Money Talk

What a pity when almost all would-be and prevailing democracies build pipe dreams in the minds of people and claim it rewards hard work and is accountable to the people. Its quite contrary to reality. America is a beacon of a true democracy in action and you can even say its a star in that sense. But do you think the largest democracy in this world - India - is in any sense a fair society that is accountable to the people. Most informed people would disagree even within India. Leave alone in other less diverse geographical locations. The true power of democracy cannot be achieved by just uttering the word democracy and by merely having a constitution and a government elected by the people. Success comes not from these. It comes from a fundamental trait exhibited in civility. A commentator recently mentioned in BBC radio that America's success overall is largely dependent on the foundations of a civil society that emulated European based laws. I cannot agree more fully when I

Some analysts have said the housing market is stabilizing because the rate of foreclosures slowed last month and seems to trend that direction. But I understand that this recession is way different from any previous ones in history. It is treating the US-housing a 3-fold blow and is in waves. The downturn started with the unsustainable house prices and the novel loans the banks sold to naive consumers. The second downturn was due to growing unemployment that followed and is still a contributing cause. If predictions are to be believed the third will be due to a high number of mortgages that are going to reset in the second half of 2010. Have to see if there is going to be an effective antidote showing up during the ensuing months.

There has been a pause in the US stock market climb after a pretty steep 3 month climb. Most small, medium and some large cap companies have almost gone up by 50-100%. I put a very small risk capital in stocks during the Dec2008 to March2009 and no wonder its up by an average of 100% till date in a bag of 6 stocks mostly Indian and Chinese companies. But I also had Apple in it which has gone up by more than 50% since. But the question is ..... where will the markets go from here. And how much! Analysts are split, as always. But I came out with this take......that markets will generally hand a 75-100% return in about 12-18 months if you selectively pick small, growth Asian stocks. Some of these would be HDB, CHL, JASO, RS and ACH. Just for reference sake, as of 19th Jun 2009 Dow is in the 8530s and S&P at 921 and Nasdaq 1820s.

I have not had much news to celebrate about the US economy inspite of the 6 continuous weeks of stock rally that pulled the US Stock Market up by about 22%, atleast that's what Dave Ramsey said in today's live TV program at 8pm EST watched by an estimated 1 million people. Check out http://www.townhallforhope.com/. Great communicator that Dave Ramsey is, he is a fiscal conservative and a practical Christian. He is just a great package. I travelled 25 miles to listen to this telecast. If you listen the same talk online, you may agree that he drives home a powerful message of the example of how he wants people to be like baby eagles who need to flap their wings hard when pushed from a nest (when the going gets hard). That he says is akin to realizing your hidden potential when you work hard in a difficult situation.

http://krugman.blogs.nytimes.com/

Did you know the once touted Carbon Cap and trade concept has lost more than 50% of its value in investments on carbon credits. What went wrong? Its lack of clarity in policy. Many people hopped onto this bandwagon thinking it would be a 10-bagger in less than a couple of years only to realize that they have lost more than 50% or more in that many years. I am thinking this concept will catch up only when all countries sign the Kyoto accord on climate change. America hasn't and is not showing signs of signing in the near future. So its difficult to see it would succeed as a profitable investment as of now.

There is a short term negative correlation of stocks to house prices which normally never exists. But why is it so now? Well, home values can't go up unless the unsold house inventories come down and inventories can't go down enough because of one major reason - Growing Unemployment. As for stock prices, they are on the so called 'bear market rally' but what surprised many was its month-long strength. That should tell something, and in my view its signaling the bottom which many are waiting for. This housing-stock market disconnect seems to be a new phenomenon yet to be named and I want to call it the "Jason Effect" named after its discoverer "me"! How about that. I would be a buyer at any pullbacks, but I am lucky that a bucket of my stocks I bought between Dec 2008 and Feb 2009 are up a handsome 38% and some even above 50%. I expect the trend would continue albeit gradually. I hope for a high percentage return going forward 6-12 months.

Any idea? Well I have some....here it goes.....'concise trading' blogger states going forward financials and energy are going to be looking very bad with their numbers. I can't agree more. There are others that are not going to be pretty either. Reasons aplenty....unaudited intentional leaks about increased earnings from citi can't be trusted......AIG behemoth is still rolling at the cliff thats about a mile below the first one it came off. Employment numbers won't improve until jobs can be profitably created.... housing sector?...better left unsaid....and so goes on the list. But there is money to be made yet....one would be in looking at puts on options and the other would be shorting the real weak ones in the weak sectors. Cherry picking is key and not every cherry picked would be a cherry!!

Solar stocks are soaring particularly STP is up about 50% in just the morning session. This sector was beat up pretty bad and STP came down to $7 from its high of $80 during the last 15 months. STP announced a flat past quarter and that was the only news I saw....but....its up ! The movement is volume based and that's significant I feel perhaps indicating entry of some big money funds.

Wall Street was full of smiles today with a near 500 point, 7.5% rally! Most of the rally was because of Treasury Secretary Tim Geithner's release of "bad bank" details. Some was due to the 5% increase in existing home sales .... but 50% of the homes sold were short sale or foreclosed homes. And some was due to short covering of stocks. Paul Krugman, 2008 Nobel Prize winner in Economics thinks Geithner's plan is a recipe that can fail as it emulates the same path paved by his predecessor Henry Paulson. But when quizzed more he admitted that his thinking may prove wrong if the spending increases as a product of credit flow. Some of my bank related stocks of Indian companies rallied as high as 18%. They are however down by 50% from a year ago.

Have you heard of this name? Well you are right if you thought its a horticulture seed producing company. What's great about this unknown company. If you had to pick out what are the industries that are losing steam in the current economy, its a no-brainer. But Burpee is experiencing an unprecedented demand for horticultural plant seeds (particularly vegetables and fruits) in all of its 20+ years of operations. Amazing! Its having the biggest growth and profit ever .... especially in the current "economic near depression".

Infosys co-founder Nandan Nilenkani..... I might have got that name spelt wrong but I am not mistaken when I heard him being complimented as the Bill Gates of India in an interview with Tom Ashbrook of "On Point" today in NPR. I don't have anything against Mr.Nilenkani but bigwigs like him have become successfully rich because of the lower economics of doing business in India. That leaves me with this question. Have they become the new generation of capitalists with the only goal of making hay when the sun shines. Everyone knows that these business magnets have wads of cash but its unfortunate that wealth resides with the elite few while there is a massive disproportionality in wealth distribution among other strata of society. If the finer details of their wealth compared to the rest of the masses in India are publicised, there would be a warcry on the streets. The rich people in India are far too rich while the middleclass have got stuck in the rut and their numbers tho

Wow .... wow....wow.....I wish I was right atleast 50% on my predictions. But wasn't I on the ball when I shared my thought a little over a week ago about the possibility that we are heading to a 4.5% rate for 30 year mortgage. I am feeling vindicated. But keep your eyes open, this rate is on the decline and is going to last atleast through this year. Will I be right again? 50/50!!!

Do you know what signs to look for in the economy to re-enter into stocks again? I read recently in SmartMoney magazine that the top 2 things would be 1) to see the numbers from the Conference Board's Consumer Sentiment Index if its showing an increasing trend and 2) the weekly and monthly retail-chain sales.

Is 4.5% interest rate on a 30 year mortgage possible? That's what some experts like the Dean of Columbia Business School, Glenn Hubbard has suggested that the US government should temporarily peg at, to alleviate the foreclosure crisis in the US. I am not sure why this is very difficult especially given the government intervention at multiple levels to prop up the housing and the economy. Some critics have cited such a move would bypass the market economics of supply and demand. But correct me "If everything in capitalism was based on supply and demand then there would have been absolutely no need to bail out failing banks and mortgage companies in the first place". Did I miss something?

While US stocks rallied yesterday and may see similar moves for a brief amount of time there are indications that such volatility would remain till another scramble to the bottom and then moving up again. News such as US job loss were lower this week - 639000 vs 670000 the previous week as reported by US Labor Department today would be a small shot in the arm.

I know of a blogger who is very smart in making trades whether it be stocks or options. He is remarkably accurate in many of his Wall Street predictions. He predicts some very dire economic scenarios which are worth taking a look. Check his blog and what he published today under the title "Guesses" at: http://concisetrading.blogspot.com/

One of the 4 emerging economies of the BRIC (Brazil, Russia, India, China), has been lowered in its credit rating by Standard & Poor's from 'stable' to 'negative'. What it essentially means is that the once heating up Indian economy may be facing serious headwinds and ..."its fiscal position has deteriorated to a level that is unsustainable in the medium term." Indian Government will have a general deficit and will be forced to take other fiscal measures to issue bonds to raise money to meet the deficits. The deficits are also due to many policy measures (to appease the masses) ahead of the elections, that cause fiscal stress to the budget.

Link to US Federal Budget 2010 http://www.whitehouse.gov/omb/assets/fy2010_new_era/A_New_Era_of_Responsibility2.pdf Budget is projected to be balanced by 2012 Federal Budget Deficit this year - $1.75 Trillion Do you want to know what is the US National Debt ? It is more than $10 trillion, ie 10 followed by 12 zeros. GDP - $14 trillion, Shrank little over 6% last year.

Yesterday Obama addressed the joint session of US Congress for the first time as President with remarks that might well mark the most turbulent economic times of the modern world. Many financial analysts do not see any improvement in the next 6 to 9 months despite the 100s of billions meant to stimulate the economy, simply because it may take that long to work its way through the economy. I am sad that I have a sense that a fairly large number of corporate CEOs and financial analysts are factoring a 3-5 years of recession. Talking of stress test to banks - is it just a test or do they have a remedial measure in place when they hear the results of the test. Bernanke is infusing some hope by saying we will be out of recession by end of this year and the stock market is not functioning on its fundamentals but of the fear and panic among investors. Remains to be seen.