Global - Economy and Market
Manufacturing index hits six-month high
NEW YORK - Manufacturing grew at its fastest pace in six months in December, capping a late-year upswing, but a European slump and rising oil prices posed threats to the U.S. economy in the new year.
Construction spending surged to a near 1-1/2 year high in November as investment in public and private projects rose solidly.
Fed to publish rate path forecasts in transparency move
WASHINGTON - The U.S. Federal Reserve on Tuesday said it would begin publishing forecasts on the path of interest rates later this month, a move that could suggest rates will be on hold for longer than previously expected.
Weak U.S. consumer spending is expected through 2012
Weighed down by flat incomes and job creation, there is little chance that U.S. consumers will increase spending significantly this year, experts said. Macroeconomic Advisers forecasts 2% growth in consumer spending in the first half of the year, compared with the estimated 3.6% increase in the fourth quarter of 2011.
Euro zone bailout fund names managers for 3 billion euro issue
BRUSSELS - The euro zone's rescue fund, the European Financial Stability Facility (EFSF), appointed Credit Suisse, Deutsche Bank and Societe Generale on Tuesday as joint lead managers for its first 3-year, 3 billion euro bond sale.
ECB has room to cut interest rates as inflation eases
The eurozone's sovereign-debt crisis is easing inflation pressures, giving the European Central Bank more room to maneuver on interest rates in the new year. Statistics reinforce the view "that underlying inflationary pressures are easing and that the ECB has ample scope to cut interest rates again in the early months of 2012," said Howard Archer, chief European economist at IHS Global Insight. "Eurozone inflation is poised to retreat markedly over the coming months."
Greece: Clinch bailout or face euro exit
ATHENS - Greece will have to leave the euro zone if it fails to clinch a deal on a second, 130 billion euro bailout with its international lenders, a government spokesman said on Tuesday.
Yields fall in Italy's bond auction
Italy's borrowing costs fell in a $9 billion bond auction, but not enough to put the financial markets at ease about the nation's economy. The 10-year bond yield was 6.98%, compared with 7.56% in November. The three-year debt sold at a 5.62% yield, compared with 7.89% last month.
Chinese manufacturing posts second straight monthly decline
China's manufacturing sector contracted for the second month in a row in December, as Europe's weakening economy cut demand for exports, according to the purchasing managers' index sponsored by HSBC Holdings and Markit Economics.
India - Economy and Market
Nov exports rise 3.9 pct at $22.3 bln y/y
NEW DELHI - India's November exports rose an annual 3.87 percent to $22.3 billion, while imports for the month rose 24.55 percent to $35.9 billion, the government said in a statement on Monday.
India opens equities market to foreign investors
India's market regulator said it will allow direct investment in Indian companies by foreign investors, starting Jan. 15. Whether foreigners will be allowed voting rights in the companies is undecided, the regulator said.
Factory activity jumps to highest since June
BANGALORE - India's manufacturing activity surged to a six-month high in December thanks to a spike in factory output and new orders from domestic and international firms, a survey of purchasing managers showed on Monday.
The HSBC Markit India Manufacturing PMI jumped to 54.2 from 51.0 in November, its biggest monthly rise since April 2009.
The index has stayed above the 50 mark that separates growth from contraction for 33 months now. The PMI came closest to suggesting a contraction in September when it dipped to 50.4.
RBI says to buy back up to 120 bln rupees bonds Friday
MUMBAI - The Reserve Bank of India on Tuesday said it will buy up to 120 billion rupees of government bonds via open market operations on Friday, including the 10-year paper which till recently was the benchmark paper.
RBI likely to ease policy - Subbarao
REUTERS - The Reserve Bank of India is likely to begin easing monetary policy to address concerns about economic growth, Governor Duvvuri Subbarao said in a BBC interview, reiterating comments made by the RBI when it kept rates unchanged on December 16.
Current account deficit $16.9 bln in July-Sept
MUMBAI - The current account deficit remained unchanged at $16.9 billion in the September quarter from a year earlier, as a widening trade gap was offset by service-related inflows.
India Inc's interest paying ability at 5-yr low: Crisil
Crisil's study covered 420 companies, excluding banking and financial institutions and state-owned oil marketing companies.
The rising interest rates and declining operating profits has affected companies interest paying ability, said Crisil in a research.
Debt investments to push recovery when rates drop
In the six months to December 16, depositors have parked nearly Rs 3.53 lakh crore in deposits with banks, most of it in two to fiveyear maturities.
Higher remittances, software services income control current account deficit
The current account in the balance of payments measures the net position of a country’s exports and imports of goods and services.
As a percentage of GDP, the current account deficit as of end September was marginally lower at 3.6% of the GDP compared to 3.7% in the year ago period.
Government readies Rs 50,000 crore infra fund plan
The government has finalized the contours of a $10-billion (over Rs 50,000 crore) infrastructure debt fund (IDF) with 50% participation from a foreign bank and a multilateral agency, while the rest of the corpus will be contributed by state-owned financial institutions.
Tattering finances: Government's market borrowings to exceed budget by at least 25%
It highlights the tattered state of its finances under assault from unprecedented subsidy payments and faltering revenue growth.
Technology News –
IT cos TCS, Infosys, Wipro and HCL Tech to report higher margins on weak rupee
The rupee has fallen more than 15% against the dollar, and this is expected to result in a margin boost of up to 300 basis points.
Google embraces advertising for itself; attempts to promote its products Chrome & Google(PLUS)
The ads are also part of Google's mission to pare down its product offering and make Google products more attractive & integrated with one another.
Facebook blamed for one-third divorces across globe
Social networking website Facebook has been blamed for one-third of divorces across the world, according to a law firm.
14 lakh Aakash Tablets booked in 14 days
Sales bookings for world's cheapest tablet, Aakash, have soared to 14 lakh units just 2 weeks after it was put up for sale online for Rs 2,500 a piece.
Micromax eyes entry into billion dollar revenue club
Homegrown handset maker Micromax is now looking at joining the billion dollar revenue club in the next few years.
Global MDM software revenue likely to rise by 21% in 2012
MUMBAI: The global master data management (MDM) software revenue is likely to rise by 21 per cent to touch USD 1.9 billion in 2012 compared to the last year, research firm Gartner said today.
MDM consists of processes that manage the non-transactional data of a firm.
Governments of the world's leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs.
Led by Japan's $3 trillion and the U.S.'s $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year, according to data compiled by Bloomberg. Ten-year bond yields will be higher by year-end for at least seven of the countries, forecasts show.
Investors may demand higher compensation to lend to countries that struggle to finance increasing debt burdens as the global economy slows, surveys show. The International Monetary Fund cut its forecast for growth this year to 4 percent from a prior estimate of 4.5 percent as Europe's debt crisis spreads, the U.S. struggles to reduce a budget deficit exceeding $1 trillion and China's property market cools.
"The weight of supply may be a concern," Stuart Thomson, a money manager in Glasgow at Ignis Asset Management Ltd., which oversees $121 billion, said in a Dec. 28 telephone interview. "Rather than the start of the year being the problem, it's the middle part of the year that becomes the problem. That's when we see the slowdown in the global economy having its biggest impact."
Competition for Buyers
The amount needing to be refinanced rises to more than $8 trillion when interest payments are included. Coming after a year in which Standard & Poor's cut the U.S.'s rating to AA+ from AAA and put 15 European nations on notice for possible downgrades, the competition to find buyers is heating up.
"It is a big number and obviously because many governments are still in a deficit situation the debt continues to accumulate and that's one of the biggest problems," Elwin de Groot, an economist at Rabobank Nederland in Utrecht, Netherlands, part of the world's biggest agricultural lender, said in an interview on Dec. 27.
While most of the world's biggest debtors had little trouble financing their debt load in 2011, with Bank of America Merrill Lynch's Global Sovereign Broad Market Plus Index gaining 6.1 percent, the most since 2008, that may change.
Italy auctioned 7 billion euros ($9.14 billion) of debt on Dec. 29, less than the 8.5 billion euros targeted. With an economy sinking into its fourth recession since 2001, Prime Minister Mario Monti's government must refinance about $428 billion of securities coming due this year, the third-most, with another $70 billion in interest payments, data compiled by Bloomberg show.
Rising Costs
Borrowing costs for G-7 nations will rise as much as 39 percent from 2011, based on forecasts of 10-year government bond yields by economists and strategists surveyed by Bloomberg in separate surveys. China's 10-year yields may remain little changed, while India's are projected to fall to 8.02 percent from 8.36 percent. The survey doesn't include estimates for Russia and Brazil.
After Italy, France has the most amount of debt coming due, at $367 billion, followed by Germany at $285 billion. Canada has $221 billion, while Brazil has $169 billion, the U.K. has $165 billion, China (PRCH) has $121 billion and India $57 billion. Russia has the least maturing, or $13 billion.
Rising borrowing costs forced Greece, Portugal and Ireland to seek bailouts from the European Union and IMF. Italy's 10- year yields exceeded 7 percent last month, a level that preceded the request for aid from those three nations.
Bad Combination
"The buyer base for peripheral Europe has obviously shrunk at the same time that the supply coming to the market is increasing, which is not a good combination," said Michael Riddell, a London-based fund manager at M&G Investments, which oversees about $323 billion.
The two biggest debtors, Japan and the U.S., have shown little trouble attracting demand.
Japan benefits by having a surplus in its current account, which is the broadest measure of trade and means that the nation doesn't need to rely on foreign investors to finance its budget deficits. The U.S. benefits from the dollar's role as the world's primary reserve currency.
Japan's 10-year bond yields, at less than 1 percent, are the second-lowest in the world, after Switzerland, even though its debt is about twice the size of its economy.
The U.S. attracted $3.04 for each dollar of the $2.135 trillion in notes and bonds sold last year, the most since the government began releasing the data in 1992. The U.S. drew an all-time high bid-to-cover ratio of 9.07 for $30 billion of four-week bills it auctioned on Dec. 20 even though they pay zero percent interest.
Tougher Year
With yields on 10-year Treasuries (USGG10YR) below 2 percent, an increasing number of investors see little chance for U.S. bonds to repeat last year's gains of 9.79 percent. The U.S pays an average interest rate of about 2.18 percent on its outstanding debt, down from 2.51 percent in 2009, Bloomberg data show.
'Given how well they have done, we don't think they're any longer a very good hedge," Eric Pellicciaro, head of global rates investment at New York-based BlackRock Inc., which manages $1.14 trillion in fixed-income assets, said in a Dec. 16 telephone interview.
The median estimate of 70 economists and strategists is for Treasury 10-year note yields to rise to 2.60 percent by year-end from 1.95 percent at 11:27 a.m. New York time. In Japan, the forecast for the nation's benchmark note yield is 1.35 percent, while it's expected to rise to 2.50 percent in Germany, from 1.90 percent today.
Central Banks
Central banks are bolstering demand by either keeping interest rates at record lows or reducing them, and by purchasing bonds in a policy know as quantitative easing.
The Federal Reserve has said it will keep its target rate for overnight loans between banks between zero and 0.25 percent through mid-2013, and is now selling $400 billion of its short- term Treasuries and reinvesting the proceeds into longer-term government debt in a program traders dubbed Operation Twist.
The Bank of Japan has kept its key rate at or below 0.5 percent since 1995, and expanded the asset-purchase program last year to 20 trillion yen ($260 billion). The Bank of England kept its main rate at a record low 0.5 percent last month, and left its asset-buying target at 275 billion pounds ($431 billion).
The European Central Bank reduced its main refinancing rate twice last quarter, to 1 percent from 1.5 percent. It followed those moves by allotting 489 billion euros of three-year loans to euro-region lenders. That exceeded the median estimate of 293 billion euros in a Bloomberg News survey of economists. The central bank will offer a second three-year loan on Feb. 28.
'Flush With Liquidity'
The money from the ECB may be used by banks to buy government bonds, according to Fabrizio Fiorini, the chief investment officer at Aletti Gestielle SGR SpA in Milan.
"The market is now flush with liquidity after measures taken by central banks, particularly the ECB, and that's great news for risky assets," Fiorini said in a telephone interview on Dec. 20. "The market will have no problem taking down supply from countries like Spain and Italy in the first quarter. In fact, they should be able to raise money at lower borrowing costs than what we saw in recent months."
Italy's sale last week included 2.5 billion euros of 5 percent bonds due in March 2022, which yielded 6.98 percent. That was down from 7.56 percent at an auction Nov. 29. It sold 9 billion euros of bills on Dec. 28 at a rate of 3.251 percent, compared with 6.504 percent at the previous auction on Nov. 25.
'Phony War'
Investors should be most worried about the period after the ECB's second three-year longer-term refinancing operation scheduled in February, according to Ignis's Thomson.
"The amount of liquidity that has been supplied by central banks, with more to come from the ECB in February, suggests the first couple of months will be a sort of phony war as far as the supply is concerned," Thomson said.
The ECB has bought about 212 billion euros of government bonds since starting a program in May 2010 to contain borrowing costs for Greece, Portugal and Ireland. It began buying Spanish and Italian debt in August, according to people familiar with the trades, who declined to be identified because they weren't authorized to speak publicly about the transactions.
"There's a lot of talk that the ECB might have to give more direct support to the governments," Frances Hudson, who helps manage about $242 billion as a global strategist at Standard Life Investments in Edinburgh, said in a Dec. 22 telephone interview.
Following is a table of bond and bill redemptions and interest payments in 2012 for the Group of Seven countries, Brazil, China, India and Russia, in dollars, using data calculated by Bloomberg as of Dec. 29: Country 2012 Bond, Bill Redemptions ($) Coupon Payments
Japan 3,000 billion 117 billion
U.S. 2,783 billion 212 billion
Italy 428 billion 72 billion
France 367 billion 54 billion
Germany 285 billion 45 billion
Canada 221 billion 14 billion
Brazil 169 billion 31 billion
U.K. 165 billion 67 billion
China 121 billion 41 billion
India 57 billion 39 billion
Russia 13 billion 9 billion
The pieces and policies for potential conflict in the Persian Gulf are seemingly drawing inexorably together.
Since 24 December the Iranian Navy has been holding its ten-day Velayat 90 naval exercises, covering an area in the Arabian Sea stretching from east of the Strait of Hormuz entrance to the Persian Gulf to the Gulf of Aden. The day the maneuvers opened Iranian Navy Commander Rear Admiral Habibollah Sayyari told a press conference that the exercises were intended to show "Iran's military prowess and defense capabilities in international waters, convey a message of peace and friendship to regional countries, and test the newest military equipment." The exercise is Iran's first naval training drill since May 2010, when the country held its Velayat 89 naval maneuvers in the same area. Velayat 90 is the largest naval exercise the country has ever held.
The participating Iranian forces have been divided into two groups, blue and orange, with the blue group representing Iranian forces and orange the enemy. Velayat 90 is involving the full panoply of Iranian naval force, with destroyers, missile boats, logistical support ships, hovercraft, aircraft, drones and advanced coastal missiles and torpedoes all being deployed. Tactics include mine-laying exercises and preparations for chemical attack. Iranian naval commandos, marines and divers are also participating.
The exercises have put Iranian warships in close proximity to vessels of the United States Fifth Fleet, based in Bahrain, which patrols some of the same waters, including the Strait of Hormuz, a 21 mile-wide waterway at its narrowest point. Roughly 40 percent of the world's oil tanker shipments transit the strait daily, carrying 15.5 million barrels of Saudi, Iraqi, Iranian, Kuwaiti, Bahraini, Qatari and United Arab Emirates crude oil, leading the United States Energy Information Administration to label the Strait of Hormuz "the world's most important oil chokepoint."
In light of Iran's recent capture of an advanced CIA RQ-170 Sentinel drone earlier this month, Iranian Navy Rear Admiral Seyed Mahmoud Moussavi noted that the Iranian Velayat 90 forces also conducted electronic warfare tests, using modern Iranian-made electronic jamming equipment to disrupt enemy radar and contact systems. Further tweaking Uncle Sam's nose, Moussavi added that Iranian Navy drones involved in Velayat 90 conducted successful patrolling and surveillance operations.
Thousands of miles to the west, adding oil to the fire, President Obama is preparing to sign legislation that, if fully enforced, could impose harsh penalties on all customers for Iranian oil, with the explicit aim of severely impeding Iran's ability to sell it.
How serious are the Iranians about the proposed sanctions and possible attack over its civilian nuclear program and what can they deploy if push comes to shove? According to the International Institute for Strategic Studies' The Military Balance 2011, Iran has 23 submarines, 100+ "coastal and combat" patrol craft, 5 mine warfare and anti-mine craft, 13 amphibious landing vessels and 26 "logistics and support" ships. Add to that the fact that Iran has emphasized that it has developed indigenous "asymmetrical warfare" naval doctrines, and it is anything but clear what form Iran's naval response to sanctions or attack could take. The only certainty is that it is unlikely to resemble anything taught at the U.S. Naval Academy.
The proposed Obama administration energy sanctions heighten the risk of confrontation and carry the possibility of immense economic disruption from soaring oil prices, given the unpredictability of the Iranian response. Addressing the possibility of tightened oil sanctions Iran's first vice president Mohammad-Reza Rahimi on 27 December said, "If they impose sanctions on Iran's oil exports, then even one drop of oil cannot flow from the Strait of Hormuz."
Iran has earlier warned that if either the U.S. or Israel attack, it will target 32 American bases in the Middle East and close the Strait of Hormuz. On 28 December Iranian Navy commander Rear Admiral Habibollah Sayyari observed, "Closing the Strait of Hormuz for the armed forces of the Islamic Republic of Iran is very easy. It is a capability that has been built from the outset into our naval forces' abilities."
But adding an apparent olive branch Sayyari added, "But today we are not in the Hormuz Strait. We are in the Sea of Oman and we do not need to close the Hormuz Strait. Today we are just dealing with the Sea of Oman. Therefore, we can control it from right here and this is one of our prime abilities for such vital straits and our abilities are far, far more than they think."
There are dim lights at the end of the seemingly darker and darker tunnel. The proposed sanctions legislation allows Obama to waive sanctions if they cause the price of oil to rise or threaten national security.
Furthermore, there is the wild card of Iran's oil customers, the most prominent of which is China, which would hardly be inclined to go along with increased sanctions.
But one thing should be clear in Washington – however odious the U.S. government might find Iran's mullahcracy, it is most unlikely to cave in to either economic or military intimidation that would threaten the nation's existence, and if backed up against the wall with no way out, would just as likely go for broke and use every weapon at its disposal to defend itself. Given their evident cyber abilities in hacking the RQ-170 Sentinel drone and their announcement of an indigenous naval doctrine, a "cakewalk" victory with "mission accomplished" declared within a few short weeks seems anything but assured, particularly as it would extend the military arc of crisis from Iraq through Iran to Afghanistan, a potential shambolic military quagmire beyond Washington's, NATO's and Tel Aviv's resources to quell.
It is worth remembering that chess was played in Sassanid Iran 1,400 years ago, where it was known as "chatrang." What is occurring now off the Persian Gulf is a diplomatic and military game of chess, with global implications.
Washington's concept of squeezing a country's government by interfering with its energy policies has a dolorous history seven decades old.
When Japan invaded Vichy French-ruled southern Indo-China in July 1941 the U.S. demanded Japan withdraw. In addition, on 1 August the U.S., Japan's biggest oil supplier at the time, imposed an oil embargo on the country.
Pearl Harbor occurred less than four months later.
NATIONAL STOCK EXCHANGE OF INDIA LIMITED
DEPARTMENT : CAPITAL MARKET SEGMENT
Download Ref No :NSE/CMTR/19734
Date : January 03, 2012
Circular Ref. No : 001 / 2012
All NSE Members
Special session for Live trading on Saturday, January 07, 2012
The Exchange is upgrading the capacity of Futures and Options trading system hardware and software to the next generation system to improve processing capability and handle increased activities in the market. Existing Trading system architecture will be revamped by using a distributed processing concept. Towards this, the Exchange is conducting a special live trading session on Saturday, January 07, 2012 in Capital Market segment, Futures & Options segment and Securities Lending & Borrowing Scheme (SLBS).
Market timings for special live trading session on Saturday, January 07, 2012 in Capital market segment will be as follows:
Saturday, January 07, 2012
Time
Pre-open order entry open time
11:00 hrs
Pre-open order entry close time (with random closure in last one minute)
11:08 hrs
Pre-open order Matching will start immediately after close of pre-open order entry
Normal / Odd lot / Retail Debt Market Open
11:15 hrs
Normal / Odd lot / Retail Debt Market Close
12:45 hrs
Block Deal Session Open
11:15 hrs
Block Deal Session Close
11:50 hrs
Closing session start
12:55 hrs
Closing session end
13:05 hrs
DEPARTMENT : CAPITAL MARKET SEGMENT
Download Ref No :NSE/CMTR/19734
Date : January 03, 2012
Circular Ref. No : 001 / 2012
All NSE Members
Special session for Live trading on Saturday, January 07, 2012
The Exchange is upgrading the capacity of Futures and Options trading system hardware and software to the next generation system to improve processing capability and handle increased activities in the market. Existing Trading system architecture will be revamped by using a distributed processing concept. Towards this, the Exchange is conducting a special live trading session on Saturday, January 07, 2012 in Capital Market segment, Futures & Options segment and Securities Lending & Borrowing Scheme (SLBS).
Market timings for special live trading session on Saturday, January 07, 2012 in Capital market segment will be as follows:
Saturday, January 07, 2012
Time
Pre-open order entry open time
11:00 hrs
Pre-open order entry close time (with random closure in last one minute)
11:08 hrs
Pre-open order Matching will start immediately after close of pre-open order entry
Normal / Odd lot / Retail Debt Market Open
11:15 hrs
Normal / Odd lot / Retail Debt Market Close
12:45 hrs
Block Deal Session Open
11:15 hrs
Block Deal Session Close
11:50 hrs
Closing session start
12:55 hrs
Closing session end
13:05 hrs
A former CIA analyst says the notion that stirring up hostilities towards Iran will make Israel more secure will prove to be "the big mistake of the century."
"If this rhetoric spins out of control, if there are incidents in the Persian Gulf or the Strait of Hormuz that lead to wider hostilities, as night follows the day, this could spin not only into a regional war but even farther; and… of Israel, I fear, may cease to exist."
Iran's First Vice President Mohammad-Reza Rahimi warned on December 27 that imposing sanctions against the country's energy sector will prompt Tehran to prevent oil cargoes from passing through the strategic Strait of Hormuz.
"If they impose sanctions on Iran's oil, not even a drop of oil will be allowed through the Strait of Hormuz," he warned.
Iran's Navy Commander Rear Admiral Habibollah Sayyari also said on December 28 that Iran has complete command over the strategic waterway and that "closing the Strait of Hormuz is very easy for Iranian naval forces."
On December 28, the Bahrain-based US Fifth Fleet responded by saying it would not "tolerate" any disruption in the Strait of Hormuz.
"[The fleet] maintains a robust presence in the region to deter or counter destabilizing activities," a spokesperson for the fleet said.
The US, Israel, and some of their allies accuse Tehran of pursuing military objectives in its nuclear program and have used this pretext to push for the imposition of sanctions as well as to call for an attack on the country.
Tehran , however, refutes such allegations as "baseless" and maintains that as a signatory to the Nuclear Non-Proliferation Treaty and a member of the IAEA it has every right to develop and acquire nuclear technology for peaceful purposes.
Iranian officials have also promised a crushing response to any military strike against the country, warning that any such measure could result in a war that would spread beyond the Middle East.
That Ray Dalio, famed head of the world's largest (and not one hit wonder unlike certain others) hedge fund has long been quite bearishly inclined has been no secret. For anyone who missed Dalio's must see interview (and transcript) with Charlie Rose we urge you to read this: "Dalio: "There Are No More Tools In The Tool Kit." For everyone who is too lazy to watch the whole thing, or read the transcript, the WSJ reminds us once again that going into 2012 Dalio's Bridgewater, which may as well rename itself Bearwater, has not changed its tune. In fact the CT hedge fund continues to see what we noted back in September is the greatest threat to the modern financial system: a debt overhang so large, at roughly $21 trillion, that one of 3 things will have to happen: a global debt restructuring/repudiation; global hyperinflation to inflate away this debt, or a one-time financial tax on all individuals amounting to roughly 30% of all wealth. That's pretty much it, at least according to mathematics. And according to Bridgewater. From the WSJ: "Bridgewater Associates has made big money for investors in recent years by staying bearish on much of the global economy. As the new year rings in, the hedge fund firm has no plans to change that gloomy view…What you have is a picture of broken economic systems that are operating on life support," Mr. Prince says. "We're in a secular deleveraging that will probably take 15 to 20 years to work through and we're just four years in." So basically scratch everything between 2012 and 2028? But, but, it was that paragon of investment insight Jim "Bloody Ridiculous Investment Concept" O'Neill keeps telling us stocks will go up by 20%… stocks will go up by 20%….stocks will go up by 20%…
From the WSJ:
Robert Prince, co-chief investment officer at Bridgewater, and his managers at the world's biggest hedge fund firm are preparing for at least a decade of slow growth and high unemployment for the big developed economies. Mr. Prince describes those economies—the U.S. and Europe, in particular—as "zombies" and says they will remain that way until they work through their mountains of debt.
In Europe, "the debt crisis is [a] long ways from over," he says. The economic and financial morass will mean interest rates in the U.S. and Europe will essentially be locked at zero for years.
In this bleak environment, Mr. Prince says stocks remain vulnerable to "air pockets" from shocks, such as bad news out of Europe. But for longer-term investors looking out over the next decade, he says, equities may be a good buy. There is even money to be made in U.S. Treasurys, despite interest rates near record lows, and gold is likely to resume its climb as central banks print money to bolster their economies. Mr. Prince says
Unlike Paulson, who would have been best advised in the beginning of 2011 to park his money with these "bears", and has lately become a running watercooler joke, what Bridgewater says is actually relevant:
The views of Bridgewater are keenly watched by other investors, given the firm's elevated status in the competitive world of hedge-fund investing. Bridgewater's flagship Pure Alpha Strategy fund is considered one of the top funds in the world. As of the end of November, it was up 25% since the start of the year, according to people familiar with the situation. The average macro fund had lost 3.7%, according to Hedge Fund Research.
Also, don't tell spam-loving party animal econ professors, but the $122 billion hedge fund, is long gold.
Currently, the fund is positioned for higher gold prices, stronger Asian emerging-market currencies and lower yields across high-quality government bond markets, Mr. Prince says.
And for all those marrionettes who parrot the release of patently manipulated and fraudulent data such as anything out of the BLS or the NAR, here is what is really driving those "better than expected" recent numbers, which goes to the core of our argument that the US has not decoupled – not by a long shot – it is merely sustaining as consumers deplete every last bit of savings. Another words for which, of course, is lagging.
Recent better-than-expected news on the U.S. economy is unlikely to be the start of a healthy expansion, he says. The uptick in economic growth has been fueled by a decline in the savings rate, which, without material income and employment gains, is unlikely to be sustainable as long-term credit growth also remains weak, he says.
The problem for the U.S, says Mr. Prince, is that it is on the wrong side of a long-term debt cycle.
"We were in a leveraging-up period for 60 years, from the early 1950s to 2008," he says. This debt bubble was self-reinforcing on the way up, and "when it tipped over, it set about a self-reinforcing process on the way down."
As evidence for the long slog facing the U.S economy, he notes that the level of leverage, as measured by comparing household income to net worth, is still higher than it was before 2008.
Which means what?
Against this backdrop, the Federal Reserve will need to do more quantitative easing—buying of government bonds—but Mr. Prince says the purchases will probably be sporadic.
Gold prices should resume a rally amid continued printing of money by the Fed and other central banks, Mr. Prince says. Those efforts effectively devalue those countries' currencies compared with gold.
Bingo, and thus for all the (completed redemption driven) year end gold dumping, we have just one question: when is John Paulson's Q4 13F coming out (that's rhetorical – we know not only when it is coming out, but what is in it – stay tuned).
As for the cataclysm across the Atlantic:
"You've got insolvent banks supporting insolvent sovereigns and insolvent sovereigns supporting insolvent banks," he says.
We could not have said it better ourselves.
Promoters of as many as 125 big and small companies have pledged over 75% of their holdings, according to the latest data available with the exchanges.
As these are offered as either collateral for some financial accommodation or to raise funds in their personal capacity, any further fall in the value of shares thus pledged, makes them vulnerable.
In the case of 15 companies, including Tata Coffee , Gujarat Pipavav Port , Kingfisher Airlines and Tuticorin Alkalies , promoters have pledged their entire stake in the company with financiers to raise funds.
Other prominent companies in which promoters have pledged significant stake with financiers include Gujarat NRE Coke (along with DVR shares), Essar Oil , Dunlop India , Bilcare , Sakthi Sugars , United Spirits , Orchid Chemicals , Uflex and Kouton Retails . Mr Arun Kejriwal of KRIS Securities said that the degree of vulnerability depends on the institutions with which promoters have pledged their shares.
He said if the shares are pledged with banks, then they would not face much pressure, as banks generally offer time to promoters to put up additional collateral.
In that case, the promoters could bring in other assets as collateral.
However, if the shares are pledged with non-banking finance companies or other entities, promoters may not enjoy much latitude.
There is a high possibility that the shares may be put on the block if the promoters either fail to put up additional securities or redeem a portion of their loan immediately.
The lenders might simply offload the stake in the market should the share prices fall below their threshold limits.
Going forward, retail investors have to take this as a critical input for their investment decision.
They have to be extremely careful about small companies because the sustainability power of large companies for margin calls is relatively better,said Mr Jagannadham Thunuguntla, Head of Research and Chief Strategist with SMC Global Securities.
A lot of the promoter funding is done by NBFCs, which have an appetite for high risk funding at high interest rates. Their own cost of funding has gone up after the rate hikes, and promoters' ability to pay back borrowed money is under question, resulting in a sell-off in many cases,� said a research report from Swastika Investmart.
Orchid Chemicals case
It may be recalled that in 2008, Mr Raghavendra Rao, Managing Director of Orchid Chemicals and Pharmaceuticals, saw shares pledged by him with Indiabulls Financial Services and Religare Enterprises flooding the market when the company's share price fell and he could not put up additional collateral security in time.
The promoters had borrowed to increase their stake in the company.
Great Offshore case
While the takeover threat was averted in the case of Orchid Chemicals, Great Offshore, a company once owned by Mr Vijay Sheth and his associates, saw a management restructuring resulting in his eventually losing control after he failed to redeem the pledge.
The promoters' stake ended up in the hands of Bharati Shipyard, which acquired management control over the operations of the company.
In all, about 900 companies' promoters have pledged their stake, but half of them have pledged less than 25% of their shares.
Policy-makers in New Delhi and Mumbai are not convinced, but global banks and hedge funds with significant interests in India are deeply concerned that the European sovereign debt crises will adversely impact the country's financial system. They have sounded out mandarins in North Block and Mint Street that European banks' exposure to India could be as high as 14-15 per cent of the gross domestic product (GDP). In absolute terms, this is approximately $150 billion.
A global banker, who did not wish to be quoted, told that the de-leveraging risks of European banks for India were being underestimated by the Finance Ministry and the Planning Commission. European banks have actively participated in funding India Inc through external commercial borrowings (ECBs) and trade credit during the last two years.
"Of the approximately $120 billion exposure, trade credit alone accounts for about $36 billion," the banker said. Post-2008 global financial crisis, when credit turned cheap across the world on the back of coordinated stimulus by governments, India Inc borrowed almost $46 billion from European banks alone in just two years.
When contacted, senior government officials said the situation was not as scary as was being feared by some. "Over the next 12 months, it is true payments to the tune of $120 billion are due. Take the worst case scenario that there will be no foreign inflows over the next 12 months. So, our forex reserves will dip from $300 billion to $180 billion. Even if we assume that we need $120 billion to cover a year's import, we have 50 per cent more reserves," said a senior Planning Commission official.
"Most of the credit is rolled over or extended by European banks. But they are not doing it anymore," said another banker, who recently had an interaction with senior officials in the Finance Ministry, the Planning Commission and the Reserve Bank of India. This has forced Indian corporates to borrow at higher costs from domestic banks. "Many Indian companies are moving onshore. This trend is likely to accelerate in the coming months," the banker said.
According to the Bank of International Settlements (BIS), European banks' claims against India stood at $159 billion at the end of June 2011. This is almost 55 per cent of the total international claims of $289 billion on India by banks of all foreign countries reporting to BIS.
"What happens if the crisis worsens and European banks require capital for themselves. The first casualty will be emerging economies such as India. They will stop extending trade credit, start selling participatory notes, syndicated loans and corporate bonds," the hedge fund manager, who manages $2 billion in equity investments, pointed out.
Indian banks will be required to take such assets on their books. Financial market pundits say some part of the domestic credit growth during the year is a result of offshore (foreign) credit being converted into onshore (domestic) credit. In other words, Indian banks have already started buying some of the assets sold by European banks, resulting in a higher credit growth.
But, another government official said, this assumes that the economy will move to a high-growth trajectory immediately, resulting in high demand for credit. "The impact of monetary tightening on demand will persist for a while. So, we do not expect any rush for credit. The credit growth is expected to remain muted over at least the next six months," the official said. "Only if the domestic banking sector is expected to meet the entire demand for credit, we may face a liquidity pressure. But remember, even in 2008, we managed the crisis through just enhanced liquidity adjustment facilities (LAF)," the official added.
"Policy-makers in India do have a sense that things can turn out to be bad," said a foreign analyst. "But can it get ugly?" One of the reasons why the Reserve Bank of India resisted cutting the cash reserve ratio (CRR) despite demands from various quarters in the recent monetary policy review was its sense of a build-up of liquidity pressures in the coming months. "RBI is the only institution that is alive to the adverse impact that the Euro zone crisis can have on India," the analyst said, based on interactions with officials in the central bank.
Such demands on the Indian banking sector already stressed due to a phenomenal exposure to infrastructure sector will call for additional capital infusion. But, given the government's fiscal position, setting aside more funds for banks is easier said than done. "The government is yet to take a call on subscribing to the State Bank of India's rights issue primarily because of fiscal considerations," said an Indian banker.
Top software exporter Tata Consultancy Services surpassed Reliance Industries on the last trading day of the year to become the country's most-valuable firm, capping a gloomy year for shareholders of the energy major controlled by India's richest man Mukesh Ambani.
Reliance, for long the darling of Indian investors, was briefly knocked off its four-year long perch as the country's most-valuable company in August -- first by state-run Coal India and then by Oil & Natural Gas Corp -- before regaining it.
TCS, part of the salt-to-software Tata conglomerate, is the first private-sector company to overtake Reliance in market value.
Shares in Reliance, which owns the world's largest refinery complex, fell 2.7% on Friday to their lowest level since March 2009. The stock lost 34.5% in 2011, underperforming a 24.6% fall in the benchmark index.
At Friday's close, Reliance was valued at about USD 42.7 billion, while TCS commanded a market value of USD 42.8 billion, despite its shares closing 0.4% lower.
"This leadership game is becoming like a musical chair," said Jagannadham Thunuguntla, head of research at SMC Global securities in New Delhi.
"If the underperformance in Reliance shares continues, it will become difficult for them to regain the top position again."
Reliance's growth outlook has been marred by falling gas output from its huge KG D6 gas fields, off India's east coast, which has drawn criticism from the country's upstream regulator, investors and analysts.
A USD 7.2 billion deal to sell a 30% stake in 23 oil and gas blocks to BP Plc struck earlier this year failed to impress shareholders, who are also looking for more clarity on the company's move to enter new areas such as retail and telecoms.
"KG D6 has sort of become a drag," Thunuguntla said. "And also, they have somehow got into a long-gestation trap in all their businesses -- be it oil and gas, retail or telecom."
"They are sitting on a huge cash pile and need to deploy it at the right place. Holding cash is again not good," he said.
TCS, which competes with companies such as Infosys Ltd and Wipro in providing software services to western clients, saw its share price jump nearly 12% in the December quarter, compared with a 6% drop in the benchmark index. TCS has shed 0.4% on the year.
Global technology spending outlook remains uncertain with no easy fix seen to the euro zone sovereign debt crisis and concerns about the US economy, but a sharp fall in the Indian rupee helps these exporters who get most of their revenues in foreign currencies while bulk of their spends are in rupee.
