Saturday, January 31, 2009
China & Pakistan's Common Enemy --> India
Read the article ‘Common enemy’ keeps them together in Indian Express
Friday, January 30, 2009
Trading TECHNICALLY
Many times I discussed/argued with my friends about the Technical Vs Fundamental Analysis. Even while giving SIP presentation I said this year is best year for Technical Traders or in other words Technical Analysis is going dominate the Fundamental Analysis due to volatility in the market. To prove that TECHNICALLY, I have one audio/video clippings for you all my friends.
Today my friend Mr. Kiran Munikoti (Ranga!!) sent me a link about the Trading Technically Vs Fundamentally. In that speaker has beautifully explained how to trade profitably even in this of volatile market also. And he has shown how fundamental trading fails as compared to Technical trading in SHORT TERM.
In that clipping speaker has used Triangles for trend identification & and the timing of the market. Even he talked about the non participation in the market in the sideways which is very risky from which both the possibility of breaking above/below are possible. While watching & listening to that clipping please you have take care of the followings…
Trend is your friend. Take positions according to trend.
Timing of the market. I mean entering & exiting points should be followed strictly according charts.
Non participation in the sideways.
Picking @ bottom.
For your reference I am providing some more information on the triangles. The below information is some what old, just have look at the methodology.
Triangles
Triangles are some of the most well-known chart patterns used in technical analysis. The three types of triangles, which vary in construct and implication, are the symmetrical triangle, ascending and descending triangle. These chart patterns are considered to last anywhere from a couple of weeks to several months.
The symmetrical triangle in the Figure is a pattern in which two trend lines converge toward each other. This pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that direction. In an ascending triangle, the upper trend line is flat, while the bottom trend line is upward sloping. This is generally thought of as a bullish pattern in which chartists look for an upside breakout. In a descending triangle, the lower trend line is flat and the upper trend line is descending. This is generally seen as a bearish pattern where chartists look for a downside breakout.
As shown in the Ascending Triangle chart the stock has the resistance at 1000 levels. But immediately after forming Ascending triangle the scrip rallied 1000 to1150 levels as traders shown interest in long position.
Now in Descending Triangle chart the stock has the resistance at 2000 levels. But after forming Descending triangle the stock breaches that support and plunged from 2000 levels 1600 levels as traders enter into short position.
Now Symmetric Triangle formed by sharp movement of price in sideways. After this, stock rallied from 980 levels to 1150 levels by indicating trend reversal.
Today my friend Mr. Kiran Munikoti (Ranga!!) sent me a link about the Trading Technically Vs Fundamentally. In that speaker has beautifully explained how to trade profitably even in this of volatile market also. And he has shown how fundamental trading fails as compared to Technical trading in SHORT TERM.
In that clipping speaker has used Triangles for trend identification & and the timing of the market. Even he talked about the non participation in the market in the sideways which is very risky from which both the possibility of breaking above/below are possible. While watching & listening to that clipping please you have take care of the followings…
Trend is your friend. Take positions according to trend.
Timing of the market. I mean entering & exiting points should be followed strictly according charts.
Non participation in the sideways.
Picking @ bottom.
For your reference I am providing some more information on the triangles. The below information is some what old, just have look at the methodology.
Triangles
Triangles are some of the most well-known chart patterns used in technical analysis. The three types of triangles, which vary in construct and implication, are the symmetrical triangle, ascending and descending triangle. These chart patterns are considered to last anywhere from a couple of weeks to several months.
The symmetrical triangle in the Figure is a pattern in which two trend lines converge toward each other. This pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that direction. In an ascending triangle, the upper trend line is flat, while the bottom trend line is upward sloping. This is generally thought of as a bullish pattern in which chartists look for an upside breakout. In a descending triangle, the lower trend line is flat and the upper trend line is descending. This is generally seen as a bearish pattern where chartists look for a downside breakout.
As shown in the Ascending Triangle chart the stock has the resistance at 1000 levels. But immediately after forming Ascending triangle the scrip rallied 1000 to1150 levels as traders shown interest in long position.
Now in Descending Triangle chart the stock has the resistance at 2000 levels. But after forming Descending triangle the stock breaches that support and plunged from 2000 levels 1600 levels as traders enter into short position.
Now Symmetric Triangle formed by sharp movement of price in sideways. After this, stock rallied from 980 levels to 1150 levels by indicating trend reversal.
Thursday, January 29, 2009
US Clears the $819 Billion Stimulus Package
As desperately needed package of stimulus of worth $800 Billion passed in house where in all Democratic senators voting in favor of the bill & republicans against the bill. The bill is expected to be discussed in senate from Monday & finally signed in the Feb mid...
The stimulus package is expected to contain the major spending & tax cuts.
This was an expected move because of the pace at which job losses happenings in the US from couple of months is very high. And the gloomy forecast of the economy by IMF suggesting the -1.6% growth for US & rest of the world is as follows...
Reference
Yahoo
mint
The stimulus package is expected to contain the major spending & tax cuts.
This was an expected move because of the pace at which job losses happenings in the US from couple of months is very high. And the gloomy forecast of the economy by IMF suggesting the -1.6% growth for US & rest of the world is as follows...
Reference
Yahoo
mint
Wednesday, January 28, 2009
Is India poor, who says? Ask Swiss banks - Ramesh C M (merinews.com)
Actually I was surprised to see the matti’s mail in my mail box. I mean he rarely send mails but whenever he mails that will be very effective (like classes, he talks very rarely but talks sense). And when I opened that, there was just one link with a subject line of “I am SHOCKED”. And when I opened and read that, I was also...
I am posting that article(from merinews.com by Ramesh C M) for you guys…
With personal account deposit bank of $1500 billion in foreign reserve which have been misappropriated, an amount 13 times larger than the country's foreign debt, one needs to rethink if India is a poor country?
Dishonest industrialists, scandalous politicians and corrupt IAS, IRS, IPS officers have deposited in foreign banks in their illegal personal accounts a sum of about $ 1500 billion, which have been misappropriated by them. This amount is about 13 times larger than the country’s foreign debt. With this amount 45 crore poor people can get Rs 100000 each. This huge amount has been appropriated from the people of India by exploiting and betraying them.
Once this huge amount of black money and property comes back to India, the entire foreign debt can be repaid in 24 hours. After paying the entire foreign debt, we will have surplus amount, almost 12 times larger than the foreign debt. If this surplus amount is invested in earning interest, the amount of interest will be more than the annual budget of the Central government. So even if all the taxes are abolished, then also the Central government will be able to maintain the country very comfortably.
Some 80,000 people travel to Switzerland every year, of whom 25,000 travel very frequently. “Obviously, these people won’t be tourists. They must be traveling there for some other reason,” believes an official involved in tracking illegal money. And, clearly, he isn’t referring to the commerce ministry bureaucrats who’ve been flitting in and out of Geneva ever since the World Trade Organization (WTO) negotiations went into a tailspin!
Just read the following details and note how these dishonest industrialists, scandalous politicians, corrupt officers, cricketers, film actors, illegal sex trade and protected wildlife operators, to name just a few, sucked this country’s wealth and prosperity. This may be the picture of deposits in Swiss banks only. What about other international banks?
Black money in Swiss banks -- Swiss Banking Association report, 2006 details bank deposits in the territory of Switzerland by nationals of following countries:
Top five
India---- $1456 billion
Russia---$ 470 billion
UK-------$390 billion
Ukraine- $100 billion
China-----$ 96 billion
Now do the maths - India with $1456 billion or $1.4 trillion has more money in Swiss banks than rest of the world combined. Public loot since 1947: Can we bring back our money? It is one of the biggest loots witnessed by mankind -- the loot of the Aam Aadmi (common man) since 1947, by his brethren occupying public office. It has been orchestrated by politicians, bureaucrats and some businessmen. The list is almost all-encompassing. No wonder, everyone in India loots with impunity and without any fear.
What is even more depressing in that this ill-gotten wealth of ours has been stashed away abroad into secret bank accounts located in some of the world’s best known tax havens. And to that extent the Indian economy has been stripped of its wealth. Ordinary Indians may not be exactly aware of how such secret accounts operate and what are the rules and regulations that go on to govern such tax havens. However, one may well be aware of ’Swiss bank accounts,’ the shorthand for murky dealings, secrecy and of course pilferage from developing countries into rich developed ones.
In fact, some finance experts and economists believe tax havens to be a conspiracy of the western world against the poor countries. By allowing the proliferation of tax havens in the twentieth century, the western world explicitly encourages the movement of scarce capital from the developing countries to the rich.
In March 2005, the Tax Justice Network (TJN) published a research finding demonstrating that $11.5 trillion of personal wealth was held offshore by rich individuals across the globe. The findings estimated that a large proportion of this wealth was managed from some 70 tax havens.
Further, augmenting these studies of TJN, Raymond Baker -- in his widely celebrated book titled ’Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free Market System’ -- estimates that at least $5 trillion have been shifted out of poorer countries to the West since the mid-1970. It is further estimated by experts that one per cent of the world’s population holds more than 57 per cent of total global wealth, routing it invariably through these tax havens. How much of this is from India is anybody’s guess.
What is to be noted here is that most of the wealth of Indians parked in these tax havens is illegitimate money acquired through corrupt means. Naturally, the secrecy associated with the bank accounts in such places is central to the issue, not their low tax rates as the term ’tax havens’ suggests. Remember Bofors and how India could not trace the ultimate beneficiary of those transactions because of the secrecy associated with these bank accounts?
IS THERE ANY ONE WHO WOULD SAVE INDIA ?
God... No No No, even he can’t..........!!
I am posting that article(from merinews.com by Ramesh C M) for you guys…
With personal account deposit bank of $1500 billion in foreign reserve which have been misappropriated, an amount 13 times larger than the country's foreign debt, one needs to rethink if India is a poor country?
Dishonest industrialists, scandalous politicians and corrupt IAS, IRS, IPS officers have deposited in foreign banks in their illegal personal accounts a sum of about $ 1500 billion, which have been misappropriated by them. This amount is about 13 times larger than the country’s foreign debt. With this amount 45 crore poor people can get Rs 100000 each. This huge amount has been appropriated from the people of India by exploiting and betraying them.
Once this huge amount of black money and property comes back to India, the entire foreign debt can be repaid in 24 hours. After paying the entire foreign debt, we will have surplus amount, almost 12 times larger than the foreign debt. If this surplus amount is invested in earning interest, the amount of interest will be more than the annual budget of the Central government. So even if all the taxes are abolished, then also the Central government will be able to maintain the country very comfortably.
Some 80,000 people travel to Switzerland every year, of whom 25,000 travel very frequently. “Obviously, these people won’t be tourists. They must be traveling there for some other reason,” believes an official involved in tracking illegal money. And, clearly, he isn’t referring to the commerce ministry bureaucrats who’ve been flitting in and out of Geneva ever since the World Trade Organization (WTO) negotiations went into a tailspin!
Just read the following details and note how these dishonest industrialists, scandalous politicians, corrupt officers, cricketers, film actors, illegal sex trade and protected wildlife operators, to name just a few, sucked this country’s wealth and prosperity. This may be the picture of deposits in Swiss banks only. What about other international banks?
Black money in Swiss banks -- Swiss Banking Association report, 2006 details bank deposits in the territory of Switzerland by nationals of following countries:
Top five
India---- $1456 billion
Russia---$ 470 billion
UK-------$390 billion
Ukraine- $100 billion
China-----$ 96 billion
Now do the maths - India with $1456 billion or $1.4 trillion has more money in Swiss banks than rest of the world combined. Public loot since 1947: Can we bring back our money? It is one of the biggest loots witnessed by mankind -- the loot of the Aam Aadmi (common man) since 1947, by his brethren occupying public office. It has been orchestrated by politicians, bureaucrats and some businessmen. The list is almost all-encompassing. No wonder, everyone in India loots with impunity and without any fear.
What is even more depressing in that this ill-gotten wealth of ours has been stashed away abroad into secret bank accounts located in some of the world’s best known tax havens. And to that extent the Indian economy has been stripped of its wealth. Ordinary Indians may not be exactly aware of how such secret accounts operate and what are the rules and regulations that go on to govern such tax havens. However, one may well be aware of ’Swiss bank accounts,’ the shorthand for murky dealings, secrecy and of course pilferage from developing countries into rich developed ones.
In fact, some finance experts and economists believe tax havens to be a conspiracy of the western world against the poor countries. By allowing the proliferation of tax havens in the twentieth century, the western world explicitly encourages the movement of scarce capital from the developing countries to the rich.
In March 2005, the Tax Justice Network (TJN) published a research finding demonstrating that $11.5 trillion of personal wealth was held offshore by rich individuals across the globe. The findings estimated that a large proportion of this wealth was managed from some 70 tax havens.
Further, augmenting these studies of TJN, Raymond Baker -- in his widely celebrated book titled ’Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free Market System’ -- estimates that at least $5 trillion have been shifted out of poorer countries to the West since the mid-1970. It is further estimated by experts that one per cent of the world’s population holds more than 57 per cent of total global wealth, routing it invariably through these tax havens. How much of this is from India is anybody’s guess.
What is to be noted here is that most of the wealth of Indians parked in these tax havens is illegitimate money acquired through corrupt means. Naturally, the secrecy associated with the bank accounts in such places is central to the issue, not their low tax rates as the term ’tax havens’ suggests. Remember Bofors and how India could not trace the ultimate beneficiary of those transactions because of the secrecy associated with these bank accounts?
IS THERE ANY ONE WHO WOULD SAVE INDIA ?
God... No No No, even he can’t..........!!
Hyperinflation of Zimbabwe
As I posted previously, from mid November Zimbabwe's inflation data releasing is put on hold. When it was published last time in November 14 2008, Zimbabwe’s annual inflation rate was 89.7 Sextillion (10^21)%.
My friend Mr. Mehra sent me some of the photos which reflect the Zimbabwe's present conditions of currency. Have look at them...
Look at the value of the Zimbabwe currency...
10 Million Zimbabwe Dollars = 10 US Dollars
Look at the child carrying loads & loads of the Zimbabwe dollars...
Which may not last for couple days also...
Look at the currency denomination the extent to which Zimbabwe's central bank is issuing to tackle the rapid the increase in the market price which amounts more than 12,875% increment per year...
That wasn't sufficient enough, recently it has issued 100 Billion Dollars currency also...
You might be wondering the worthiness of the this 100 Billion Dollars Note!!! Just have a look at the below photograph...
Now if you are thinking to visit any Zimbabwe Restaurant then before visiting plan your way of carrying the Zimbabwean Dollars...
Or Just couple of hundreds of US Dollars!!!
My friend Mr. Mehra sent me some of the photos which reflect the Zimbabwe's present conditions of currency. Have look at them...
Look at the value of the Zimbabwe currency...
10 Million Zimbabwe Dollars = 10 US Dollars
Look at the child carrying loads & loads of the Zimbabwe dollars...
Which may not last for couple days also...
Look at the currency denomination the extent to which Zimbabwe's central bank is issuing to tackle the rapid the increase in the market price which amounts more than 12,875% increment per year...
That wasn't sufficient enough, recently it has issued 100 Billion Dollars currency also...
You might be wondering the worthiness of the this 100 Billion Dollars Note!!! Just have a look at the below photograph...
Now if you are thinking to visit any Zimbabwe Restaurant then before visiting plan your way of carrying the Zimbabwean Dollars...
Or Just couple of hundreds of US Dollars!!!
Monday, January 26, 2009
Macroeconomic & Monetary Review of RBI
Today, RBI has released the third quarter review of Macroeconomic & Monetary developments which includes:
--> Total output
--> Aggregate demand
--> External economy
--> Monetary condition
--> Financial markets
--> Price situation
--> Total output
--> Aggregate demand
--> External economy
--> Monetary condition
--> Financial markets
--> Price situation
Saturday, January 24, 2009
BL opinion: The Governor’s dilemma - A. Seshan
Hi guys, I am back again with my favourite topic monetary policy/inflation(WPI/CPI) & etc about which I was writing from last two months. Today in Business Line I read this article from Mr. A Seshan who has beautifully analyzed the things relating to the inflation (where in WPI is coming down but consumer prices are still at their peak), Credit Deposit ratio, Dilemma of interest rate cuts & etc. I would have just given link, but I thought article too good to just give the link. So I am posting the same article with some highlights...
In the run-up to the quarterly review of monetary and credit policies, Dr Duvvuri Subbarao, Governor of the Reserve Bank of India (RBI), faces a disquieting situation. He has done his best — in fact, more than what a traditional central banker would do in the normal course in dealing with a difficult situation which is not of the country’s making.
Prices still high
Although official agencies have demolished inflation fears by just declaring that it is no longer a problem, the reality is consumer prices are still high, whether of goods or services. As everyone knows, the Wholesale Price Index (WPI) does not tell the whole story of the sufferings of the consumer. Even with its limitations the annual price rise of food articles was of the order of 9.5 per cent, according to the WPI, as on January 3.
The Consumer Price Indices for various groups of the population are, of course, reliable but they too suffer from the obsolescence of the composition of goods and services and relative weights.
One good example is the increasing importance of fruits and vegetables in the consumption basket of the poor and the lower middle class people. This is a welcome development testifying to the rise in the real incomes of people. The weight of 2.91655 in the WPI does not reflect the correct position.
This is one of the reasons why people have ceased to believe in the price statistics put out by the government. In the field of services, whether it is fees paid to a consulting physician or a surgeon or a barber the increase has been many fold in the last decade. Yet another aspect of inflation is its invisibility in the way in which price is retained but quantity is reduced. We have seen over the years the diminution in the size of the traditional coffee tumbler, as it is called in the South. The price may remain the same giving the illusion of price stability!
Yet another trick of the trade to camouflage a change in price is to switch over to weight from number in selling vegetables or fruits. This writer came across an instance of bananas being sold by weight. There were 10 bananas in one kg costing Rs 30. It worked out to Rs 3 per a piece against Rs 2 charged hardly a month back.
Recently, there was a report that alphonso mangoes had arrived in Pune markets rather early and a box of four dozens was priced at Rs 10,000 (no typo!). One does not know whether there were any takers. But the very fact that such atrocious prices could be quoted with nonchalance is a matter for concern for it reveals the inflation psychology embedded therein.
Demand for credit
The issue of credit has no doubt improved. For the current financial year the incremental credit-deposit (CD) ratio works out to 70.4 per cent, as on January 2, compared with 56.9 per cent a year earlier. But still the demand for credit does not appear to be commensurate with the supply. This is clear from the investment data.
At the beginning of January this year the (absolute) CD ratio was 73.5% while the investment in SLR securities accounted for 31.3% against the statutory stipulation of 24%. In fact, during the fortnight ended January 2, out of the deposit growth of nearly Rs 70,000 crore, statutory investments accounted for 89%.
To the comfort of the RBI, the growth in M3 over 12 months has come down to 19.6 per cent, as on January 2, from 22.6 per cent a year earlier. In a situation where the official attention is caught up with pumping credit as a panacea for the ills of the economy any talk about a target for money supply growth will have no takers.
Cut rates further?
Still it is the dharma of the central bank to worry about the underlying currents of inflation, referred to above, and visualise the position a few months later. The dilemma facing the RBI is this: Should it carry on with the existing CRR/SLR and repo/reverse repo rates or reduce them further?
If it follows the first option, which this writer would recommend, it may be accused of not doing anything to ameliorate the situation. On the other hand, if it takes to the second choice, it will only be fuelling the inflation of the future without any tangible benefit accruing immediately. There is the well-known concept of the time inconsistency problem, that is, both individuals and institutions adopt policies with short-term benefits though they are aware of the long-term costs.
During the recent period, there have been massive reverse repo operations pointing to surplus liquidity in the system. As a result, the special repo for helping mutual funds, etc., evoked poor response. The irony is that instead of being the lender of the last resort the central bank has become the borrower of first resort! This writer had suggested reducing the reverse repo rate to 3 per cent — 50 basis points below the rate for savings bank deposits ( Business Line, December 24, 2008).
In its latest measure, the RBI reduced the rate to 4 per cent but it has not discouraged the banks’ preference to depositing the money with the central bank rather than lend. Would it help if the reverse repo window is closed? There is no legal impediment for this extreme measure. But, as it is often said, you cannot push a string.
Situation of uncertainty
In an environment marked by a lack of confidence in a prosperous future there is no incentive either to borrow or to lend. The rising non-performing assets, especially in respect of personal loans, make the banks all the more cautious in lending.
In a situation fraught with uncertainty on sales, the industrial sector will need further incentives for borrowing through a substantial reduction in rates. Although the lending rates have come down they are still high compared with what was the norm a few years ago. Here, one of the main hitches is the large spreads or margins enjoyed by banks. They have gone up in the recent periods.
Thus, compared with the position in the first half of the previous year, during the six months of 2008-09 the net interest margin went up from 3.01 per cent to 3.16 per cent in State Bank of India and from 3.41 per cent to 3.78 per cent in Punjab National Bank.
According to a HDFC Bank report, the margin during the December 2008 quarter was 4.3 per cent — 10 basis points more than a year back. With the increasing use of Internet banking and ATMs, banking costs should have come down very much. In fact, one large bank in the private sector claims that three-fourths of its transactions are done away from the branches. There is no need for any signal from RBI to reduce rates. It has no relevance in a situation where banks are lending to RBI! They can bring down rates by cutting down on their margins and improving efficiency.
Bottom-line (My thoughts):
I feel that we should adopt to CPI rather than sticking ourselves to WPI. I am not saying this because we are facing some kind of crisis or inflation, but to improve the effects of the monetary policies with regard to what real time consumers is paying. And that CPI should be included with all kind of services which presently a common man is using. And about weightage should be monitored & changed regularly depending upon the changes in purchasing power/standard of living, importance to different things at different time frame & etc.
And I think, in the crisis situation like (Threat of Great Recession!) we need to think more of short term rather than long term. And I think still we havent seen the bottom of the crisis. The way situation is unfolding in US where in nearly 16000 people are losing their job daily on an average from last two months is going to cause lot of problem for Indian IT/ITes companies once Mr. Obama starts boosting US domestic economy by reducing outsourcing!
And I think Growth & Inflation will go hand in hand. So if you are boosting your economy then you need to be ready to face the slight inflation!
And as I posted many times previously this, RBI should reverse repo which is stopping the banks from lending & rather taking safest route to deposit the excess amount with the RBI. And as for as the SLR is concerned RBI should think having UPPER AS LOWER WITH SMALL VARIATION particularly crisis situation like this.
In the run-up to the quarterly review of monetary and credit policies, Dr Duvvuri Subbarao, Governor of the Reserve Bank of India (RBI), faces a disquieting situation. He has done his best — in fact, more than what a traditional central banker would do in the normal course in dealing with a difficult situation which is not of the country’s making.
Prices still high
Although official agencies have demolished inflation fears by just declaring that it is no longer a problem, the reality is consumer prices are still high, whether of goods or services. As everyone knows, the Wholesale Price Index (WPI) does not tell the whole story of the sufferings of the consumer. Even with its limitations the annual price rise of food articles was of the order of 9.5 per cent, according to the WPI, as on January 3.
The Consumer Price Indices for various groups of the population are, of course, reliable but they too suffer from the obsolescence of the composition of goods and services and relative weights.
One good example is the increasing importance of fruits and vegetables in the consumption basket of the poor and the lower middle class people. This is a welcome development testifying to the rise in the real incomes of people. The weight of 2.91655 in the WPI does not reflect the correct position.
This is one of the reasons why people have ceased to believe in the price statistics put out by the government. In the field of services, whether it is fees paid to a consulting physician or a surgeon or a barber the increase has been many fold in the last decade. Yet another aspect of inflation is its invisibility in the way in which price is retained but quantity is reduced. We have seen over the years the diminution in the size of the traditional coffee tumbler, as it is called in the South. The price may remain the same giving the illusion of price stability!
Yet another trick of the trade to camouflage a change in price is to switch over to weight from number in selling vegetables or fruits. This writer came across an instance of bananas being sold by weight. There were 10 bananas in one kg costing Rs 30. It worked out to Rs 3 per a piece against Rs 2 charged hardly a month back.
Recently, there was a report that alphonso mangoes had arrived in Pune markets rather early and a box of four dozens was priced at Rs 10,000 (no typo!). One does not know whether there were any takers. But the very fact that such atrocious prices could be quoted with nonchalance is a matter for concern for it reveals the inflation psychology embedded therein.
Demand for credit
The issue of credit has no doubt improved. For the current financial year the incremental credit-deposit (CD) ratio works out to 70.4 per cent, as on January 2, compared with 56.9 per cent a year earlier. But still the demand for credit does not appear to be commensurate with the supply. This is clear from the investment data.
At the beginning of January this year the (absolute) CD ratio was 73.5% while the investment in SLR securities accounted for 31.3% against the statutory stipulation of 24%. In fact, during the fortnight ended January 2, out of the deposit growth of nearly Rs 70,000 crore, statutory investments accounted for 89%.
To the comfort of the RBI, the growth in M3 over 12 months has come down to 19.6 per cent, as on January 2, from 22.6 per cent a year earlier. In a situation where the official attention is caught up with pumping credit as a panacea for the ills of the economy any talk about a target for money supply growth will have no takers.
Cut rates further?
Still it is the dharma of the central bank to worry about the underlying currents of inflation, referred to above, and visualise the position a few months later. The dilemma facing the RBI is this: Should it carry on with the existing CRR/SLR and repo/reverse repo rates or reduce them further?
If it follows the first option, which this writer would recommend, it may be accused of not doing anything to ameliorate the situation. On the other hand, if it takes to the second choice, it will only be fuelling the inflation of the future without any tangible benefit accruing immediately. There is the well-known concept of the time inconsistency problem, that is, both individuals and institutions adopt policies with short-term benefits though they are aware of the long-term costs.
During the recent period, there have been massive reverse repo operations pointing to surplus liquidity in the system. As a result, the special repo for helping mutual funds, etc., evoked poor response. The irony is that instead of being the lender of the last resort the central bank has become the borrower of first resort! This writer had suggested reducing the reverse repo rate to 3 per cent — 50 basis points below the rate for savings bank deposits ( Business Line, December 24, 2008).
In its latest measure, the RBI reduced the rate to 4 per cent but it has not discouraged the banks’ preference to depositing the money with the central bank rather than lend. Would it help if the reverse repo window is closed? There is no legal impediment for this extreme measure. But, as it is often said, you cannot push a string.
Situation of uncertainty
In an environment marked by a lack of confidence in a prosperous future there is no incentive either to borrow or to lend. The rising non-performing assets, especially in respect of personal loans, make the banks all the more cautious in lending.
In a situation fraught with uncertainty on sales, the industrial sector will need further incentives for borrowing through a substantial reduction in rates. Although the lending rates have come down they are still high compared with what was the norm a few years ago. Here, one of the main hitches is the large spreads or margins enjoyed by banks. They have gone up in the recent periods.
Thus, compared with the position in the first half of the previous year, during the six months of 2008-09 the net interest margin went up from 3.01 per cent to 3.16 per cent in State Bank of India and from 3.41 per cent to 3.78 per cent in Punjab National Bank.
According to a HDFC Bank report, the margin during the December 2008 quarter was 4.3 per cent — 10 basis points more than a year back. With the increasing use of Internet banking and ATMs, banking costs should have come down very much. In fact, one large bank in the private sector claims that three-fourths of its transactions are done away from the branches. There is no need for any signal from RBI to reduce rates. It has no relevance in a situation where banks are lending to RBI! They can bring down rates by cutting down on their margins and improving efficiency.
Bottom-line (My thoughts):
I feel that we should adopt to CPI rather than sticking ourselves to WPI. I am not saying this because we are facing some kind of crisis or inflation, but to improve the effects of the monetary policies with regard to what real time consumers is paying. And that CPI should be included with all kind of services which presently a common man is using. And about weightage should be monitored & changed regularly depending upon the changes in purchasing power/standard of living, importance to different things at different time frame & etc.
And I think, in the crisis situation like (Threat of Great Recession!) we need to think more of short term rather than long term. And I think still we havent seen the bottom of the crisis. The way situation is unfolding in US where in nearly 16000 people are losing their job daily on an average from last two months is going to cause lot of problem for Indian IT/ITes companies once Mr. Obama starts boosting US domestic economy by reducing outsourcing!
And I think Growth & Inflation will go hand in hand. So if you are boosting your economy then you need to be ready to face the slight inflation!
And as I posted many times previously this, RBI should reverse repo which is stopping the banks from lending & rather taking safest route to deposit the excess amount with the RBI. And as for as the SLR is concerned RBI should think having UPPER AS LOWER WITH SMALL VARIATION particularly crisis situation like this.
GDP Estimation Lowered from 7.7% to 7.1%
Prime Minister Advisory Committee lowered its July 2008 GDP estimation from 7.7% to 7.1% for the year 2008-09 due to various reasons. Financial Express has news article about this read that.
Friday, January 23, 2009
Neemrana Conference Material
As a routine practice when I was browsing through my favourite blogger Mr. Ajay Shah's postings today, I came to know about the 10th Annual NCAER-NBER-ICRIER Neemrana Conference on Sustaining Growth in Troubled Times which happened from 10-13 Jan 2009.
In this conference various experts/economists/scholars from the above mentioned institutions like NCAER ( National Council of Applied Economic Research ), NBER (National Bureau of Economic Research) & ICRIER (Indian Council of Research in International Economic Relations) presented their views/presentations on the various issues like
1. Global Economic Downturn: Analysis, Prospects and Implications
--> Landed Interests and Financial Underdevelopment in the United States
--> The Causes and Consequences of the Financial Crisis
--> What are the Risks of Government Bonds?
2. Trade Integration: Regional and Global
--> The Clash Between Economics and Politics in the World Trade Organisation
--> The Decentering of the Global Firm
--> Taxes, Dividends and International Portfolio Choice
--> The Decentering of the Global Firm
3. Fiscal Approach
--> Tax Expenditures for Owner- Occupied Housing
--> A Public Finance Perspective on Economic Development
--> Taxes and Economic Growth in Developing Countries
--> India’s Macroeconomic Performance and Policies since 2000
--> Fiscal Policy : Some Notes
--> Fiscal Space for Economic Revival
And many more topics whose list with respective material is there on the link.
Bottom-line:
I know most these material will be bouncers to my most of the readers & cant read everything at once. But at least try to read what you can understand. Because the kind material with the kind of research these experts have put in is really really HUGE. So at least store those PPTs & Papers, and you can refer back to them as and when is necessary. To tell you one secrete, for me also most of these are BOUNCERS & YORKERS. But I would like try to play with these PRACTICAL & PRESENT CONDITION BOUNCERS & YORKERS & hopefully become master in these down the line...
In this conference various experts/economists/scholars from the above mentioned institutions like NCAER ( National Council of Applied Economic Research ), NBER (National Bureau of Economic Research) & ICRIER (Indian Council of Research in International Economic Relations) presented their views/presentations on the various issues like
1. Global Economic Downturn: Analysis, Prospects and Implications
--> Landed Interests and Financial Underdevelopment in the United States
--> The Causes and Consequences of the Financial Crisis
--> What are the Risks of Government Bonds?
2. Trade Integration: Regional and Global
--> The Clash Between Economics and Politics in the World Trade Organisation
--> The Decentering of the Global Firm
--> Taxes, Dividends and International Portfolio Choice
--> The Decentering of the Global Firm
3. Fiscal Approach
--> Tax Expenditures for Owner- Occupied Housing
--> A Public Finance Perspective on Economic Development
--> Taxes and Economic Growth in Developing Countries
--> India’s Macroeconomic Performance and Policies since 2000
--> Fiscal Policy : Some Notes
--> Fiscal Space for Economic Revival
And many more topics whose list with respective material is there on the link.
Bottom-line:
I know most these material will be bouncers to my most of the readers & cant read everything at once. But at least try to read what you can understand. Because the kind material with the kind of research these experts have put in is really really HUGE. So at least store those PPTs & Papers, and you can refer back to them as and when is necessary. To tell you one secrete, for me also most of these are BOUNCERS & YORKERS. But I would like try to play with these PRACTICAL & PRESENT CONDITION BOUNCERS & YORKERS & hopefully become master in these down the line...
Repo & Reverse Repo
As I have believed & stated many times in my previous posts that repo & reverse repo rates are still high due to which liquidity in the economy is not flowing.
In today's FE there is an editorial which gives you more insight about how repo & reverse repos are acting hurdle between banks & economy.
In that, editorial talked about only repo rates but I believe reverse repo rates also should reduced to subsequently till June - July 2009 to avoid the deflation from which again so called very effective base effect starts acting. At least from lower PLR (Prime Lending Rates) economic activities starts/speedup.
In today's FE there is an editorial which gives you more insight about how repo & reverse repos are acting hurdle between banks & economy.
In that, editorial talked about only repo rates but I believe reverse repo rates also should reduced to subsequently till June - July 2009 to avoid the deflation from which again so called very effective base effect starts acting. At least from lower PLR (Prime Lending Rates) economic activities starts/speedup.
Wishing Mr. Prime Minister Fast Recovery
I wish & pray our beloved Mr. Prime Minister Manmohan Singh fast recovery from his heart bypass surgery which is going to happen tomorrow morning @ 8.15 AM in AIIMS.
Surely India is going to miss her Prime Minister on Republic Day celebration.
And I particularly miss his participation in key policies like Vote of Account, suggestion for RBI meeting in last week of this month, IndoPak relations unfoldings, developments in US & etc.
So once again I wish & pray our Mr. Prime Minister get well soon.
Surely India is going to miss her Prime Minister on Republic Day celebration.
And I particularly miss his participation in key policies like Vote of Account, suggestion for RBI meeting in last week of this month, IndoPak relations unfoldings, developments in US & etc.
So once again I wish & pray our Mr. Prime Minister get well soon.
Thursday, January 22, 2009
Inflation @ 5.60%
As I posted previously about TRUCKER'S STRIKE & INFLATED INFLATION, finally these two acted on the inflation numbers by costing higher prices in the edibles.
As data released by this week INFLATION raised to 5.6% from 5.24% due to above mentioned reasons.
As data released by this week INFLATION raised to 5.6% from 5.24% due to above mentioned reasons.
Open Check Offer from Pak to Chian
Today REDIFF said that Pakistan Foreign Minister Shah Mahmood Qureshi had offered the blank check to Chinese special envoy He Yafei to deal with the India after 26/11.
US & China Alliance
Today I read an article from BLOOMBERG which talks China's evolution in 30 years, relevance of G7 or G8 in the present conditions where in all these G8 countries are in recession or on the verge of.
Author talks about the Japan's problems of Recession & Deflation, UE problems & probable solution of Alliance between US of $ 14 Trillion & China of $ 3.3 Trillion...
Author talks about the Japan's problems of Recession & Deflation, UE problems & probable solution of Alliance between US of $ 14 Trillion & China of $ 3.3 Trillion...
China's GDP 6.8%
China's economy GROWTH RATE hit by massive slowdown in the world economy causing trouble for export oriented Chinese industries.
China's GDP grown 6.8% in 4th quarter compared to its 3rd quarter GDP growth of 9%. This is the SLOWEST GROWTH in past 7 years.
China's GDP grown 6.8% in 4th quarter compared to its 3rd quarter GDP growth of 9%. This is the SLOWEST GROWTH in past 7 years.
Tuesday, January 20, 2009
Keynesianism – 2
I am back with Keynesianism again. Before continuing, I would like clear the doubts raised by MOHIT GARG. He asked...
Hi Sir
Can u elaborate what is marginal disutility in 1st assumption & involuntary unemployment in 2nd assumption.
In the 1st assumption, according Keynes, the classical theory says, wage of an employed person is equal to the value which would be lost if employment were to be reduced by number of unit, that is marginal disutility. That is value or units of value lost due to non use of employment. And Keynes contradicts this. He says 1st & 2nd assumptions themselves are contradicting each other!!!
And in 2nd assumption, Keynes said there is no involuntary unemployment. First let me explain to what is involuntary unemployment. Workers will be ready to work for whatever the wage they get but, they will not get employment due to various reasons like reduction will in the aggregate demand, the market structure & government intervention. Keynes says, in these kinds of cases, there is no question of INVOLUNTARY; everything will be VOLUNTARY only since it will lead to increase in supply of labour & aggregate demand for it.
Now coming to today’s post, today I read 3rd chapter, in which he talks about the aggregate demand. He says the number of employment depends on the aggregate demand & supply price compared to his total cost.
In this chapter he contradicts the Classical theory which says “Supply creates its own demand”. And he proves that using aggregate supply & demand equations. He says that classical theory works when aggregate demand is equal to aggregate supply which is in equilibrium. And equilibrium can’t be realistic in the world where we live. If Say’s law hold good then there would have been robust demand due to continuous supply, which would have resulted a full employment, which is in myth!
In this chapter he says that,
1. Resources, costs & income depends on the volume of employment
2. Consumption will depend on the level of aggregate income and, therefore, on the level of employment N, except when there is some change in the propensity to consume
3. Amount of labour depends upon amount which the community is expected to spend on consumption & the amount which it is expected to devote to new investment.
4. Hence the volume of employment in equilibrium depends on (i) the aggregate supply function, (ii) the propensity to consume, and (iii) the volume of investment.
Paradox of poverty in the midst of plenty:
This is important statement made by the Keynes which exactly suitable present crisis. Keynes says that, the propensity to consume & rate of new investment decides the employment. If these two decreases, then there is decrease in employment ready to work at the existing wage, and the equilibrium wage will be greater than the marginal disutility of the equilibrium level of employment. See here again contradicts the 1st assumption (that the real wage is equal to the marginal disutility of the existing employment) on which classical theory depends…
Bottom Line (Not mine, its Keynes statement):
It may well be that the classical theory represents the way in which we should like our economy to behave. But to assume that it actually does so is to assume our difficulties away.
Hi Sir
Can u elaborate what is marginal disutility in 1st assumption & involuntary unemployment in 2nd assumption.
In the 1st assumption, according Keynes, the classical theory says, wage of an employed person is equal to the value which would be lost if employment were to be reduced by number of unit, that is marginal disutility. That is value or units of value lost due to non use of employment. And Keynes contradicts this. He says 1st & 2nd assumptions themselves are contradicting each other!!!
And in 2nd assumption, Keynes said there is no involuntary unemployment. First let me explain to what is involuntary unemployment. Workers will be ready to work for whatever the wage they get but, they will not get employment due to various reasons like reduction will in the aggregate demand, the market structure & government intervention. Keynes says, in these kinds of cases, there is no question of INVOLUNTARY; everything will be VOLUNTARY only since it will lead to increase in supply of labour & aggregate demand for it.
Now coming to today’s post, today I read 3rd chapter, in which he talks about the aggregate demand. He says the number of employment depends on the aggregate demand & supply price compared to his total cost.
In this chapter he contradicts the Classical theory which says “Supply creates its own demand”. And he proves that using aggregate supply & demand equations. He says that classical theory works when aggregate demand is equal to aggregate supply which is in equilibrium. And equilibrium can’t be realistic in the world where we live. If Say’s law hold good then there would have been robust demand due to continuous supply, which would have resulted a full employment, which is in myth!
In this chapter he says that,
1. Resources, costs & income depends on the volume of employment
2. Consumption will depend on the level of aggregate income and, therefore, on the level of employment N, except when there is some change in the propensity to consume
3. Amount of labour depends upon amount which the community is expected to spend on consumption & the amount which it is expected to devote to new investment.
4. Hence the volume of employment in equilibrium depends on (i) the aggregate supply function, (ii) the propensity to consume, and (iii) the volume of investment.
Paradox of poverty in the midst of plenty:
This is important statement made by the Keynes which exactly suitable present crisis. Keynes says that, the propensity to consume & rate of new investment decides the employment. If these two decreases, then there is decrease in employment ready to work at the existing wage, and the equilibrium wage will be greater than the marginal disutility of the equilibrium level of employment. See here again contradicts the 1st assumption (that the real wage is equal to the marginal disutility of the existing employment) on which classical theory depends…
Bottom Line (Not mine, its Keynes statement):
It may well be that the classical theory represents the way in which we should like our economy to behave. But to assume that it actually does so is to assume our difficulties away.
Monday, January 19, 2009
Meeting Mr. Vivek Moorthy
Yesterday, we went IIMB for some Panel Discussion. It was very good experience to listen to such an experienced people from various fields like Economics, IT, banking, SME, Marketing & etc. In that I happen to meet Mr. Vivek Moorthy, IIMB faculty. Before proceeding with my posting topic, I would like give brief intro about the Mr. Moorthy. Prior to IIMB faculty, he was the Consultant to Mr. Y.V. Reddy, Governor RBI on interest rates and prior to that, and chief economist in Federal Reserve Bank of New York. For more information you can log on to IIMB faculty website.
Now today’s my topic of posting is, my very short discussion with Mr. Moorthy. I would like to post it like “conversation” only. Before that, Mr. Moorthy told in the panel discussion that Stimulus Package is not necessary now! So when I met him off the stage after the Panel Discussion was over, our discussion went like this…
Me: Sir, I have doubt on your suggestion about stimulus package. I think we need fiscal stimulus packages. Even Keynes said this only. I do agree that stimulus package implementation is more important than the package itself. Leave our country. What do you say about Japan? Japan’s Nikkei peaked to 40000 levels in 1989 and after that it is not retrace it back. It means from 90s onwards Japan is in depression even after their monetary stimulus by maintaining almost ZERO interest levels. I think they need fiscal stimulus package.
Mr. Moorthy: India & Japan are altogether different countries. First talking about India, government has already announced 2 stimulus packages in addition to monetary stimulus. Government cant afford to go more fiscal deficit than this.
And about Japan, its growth has been saturated. Prior 1989, it has grown enormously for long term. Now it is saturated. And that’s what is indicating Nikkei.
And about India, interest rates are coming down, money should rotate in economy and business cycle will reverse.
Me: Sir, about interest rate I don’t think they have become cheap. Still they are high only. And due to reverse repo rate banks are keeping amount with RBI for less risk & better returns instead of taking the risk of lending. Friday banks kept nearly 40000 crores with RBI through Reverse repo route.
And about the business cycle, what about Japan? There is not at all turn around the in that case from last 20 years. There is no cycle at in Japan!
Mr. Moorthy: I do believe repo & reverse repo should be reduced & should be lower than 2%.
And about Japan, as I said, Japan witnessed robust growth from 1969 to 1989, 20 years growth period. Now 20 years of slowdown.
And there are lot of factors in India we need to take care along with interest rates & fiscal stimulus.
Since he was in hurry & we were also to return back to college, this was brief stint with Mr. Moorthy.
Now today’s my topic of posting is, my very short discussion with Mr. Moorthy. I would like to post it like “conversation” only. Before that, Mr. Moorthy told in the panel discussion that Stimulus Package is not necessary now! So when I met him off the stage after the Panel Discussion was over, our discussion went like this…
Me: Sir, I have doubt on your suggestion about stimulus package. I think we need fiscal stimulus packages. Even Keynes said this only. I do agree that stimulus package implementation is more important than the package itself. Leave our country. What do you say about Japan? Japan’s Nikkei peaked to 40000 levels in 1989 and after that it is not retrace it back. It means from 90s onwards Japan is in depression even after their monetary stimulus by maintaining almost ZERO interest levels. I think they need fiscal stimulus package.
Mr. Moorthy: India & Japan are altogether different countries. First talking about India, government has already announced 2 stimulus packages in addition to monetary stimulus. Government cant afford to go more fiscal deficit than this.
And about Japan, its growth has been saturated. Prior 1989, it has grown enormously for long term. Now it is saturated. And that’s what is indicating Nikkei.
And about India, interest rates are coming down, money should rotate in economy and business cycle will reverse.
Me: Sir, about interest rate I don’t think they have become cheap. Still they are high only. And due to reverse repo rate banks are keeping amount with RBI for less risk & better returns instead of taking the risk of lending. Friday banks kept nearly 40000 crores with RBI through Reverse repo route.
And about the business cycle, what about Japan? There is not at all turn around the in that case from last 20 years. There is no cycle at in Japan!
Mr. Moorthy: I do believe repo & reverse repo should be reduced & should be lower than 2%.
And about Japan, as I said, Japan witnessed robust growth from 1969 to 1989, 20 years growth period. Now 20 years of slowdown.
And there are lot of factors in India we need to take care along with interest rates & fiscal stimulus.
Since he was in hurry & we were also to return back to college, this was brief stint with Mr. Moorthy.
Downturn in World Economy
Today I read in MINT, which explicitly explains the how the India & China are going be affected by this down turn in the economy.
It talks about the OECD Composite Leading Indicator which indicates the upcoming severe downtrend in India & Particularly in China is export oriented country unlike India.
It talks about the OECD Composite Leading Indicator which indicates the upcoming severe downtrend in India & Particularly in China is export oriented country unlike India.
Friday, January 16, 2009
Monetary Instruments/Terminologies
When I posted about Recession & Depression, GOGI (we fondly call him by that name, the Technocrat our college) appreciated that & asked me to post something similar which will be helpful to non-finance guys also. In this kind of situation where in recession is looming everywhere, I thought of posting about the Monetary Instruments through which Central Bankers try to control the economy.
As you guys may be aware that Inflation peaked out to 12.91% last due to various reasons. I don’t want get into those reasons; otherwise it will become one more post. So to control inflation by controlling money supply in the economy, Central Bank uses CRR, Repo rate, Reverse repo rate & SLRs.
So my today’s topic of posting is giving brief intro about these topics & their effects into the economy…
Cash Reserve Ratio (CRR)
It is the percentage of cash deposits that each bank needs to keep with the Reserve Bank of India.
Presently it is 5%, means for every Rs. 100 deposit each bank needs to keep Rs. 5 with RBI.
Whenever inflation increases, to reduce the money in banking system, RBI takes this route. For 50 basis point (0.5%) change in CRR there will be change in Rs. 20000 crores in the banking system. From this you can assume the extent to which it’s effective.
When inflation started reducing from its peak levels, RBI started reducing CRR from 9% to present levels of 5%. Means it flooded the market with Rs 160000 crore from CRR route to boost the demand so that it can maintain at least 7% GDP.
But still I feel there is lot of cushion left for RBI to cut in this as the pace at which inflation is falling is very aggressive. So I think to avoid the deflation RBI needs to monitor the situation on fortnightly basis reduce the CRR in subsequent steps.
Repo Rate
This is the interest rate at which RBI lends money to the banks. Presently it is 5.5% reduced from it peak levels of 9%. Again this is also one of the standard instruments to control inflation. Increase in the Repo rate leads to
Increase in the cost of funds for the banks. Due to this banks are forced to increase their PLR (Prime Lending Rate)
There will be slowdown in the lending from the banks to minimise the gap between the Repo & Reverse Repo.
In this case also I still believe RBI needs to do lot to increase in demand in the domestically. Since ours is domestically consumed and run GDP unlike China which dependent on exports rather than domestic consumption. So I believe still repo of 5.5% in this condition is very high. If you see US maintaining 0 to 0.5%, Japan 0.1%, UK 1.5%, there is lot or RBI to do (of course we cant compare the interest rate & inflation of other country but to compete with other country exports we need to have same/less of cost of funds as those countries specially china!).
Reverse Repo Rate
Its reverse! It is percentage at which banks lend to RBI. It is presently 4%.
Whenever RBI increases the reverse repo rate, banks happily keep most of their reserve funds into the RBI safeguards. Since without taking any risk of lending and possibility of NPA (Non performing assets) they can easily get good returns. So take this advantage RBI increases the reverse repo to suck the money from the banking system.
Presently this is what is happening. Even though RBI wants banks to lend, banks are not lending due to threat present crisis and keeping their funds in the form of reverse repo and SLR. So here also to push the banks to lend instead of keeping it in idle with RBI, Central Banker needs to reduce the reverse repo.
SLR (Statutory Liquidity Ratio) Rate
SLR is the Percentage of deposit that each bank needs to maintain in the form of Cash, gold, government bonds & etc before lending.
Presently it is 24%; means for every Rs. 100 deposit banks needs to have Rs. 24 in the form of above mentioned things.
It is reduced from 25% to present 24% due to contraction in the economy. Initially there was a range-limit for SLR as 40% as upper & 25% as lower limit. But recently lower limit has been removed.
From this tool RBI can keeps check on over leveraging.
I think this is tool which kept our banking system safe from present financial turmoil. Many firms which collapsed due to over leveraging nearly 30-40 times of their total assets.
Over SLR, there is lot of discussion is going now days to increase the credit growth SLR should be reduced and… but that is again questionable in this kind of situation (Overleveraging!).
Prime Lending Rate (PLR)
This is the benchmark interest rate on the basis of which financial institutions decide the interest rates on the various loan products.
PLR is dependent on all the above mentioned instruments. Depending upon RBI moves in those mentioned areas banks keeps on changing PLR.
As you guys may be aware that Inflation peaked out to 12.91% last due to various reasons. I don’t want get into those reasons; otherwise it will become one more post. So to control inflation by controlling money supply in the economy, Central Bank uses CRR, Repo rate, Reverse repo rate & SLRs.
So my today’s topic of posting is giving brief intro about these topics & their effects into the economy…
Cash Reserve Ratio (CRR)
It is the percentage of cash deposits that each bank needs to keep with the Reserve Bank of India.
Presently it is 5%, means for every Rs. 100 deposit each bank needs to keep Rs. 5 with RBI.
Whenever inflation increases, to reduce the money in banking system, RBI takes this route. For 50 basis point (0.5%) change in CRR there will be change in Rs. 20000 crores in the banking system. From this you can assume the extent to which it’s effective.
When inflation started reducing from its peak levels, RBI started reducing CRR from 9% to present levels of 5%. Means it flooded the market with Rs 160000 crore from CRR route to boost the demand so that it can maintain at least 7% GDP.
But still I feel there is lot of cushion left for RBI to cut in this as the pace at which inflation is falling is very aggressive. So I think to avoid the deflation RBI needs to monitor the situation on fortnightly basis reduce the CRR in subsequent steps.
Repo Rate
This is the interest rate at which RBI lends money to the banks. Presently it is 5.5% reduced from it peak levels of 9%. Again this is also one of the standard instruments to control inflation. Increase in the Repo rate leads to
Increase in the cost of funds for the banks. Due to this banks are forced to increase their PLR (Prime Lending Rate)
There will be slowdown in the lending from the banks to minimise the gap between the Repo & Reverse Repo.
In this case also I still believe RBI needs to do lot to increase in demand in the domestically. Since ours is domestically consumed and run GDP unlike China which dependent on exports rather than domestic consumption. So I believe still repo of 5.5% in this condition is very high. If you see US maintaining 0 to 0.5%, Japan 0.1%, UK 1.5%, there is lot or RBI to do (of course we cant compare the interest rate & inflation of other country but to compete with other country exports we need to have same/less of cost of funds as those countries specially china!).
Reverse Repo Rate
Its reverse! It is percentage at which banks lend to RBI. It is presently 4%.
Whenever RBI increases the reverse repo rate, banks happily keep most of their reserve funds into the RBI safeguards. Since without taking any risk of lending and possibility of NPA (Non performing assets) they can easily get good returns. So take this advantage RBI increases the reverse repo to suck the money from the banking system.
Presently this is what is happening. Even though RBI wants banks to lend, banks are not lending due to threat present crisis and keeping their funds in the form of reverse repo and SLR. So here also to push the banks to lend instead of keeping it in idle with RBI, Central Banker needs to reduce the reverse repo.
SLR (Statutory Liquidity Ratio) Rate
SLR is the Percentage of deposit that each bank needs to maintain in the form of Cash, gold, government bonds & etc before lending.
Presently it is 24%; means for every Rs. 100 deposit banks needs to have Rs. 24 in the form of above mentioned things.
It is reduced from 25% to present 24% due to contraction in the economy. Initially there was a range-limit for SLR as 40% as upper & 25% as lower limit. But recently lower limit has been removed.
From this tool RBI can keeps check on over leveraging.
I think this is tool which kept our banking system safe from present financial turmoil. Many firms which collapsed due to over leveraging nearly 30-40 times of their total assets.
Over SLR, there is lot of discussion is going now days to increase the credit growth SLR should be reduced and… but that is again questionable in this kind of situation (Overleveraging!).
Prime Lending Rate (PLR)
This is the benchmark interest rate on the basis of which financial institutions decide the interest rates on the various loan products.
PLR is dependent on all the above mentioned instruments. Depending upon RBI moves in those mentioned areas banks keeps on changing PLR.
Threat of Deflation
As I posted on 21st December about threat deflation is going to rise in coming months, now reports started coming.
In today's Mint Paper there is article in which many economists expressed their concern over the pace at which inflation is falling and said it may -ve numbers due to BASE EFFECT.
And they have also mentioned the concern over the method of calculation of inflation. And this what I exactly mentioned in my previous posts... Here is the part of that post what I posted in December...
Now second problem regarding the inflation is the pace at which it is falling! As I mentioned in the above paragraph, due to base effect pace may increase and also widen in coming days. In addition to that there is possibility another round of price reduction in the Petrol, Diesel & Gas also this time (which have nearly 14% weightage in WPI series). If this happens WPI numbers may start giving DEFLATION instead of INFLATION numbers. And DEFLATION is very much possible in this kind of economic scenario where day by day economic contraction is happening.
Now coming to domestic demand, how government is going to improve the demand in the market. Looking at October month’s IIP (Index of Industrial Production) numbers of manufacturing sector and overall we are also facing the threat of recession. And exactly this is what Keynes said, PARADOX OF THRIFT. Means if everyone starts saving money during times of recession, then there is decrement in the consumption which leads to fall in the aggregate demand thus leads to a fall in economic growth. If this continues then there will be downsizings & mass layoffs which are already started, eventually it leads to stagnation in the savings of total population or even declined because of lower incomes and a weaker economy.
In today's Mint Paper there is article in which many economists expressed their concern over the pace at which inflation is falling and said it may -ve numbers due to BASE EFFECT.
And they have also mentioned the concern over the method of calculation of inflation. And this what I exactly mentioned in my previous posts... Here is the part of that post what I posted in December...
Now second problem regarding the inflation is the pace at which it is falling! As I mentioned in the above paragraph, due to base effect pace may increase and also widen in coming days. In addition to that there is possibility another round of price reduction in the Petrol, Diesel & Gas also this time (which have nearly 14% weightage in WPI series). If this happens WPI numbers may start giving DEFLATION instead of INFLATION numbers. And DEFLATION is very much possible in this kind of economic scenario where day by day economic contraction is happening.
Now coming to domestic demand, how government is going to improve the demand in the market. Looking at October month’s IIP (Index of Industrial Production) numbers of manufacturing sector and overall we are also facing the threat of recession. And exactly this is what Keynes said, PARADOX OF THRIFT. Means if everyone starts saving money during times of recession, then there is decrement in the consumption which leads to fall in the aggregate demand thus leads to a fall in economic growth. If this continues then there will be downsizings & mass layoffs which are already started, eventually it leads to stagnation in the savings of total population or even declined because of lower incomes and a weaker economy.
Thursday, January 15, 2009
10 Trading Strategy By Ashwani Gujral
Guys, after long time I am coming back to post about my favourite area, that is Technical Analysis. I think two to three times I mentioned about Ashwani Gujral, The Technical Analyst in my previous posts. I am the ardent follower his methods of tracking the stocks. I got his 10 trading strategies from his book called "How to Make Money Trading Derivatives" from rediff.com. Here we go...
Unlike investors who need markets to move up in order to profit from their investment, traders don't depend only on bull markets. They can profit even in down trends.
This is a crucial advantage traders enjoy over investors -- the ability to make money whether the market is moving up or down. This fact should not, however, lead you to believe that trading is easy; it requires both a skill-set and rigorous discipline.
Many people take to trading in the mistaken belief that it is the simplest way of making money. Far from it, I believe it is the easiest way of losing money. There is an old Wall Street adage, that 'the easiest way of making a small fortune in the markets is having a large fortune'.
This game is by no means for the faint hearted. And, this battle is not won or lost during trading hours but before the markets open but through a disciplined approach to trading.
1. Always have a trading plan
Winning traders diligently maintain charts and keep aside some hours for market analysis. Every evening a winning trader updates his notebook and writes his strategy for the next day. Winning traders have a sense of the market's main trend. They identify the strongest sectors of the market and then the strongest stocks in those sectors. They know the level they are going to enter at and approximate targets for the anticipated move.
For example, I am willing to hold till the market is acting right. Once the market is unable to hold certain levels and breaks crucial supports, I book profits. Again, this depends on the type of market I am dealing with.
In a strong up trend, I want the market to throw me out of a profitable trade.
In a mild up trend, I am a little more cautious and try to book profits at the first sign of weakness.
In a choppy market, not only do I trade the lightest, I book profits while the market is still moving in my direction.
Good technical traders do not worry or debate about the news flow; they go by what the market is doing.
2. Avoid overtrading
Overtrading is the single biggest malaise of most traders. A disciplined trader is always ready to trade light when the market turns choppy and even not trade if there are no trades on the horizon.
For example, I trade full steam only when I see a trending market and reduce my trading stakes when I am not confident of the expected move. I reduce my trade even more if the market is stuck in a choppy mode with very small swings.
A disciplined trader knows when to build positions and step on the gas and when to trade light and he can only make this assessment after he is clear about his analysis of the market and has a trading plan at the beginning of every trading day.
3. Don't get unnerved by losses
A winning trader is always cautious; he knows each trade is just another trade, so he always uses money management techniques. He never over leverages and always has set-ups and rules which he follows religiously.
He takes losses in his stride and tries to understand why the market moved against him. Often you get important trading lessons from your losses.
4. Try to capture the large market moves
Novice traders often book profits too quickly because they want to enjoy the winning feeling. Sometimes even on the media one hears things like, "You never lose your shirt booking profits." I believe novice traders actually lose their account equity quickly because they do not book their losses quickly enough.
Knowledgeable traders on the other hand, will also lose their trading equity -- though slowly -- if they are satisfied in booking small profits all the time. By doing that the only person who can grow rich is your broker. And this does happen because, inevitably, you will have periods of drawdowns when you are not in sync with the market. You can never cover a 15-20% drawdown if you keep booking small profits. The best you will do is be at break even at the end of the day, which is not the goal of successful trading.
A trading account that is not growing is not sustainable. Thus when you believe you have entered into a large move, you need to ride it out till the market stops acting right. Traders with a lot of knowledge of technical analysis, but little experience, often get into the quagmire of following very small targets, believing the market to be overbought at every small rise -- and uniformly so in all markets.
Such traders are unable to make money because they are too smart for their own good. They forget to see the phase of the market. Not only do these traders book profits early, sometimes they even take short positions believing that a correction is "due". Markets do not generally correct when corrections are "due".
The best policy is to use a trailing stop loss and let the market run when it wants to run. The disciplined trader understands this and keeps stop losses wide enough so that he is balanced between staying in the move as well as protecting his equity. Capturing a few large moves every year is what really makes worthwhile trading profits.
5. Always keeps learning
You cannot learn trading in a day or even a few weeks, sometimes not even in months. Successful traders keep reading all the new research on technical analysis they can get their hands on. They also read a number of books every month about techniques, about trading psychology and about other successful traders and how they manage their accounts.
I often like to think about traders as jihadis; unless there is a fire in the belly, unless there is a strong will and commitment to win, it is impossible to win consistently in the market.
6. Always be alert to opportunities of making some money with less risky strategies as well
Futures trading, for example, is a very risky business. The best of chartists and the best of traders sometimes fail. Sure, it gives the highest returns but these may not be consistent -- and the draw downs can be large.
Traders should always remember that no matter how good your analysis is, sometimes the market is not willing to oblige. In such times the 4-5% that can be earned in covered calls or futures and cash arbitrage comes in very handy. It improves the long term sustainability of a trader and keeps your profit register ringing.
Traders must learn to live with lower risk and lower return at certain times in the market, in order to protect and enlarge their capital.
Disciplined traders have reasonable risk and return expectations and are open to using less risky and less exciting strategies of making money, which helps them tide over rough periods in the markets.
7. Treat trading as a business and keep a positive attitude
Trading can be an expensive adventure sport. It should be treated as a business and should be very profit oriented. Successful traders review their performance at regular intervals and try to identify causes of both superior and inferior performance.
The focus should be on consistent profits rather than erratic large profits and losses. Also, trading performance should not be made a judgment on an individual; rather, it should be considered a consequence of right or wrong actions.
Disciplined traders are able to identify when they are out of sync with the market and need to reduce position size, or keep away altogether. Successful trading is like dancing in rhythm with the market.
Unsuccessful traders often cut down on all other expenses but refuse to see what might be wrong with their trading methods. Denial is a costly attitude in trading. If you see that a particular trade is not working the way you had expected, reduce or eliminate your positions and see what is going on.
Most disciplined and successful traders are very humble. Humility is a virtue that traders should learn on their own, else the market makes sure that they do. Ego and an "I can do no wrong" attitude in good times can lead to severe draw downs in the long term.
Also, bad days in trading should be accepted as cheerfully as the good ones. So disciplined traders maintain composure whether they have made a profit or not on a particular day and avoid mood swings.
A good way to do this is to also participate in activities other than trading and let the mind rest so that it is fresh for the next trading day.
8. Never blame the market for your reverses
Disciplined traders do not blame the market, the government, the companies or anyone else, conveniently excluding themselves, for their losses. The market gives ample opportunities to traders to make money. It is only the trader's fault if he fails to recognise them.
Also, the market has various phases. It is overbought sometimes and oversold at other times. It is trending some of the time and choppy at others. It is for a trader to take maximum advantage of favourable market conditions and keep away from unfavourable ones.
With the help of derivatives, it is now possible to make some money in all kinds of markets. So the trader needs to look for opportunities all the time.
To my mind, the important keys to making long term money in trading are:
Keeping losses small. Remember all losses start small.
-->Ride as many big moves as possible.
-->Avoid overtrading.
-->Never try to impose your will on the market.
-->It is impossible to practice all of the above perfectly. However, if you can practice all of the above with some degree of success, improvement in trading performance can be dramatic.
9. Keep a cushion
If new traders are lucky to come into a market during a roaring bull phase, they sometimes think that the market is the best place to put all one's money. But successful and seasoned traders know that if the market starts acting differently in the future, which it surely will, profits will stop pouring in and there might even be periods of losses.
So do not commit more than a certain amount to the market at any given point of time. Take profits from your broker whenever you have them in your trading account and stow them away in a separate account.
I say this because the market is like a deep and big well. No matter how much money you put in it, it can all vanish. So by having an account where you accumulate profits during good times, it helps you when markets turn unfavorable.
This also makes draw downs less stressful as you have the cushion of previously earned profits. Trading is about walking a tightrope most times. Make sure you have enough cushion if you fall.
10. Understand that there is no holy grail in the market
There is no magical key to the Indian or any other stock market. If there were, investment banks that spend billions of dollars on research would snap it up. Investing software and trading books by themselves can't make you enormously wealthy.
They can only give you tools and skills that you can learn to apply. And, finally, there is no free lunch; every trading penny has to be earned. I would recommend that each trader identify his own style, his own patterns, his own horizon and the set-ups that he is most comfortable with and practice them to perfection.
You need only to be able to trade very few patterns to make consistent profits in the market.
No gizmos can make a difference to your trading. There are no signals that are always 100% correct, so stop looking for them.
Focus, instead, on percentage trades, trying to catch large moves and keeping your methodology simple. What needs constant improving are discipline and your trading psychology.
Bottom line:
At end of the day, money is not made by how complicated-looking your analysis is but whether it gets you in the right trade at the right time. Over-analysis can, in fact, lead to paralysis and that is death for a trader. If you can't pull the trigger at the right time, then all your analysis and knowledge is a waste.
Unlike investors who need markets to move up in order to profit from their investment, traders don't depend only on bull markets. They can profit even in down trends.
This is a crucial advantage traders enjoy over investors -- the ability to make money whether the market is moving up or down. This fact should not, however, lead you to believe that trading is easy; it requires both a skill-set and rigorous discipline.
Many people take to trading in the mistaken belief that it is the simplest way of making money. Far from it, I believe it is the easiest way of losing money. There is an old Wall Street adage, that 'the easiest way of making a small fortune in the markets is having a large fortune'.
This game is by no means for the faint hearted. And, this battle is not won or lost during trading hours but before the markets open but through a disciplined approach to trading.
1. Always have a trading plan
Winning traders diligently maintain charts and keep aside some hours for market analysis. Every evening a winning trader updates his notebook and writes his strategy for the next day. Winning traders have a sense of the market's main trend. They identify the strongest sectors of the market and then the strongest stocks in those sectors. They know the level they are going to enter at and approximate targets for the anticipated move.
For example, I am willing to hold till the market is acting right. Once the market is unable to hold certain levels and breaks crucial supports, I book profits. Again, this depends on the type of market I am dealing with.
In a strong up trend, I want the market to throw me out of a profitable trade.
In a mild up trend, I am a little more cautious and try to book profits at the first sign of weakness.
In a choppy market, not only do I trade the lightest, I book profits while the market is still moving in my direction.
Good technical traders do not worry or debate about the news flow; they go by what the market is doing.
2. Avoid overtrading
Overtrading is the single biggest malaise of most traders. A disciplined trader is always ready to trade light when the market turns choppy and even not trade if there are no trades on the horizon.
For example, I trade full steam only when I see a trending market and reduce my trading stakes when I am not confident of the expected move. I reduce my trade even more if the market is stuck in a choppy mode with very small swings.
A disciplined trader knows when to build positions and step on the gas and when to trade light and he can only make this assessment after he is clear about his analysis of the market and has a trading plan at the beginning of every trading day.
3. Don't get unnerved by losses
A winning trader is always cautious; he knows each trade is just another trade, so he always uses money management techniques. He never over leverages and always has set-ups and rules which he follows religiously.
He takes losses in his stride and tries to understand why the market moved against him. Often you get important trading lessons from your losses.
4. Try to capture the large market moves
Novice traders often book profits too quickly because they want to enjoy the winning feeling. Sometimes even on the media one hears things like, "You never lose your shirt booking profits." I believe novice traders actually lose their account equity quickly because they do not book their losses quickly enough.
Knowledgeable traders on the other hand, will also lose their trading equity -- though slowly -- if they are satisfied in booking small profits all the time. By doing that the only person who can grow rich is your broker. And this does happen because, inevitably, you will have periods of drawdowns when you are not in sync with the market. You can never cover a 15-20% drawdown if you keep booking small profits. The best you will do is be at break even at the end of the day, which is not the goal of successful trading.
A trading account that is not growing is not sustainable. Thus when you believe you have entered into a large move, you need to ride it out till the market stops acting right. Traders with a lot of knowledge of technical analysis, but little experience, often get into the quagmire of following very small targets, believing the market to be overbought at every small rise -- and uniformly so in all markets.
Such traders are unable to make money because they are too smart for their own good. They forget to see the phase of the market. Not only do these traders book profits early, sometimes they even take short positions believing that a correction is "due". Markets do not generally correct when corrections are "due".
The best policy is to use a trailing stop loss and let the market run when it wants to run. The disciplined trader understands this and keeps stop losses wide enough so that he is balanced between staying in the move as well as protecting his equity. Capturing a few large moves every year is what really makes worthwhile trading profits.
5. Always keeps learning
You cannot learn trading in a day or even a few weeks, sometimes not even in months. Successful traders keep reading all the new research on technical analysis they can get their hands on. They also read a number of books every month about techniques, about trading psychology and about other successful traders and how they manage their accounts.
I often like to think about traders as jihadis; unless there is a fire in the belly, unless there is a strong will and commitment to win, it is impossible to win consistently in the market.
6. Always be alert to opportunities of making some money with less risky strategies as well
Futures trading, for example, is a very risky business. The best of chartists and the best of traders sometimes fail. Sure, it gives the highest returns but these may not be consistent -- and the draw downs can be large.
Traders should always remember that no matter how good your analysis is, sometimes the market is not willing to oblige. In such times the 4-5% that can be earned in covered calls or futures and cash arbitrage comes in very handy. It improves the long term sustainability of a trader and keeps your profit register ringing.
Traders must learn to live with lower risk and lower return at certain times in the market, in order to protect and enlarge their capital.
Disciplined traders have reasonable risk and return expectations and are open to using less risky and less exciting strategies of making money, which helps them tide over rough periods in the markets.
7. Treat trading as a business and keep a positive attitude
Trading can be an expensive adventure sport. It should be treated as a business and should be very profit oriented. Successful traders review their performance at regular intervals and try to identify causes of both superior and inferior performance.
The focus should be on consistent profits rather than erratic large profits and losses. Also, trading performance should not be made a judgment on an individual; rather, it should be considered a consequence of right or wrong actions.
Disciplined traders are able to identify when they are out of sync with the market and need to reduce position size, or keep away altogether. Successful trading is like dancing in rhythm with the market.
Unsuccessful traders often cut down on all other expenses but refuse to see what might be wrong with their trading methods. Denial is a costly attitude in trading. If you see that a particular trade is not working the way you had expected, reduce or eliminate your positions and see what is going on.
Most disciplined and successful traders are very humble. Humility is a virtue that traders should learn on their own, else the market makes sure that they do. Ego and an "I can do no wrong" attitude in good times can lead to severe draw downs in the long term.
Also, bad days in trading should be accepted as cheerfully as the good ones. So disciplined traders maintain composure whether they have made a profit or not on a particular day and avoid mood swings.
A good way to do this is to also participate in activities other than trading and let the mind rest so that it is fresh for the next trading day.
8. Never blame the market for your reverses
Disciplined traders do not blame the market, the government, the companies or anyone else, conveniently excluding themselves, for their losses. The market gives ample opportunities to traders to make money. It is only the trader's fault if he fails to recognise them.
Also, the market has various phases. It is overbought sometimes and oversold at other times. It is trending some of the time and choppy at others. It is for a trader to take maximum advantage of favourable market conditions and keep away from unfavourable ones.
With the help of derivatives, it is now possible to make some money in all kinds of markets. So the trader needs to look for opportunities all the time.
To my mind, the important keys to making long term money in trading are:
Keeping losses small. Remember all losses start small.
-->Ride as many big moves as possible.
-->Avoid overtrading.
-->Never try to impose your will on the market.
-->It is impossible to practice all of the above perfectly. However, if you can practice all of the above with some degree of success, improvement in trading performance can be dramatic.
9. Keep a cushion
If new traders are lucky to come into a market during a roaring bull phase, they sometimes think that the market is the best place to put all one's money. But successful and seasoned traders know that if the market starts acting differently in the future, which it surely will, profits will stop pouring in and there might even be periods of losses.
So do not commit more than a certain amount to the market at any given point of time. Take profits from your broker whenever you have them in your trading account and stow them away in a separate account.
I say this because the market is like a deep and big well. No matter how much money you put in it, it can all vanish. So by having an account where you accumulate profits during good times, it helps you when markets turn unfavorable.
This also makes draw downs less stressful as you have the cushion of previously earned profits. Trading is about walking a tightrope most times. Make sure you have enough cushion if you fall.
10. Understand that there is no holy grail in the market
There is no magical key to the Indian or any other stock market. If there were, investment banks that spend billions of dollars on research would snap it up. Investing software and trading books by themselves can't make you enormously wealthy.
They can only give you tools and skills that you can learn to apply. And, finally, there is no free lunch; every trading penny has to be earned. I would recommend that each trader identify his own style, his own patterns, his own horizon and the set-ups that he is most comfortable with and practice them to perfection.
You need only to be able to trade very few patterns to make consistent profits in the market.
No gizmos can make a difference to your trading. There are no signals that are always 100% correct, so stop looking for them.
Focus, instead, on percentage trades, trying to catch large moves and keeping your methodology simple. What needs constant improving are discipline and your trading psychology.
Bottom line:
At end of the day, money is not made by how complicated-looking your analysis is but whether it gets you in the right trade at the right time. Over-analysis can, in fact, lead to paralysis and that is death for a trader. If you can't pull the trigger at the right time, then all your analysis and knowledge is a waste.
Inflation came down to 5.24%
As expected INFLATION is falling down. Now came down to 5.24% from 5.91% as compared to last week.
And today there is possibility of cut in the Petrol, Diesel & LPG. If that happens then there is possibility inflation falling down drastically looking at the micro as well macro economic conditions.
And today there is possibility of cut in the Petrol, Diesel & LPG. If that happens then there is possibility inflation falling down drastically looking at the micro as well macro economic conditions.
Keynesianism - 1
Today, I started reading (long pending) John Maynard Keynes’ book called GENERAL THEORY OF EMPLOYMENT, INTEREST & MONEY.
You people may ask, why Keynes named/started his book name with the term “GENERAL”? In his first Chapter only he explained that, to contrast the “CLASSICAL” word from CALSSICAL THEORY OF ECONOMICS what he learnt through out his student lifetime!!!
He argued that classical theory is applicable to only special cases like EQUILIBRIUM which will not happen in our day today life.
In 2nd Chapter he talked about the employment, real wages, profits and their correlation which I Just browsed instead going into deep. And he concluded the 2nd chapter by these 3 points…
Classical theory depends in succession on the assumptions:
(1) That the real wage is equal to the marginal disutility of the existing employment;
(2) That there is no such thing as involuntary unemployment in the strict sense;
(3) That supply creates its own demand in the sense that the aggregate demand price is equal to the aggregate supply price for all levels of output and employment.
These three assumptions, however, all amount to the same thing in the sense that they all stand and fall together, any one of them logically involving the other two.
will be continued...
You people may ask, why Keynes named/started his book name with the term “GENERAL”? In his first Chapter only he explained that, to contrast the “CLASSICAL” word from CALSSICAL THEORY OF ECONOMICS what he learnt through out his student lifetime!!!
He argued that classical theory is applicable to only special cases like EQUILIBRIUM which will not happen in our day today life.
In 2nd Chapter he talked about the employment, real wages, profits and their correlation which I Just browsed instead going into deep. And he concluded the 2nd chapter by these 3 points…
Classical theory depends in succession on the assumptions:
(1) That the real wage is equal to the marginal disutility of the existing employment;
(2) That there is no such thing as involuntary unemployment in the strict sense;
(3) That supply creates its own demand in the sense that the aggregate demand price is equal to the aggregate supply price for all levels of output and employment.
These three assumptions, however, all amount to the same thing in the sense that they all stand and fall together, any one of them logically involving the other two.
will be continued...
How the recession is affecting Midlle East
Till now everybody thought that, this recession will not affect the OIL PRODUCING COUNTRIES of MIDDLE EAST. But present recession AFFECTED most of these countries also who were enjoying the rise in the commodity price. Now due to Subprime crisis->housing bubble burst->liquidity crunch->recession, these countries also facing the heat. And are about to produce shortfall/deficit in the budget...
Wednesday, January 14, 2009
Saw conflict of interest as Satyam member: Narayan Murthy
Today, I read interview of Mr. Narayan Murthy in moneycontrol.com. Where in talked about Satyam's offer, the solidarity & support as Infosys towards the Satyam, Internal Democracy system in Infosys & etc. Its really reflects the stature of of the Narayan Murthy...
Recession & Depression
Now days, these words have become common in papers & business TV channels. Almost everybody who read the papers & watch business channels will be aware of the happenings around the world, what was the cause of RECESSION in certain countries like US,
Ø What is recession?
Ø What is depression?
Ø What are the differences between these two?
When I read an article from the economist.com I got this information. I thought it’s informative & educative. So according economist.com…
Recession is the contraction in the economy resulting in falling of GDP (Gross Domestic Product) for 2 consecutive quarters. And this is what other sites also say for the definition of recession.
Where as about the Depression there is no standard definition like recession. According to that article, the principal criteria for distinguishing a depression from a recession is a decline in real GDP that exceeds 10% or one that lasts more than 3 years.
A recent analysis by Saul Eslake, chief economist at ANZ bank, concludes that the difference between a recession and a depression is more than simply one of size or duration. The cause of the downturn also matters. A standard recession usually follows a period of tight monetary policy, but a depression is the result of a bursting asset and credit bubble, a contraction in credit, and a decline in the general price level. In the Great Depression average prices in
Another important implication of this distinction between a recession and a depression is that they call for different policy responses. A recession triggered by tight monetary policy can be cured by lower interest rates, but fiscal policy tends to be less effective because of the lags involved. By contrast, in a depression caused by falling asset prices, a credit crunch and deflation, conventional monetary policy is much less potent than fiscal policy.
Recession & Depression
Now days, these words have become common in papers & business TV channels. Almost everybody who read the papers & watch business channels will be aware of the happenings around the world, what was the cause of RECESSION in certain countries like US,
Ø What is recession?
Ø What is depression?
Ø What are the differences between these two?
When I read an article from the economist.com I got this information. I thought it’s informative & educative. So according economist.com…
Recession is the contraction in the economy resulting in falling of GDP (Gross Domestic Product) for 2 consecutive quarters. And this is what other sites also say for the definition of recession.
Where as about the Depression there is no standard definition like recession. According to that article, the principal criteria for distinguishing a depression from a recession is a decline in real GDP that exceeds 10% or one that lasts more than 3 years.
A recent analysis by Saul Eslake, chief economist at ANZ bank, concludes that the difference between a recession and a depression is more than simply one of size or duration. The cause of the downturn also matters. A standard recession usually follows a period of tight monetary policy, but a depression is the result of a bursting asset and credit bubble, a contraction in credit, and a decline in the general price level. In the Great Depression average prices in
Another important implication of this distinction between a recession and a depression is that they call for different policy responses. A recession triggered by tight monetary policy can be cured by lower interest rates, but fiscal policy tends to be less effective because of the lags involved. By contrast, in a depression caused by falling asset prices, a credit crunch and deflation, conventional monetary policy is much less potent than fiscal policy.
Monday, January 12, 2009
Satyam Saga
When Satyam's problems started in mid December at that time only I thought of not posting much about the same as everybody will be writing about that only in blogs, news papers, TV & etc. But today one of my friend asked me to post some information about pre & post Satyam's CEO Mr. Raju admission of fraud. So today I am just giving brief information what all went on in this one month...
As Mr. Raju wrote in RESIGNATION LETTER inflation of balance sheet went on for several years. According to fresh news coming in now, Raju did it for nearly 7 years. Basically inflation cash/profit/balance sheet is done to inflate the EPS, so to increase the share price and in turn attract the investors. And according one brokerage firm, in India nearly 20% of BSE500 companies inflate the balance sheet for the same reason. So this act of Raju's continued and might have become uncontrolled & difficult to fill the gap between the actual profit & inflated balance sheet as mentioned in his resignation letter.
So at that point Raju might have decided to fill that gap acquiring his family promoted real estate business in the name of DIVERSIFICATION and pay the acquisition amount later. And fit those assets into the built up gap. To this decision investors in domestic & overseas market ADVERSELY reacted by dumping the shares ADRs 30% & 50% respectively.
So to get back the investor's faith for the company, Raju & so called board CALLED OF THE DEAL & DECIDED TO BUYBACK the shares. After this point, Satyam's CORPORATE GOVERNANCE came under heavy criticism. Government ordered PROBE also. In between there were talks about the DIVIDEND also. In addition to all these there came one more sudden shock for Satyam in the form of the BAN for 8 years. Due to all this, independent directors started RESIGNING. By this time Satyam became talk of everybody on the WALL STREET & DALAL STREET. Then ultimate blow came in the form Founder & CEO Mr. Raju's resignation letter and inflating the balance sheet. Within 2 days of this, Satyam stock fell nearly 90% in NSE, BSE & NADAQ. And immediately NASDAQ stopped trading of Satyam stock & NSE, BSE they removed it from the index.
After this, as suggested by Raju (or even other wise, according to seniority) Mr. Ram as the interim CEO and formed the Task force. CFO also resigned. Government superseded the interim body & CEO. And now government appointed three independent directors (banker Deepak Parekh, IT expert Kiran Karnik and former Sebi member C Achuthan) to look after into the matters of the company.
But I am quite surprised to know that, a Company like Satyam which has a base in 60 countries is or was running only 3% margin of profit! There employees salary itself is 500 crore rupees for a month. Even for that also they dont sufficient funds for January month. Now news is coming that government is temperorily bailing out the Satyam by supporting it financially.
Here comes one more question is what the so called auditors (PWC) were doing? Whether they are also involved in this India Inc's biggest fraud of 7000+ crore rupees. Being public limited company also Satyam did this, then what about the private ltd companies???
Now there talk about appointing the CEO & CFO. But I dont know being outsiders, how they are going act immediately which is very necessary now. But what about the reputation as Company it lost already in the national & international arena. Who is going to believe it? How it is going to get the new projects when there is threat of reduction in the outsourcing after Barrack Obama comes to power! What about the employee? How it is going regain their confidence back?
Bottom line:
What I see is the best solution is allow the different companies to acquire the different branches of the company instead of rebuilding the company so that existing employees work under the name of acquired company. Since in this recession period acquiring company as whole will be burden for the companies also. And rebuilding of the Satyam means sacking of 10000-15000 employees or more than that. That hurts more in this recessionary period. For further information CLICK here...
As Mr. Raju wrote in RESIGNATION LETTER inflation of balance sheet went on for several years. According to fresh news coming in now, Raju did it for nearly 7 years. Basically inflation cash/profit/balance sheet is done to inflate the EPS, so to increase the share price and in turn attract the investors. And according one brokerage firm, in India nearly 20% of BSE500 companies inflate the balance sheet for the same reason. So this act of Raju's continued and might have become uncontrolled & difficult to fill the gap between the actual profit & inflated balance sheet as mentioned in his resignation letter.
So at that point Raju might have decided to fill that gap acquiring his family promoted real estate business in the name of DIVERSIFICATION and pay the acquisition amount later. And fit those assets into the built up gap. To this decision investors in domestic & overseas market ADVERSELY reacted by dumping the shares ADRs 30% & 50% respectively.
So to get back the investor's faith for the company, Raju & so called board CALLED OF THE DEAL & DECIDED TO BUYBACK the shares. After this point, Satyam's CORPORATE GOVERNANCE came under heavy criticism. Government ordered PROBE also. In between there were talks about the DIVIDEND also. In addition to all these there came one more sudden shock for Satyam in the form of the BAN for 8 years. Due to all this, independent directors started RESIGNING. By this time Satyam became talk of everybody on the WALL STREET & DALAL STREET. Then ultimate blow came in the form Founder & CEO Mr. Raju's resignation letter and inflating the balance sheet. Within 2 days of this, Satyam stock fell nearly 90% in NSE, BSE & NADAQ. And immediately NASDAQ stopped trading of Satyam stock & NSE, BSE they removed it from the index.
After this, as suggested by Raju (or even other wise, according to seniority) Mr. Ram as the interim CEO and formed the Task force. CFO also resigned. Government superseded the interim body & CEO. And now government appointed three independent directors (banker Deepak Parekh, IT expert Kiran Karnik and former Sebi member C Achuthan) to look after into the matters of the company.
But I am quite surprised to know that, a Company like Satyam which has a base in 60 countries is or was running only 3% margin of profit! There employees salary itself is 500 crore rupees for a month. Even for that also they dont sufficient funds for January month. Now news is coming that government is temperorily bailing out the Satyam by supporting it financially.
Here comes one more question is what the so called auditors (PWC) were doing? Whether they are also involved in this India Inc's biggest fraud of 7000+ crore rupees. Being public limited company also Satyam did this, then what about the private ltd companies???
Now there talk about appointing the CEO & CFO. But I dont know being outsiders, how they are going act immediately which is very necessary now. But what about the reputation as Company it lost already in the national & international arena. Who is going to believe it? How it is going to get the new projects when there is threat of reduction in the outsourcing after Barrack Obama comes to power! What about the employee? How it is going regain their confidence back?
Bottom line:
What I see is the best solution is allow the different companies to acquire the different branches of the company instead of rebuilding the company so that existing employees work under the name of acquired company. Since in this recession period acquiring company as whole will be burden for the companies also. And rebuilding of the Satyam means sacking of 10000-15000 employees or more than that. That hurts more in this recessionary period. For further information CLICK here...
Thursday, January 8, 2009
The Bank of England cuts interest rates to 1.5%, an all-time low
According to ECONOMIST.COM reports, On Thursday January 8th the Bank of England cut the base rate from 2% to 1.5%, the lowest since the central bank was founded in 1694. The Bank of England’s mission then was to provide war finance. Its task now is to fight a recession that looks increasingly likely to be the worst since the second world war.
Article of GURUCHARAN DAS
Today, when I visited blog of GURUCHARAN DAS I found this article very informative to share with you guys. Its about COST OF NATIONALIZATION, RULES OF CRISIS, VICIOUS CIRCLE OF ECONOMY. So here is what Mr. Das has written in his blog...
Speaking of the global financial crisis, Sonia Gandhi recently applauded Indira Gandhi’s bank nationalization of 1969, saying that it had given India ‘stability and resilience’. Like the Bourbons of France our political class neither learns nor forgets anything. I don’t think Sonia Gandhi realizes quite what she was saying.
India’s bank nationalization delivered neither growth nor equity. Any public sector bank manager will tell you how loans were diverted to friends of politicians rather than to commercially deserving farmers. Bad debts of banks rose alarmingly in the 1980s and moral hazards persist.
Indira Gandhi drew us further away from world trade, raised tariffs and taxes, and made us one of the world’s worst performing economies from 1966 to 1989. Industrial growth plunged to 4% a year vs. 7.7 % in 1951-1965. Manufacturing productivity declined half a per cent a year. Rakesh Mohan estimates that her mistakes cost the nation 1.3 per cent lower GDP per capita per year—meaning that our income would have been more than double today. I don’t blame Nehru for adopting the wrong economic model as socialism was the wisdom of his age; I blame Indira for not reversing course as sensible countries in East and Southeast Asia did. Even China changed in 1978, but we had to wait till 1991. She multiplied by zero and put us back by a generation.
But let’s not dwell on the past. India is in the midst of a dire crisis and we don’t seem to realize how much we are hurting. Panic has choked credit worldwide. Our economy is slowing pitifully. Exports are collapsing. Banks have stopped lending. Construction has come to a halt. Fear has taken over, and people are not buying (except mobile phones). As demand shrinks, so do revenues and profits of companies. Investment has stopped and lakhs in textiles and construction are out of work.
The Mahabharata points out that rules of dharma change in times of crisis when one is forced to observe apad-dharma. Paradoxically, defending capitalism requires state intervention. History teaches that decisive government action can stem the pain. If Lehman had been bailed out the world might not have gone over the cliff. But once normal times return governments must sell off the banks that they had bailed out and not leave them as cash cows for politicians, like our public sector banks.
The quickest way to restore confidence is to further cut interest rates, CRR and SLR, and recapitalize banks. Today’s rates are still too high. Since oil and commodity prices have plunged, the risk of inflation has receded. As property prices decline, and as old mortgage terms become available, people will begin to buy the homes they postponed when interest rates rose. When people buy houses, they give jobs to millions. The same goes for other sectors. Consumer spending will raise demand, restore production, and lead to investment. There is a currency risk in this strategy, of course, but the risk of deflation is greater.
Of course, we should spend massively in infrastructure, but the trouble is that even the current programs are not moving. World Bank has threatened to withdraw funding from highway projects. 234 out of 515 Central projects are delayed. Hence, public spending wont work when speed is of the essence. The saving grace is that we have been accidentally ‘pump priming’ via the rural employment guarantee scheme and loan waivers. What we must not do is to close borders no matter how much local industry clamours for protection. In the 1930s every country tried to protect its own industry. World trade declined 60% between 1929 and 1932 and this caused a worldwide depression. We must do everything to protect the fruits of globalization which has lifted millions out of absolute poverty over the past 20 years. No one can predict when the present crisis will be over. Things could get much worse, meanwhile, but capitalism will eventually correct itself.
Speaking of the global financial crisis, Sonia Gandhi recently applauded Indira Gandhi’s bank nationalization of 1969, saying that it had given India ‘stability and resilience’. Like the Bourbons of France our political class neither learns nor forgets anything. I don’t think Sonia Gandhi realizes quite what she was saying.
India’s bank nationalization delivered neither growth nor equity. Any public sector bank manager will tell you how loans were diverted to friends of politicians rather than to commercially deserving farmers. Bad debts of banks rose alarmingly in the 1980s and moral hazards persist.
Indira Gandhi drew us further away from world trade, raised tariffs and taxes, and made us one of the world’s worst performing economies from 1966 to 1989. Industrial growth plunged to 4% a year vs. 7.7 % in 1951-1965. Manufacturing productivity declined half a per cent a year. Rakesh Mohan estimates that her mistakes cost the nation 1.3 per cent lower GDP per capita per year—meaning that our income would have been more than double today. I don’t blame Nehru for adopting the wrong economic model as socialism was the wisdom of his age; I blame Indira for not reversing course as sensible countries in East and Southeast Asia did. Even China changed in 1978, but we had to wait till 1991. She multiplied by zero and put us back by a generation.
But let’s not dwell on the past. India is in the midst of a dire crisis and we don’t seem to realize how much we are hurting. Panic has choked credit worldwide. Our economy is slowing pitifully. Exports are collapsing. Banks have stopped lending. Construction has come to a halt. Fear has taken over, and people are not buying (except mobile phones). As demand shrinks, so do revenues and profits of companies. Investment has stopped and lakhs in textiles and construction are out of work.
The Mahabharata points out that rules of dharma change in times of crisis when one is forced to observe apad-dharma. Paradoxically, defending capitalism requires state intervention. History teaches that decisive government action can stem the pain. If Lehman had been bailed out the world might not have gone over the cliff. But once normal times return governments must sell off the banks that they had bailed out and not leave them as cash cows for politicians, like our public sector banks.
The quickest way to restore confidence is to further cut interest rates, CRR and SLR, and recapitalize banks. Today’s rates are still too high. Since oil and commodity prices have plunged, the risk of inflation has receded. As property prices decline, and as old mortgage terms become available, people will begin to buy the homes they postponed when interest rates rose. When people buy houses, they give jobs to millions. The same goes for other sectors. Consumer spending will raise demand, restore production, and lead to investment. There is a currency risk in this strategy, of course, but the risk of deflation is greater.
Of course, we should spend massively in infrastructure, but the trouble is that even the current programs are not moving. World Bank has threatened to withdraw funding from highway projects. 234 out of 515 Central projects are delayed. Hence, public spending wont work when speed is of the essence. The saving grace is that we have been accidentally ‘pump priming’ via the rural employment guarantee scheme and loan waivers. What we must not do is to close borders no matter how much local industry clamours for protection. In the 1930s every country tried to protect its own industry. World trade declined 60% between 1929 and 1932 and this caused a worldwide depression. We must do everything to protect the fruits of globalization which has lifted millions out of absolute poverty over the past 20 years. No one can predict when the present crisis will be over. Things could get much worse, meanwhile, but capitalism will eventually correct itself.
Yesterday Truckers' & Today PSU of Oil Sector
Yesterday, I posted about the Trucker's strike and its possibility of increasing costs to common in basic necessary things which may halt the falling inflation. Now today I saw in TV, that in almost all Metros 25-30% of the PETROL PUMPS are dried out due to lack supply since PSU oil companies are on strike. According the reports they can manage for couple of more days. What after that? What the government is doing for these kind of strikes particularly in this type of conditions??? Again here common is going to suffer for day today activity if supply didn't revert back to normalcy. According to reports IOC's seven refineries were producing only 40% of their output with production being impacted at its key refineries of Panipat and Mathura.Its Koyali refinery in Gujarat was producing only 25% of the normal output, while BPCL's Mumbai refinery was operating at 70% of its capacity. IOC Director (Marketing) GC Dagga said the product offtake from refineries was only 10% yesterday and this was causing supply constraints.
Courtesy
TOI
Courtesy
TOI
Inflated Inflation for common man!
Guys, you may remember that last time I wrote about problem with our inflation numbers. In that I clearly mentioned that first problem with our Indian Inflation system is, it doesn't represent what a common man like me and you pay for something due to various reasons. And those reasons I have mentioned also in that post.
Today, I am again posting about that but with some numbers & graphs, how a common is still paying high when headline inflation is almost halved from its peak levels. Just by looking at below graph you will come to know.
In graph you can see that, from August Inflation started coming down, from its peak levels 12.91%. But from same point onwards, index for CEREALS & PULSES started raising 6% & 5% odd levels to 9% & 13% odd levels. There might be various reasons for this...
First list of the WPI commodities is not properly updated as per the requirement. And of course its WPI, not CPI...
Second failure in administration. Because there might be possibility of hoarding in some parts since even though supply has increased compared to last year & demand dropped internationally. In addition to this, now government is facing the problem of TRUCK STRIKE from last 3-4 days. This will immediately affect the supply sides nearly 7-8 strikes where in strike is going.
And last but not the list there are various other possibilities like possible increase in domestic demand, higher cost of input and increment in the minimum support provided by central government.
BOTTOM - LNE:
Whatever may be the reasons for above mentioned problem, our measurement system must replicate the present situation of COMMON MAN rather than that of WHOLESALERS.
Today, I am again posting about that but with some numbers & graphs, how a common is still paying high when headline inflation is almost halved from its peak levels. Just by looking at below graph you will come to know.
In graph you can see that, from August Inflation started coming down, from its peak levels 12.91%. But from same point onwards, index for CEREALS & PULSES started raising 6% & 5% odd levels to 9% & 13% odd levels. There might be various reasons for this...
First list of the WPI commodities is not properly updated as per the requirement. And of course its WPI, not CPI...
Second failure in administration. Because there might be possibility of hoarding in some parts since even though supply has increased compared to last year & demand dropped internationally. In addition to this, now government is facing the problem of TRUCK STRIKE from last 3-4 days. This will immediately affect the supply sides nearly 7-8 strikes where in strike is going.
And last but not the list there are various other possibilities like possible increase in domestic demand, higher cost of input and increment in the minimum support provided by central government.
BOTTOM - LNE:
Whatever may be the reasons for above mentioned problem, our measurement system must replicate the present situation of COMMON MAN rather than that of WHOLESALERS.
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