in global rates.
My View:
I think inflation is peaking round about 12% level. Because, inflation remained same even though there was the low base of last year which indicates there is substantial decrease in the prices.
And one more reason for that can be oil prices. Oil prices are cooling down which will impact other things to settle down.
Fear of possible recession leading to less demand.
So as I stated in my earlier posts, immediately from the beginning of the next year or by the end of this year inflation starts coming down from it peak value due to BASE EFFECT.
So RBI should think of reducing the interest now. Since
World financial crunch is leading to drying of liquidity. That’s why government eased the ECB norms for core sectors like infrastructure which is going to be a major expansion sector in the next five year plan.
India’s Business Confidence Index (BCI) fell to 5 year low from round about 150 points to 125 points in a quarterly measurement. Steepest fall… In 2003 it was 125 and now its round about 127 points.
HDFC Bank in Forbes Asia's top 50 list
For the second year running, HDFC Bank has featured in the prestigious 'Forbes Asia's Fabulous 50 List of companies' chosen from 500 publicly traded (listed) companies in Asia Pacific with revenues or market capitalization in excess of $5 billion (Rs 22,330 crore)
HDFC bank is the only bank from India, and only four of the 'Fab 50' companies are banks, it said in a statement.
Nine other Indian companies -- Infosys Technologies, Wipro, Reliance Industries, Bharat Heavy Electricials Ltd, Larsen and Toubro, Tata Steel, Bharati Airtel, Mahindra and Mahindra and ITC -- also made it to the list, it said.
China topped the 'Fab 50' list with a representation of 13 companies followed by India with ten.
The 'Fab 50' companies have been stacked up on parameters of robustness like long-term profitability, stock price appreciation, sales and earnings growth and projected earnings.
Companies have been recognized for their sheer resilience, "It's easy to pick winners when business is booming," the magazine points out. "Many on this list have shown they can outperform in good times and bad".
Reference
TOI
Business line
Peter Drucker’s Success Mantras…
From two to three days, my friend Anurag (I call him as a Secretary, as he is the secretary of Marketing Club, Hunterz Ignite in our college) is asking me to post some thing about Marketing in my blog. Even though I have least knowledge and interest in marketing I am posting for him. That too I got this material when I was reading rediff. So this is for you Secretary!!!
Each time you read something Peter Drucker has said, there's the sensation that a flash bulb has gone off inside your head. This is because the Drucker-isms, as the legendary management gurus's mantras as known, are something you've always known; but rarely heard put so succinctly.
Drucker, who was born in Vienna, moved to England -- where he had studied -- to escape Hitler. He took up a job as a securities analyst for an insurance firm. Four years later, he moved to the United States, where he began his academic career.
He died on November 11, 2005, disillusioned with the increasingly capitalistic trend being displayed by the business world. His principles, however, stand rock-steady and continue to inspire millions of employees, employers and entrepreneurs across the world.
Some of his famous mantras are…
Efficiency is doing better what is already being done
The most important thing in communication is to hear what isn't being said.
Rank does not confer privilege or give power. It imposes responsibility.
Effective leadership is not about making speeches or being liked; leadership is defined by results not attributes.
All one has to do is to learn to say 'no' if an activity contributes nothing.
People do not know that you cannot successfully innovate in an existing organization unless you systematically abandon. As long as you eliminate, you'll eat again. But if you stop eliminating, you don't last long.
One cannot buy, rent or hire more time. The supply of time is totally inelastic. No matter how high the demand, the supply will not go up. There is no price for it. Time is totally perishable and cannot be stored. Yesterday's time is gone forever, and will never come back. Time is always in short supply. There is no substitute for time. Everything requires time. All work takes place in, and uses up time. Yet most people take for granted this unique, irreplaceable and necessary resource.
Doing the right thing is more important than doing the thing right.
What gets measured, gets managed.
The entrepreneur always searches for change, responds to it, and exploits it as an opportunity.
Any organization develops people: It has no choice. It either helps them grow or stunts them.
If you can't establish clear career priorities by yourself, use friends and business acquaintances as a sounding board. They will want to help. Ask them to help you determine your 'first things' and 'second things.' Or seek an outside coach or advisor to help you focus. Because if you don't know what your 'first things' are, you simply can't do them FIRST.
The leaders who work most effectively, it seems to me, never say 'I'. And that's not because they have trained themselves not to say 'I'. They don't think 'I'. They think 'we'; they think 'team'. They understand their job to be to make the team function. They accept responsibility and don't sidestep it, but 'we' gets the credit... This is what creates trust, what enables you to get the task done.
The purpose of business is to create and keep a customer.
A critical question for leaders is: 'When do you stop pouring resources into things that have achieved their purpose?'
Ideas are somewhat like babies -- they are born small, immature, and shapeless. They are promise rather than fulfillment. In the innovative company, executives do not say, 'This is a damn-fool idea.' Instead they ask, 'What would be needed to make this embryonic, half-baked, foolish idea into something that makes sense that is an opportunity for us?'
Effective leaders check their performance. They write down, what do I hope to achieve if I take on this assignment?' They put away their goals for six months and then come back and check their performance against goals. This way, they find out what they do well and what they do poorly.
The individual is the central, rarest, most precious capital resource of our society.
The most efficient way to produce anything is to bring together under one management as many as possible of the activities needed to turn out the product.
The computer is a moron.
Successful leaders make sure that they succeed! They are not afraid of strength in others.
Free enterprise cannot be justified as being good for business. It can be justified only as being good for society.
A manager is responsible for the application and performance of knowledge.
Business, that's easily defined -- its other people's money.
Few companies that installed computers to reduce the employment of clerks have realized their expectations... They now need more and more expensive clerks even though they call them 'operators' or 'programmers.'
Management is doing things right; leadership is doing the right things.
A man should never be appointed into a managerial position if his vision focuses on people's weaknesses rather than on their strengths.
Start with what is right rather than what is acceptable.
Source
Rediff...
Each time you read something Peter Drucker has said, there's the sensation that a flash bulb has gone off inside your head. This is because the Drucker-isms, as the legendary management gurus's mantras as known, are something you've always known; but rarely heard put so succinctly.
Drucker, who was born in Vienna, moved to England -- where he had studied -- to escape Hitler. He took up a job as a securities analyst for an insurance firm. Four years later, he moved to the United States, where he began his academic career.
He died on November 11, 2005, disillusioned with the increasingly capitalistic trend being displayed by the business world. His principles, however, stand rock-steady and continue to inspire millions of employees, employers and entrepreneurs across the world.
Some of his famous mantras are…
Efficiency is doing better what is already being done
The most important thing in communication is to hear what isn't being said.
Rank does not confer privilege or give power. It imposes responsibility.
Effective leadership is not about making speeches or being liked; leadership is defined by results not attributes.
All one has to do is to learn to say 'no' if an activity contributes nothing.
People do not know that you cannot successfully innovate in an existing organization unless you systematically abandon. As long as you eliminate, you'll eat again. But if you stop eliminating, you don't last long.
One cannot buy, rent or hire more time. The supply of time is totally inelastic. No matter how high the demand, the supply will not go up. There is no price for it. Time is totally perishable and cannot be stored. Yesterday's time is gone forever, and will never come back. Time is always in short supply. There is no substitute for time. Everything requires time. All work takes place in, and uses up time. Yet most people take for granted this unique, irreplaceable and necessary resource.
Doing the right thing is more important than doing the thing right.
What gets measured, gets managed.
The entrepreneur always searches for change, responds to it, and exploits it as an opportunity.
Any organization develops people: It has no choice. It either helps them grow or stunts them.
If you can't establish clear career priorities by yourself, use friends and business acquaintances as a sounding board. They will want to help. Ask them to help you determine your 'first things' and 'second things.' Or seek an outside coach or advisor to help you focus. Because if you don't know what your 'first things' are, you simply can't do them FIRST.
The leaders who work most effectively, it seems to me, never say 'I'. And that's not because they have trained themselves not to say 'I'. They don't think 'I'. They think 'we'; they think 'team'. They understand their job to be to make the team function. They accept responsibility and don't sidestep it, but 'we' gets the credit... This is what creates trust, what enables you to get the task done.
The purpose of business is to create and keep a customer.
A critical question for leaders is: 'When do you stop pouring resources into things that have achieved their purpose?'
Ideas are somewhat like babies -- they are born small, immature, and shapeless. They are promise rather than fulfillment. In the innovative company, executives do not say, 'This is a damn-fool idea.' Instead they ask, 'What would be needed to make this embryonic, half-baked, foolish idea into something that makes sense that is an opportunity for us?'
Effective leaders check their performance. They write down, what do I hope to achieve if I take on this assignment?' They put away their goals for six months and then come back and check their performance against goals. This way, they find out what they do well and what they do poorly.
The individual is the central, rarest, most precious capital resource of our society.
The most efficient way to produce anything is to bring together under one management as many as possible of the activities needed to turn out the product.
The computer is a moron.
Successful leaders make sure that they succeed! They are not afraid of strength in others.
Free enterprise cannot be justified as being good for business. It can be justified only as being good for society.
A manager is responsible for the application and performance of knowledge.
Business, that's easily defined -- its other people's money.
Few companies that installed computers to reduce the employment of clerks have realized their expectations... They now need more and more expensive clerks even though they call them 'operators' or 'programmers.'
Management is doing things right; leadership is doing the right things.
A man should never be appointed into a managerial position if his vision focuses on people's weaknesses rather than on their strengths.
Start with what is right rather than what is acceptable.
Source
Rediff...
Wednesday, September 24, 2008
How to trade in this kind of market???
Hi guys, lets start with our stock market again. Now you all know that from many days (or I can say months) market is fully volatile, unexpected rallies, directionless, different sentiments and influence of international affairs.
Now in this kind of market how to trade? And that too, how to trade profitably? It’s not easy to trade in Bear market or range bound market!!! And there is no one strategy is which will help you trade profitably; you have to adopt various strategies depending upon the different situation.
And one point I want to make it clear to you guys, whoever writes or tells something about some company, he has is own calculation, analysis, time frame, exit point and etc. So same price may looks high for me and low for you guys, that is why transaction happens. So you have decide what is your point of view on that particular stock??? So don’t just blindly follow anybody’s opinion including me. So below opinions are purely subjective and perceptive.
Timing
Even though Rakesh Jhunjhunwala says that don’t time market, I believe that timing is the most important thing in the trading or investing (long term players). Whatever may be company’s status and its share price just time the stock!!! I mean check out from past week or month (depending upon your investment style short/long term) how the stock is doing whether bearish, bullish, range bound, erratic movement! What might be its support and resistance levels? What might affect its price like interest rate hike, rupee appreciation/ depreciation and etc.
Strong
Here I am not mentioning anything about fundamentals or technicals. Depending on what you follow (may be fundamentals or technicals or contrarian), you must trade with strong stock. Trade means either taking long or short position.
Price & Volume
Whatever may be your position long or short your decision must be followed strong correlation between price and volume. There should not be divergence in the price and volume movement.
Trading in Futures
For short term it may be better to trade in Futures instead of normal trading. This is because one has to wait for T+2 so as to sell those stocks.
For example, if I boy shares of Reliance Industries on 23rd of this month, then I have to wait till 26th of this month to sell them back to the market, otherwise there exists a risk of auction.
Options
It is better to trade in Options in order to minimise risk. Buy calls if you are bullish on some particular shares. And conversely buy puts if you are bearish. Profit can be earned by incurring limited cost with no risk in this strategy.
Calls and Puts
If the markets are volatile a useful strategy is to buy both calls as well as puts. Whichever direction the markets take in the short run, you are quite likely to make good returns in the short run.
Buy puts and sell calls
This strategy helps when there is uncertainty about the future direction. This strategy can also generate profits if stock price falls rapidly and there is panic in the markets as we saw in January, March and then in July. Selling calls would help you in financing the cost of the puts.
Book profits
This is a bear market. Buy and hold strategy is not likely to work. It is better to book your profits as and when you earn.
Don’t overtrade
Do not overtrade. Remember cash is king in times. You are likely to continue getting panic situations going ahead, where cash can be very gainfully deployed.
Reference
Business line
Keep reading…
Keep investing…
Now in this kind of market how to trade? And that too, how to trade profitably? It’s not easy to trade in Bear market or range bound market!!! And there is no one strategy is which will help you trade profitably; you have to adopt various strategies depending upon the different situation.
And one point I want to make it clear to you guys, whoever writes or tells something about some company, he has is own calculation, analysis, time frame, exit point and etc. So same price may looks high for me and low for you guys, that is why transaction happens. So you have decide what is your point of view on that particular stock??? So don’t just blindly follow anybody’s opinion including me. So below opinions are purely subjective and perceptive.
Timing
Even though Rakesh Jhunjhunwala says that don’t time market, I believe that timing is the most important thing in the trading or investing (long term players). Whatever may be company’s status and its share price just time the stock!!! I mean check out from past week or month (depending upon your investment style short/long term) how the stock is doing whether bearish, bullish, range bound, erratic movement! What might be its support and resistance levels? What might affect its price like interest rate hike, rupee appreciation/ depreciation and etc.
Strong
Here I am not mentioning anything about fundamentals or technicals. Depending on what you follow (may be fundamentals or technicals or contrarian), you must trade with strong stock. Trade means either taking long or short position.
Price & Volume
Whatever may be your position long or short your decision must be followed strong correlation between price and volume. There should not be divergence in the price and volume movement.
Trading in Futures
For short term it may be better to trade in Futures instead of normal trading. This is because one has to wait for T+2 so as to sell those stocks.
For example, if I boy shares of Reliance Industries on 23rd of this month, then I have to wait till 26th of this month to sell them back to the market, otherwise there exists a risk of auction.
Options
It is better to trade in Options in order to minimise risk. Buy calls if you are bullish on some particular shares. And conversely buy puts if you are bearish. Profit can be earned by incurring limited cost with no risk in this strategy.
Calls and Puts
If the markets are volatile a useful strategy is to buy both calls as well as puts. Whichever direction the markets take in the short run, you are quite likely to make good returns in the short run.
Buy puts and sell calls
This strategy helps when there is uncertainty about the future direction. This strategy can also generate profits if stock price falls rapidly and there is panic in the markets as we saw in January, March and then in July. Selling calls would help you in financing the cost of the puts.
Book profits
This is a bear market. Buy and hold strategy is not likely to work. It is better to book your profits as and when you earn.
Don’t overtrade
Do not overtrade. Remember cash is king in times. You are likely to continue getting panic situations going ahead, where cash can be very gainfully deployed.
Reference
Business line
Keep reading…
Keep investing…
Tuesday, September 23, 2008
The Biggest Increase in Crude Oil Price
The price of crude oil climbed by $25 per barrel Monday, the largest jump ever over worries of a weakened dollar prompted by US government plans to buy failing mortgages from the troubled finance industry.
The price of oil for October delivery on the New York Mercantile Exchange jumped by $25 to $130 a barrel, before settling at $120.92 , or a $16.37 increase for the day's trading.
Oil prices spiked more than $25 a barrel on Monday the biggest one-day price jump ever as anxiety over the government's $700 billion bailout plan battered the dollar and touched off frenzied buying of safe-haven investments including crude.
Crude has gained about $40 in a dramatic four-day rally that has at least temporarily halted oil's steep two-month slide below $100. At this rate, crude is within striking distance of its all-time record of $147.27, reached in July.
The Nymex temporarily halted electronic crude oil trading after prices breached the $10 daily trading limit. Trading resumed seconds later after the daily limit was increased.
The huge rally was poised to shatter crude's previous one-day price jump of $10.75, set June 6.
Source
Timesofindia.com
The price of oil for October delivery on the New York Mercantile Exchange jumped by $25 to $130 a barrel, before settling at $120.92 , or a $16.37 increase for the day's trading.
Oil prices spiked more than $25 a barrel on Monday the biggest one-day price jump ever as anxiety over the government's $700 billion bailout plan battered the dollar and touched off frenzied buying of safe-haven investments including crude.
Crude has gained about $40 in a dramatic four-day rally that has at least temporarily halted oil's steep two-month slide below $100. At this rate, crude is within striking distance of its all-time record of $147.27, reached in July.
The Nymex temporarily halted electronic crude oil trading after prices breached the $10 daily trading limit. Trading resumed seconds later after the daily limit was increased.
The huge rally was poised to shatter crude's previous one-day price jump of $10.75, set June 6.
Source
Timesofindia.com
Sunday, September 21, 2008
America's largest bankruptcies
1. Lehman Brothers Holdings Inc; $639 billion
The Lehman Brothers bankruptcy is without a doubt, the largest bankruptcy ever: the size is estimated between $613 billion and $639 billion!
The global financial-services firm, which did business in investment banking, equity and fixed-income sales, research and trading, investment management, private equity, and private banking declared itself bankrupt on September 15, 2008.
Why it collapsed?
The fourth-largest investment bank in the United States, and one of Wall Street's biggest dealers in fixed-interest trading, was heavily invested in securities linked to the US sub-prime mortgage market.
As the crisis in financial markets gathered momentum, it saw its share price collapse from $82 to less than $4.
2. WorldCom Inc; $103.91 billion
Founded in 1983 as LDDS Communications, WorldCom became America's second-largest long-distance company and the largest handler of Internet data. It is also the US's second largest bankruptcy ever at $103.91 billion!
Why it collapsed?
• The company was found guilty of underreporting 'line costs' (interconnection expenses with other telecommunication companies) by capitalizing these costs on the balance sheet rather than properly expensing them, and
• Inflating revenues with bogus accounting entries from 'corporate unallocated revenue accounts'.
3. Enron Corp; $63.39 billion
Fortune named it 'America's Most Innovative Company' for six consecutive years. It was on the Fortune's '100 Best Companies to Work for in America' list in 2000.
Enron Corporation, the Houston based energy giant was originally involved in transmitting and distributing electricity and gas throughout the United States. It remains US's third largest bankruptcy till date: $63.39 billion.
Why it collapsed?
It was discovered that many of Enron's recorded assets and profits were inflated, or even wholly fraudulent and nonexistent.
Debts and losses were put into entities formed 'offshore' that were not included in the firm's financial statements, and other sophisticated and arcane financial transactions between Enron and related companies were used to take unprofitable entities off the company's books.
4. Conseco Inc; $61.39 billion
From a small company set up in 1979, Conseco became one of the largest US home lenders and personal insurers by the late 1990s. Unfortunately, it collapsed under the weight of debts caused by it ambitious expansion and mounting bad loans. At $61.39 billion, Conseco filed for what is US's 4th largest bankruptcy petition.
5. Texaco Inc; $35.89 billion
Founded in 1901 in Beaumont, Texas by Joseph S Cullinan, Thomas J Donoghue, Walter Benona Sharp and Arnold Schlaet upon discovery of oil at Spindletop, Texaco began its journey as the Texas Fuel Company.
For many years, Texaco was the only company selling gasoline in all the 50 states of America.
On November 19, 1985 Pennzoil, another oil company, won a $10.53 billion verdict from Texaco. Over the latter's controversial acquisition of Getty Oil. It was the largest civil verdict in US history.
To obtain the billions required to pay the verdict, Texaco sold 50 per cent of its interests in marketing east of the Mississippi and Texas and its three Gulf Coast refineries to Saudi Aramco.
Texaco also withdrew from marketing gasoline in the Chicago area by selling its service stations and distribution facilities to Mobil in an exchange agreement.
On April 12, 1987, Texaco filed for bankruptcy, but continued to function under protection of US bankruptcy laws.
Texaco was an independent company until it merged into Chevron Corporation in 2001.
6. Financial Corp of America; $33.86 billion
7. Refco Inc; $33.33 billion
Founded in 1969 as Ray E Friedman and Co, Refco was a New York-based financial services company, primarily known as a broker of commodities and futures contracts.
Prior to its collapse, the firm had over $4 billion in approximately 200,000 customer accounts, and it was the largest broker on the Chicago Mercantile Exchange.
8. Global Crossing Ltd; $30.19 billion
Founded by Gary Winnick and three business associates in 1997 through Pacific Capital Group, Winnick's personal venture group, Global Crossing Limited is a telecommunications company that provides computer networking services worldwide.
9. Pacific Gas and Electric Co; $29.77 billion
Pacific Gas and Electric incorporated on October 10, 1905, was a consolidation of more than two dozen power and water concerns around the State of California.
With little generating capacity of its own, and unable to sell electricity to consumers for more than it could buy it on the open market, PG&E was forced to enter Chapter 11 bankruptcy on April 6, 2001.
10. UAL Corp; $25.2 billion
An economic downturn of global proportions, protracted labour negotiations, a proposed merger with US Airways and the tragedy of September 11, 2001, hit United hard.
For the year 2001, the company suffered a record loss of $2.1 billion. By mid-2002, United was asking employees to make wage concessions and asking the US government for a loan to help the company back to financial stability.
11. Delta Air Lines Inc; $21.8 billion
12. Adelphia Communications; $21.5 billion
The Lehman Brothers bankruptcy is without a doubt, the largest bankruptcy ever: the size is estimated between $613 billion and $639 billion!
The global financial-services firm, which did business in investment banking, equity and fixed-income sales, research and trading, investment management, private equity, and private banking declared itself bankrupt on September 15, 2008.
Why it collapsed?
The fourth-largest investment bank in the United States, and one of Wall Street's biggest dealers in fixed-interest trading, was heavily invested in securities linked to the US sub-prime mortgage market.
As the crisis in financial markets gathered momentum, it saw its share price collapse from $82 to less than $4.
2. WorldCom Inc; $103.91 billion
Founded in 1983 as LDDS Communications, WorldCom became America's second-largest long-distance company and the largest handler of Internet data. It is also the US's second largest bankruptcy ever at $103.91 billion!
Why it collapsed?
• The company was found guilty of underreporting 'line costs' (interconnection expenses with other telecommunication companies) by capitalizing these costs on the balance sheet rather than properly expensing them, and
• Inflating revenues with bogus accounting entries from 'corporate unallocated revenue accounts'.
3. Enron Corp; $63.39 billion
Fortune named it 'America's Most Innovative Company' for six consecutive years. It was on the Fortune's '100 Best Companies to Work for in America' list in 2000.
Enron Corporation, the Houston based energy giant was originally involved in transmitting and distributing electricity and gas throughout the United States. It remains US's third largest bankruptcy till date: $63.39 billion.
Why it collapsed?
It was discovered that many of Enron's recorded assets and profits were inflated, or even wholly fraudulent and nonexistent.
Debts and losses were put into entities formed 'offshore' that were not included in the firm's financial statements, and other sophisticated and arcane financial transactions between Enron and related companies were used to take unprofitable entities off the company's books.
4. Conseco Inc; $61.39 billion
From a small company set up in 1979, Conseco became one of the largest US home lenders and personal insurers by the late 1990s. Unfortunately, it collapsed under the weight of debts caused by it ambitious expansion and mounting bad loans. At $61.39 billion, Conseco filed for what is US's 4th largest bankruptcy petition.
5. Texaco Inc; $35.89 billion
Founded in 1901 in Beaumont, Texas by Joseph S Cullinan, Thomas J Donoghue, Walter Benona Sharp and Arnold Schlaet upon discovery of oil at Spindletop, Texaco began its journey as the Texas Fuel Company.
For many years, Texaco was the only company selling gasoline in all the 50 states of America.
On November 19, 1985 Pennzoil, another oil company, won a $10.53 billion verdict from Texaco. Over the latter's controversial acquisition of Getty Oil. It was the largest civil verdict in US history.
To obtain the billions required to pay the verdict, Texaco sold 50 per cent of its interests in marketing east of the Mississippi and Texas and its three Gulf Coast refineries to Saudi Aramco.
Texaco also withdrew from marketing gasoline in the Chicago area by selling its service stations and distribution facilities to Mobil in an exchange agreement.
On April 12, 1987, Texaco filed for bankruptcy, but continued to function under protection of US bankruptcy laws.
Texaco was an independent company until it merged into Chevron Corporation in 2001.
6. Financial Corp of America; $33.86 billion
7. Refco Inc; $33.33 billion
Founded in 1969 as Ray E Friedman and Co, Refco was a New York-based financial services company, primarily known as a broker of commodities and futures contracts.
Prior to its collapse, the firm had over $4 billion in approximately 200,000 customer accounts, and it was the largest broker on the Chicago Mercantile Exchange.
8. Global Crossing Ltd; $30.19 billion
Founded by Gary Winnick and three business associates in 1997 through Pacific Capital Group, Winnick's personal venture group, Global Crossing Limited is a telecommunications company that provides computer networking services worldwide.
9. Pacific Gas and Electric Co; $29.77 billion
Pacific Gas and Electric incorporated on October 10, 1905, was a consolidation of more than two dozen power and water concerns around the State of California.
With little generating capacity of its own, and unable to sell electricity to consumers for more than it could buy it on the open market, PG&E was forced to enter Chapter 11 bankruptcy on April 6, 2001.
10. UAL Corp; $25.2 billion
An economic downturn of global proportions, protracted labour negotiations, a proposed merger with US Airways and the tragedy of September 11, 2001, hit United hard.
For the year 2001, the company suffered a record loss of $2.1 billion. By mid-2002, United was asking employees to make wage concessions and asking the US government for a loan to help the company back to financial stability.
11. Delta Air Lines Inc; $21.8 billion
12. Adelphia Communications; $21.5 billion
Bigger Bull Run yet to come: Rakesh Jhunjhunwala (CNBC Interview)
Q: You are the first Individual Wealth Creator we are chronicling. I am curious to know, what does the term mean to you?
A: I don't know when I started on in life, I had some ambitions. My parents never liked the idea that I should go to the stock market. I started life financially with just USD 100 or only Rs 5000 and my first thought was that when I went to the markets, I had just come from Chartered Accountancy; used to earn Rs 150 a month. So my first concept in life was that I should be financially independent. I never started with the idea that I will be a great wealth creator and I will have some great wealth or anybody will know me. I thought I must be able to earn my daily bread. I loved the markets. I thought India was in a very initial stage and this would be one of the places which will develop and the opportunity would be huge.
Q: Do you also find it odious sometimes because you are a wealth creator in your own right and I don't think you have taken on the mantle of leading a lot of people with you. But you get that. A stock that you would pick up will be picked up by others. They would want to know why Rakesh bought it - why he is buying so much or why he wants to buy more?
A: I think these are all misconceptions. When you buy stocks, you should be ensured that other people will buy stocks. Then only you should buy the stocks. I have a different concept in life. If a stock is beautiful, the suitor will come. If a girl is beautiful a suitor will come. So I don't search for suitors when I buy the stock.
Q: Tell me where you have to be the most patient with the market?
A: I think my greatest patience with the market was in 2001 September to April 2003. That was because I was a lone bull. I wrote an article in the Economic Times in June 2002 that India is on the threshold of a structural secular bull market and people said, he has bought stocks and he is caught and now he is asking us also to come into the cage. People didn’t just believe what I thought or what my opinion was. That was a testing period.
Q: Did it bring confidence down to its knees for you?
A: You have your conviction and I always staked what I could afford. So say, when markets went down in August 2002, I had no problems there. In spite of my opinion, I did not stake so much that if markets did not go up in the manner that I thought, I would be on the roads. I was well-off absolutely. So you know it was a trying time. But then there was a great dividend; the kind of bull market we had - 3000 to 21000.
Q: And you really rode it didn’t you? There are so many terms people use about you - The young tiger, pin up boy of the bull market, India’s Warren Buffet. Do you find it pointless? Do you find it flattering? How do you take it?
A: I don't know. I have learnt two things about the press and wives. When they something – don’t react.
Q: You are very much into the individual behind the business. Who runs it and how well it is run. Tell me how carefully you look at that when you look at a business that you wanted to be a part of?
A: I look at the situation. I look at the possible outcomes and then I think what could be the outcome? For example, when I invested in Titan, my thinking was, can Titan become India’s largest specialist retailer? That was the question I asked myself. Will it always occupy a 50-60% share in branded jewellery? Will it always remain a leader in Indian watch industry? Will it enter into other areas of retailing? I asked myself all these questions and the answer I thought was yes.
So this is the basic analysis I did. Then I went to the office - Titan office was like a young advertising agency. So I thought marketing is in their blood. I met their management team including their Managing Director. I was thoroughly impressed by them. I took the decision. I put my life behind it.
Q: What impressed you?
A: Their sheer approach. The Managing Director told me that the task is difficult. But we'll overcome it. We have to suck the capital and increase the profits and that's what they have done. So, when I take a decision there are three-four matters that I consider - opportunity. I am from the investment thought which says nobody can be bigger than the opportunity. Second, I look at the competitive ability. In a capitalist society, you cannot deliver product and make a profit unless you do it in a competitive manner and competitive does not mean the most expensive. Then I look at scalability. Scalability is very important. When I invested in Pantaloons, the biggest idea was can ten stores become five-hundred? It was written behind a Maruti -- when I grow will I be a Mercedes? Great are the challenges of scalability.
Then what I look at is valuation. It’s important what you buy. It is more important what price you buy. Somebody bought Hindustan Lever at an Index of 2900 - the price was Rs 320. When the Index was 7000 - the price was Rs 145. You bought Hindustan Lever - best quality company, best pedigree and everything and I made lot of money by buying United Breweries and McDowell’s at a valuation of Rs 200 crore. There was no corporate governance. People told you you’re down the drain. I made five-times my money in two-years.
Q: Sometimes there are tough lessons to learn as well? Just on the subject of valuations, you would be watching the media space and there are a couple of howlers over there by way of stock performance, for example, MiD DAY (Multimedia) - have there been more tough lessons to learn?
A: Every mistake teaches you a lesson. There is always a risk in investing in midcap stocks because if they succeed, the gains are huge. If they don't succeed and scalability does not come, then the losses are also huge. I don't regret having invested in MiD DAY because I always allocate my assets and I don't do it in a planned manner. I don't put more than a certain percentage of my wealth in incomplete situations. So, I might have made a mistake. The decision is tough, but okay, the good comes with the bad.
Q: You're very patient, though?
A: What is the choice?
Q: The choice is to book out.
A: Well, its not that I’m not booking out because I’m afraid to take a loss. I’m not booking out because I still think there is reason to believe that things can change.
Q: Were you surprised Rakesh - could anybody have seen where we are right now in January this year?
A: I have made presentations to show in October, that this is going to be an unprecedented fall. And I have reasoned out how much is the lending to sub prime, and that this problem cannot be stopped by reducing interest rates. The American bull market has come to an end. It may be a long correction.
I’ve made these presentations in writing. I have them on record. I don't say I foresaw the failure of any particular organization but I thought it'll be very tough and I didn't rule out in my mind that some organizations can fail.
Q: Is there any question in your mind that we as well are in a bear market?
A: In India?
Q: Yes.
A: What is a bear market, what is a bull market, I don't know. Numerically - surely, since we have broken the last lows that we had in August 2007, we'll have to term it as a bear market. But I don't think the long-term Indian stock bull market has ended. I think it’s in interruption mode.
This bull market is based on two factors. One is economic growth of India, which I think is based on factors that are irreversible, whether democracy, whether skills, whether demographics, whether cultural factors. They are irreversible. I think India’s economic growth will always trend upwards.
Then it is based on the platforms that we have created to attract money into the Indian markets -- the trading strategies, the regulation and the under-exposure of Indians to equity. I will surely say that it’s an interruption. How long? Nobody knows.
Q: You've been cautious, though, Rakesh, right till since last Samvat you've been striking a cautious note?
A: If the Index instead of going from 3,000 to 21,000 had gone from 3,000 to 13,000, and then back to 11,000 - would that not have been a bull market? Then it would have been termed a bull market correction. So at levels, where you saw the participation, the valuations, you saw what was coming in the Western world, you saw the sheer corporate greed in India; you saw the senselessness with which people in India just wanted to buy anything. They were all indicators - so what is wrong in being cautious?
Q: Are you feeling better about all those indicators? Do you think things have cooled down now?
A: I think now we've begun to reverse slowly. Now things will be overdone but that’s the way markets are. As I told you, markets are like the weather. Whether you like it or not, you have to bear it.
Q: There is courage of conviction as well, to be a wealth creator? If someone were to sit you down and ask you, do you think that over the next five years, Indian equities is still the place where you'll see the most significant wealth creation, would you say yes?
A: I would think so, as far as Indian assets are concerned. I don't have much knowledge about global assets. My good friend Mr. Shankar Sharma has said, equity has one quality - it is always an asset which trends upwards. India will remain in a phase of very good economic growth for the next 30 years.
Q: Do you feel we will have to be a lot more patient with it though, this time around?
A: As I told you markets are like women, you have to be patient.
Q: No, but you know we've had a fantastic run. We've had the mother of all bull runs in the past three years.
A: I disagree with you.
Q: You do?
A: The mother of bull runs is still to come
Q: Really?
A: In my opinion, yes. But it could start after one-year. It could start after eighteen-months or after six-months. But the next high and the next bull market will be far bigger and have far more participation and far more excesses than we had in the last one-year.
Q: Do you see a lot of people who are part of the stock market, returning back some of the wealth creation? I know that you have a Jhunjhunwala Foundation. You're actually actively part of a lot of NGOs and you donate significantly amounts over there. Is that an important part of being a wealth creator for you - to spread it as well?
A: I cannot forget my late father, who has never asked me ever that what is your wealth? The only thing that he would ask is how much charity have you done this year, and are you going to continue it or not? So, I’m making my own efforts towards some good social cause that I’m supporting. I’ve built a Home for 400 boys in New Bombay. God has given me one daughter and I’m going up 400 children. I cannot give them absolutely what I’ve given my daughter but I’ll send them to English medium schools. I’ll see that they have all the needs of life and I want to bring them to a stage where they can get good jobs and they can contribute back to the Home.
I think the greatest wealth is giving the person ability to learn. Then I’m supporting lots of causes with children like girls' education. I'm supporting other small causes for street children. We're building a temple in Lonavala. It is my target in life. This year by budget is Rs 10 crore, next year it should be Rs 12.5 crore and on my twenty-fifth wedding anniversary, which is on February 21, 2012, the gift I want to give my wife is - I’m going to give Rs 500 crore to her foundation.
Q: Is this a bigger high than being part of the stock market?
A: I don't think it is a high. It is a duty. To donate and to help others are very good attributes.
Urmila Jhunjhunwala, Rakesh Jhunjhunwala’s Mother says,” When he was a little boy, whenever our friends used to come, he used to tell them which shares are good to buy.
Rekha Jhunjhunwala, Rakesh Jhunjhunwala’s Wife, says, “I think the market is only first priority for him. His first wife is only market. When he started, he had nothing, absolutely nothing. Everyone used to say, what will you do in stock market? But he wanted to do that only.”
Q: What's your biggest faith?
A: Myself. I am confident of myself and I don’t rely on anybody.
Q: What's the big dream for Rakesh Jhunjhunwala - the wealth creator because we have had entrepreneurs who say I want my business to go to XYZ level, I want my turnover to double, triple, four-times?
A: I have two-three dreams in life. The first dream is that when I die and only truth of life is death, how many people come to my funeral and say, a good man has died. That is the greatest ambition in my life. Second thing is I want to earn the greatest wealth of the world in the most legitimate manner; practical legitimate manner and leave the largest part of it to charity.
Rapid Fire:
Q: Favourite trade – long or short?
A: Long.
Q: Rank the following companies on a scale of 1 to 10:
Q: Reliance.
A: I would rank it 2.
Q: Infosys
A: 1.
Q: RNRL
A: 9.
Q: Titan.
A: 8.
Q: Answer the following questions with just bullish or bearish:
Q: Crude.
A: Bearish.
Q: Gold.
A: Neutral.
Q: The S&P 500.
A: Bearish.
Q: The Indian bond market.
A: I expect the yields to go down. I am bullish on the bond market.
Q: The Nifty 50
A: I am bullish.
Q: If you weren’t a man of the market, what would you be?
A: I never think about it because being man of the market is so good and exciting.
Q: The worst advice someone has ever given you about the market.
A: You can never earn money in the market. You will go bankrupt.
Q: And the best advice someone has ever given you about the market.
A: Be careful. Be responsible. It’s fire.
Q: You have told me what you want to be remembered as. But what's the one piece of advice you would give someone who wants to get into the stock market?
A: First advice is respect the market. Have an open mind. Know what to stake. Know when to take a loss. Be responsible.
Source
Moneycontrol.com
Keep reading…
Keep investing…
A: I don't know when I started on in life, I had some ambitions. My parents never liked the idea that I should go to the stock market. I started life financially with just USD 100 or only Rs 5000 and my first thought was that when I went to the markets, I had just come from Chartered Accountancy; used to earn Rs 150 a month. So my first concept in life was that I should be financially independent. I never started with the idea that I will be a great wealth creator and I will have some great wealth or anybody will know me. I thought I must be able to earn my daily bread. I loved the markets. I thought India was in a very initial stage and this would be one of the places which will develop and the opportunity would be huge.
Q: Do you also find it odious sometimes because you are a wealth creator in your own right and I don't think you have taken on the mantle of leading a lot of people with you. But you get that. A stock that you would pick up will be picked up by others. They would want to know why Rakesh bought it - why he is buying so much or why he wants to buy more?
A: I think these are all misconceptions. When you buy stocks, you should be ensured that other people will buy stocks. Then only you should buy the stocks. I have a different concept in life. If a stock is beautiful, the suitor will come. If a girl is beautiful a suitor will come. So I don't search for suitors when I buy the stock.
Q: Tell me where you have to be the most patient with the market?
A: I think my greatest patience with the market was in 2001 September to April 2003. That was because I was a lone bull. I wrote an article in the Economic Times in June 2002 that India is on the threshold of a structural secular bull market and people said, he has bought stocks and he is caught and now he is asking us also to come into the cage. People didn’t just believe what I thought or what my opinion was. That was a testing period.
Q: Did it bring confidence down to its knees for you?
A: You have your conviction and I always staked what I could afford. So say, when markets went down in August 2002, I had no problems there. In spite of my opinion, I did not stake so much that if markets did not go up in the manner that I thought, I would be on the roads. I was well-off absolutely. So you know it was a trying time. But then there was a great dividend; the kind of bull market we had - 3000 to 21000.
Q: And you really rode it didn’t you? There are so many terms people use about you - The young tiger, pin up boy of the bull market, India’s Warren Buffet. Do you find it pointless? Do you find it flattering? How do you take it?
A: I don't know. I have learnt two things about the press and wives. When they something – don’t react.
Q: You are very much into the individual behind the business. Who runs it and how well it is run. Tell me how carefully you look at that when you look at a business that you wanted to be a part of?
A: I look at the situation. I look at the possible outcomes and then I think what could be the outcome? For example, when I invested in Titan, my thinking was, can Titan become India’s largest specialist retailer? That was the question I asked myself. Will it always occupy a 50-60% share in branded jewellery? Will it always remain a leader in Indian watch industry? Will it enter into other areas of retailing? I asked myself all these questions and the answer I thought was yes.
So this is the basic analysis I did. Then I went to the office - Titan office was like a young advertising agency. So I thought marketing is in their blood. I met their management team including their Managing Director. I was thoroughly impressed by them. I took the decision. I put my life behind it.
Q: What impressed you?
A: Their sheer approach. The Managing Director told me that the task is difficult. But we'll overcome it. We have to suck the capital and increase the profits and that's what they have done. So, when I take a decision there are three-four matters that I consider - opportunity. I am from the investment thought which says nobody can be bigger than the opportunity. Second, I look at the competitive ability. In a capitalist society, you cannot deliver product and make a profit unless you do it in a competitive manner and competitive does not mean the most expensive. Then I look at scalability. Scalability is very important. When I invested in Pantaloons, the biggest idea was can ten stores become five-hundred? It was written behind a Maruti -- when I grow will I be a Mercedes? Great are the challenges of scalability.
Then what I look at is valuation. It’s important what you buy. It is more important what price you buy. Somebody bought Hindustan Lever at an Index of 2900 - the price was Rs 320. When the Index was 7000 - the price was Rs 145. You bought Hindustan Lever - best quality company, best pedigree and everything and I made lot of money by buying United Breweries and McDowell’s at a valuation of Rs 200 crore. There was no corporate governance. People told you you’re down the drain. I made five-times my money in two-years.
Q: Sometimes there are tough lessons to learn as well? Just on the subject of valuations, you would be watching the media space and there are a couple of howlers over there by way of stock performance, for example, MiD DAY (Multimedia) - have there been more tough lessons to learn?
A: Every mistake teaches you a lesson. There is always a risk in investing in midcap stocks because if they succeed, the gains are huge. If they don't succeed and scalability does not come, then the losses are also huge. I don't regret having invested in MiD DAY because I always allocate my assets and I don't do it in a planned manner. I don't put more than a certain percentage of my wealth in incomplete situations. So, I might have made a mistake. The decision is tough, but okay, the good comes with the bad.
Q: You're very patient, though?
A: What is the choice?
Q: The choice is to book out.
A: Well, its not that I’m not booking out because I’m afraid to take a loss. I’m not booking out because I still think there is reason to believe that things can change.
Q: Were you surprised Rakesh - could anybody have seen where we are right now in January this year?
A: I have made presentations to show in October, that this is going to be an unprecedented fall. And I have reasoned out how much is the lending to sub prime, and that this problem cannot be stopped by reducing interest rates. The American bull market has come to an end. It may be a long correction.
I’ve made these presentations in writing. I have them on record. I don't say I foresaw the failure of any particular organization but I thought it'll be very tough and I didn't rule out in my mind that some organizations can fail.
Q: Is there any question in your mind that we as well are in a bear market?
A: In India?
Q: Yes.
A: What is a bear market, what is a bull market, I don't know. Numerically - surely, since we have broken the last lows that we had in August 2007, we'll have to term it as a bear market. But I don't think the long-term Indian stock bull market has ended. I think it’s in interruption mode.
This bull market is based on two factors. One is economic growth of India, which I think is based on factors that are irreversible, whether democracy, whether skills, whether demographics, whether cultural factors. They are irreversible. I think India’s economic growth will always trend upwards.
Then it is based on the platforms that we have created to attract money into the Indian markets -- the trading strategies, the regulation and the under-exposure of Indians to equity. I will surely say that it’s an interruption. How long? Nobody knows.
Q: You've been cautious, though, Rakesh, right till since last Samvat you've been striking a cautious note?
A: If the Index instead of going from 3,000 to 21,000 had gone from 3,000 to 13,000, and then back to 11,000 - would that not have been a bull market? Then it would have been termed a bull market correction. So at levels, where you saw the participation, the valuations, you saw what was coming in the Western world, you saw the sheer corporate greed in India; you saw the senselessness with which people in India just wanted to buy anything. They were all indicators - so what is wrong in being cautious?
Q: Are you feeling better about all those indicators? Do you think things have cooled down now?
A: I think now we've begun to reverse slowly. Now things will be overdone but that’s the way markets are. As I told you, markets are like the weather. Whether you like it or not, you have to bear it.
Q: There is courage of conviction as well, to be a wealth creator? If someone were to sit you down and ask you, do you think that over the next five years, Indian equities is still the place where you'll see the most significant wealth creation, would you say yes?
A: I would think so, as far as Indian assets are concerned. I don't have much knowledge about global assets. My good friend Mr. Shankar Sharma has said, equity has one quality - it is always an asset which trends upwards. India will remain in a phase of very good economic growth for the next 30 years.
Q: Do you feel we will have to be a lot more patient with it though, this time around?
A: As I told you markets are like women, you have to be patient.
Q: No, but you know we've had a fantastic run. We've had the mother of all bull runs in the past three years.
A: I disagree with you.
Q: You do?
A: The mother of bull runs is still to come
Q: Really?
A: In my opinion, yes. But it could start after one-year. It could start after eighteen-months or after six-months. But the next high and the next bull market will be far bigger and have far more participation and far more excesses than we had in the last one-year.
Q: Do you see a lot of people who are part of the stock market, returning back some of the wealth creation? I know that you have a Jhunjhunwala Foundation. You're actually actively part of a lot of NGOs and you donate significantly amounts over there. Is that an important part of being a wealth creator for you - to spread it as well?
A: I cannot forget my late father, who has never asked me ever that what is your wealth? The only thing that he would ask is how much charity have you done this year, and are you going to continue it or not? So, I’m making my own efforts towards some good social cause that I’m supporting. I’ve built a Home for 400 boys in New Bombay. God has given me one daughter and I’m going up 400 children. I cannot give them absolutely what I’ve given my daughter but I’ll send them to English medium schools. I’ll see that they have all the needs of life and I want to bring them to a stage where they can get good jobs and they can contribute back to the Home.
I think the greatest wealth is giving the person ability to learn. Then I’m supporting lots of causes with children like girls' education. I'm supporting other small causes for street children. We're building a temple in Lonavala. It is my target in life. This year by budget is Rs 10 crore, next year it should be Rs 12.5 crore and on my twenty-fifth wedding anniversary, which is on February 21, 2012, the gift I want to give my wife is - I’m going to give Rs 500 crore to her foundation.
Q: Is this a bigger high than being part of the stock market?
A: I don't think it is a high. It is a duty. To donate and to help others are very good attributes.
Urmila Jhunjhunwala, Rakesh Jhunjhunwala’s Mother says,” When he was a little boy, whenever our friends used to come, he used to tell them which shares are good to buy.
Rekha Jhunjhunwala, Rakesh Jhunjhunwala’s Wife, says, “I think the market is only first priority for him. His first wife is only market. When he started, he had nothing, absolutely nothing. Everyone used to say, what will you do in stock market? But he wanted to do that only.”
Q: What's your biggest faith?
A: Myself. I am confident of myself and I don’t rely on anybody.
Q: What's the big dream for Rakesh Jhunjhunwala - the wealth creator because we have had entrepreneurs who say I want my business to go to XYZ level, I want my turnover to double, triple, four-times?
A: I have two-three dreams in life. The first dream is that when I die and only truth of life is death, how many people come to my funeral and say, a good man has died. That is the greatest ambition in my life. Second thing is I want to earn the greatest wealth of the world in the most legitimate manner; practical legitimate manner and leave the largest part of it to charity.
Rapid Fire:
Q: Favourite trade – long or short?
A: Long.
Q: Rank the following companies on a scale of 1 to 10:
Q: Reliance.
A: I would rank it 2.
Q: Infosys
A: 1.
Q: RNRL
A: 9.
Q: Titan.
A: 8.
Q: Answer the following questions with just bullish or bearish:
Q: Crude.
A: Bearish.
Q: Gold.
A: Neutral.
Q: The S&P 500.
A: Bearish.
Q: The Indian bond market.
A: I expect the yields to go down. I am bullish on the bond market.
Q: The Nifty 50
A: I am bullish.
Q: If you weren’t a man of the market, what would you be?
A: I never think about it because being man of the market is so good and exciting.
Q: The worst advice someone has ever given you about the market.
A: You can never earn money in the market. You will go bankrupt.
Q: And the best advice someone has ever given you about the market.
A: Be careful. Be responsible. It’s fire.
Q: You have told me what you want to be remembered as. But what's the one piece of advice you would give someone who wants to get into the stock market?
A: First advice is respect the market. Have an open mind. Know what to stake. Know when to take a loss. Be responsible.
Source
Moneycontrol.com
Keep reading…
Keep investing…
Thursday, September 18, 2008
Live Example for Hyperinflation... Zimbabwe
In previous posts I have mentioned many examples for the Hyperflation. But now we live example in the form of Zimbabwe. In our country, according to today’s numbers released by CSO inflation is 12.14 as compared to previous week’s 12.10. Where as in Zimbabwe it is 11.2 million per cent! Yes, 11.2 million per cent, the highest in the world's history!
Why Zimbabwe is in this situation?
Zimbabwe is in the throes of an unparalleled economic crisis because of over a decade of economic recession, extreme food and fuel shortage, an unemployment rate of over 80 per cent, and lack of political will to do anything about it.
The other reasons also are the government's ban on relief efforts by foreign NGOs, a debilitating drought, and the scourge of the AIDS epidemic.
War, mismanagement and excuses
The war in the Congo that Zimbabwe was involved in for over 5 years since 1998 too bled its coffers dry, as hundreds of millions of dollars fled from the economy.
When did the problem begin?
Soon after the dogs of war were let loose and Zimbabwe took to arms in the war in the Congo in 1998, production levels, investment, education, peace, prosperity, growth everything began to be hit hard.
And then in 2001 came President Robert Mugabe's new orders. The Zimbabwean ruler, just a year after he took charge, and began to seize commercial farms owned by whites. This has caused huge shortages of foodstuffs and commodities in the southern African nation.
So how are Zimbabweans surviving?
Barely, you can just about buy a loaf of bread for Z$1,000. And if you want a few bananas, you need to pay a bagful of cash.
The economy faces collapse with consumers resorting to barter as inflation and a slump in the Zimbabwe dollar erodes the value of cash.
Cash-strapped people are resorting to bartering fuel coupons for goods, such as household appliances and furniture. Some retailers prefer payment in coupons instead of local currency because of the rapid devaluation of the Zimbabwe dollar, report Zimbabwean newspapers.
What does this unprecedented level of inflation, or hyperinflation, mean?
Hyperinflation refers to a condition where prices of commodities rise to extreme levels quickly and the value of the nation's currency declines alarmingly. It is primarily a state of affairs where inflation runs amok and is totally out of control.
With the nation's inflation rate the highest in the world, the Zimbabwean government continues to print ever larger denomination notes to keep up.
What causes hyperinflation?
The collapse of Zimbabwe's economy and the government's response of printing more money to pay its debts have led to the highest inflation in the world. The Zimbabwwe dollar is currently trading on the black market at $30 million Zimbabwean for US $1.
Among the major causes of hyperinflation is a huge rise in money supply, decline in a flood of the nation's market with money unbridled increase in the money supply or the devaluation of the local currency caused by economic depression, calamity, political or social cataclysms, or war. This, in effect, hits the productivity of a nation leading to a sharp decline in availability of goods and services. It also leads to widespread unemployment.
A tsunami of unparalleled proportions
Even attempts to print more and higher-denomination currency notes does not quell the inflationary tsunami as the pace of rise of inflation is much faster and even the newly minted currency notes quickly lose their value.
Hyperinflation leads to hoarding, flight of capital, even exodus of people, a complete halt to new investment, production and jobs.
Inflation in Zimbabwe
In Zimbabwe, inflation was at 625 per cent in early 2004. In March 2007, it jumped to 1,700 per cent. By June 2007, inflation had shot up to 11,000 per cent. In July 2008, inflation skyrocketed to 2.2 million per cent. And now in September 2008, inflation has reached uncharted area at 11.2 million per cent!
A $10 trillion note!
The Zimbabwean central bank cut 10 zeroes off its currency last month, revaluing the $10 trillion note to $100 Zimbabwe dollars, in a bid to ease widespread cash shortages as the country battles the world's highest inflation rate.
Zimbabwe's currency is trading around Zimbabwe $350 -- $35 trillion in the old value -- against the US dollar.
But this new Z$1000 note can only buy a loaf of bread.
Source…
Rediff
Why Zimbabwe is in this situation?
Zimbabwe is in the throes of an unparalleled economic crisis because of over a decade of economic recession, extreme food and fuel shortage, an unemployment rate of over 80 per cent, and lack of political will to do anything about it.
The other reasons also are the government's ban on relief efforts by foreign NGOs, a debilitating drought, and the scourge of the AIDS epidemic.
War, mismanagement and excuses
The war in the Congo that Zimbabwe was involved in for over 5 years since 1998 too bled its coffers dry, as hundreds of millions of dollars fled from the economy.
When did the problem begin?
Soon after the dogs of war were let loose and Zimbabwe took to arms in the war in the Congo in 1998, production levels, investment, education, peace, prosperity, growth everything began to be hit hard.
And then in 2001 came President Robert Mugabe's new orders. The Zimbabwean ruler, just a year after he took charge, and began to seize commercial farms owned by whites. This has caused huge shortages of foodstuffs and commodities in the southern African nation.
So how are Zimbabweans surviving?
Barely, you can just about buy a loaf of bread for Z$1,000. And if you want a few bananas, you need to pay a bagful of cash.
The economy faces collapse with consumers resorting to barter as inflation and a slump in the Zimbabwe dollar erodes the value of cash.
Cash-strapped people are resorting to bartering fuel coupons for goods, such as household appliances and furniture. Some retailers prefer payment in coupons instead of local currency because of the rapid devaluation of the Zimbabwe dollar, report Zimbabwean newspapers.
What does this unprecedented level of inflation, or hyperinflation, mean?
Hyperinflation refers to a condition where prices of commodities rise to extreme levels quickly and the value of the nation's currency declines alarmingly. It is primarily a state of affairs where inflation runs amok and is totally out of control.
With the nation's inflation rate the highest in the world, the Zimbabwean government continues to print ever larger denomination notes to keep up.
What causes hyperinflation?
The collapse of Zimbabwe's economy and the government's response of printing more money to pay its debts have led to the highest inflation in the world. The Zimbabwwe dollar is currently trading on the black market at $30 million Zimbabwean for US $1.
Among the major causes of hyperinflation is a huge rise in money supply, decline in a flood of the nation's market with money unbridled increase in the money supply or the devaluation of the local currency caused by economic depression, calamity, political or social cataclysms, or war. This, in effect, hits the productivity of a nation leading to a sharp decline in availability of goods and services. It also leads to widespread unemployment.
A tsunami of unparalleled proportions
Even attempts to print more and higher-denomination currency notes does not quell the inflationary tsunami as the pace of rise of inflation is much faster and even the newly minted currency notes quickly lose their value.
Hyperinflation leads to hoarding, flight of capital, even exodus of people, a complete halt to new investment, production and jobs.
Inflation in Zimbabwe
In Zimbabwe, inflation was at 625 per cent in early 2004. In March 2007, it jumped to 1,700 per cent. By June 2007, inflation had shot up to 11,000 per cent. In July 2008, inflation skyrocketed to 2.2 million per cent. And now in September 2008, inflation has reached uncharted area at 11.2 million per cent!
A $10 trillion note!
The Zimbabwean central bank cut 10 zeroes off its currency last month, revaluing the $10 trillion note to $100 Zimbabwe dollars, in a bid to ease widespread cash shortages as the country battles the world's highest inflation rate.
Zimbabwe's currency is trading around Zimbabwe $350 -- $35 trillion in the old value -- against the US dollar.
But this new Z$1000 note can only buy a loaf of bread.
Source…
Rediff
Wednesday, September 17, 2008
Sensex Growth Story
Now everybody is talking about US Financial Giants collapse and its possible impact to our Indian financial sector. Some one rightly said that, if US sneezes, rest of the world gets cold. In one sense, no country is fully coupled or decoupled. So not only US, if any major developed country sneezes, rest of the world will get cold in one or the other way.
But now the question is not about US!!! I am talking about how much it might affect our financial sector, particularly STOCK MARKET. Many people are saying many things about the market, its support level and resistance levels. But according to me these support and resistance levels are purely subjective and perspective things with respect to time. So here I am not predicting market direction, but I am saying the Indian stock market has seen many obstacles like this and overcome successfully. For this I would like take you through the growth story of the SENSEX from 1991. You guys might ask why 1991? As you all know that from that year only India opened its borders in the form of Liberalization, Privatization and Globalization (LPG). So let’s start…
On January 2, 1991, the Sensex was trading at 999 points. Five years later, on January 1, 1996 the same Sensex was trading at 3,128 points, a gain of 213 per cent in jus five years. But what do think, in those five year period Sensex has not met any obstacles or what? Just try to recollect, you people might have read somewhere!!! Yes you are right, the biggest scam of Indian stock market happened in this period only.
This period was marked by one of the many turbulent periods in the history of the Indian stock markets as the Harshad Mehta scam broke out on April 23, 1992 and ordinary investors bore the brunt of it. Millions of rupees of investors' money were wiped out in the selling frenzy and BSE Sensex fell 12.78 per cent, between two trading sessions. But our markets came over that hurdle successfully as our then Finance Minister and Present Prime Minister Mr. Manmohan Singh said “No power on earth can stop an idea whose time has come” and gave 213% in 5 years.
And from 1996 to 2006 market moved slowly from 3000 odd levels to 9000 odd levels. You might think this not very good return as compared to first part (91 to 96) or banks. But think about the
East Asian Currency Crisis (posted in previous blogs),
Dot Com bubble burst,
Ketan Mehta scam and
9/11 bombings.
And also due to rally from 91 to 96 there will be some profit booking and bear phase. Even after suffering so many jolts our Market stood and gave nearly 200% returns.
From 9390 on January 1, 2006 the BSE Sensex rocketed to 20,300 points in just about 24 months. In percentage terms, this comes to about 116 per cent, just about half of the percentage returns gained during the mind boggling period from 1991 to 1996.
But, At 12,676 points as on close on July 15, 2008, the BSE Sensex has made investors poorer by 37 per cent. This is the two-year period when the sub prime skeletons tumbled out of the banks' and financial institutions' balance sheets into the global stock markets and into our lives and mounting losses.
Now, let's look at the bigger picture and understand how long-term investment is the best way of creating wealth for the future generations.
Compare the returns in absolute terms gained by any investor who'd stayed in the BSE Sensex from January 1, 1991 to January 1, 2006. The gains made in this period are a mind-boggling 840 per cent! 56 per cent a year.
The gains would again multiply manifold if I were to look at the period between January 1, 1991 and January 1, 2008. The returns then would be 1,932 per cent.
Bottom-line…
Intermediate turbulences -- be it the Harshad Mehta scam, the dot com bust, the Ketan Mehta scam or the more recent sub prime crisis -- come and go. Long term investments stay with you forever. So, if you have faith in long-term disciplined investing then go ahead, kiss the stock markets.
Keep reading…
Keep investing…
Reference…
Rediff
Now everybody is talking about US Financial Giants collapse and its possible impact to our Indian financial sector. Some one rightly said that, if US sneezes, rest of the world gets cold. In one sense, no country is fully coupled or decoupled. So not only US, if any major developed country sneezes, rest of the world will get cold in one or the other way.
But now the question is not about US!!! I am talking about how much it might affect our financial sector, particularly STOCK MARKET. Many people are saying many things about the market, its support level and resistance levels. But according to me these support and resistance levels are purely subjective and perspective things with respect to time. So here I am not predicting market direction, but I am saying the Indian stock market has seen many obstacles like this and overcome successfully. For this I would like take you through the growth story of the SENSEX from 1991. You guys might ask why 1991? As you all know that from that year only India opened its borders in the form of Liberalization, Privatization and Globalization (LPG). So let’s start…
On January 2, 1991, the Sensex was trading at 999 points. Five years later, on January 1, 1996 the same Sensex was trading at 3,128 points, a gain of 213 per cent in jus five years. But what do think, in those five year period Sensex has not met any obstacles or what? Just try to recollect, you people might have read somewhere!!! Yes you are right, the biggest scam of Indian stock market happened in this period only.
This period was marked by one of the many turbulent periods in the history of the Indian stock markets as the Harshad Mehta scam broke out on April 23, 1992 and ordinary investors bore the brunt of it. Millions of rupees of investors' money were wiped out in the selling frenzy and BSE Sensex fell 12.78 per cent, between two trading sessions. But our markets came over that hurdle successfully as our then Finance Minister and Present Prime Minister Mr. Manmohan Singh said “No power on earth can stop an idea whose time has come” and gave 213% in 5 years.
And from 1996 to 2006 market moved slowly from 3000 odd levels to 9000 odd levels. You might think this not very good return as compared to first part (91 to 96) or banks. But think about the
East Asian Currency Crisis (posted in previous blogs),
Dot Com bubble burst,
Ketan Mehta scam and
9/11 bombings.
And also due to rally from 91 to 96 there will be some profit booking and bear phase. Even after suffering so many jolts our Market stood and gave nearly 200% returns.
From 9390 on January 1, 2006 the BSE Sensex rocketed to 20,300 points in just about 24 months. In percentage terms, this comes to about 116 per cent, just about half of the percentage returns gained during the mind boggling period from 1991 to 1996.
But, At 12,676 points as on close on July 15, 2008, the BSE Sensex has made investors poorer by 37 per cent. This is the two-year period when the sub prime skeletons tumbled out of the banks' and financial institutions' balance sheets into the global stock markets and into our lives and mounting losses.
Now, let's look at the bigger picture and understand how long-term investment is the best way of creating wealth for the future generations.
Compare the returns in absolute terms gained by any investor who'd stayed in the BSE Sensex from January 1, 1991 to January 1, 2006. The gains made in this period are a mind-boggling 840 per cent! 56 per cent a year.
The gains would again multiply manifold if I were to look at the period between January 1, 1991 and January 1, 2008. The returns then would be 1,932 per cent.
Bottom-line…
Intermediate turbulences -- be it the Harshad Mehta scam, the dot com bust, the Ketan Mehta scam or the more recent sub prime crisis -- come and go. Long term investments stay with you forever. So, if you have faith in long-term disciplined investing then go ahead, kiss the stock markets.
Keep reading…
Keep investing…
Reference…
Rediff
Rediff’s Research about US Financial System & its effects to India…
Lehman Brothers is no more. Merrill Lynch has gone down the Bank of America maw. AIG too could go belly up. With a doubt, these developments in America are the most shocking events to have hit global financial markets. So where did it all begin? And what does it mean for the Indian stock markets???
What is (or was) Lehman Brothers?
America's fourth-largest investment bank Lehman Brothers Holdings Inc has filed the biggest bankruptcy petition known to mankind.
The 158-year-old firm was founded by brothers Henry, Emanuel and Mayer Lehman, Jewish immigrants to the US from Germany, in 1850. Henry set up a general store in Alabama in 1844 and was later joined by his brothers. In 1850 they set up the merchant bank in New York after having made money in railway bonds. So what went wrong?
Lehman Bros, which till June 2008 had not reported a quarterly loss even once, had earlier survived many an economic crises, like railroad bankruptcies of the 1800s, the Great Depression in the 1930s, and the collapse of Long-Term Capital Management in the 1990s.
Thus the collapse of the giant investment bank came as a major shock for the entire world markets that plunged after Lehman filed a Chapter 11 petition with US Bankruptcy Court in Manhattan.
The $613 billion (some estimates put the size at $639 billion) bankruptcy thus throws up the question: why did the Wall Street giant go bust?
Why did Lehman Brothers go bankrupt?
The giant investment bank succumbed to the sub-prime mortgage crisis that has rocked the United States and the global economy. Lehman was strangled by a massive credit crisis and fast plummeting real estate prices.
The gargantuan $60 billion loss in bad real estate loans forced the bank to file for bankruptcy.
However, the fall of the 158-year-year institution that started cotton trade in US before the American Civil War and financed the railroad that built a nation, got hit by a large dose of bad luck, pride, arrogance and greed. Primarily, the pride of its chief executive office Richard Fuld.
But there were more reason.
Lehman's collapse was also triggered by the refusal of other banks to do business with it because of its complex and, at times, opaque ways of trading. Housing loans made by the bank to people with little support made these loans very risky, and when interest rates rose, these borrowers could no more repay Lehman. This led to huge losses, the extent of which is not yet clear.
Thus other banks stopped trading with Lehman. This led to it losing almost all business and triggered its fall.
The final straw for Lehman was the fact that both Barclays Plc of the United Kingdom and Bank of America Corp pulled out of takeover talks. BoA bought out Merrill Lynch for $50 billion. And unconfirmed reports also say that, Warren Buffet rejected the CEO Richard Fuld’s request to invest in bros…
However, Barclays has now said that it is in discussions with Lehman Brothers about buying certain assets of the stricken US investment bank.
"Barclays confirms that it is discussing with Lehman Brothers the possible acquisition of certain Lehman Brothers assets on terms that would be attractive to Barclay's shareholders," Britain's third largest bank said in a statement.
When other banks do not want to buy Lehman, why is Barclays interested?
Barclays wanted to buy Lehman out at a discount, so to speak. But when Lehman CEO Fuld decided that his bank was worth much more than what Barclays had apparently offered, Barclays stepped back.
Now that Lehman has filed for bankruptcy, its assets are available fairly cheap. However, the biggest problem is to take on Lehman's enormous liabilities.
How far is the CEO of the company responsible for Lehman's fall?
Wall Street analysts believe that it was the 'hubris' of Richard Fuld, the 62-year-old CEO of Lehman, who did not take the telltale, signs of impending doom very seriously. Fuld, rejected many bids to save Lehman because he thought that the sinking giant was much bigger than Wall Street was giving it credit for, and wanted to get more prices for the sale of the company.
Analysts say if the bank was sold just a week before it went kaput, it could have been saved the ignominy of a bankruptcy, but Fuld was far too adamant to see reason. Result: the end of a 158-year-old financial giant.
Could the United States government helped, like it helped Bear Stearns in May this year, and Fannie Mae and Freddie Mac earlier this month?
The US government could have helped, but US Treasury Secretary Henry Paulson said that it would not use up any more taxpayer dollars to bail out Lehman Brothers as it would lead to investment banks getting away with their gambling ways. Paulson had bailed out Fannie Mae, Freddie Mac and Bear Stearns, saying that if the government had not done so, the US housing loan market would have collapsed leading to gigantic losses for hundreds of banks all over the globe that have invested in US property.
Paulson, however, believes that a brokerage major like Lehman, which does not have a direct connection with ordinary people who have taken on home loans, need not be bailed out as it would not cause any systemic damage to the US economy.
Will everyone in Lehman lose their jobs?
The bankruptcy administrators, PricewaterhouseCoopers, feels that as Lehman's operations were essentially centralized at New York, the folding up of the investment banker in the US will have a telling impact on all its operations globally.
Over 5,000 employees in the UK have already lost their jobs, while about 20,000 in the US might as well forget going back to their work stations. About 2,500 Lehman employees in India too face the axe.
Will the whole bank be liquidated?
Unlikely, at least for now. The US Chapter 11 that deals with bankruptcy says that, the administrators, can go about taking its time to find good offers and buyers for Lehman's 'least affected businesses.'
The entire exercise can take months before all of Lehman's assets are sold, given the complexities linked to the bankruptcy.
What about the Bank of America and Merrill Lynch deal?
Merrill Lynch's buy out by Bank of America is also a shocking development. ML saw the writing on the wall once it guessed that Lehman was going bust, and decided to sell out before it actually has to file a bankruptcy petition.
What about the insurance giant AIG?
The world's largest insurer, American International Group, has been downgraded by credit rating agencies and is racing against time to find a multi billion dollar infusion to stay afloat. U.S. Federal Reserve officials and two leading banks, JP Morgan Chase and Goldman Sachs, were negotiating to put together $75 billion package to save the insurance giant to stave off crisis.
AIG has sought $40 billion in bridge loan to stave off the crisis. But the Fed rebuffed the request. AIG's ills came to fore, when three leading credit rating agencies - Standard and Poor's Moody's and Fitch - lowered the company's credit scores.
Who could be the next to fall?
Some Wall Street analysts, reports The Guardian, name Washington Mutual as the next financial major to 'find itself in serious trouble.'
However, the even bigger worry is whether the world's largest securities firms, Goldman Sachs and Morgan Stanley, would be able to survive this brutal financial crisis. But many say that these two giants will not melt down as they have 'done a better job of spreading their bets across world markets and are also more diversified, less leveraged and have managed such risks much better.'
What do Indian markets fear?
The fall of two global financial behemoths -- Lehman Brothers and Merrill Lynch -- is expected to dent India Inc's ability to raise resources via the equity route.
Experts feel that such events significantly increase the risk perception, which in turn will put all future investments by institutional investors such as pension or endowment funds, on the back burner.
While the public issue market has already dried up, the private equity funds are also becoming conservative in terms of pricing. This is resulting in either inordinate delays in concluding deals or transactions being called off.
There are many instances of private equity fund managers refusing to go ahead with deals after signing the term sheet. Sources said that a leading fund conducted due diligence on two companies in the last fortnight but did not close either deal primarily because of the developments in the US, their home country.
The crisis faced by Merrill Lynch and Lehman Brothers is expected to have a cascading effect on PE firms too.
Will it hit the Indian growth story?
The ongoing financial sector crisis in the United States and its repercussions on developed markets worldwide will result in lower capital inflows into emerging markets like India, economists and government officials said today.
At the same time, they called for the government to make it easier for Indian companies to borrow overseas by easing the restrictions that have been imposed in the past to reduce excessive liquidity in the system and control inflation.
This will, in turn, lead to a slowing in investment growth in the months ahead. As lending gets tighter and investment flows dry, corporate India will find it more difficult to raise both equity and debt.
Technology firms are shivering
Lehman Brothers' bankruptcy filing may well prove to be the last straw for Indian IT firms, which was expecting the second half of FY09 to be better. As a result of the US financial market crisis, analysts do not expect Indian IT firms to sign any significant contracts in the banking, financial services and insurance (BFSI) space in the months to come.
While IT firms do not disclose client-specific details, it's estimated that Lehman Brothers has outsourced deals amounting to anywhere between Rs 550 crore and Rs 700 crore (annually) to numerous IT firms, including majors like Tata Consultancy Services, Satyam Computer Services and Wipro. Lehman Brothers, say sources, works with 14 services providers in India - Wipro and TCS being the largest. It also has investments in a few IT firms. It's not clear if these holdings will be liquidated to raise funds.
Moreover, the sources add that Lehman Brothers' unit in India has issued termination letters to a majority of its 2,500 employees.
What kind of investment does Lehman have in India?
Lehman does not have direct large holding in the Indian stock markets. These holdings are estimated at around $200 million, including Participatory Notes. This figure is not enough to cripple the Indian stock markets.
But Lehman has exposure to the Indian stock market through special purpose vehicles. This exposure to real estate stocks is said to be of about $1.5 billion, enough to shake up the markets.
What is (or was) Lehman Brothers?
America's fourth-largest investment bank Lehman Brothers Holdings Inc has filed the biggest bankruptcy petition known to mankind.
The 158-year-old firm was founded by brothers Henry, Emanuel and Mayer Lehman, Jewish immigrants to the US from Germany, in 1850. Henry set up a general store in Alabama in 1844 and was later joined by his brothers. In 1850 they set up the merchant bank in New York after having made money in railway bonds. So what went wrong?
Lehman Bros, which till June 2008 had not reported a quarterly loss even once, had earlier survived many an economic crises, like railroad bankruptcies of the 1800s, the Great Depression in the 1930s, and the collapse of Long-Term Capital Management in the 1990s.
Thus the collapse of the giant investment bank came as a major shock for the entire world markets that plunged after Lehman filed a Chapter 11 petition with US Bankruptcy Court in Manhattan.
The $613 billion (some estimates put the size at $639 billion) bankruptcy thus throws up the question: why did the Wall Street giant go bust?
Why did Lehman Brothers go bankrupt?
The giant investment bank succumbed to the sub-prime mortgage crisis that has rocked the United States and the global economy. Lehman was strangled by a massive credit crisis and fast plummeting real estate prices.
The gargantuan $60 billion loss in bad real estate loans forced the bank to file for bankruptcy.
However, the fall of the 158-year-year institution that started cotton trade in US before the American Civil War and financed the railroad that built a nation, got hit by a large dose of bad luck, pride, arrogance and greed. Primarily, the pride of its chief executive office Richard Fuld.
But there were more reason.
Lehman's collapse was also triggered by the refusal of other banks to do business with it because of its complex and, at times, opaque ways of trading. Housing loans made by the bank to people with little support made these loans very risky, and when interest rates rose, these borrowers could no more repay Lehman. This led to huge losses, the extent of which is not yet clear.
Thus other banks stopped trading with Lehman. This led to it losing almost all business and triggered its fall.
The final straw for Lehman was the fact that both Barclays Plc of the United Kingdom and Bank of America Corp pulled out of takeover talks. BoA bought out Merrill Lynch for $50 billion. And unconfirmed reports also say that, Warren Buffet rejected the CEO Richard Fuld’s request to invest in bros…
However, Barclays has now said that it is in discussions with Lehman Brothers about buying certain assets of the stricken US investment bank.
"Barclays confirms that it is discussing with Lehman Brothers the possible acquisition of certain Lehman Brothers assets on terms that would be attractive to Barclay's shareholders," Britain's third largest bank said in a statement.
When other banks do not want to buy Lehman, why is Barclays interested?
Barclays wanted to buy Lehman out at a discount, so to speak. But when Lehman CEO Fuld decided that his bank was worth much more than what Barclays had apparently offered, Barclays stepped back.
Now that Lehman has filed for bankruptcy, its assets are available fairly cheap. However, the biggest problem is to take on Lehman's enormous liabilities.
How far is the CEO of the company responsible for Lehman's fall?
Wall Street analysts believe that it was the 'hubris' of Richard Fuld, the 62-year-old CEO of Lehman, who did not take the telltale, signs of impending doom very seriously. Fuld, rejected many bids to save Lehman because he thought that the sinking giant was much bigger than Wall Street was giving it credit for, and wanted to get more prices for the sale of the company.
Analysts say if the bank was sold just a week before it went kaput, it could have been saved the ignominy of a bankruptcy, but Fuld was far too adamant to see reason. Result: the end of a 158-year-old financial giant.
Could the United States government helped, like it helped Bear Stearns in May this year, and Fannie Mae and Freddie Mac earlier this month?
The US government could have helped, but US Treasury Secretary Henry Paulson said that it would not use up any more taxpayer dollars to bail out Lehman Brothers as it would lead to investment banks getting away with their gambling ways. Paulson had bailed out Fannie Mae, Freddie Mac and Bear Stearns, saying that if the government had not done so, the US housing loan market would have collapsed leading to gigantic losses for hundreds of banks all over the globe that have invested in US property.
Paulson, however, believes that a brokerage major like Lehman, which does not have a direct connection with ordinary people who have taken on home loans, need not be bailed out as it would not cause any systemic damage to the US economy.
Will everyone in Lehman lose their jobs?
The bankruptcy administrators, PricewaterhouseCoopers, feels that as Lehman's operations were essentially centralized at New York, the folding up of the investment banker in the US will have a telling impact on all its operations globally.
Over 5,000 employees in the UK have already lost their jobs, while about 20,000 in the US might as well forget going back to their work stations. About 2,500 Lehman employees in India too face the axe.
Will the whole bank be liquidated?
Unlikely, at least for now. The US Chapter 11 that deals with bankruptcy says that, the administrators, can go about taking its time to find good offers and buyers for Lehman's 'least affected businesses.'
The entire exercise can take months before all of Lehman's assets are sold, given the complexities linked to the bankruptcy.
What about the Bank of America and Merrill Lynch deal?
Merrill Lynch's buy out by Bank of America is also a shocking development. ML saw the writing on the wall once it guessed that Lehman was going bust, and decided to sell out before it actually has to file a bankruptcy petition.
What about the insurance giant AIG?
The world's largest insurer, American International Group, has been downgraded by credit rating agencies and is racing against time to find a multi billion dollar infusion to stay afloat. U.S. Federal Reserve officials and two leading banks, JP Morgan Chase and Goldman Sachs, were negotiating to put together $75 billion package to save the insurance giant to stave off crisis.
AIG has sought $40 billion in bridge loan to stave off the crisis. But the Fed rebuffed the request. AIG's ills came to fore, when three leading credit rating agencies - Standard and Poor's Moody's and Fitch - lowered the company's credit scores.
Who could be the next to fall?
Some Wall Street analysts, reports The Guardian, name Washington Mutual as the next financial major to 'find itself in serious trouble.'
However, the even bigger worry is whether the world's largest securities firms, Goldman Sachs and Morgan Stanley, would be able to survive this brutal financial crisis. But many say that these two giants will not melt down as they have 'done a better job of spreading their bets across world markets and are also more diversified, less leveraged and have managed such risks much better.'
What do Indian markets fear?
The fall of two global financial behemoths -- Lehman Brothers and Merrill Lynch -- is expected to dent India Inc's ability to raise resources via the equity route.
Experts feel that such events significantly increase the risk perception, which in turn will put all future investments by institutional investors such as pension or endowment funds, on the back burner.
While the public issue market has already dried up, the private equity funds are also becoming conservative in terms of pricing. This is resulting in either inordinate delays in concluding deals or transactions being called off.
There are many instances of private equity fund managers refusing to go ahead with deals after signing the term sheet. Sources said that a leading fund conducted due diligence on two companies in the last fortnight but did not close either deal primarily because of the developments in the US, their home country.
The crisis faced by Merrill Lynch and Lehman Brothers is expected to have a cascading effect on PE firms too.
Will it hit the Indian growth story?
The ongoing financial sector crisis in the United States and its repercussions on developed markets worldwide will result in lower capital inflows into emerging markets like India, economists and government officials said today.
At the same time, they called for the government to make it easier for Indian companies to borrow overseas by easing the restrictions that have been imposed in the past to reduce excessive liquidity in the system and control inflation.
This will, in turn, lead to a slowing in investment growth in the months ahead. As lending gets tighter and investment flows dry, corporate India will find it more difficult to raise both equity and debt.
Technology firms are shivering
Lehman Brothers' bankruptcy filing may well prove to be the last straw for Indian IT firms, which was expecting the second half of FY09 to be better. As a result of the US financial market crisis, analysts do not expect Indian IT firms to sign any significant contracts in the banking, financial services and insurance (BFSI) space in the months to come.
While IT firms do not disclose client-specific details, it's estimated that Lehman Brothers has outsourced deals amounting to anywhere between Rs 550 crore and Rs 700 crore (annually) to numerous IT firms, including majors like Tata Consultancy Services, Satyam Computer Services and Wipro. Lehman Brothers, say sources, works with 14 services providers in India - Wipro and TCS being the largest. It also has investments in a few IT firms. It's not clear if these holdings will be liquidated to raise funds.
Moreover, the sources add that Lehman Brothers' unit in India has issued termination letters to a majority of its 2,500 employees.
What kind of investment does Lehman have in India?
Lehman does not have direct large holding in the Indian stock markets. These holdings are estimated at around $200 million, including Participatory Notes. This figure is not enough to cripple the Indian stock markets.
But Lehman has exposure to the Indian stock market through special purpose vehicles. This exposure to real estate stocks is said to be of about $1.5 billion, enough to shake up the markets.
CNBC-TV18s Research
The happenings in the equity market aren’t as opaque as they appear to be at first sight. It is up for investors to read through them. And it’s the investors themselves to blame if and when they burn their fingers. The point here is hard hitting but it serves right for those traders/investors who do not look at the general trend in the equity market.
Consider this: the entire Bull Run in the Indian equity market (Apr ‘03-Jan ’08) was on account of liquidity created by foreign institutional investors (FIIs). All investors in the equity market are aware of this factor. The Indian growth story pulled in these monies. But, excessive valuations were created by FIIs only. So, the sell off by FIIs led to the 40% crash from the peak in the Indian equity market.
This 40% correction was in line with CNBC TV18s 8-year equity cycle theory. Post that the 8-year cycle suggests that markets start a consolidation phase in which the equity market drift some 15-25% lower from those 40% lower levels. This would take sometime nevertheless. In the midst, the equity market would continue to remain in a trading range.
Traders would love to play the range, but the huge 20% pull back that we witnessed from the lows was surprising. It was the Indian equity market that outperformed. The pull back was mere speculative and has given way allowing the market to fall back to the 40% lows created in mid-July.
The question therefore is who bought the rally. The answer to that is no one. FIIs, who have always led the rally, bought only Rs 100 cr in the pull back period. Adjust these net inflows to the small IPOs in which they participated, FIIs were neutral in the pull back. MFs adjusted for the few IPOs ploughed some Rs 500 cr. That’s too small an amount for the 20% pull back. No doubt then that the pull back was mere speculative.
Government backed insurance companies are always made scapegoats in such times of crises. No doubt they have been busy forced to shop, but even their numbers do not satisfy the mystic 20% pull back. So, re-confirming the speculative pull back.
Smart money thus could afford to move out at higher levels. The only issue is FIIs exiting at current levels. Though FIIs are facing redemption pressures back home, they are in Catch 22 situation. The rupee is being kept artificially low so that outflows from India are restricted to that extent and in anticipation of inflows. But, the situation world over doesn’t call for inflows as yet and these monies will exit sooner or later. The India growth story stays, but at this point in time there are enough issues from India Inc.
The conclusion is, do not expect a quick recovery. Sell into the rally until FIIs are major buyers. Banks going bust in the US will lead to sell off in India to the extent of their proprietary book exposure. Thus, FIIs buying seems unlikely as of now. That’s the lesson you ought to have learnt long time back. Better late, than never.
The happenings in the equity market aren’t as opaque as they appear to be at first sight. It is up for investors to read through them. And it’s the investors themselves to blame if and when they burn their fingers. The point here is hard hitting but it serves right for those traders/investors who do not look at the general trend in the equity market.
Consider this: the entire Bull Run in the Indian equity market (Apr ‘03-Jan ’08) was on account of liquidity created by foreign institutional investors (FIIs). All investors in the equity market are aware of this factor. The Indian growth story pulled in these monies. But, excessive valuations were created by FIIs only. So, the sell off by FIIs led to the 40% crash from the peak in the Indian equity market.
This 40% correction was in line with CNBC TV18s 8-year equity cycle theory. Post that the 8-year cycle suggests that markets start a consolidation phase in which the equity market drift some 15-25% lower from those 40% lower levels. This would take sometime nevertheless. In the midst, the equity market would continue to remain in a trading range.
Traders would love to play the range, but the huge 20% pull back that we witnessed from the lows was surprising. It was the Indian equity market that outperformed. The pull back was mere speculative and has given way allowing the market to fall back to the 40% lows created in mid-July.
The question therefore is who bought the rally. The answer to that is no one. FIIs, who have always led the rally, bought only Rs 100 cr in the pull back period. Adjust these net inflows to the small IPOs in which they participated, FIIs were neutral in the pull back. MFs adjusted for the few IPOs ploughed some Rs 500 cr. That’s too small an amount for the 20% pull back. No doubt then that the pull back was mere speculative.
Government backed insurance companies are always made scapegoats in such times of crises. No doubt they have been busy forced to shop, but even their numbers do not satisfy the mystic 20% pull back. So, re-confirming the speculative pull back.
Smart money thus could afford to move out at higher levels. The only issue is FIIs exiting at current levels. Though FIIs are facing redemption pressures back home, they are in Catch 22 situation. The rupee is being kept artificially low so that outflows from India are restricted to that extent and in anticipation of inflows. But, the situation world over doesn’t call for inflows as yet and these monies will exit sooner or later. The India growth story stays, but at this point in time there are enough issues from India Inc.
The conclusion is, do not expect a quick recovery. Sell into the rally until FIIs are major buyers. Banks going bust in the US will lead to sell off in India to the extent of their proprietary book exposure. Thus, FIIs buying seems unlikely as of now. That’s the lesson you ought to have learnt long time back. Better late, than never.
Tuesday, September 16, 2008
Gear up for rocky ride ahead – Udayan Mukharji (CNBC)
There was no respite seen from yesterday's disappointing rally. The Dow Jones lost 500 points yesterday. There is panic across the globe and crude falling to around USD 91 per barrel will not help or support the market rally today. One should gear up for a rocky ride in the market ahead.
After Black Monday comes Black Tuesday. No respite at all from the global space. For a moment last night those who were watching, before midnight it look like the US might away with a small cut but it not to be. This morning one is presented with the biggest cut in the US markets since 9/11, it is 500 points down on the Dow Jones index, every Asian market with a couple of exceptions is down at an average of 5%. So it’s bleeding badly across Asia; it bled badly across the US and it doesn’t make smite of a difference that crude is collapsed to USD 91-92/bbl. This morning there is panic across the global arena again. So fasten seatbelts for another rocky ride coming up, starting 10 o’clock.
On global markets:
I think people will be disappointed because at one point it looked like that the US market might just recover because it got the early blow and then it was just ambling along 200-250 points down and we got the feeling that maybe the market have reconciled themselves to the Lehman episode maybe it was focusing more on Merrill but by the end of it all had broken down once again.
I think the note on which the US markets closed will make us nervous once again. We did try and claw back yesterday but we will get hammered back to where we came from yesterday again. One can see the sense across Asia despite expectations of a Fed rate cut and some amount of relief today, I do not think those things are helping very much.
There is some panic, which is going around globally; it is a big scare typically these kind of scares get over in two-three days because they exhaust themselves on the way down and that is the only hope one can have but this morning I think we are clutching at straws. It is really bad environment for our market as well.
On our markets:
Once again we will be sub-4,000 Nifty and that is psychologically quite debilitating. We thought we had got away from that and we may not be able to run just yet but at least a slightly more respectable range was going to be held by the market. A lot of the sentiment which had got constructed over the last month or two since the July crash has got washed away in just one week and that’s the sad part.
People were beginning to feel that we have seen the worst of the price damage and once we can get through three-five-six months of this kind of sideways movement grind, then the markets might begin to move up again and that sentiment has got big jolt again. There is fear once again; there was no complacence in the market but there was a slight degree of confidence which was building up and that’s got shattered over the last one week.
This is how bear markets typically operate; they just lull into a temporary sense of relief and then they hammer and kill once again. That’s pretty much what’s gone on over the last five day in global markets now not just in India. I do not know about the near-term as we have been saying for the last two days. When we get to these kinds of panic stages often they exhaust themselves and sharpest kind of rebound. I do not know whether that is lurking in the next day or two but even if that were to come about fewer people will trust it on the evidence of what they have see playing sine July.
The bad or worst thing which has happened over the last one week is not the price damage; it’s the reiteration and the reconfirmation that we are still in a bear market and we are nowhere out of it just yet.
Asian Indices:
It is not very pretty across Asia as you would expect after that bigger cut so that the Nikkei is sinking to multiyear lows out here, the Hang Seng is down more than almost 1,100 points, China is down about 3% that cut is not very big but other markets are down deep in the red as well. 5% in Korea, Taiwan is down nearly 5% and the market, which was open yesterday.
Source
Moneycontrol.com
After Black Monday comes Black Tuesday. No respite at all from the global space. For a moment last night those who were watching, before midnight it look like the US might away with a small cut but it not to be. This morning one is presented with the biggest cut in the US markets since 9/11, it is 500 points down on the Dow Jones index, every Asian market with a couple of exceptions is down at an average of 5%. So it’s bleeding badly across Asia; it bled badly across the US and it doesn’t make smite of a difference that crude is collapsed to USD 91-92/bbl. This morning there is panic across the global arena again. So fasten seatbelts for another rocky ride coming up, starting 10 o’clock.
On global markets:
I think people will be disappointed because at one point it looked like that the US market might just recover because it got the early blow and then it was just ambling along 200-250 points down and we got the feeling that maybe the market have reconciled themselves to the Lehman episode maybe it was focusing more on Merrill but by the end of it all had broken down once again.
I think the note on which the US markets closed will make us nervous once again. We did try and claw back yesterday but we will get hammered back to where we came from yesterday again. One can see the sense across Asia despite expectations of a Fed rate cut and some amount of relief today, I do not think those things are helping very much.
There is some panic, which is going around globally; it is a big scare typically these kind of scares get over in two-three days because they exhaust themselves on the way down and that is the only hope one can have but this morning I think we are clutching at straws. It is really bad environment for our market as well.
On our markets:
Once again we will be sub-4,000 Nifty and that is psychologically quite debilitating. We thought we had got away from that and we may not be able to run just yet but at least a slightly more respectable range was going to be held by the market. A lot of the sentiment which had got constructed over the last month or two since the July crash has got washed away in just one week and that’s the sad part.
People were beginning to feel that we have seen the worst of the price damage and once we can get through three-five-six months of this kind of sideways movement grind, then the markets might begin to move up again and that sentiment has got big jolt again. There is fear once again; there was no complacence in the market but there was a slight degree of confidence which was building up and that’s got shattered over the last one week.
This is how bear markets typically operate; they just lull into a temporary sense of relief and then they hammer and kill once again. That’s pretty much what’s gone on over the last five day in global markets now not just in India. I do not know about the near-term as we have been saying for the last two days. When we get to these kinds of panic stages often they exhaust themselves and sharpest kind of rebound. I do not know whether that is lurking in the next day or two but even if that were to come about fewer people will trust it on the evidence of what they have see playing sine July.
The bad or worst thing which has happened over the last one week is not the price damage; it’s the reiteration and the reconfirmation that we are still in a bear market and we are nowhere out of it just yet.
Asian Indices:
It is not very pretty across Asia as you would expect after that bigger cut so that the Nikkei is sinking to multiyear lows out here, the Hang Seng is down more than almost 1,100 points, China is down about 3% that cut is not very big but other markets are down deep in the red as well. 5% in Korea, Taiwan is down nearly 5% and the market, which was open yesterday.
Source
Moneycontrol.com
Some more updates
Central banks step in to soothe markets
The Federal Reserve has stepped in to calm the markets by widening the collateral it accepts for advancing emergency loans to securities firms. A group of ten banks that includes JP Morgan Chase and Citigroup separately formed a USD 70 billion fund to ensure market liquidity.
The European Central Bank (ECB) and the Bank of England has also joined the Federal Reserve in taking action to soothe financial markets. The ECB said, “It awarded banks 30 billion euros or 43 billion dollars in a one-day money-market auction that was more than three times oversubscribed.”
China has cut interest rates for the first time in six years. The People's Bank of China has reduced the one-year lending rate to 7.20% from 7.47%.
George Bush, President of United States of America feels that the short-term financial market adjustments could be painful, reports CNBC-TV18. He said that the US government is working to reduce the impact of market turmoil on the economy. Bush added that he was confident of long-term flexibility and resilience of the economy.
Crude slips to $91.93/bbl; lowest in 7 months
Crude slipped to a seven-month low on demand concerns after Lehman's bankruptcy. It was the financial storm on Wall Street which overshadowed supply disruptions in the oil market.
In after hours access trading, crude is at USD 91.93 per barrel.
Meltdown in US finance system pummels stock market
Banking turmoil sends a shudder through Wall Street; Dow suffers biggest point drop since 2001
The upheaval in the American financial system sent shock waves through the stock market Monday, producing the worst day on Wall Street in seven years as investors digested the failure of one of its most venerable banks and wondered which domino would be next to fall.
The Dow Jones industrial average lost more than 500 points, more than 4 percent, its steepest point drop since the day the stock market reopened after the Sept. 11, 2001, attacks. About $700 billion evaporated from retirement plans, government pension funds and other investment portfolios.
Asian stock markets tumble after Wall Street falls on Lehman Brothers bankruptcy
The steep decline in U.S. stocks sent Asian stock markets tumbling sharply Tuesday as investors were rattled by concerns over an expanding global financial crisis.
Japan's benchmark Nikkei stock index fell 5.1 percent to 11,550, falling under than 12,000-point level for the first time since mid-March.
Hang Sang fell 1130 points, nearly 6%. South Korea's Kospi shed 6.2 percent, and Taiwan's benchmark was off 4.6 percent. The battering in Australia and New Zealand wasn't quite as severe, with key indices down 2.4 percent and 2.7 percent respectively.
Sources…
Bloomberg.com
Yahoofinance.com
Moneycontrol.com
Central banks step in to soothe markets
The Federal Reserve has stepped in to calm the markets by widening the collateral it accepts for advancing emergency loans to securities firms. A group of ten banks that includes JP Morgan Chase and Citigroup separately formed a USD 70 billion fund to ensure market liquidity.
The European Central Bank (ECB) and the Bank of England has also joined the Federal Reserve in taking action to soothe financial markets. The ECB said, “It awarded banks 30 billion euros or 43 billion dollars in a one-day money-market auction that was more than three times oversubscribed.”
China has cut interest rates for the first time in six years. The People's Bank of China has reduced the one-year lending rate to 7.20% from 7.47%.
George Bush, President of United States of America feels that the short-term financial market adjustments could be painful, reports CNBC-TV18. He said that the US government is working to reduce the impact of market turmoil on the economy. Bush added that he was confident of long-term flexibility and resilience of the economy.
Crude slips to $91.93/bbl; lowest in 7 months
Crude slipped to a seven-month low on demand concerns after Lehman's bankruptcy. It was the financial storm on Wall Street which overshadowed supply disruptions in the oil market.
In after hours access trading, crude is at USD 91.93 per barrel.
Meltdown in US finance system pummels stock market
Banking turmoil sends a shudder through Wall Street; Dow suffers biggest point drop since 2001
The upheaval in the American financial system sent shock waves through the stock market Monday, producing the worst day on Wall Street in seven years as investors digested the failure of one of its most venerable banks and wondered which domino would be next to fall.
The Dow Jones industrial average lost more than 500 points, more than 4 percent, its steepest point drop since the day the stock market reopened after the Sept. 11, 2001, attacks. About $700 billion evaporated from retirement plans, government pension funds and other investment portfolios.
Asian stock markets tumble after Wall Street falls on Lehman Brothers bankruptcy
The steep decline in U.S. stocks sent Asian stock markets tumbling sharply Tuesday as investors were rattled by concerns over an expanding global financial crisis.
Japan's benchmark Nikkei stock index fell 5.1 percent to 11,550, falling under than 12,000-point level for the first time since mid-March.
Hang Sang fell 1130 points, nearly 6%. South Korea's Kospi shed 6.2 percent, and Taiwan's benchmark was off 4.6 percent. The battering in Australia and New Zealand wasn't quite as severe, with key indices down 2.4 percent and 2.7 percent respectively.
Sources…
Bloomberg.com
Yahoofinance.com
Moneycontrol.com
Monday, September 15, 2008
Updates from world of business…
Finally relieved, as my end terms are over and did somewhat better than expected, except one or two subjects!!! In my last post, I posted about Rakesh Jhunjhunwala story. Today I am posting about how SENSEX has grown from 1991 from where our country’s growth started. But before that, very important updates from world of the business.
Lehman Brothers Holding Files for Biggest Bankruptcy
Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the sub prime mortgage crisis it helped create in the biggest bankruptcy filing in history.
The 158-year-old firm, which survived railroad bankruptcies, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan yesterday. The collapse of Lehman, which listed more than $613 billion of debt, dwarfs WorldCom Inc.'s insolvency in 2002 and Drexel Burnham Lambert's failure in 1990.
Lehman was forced into bankruptcy after Barclays Plc and Bank of America Corp. abandoned takeover talks yesterday and the company lost 94 percent of its market value this year. Lehman shares dropped 81 percent in Frankfurt trading to 75 cents from their $3.65 close in New York on Friday.
Bank of America to buy Merrill for $29 a share
Bank of America Corp will acquire Merrill Lynch & Co Inc for $29 a share, for about $50 billion as the credit crisis claimed another of America's oldest financial companies. A deal that will give the bank the world's largest brokerage and a sizable investment bank, the Wall Street Journal reported on Sunday.
Bank of America will pay $29 a share for New York-based Merrill in stock, 70 percent more than the Sept. 12 closing price, the company said in a statement today. Merrill, battered by $52.2 billion in losses and write downs from sub prime-mortgage- contaminated securities, has plunged more than 80 percent from its peak of $97.53 at the start of last year.
The takeover ends 94 years of independence for Merrill and gives Charlotte, North Carolina-based Bank of America a sales force with 16,690 brokers who manage $1.6 trillion for customers.
Rupee falls to 46 per dollar; at two-yr low
The Indian rupee on Monday dipped to a two-year low of 46 against the US dollar following heavy demand from importers for the greenback.
The rupee fell by 25 paise to 46, a level last seen on September 29, 2006, against the US dollar in early trade.
Oil prices tumble below $93
Oil prices plunged below USD 93 a barrel on Monday, reaching the lowest levels since February, on the prospect of weaker demand for energy amid a worsening global financial crisis in the wake of Lehman Brothers' bankruptcy, analysts said.
Brent North Sea crude for delivery in October tumbled by more than USD four to USD 92.84 a barrel.
Market Story
It was a historic day today as global markets went into a tailspin following a US financial meltdown. Lehman Brothers filed for bankruptcy and Merrill Lynch was sold to Bank of America. The US financial turmoil had European and Indian markets reeling. Some of the Asian markets were closed today so the cuts were not deep there. The Indian market saw some recovery in the last hour of trade. Sensex shut shop at 13531, down 469 points and Nifty is at 4072, down 155 points from the previous close.
Sources…
Rediffmail.com
Bloomberg.com
TOI
Keep reading…
Keep Investing…
Finally relieved, as my end terms are over and did somewhat better than expected, except one or two subjects!!! In my last post, I posted about Rakesh Jhunjhunwala story. Today I am posting about how SENSEX has grown from 1991 from where our country’s growth started. But before that, very important updates from world of the business.
Lehman Brothers Holding Files for Biggest Bankruptcy
Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the sub prime mortgage crisis it helped create in the biggest bankruptcy filing in history.
The 158-year-old firm, which survived railroad bankruptcies, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan yesterday. The collapse of Lehman, which listed more than $613 billion of debt, dwarfs WorldCom Inc.'s insolvency in 2002 and Drexel Burnham Lambert's failure in 1990.
Lehman was forced into bankruptcy after Barclays Plc and Bank of America Corp. abandoned takeover talks yesterday and the company lost 94 percent of its market value this year. Lehman shares dropped 81 percent in Frankfurt trading to 75 cents from their $3.65 close in New York on Friday.
Bank of America to buy Merrill for $29 a share
Bank of America Corp will acquire Merrill Lynch & Co Inc for $29 a share, for about $50 billion as the credit crisis claimed another of America's oldest financial companies. A deal that will give the bank the world's largest brokerage and a sizable investment bank, the Wall Street Journal reported on Sunday.
Bank of America will pay $29 a share for New York-based Merrill in stock, 70 percent more than the Sept. 12 closing price, the company said in a statement today. Merrill, battered by $52.2 billion in losses and write downs from sub prime-mortgage- contaminated securities, has plunged more than 80 percent from its peak of $97.53 at the start of last year.
The takeover ends 94 years of independence for Merrill and gives Charlotte, North Carolina-based Bank of America a sales force with 16,690 brokers who manage $1.6 trillion for customers.
Rupee falls to 46 per dollar; at two-yr low
The Indian rupee on Monday dipped to a two-year low of 46 against the US dollar following heavy demand from importers for the greenback.
The rupee fell by 25 paise to 46, a level last seen on September 29, 2006, against the US dollar in early trade.
Oil prices tumble below $93
Oil prices plunged below USD 93 a barrel on Monday, reaching the lowest levels since February, on the prospect of weaker demand for energy amid a worsening global financial crisis in the wake of Lehman Brothers' bankruptcy, analysts said.
Brent North Sea crude for delivery in October tumbled by more than USD four to USD 92.84 a barrel.
Market Story
It was a historic day today as global markets went into a tailspin following a US financial meltdown. Lehman Brothers filed for bankruptcy and Merrill Lynch was sold to Bank of America. The US financial turmoil had European and Indian markets reeling. Some of the Asian markets were closed today so the cuts were not deep there. The Indian market saw some recovery in the last hour of trade. Sensex shut shop at 13531, down 469 points and Nifty is at 4072, down 155 points from the previous close.
Sources…
Rediffmail.com
Bloomberg.com
TOI
Keep reading…
Keep Investing…
Sunday, September 14, 2008
The Rakesh Jhunjhunwala
Hi guys, I am back!!! This time with topic of Rakesh Jhunjhunwala the man who is called as Indian Warren Buffet!!! He is also called as 'pin-up boy of the bull run.'
He is a Chartered Accountant by profession and is one of the better known equity investors in India. He has been a keen and active participant in Indian capital markets since 1983 when he started as a trader with a small capital of Rs.5000. According to recent news, his portfolio is worth of Rs. 2294 crores and total net worth is considered to be Rs. 6000 crores
He and his wife came into the limelight with CRISIL Limited. At the end of April 2005 he was holding 14.26% of the company, accounting for Rs 70 crore. In the same year the couple made Rs 27 crore after they sold out to the S&P open offer at Rs 775 per share. In India, bull runs have been associated with certain individuals. In the nineties it was Harshad Mehta and in early 2000 it was Ketan Parekh. But Jhunjhunwala does not like to be associated with any booms. He believes that the market is above individuals. “The market is rational. An individual can never be smarter than the market”, he says.
For your information, some his portfolio constituents are: Titan Industries, Praj Industries, Aptech, Lupin, CRISIL, Nagarjun Construction, Geojit and 10 more.
Success secrets:
He is an expert in picking value stocks when no one is noticed them. He invested in stocks like BEML and other PSU Stocks when everyone looked at technology stocks in early 2000.
Confine your portfolio to 15-20 stocks. Invest for long term to get good returns.
To get exceptional returns, you need to take risks.
He generally stays away from commodity stocks and index stocks. But he recently bought some steel stocks.
Like Jack Welch of GE, he believes in extensive reading and learning.
Be an optimist. Pessimistic investors always lose money in stock markets.
If you believe in the growth prospects of a company, invest in the stock and give it sufficient time.
Greedy investors will never make money in stock markets. Book profits after reaching your target price.
Never put your hard earned money without proper research. Never invest according to Stock tips.
You have to lose many a battle to win the war. This Winston Churchill quote is always quoted by Jhunjhunwala. Balance fear and greed.
Stock markets are always right. Never time the markets.
Prepare for losses. Losses are part and parcel of stock market investor life. Learn from mistakes. Learn to take a loss.
Some of his famous quotes:
"Markets are like women -- always commanding, mysterious, unpredictable and volatile,"
Anticipate trend and benefit from it.
Don’t insult the great man (Warren Buffett) by comparing me to him.
Successful investors are opportunistic and optimistic ones.
Growth comes out of chaos.
Emotional investment is a sure way to make loss in stock markets.
Be happy with your gains but learn to accept losses with a smile.
Be opportunistic but wait for the right moment.
Study the market thoroughly. Refer to history.
Asked how much patience should an investor have, Jhunjhunwala said, "Get married and you will understand how patient you need to be."
"Patience may be tested, but conviction will be rewarded," he asserted. He appealed to the budding investors to go by what George Soros said: 'It's not important whether you are right or wrong, it more important how much you lose when you are wrong and how much money you make when you are right.'
"If in doubt, listen to your heart".
Have an independent opinion, always.
Panic selling during a sharp fall is the worst thing to do.
Bottom-line…
As I always says...
"The market," he says, "is always right. Markets cannot be taught, they have to be learnt."
Keep reading…
Keep investing…
He is a Chartered Accountant by profession and is one of the better known equity investors in India. He has been a keen and active participant in Indian capital markets since 1983 when he started as a trader with a small capital of Rs.5000. According to recent news, his portfolio is worth of Rs. 2294 crores and total net worth is considered to be Rs. 6000 crores
He and his wife came into the limelight with CRISIL Limited. At the end of April 2005 he was holding 14.26% of the company, accounting for Rs 70 crore. In the same year the couple made Rs 27 crore after they sold out to the S&P open offer at Rs 775 per share. In India, bull runs have been associated with certain individuals. In the nineties it was Harshad Mehta and in early 2000 it was Ketan Parekh. But Jhunjhunwala does not like to be associated with any booms. He believes that the market is above individuals. “The market is rational. An individual can never be smarter than the market”, he says.
For your information, some his portfolio constituents are: Titan Industries, Praj Industries, Aptech, Lupin, CRISIL, Nagarjun Construction, Geojit and 10 more.
Success secrets:
He is an expert in picking value stocks when no one is noticed them. He invested in stocks like BEML and other PSU Stocks when everyone looked at technology stocks in early 2000.
Confine your portfolio to 15-20 stocks. Invest for long term to get good returns.
To get exceptional returns, you need to take risks.
He generally stays away from commodity stocks and index stocks. But he recently bought some steel stocks.
Like Jack Welch of GE, he believes in extensive reading and learning.
Be an optimist. Pessimistic investors always lose money in stock markets.
If you believe in the growth prospects of a company, invest in the stock and give it sufficient time.
Greedy investors will never make money in stock markets. Book profits after reaching your target price.
Never put your hard earned money without proper research. Never invest according to Stock tips.
You have to lose many a battle to win the war. This Winston Churchill quote is always quoted by Jhunjhunwala. Balance fear and greed.
Stock markets are always right. Never time the markets.
Prepare for losses. Losses are part and parcel of stock market investor life. Learn from mistakes. Learn to take a loss.
Some of his famous quotes:
"Markets are like women -- always commanding, mysterious, unpredictable and volatile,"
Anticipate trend and benefit from it.
Don’t insult the great man (Warren Buffett) by comparing me to him.
Successful investors are opportunistic and optimistic ones.
Growth comes out of chaos.
Emotional investment is a sure way to make loss in stock markets.
Be happy with your gains but learn to accept losses with a smile.
Be opportunistic but wait for the right moment.
Study the market thoroughly. Refer to history.
Asked how much patience should an investor have, Jhunjhunwala said, "Get married and you will understand how patient you need to be."
"Patience may be tested, but conviction will be rewarded," he asserted. He appealed to the budding investors to go by what George Soros said: 'It's not important whether you are right or wrong, it more important how much you lose when you are wrong and how much money you make when you are right.'
"If in doubt, listen to your heart".
Have an independent opinion, always.
Panic selling during a sharp fall is the worst thing to do.
Bottom-line…
As I always says...
"The market," he says, "is always right. Markets cannot be taught, they have to be learnt."
Keep reading…
Keep investing…
Thursday, September 11, 2008
Some more updates…
Inflation at 12.10% Vs 12.34%
Inflation, for the week ended August 30, slipped marginally to fall to 12.10 per cent. The government's efforts to bring down inflation to tolerable limits and curb runaway prices might have begun to bear some fruit, albeit at a snail's pace. Slightly lower prices of food items like fruits, vegetables and milk pushed inflation down to 12.10 per cent from 12.34 per cent a week ago. Items that pushed up the wholesale prices-based inflation by 0.19 per cent include tea, pulses, cotton yarn and cement. Inflation was 4.24 per cent during the corresponding week last year.
Rupee falls past 45.38, weakest since Nov 2006
The rupee fell to its lowest in nearly two years on Thursday as the dollar strengthened against the euro while a sell-off in Asian stocks raised worries of more outflows from the local share market.
At 9:17 a.m. (0347 GMT), the partially convertible rupee was at 45.41/45 per dollar, its weakest since Nov. 24, 2006 and compared with 45.12/13 at close on Wednesday. Today’s closing is 45.44.
The dollar advanced to a new one-year high against the euro on Thursday as the market's focus reverted to sluggish economic prospects outside the United States and away from concerns about the US financial system.
Sources…
Rediffmail.com
TOI
Inflation, for the week ended August 30, slipped marginally to fall to 12.10 per cent. The government's efforts to bring down inflation to tolerable limits and curb runaway prices might have begun to bear some fruit, albeit at a snail's pace. Slightly lower prices of food items like fruits, vegetables and milk pushed inflation down to 12.10 per cent from 12.34 per cent a week ago. Items that pushed up the wholesale prices-based inflation by 0.19 per cent include tea, pulses, cotton yarn and cement. Inflation was 4.24 per cent during the corresponding week last year.
Rupee falls past 45.38, weakest since Nov 2006
The rupee fell to its lowest in nearly two years on Thursday as the dollar strengthened against the euro while a sell-off in Asian stocks raised worries of more outflows from the local share market.
At 9:17 a.m. (0347 GMT), the partially convertible rupee was at 45.41/45 per dollar, its weakest since Nov. 24, 2006 and compared with 45.12/13 at close on Wednesday. Today’s closing is 45.44.
The dollar advanced to a new one-year high against the euro on Thursday as the market's focus reverted to sluggish economic prospects outside the United States and away from concerns about the US financial system.
Sources…
Rediffmail.com
TOI
Wednesday, September 10, 2008
Updates from world of business
Guys, I may or may not be regular for 3-4 day since I have end terms and I need to pass the exam at least.
Rupee Breached 45 Levels
The Indian rupee on Wednesday breached the crucial 45-level against the
The breaching of the crucial 45-level by the rupee against the US dollar for the first time in 21-month may augur well for exports in the country, but is likely to fuel inflation further, which is hovering over 12 per cent at present, experts feel.
"The huge demand for dollar and mismatch in supply has led to the continuous pressure on rupee, while foreign inflows have also slowed down this year. The depreciation could be a cause of concern for the inflation levels in the country as well although it may help the exporters," Punjab National Bank general manager Arun Kaul said.
Market men believe the uncertainty in the forex market is likely to continue for the coming days and the decline of rupee would obviously impact the imports of the country, with the main one being crude oil.
"After breaching the 45 a dollar mark, the rupee is likely to face strong resistance in the 45.5 to 46 a dollar range. And it is unlikely that it might drop further to 46 level...it is likely to consolidate at current levels for the next 10-15 days," brokerage firm SMC Global vice president Rajesh Jain said.
Market Story
It was a bad day for the Indian market on account of global headwinds. Sensex shut shop at 14662, down 238 points and Nifty at 4400, down 68 points from the previous close. CNX Midcap index was down 0.79% and BSE Smallcap index was down 0.88%. BSE Metal index was down 5%. The market breadth was negative with advances at 338 against declines of 933 on the NSE. Top Nifty gainers included Suzlon, Hero Honda and ACC while losers included Sterlite, SAIL and Tata Steel.
Crude Oil Fluctuates
Brent crude oil prices fell below $100 a barrel for the first time in five months on Tuesday on expectations that OPEC would leave formal output targets unchanged and as Hurricane Ike's threat to US Gulf of Mexico energy infrastructure receded.
Oil prices rose on Wednesday in Asia after OPEC said it would cut more than 500,000 barrels a day of production that exceed its self-imposed output quotas.
Light, sweet crude for October delivery rose 49 cents to US$103.75 a barrel in electronic trading on the New York Mercantile Exchange midday in
Sources…
Rediffmail
TOI
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