Decoupling Theory Goes to Bin

The Blood bath on the street has rejuvenated the chances of Double dip recessions, the last bloodbath on street was due the failure of the Banking system, this time around we have another reason for the plunge ‘ fear of Sovereign Debt crisis in Eurozone’. 

Now today’s (19’th May 2010) fall was purely due to tinkering with the free markets, history has proved time & again, banning of short selling has never helped in the past (Academic Study), but even regulators as experienced as SEC have failed to understand that short selling is a simple tool to avoid asset bubble formation, still we have politicians with their own whims & fancies & they expect the markets to work according to them. Last week we started on a good note but as expected Germany’s Chancellor’s comments made its ending weak, markets rejoiced on 11’th of May on the news that EU and IMF agreed to act as fairy godmother and pay a $1 trillion emergency-bailout package to stem the sovereign-debt crisis. Sounds good but I have my doubts that we will come out of the tunnel unscratched, & I have my reasons to believe so:-

1)     1)The Bullish pattern in the Fear Index: -   The INDIA VIX index , many call it the fear index is trading well above its 15 day moving average. Thus indicating the fact that volatility is the only reality. CBOE VIX is also trading well above its 200dma & staying there. 

 2)    Yellow metal still shining bright:-

The very fact gold is able to close above $1200per ounce on a consistent basis, indicates the aversion of risk from EM’s, Currency , Crude & Commodities ( Non precious).

3)No takers for Euro :-

The Euro index has seen a freefall & has also breached the lows it had touched after the Lehman Bros. crash. It has breached a strong support of 123-125, still people are feeling the good old dollars are safest currency to stay in.

1)    4)China Commodity Scare:-

I       I am scared of China’s growth & fear that its insatiable thirst for Natural resources  could lead to

  A bubble formation, which if burst’s it could create a catastrophic scenario.

  So if Money is not parked in EM’s, Commodities, Eurozone, Equities in developed markets, then Gold seem to be    the most likely option. So its safe to assume that 2007 high’s of 21K on sensex is still a distant dream, but a  possibility if we see the so called as ‘ Decoupling Theory ‘  coming true due to good monsoons, but I personally expect Nifty to first go to 4600 levels & then 6200.   

PS:-  Many facts & figures are taken from Mr. Deepak Singh’s Blog. ‘ State of the Market’,  Deepak is a vetran technical analyst, and my role model.

In a Stock Broking Firm who is really happy?

Was taken aback by gigantic screen's showing CNBC TV 18.... Series of Computers with dealers punching ...plush office... beautiful girls who also seemed intelligent... all nicely dressed people.... they looked so happy & rich? I had doubts... do I belong here...forget winning can I survive here... After all it is India's Biggest Broker.....

We work hard, we spend sleepless nights, we make it to the best schools, we struggle to survive, we fight to compete to get the highest paying job, we strive to outperform peers, and end up being victims of our Business Cards & Designation’s inscribed on it.

Designation becomes our destination & we are in this blind Rat race running on treadmill weaved by the numbers, targets or KPI’s designed to extract best out of us. I see this in my Office, yeah a top notch Sock Broking firm, the people who really seem to be happy are the traders in the dealing room, the analyst seem to be under extensive pressure to generate those research report with highest ‘hit-rate’ so we can claim that our research is the best in the market & we have the arsenal to tame the vilely old beast called Stock Market. But the Analyst are a  breed one of its kind passed out of Ivy leagues, never tasted failure or pain, they will always be in the most aspired & envied job in Investment Industry. But the grass always seems to be a tinge greener on the other side of glass cubicle, what we don’t see are the thorns on that chair of an Analyst.

So let me talk something interesting, let me talk about my team oh-yes we are the rain makers!...We are the self proclaimed sexy bitches, of the company, oozing with confidence, oh yeah we are the sales guys, we seal the deals, we bring business on the table, the most important leg (again self proclaimed) of the broking tripod, but behind the ooze there is lot of midnight booze just to get some sleep & few hours of target-less life.

And if you think traders are a jolly bunch, then I need you to dig deep, as there is more to it than what meets the eye, beneath the laughter & joy there exists a deep sorrow of small child who sat on the trading desk & never grew, always one regret I wish to learn more, know more , grow more.

How can we forget the back office guys, there name has nothing to ride home about, nothing appealing, no lime light, there life gets stuck up in not so cheesy words like T+2, delivery, settlement, compliance.

So we conclude the clients who make money rest in eternal bliss, wait a minute when you are deep out of the money or when your netwoth has reduced to half & in middle of operation in Operation theater if your dealer calls & ask “Saheb tamaru MTM loss vadhi gayu chee aane position continue karva maatein tamne bay lakh bharva padsse”( Meaning: Sir your MTM losses have escalated, your a/c is showing a debit bal of Rs 2 lac, you need to pay so as to continue with your existing positions.)

How can a doctor possibly operate under this severe traumatic condition?

So who is a happy bunny in all this process, without a speckle of doubt it’s the Brokers...    

“You Win Big… You Lose Big…. I only Win!”

It’s a great irony of life that everybody wants’ to go to heaven but none ready to die for it.

Still we work hard in a belief “We are just a trade away from being a millionaire & bankruptcy, there exists a grey space somewhere in between that’s where we reside.”

Disclaimer:-

I have no intention to malign any profession,employer, or any entity living or dead, the article should be taken in the right spirit. The events in this piece are part fictional.

Bond investors Want Actions & Not Just Premium From Greece Govt.

Invesco Ltd. (NYSE: IVZ) is an independent global investment management company managing assets worth $423 billion, expected more action from the Greek Govt. to resurrect it’s finances,  as just highest bond yields in the euro area wont lure investors to buy more Greek bonds. Invesco reduced its holdings of Greek bonds in the fourth quarter as the fiscal deficit was more than 12% of GDP as compared to EU’s 3% limit.

The Govt. announced as much as 4.8 billion Euros ($6.5 billion) in extra cuts in deficit two days ago reacting to this investors bought 5 billion Euros of Greek 10-year bonds yesterday, Axel Blasé a fund manager expect concrete structural changes rather than myopic actions, before they decide to invest, he also added the current spreads look attractive but also cautioned against volatility ahead.

The spread, which averaged 54 basis points in last 10 years, reached a high of 396 basis points in January, the biggest gap since before the euro’s debut in 1999. Bloomberg reported Greek public debt is the worst performing in the Euro zone and has lost about 1.4%.

Some companies like DWS Investment Gmbh wish to take a contrarian approach to Invesco’s call to stay away from buying Greek bonds as they expect its European partners will help Greece to come out of the mess without scars. Many investment experts see a value in buying Greek bonds as a robust demand was seen for 10- year bonds yesterday & the order book exceed 16 billion Euros more than three times of face value on offer.

India Inc. to See Pay Hike's

Year of Tiger has got some good news with it, we can see those double digit pay hikes with average pay hike being around 10.6% which is highest in the Asia pacific region according to survey by Hewett Associates.
It's expected that India based Co's will provide better pay hikes as compared to Mnc's just due to the robust performance of India Inc.

Expert's believe that Sector's which might see spike in salaries are those which have close association with the consumer story, as The Union Budget for 2010-2011 has left lot of money with vibrant middle class, which will form's backbone of the next consumption led Bull-run. Sector's to benefit would be Media & Entertainment, Retail, Banking & Financial Services,Investment & Insurance Co's.

It’s Raining Pay Hikes at Wells Fargo (WC)

Wells Fargo (NYSE: WFC) has almost doubled in size after its successful acquisition of troubled bank Wachovia (NYSE: WB), so has the compensation of its top executives. Wells Fargo & Company rewarded its top five executives with compensation more than $11 million in 2009, while CEO John Stumpf went home with a package of $21.3 million reports The Wall Street Journal. Mr. Stumpf received $5.6 million in fixed salary and $13.1 million in stock options (ESOP’S), also his pension saw an increment of $2.6 million. His remuneration in 2008 stood at $8.8 million.CFO Howard Atkins remuneration more than doubled in 2009 to $11.6 million from $4.9 million a year ago. Wells Fargo bank has repaid all the $25 billion it received in 2008 from the U.S. Treasury's Troubled Asset Relief Program, or TARP thus liberating itself from few Govt. restrictions.

US Stock Index Futures Maintain Status- Quo Prior to Key Economic Data

U.S. stock-index futures didn’t show any excitement before release of home sales, factory orders and jobless claims data. Meanwhile shares of Fifth Third Bancorp (NASDAQ: FITB) fell by 2.9% to $12.18 after Sanford C. Bernstein & Co. downgraded the stock to Market performer as they believed the stock was fairly priced at these levels. Walt Disney Company (NYSE: DIS) & Coca Cola Company (NYSE: KO) jumped 1.9% & 1.1% respectively after buy recommendation by BofA- ML & UBS respectively.
On back of good earnings growth expectations in the banking sector & possible resolution to Greece’s sovereign debt crisis S&P 500 rose to its highest point after Jan 20. Economists expect a better performance in the housing sector due to extension in tax credit, they also feel that jobless claims would go down.
The euro fell from a two-week high against the dollar. Fund Manager’s feel the dollar might rise against global currencies thus resulting in an exit from riskier asset classes.

How do Operator's Make Scrip's go Bannana's

This is a nice short story i picked from traderji.com
Gives us lesson at the end of the day just like in a game of Black Jack, it's the dealer who make's the money.... same is the case of operator driven Penny Stock

Once upon a time in a village, a man appeared and announced to the
villagers that he would buy monkeys for Rs10. The villagers seeing that
there were many monkeys around, went out to the forest and started
catching them.

The man bought thousands at Rs10 and as supply started to diminish, the
villagers stopped their effort. He further announced that he would now buy
at Rs20. This renewed the efforts of the villagers and they started catching
monkeys again. Soon the supply diminished even further and people
started going back to their farms.

The offer rate increased to Rs25 and the supply of monkeys became so
little that it was an effort to even see a monkey let alone catch it.

The man now announced that he would buy monkeys at Rs50! However,
since he had to go to the city on some business, his assistant would now
buy on behalf of him.

In the absence of the man, the assistant told the villagers. "Look at all
these monkeys in the big cage that the man has collected. I will sell them
to you at Rs35 and when the man returns from the city, you can sell it to
him for Rs50."

The villagers squeezed up with all their savings to buy the monkeys.
Then they never saw the man nor his assistant, only monkeys
everywhere!!!!

PRICE/BOOK (P/BV)

This ratio is widely used in analyzing Financial Services Companies & Bank’s, the assets of these companies are in form of cash, deposits or marketable securities its relatively easy to value the accounting value. For instance if we take case of Indian banking industry, the PSU banks have there P/BV value ( P/BV = CMP*No of outstanding Shares/ Accounting value of assets) less than one indicting undervaluation, but historically the ratio’s have been at these levels, the probable reason could be :-

1) Inferior quality of assets.
2) High Level of NPA’s.
3) Lack of fee based revenue as compared to its Private counterparts.
Every ratio must be taken with a pinch of salt.
This ratio is widely used by corporate raider’s to analyze potential target, force a spinoff & strip the assets.orate

Lesson's in Excellence ( Valuation- Vol 1)

I will be posting video's which are focusing on Asset Valuations, this is the 1'st one of them