Monday, December 22, 2008

Over 21 lakh jobs lost in US since Dec 2007

More than 21 lakh individuals have become jobless in the US ever since the world's largest economy entered into recession last December, with more number of employers resorting to mass layoff actions.

The number of such layoffs -- where 50 or more people are handed pink slips by a single employer -- touched 20,712 in the last eleven months.

On a seasonally adjusted basis, the Bureau of Labour Statistics in a statement said, "From the start of the recession in December 2007 through November 2008, the total number of mass layoff events was 20,712, and the number of initial (jobless) claims was 21,08,743." The number of job losses due to mass layoff actions stood at 1,41,750 in December last year.

Meanwhile, the National Bureau for Economic Research, which dates the nation's economic cycles, has said that America officially entered into recession in December 2007.

In the wake of the worsening financial turmoil, companies worldwide are cutting jobs to cut down costs. So far in December, companies across the world have announced more than 1.20 lakh job cuts.

More than one-third of the layoffs happened in America, where unemployment touched a record high of 6.7 per cent.

Reflecting the worsening labor market scenario, the data showed that the number of mass layoff actions rose to 2,328 last month whereas the same stood at 2,140 in October.

In terms of job losses, the November figures reached 2,24,079, slightly lower than 2,32,468 in the same period a month ago.

"The number of mass layoff events in November increased by 188 from the prior month, while the number of associated initial claims decreased by 8,389," data available with the Bureau of Labor Statistics showed.

Saturday, December 20, 2008

Auto parts: 200,000 may lose job; 4,000 units face closure

India's auto component makers are facing one of the biggest crises ever. With the domestic market in the doldrums and the exports to the American market badly hit, many companies are on the verge of shutting down.

The entire supply chain of auto companies is bearing the brunt of the economic meltdown. From Tier-1 companies to small-scale units, all are facing a huge fall in demand, delayed payments and a stiff liquidity crunch.

"About 4,000 ancillary units are on the verge of closure and about 200,000 people will be affected by this crisis. Most companies have cut down the number of shifts, working days and are cutting down production. The US crisis has aggravated the problem," says Anil Bhardwaj, secretary general, Federation of Indian Micro, Small and Medium Enterprises (FISME).

The commercial vehicle segment is the worst hit by the crisis. Such crises are cyclical, and tend to recur every 5-6 years, but a calamity of this magnitude has put all companies in trouble. "Auto component makers are hit very badly. The original equipment manufacturers (OEMs) have not been able to sell stocks. Cash flow is getting hugely affected. Payments are getting delayed, affecting a lot of projects. The overall sentiment is negative," says Jayant Davar, vice president, Automotive Component Manufacturers Association (ACMA).

Domestic woes

It all started with the crisis in the auto industry. Car sales, which were booming, have now plunged. In the wake of the marked economic slowdown, there is a severe credit crunch. This has, in turn, slowed down demand for vehicles.

"Payments to vendors are getting delayed, loans for capacity expansion are not being sanctioned, and banks are refusing loans to auto companies that are supplying to companies like General Motors, Ford, etc. The removal of insurance cover for exporters too has severely hit the industry," Davar explains.

The Chennai-based Sundram Fasteners, which supplies radiators caps and fasteners to General Motors, says it is more worried about India than the United States. "Most of the auto companies have done very badly in 2008. The business in the second half of the year has been 50 per cent less than in the first half," says V G Jaganathan, president (finance), Sundram Fasteners.

The US impact

The auto crisis in the US has only worsened the situation. Auto component makers' exports to the Ford, GM and Chrysler were growing at 50-70 per cent. Out of this 35-40 per cent of the exports were to GM in North America. GM accounts for about $500 million of India's auto component exports.

Exports from Indian companies accounted for over $3 billion last year. "We were expecting a 20 per cent year-on-year growth. But this year, this has drastically fallen to about 6 per cent. November and December were the worst months for auto component makers," says Davar.

The auto sector is amongst the worst-hit industry sectors. Adding to their woes is the cancellation of credit insurance which protects manufacturers against payment defaults from buyers.

The Export Credit Guarantee Corporation has frozen issue of fresh credit risk insurance (CRI) cover to Indian component vendors of US auto giants. "Auto component makers are coping with the double whammy of the domestic market and the export market," says Bhardwaj.

Meanwhile, GM India is playing down the impact of the parent company going under. "GM North America is in crisis while GM Europe has flat growth. GM Latin America and Middle East, and GM Asia Pacific are doing well. GM has already sourced components woth $500 million from India and it will meet the target of $1 billion by 2010, as other markets still need components," says P Balendran, vice president (corporate affairs), GM India.

For companies like Sundram Fasteners, the crisis will have short-term impact. "GM accounts for about 2-3 per cent of the total business. We will continue to outsource products. In case, GM files for bankruptcy, payments will be delayed. Bankruptcy does not mean closure, it is restructuring," says V G Jaganathan.

Big trouble

Sandhar Technologies, a diversified auto parts maker that has plants in the Europe, has seen a fall in business by about 50 per cent.

"The topline growth for Sandhar Tech has grown to Rs 800 crore (Rs 8 billion) compared to Rs 640 crore (Rs 6.4 billion) last year. But the bottomline growth has been severely hit. Steps taken by the government -- like Cenvat cut -- are just nominal. There is no liquidity in the market. With high auto loan rates and a scary job market, the last thing on anyone's mind would be to buy a car," Davar, who is also the CEO and founder of Sandhar Technologies, laments.

Auto component companies employ about 400,000 people. The small and medium enterprises in India employ about 3.3 crore (33 million) people. Many of these SMEs are in the auto sector. A good majority of them have already lost their jobs and the sector is likely to see more job cuts.
"Though the jobs cuts are not apparent, a large number of people have already been asked to leave. "Many ancillary units which supply to these companies are also likely to be wiped out if the crisis continues," Davar says.

Commercial and passenger vehicle sales have fallen drastically. Unless sales go up, the market will continue to be sluggish, says carmakers. Most of the companies were half way through expanding their operations and building new capacities. It is now a huge burden on these companies as they have to bear the huge interest costs and the defaults in payments.

Help us!

Many banks have refused to offer credit to companies who are supplying to GM. They fear that in the event of a bankruptcy, their payments will also get stuck. Many companies established auto plants in India to enjoy the benefits of the excise cut exemption. They have already invested huge amounts into these plants.

ACMA has asked the government to intervene and help the industry. There should be more liquidity in the system. Many banks have pulled back credit to auto companies. The interest rates have to come down to push sales. Auto companies badly need the ECGC cover. The government should look into these issues.

Auto crisis & GM India

The crisis will not have any impact on GM's India operations. The company's plans are going on as per schedule. "We will go ahead with our plans with internal approval so the crisis in the US will not affect us in India. GM is the only auto company which has seen consistent growth despite a fall in sales in November," says Balendran.

Optimistic even during the crisis, he says that GM India performed better in 2008 than it did in 2007. "In 2006, we sold about 35,000 units; in 2007, we sold about 60,032 units, while in 2008, we have already sold 72,000 units. It has been a steady growth," he says.

GM has inaugurated the engine plant at Talegaon, with a capacity of 160,000 units. This plant is expected to be commissioned in the year 2010. GM India is likely to hire 500 employees at the plant. GM has also started the engine power train facility with a capacity of 140,000 units.

"We have already hired 1,000 people and we will be hiring 500 more. We have no plan to cut production or cut costs. The reason for GM's success in India is the product line up. Starting from Rs 2.99 lakh (Rs 299,000), we have cars for every segment. We will be launching the new Captiva in January, a sedan called Cruze mid next year, and a mini car in 2009. The upgrades programme will also continue as planned," Balendran adds.

Bleak future

How long will the crisis last? There are no definite answers to this.

"We are hoping the situation will improve slightly in the Jan-Mar quarter. But if the recession worsens, it will only be tougher for companies to get going," says Davar.

GM India believes the situation will take many months to improve. "The slowdown has gathered pace in the last 3 months. The market is very sluggish. Liquidity is certainly a problem and it will take months to recover," P Balendran says.

"About 25 per cent of all companies in the small and medium enterprises, have already become 'non-performing assests (NPAs).' As the crisis worsens, 50 per cent of SMEs in the auto sector will end up as NPAs," says Anil Bhardwaj.

The FISME has said that these trying times should be converted into an opportunity to create a lean and powerful economy with sustainable growth.

In its memorandum to the Prime Minister Manmohan Singh, the association has sought several relief measures, including a moratorium on repayment and the allowing of corporate debt restructuring for all unit.

The association has also demanded that wrking capital limits of enterprises must be enhanced liberally and specific steps be taken to ensure timely payment to Micro, Small and Medium Enterprises (MSMEs) against supplies made to corporates.

A big push is needed for exposing SMEs to exports. Currently, 0.5 per cent of SMEs are engaged in exports and yet contribute to about 50 per cent of the exports.

There is a critical need to look beyond Export Promotion Councils and leverage resources of private organisations and associations focusing SMEs, the FISME has said.

Congress agrees to bail-out of Ford, GM and Chrysler

Lawmakers on Capitol Hill this weekend agreed to a short-term bail-out of America’s three biggest carmakers to prevent an imminent collapse of the ailing industry.

The White House and Democrats in Congress are this weekend working on details of the package to provide about $15bn (£10bn) in loans to General Motors, Ford and Chrysler. The legislation is being crafted for the beleaguered industry, which has called for a government bailout as the global recession has led to plunging sales of cars.

House Speaker Nancy Pelosi said the House of Representatives would consider legislation next week to provide “short-term and limited assistance” to the industry, which will undergo “major restructuring.”

She said: “Congress will insist that any legislation include rigorous and ongoing oversight to guarantee that taxpayers are protected and that resources are directed to ensure the long-term viability and competitiveness.”

The short-term lifeline comes as the heads of the Detroit car manufacturers have this week faced two days of intense questioning by assorted politicians on Capitol Hill as they call on Congress for $34bn of loans to help them survive a severe economic downturn.

Although a rescue package is likely to be considerably smaller than this figure, politicians have recognised that the collapse of any one of the Big Three would have profound implications for an already damaged American economy.

The agreement to put together a bailout package came just hours after the government reported that employers slashed 533,000 jobs in November – representing the worst single month’s job loss in 34 years. The three carmakers together employ nearly 250,000 workers, and more than 730,000 others produce materials and parts for cars.

The focus of the short-term bridging loan is likely to be GM and Chrysler, which are most in need of immediate assistance. GM had said it needed $4bn before the end of this month, while Chrysler, which is understood to have hired Jones Day for restructuring and bankruptcy work, had wanted $7bn immediately. The Senate is scheduled to be in session next week.

A key breakthrough on the long-stalled bailout proposals is understood to have come when Ms Pelosi bowed to President George Bush’s demand that the aid come from a fund set aside for the production of environmentally friendlier cars. She, along with environmentalists, had instead wanted the administration to take money from the $700bn fund the government set aside for the financial industry.

Ms Pelosi said the billions of dollars that had been set aside to modernise plants to develop the green cars would be repaid “within a matter of weeks.”

Although the details of the legislation are still being thrashed out, it is understood that this could include the creation of a trustee or group of industry overseers to make sure the bailout funds were used by car manufacturers for their intended purpose. The funds are designed to last until March.

US Government bails out General Motors and Chrysler with $17bn loan

The US government has saved General Motors and Chrysler from imminent bankruptcy with a $17.4bn (£11.6bn) lifeline loan package in an unprecedented move that will pile pressure on the British government to follow suit.

President George W. Bush agreed to hand over the funds to the two companies after months of fraught negotiations over the future of the two companies and a week after politicians in the US Congress rejected a $14bn bail-out package.

The news will safeguard an estimated 3m jobs reliant on the car industry in the US, as well as 5,500 staff at General Motors' Vauxhall factories in Ellesmere Port and Luton.

GM and Chrysler, both based in the once-booming city of Detroit, Michiagn, had warned they would have run out of cash by the end of the year without assistance, putting hundreds of thousands of jobs directly at risk, and risking 3m job losses in the wider economy.

"In the midst of a financial crisis...allowing the U.S. auto industry to collapse is not a responsible course of action," said the US President, who is tapping the $700bn bank bail-out pot for the necessary funds.

He had been considering a form of bankruptcy for the pair, but decided against it as it was thought customers would be unwilling to buy cars from a bankrupt manufacturer.

President-elect Barack Obama said the funding should be used to reshape the American car industry, which has been in terminal decline for decades due to rising labour costs, uncompetitive product offerings and falling sales.

"The auto companies must not squander this chance to reform bad management practices and begin the long-term restructuring that is absolutely required to save this critical industry and the millions of American jobs that depend on it," he said.

Although the American deal helps to the future of Vauxhall, GM Europe said it was still seeking assistance from the UK Treasury "within days", with a spokesmen saying it continued "aggressive work" to "align the business with the significant downturn in the market".

The European arm of the company would likely have remained outside the collapse of GM in if it had gone into bankruptcy, but the European arm is still seeking a range of new measures, along with the rest of the British car industry, including tax deferrals and investment in new, more fuel-efficient technologies.

Unite joint general secretary Derek Simpson said that intervention must come within the next week. "What is being asked for from the Government is not a handout, not a gift, it is access to strategic funding for a sector that is key to our economy's global stature and one that will play a lead role in its emergence from this recession."

Monday, December 15, 2008

Property prices may fall by 30% next year

Experts say that developers are likely to focus on sub Rs 20 lakh (Rs 2 million) flats due to huge demand for such flats and the government's stimulus package for Rs 20 lakh home loans.

"Earlier, developers thought that there is latent demand for premium homes, but in the current slowdown, that perception has changed. There is always demand for Rs 500,000-Rs 15 lakh (1.5 million) homes and developers will look towards that," Maheshwari said.

Property prices in the key cities have more than doubled in the past few years helped by a boom in the stock market and a spurt in salaries of home buyers. The subsequent measures of the Reserve Bank of India to cool the overheated economy and a subprime crisis coupled with a credit crunch, has tempered growth prospects in the country hurting sales of property developers.

The benchmarket Sensitive index has dropped more than 60 per cent from the beginning of the year, eroding much of the investors' wealth and RBI has increased repo rates by 150 basis points till September this year to curb inflation.

''Many developers will come down on their asking rates after being saddled with unsold stock beyond their ability to hold on," added Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj.

To boost sales property developers have been forced to cut prices of real estate but buyers are still adopting a ''wait and watch'' stance as many feel that even the lower rates continue to be unaffordable.

Property prices in Gurgaon, Noida in the National Capital Region have fallen by 25-30 per cent while Mumbai's distant suburbs have seen 15-20 per cent drop in prices. Now property consultants foresee further price correction of 25-30 per cent in 2009.

"By the middle of 2009, developers will loose holding power and cut prices sharply. Cuts will follow big time after elections," said Ambar Maheshwari, director of DTZ, an investment advisory.

Experts say that developers are likely to focus on sub Rs 20 lakh (Rs 2 million) flats due to huge demand for such flats and the government's stimulus package for Rs 20 lakh home loans.

"Earlier, developers thought that there is latent demand for premium homes, but in the current slowdown, that perception has changed. There is always demand for Rs 500,000-Rs 15 lakh (1.5 million) homes and developers will look towards that," Maheshwari said.

Govt announces package to boost economy

The government on Sunday effected an across-the-board four per cent cut in CENVAT that will bring down prices of cars, cement, textiles and other goods as part of an economic stimulus package that also earmarks an additional Rs 20,000 crore (Rs 200 billion) for infrastructure, industry and export sectors.

In a virtual mini-budget that entails a revenue loss of Rs 8,700 crore (Rs 78 billion) in the next four months, the package seeks to revive the crucial housing, export, automobile, textiles and small and medium enterprises sector to counter the economic slow down caused by the global financial crisis and the recession in the West.

The Central Value Added Tax (CENVAT) on non-petroleum products would down to ten, eight and four per cent for different categories.

The package also contained full exemption from basic customs duty on industrial intermediate naphtha to give relief to power sector and withdrawal of export duty on iron ore fines while cutting down the levy on export of iron lumps from 15 per cent to 5 per cent.

The much-awaited package, set rolling by Prime Minister Manmohan Singh who is also the finance minister, targets power, exports, housing, auto, small and medium industries and infrastructure sectors through additional funding and guarantees that total an amount of over Rs 30,000 crore (Rs 300 billion). The 10-point package contains substantial incentives for the sectors hit by the slowdown, besides allowing India Infrastructure Finance Company Ltd to raise Rs 10,000 crore (Rs 100 billion) through tax free bonds by March as part of efforts to support Rs 100,000 crore (Rs 1,000 billion) programme in the high-way sector.

Unveiling the package, Planning Commission Deputy Chairman Montek Singh Ahluwalia said "the market forces would compel manufacturers in a competitive environment to bring down prices and pass on tax benefits to customers."

Cheering the package, India Inc said it would augur well and car companies led by market leader Maruti announced that they would cut prices. "It is a significant effort to stimulate expenditure in rural infrastructure areas," the industry said.

"The government has been concerned about the impact of the global financial crisis on the Indian economy and a number of steps have been taken to deal with this problem," an official statement said.

The steps taken by the Reserve Bank of India to pump in sufficient liquidity in the financial system are being "supplemented by fiscal measures designed to stimulate the economy. In recognition of the need for a fiscal stimulus the government had consciously allowed the fiscal deficit to expand beyond the originally targeted level."

"It's just a very good stimulus package, if you want one word for it," Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters while briefing on the package.

"Don't look for one number. Assigning one number is not the right way to look at it," said Ahluwalia, who said it was a significant effort to give a stimulus on expenditure side, especially on rural infrastructure and housing sectors which have the high employment potential.

As part of steps to create demand in the economy that is expected to grow by over 7 per cent, "the total spending programme in the balance four months of the current fiscal year, taking plan and non-plan expenditure together is expected to be Rs 300,000 crore (Rs 3,000 billion)."

The stimulus package announced on Sunday comes on the heels of RBI'S monetary measures to ease the cost of funding for the banks, signalling that lenders should lower their interest rates.
"The government has been concerned about the impact of the global financial crisis on the Indian economy and a number of steps have been taken to deal with this problem," an official statement said.

Having assured stability of the financial system, the government said it has focussed its attention on countering the impact of the global recession on India's economic growth.

"The economy will continue to need stimulus in 2009-2010 also and this can be achieved by ensuring a substantial increase in plan expenditure as part of the budget for next year," it added.

The measures also included the government departments being allowed to seek replacement of government vehicles within the allowed budget, in relaxation of extant economy instructions.

"The government is keeping a close watch on the evolving economic situation and will not hesitate to take any additional steps that may be needed to counter recessionary trends and maintain the pace of economic activity," it added.

Banks cut home loan rates

Public sector banks on Monday announced that home loans up to Rs 5 lakh (Rs 500,000) would be given at a maximum interest rate of 8.5 per cent, while those between Rs 5 lakh and Rs 20 lakh (Rs 500,000 and Rs 2 million) would be offered at 9.25 per cent.
Besides, the banks would not charge any processing fees and pre-payment charges for loans up to Rs 20 lakh, and would also provide free insurance cover, the Indian Banks Association said.
The package looks at reviving the demand in the housing industry.

  • Interest rates not to exceed 8.5% for loans up to Rs 5 lakh
  • Interest rates for loans between Rs 5 lakh and 20 lakh to be 9.25%.
  • No processing fee or pre-payment charges, free insurance cover for loans up to Rs 20 lakh.
  • PSU banks announce one percentage point cut in loans for micro, small and medium enterprises (MSMEs).
However, it is not yet clear if the existing home loan borrowers will benefit from the special home loan schemes unveiled by state-owned banks on Monday.

Outlining the new housing loan package in accordance with the stimulus package announced by the government on December 7, State Bank of India chairman O P Bhatt said the interest rate under the two schemes could come down, but would not go up beyond the threshold limit of 8.5 and 9.25 per cent for a five-year period.

The offering under the packages would be made till June 30, next year, Bhatt said, adding that after the lock-in period of five years the borrowers could look in for free or floating rates that could change in accordance with market conditions.

To make the package attractive, the public sector banks would give the loans at a margin of 10 per cent up to Rs 5 lakh and 15 per cent for loans between Rs 5 lakh and Rs 20 lakh, and in either case, banks would offer free insurance cover, Bhatt said.

Leading private lenders, including ICICI Bank and HDFC, appeared favourably inclined to cut their rates, with sources saying the two lenders would study the PSU banks' package before taking a call.

Sources said any decision would be taken after ascertaining whether PSU banks are getting any government subsidy for implementing the package.

The banks have also decided to cut the lending rates for the micro and medium enterprises by 100 basis points.

Gold surges on firming overseas trend

Gold prices surged by Rs 100 to Rs 13,000 per 10 gram on the bullion market here on stockists buying sparked by a firming trend in the international market.

Silver also rose by Rs 50 at Rs 17,000 per kg.

Buying activity picked up following reports that the precious metal in overseas market rose as weakening dollar against the euro raised demand for the gold as an alternate investment.

The dollar fell to seven-week low level against the euro. The rising price of crude oil was another supporting factor for the yellow metal.

Gold generally moves in opposite direction to the US currency, traders said, adding that surging crude oil raised concerns of inflation and boost demand for precious metal as a safe hedge.

Along with the general firm trend, silver ready rose by Rs 50 at Rs 17,000 per kg and weekly-based delivery by Rs 40 at Rs 17,120 per kg. Silver coins spurted by Rs 200 at Rs 26,600 for buying and Rs 26,700 for selling of 100 pieces.

Standard gold and ornaments gained Rs 100 each at Rs 13,000 and Rs 12,850 per 10 gram respectively. Sovereign was unchanged at Rs 10,500 per piece of eight gram.

Cheaper home loans may not cheer realty sector

The real estate sector is unlikely to see any movement even after measures like bringing Rs 20 lakh and below loans under the priority sector. However, it will trigger demand in the tier II and tier III cities.

Since the beginning of the year, realty prices have fallen by 10% to 15% across the country. Analysts expect a further price correction of 20% to 25% followed by a time correction. But real estate cost in metro cities like Delhi and Mumbai continue to be high. In September 2008, the rates prevailing in south Mumbai was higher than what it was in November. The September rates for the residential segment in Churchgate, Cuffe Parade and Colaba in (Rs/sqft) was 15,000-32,000; 15,000-35,000; 14,000-40,000 respectively. The November rates for the same areas have however fallen. In (Rs/sqft) the current rate in Churchgate is 15,000-30,000; Cuffe Parade and Colaba are12,000-30,000.

In Delhi a lot of areas have experienced a dip. During September, 2008 the rates in (Rs/sqft) in areas like Golf Links, Greater Kailash and South Extension were 6,000-10,000; 6,500-12,000; 7,000-12,000. Prices have dropped since then in all these areas. In (Rs/sqft) the current rate in Golf Links is 5,200-9,000; in Greater Kailash it is 4,500-9,000; in South Extension it is 4,500-10,000.

Though much activity is not expected in Mumbai and Delhi, suburbs like Thane, Virar, Vashai and Panvel will see movement in the housing sector. Similarly, while places in the heart of Delhi will not beaffected, places like Rohtak and Sonepat will feel an impact.

Even after the current decline in prices housing accommodation in metros are still on the higher end and beyond the purview of Rs 20 lakh loan. So even if home loans become cheaper in this category metro accommodation is unlikely to come within its gamut and hence spur demand here.

“In the tier II and tier III cities there may be an impact with Rs 20 lakh loans becoming cheaper, but it will hardly affect demand in the metros where prices continue to be steep,” said Hitesh Agarwal, head of research, Angel Broking. The reason for demand to pick up in these cities is that here most of the buyers are end-users and hence genuine buyers, whereas in major metros investors majorly drive the demand. For the demand to start picking up in metros a price cut for the properties is essential.

Currently the interest rate of the priority sector hovers around 9% to 10%. PSU banks are likely bring it down by 2% to 3%. Banks are even looking at waiving off processing fees and reducing money margins.

Developers also think a further reduction in home loans to 6% to 7% for the priority sector is going to trigger demand.

With banks being more apprehensive about lending to this sector and chances of PE deals happening in the near future being equally grim, industry experts feel that developers will have to be realistic about the situation and bring prices down to drive demand.

“The bubble has gone bust in this sector. There is a slowdown in the global economy. Realtors cannot expect to maintain profit margins of the boom era. They will have to cut prices and set realistic targets for the future,” Agarwal pointed out.

Monday, December 1, 2008

US in recession

A panel of the National Bureau of Economic Research says the U.S. economy fell into a recession last year.

The NBER says its group of academic economists who determine business cycles met and decided that the U.S. recession began in December 2007.

Many economists believe the current downturn will last until the middle of 2009 and will be the most severe slump since the 1981-82 recession.

Monday, November 24, 2008

Finding Your Magic Investing Formula

People often ask me, "How do you find great investments? " My standard reply is, "You have to train your brain to see them. Great investments are all around you.

"I know that's not a very satisfying answer. Most people want something more specific and concrete. But my reply is as accurate as possible. If we could've seen all the great investments just in the past decade, we'd all be multi-billionaires.

Missing Out on Millions

There have never been more opportunities to become rich than in the last 10 years. And there'll be even more opportunities in the next 10. Let me explain. Like many investors, I didn't see the power of eBay almost a decade ago. If I had, I'd be a billionaire today. Nor did I see the power of YouTube, or Google, or MySpace. Being an old guy, my brain isn't trained to see investing opportunities in cyberspace. So I missed them.

Thirty years ago, when my business career was just starting at Xerox, I was introduced to a new type of computer. I wasn't tuned into computers at the time, so little did I know that I was looking at the early version of what was to become the Macintosh. So I also missed that billion-dollar opportunity, too. How many billion-dollar opportunities have I missed? Maybe millions.

If I've missed so many million- and billion-dollar opportunities, why am I writing articles and speaking worldwide about financial independence? That's a valid question, and the answer has to do with helping you find great investments.

Perseverance Pays Off

I took my first real estate investment course in 1974 in Honolulu. The cost was $385, and I believe it was two or three days long. Toward the end of the class, the instructor said something I've never forgotten: "Now you know the difference between good real estate investments and bad real estate investments. Now you all know what to look for.

"He paused and then added, "The problem is, most people will tell you such investments don't exist. Your friends will tell you so, and so will real estate agents." Truer words were never spoken. For the next few months, I went from real estate office to real estate office, looking for investments. As promised, the real estate agents told me what I was looking for didn't exist. My friends and co-workers at Xerox told me the same thing, and said I was either dreaming or smoking funny cigarettes.

Finally, in a small, obscure real estate office in downtown Waikiki, I met a scruffy little broker who said, "I have what you want." The next weekend I was on a plane to Maui, where he'd found an entire condominium development that was in foreclosure.

I purchased my first piece of investment real estate for $18,000, putting the $2,000 down payment on my credit card. The one-bedroom/ one-bath condo paid me a positive cash flow, even after all the expenses and mortgage payments. My investment career had begun. More important, I was training my brain to see what most people don't see. That $385 real estate course has made me millions of dollars over the years.

Keep an Open mind

Earlier this year, around tax time, I wrote an article, "Think Rich to Lower Your Taxes." It was about an investment strategy known as the "velocity of money," and how I use it to invest, make a lot of money, and then legally use the tax laws to minimize my own taxes. I suspected it would spark some controversy, and it did.

For a couple of weeks, I kept track of responses. Some of the less-complimentary comments reminded me of what those real estate agents and my friends at Xerox said to me back in 1974.

You see, our brains are either our greatest assets or our greatest liabilities. As I said, when it comes to investment opportunities in technology, my brain is a liability; I just don't get it. When it comes to investment opportunities in real estate, gold, oil, and silver I'm above average, but not great. And that's because I've trained my brain to see opportunities in those areas.

So, instead of criticizing the readers who were close-minded (or even mean-spirited) about my advice, I encourage them to keep an open mind and find their own way of seeing investments most people miss. That's how you get rich. People who refuse to open their minds to new strategies seldom become rich — which I guess is why there are more critics in the world than rich people.

Finding Your Magic Formula

One of the most important things my rich dad taught me was to never say, "I can't do it" or "I can't afford it." Those thoughts are self-limiting, and it's hard to find great investments when you're basing your behavior on limitations. In today's world, there are more investing opportunities than ever before. Why would anyone want limited financial results in an unlimited world?

One of the reasons I write about financial independence is so I can put forth ideas that challenge the way people think about investing. If you want the same old financial-planning dogma of "work hard, save money, live below your means, get out of debt, and invest in a well-diversified portfolio of mutual funds," then my philosophies are obviously not for you.

My job is to stimulate your thinking, inform you about why rich people get richer, and encourage you to find the magic financial formula that works for you. I found mine, and I want you to find yours.

- Robert Kiyosaki.

Friday, November 14, 2008

Global crisis to hit India more in 2009: World Economic Forum (WEF)

The global downturn will pressurise the Indian economy more next year and the government has to speed up reforms and boost investment to sustain high growth rates, a report said on Friday.

The report jointly prepared by World Economic Forum and Confederation of Indian Industry also said India could see a sharp outflow of capital, and a fall in share and asset prices due to the global financial crisis.

The report was released ahead of the annual India Economic Summit starting Nov. 16 in New Delhi, where top government officials are expected to interact with heads of global firms.

"India's dependence on capital flows to finance its current account deficit is a macroeconomic risk and the global crisis could generate a sharp increase in capital outflows and a reduction in the availability of finance," it said.

"Clearly, the global economic picture will be harsher next year and there will be greater pressures on Indian economy."

The global credit crisis has rattled Indian markets as foreign investors sold shares worth more than $12.5 billion so far this year while the rupee fell by more than 20 per cent.

"It (global crisis) could also weaken the balance sheets of the financial institutions, cause a further fall in share and asset prices, and challenge the macroeconomic situation due to shrinking global growth," WEF said.

Indian policymakers expect a moderation in economic growth to less than 8 per cent in the year to March 2009, compared with 9 per cent recorded in 2007/08 fiscal year.

Earlier this month, Prime Minister Manmohan Singh cautioned that the global financial crisis could be more severe and prolonged, and the government would take all necessary steps -- monetary and fiscal -- to protect growth.

"A tighter environment may also help speed reforms and encourage greater efficiency," WEF said, adding a great deal of political will and dialogue with different stakeholders would be required to take reforms forward.

"...India's growth is still strong relative to other economies and its growth story will continue to be one that will unfold over decades rather than years," it added.

About 20 thousand workers may face axe in Tirupur

With an anticipated 30% decline in export turnover during the current fiscal, there is an apprehension that about 15,000 to 20,000 workers in the knitwear industry in Tirupur will lose their jobs.

Attributing the economic recession sweeping the Western Countries to the dip in turnover, sources in the Tirupur Exporters’ Association, said exports have nosedived during the first half of this fiscal to Rs.5050 crore from Rs.5350 crore registered during the corresponding period last year.

Exporters see a bleak future in the remaining period of the fiscal, since there had been a 25 to 30 per cent decline in orders from different markets, particularly the USA and Europe, the sources said.

This would result in reduction of working days and hours, leading to rendering of jobless to 15000 to 20,000 of about three lakh workers employed in different segments of about 600 manufacturing units in the knitwear cluster, they said.

Some units have already started to function five-day a week and reduced the working hours from 10 to eight hours, from October last, the sources said.

Sensex down by 303 pts; loses 1,000 pts in 2 days

The BSE’s benchmark Sensex extended its losses amid a see-saw trade on Wednesday, succumbing to heavy selling across all counters.

The 30-share barometer gyrated in a wide range before concluding the day at 9,536.33 – a fall of 303.36 points or 3.08 per cent.

Market breadth remained negative with 1,701 losers against 818 gainers. Trading volume remained low at Rs 3,690.41 crore. In the last two days alone, the Sensex has shed nearly 1,000 points.

The NSE’s broader 50-issue Nifty also dropped further by 90.20 points, or 3.07 per cent, to 2,848.45. Marketmen said a slew of factors contributed to the extremely choppy trade: Weak global bourses, fall in the collections of excise and customs duties in October, export growths falling in September and expectations of more capital outflows – weighed on investors’ sentiments.

Additionally, most of the Asian indices ended in the red while European, after surrendering initial gains, were quoting lower this morning following feeble cues overnight from Wall Street.

Credit problems originating from the US are fast spreading to other global markets as many of the developed and some developing economies are heading toward recession.

India’s richest end up poorer by 60%

Latest Forbes list of 40 richest Indians finds that their total wealth has shrunk from last year’s $351 bn to just $139 bn due to weak stock markets and rupee

Sliding stock markets have taken their toll on the much-vaunted personal wealth of India’s richest citizens.

In fact, according to global business magazine Forbes’ annual rich-list for the country, the combined net worth of India’s 40 richest has declined by 60 per cent due to weak equity markets and a volatile rupee that lost much ground this year against the dollar.

In addition to shrinking net-worths of the top captains of India Inc (their combined wealth is now $139 billion, down from $351 billion just a year ago), these factors also caused a major shake-up in the rankings itself.

For one, Reliance Industries’ Mukesh Ambani has overtaken NRI steel tycoon Lakshmi Mittal as the richest Indian in the world, with a net worth of $20.8 billion to Mittal’s $20.5 billion.

They are followed by Mukesh’s younger brother Anil Ambani, whose wealth stands at $12.5 billion.

Telecom czar Sunil Mittal and realtor KP Singh are ranked fourth and fifth with $7.9 billion and $7.8 billion, respectively.

Source: Mumbai mirror

India loses $63 billion in six months

India’s richest are not the only ones who have lost billions in net worth in the midst of the global meltdown. The country’s central bank has seen its foreign exchange reserves shrink more than $63 billion — enough to fund 600 Moon missions — in less than six months as exports slumped, trade deficit widened on a surge in the oil import bill and foreign investors pulled out of the stock market.

Lately, the reserves are falling at an alarming pace, squeezing much of the room for manoeuvre that India had in the face of the ongoing financial turmoil. The fall was a staggering $31 billion in October, or almost half of the decline since May 23, when reserves touched a record $316 billion.

The fast depletion has serious implications, as it could bring more pressure on the rupee, which has already depreciated about 20 per cent this year and made everything from imported machinery to foreign travel and education more expensive. A weaker rupee could also reverse the recent slide in inflation.

“If this trend continues for more than three months, there could be a problem,” said a top monetary policy official, who didn’t want to be named because the issue is market sensitive.

The government, however, is hopeful that the situation would change once its policy responses begin to play out and stability returns to global financial markets. “We are trying to minimise the drawdown on reserves,” said Suresh Tendulkar, who heads the prime minister’s economic advisory council. He said the Centre is trying to induce NRI deposits and tap sovereign wealth funds, especially from the Gulf. Efforts are underway to revive exports growth, he said.

Thursday, October 30, 2008

Mahurat trading

Mahurat trading is the auspicious stock market trading for an hour on Diwali (Deepawali), the biggest festival for Hindus.

Friday, October 24, 2008

Sensex Biggest fall in Indian stock market history

The rise and fall of the Sensex has been dizzying. The markets are back to the point it scaled three years ago. . . The BSE Sensex on Friday crashed by 1,071 points to close at 8,701 points. This has been an incredible year for the markets, after scaling the 21,000 peak in January 2008, the markets are at 8,000 now.

The Sensex plunged by 1070.63 points (10.96 per cent) to close at 8,701.07. The National Stock Exchange's Nifty ended at 2,557.25, down 13.11 per cent or 386 points. The BSE Midcap closed 8.38 per cent lower and BSE Smallcap Index ended 7.66 per cent down.

On Friday, the Reserve Bank of India gave the markets its biggest blow as it left key interest rates unchanged and lowered the GDP target to 7.5-8% for 2008-09.

Markets across the globe crashed on Friday. Japan's Nikkei shed 9.6% (812 points) to 7,649. Hang Seng plunged 6% (822 points) to 12,939. The Seoul Composite index tumbled 10.5% (111 points) to 939.

The worst hit stocks were DLF, Ranbaxy Laboratories Hindalco Industries, Tata Motors, Reliance Industries and Mahindra & Mahindra.

On Thursday, stock markets plunged following sustained capital outflows, shaky global markets, poor company results, and the International Monetary Fund's warning that economic growth in advanced nations will be close to zero. The BSE Sensex fell by 398.20 points, or 3.92%, to fall to 9,771.70.

Gold crashes ahead of festivals

Spot gold prices hit a one-year low and slipped below Rs 12,000 per 10 gram in Mumbai while spot gold in London hit a 13-month low of $703.45 an ounce on a wave of long liquidations in the international markets exacerbated by below expected gold sales ahead of Diwali in India, the world’s largest consumer of the metal.

Local gold spot prices fell by 2-3% on Thursday in line with the trends in world markets. Experts said a rising dollar vis-à-vis euro & pound and flight of cash-strapped investors looking to liquidate their position in all commodities pulled down gold.

The euro fell to the lowest in almost two years against the dollar, while the pound traded near its lowest in more than five years. Spot gold traded at Rs 11,640 per 10 gm in Mumbai on Thursday, down by nearly Rs 300 and Rs 11,541 per 10 gm in Ahmedabad, down by Rs 600 per 10 gram over the previous day. On the MCX platform, gold December futures also fell to the day’s low of Rs 11,601 per 10 gram, down by nearly Rs 900 over the previous day.

As the prices of the noble metal fell, gold exchange traded funds (ETFs), once among the top performing funds, too slipped to the bottom. Valueresearchonline.com data shows gold ETFs have given a negative monthly return of 5.93%. Annual returns are still positive, at 22.70%.

The softening of gold prices could not have come at a better time for festival buyers in India. After months of waiting, buyers thronged jewellery shops to make their yearly purchases. Traders said prices inching below the psychological mark of Rs 12,000 per 10 grams should spark good demand ahead of two busiest buying days for precious metals next week.

India imports about 700 tonnes of gold a year, with more than 50% bought in the festival season of October-December.

“Gold price in the international market may now see the $650-level”, said Bhargav Vaidya, a leading bullion expert.

Samir Shah of Riddhi Siddhi Bullion Ltd also said, “Price may slip below $700 an ounce. Gold spot prices in the physical market are expected to fall in the run-up to the Dhanteras and Diwali festivals next week.”

In some cities, such as Udaipur and Indore, sales were in line with the trend of the previous years but in some other places like Ahmedabad and Mumbai, sales were just half of what they were last year, sources said. Silver also eased on lack of industrial demand.

Rupee falls to record low of 50.15 per dollar

The Indian rupee opened trade on Friday at a record low of 50.15 per dollar, weighed down by heavy losses in Asian stocks which raised worries of more outflows from the local share market.

At 9 a.m. (0330 GMT), the partially convertible rupee was at 50.00/15 per dollar, compared with 49.81/82 at close on Thursday.

Asian stocks fell on Friday, led by a 4% drop in Japan's Nikkei, as the global economic slowdown slashed earnings prospects for an array of companies, forcing investors to look to safer government bonds

Another black friday - Sensex below 9000, down 900 pts

The markets refused to relent despite the finance minister's appeal to investors to take informed decisions and not sell in panic.

Finance Minister P Chidambaram said the RBI's policy decision to keep rates steady was on expected lines. He said the RBI would infuse liquidity and if required, would adopt conventional and unconventional tools.

Chidambaram said, RBI will continue to manage financial price stability along with sustainable growth. He asked investors to remain calm and not resort to panic selling in the market. At 1:25 pm, Bombay Stock Exchange's Sensex slumped 776.19 points to 8995. The index plummeted to a low of 8,940.48 in trade so far.

National Stock Exchange's Nifty tumbled 8.48 per cent or 249.7 points to 2693.45. The low, so far, was 2661.45.

Among frontline stocks, Hindalco Industries (-19.15%), Mahindra & Mahindra (-12.07%), Tata Motors (-12.05%), Tata Steel (-11.78%) and Reliance Infrastructure (-10.52%) were under severe pressure.

There were no gainers in the 30-share index. Market breadth was extremely negative with 2095 declines outnumbering 335 advances

Friday, October 17, 2008

Sensex below 10,000

The benchmark Sensex dipped below the 10,000 mark on selling by funds at mid-session after opening on a strong note.

The 30-share index, which opened higher by 205 points, fell by 314.69 points to 10,266.80 at 1330 hrs.

The wide-based National Stock Exchange index Nifty, which gained 66.65 points at the initial stage, plunged by 98.15 points at 3,171.15 points.

Barring technology majors Satyam Computers and Tata Consultancy Services, all other 28 index participants were in the red.

Thursday, October 16, 2008

Oil falls below $78 on recession fears

Oil prices fell below $78 a barrel Wednesday in Asia on concern a massive bank bailout by the U.S. and Europe won't keep the global economy from slipping into a severe slowdown that would erode crude demand.

Light, sweet crude for November delivery was down 98 cents to $77.65 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract fell overnight $2.56 to settle at $78.63. Oil prices have fallen by 47 percent since peaking near $150 a barrel in mid-July.

"People are worried that the world economy is heading for recession," said Gerard Rigby, an energy analyst at Fuel First Consulting in Sydney. "The bailout may save the banks, but companies are still laying off workers and demand is going to suffer."

The U.S. plans to spend as much as $250 billion this year of a $700 billion bailout buying stock in private banks, President George W. Bush said Tuesday. Governments across the globe have pledged more than $3 trillion to prop up ailing banks in a bid to stabilize a credit crisis that began last year in the U.S. sub-prime mortgage market. Former U.S. Federal Reserve Chairman Paul Volcker said Tuesday the U.S. and Europe face a "considerable recession."

"The banks might be ok, but the rest of the economy needs help as well," Rigby said.

Investors are watching for signs of slowing U.S. demand in the weekly oil inventories report to be released Thursday from the U.S. Energy Department's Energy Information Administration. The petroleum supply report was expected to show that oil stocks rose 3.1 million barrels last week, according to the average of analysts' estimates in a survey by energy information provider Platts.

The Platts survey also showed that analysts projected gasoline inventories rose 3.1 million barrels and distillates went down 850,000 barrels last week. Crude stocks have grown as oil installations in the Gulf of Mexico that were shut down by Hurricane Ike last month begin operations again.

"There is some demand destruction in that forecast, but there's also hang over from the hurricane as refineries come back on line," Rigby said.

In other Nymex trading, heating oil futures rose 2.26 cents to $2.2823 a gallon, while gasoline prices fell 0.34 cent to $1.8814 a gallon. Natural gas for November delivery rose 0.05 cent to $6.732 per 1,000 cubic feet.

In London, November Brent crude was down 84 cents to $73.69 a barrel on the ICE Futures exchange.

Source: Associated Press

Wednesday, October 15, 2008

Sensex hits 2008 low

The Sensex opened with a negative gap of 524 points at 10,285, and soon tankex to a fresh calendar year low of 10,151. The index is now down 543 points at 10,266.

The NSE Nifty is trading at 3,174, down 164 points.

Reliance Infrastructure, Sterlite and Jaiprakash Associates have slumped around 9% each to Rs 504, Rs 266 and Rs 66, respectively.

Grasim has tumbled over 8% to Rs 1,370. TCS and Reliance Communications have plunged 7.5% each to Rs 501 and Rs 218, respectively.

Reliance and Bharti Airtel have shed 7% each at Rs 1,413 and Rs 669, respectively.

The Sensex opened with a negative gap of 588 points 10,221.

The index is now down 618 points at 10,191.

Recession worry pulls Wall Street lower at open

New York: U.S. stocks slid at the open on Wednesday as investors worried that efforts to ease the credit crisis would not avert a recession, overshadowing solid profits from Coca-Cola Co, a bellwether for consumer spending.

The Dow Jones industrial average gave up 161.76 points, or 1.74 percent, at 9,149.23. The Standard & Poor's 500 Index fell 21.32 points, or 2.14 percent, to 976.69. The Nasdaq Composite Index lost 24.83 points, or 1.40 percent, to 1,754.18.

Monday, October 13, 2008

Options: The basics of ‘call’ and ‘put’

What is an option?

An option contract gives the buyer the right, but not the obligation to buy/sell an underlying asset at a pre-determined price on or before a specified time. The option buyer acquires a right, while the option seller takes on an obligation. It is the buyer’s prerogative to exercise the acquired right. If and when the right is exercised, the seller has to honour it. The underlying asset for option contracts may be stocks, indices, commodity futures, currency or interest rates

 

What are the types of options?

Broadly speaking, options can be classified as ‘call’ options and ‘put’ options. When you buy a ‘call’ option, on a stock, you acquire a right to buy the stock. And when you buy a ‘put’ option, you acquire a right to sell the stock. You can also sell a ‘call’ option, in which, you will acquire an obligation to deliver the stock. And when you sell a ‘put’ option, you acquire an obligation to buy the stock.

 

What do you understand by the term option premium?

Option premium is the consideration paid upfront by the option holder (buyer of the option) to the option writer (seller of the option). The option holder gets the right to buy / sell the underlying.

 

What is the strike price or the exercise price of the option?

The right or obligation to buy or sell the underlying asset is always at a pre-decided price known as the ‘strike price’ or ‘exercise price’, which is linked to the prevailing price of the underlying asset in the cash market. Usually, option contracts are available on the underlying asset on various strike prices (generally, five or more)-divided equally on either side of its spot price.

 

How does an American option differ from a European option?

In ‘European’ options, a buyer can exercise his option only on the expiration date, that is, the last day of the contract tenure. Whereas in ‘American’ options, a buyer can exercise his option any day on or before the expiration date.In the Indian equity market context, index options are European style, while stock options are usually American in nature.

 

How do options differ from futures?

In futures, both the buyer and the seller are obligated to buy and sell, respectively, the underlying asset-the quid pro quo relationship. In case of options, however, the buyer has the right, but is not obliged to exercise it. Effectively, while buyers and sellers face a linear payoff profile in futures, it’s not so in the case of options. An option buyer's upside potential is unlimited,while his losses are limited to the premium paid. For the option seller, on the other hand,his maximum profits are limited to the premium received, while his loss potential is unlimited.

Call Option and Put Option

Call Option is an agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.

It may help you to remember that a call option gives you the right to "call in" (buy) an asset. You profit on a call when the underlying asset increases in price.

 

Put Option is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy shares.

A put becomes more valuable as the price of the underlying stock depreciates relative to the strike price. For example, if you have one Mar 08 Taser 10 put, you have the right to sell 100 shares of Taser at $10 until March 2008 (usually the third Friday of the month). If shares of Taser fall to $5 and you exercise the option, you can purchase 100 shares of Taser for $5 in the market and sell the shares to the option's writer for $10 each, which means you make $500 (100 x ($10-$5)) on the put option. Note that the maximum amount of potential proft in this example ignores the premium paid to obtain the put option.  

 

Simply put a call is the right to BUY the stock at a certain price. A put is the right to SELL at a certain price. If you own an option, you can either buy (if you hold a call) or sell (if you hold a put) the stock itself, as agreed, or you can sell your option, that is, the right to buy (call) or sell (put) while it can still be exercised in the future.

The option gives you the right to buy (call) or sell (put) but not the obligation to do so.

If you decide to buy (call) based on your call option, actually doing it is called"exercising" the option. Similarly for put options, if you decide to sell, actually doing it is called "exercising" your option.

If you decide to sell someone else an option to buy (a call) stock that you already own, this is called a "covered call". It is one of the safest ways to participate in the options market.

Selling options is another way to participate in the options market. You can either buy them and sell them, or you can create one. This is called writing an option. You will receive a fee If you sell an option for the option itself. If it is a call, you will also receive the agreed price, if the call that you sell is exercised. If you write a call in stock that you do not own, and the buyer from you of the call exercises it, you then have to buy stock to meet your obligation, and this will virtually always cost you money, since the buyer of the call will not exercise it unless it is "in the money", which means that the call price is lower than the market price.

Options are more volatile than the underlying stock. They can move quickly and significantly. You can make, or lose a lot of money in a hurry.


Trading in options, and/or writing them can be exciting, but it is risky. Substantial study of the topic is recommended before engaging in it.

What is wrong with investing in Gold?

In one scene in the James Bond film "Goldfinger", the gold-intoxicated villain - the film's namesake - watches delightedly as a laser inches closer to a gold-topped table to which Bond is tied at the ankles and wrists. Before bidding farewell, Goldfinger leaves Bond with this thought: "This is gold Mr. Bond. All my life I have been in love with its color, its brilliance, its divine eminence." Movies like this epitomize the human fascination with this precious metal and the greed that it sometimes inspires. Contrary to what Goldfinger thought, gold may not be the most valuable investment in the world - it may be nothing more than a form of insurance.

 

Here we look at the major issues facing gold, such as its demand/supply imbalance and its potential to share the same fate as silver, and we examine what gold really means as an investment.

 

Gold's Unique Demand/Supply Imbalance The biggest factor influencing gold's price is the staggering amount of it held by central banks around the world. This is a legacy from the days of the gold standard, which existed in one form or another between 1821 and 1971. During this period, U.S. and European central banks hoarded massive amounts of gold.

According to the World Gold Council, in 2003 this stockpile consisting of 33,000 metric tons accounted for nearly 25% of all the gold ever mined. In that same year, a total of only 3,200 metric tons of gold was supplied to the marketplace through mining and scrap - this means the central banks' stockpile of 33,000 tons could overwhelm the market if it were sold. In other words, there is enough gold in the vaults of central banks to satisfy world demand for 10 years without another ounce being mined! What other commodity has this kind of demand/supply imbalance?


Furthermore, without a gold standard, this precious metal has limited strategic use for these central banks. Because gold does not earn any investment interest, some central banks - like that of Canada during 1980-2003 - have  already eliminated their gold stock. The potential for gold supply to dwarf its demand poses a hindrance to the metal's potential return well into the future.

 

Does Silver Foreshadow Gold's Future? Silver and gold have shared a common history over the past five millennia. Prior to the 20th century, silver was also a monetary standard, but it has long since faded from this monetary scene and from the vaults of central banks around the world. According to the Economist article "Goldbears" (May 30, 2002), silver's elimination from the central banks' reserves may help explain why its return has not exceeded inflation rates over the past 200 years. If the current stockpile of gold were to be sold off, the downward pressure on its price could result in it having the same fate as silver. 


Perhaps history demonstrates that it is just too difficult for the world to work under a monetary standard based on a commodity because the demand for these metals depends on more than monetary needs. When these metals were used as monetary standards, the divergence of the market price and mint price for these metals seemed to be in continual flux. (The mint price refers to the price a mint would pay someone to bring gold or silver in to be melted down into coinage.) And continual arbitrage opportunities between market and mint prices created havoc on economies. The rise and fall of the silver standard - which just happened to be the first victim - perhaps demonstrates how gold's price as a commodity cannot absorb the demand/supply distortions created by its past position as a monetary standard.  

 

The Real Meaning of Gold So how should an investor really view gold? For the most part, it is a commodity, just like soybeans or oil. So, when making any buy or sell decision, an investor should put future supply and demand issues at the forefront.


At the same time, gold can be seen as a form of insurance against a catastrophic event hitting the global financial markets. However, if that were ever to happen, it's possible that gold would be of use only to those investors who held it physically. The attacks on the World Trade Center in 2001 demonstrated this point all too well. Hundreds of millions of dollars worth of gold may have been stored in vaults underneath these towers, but these vaults became inaccessible after the towers collapsed.

 

Gold also may be helpful during periods of hyperinflation as it can hold its purchasing power much better than paper money during these periods. However, this is true for most commodities. Hyperinflation has never occurred in the U.S., but some countries are all too familiar with it. Argentina, for example, saw one of its worst periods of hyperinflation from 1989-90, when inflation reached a staggering 186% in one month alone. In such situations, gold has the capacity to protect the investor from the ill effects of hyperinflation.

Conclusion
Gold means many things to many people. Its history alone has lured some investors. One of gold's most important historical roles has been as a monetary standard, functioning much like today's U.S. dollar. However, with the gold standard no longer in place and industrial demand representing only 10% of its overall demand, gold's luster - as an investment - is not quite as bright.


Until the fate of the gold stockpile accumulated by governments is determined, the price of it will have difficulty surpassing the US$850 per ounce reached in 1980. According to the "Goldbears" article, if gold undergoes the same monetary fate as silver, gold will trade around $68 per ounce. 


Therefore, holding gold as an investment is really a form of insurance against a period of hyperinflation or a catastrophic event hitting our global financial system. Insurance comes at a price, though. Is that price worth it?

 

Investing in Gold

From gold exchange-traded funds (ETFs) to gold stocks to buying physical gold, investors now have several different options when it comes to investing in the royal metal. But what exactly is the purpose of gold? And why should investors even bother investing in the gold market? Indeed, these two questions have divided gold investors for the last several decades. One school of thought argues that gold is simply a barbaric relic that no longer holds the monitory qualities of the past. In a modern economic environment, where paper currency is the money of choice, gold's only benefit is the fact that it is a material that is used in jewelry.

On the other end of the spectrum is a school of thought that asserts gold is an asset with various intrinsic qualities that make it unique and necessary for investors to hold in their portfolios. In this article, we will focus on the purpose of gold in the modern era, why it still belongs in investors' portfolios and the different ways that a person can invest in the gold market.

 

A Brief History on Gold
In order to fully understand the purpose of gold, one must look back at the start of the gold market. While gold's history began in 3000 B.C, when the ancient Egyptians started forming jewelry, it wasn't until 560 B.C. that gold started to act as a currency. At that time, merchants wanted to create a standardized and easily transferable form of money that would simplify trade. Because gold jewelry was already widely accepted and recognized throughout various corners of the earth, the creation of a gold coin stamped with a seal seemed to be the answer.
Following the advent of gold as money, gold's importance continued to grow. History has examples of gold's influence in various empires, like the Greek and Roman empires. Great Britain developed its own metals based currency in 1066. The British pound (symbolizing a pound of sterling silver), shillings and pence were all based on the amount of gold (or silver) that it represented. Eventually, gold symbolized wealth throughout Europe, Asia, Africa and the Americas.

 

Following the advent of gold as money, gold's importance continued to grow. History has examples of gold's influence in various empires, like the Greek and Roman empires. Great Britain developed its own metals based currency in 1066. The British pound (symbolizing a pound of sterling silver), shillings and pence were all based on the amount of gold (or silver) that it represented. Eventually, gold symbolized wealth throughout Europe, Asia, Africa and the Americas.


The United States government continued on with this gold tradition by establishing a bimetallic standard in 1792. The bimetallic standard simply stated that every monetary unit in the United States had to be backed by either gold or silver. For example, one U.S. dollar was the equivalent of 24.75 grains of gold. In other words, the coins that were used as money simply represented the gold (or silver) that was presently deposited at the bank.

 

But this gold standard did not last forever. During the 1900s, there were several key events that eventually led to the transition of gold out of the monetary system. In 1913, the Federal Reserve was created and started issuing promissory notes (the present day version of our paper money) that guaranteed the notes could be redeemed in gold on demand. The Gold Reserve Act of 1934 gave the U.S. government title to all the gold coins in circulation and put an end to the minting of any new gold coins. In short, this act began establishing the idea that gold or gold coins were no longer necessary in serving as money. The United States abandoned the gold standard in 1971 when the U.S. currency ceased to be backed by gold.

 

The Importance of Gold In the Modern Economy
Given the fact that gold no longer backs the U.S. dollar (or other worldwide currencies for that matter) why is it still important today? The simple answer is that while gold is no longer in the forefront of everyday transactions, it is still important in the global economy. To validate this point, one need only to look as far as the reserve balance sheets of central banks and other financial organizations, such as the International Monetary Fund. Presently, these organizations are responsible for holding approximately one-fifth of the world's supply of above-ground gold. In addition, several central banks have focused their efforts on adding to their present gold reserves.


Gold Preserves Wealth
The reasons for gold's importance in the modern economy centers on the fact that it has successfully preserved wealth throughout thousands of generations. The same, however, cannot be said about paper-denominated currencies. To put things into perspective, consider the following example.

Example - Gold, Cash and Inflation
In the early 1970s, one ounce of gold equaled $35. Let's say that at that time, you had a choice of either holding an ounce of gold or simply keeping the $35. Both would buy you the same things at that, like a brand new business suit, for example. If you had an ounce of gold today and converted it for today's prices, it would still be enough to buy a brand new suit. The same, however, could not be said for the $35. In short, you would have lost a substantial amount of your wealth if you decided to hold the $35 and you would have preserved it if you decided to hold on to the one ounce of gold because the value of gold has increased, while the value of a dollar has been eroded by inflation.

 

Gold as a Hedge Against a Declining U.S. Dollar and Rising Inflation
The idea that gold preserves wealth is even more important in an economic environment where investors are faced with a declining U.S. dollar and rising inflation (due to rising commodity prices). Historically, gold has served as a hedge against both of these scenarios. With rising inflation, gold typically appreciates. When investors realize that their money is losing value, they will start positioning their investments in a hard asset that has traditionally maintained its value. The 1970s present a prime example of rising gold prices in the midst of rising inflation.

 

The reason gold benefits from a declining U.S. dollar is because gold is priced in U.S. dollars globally. There are two reasons for this relationship. First, investors who are looking at buying gold (like central banks) must sell their U.S. dollars to make this transaction. This ultimately drives the U.S. dollar lower as global investors seek to diversify out of the dollar. The second reason has to do with the fact that a weakening dollar makes gold cheaper for investors who hold other currencies. This results in greater demand from investors who hold currencies that have appreciated relative to the U.S. dollar.


Gold as a Safe Haven
Whether it is the tensions in the Middle East, Africa or elsewhere, it is becoming increasingly obvious that political and economic uncertainty is another reality of our modern economic environment. For this reason, investors typically look at gold as a safe haven during times of political and economic uncertainty. Why is this? Well, history is full of collapsing empires, political coups, and the collapse of currencies. During such times, investors who held onto gold were able to successfully protect their wealth and, in some cases, even use gold to escape from all of the turmoil. Consequently, whenever there are news events that hint at some type of uncertainty, investors will often buy gold as a safe haven.

 

Gold as a Diversifying Investment
The sum of all the above reasons to own gold is that gold is a diversifying investment. Regardless of whether you are worried about inflation, a declining U.S. dollar, or even protecting your wealth, it is clear that gold has historically served as an investment that can add a diversifying component to your portfolio. At the end of the day, if your focus is simply diversification, gold is not correlated to stocks, bonds and real estate.


Different Ways of Owning Gold
One of the main differences between investing in gold several hundred years ago and investing in gold today is that there are many more options to participating in the intrinsic qualities that gold offers. Today, investors can invest in gold by buying:

  • Gold Futures
  • Gold Coins
  • Gold Companies
  • Gold ETFs
  • Gold Mutual Funds
  • Gold Bullion
  • Gold jewelry

 

Conclusion
There are advantages to every investment. If you are more concerned with holding the physical gold, buying shares in a gold mining company might not be the answer. Instead, you might want to consider investing in gold coins, gold bullion, or jewelry. If your primary interest is in using leverage to profit from rising gold prices, the futures market might be your answer.

Tuesday, October 7, 2008

What is Day Trading and what are its benefit

Day trading means that the trader trying to make money buying and selling stocks in a day taking benefit of the daily price movement. Day traders end the day flat.

Some day traders focus on very short or short-term trading, in which a trade might last seconds to a few minutes. They buy and sell many times in a day, trading very high volumes daily and therefore receiving big discounts from the brokerage.

Some day traders focus only on momentum or trends. They are more patient and wait for a ride on the strong move which may occur on that day. They make far fewer trades than the aforementioned traders.

It is usually stated that 80-90pct of day traders lose money. Also price movements in a day are few, so why people trade only in a day? What are advantages of being a day trader?

Benefits of Day Trading

Fewer Stresses
To avoid the risk of price gaps day traders close all their positions at the end of a trading day. Due to this, day trading is less stressful than holding stocks overnight. After market closed you are not worried what will happen until tomorrow and what news will hand out. You never ‘lost sleep'; in the morning have a nice feeling because you don't care what the market's doing at the open.

Contemptible Commission
One thing that makes day trading potentially profitable is commission structure. Day traders pay ‘per share' instead of ‘per trade' structure. If you pay about $10 per trade now when you turn into a day trader, you might pay more than $0.01 per share.

Increased Leverage
Day traders could have 4 times their equity as intraday buying power. This great margin can raise your profits if used shrewdly. This increased leverage makes day trading very dangerous, especially if one has poor discipline, risk or money management.

Profit in any market direction
Day trading often will utilize short-selling to take advantage of downwards stock prices. The ability to lock in profits even as markets drop throughout the trading day is very useful during bear market conditions. Some Techniques of Day Trading

Range trading
A range trader watches a stock that has been increasing off a support price and declining off a resistance price. That is, every time the stock hits a lofty, it falls back to the low, and vice versa. Such a stock is said to be "trading in a range", which is the opposite of trending. The range trader therefore buys the stock at or near the low price, and sells the high.

Trend following
Trend following, a strategy used in all trading time frames, assumes that financial instruments which have been growing bit by bit will continue to increased, and vice versa. The trend follower buys an instrument which has been increasing or short-sells a falling one, in the hope that the trend will continue.

Scalping
Scalping initially referred to spread trading. Scalping is a trading style where small price gaps created by the bid-ask spread is exploited. It usually involves establishing and liquidating a position rapidly, usually within minutes or even seconds. Scalping extremely liquid instruments for off the floor day traders involves taking quick profits while minimizing risk (loss exposure). The basic idea of scalping is to exploit the incompetence of the market when volatility increases and the trading range enlarge.

Rupee falls to 48.03, lowest since Dec 2002

The rupee fell to its lowest since December 2002 on Tuesday, weighed down by a stronger dollar overseas and losses in the local stock market which raised concerns on more foreign fund outflows.

At 12:16 p.m., the partially convertible rupee was at 48.03/04 per dollar, its lowest since Dec. 20, 2002 and 0.5 per cent weaker than 47.80/81 at close on Monday.

India's main share index was down 1.5 per cent as investors were unable to shake off jitters about global economic woes, after initially rising as much as 3.2 per cent on liquidity boosting measures by regulators.

Sensex dips below 12k, rupee at a five-year low

The Sensex plunged to its lowest in more than two years, and the rupee declined to its lowest level in five years to 47.81 against the dollar, as the credit crisis deepened in Europe, reinforcing concerns about the pace of growth of the global economy. The Indian markets declined after Germany bailed out Hypo Real Estate Holding AG for $68 billion and the UK too said it would rescue its lenders.

The Sensex of the Bombay Stock Exchange (BSE) tumbled 724.62 points, or 5.8%, to 11,801.70, the lowest since September 12, 2006. The BSE 200 Index too declined 6.1% to 1,423.32.

The S&P CNX Nifty of the National Stock Exchange fell 5.7% to 3,602.35. Nifty futures for October delivery fell 5.2% to 3,640. According to provisional figures furnished by BSE, FIIs continued offloading stocks in the domestic markets. They were net sellers at Rs 1,169.33 crore, while domestic institutional investors were net buyers at Rs 661 crore.

Amitabh Chakraborty, president-equity, Religare Securities Ltd, said, “A lot of heavy selling kicked in the second half of the trading session as the news of Fortis getting bailed out by the UK govt came in and all European indices opened down by 6%.

Markets witnessed a lot of panic-selling in frontline stocks as well as in select mid-caps by the FIIs and selective HNIs whose positions were highly leveraged.”

And it was not just in India, stocks tumbled worldwide. In fact, emerging market stocks headed for their biggest one-day decline since 1997 as the global banking crisis escalated in Europe. The trigger in the European market was the news that BNP Paribas SA agreed to take control of Fortis after a government rescue failed, and German state and financial institutions put together a $68-billion rescue package for Hypo Real Estate Holding AG.

Oil falling below $90 a barrel for the first time in eight months also did not cheer the markets. The MSCI Emerging Markets Index slumped 6.9%, putting it on course for the biggest slide since the Asian markets meltdown of October 1997.

Russia’s stock market decline, along with China and Brazil, has pushed the benchmark MSCI emerging market gauge down 44% this year, the steepest drop in at least two decades. China’s benchmark CSI 300 Index slid 5.1%, its biggest one-day decline since August, after resuming trading on Monday after a week-long holiday.

Hitesh Agarwal, head-research, Angel Broking, said, “Indian stock markets are feeling the heat of the global liquidity crunch. The present decline is a fallout of the redemptions by foreign institutional investors (FIIs).”

The move by the Securities and Exchange Board of India (Sebi) to relax the norms pertaining to FII investments has come as a welcome relief for the Indian stock markets, Agarwal added.

The slump in share prices prompted overseas funds to reduce holdings, and pushed the rupee to the lowest level since February 2003. The Indian currency fell 1.5% to 47.81 against the dollar, the lowest close since February 14, 2003. The rupee, the second-biggest loser this year among the 10 most-actively traded Asian currencies excluding the yen, is headed for its first annual loss since 2001. The rupee also fell on speculation companies bought dollars to pay for cheaper crude oil. Crude oil fell below $90 a barrel in New York for the first time since February.

Sensex components took a massive beating with Reliance Industries Ltd dropping 6.8% to Rs 1,641.60. Tata Consultancy Services Ltd, the largest software developer in India, declined 5.9% to Rs 619, its lowest since July 2005. Sterlite Industries (India) Ltd, the nation’s biggest copper and zinc producer, dropped 15% to Rs 335.50, the lowest in more than two years.

All the stocks in the Sensex ended the day in red. Of the 2,677 stocks traded on BSE, only 281 stocks managed to advance, 2,369 stocks declined and 27 remained unchanged. All the sectors in the BSE sectoral indices ended the day in the negative terrain.

The move to remove restrictions on overseas derivative instruments and a 50-basis points cut in the cash reserve ratio of banks are expected to elicit a positive response on Tuesday. But the pressure for the indices to touch new lows is expected to remain for a while.

Monday, October 6, 2008

Sensex below 12000, lowest in 2 years

The stock market cracked under pressure from the boiling global financial crisis, with the barometer index tanking 725 points to trade at its lowest level in two years as foreign funds left in search of safer investment havens.

The 30-share stocks barometer Sensex, which lost 529.35 points in the previous session, plunged by another 724.62, or 5.78 per cent to close at 11,801.70.

Funds indulged in selling in consumer durables, metals, capital goods and realty stocks. The Sensex touched the day's low of 11,732.97 and a high of 12,284.49 points.

The slide came even as the subprime lending-induced crisis threatened Europe, prompting Germany to guarantee all private bank accounts worth 568 billion euros to prevent panic withdrawals. Questions about the effectiveness of America's USD 700 billion bailout package for its banks also negatively influenced the sentiment.

Analysts, however, said that the market may bounce back tomorrow as the Reserve Bank and SEBI on Monday announced measures to ease liquidity and trading norms in derivative segment respectively.

The wide-based National Stock Exchange index Nifty dropped by 215.95 points, or 5.66 per cent at 3,602.35 after dipping to a low of 3,581.60 during the session.

In Asia today, China was down by 5.23 per cent, Hong Kong by 4.97 per cent, Japan by 4.25 per cent, Singapore 5.61 per cent, Korea 4.29 per cent and Taiwan 4.12 per cent. European markets also resumed sharply lower.

The market seemed to be bear trap as the main driver, Foreign Institutional Investors (FIIs) pulled out a whopping Rs 1,662.26 crore on October 3 as per provisional data.

Saturday, October 4, 2008

Financial crisis in the U.S

It's well past midnight and I am suddenly woken up by the ringing of my mobile phone. Today is one of those rare days when I have forgotten to put my phone on 'silent' mode.

'Why is the wall street going bust?' the rather feminine voice on the other end asks.
It takes me a few seconds to realise who is on the line.

"Mam. It is 2.30 am. Can we discuss this at a more appropriate time?" I thought you know question."Well. I understand things much better after midnight, is what I meant. So I will be highly obliged if you could explain."

"Okay. This is a rather complicated question. Where do we start? You remember in the year 2000, the dotcom bubble went bust. In the aftermath of that the US Federal Reserve started to cut interest rates.'"Let me interrupt. What is the US Federal Reserve," She asks.

"The US Federal Reserve is similar to the Reserve Bank of India. It is the central bank of the country and one of its tasks is to set interest rates. Therefore, after the dotcom bubble went bust, the Federal Reserve started to cut interest rates to ensure that the economy did not go into recession. By cutting interest rates it wanted to ensure that people continue to borrow and consume and hence the economy continues to grow."

"Interesting. But don't you think you are deviating from the point. I want to know about Wall Street not the US Fed."

"Patience, my dear. The long-term interest rate was reduced to 1% by the middle of 2003. That is where it stayed for around the next twelve months. With the interest rates at such low levels, people started to borrow to buy homes. The idea behind this was very simple. The rate of increase in the value of the house would be more than the interest rate to be paid on the loans that had been taken. As more and more people started to believe in this, the home prices in the US started to rise at a very fast pace.""Where is this heading yaar. First you talk about the Fed, now you are talking about homes. I want to know about the Wall Street," she screams on the phone.

"Don't interrupt. Let me continue. Low interest rates, combined with the belief in the idea that house prices will continue to go up, fuelled another bubble Banks and other financial institutions that gave out home loans decided that it was a good opportunity to expand the market. So they decided to give home loans even to those individuals who were not creditworthy enough and would not get a loan in the normal scheme of things, " I explain.

"Hmmm. This is getting interesting, though we are still nowhere near Wall Street."

"In a way the home loan lenders themselves believed in the bubble and hence gave out home loans to individuals who were not creditworthy. Such borrowers are referred to as the sub prime borrowers. In order to attract these borrowers, banks offered home loans with teaser rates. The interest rates would be lower in the first couple of years. This would mean a lower equated monthly installment (EMI) to pay off the loan. In the later years, a higher interest rate would kick in and that would mean a higher EMI. The borrower was completely sold out to the idea of housing prices continuing to go up and he planned to sell the house to make a profit before the higher EMI kicked in."

"But by following this strategy, weren't banks taking in a huge amount of risk?"

"Yes and no. One the face of it, yes it was a risky strategy. But banks and other financial institutions giving out home loans were smart enough to get out of these loans very quickly by securitising them,' I reply/

"Wait a minute. What is this securitising thing you are talking about," she asks.

What they essentially did in case of securitisation was bundle similar kinds of home loans together and make financial securities out of it. These financial securities were then sold to savvy financial investors, most of whom were based out of Wall Street in New York. By selling the financial securities, the bank or the financial institution giving out the home loan did not continue to carry any risk. At the same time, it freed up the money and the bank could lend again. A major part of the EMI paid by the borrower was passed on to the financial institution that bought these securities. " "But why did Wall Street financial institutions buy these securities," she questions.

"They bought it because these securities offered higher returns than other modes of investment available. But they were just investors. They failed to realise the true risk of these securities. The bank or the financial institution giving the loan was best placed to assess how risky a particular loan was. But since it was in a position to securitise the loan, it was only interested in giving out more and more loans, and not assessing the risk involved. Other than this, documents of a lot of sub-prime borrowers were fudged to give them loans that were well beyond their capacity to repay. Initially, with low interest rates, these borrowers continued to repay, but once the teaser rates were over and higher interest rates set in, they simply could not repay and started to default. Once the borrowers realised that they wouldn't be able to continue to repay, they started to sell the property. But, with a lot of selling hitting the market at the same time, there were not enough buyers and this ensured that housing prices started to fall, " came my long wielding explanation.

"Ah. Now I seem to get it. With higher interest rates setting in, sub-prime borrowers started to default. Once this happened, all the Wall Street financial institutions that had invested in these securities stopped getting their money back. And once more and more borrowers started to default these hallowed institutions went bust. Wow, in hindsight, everything seems so explainable, " she exults over the phone.

"Yes Mam. Now that you have understood, why don't you think about it and I'II go back to sleep.'

Wednesday, October 1, 2008

Three reasons why you shouldn't panic and sell your stocks

The government bailout that was supposed to save the financial sector from certain doom failed to pass vote on Congress. Does that mean we now face certain doom? I think not.

I don't want to sound Pollyanna-ish and I don't really have a crystal ball (as my headline promises), but here are some reasons why investors should not panic and sell their stocks now:

First, as frightening as the market looks -- the Dow fell 778 points for its worst one-day drop ever -- there is going to be a rebound.
If you sell at the bottom, you will miss out on an eventual recovery. If you really want to get out, wait for a bounce and then sell some of your stock holdings. Don't sell into a freefall. Think about it: the S&P fell an astounding 8.79% on Monday -- the worst percentage drop in more than 60 years, except for 1987's Black Monday crash. The Nasdaq fell 9.14%. Given the devastation, I think a bounce could come as soon as Tuesday since there will no doubt be some news that has to be better than Monday's.

Incidentally, this "don't sell in a panic" advice is the same you'll get from any financial advisor worth his or her salt. If you're invested in the market for the long term, you should ride out such waves and -- if you're really brave -- even use episodes of panic selling to buy more stocks.

Second, a private sector solution to this problem is possible.
We've seen Warren Buffett invest $5 billion of his capital into Goldman Sachs and stronger financial institutions step in to buy the weak. There is plenty of additional capital out there that could come in and boost the banks. Heck, Barron's just ran a cover story about how profitable the government's purchase of toxic waste would ultimately prove. If the magazine is right, some of those hedge funds will surely come in and slurp up some of this slop.

What if a private sector solution doesn't materialize? Then you should be glad that the bailout plan on the table Monday didn't pass. It could be a sign that the U.S. might well have been just throwing good money after bad by buying all those billions of bad debt.

Third, If credit markets stay frozen and banks keep going bust, I think Congress will pass some kind of Federal aid package that will stabilize the financial system.
It may take a few painful weeks of market turmoil and economic hand-wringing, but hopefully it will be better than the package that failed to pass the House today.

There are plenty of other options for how such a bailout could be structured -- such as the government getting preferred stock in exchange for injecting capital, or the Feds finding a way to provide a more direct boost to the long-suffering housing market. A lot of folks are going to be fighting it out to come up with a plan that will both work and pass and I think they will succeed.

A modest proposal: Ban credit cards

Well why not?

What if they outlawed credit cards? Would the world end? Would it be financial Armageddon? Would we shuffle from food line to water queue in our now-tattered $250 blue jeans?

It's never gonna happen, we know. So play along with me here. I'm not talking about business credit. That's an altogether different animal (currently in hibernation). I'm talking consumer debt. This idea that we can have the McMansion AND the boat AND the trips AND the kitchen remodel because we could, up until just a bit ago, borrow all that money to do so.

And look where we are today.

What if we *had* to live within our means again? What if we couldn't buy whatever we wanted because we didn't have credit cards? Would it suck? Heck yeah. But only because we've gotten so used to having credit, and being able to buy those cute shoes or fund our student film or buy that iPhone because it's so cool and you just gotta have it.

In other words, what would happen if we couldn't have all that...stuff...unless we actually had the cash for it? We'd have to get used to saving again. Saving actual dollars (while they're still worth anything at all, I mean). What if you had to do the now unimaginable and save a 20% cash downpayment before buying a new house? Wouldn't that kind of thinking actually help our economy down the road? A nation of savers is a good thing, isn't it?

We wouldn't be so in debt. We wouldn't have so much superfluous stuff. We might work less and live more. Thrift might come back into style.

Being truly forced to live within our means would really foul up our carefully-crafted consumer society, true. But as I'm told, many generations of people have managed to do so. My dad tells me that in the '60s you went to the bank on a Friday with your paycheck, and took out enough cash to get through until the next week. If you ran out...well...tough luck.

So set me straight please. Why couldn't we just ban credit cards forever? It's just a thought, given today's financial meltdown...caused by the credit crisis.

Monday, September 29, 2008

How to receive income from shares?

The income received from shares is called a dividend.

We invest in shares to make money – either through a share’s capital growth, i.e. the amount by which the share price increases in value over time, or through the dividends it pays to its shareholders. Dividends are payments made by companies to shareholders from their profits. Not all companies pay dividends. Dividends are usually paid twice a year and are in effect the yield from your investment. Some growth companies plough most of their profits back into generating more business rather than paying out dividends to investors.

How would I get my dividend/interest or other cash entitlements?
The concerned company obtains the details of beneficiary holders and their holdings from the depository. The payment to the investors will be made by the company through the ECS, or Electronic Clearing Service, facility or by issuing warrants on which your bank account details are printed. The bank account details will be those, which you would have mentioned in your account opening, form or changed thereafter.

How would I get my bonus shares or other non-cash entitlements?
The concerned company obtains the details of beneficiary holders and their holdings from NSDL. Your entitlement will be credited by the company directly in your depository account.

ICICI shares drop 14% as banks mauled

Shares in ICICI Bank, India's second-biggest bank, fell nearly 14 percent to a two-year low on Monday, hurt by foreign fund selling and worries about the impact of the global credit problems.

By 0925 GMT, the shares were down 11.2 percent at 498.20 rupees, taking their losses to more than a quarter this month and 60 percent this year.

"Wherever there was FII ownership, the correction is happening," said Jayesh Shroff, a fund manager at SBI Mutual Funds, referring to foreign institutional investors (FII).

"There are lots of rumours floating too, but I don't think the problems for Indian banks are so big that they can collapse," he said. Foreign ownership in ICICI was close to 70 percent, according to stock exchange filings, with shareholders including Singapore state investor Temasek and the Government of Singapore Investment Corp (GIC).

In a Sept. 2 report, Morgan Stanley listed ICICI at the top of Asian banks most exposed to a downturn in markets. Two weeks later, ICICI said it had exposure of about $81 million to Lehman Brothers senior bonds and would need to increase provisions by about $28 million to cover half that.

Broker Edelweiss Capital has said it expected ICICI to post $200 million in losses on bonds, including Lehman-issued debt. Both the bank's joint managing director and the chief executive responded to market worries about ICICI's exposure to the credit turmoil by going on television earlier this month to say the bank was extremely healthy and had ample capital.

A spokesman for ICICI said the bank planned to launch advertising campaigns in some regional media to tell customers the bank was not facing any difficulties.

"Basically, we need to clear all confusion. The campaign should roll out in the coming weeks," Charudatta Deshpande said.

The Mumbai Stock Exchange's bank sector sub-index was down 6.2 percent on Monday, and has fallen 46 percent so far this year. The benchmark BSE Sensex index was off 3.7 percent