Markets Critical Issues

Serious negative risks to watch out for:

New:
>The initial decision forany agricultural loan made by any nationalised bank to obviously poor-credit farmers, is politically influenced. The bank has NO say. Will this ever be corrected in this country? The bank is then forgiven for carrying such NPAs in their balance sheets for years and decades. No statutory auditor or the ICAI or the RBI itself, can question such carry-over-andover of the NPA. All knew from day one that it wouldn't ever come back. And the RBI's internal auditors too looks askance at the decision of the non-write-offs of these NPAs.
Now...when the politician thinks that "gifting" a loan-write-off to the farmer will help him in an election, more funny-paper is printed. Debt-bonds. And the country pays for it.
But for stock markets, it's another hit on the collective emotion. The integrity of politicians takes another bash, and the collective mood gets worse. They find someone or something to blame their ills on. Nothing like blaming a politician who does away with the rules of capitalism.
>UBS said subprime losses would cross $600 billion...not just the $160 billion written off so far.
>US Corporate Profits in the S&P 500 fell (-) 23% in Q4 2007. Profits fall after sales fall. Sales fall when the local public buys lesser, or totally stops some of their everyday buying. The public buys less if they're feeling lousy about their immediate economic future. Or when they have mountain-sized debts waiting to be paid off. And paying that debt off looks impossible right now. Not when the market value of the house has fallen below the total EMIs paid till now. What an awful quandry for the American: Should I continue paying more EMIs while the market value of my house drops even further? Or should I just ask my lender to take back my house or foreclose it...and also keep all those EMIs I've paid till now?
And such bad feelings percolate themselves onto the stock markets. You've been seeing that ever since the Dow turned to the bear side when it broke the 14,000 levels since 15th October. It's at a pathetic 12266 now and looks like it has a long way downwards this year.
>The US Lumber Index hit a 30-year low.
Just 17 months ago in September 2006, it was at a 30-year high !
Now it's at a 30-year low !
Can such a collapse be beaten by any other statistic?
And the use of lumber tells you how much demand is left for wood in new houses.
So so bad, this recession.... that's instigated by the collapse in America's house prices because of the worst house-demand in history.

Existing:

>Credit-inflation funded by petrodollars and cheap-interest money
>Housing loan defaults in the US
>Housing loan delinquencies in India
>Malls being converted into office space in India
>2-Wheeler borrowing-delinquencies in India
>Credit card default in the US
>Sub-prime blowups of banks, brokerages and investment banks in the US
>Personal-spend dropping in the US
>Dropping prices for new houses/apartments in India
>Bank-blowups in India, and so "mergers" into larger ones..You know the most
recent "merger"
>Bonus issues by promoters desperate to shore up their share prices, and so
raise cash
>When bank mergers or corporate demergers fail to excite markets
>When Citibank downgrades Goldman and Morgan
...When Morgan downgrades Citibank and Goldman
...When Goldman downgrades Citi and Morgan
...Competitive hatred and repugnance at Wall Street
>ICICI Venture-Jaiprakash Infratech $800 million deal is OFF
>Kishore Biyani's Indivision Partners-Subhash Goel's Dish TV Rs.250 cr
deal is OFF
>Consumer confidence in the US falls to a five year low
>US Producer Price Index rose again
>US home sales fell to their lowest in nine years
>The S&P Case/Shiller Home Price index at 20-year low
>REL say they'll buyback. Why? Ans: Funding from Wall Street is OFF
>Railway Budget going prostrate before Indian electorate
>IT hiring has slowed
>Citibank India to close some ATMs and branches
>Starbucks to shut 7200 coffee shops between 5.30 pm and 8.30 pm

Issues

>The cancer of leveraged risk was explained a little more by UBS. They said on Friday that subprime losses would eventually tote up to $600 billion.
That $160 billion written off so far is just a small-spoon taster of the icecream. If and when these numbers start getting booked, this stock market scenario in the world could look like ugly. Not pretty at all.
>The "buy and hold" mantra goes on and on. CNBC thinks they can singlehandedly revive the spirits by their nauseous lines about "Bargains", "Buy these lows", "Think long term" and "Bear markets are buying opportunities". Shouldn't they get it that all the trumpets cannot change the disaster, that any investor can see which CNBC cannot, looming in the housing-price-and-demand blow out in every single country of the world this year?
But the mainstream media is "supposed" to say the things they say. Application of the mind and getting what drives this manmade thing called the "stock market" isn't part of CNBCs job.
>Old Jungle Saying: Markets are technically at their weakest when prices are at their peak.
And technically at their best when prices hit new lows. So when are we supposed to buy? Is this the low?
Ans: No. That's a long long way off. Hold the urge to buy "bargains".

You'll get them cheaper in the months and quarters ahead.
>The Economic Survey had a laugh at the investing community. It told you to "take informed decisions", "don't panic" and avoid the "herd mentality". Whatever all that meant !
>The Dow collapsed last Friday after AIG wrote-down $11 billion and booked loss of (-) $5.3 billion. Then, UBSs prognostication that subprime losses would be $600 billion, killed whatever was left of the mood at Wall Street. Monies moved back to US bonds on assumptions that the Fed would definitely cut between 50 to 75 bps. Yield on the 10 year benchmark bond fell after rising for the past four weeks. It closed down at 3.53%.
Recall that it was 3.92% only last Tuesday. After that stock selloff on Friday, Hedge Funds moved even more leveraged cash
to gold ($982.30 in Singapore this morning !), silver, copper, aluminium, nickel, natural gas and some to crude futures.
This kind of shift may continue for some more weeks. Or rather, till the 18th of March when fresh decisions would be made about what to do with one's monies. That decision would be made for you by the US Fed.

>Budget
The net impact of this over-discussed and abuse-the-FM-for- - - - - - - - g up this
dead stock market is this :
On a short term profit of 100, you'd have earlier paid 30 as total tax (assuming
your slab is 30%).
If the short term cap gain tax were 5, you could deduct it from your total tax
payout. Then, your eventual payment would have been 30-5= 25.
This was till now.
In future, you should deduct that 5 from 100, and then compute tax on the net
income of 95 at 30%. That'd be 28.50.
So the change is that you will now pay 28.5 instead of 25.
This is only for those with Business Income.
Salaried punters will lose more.
Yes, if stock markets were good before this Budget and the mood were hopeful,
this increase of 3.50 would've been brushed off in seconds.
But when the mood is lousy and everybody's wondering whether to shift to
another world, even a hike a 3 paisa looks like the world has stopped spinning.
We see the TV talking heads bitch away about this STT thing today and destroy
whatever mood is left.

View on currencies, interest rates and commodities
>Euro/Dollar: We have no more long calls while the euro booms and the dollar
falls to a three year low on the euro. Stay long, if you are, but don't add any
more. The price chart of euro-dollar seems to be saying that this rise is
consolidating at the top because the massive runup from 1.47 to 1.51 has
obviously happened on the back of huge over-leveraging.
We await a turn in the euro within the next four to eight weeks.
>Gold: Ditto for the future of gold. This too is hitting new peaks on the back of
massive leveraged-buying at the metal futures exchanges of the world. We have
no more long or buy calls. Stay long with the reversal stop now at 11896.
>Silver: The stop is now at 22649. Stay long but watch this stop at all times. This
party in metal futures won't last forever. And that's a cinch.
>Copper: The stop has been upped to 323.

What to expect today, this week, and going forward
Today:
>A bad opening. A gap down opening. That's natural, after the weekend of
nausea on the TV channels from all those idiots who've made out the hike in STT
as a nuclear didaster.
Besides, the bad Far East of the morning.
And expect a worse Europe today at 1.30pm
>But after the deepishly low opening, expect a recovery in the afternoon. But
that, only after pricing in Europe at 1.30 pm.
>The Budget took nothing from you and neither did it give you anything.
Same for Indian corporates.
So net-net, it was neutral document.
That 60k crores, the FM says, is nothiong to be bothered about.
They'll just print some bonds like they did in Oil Bonds, and figure out how to
write off the 60k crores over the next three years. Vague !
Totally vague chap when it comes to the single biggest write-off in Indian
Budgeting history !

In March
>We still wait for a natural rally after that big fall of January.
We still say the Fed will NOT satisfy the global markets on 18th March.
What the Fed says that day is more important than how much they will cut.
And what they have to say about the future, like all already know, won't be pretty.
So be ready to exit your longs and deliveries by the 17th.
Be ready to short after that.