Last post for 2008.. happy holidays!!

Happy holidays.. 

I decided to spend part of my holidays with a couple of friends  in Detroit, drive down to Philly, and next to Virginia.. and finally home on Jan 2nd..  I hope it would be a nice break away from, hopefully, everything. As always, I try my level best to keep away from my laptop and mobile. :) .

For me 2008 was an exciting year. FInished my MBA, joined the hedge fund, doing what I am i nterested in doing, though still in the learning phase. 

Gone out to pick upi a friend from the airport. and am posting it today!! 

 *height of my laziness*. 

a period of hibernation..

Well,, a couple of my very close friends are visiting Dallas, so spending most of the evenings with them.

Hope I shall continue blogging sometime next week.. or may be during the office hours!!

Last week's missing posts..

Much of the monday's rallly and the last week's rally is either coz of the high expectations  on the Obama Package to kick start the economy or in the anticipation of it. Over the last weekend, Obama unvieled priliminary details of the stimulus package, including “making the largest single new infrastructure investment since the creation of the federal highway system in the 1950s”.

Some off-the-cuff thoughts :

- Building supplies groups

- Industrial equipment makers

- Construction firms

- Miners

- Crane manufacturers

- Engineering firms

- Plant hire firms

- Temporary power generators

- Catering contractors

Words of famous Bill Gross: "My transgenerational stock market outlook is this: stocks are cheap when valued within the context of a financed-based economy once dominated by leverage, cheap financing, and even lower corporate tax rates. That world, however, is in our past not our future. More regulation, lower leverage, higher taxes, and a lack of entrepreneurial testosterone are what we must get used to – that and a government checkbook that allows for healing, but crowds the private sector into an awkward and less productive corner."

Nervous investors on Tuesday paid for the privilege of owning US government debt, pushing interest rates on three-month Treasury bills to negative levels for the first time in postwar history, reports the FT. The implied yield for three-month bills briefly traded at negative 0.01% –  the first time since 1940, traders said. At that level, an investor is essentially paying someone to own the security. The flight to safety helped the Treasury sell $30bn in four-week bills at a discount rate of 0.0% for the first time. That auction followed the sale of $27bn in three-month bills at a discount rate of 0.005% on Monday.

Though a Treasuries bubble might appear unproblematic, however, its bursting could turn out to be more dangerous than the collapse of any other kind of bubble. If confidence eventually returned to other markets, investors would shun the low yields on Treasuries. The Fed would then face the choice of monetising most or all of the Treasuries market, as funds fled to higher-return investments, or else of allowing Treasuries yields to race higher. Because foreign holdings represent a significant proportion of the stock of Treasuries outstanding, a collapse in Treasuries prices might soon be reflected in a collapse of the US dollar, with the accompanying threat of hyper-inflation in the USA and depression elsewhere. At that point, many investors might wish they still enjoyed the comparative calm of the ‘credit crunch’.

Today:

Events in North America have dominated global credit markets in recent days and today was no different. Investors welcomed news that the US House of Representatives approved a $14 billion loan to the “big three” Detroit car makers. However, the bill will also need to be passed in the Senate, and noises from the Republican members suggest that this could be difficult. Several Senators have expressed their opposition to the bill, and many others are likely to be uncomfortable with the government using tax payers money to bailout failing companies.

Earlier, Labor Department reported initial jobless claims in the week ended December 6th jumped to 573,000, their highest level since November of 1982. Separately, a report from the Commerce Department showed that the U.S. trade deficit unexpectedly widened in the month of October, reflecting a notable decrease in exports amid the global economic weakness. Economists had been expecting the deficit to narrow to $53.5 billion compared to the $56.5 billion originally reported for the previous month.

Airlies stocks came under pressure as the oil had a biggest one day gain in 3 months, up about $4.67 to $48 dollars. Also it was reported yesterday taht the airline industry will suffer a $2.5bn net loss next year despite the big fall in the oil price, as carriers are overtaken by falling demand for air travel amid the deepening recession in several leading economies.

And the woes for financial firms do not seem to have come to an end. FT quoted that the biggest US financial institutions reported a sharp increase to $610bn in so-called hard-to-value assets during the third quarter, raising concerns about the hidden dangers on balance sheets.Translation: More write offs, and banks are hiding more and more assets on their balance sheets. WFC 

I had a discussion with Bill today about why the  market is not going down even though the data releasedlast week was gloomy. Seems market is oversold and most of the worst data is already priced in.The bull case being that the selling has levelled off and investors started buying large cap stocks, and the sooner the data gets worse, the fast is the recovery.. An excerpt from www. "SO REMEMBER IT IS NOT THE NEWS THAT MATTERS IT IS HOW THE MARKETS REACTS TO THE NEWS THAT MATTERS MOST AND FRIDAYS REACTION TO BAD NEWS SUGGESTS MOST INVESTORS HAVE DISCOUNTED PRETTY MUCH ARMAGEDDON."

 Well, I subscribe to the bearish case taht the market has not yet priced in the worse yet. Market is just trying to search a bottom, and in doing so, the investors are acting optimistic.

Let me write fo rmyself the data that was out last week.. (well, i do it coz I am short broad market, and I lost my gain and I am in red in my investment and yes, I am pissed. )

Beige Book: In no surprise, the Fed’s latest survey of economic conditions in all its districts indicated that through late November the economic downturn was worsening from the last report and spreading throughout the country. The consumer remained weak with big-ticket luxury spending pressured the most. Auto sales were down broadly with less fuel-efficient light trucks and SUVs under the most pressure. Residential real estate activity remained weak across all regions. As reflected in the ISM service index below, a number of service industries were hit hard. Labor markets were also under pressure across all districts and consistent with the government’s reports on falling payroll employment. While most of the above is nothing new, exports are now falling across all regions, which is likely to cancel out the expected positive contribution to GDP from the international sector. Commercial real estate is now weakening as well with rents falling and vacancies rising.

ISM Non-Mfg Index:The ISM’s business activity index dropped 11.2 points also to a record low. The detail indexes are just as bad, especially the big drop in the employment index (31.3 vs. 41.5), the lowest on record by far and consistent with sizable losses in service sector jobs. Backlogs (39.5 vs. 44.0) and new orders (35.4 vs. 44.0) were weak enough to expect more bad news ahead in the service sector.

Chain Store Sales: Consumers may have ventured out for bargains on Black Friday, but it looked like they stayed home for the rest of the month as year-over-year same-store sales at retail stores fell 2.7% in November, far weaker than expected and the biggest drop since the late 1960s. Excluding Wal-Mart’s results, sales would have been down 0.7%.

Auto Sales:total light vehicle sales fell still lower, to a 10.1 million rate with the  domestic Big Three down 40% year-over-year, led by Chrysler (-47%) followed by General Motors (-41%) and Ford (-30%). They managed to increase their market share from 47% to 49%.

However, the Japanese Big Three did almost as poorly—Nissan (-42%), Toyota (-34%) and Honda (-31%). But that just demonstrates how weak overall consumer demand is in the U.S. no matter who makes the car.

ISM Mfg Index: It fell a deeper than expected 2.7 points in November to 36.2, its lowest level since the early 1980's recession years. That was the fourth month in a row the index has been below 50, indicating contracting factory activity with each month  successively lower and consistent with a serious recession.also reached similar near record-low levels. Production (31.5 vs. 34.1) again made new lows while forwardlooking measures like new orders (27.9 vs. 32.2) and order backlogs (27.0 vs. 29.5) were in the 20s and

predicted continued weak production levels ahead. Inventories will be a drag on the GDP, and the employment index (34.2 vs. 34.6) indicated continued higher layoffs and lower hiring by manufacturers.

Factory Orders: Like all other factory reports over the past few months, overall factory orders for October fell 5.1%, nearly double the 2.8% decline expected by consensus forecasts. It was the third monthly decline in a row following significant declines of 3.1% and 4.3% in September and August, respectively.

Semiconductor Billings: Even global semiconductor billings, a good leading indicator for overall technology manufacturing activities, turned down in October. Total billings fell 2.13% and 2.43% sequentially and year-over-year, respectively.

Construction Spending: Overall construction spending was down 1.2% in October, weaker than the consensus 0.9% expected decline, and was down 4.6% from a year ago.

Employment Report: The big news of the week was the government’s November employment report and, as many feared, it was a shocker. Total payroll jobs fell by 533,000 following an upward-revised 320,000 October loss (from 240,000) and a 403,000 September drop (from 284,000). That brought the total job loss over the past three months to 1.256 million. The unemployment rate rose as expected to 6.7% from 6.5%, even though over 400,000 workers left the workforce.

The same in Pictures.. http://www.econbrowser.com/archives/2008/12/comparing_reces.html

And, today was no different either.. Mortgage default rates data was out, and it is not pretty in any way.. 

From Bloomberg:

Almost 53 percent of borrowers whose loans were modified in the first quarter of this year re-defaulted by being more than 30 days overdue, John Dugan, head of the Treasury Department’s Office of the Comptroller of the Currency, said today in remarks prepared for a housing conference in Washington....

The OCC’s survey represents institutions that service more than 60 percent of all first mortgages, or 35 million loans worth $6 trillion, Dugan said.

“In general, the third quarter report will show many of the same disturbing trends as other recent mortgage reports,” Dugan said. “Credit quality continued to decline across the board, with delinquencies increasing for subprime, Alt-A and prime mortgages.”

YET THE MARKET RALLIED!!!! 

Two catalysts that would decide the direction of the market.. 

The SEC report on mark-to-market accounting, due on January 2nd.  This might recommend reporting transparency, but some relief on the official asset calculation.  Or it might not.

Housing initiatives.  

The Treasury is hinting at a new plan to reduce mortgage rates.  The Fed has already acted.  We expect the market to be skeptical of both, so it may take some real evidence to change opinions.

Song: "Closer" - Travis. 

Mood: "very playful" :) 

contd..

What is suppoed to be a friday's post.. unedited!! 

Employers in the US cut jobs at the fatest rate in 34 years last month, bringing the unemployment rate to a 15-year high.

Payrolls shrank by 533,000 workers in November, the biggest loss since December 1974 and significantly worse than economists had forecast, according to figures released by the Labor Department. Economists were expecting a decline of 335,000 jobs, according to a Bloomberg survey.

The jobless rate rose to 6.7 per cent, and might break 8% by the end of the year.

http://blogs.wsj.com/economics/2008/12/04/fourth-quarter-layoffs-selection-of-job-cuts-by-major-companies/

And for corporate the things are going to get even worse. The next great financial crisis to hit the corporate world will not be credit cards, revolving credit facilities or China. No, what the world should really be worrying about are pension deficits. According to Magnus, $2tn has been wiped off the values of 401k US pension plans in less than a year. Worse, the PPA ( Pension Protection Act), requires defined benefit pension schemes to be 100 per cent funded by 2011, with funding targets of 92 per cent this year, 94 per cent in 2009 and 96 per cent in 2010.  If a company’s below the funding targets they’ll have to make cash contributions to their plans.  And should a plan’s funding fall below 80 per cent (the “endangered level”), then the company must make a cash infusion to get to the 80 per cent mark or start cutting retiree benefits. If it falls below 60 per cent it can’t pay out at all. BofA's Dennis COleman estimates that due to the PPA, many companies-including industry stalwarts Exxon Mobil, Johnson & Johnson, IBM (N/R), Proctor & Gamble (N/R) and DuPont-will soon need to begin funding underfunded pensions obligations.

Race to Zero.. Notice how good a job India is doing!! http://s.wsj.net/public/resources/images/P1-AN878C_Rates_NS_20081204202416.gif

.. and the saga continues!!

Rate cuts in Europe did little to improve market sentiment. The Bank of England reduced rates by 100bp, as expected. Bank rate now resides at 2%, the lowest rate since 1951. The ECB was a little more cautious, as befitting its hawkish reputation. The central bank cut rates by 75bp - the largest cut since its foundation - to 2.5%. Markit PMI survey data points towards a deep and lengthy recession, and the delays by both central banks in easing monetary policy now look costly. More rate cuts can be expected in the near future. And in US, the market had priced in a 42% chance of a 75 bps interest rate cut over Dec 16th FOMC meeting, and rest a 50 bps interest rate cut. The markets are pricing in a savage recession, and perhaps a depression. Economic data in the coming months is likely to point towards a gloomy scenario.

Dupont said it now expects a fourth-quarter loss and is forecasting that 2009 earnings will be well below consensus estimates. DuPont said it has seen a considerable drop in sales volume in the current quarter, supporting gloomy predictions from rival Dow Chemicals.

Trivia: Merriam-Webster's dictionary chose "bail-out" as its word of the year for 2008.

Though I didnt understand the implications of the artilce, except for the fact that China's slowdown is inevitable, an interesting piece on China from Brad Seter's blog: Most creditors believe that the debtor needs to take the lead in addressing their own problems. China is, apparently, no different. China now almost certainly has well over $1 trillion in US Treasury and Agency bonds, and probably close to $1.5 trillion in total dollar exposure.

And it is a universal trutht that most of the growth in China is export driven, and to keep the exports flowing China should make its goods cheaper for other countries. The only way to do it is to hold their exchange rate down. China in part is doing it by continuing to buy the US debt. This policy implies financial loss for China, as China is effectively overpaying for financial assets (dollar reserves) that it doesn’t need in order to support its export sector.

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and Noriel Rubini write for FT: (I am too lazy to summarize it)..

Deflation is dangerous as it leads to a liquidity trap, a deflation trap and a debt deflation trap: nominal policy rates cannot fall below zero and thus monetary policy becomes ineffective. We are already in this liquidity trap since the Fed funds target rate is still 1 per cent but the effective one is close to zero as the Federal Reserve has flooded the financial system with liquidity; and by early 2009 the target Fed funds rate will formally hit 0 per cent. Also, in deflation the fall in prices means the real cost of capital is high – despite policy rates close to zero – leading to further falls in consumption and investment. This fall in demand and prices leads to a vicious circle: incomes and jobs are cut, leading to further falls in demand and prices (a deflation trap); and the real value of nominal debts rises (a debt deflation trap) making debtors’ problems more severe and leading to a rising risk of corporate and household defaults that will exacerbate credit losses of financial institutions.

As traditional monetary policy becomes ineffective, other unorthodox policies have been used: massive provision of liquidity to financial institutions to unclog the liquidity crunch and reduce the spread between short-term market rates and policy rates; quasi-fiscal policies to bail out investors, lenders and borrowers. And even more unorthodox “crazy” policy actions become necessary to reduce the rising spread between long-term interest rates on government bonds and policy rates and the high spread of short-term and long-term market rates (mortgage rates, commercial paper, consumer credit) relative to short-term and long-term government bonds.

To reduce the former spread the central bank needs to commit to maintain policy rates close to zero for a long time and/or start outright purchases of government bonds; to reduce the latter it needs to spread massive liquidity, such as by direct purchases of commercial paper, mortgages, mortgage-backed securities (MBS) and other asset-backed securities. The Fed has already crossed that bridge with facilities that are aimed at reducing short-term market rates, such as Libor spreads; it has now moved to influence long-term mortgage rates by buying MBSs.

Traditionally, central banks are the lenders of last resort but they are becoming the lenders of first and only resort, as banks are not lending. Central banks are becoming the only lenders in the land. With consumption by households and capital spending by corporations collapsing, governments will soon become the spenders of first and only resort as fiscal deficits surge.

The financial crisis has already become global as financial links transmitted US shocks globally. The overall credit losses are likely to be close to a staggering $2,000bn. Thus, unless financial institutions are rapidly recapitalised by governments the credit crunch will become even more severe as losses mount faster than recapitalisation.

But with governments and central banks bringing private sector losses on to their balance sheets, fiscal deficits will top $1,000bn for the US in the next two years. The Fed and the Treasury are taking a massive amount of credit risk, endangering the long-term solvency of the US government.

In the next few months, the flow of macroeconomic and earnings news will be much worse than expected. The credit crunch will get worse, with de­leveraging continuing as hedge funds and other leveraged players are forced to sell assets into illiquid and distressed markets, leading to further cascading falls in prices, other insolvent financial institutions going bust and a few emerging market economies entering a full-blown financial crisis.

The worst is not behind us: 2009 will be a painful year of a global recession, deflation and bankruptcies. Only very aggressive and co-ordinated policy actions will ensure the global economy recovers in 2010 rather than facing protracted stagnation and deflation.


contd.... tomw..

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Song: 'Stripped' - Rammstien
Mood: 'Surprisingly, excited!!'

When ever I listen to this song, it reminds me of a friend in Cyrpus. She once asked me to send her songs taht I think are a good listen over a drive. Among a couple I forwarded this was one.. Well, couple of hours later, I realized that the lyrics of this song go something like 'Let me see you stripped'. :) .. I dont think she ever minded it, as she still talk to me!!

US Economy - more data to support that its in kaka..

While the news was not particularly surprising, the Federal Reserve's Beige Book said Wednesday that overall economic activity has weakened across all Federal Reserve Districts.Reports from the districts indicated that Vehicle sales showed significant declines in most districts. most districts reported a contraction in activity in the services sector since the last report. All twelve districts reporting weaker manufacturing conditions. Nearly all districts reported weak housing markets, with most districts also reporting weakness in the commercial real estate markets.The Beige Book also indicated a contraction in lending, with many districts reporting reductions in residential, commercial and industrial lending and tightening lending standards.With regard to the labor market, the Fed said that several district reports showed signs of slowing labor demand. Well, every thing does sound familiar.. 

Earlier in the day, the Institute for Supply Management released a report showing that activity in the service sector contracted by more than economists had expected in November, marking the second consecutive monthly contraction in the sector. The ISM said that its index of activity in the service sector fell to 37.3 (Economists expectation - 42) in November from 44.4 in October, with a reading below 50 indicating a contraction in the sector.

Play: Short the borad market.. in light of last week's rally, this is the right time to short the market.. Buy BGX ( I did buy it today when the market was up 120 points.. and was up 10% after a couple of hours, and then by the end of the day ended flat... well, it would be immensely/preposturously optimistic of me to expect a 30% return on a single day!! :) ).Though the data is overwhelmingly negative, the stock market seems to pay no heed to it. The market acted as if worst of the worst news is priced in. It is interesting to see the market in green in light of the negative data around. 

However, Legg Mason's star stock-fund manager Bill Miller said on Wednesday the "bottom has been made" in U.S. equities and that the Federal Reserve should consider purchasing stocks and junk bonds to pull the United States out of the financial crisis. Well, I stil lbelieve that the market will test the earlier lows.. Dow would touch 7500 again.. if not 7000. 

The above data supports my view.. in addition, the European CDS benchmark, the iTraxx Crossover index, broke through the 1,000bp barrier for the first time in its four year trading history on Wednesday, meaning it would cost €1m annually to protect €10m of debt issued by mostly junk rated companies over a five year period. translation: more companies are going to go under. CDS spreads spread wider worldwide on Wednesday as low volumes and bearish sentiment drove the cost of both sovereign and corporate default protection to unprecedented highs. transaltion- More countries are in for more trouble.. 

Should write about this stuff tomw.:

30 year and 10 year treasury yield... and how/why to short treasuries... 

Gold, Gold Miner ETF, Dollar strength. Why the dollar would weaken.. . 

Feeling damn sleepy tonight.. btw.. Dada!! I am happy for you!!!! :) :) 

Song: 'Something in the way' - Nirvana. 

Mood: 'I wish the whole world is full of people like CnH (Carthik and Harish or Calvin and Hobbes)'

Today's crap.. written in a equally crappy mood!!!

Beats Vs Misses ratio:
This is the ratio of the companies that best the estimates to the ones that missed. Historically the ratio averaged 2.3.. and currently it stands at a mere 1.2, back to the 2002-03 levels.. Another reason why it is time to turn bullish.

China’s PMI release follows the fall in Japanese manufacturing activity in November for the ninth straight month in yet another sign that the Japanese economy, Australia’s biggest export market, is taking yet another blow from the global downturn. Economists expect US and European PMIs to point to very weak industrial production – probably weaker than China’s.Together, these PMIs paint a bleak picture for commodities and resource equities over the coming six months at least, and over this time frame the indicies might as well get oushed to 2001 levels.

Two important sources of liquidity or comsumer spending are 1. Jobs 2. credit cards. The data on both of them is gloomy. Today morning, the Department of Labor released its report on metropolitan area employment in the month of October. The report showed that 361 of the 369 metropolitan areas reported unemployment rates in October that were higher year-over-year. 13 metropolitan areas reported unemployment rates of at least 10.0 percent, while 98 metropolitan areas reported jobless rates of at least 7.0 percent. This friday, the much awaited Job data will be out.. and it would not be a shock/surpirse to the market if the unemployment rate is reported at 6.5-7%.. And the renowned Marideth Whitney, yday on CNBC predicted that the U.S. credit-card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending. In addition, incresing Unemplyment and credit unavailability is a deadly combination!!!

The Federal Reserve extended the term of three emergency-loan programs (The Primary Dealer Credit Facility and Term Securities Lending Facility, created in March, and the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility) to April 30 from January 30. The three loan facilities, part of the central bank’s efforts to cushion financial markets from the worst crisis in seven decades, had about $304 billion in loans outstanding as of last week. The Fed already authorized other programs through April for supporting the commercial paper market and money-market funds and for swapping dollars with 14 central banks. Yet, there are few signs that the credit markets are improving.. Quoting Ben “Obviously, they have not yet returned private credit markets to normal functioning. But I am confident that market functioning would have been more seriously impaired in the absence of our actions.”


Todays GE action was, well, a bit surprising.. Yday a GOOD citi bank analyst downgraded GE with a target price of $16, as he predicted that the management would lower the guidance in the management's todays meeting. Before the markets opened, GE did lower the guidance, and obvously I thought that the stock would trade low.. But to my surprise the stock was up 2.11 (14%).. Speaking on the conf call, Neal laid out plans to delevarge the GE Capital's enormous balance sheet. GE Capital expects to lower its leverage ratio from a current eight to one to a more conservative six to one in the coming year. In addition, GE Capital will reduce the amount of credit it extends to customers. Executives anticipate GE returning to double digit growth by 2010. GE is a perfect long term investment. a guaranteed above 50% return in an year..

an article in Bloomberg on property/realestate prices..


The Detroit big three are back at the door step of the congress seeking a bail out. Today all the three companies presented their 'restructuring plan' to the congress. Among the stood out - Ford CEO took a pay cut to $1 PA, Ford planning to sell its corporate jets and the common being, their operations will be focussed on more 'less gas guzzling' vechicles.. As bad as fate can be, today the auto sales data was out. U.S. auto sales plunged 37 percent in November to the lowest annual rate in 26 years as the recession and Detroit automakers’ aid pleas kept buyers away from showrooms.
Ford’s November sales down 30.6%;
Toyota sales down 33.9%.
Honda sales down 31.6%
Volvo sales tumbled 46.5%
Chrysler U.S. sales fell 47%
GM falls 41%

and made to the list is Tata Motors, posted a 30% sales decline. (a consecutive second month drop)..

However, a positve note.. The most optimistic people/place .. India.. :) New chart from McKinsey global economic entiment survey showing that India is actually the least gloomy place on the globe with respect to thinking that the economy will weaken further from here.

GS, the financial institution to supposedly have dodged the turmoil, is no longer immune to the 'losses'. Today Bllomberg reported that GS might report a $5.00 loss per share.. Though GS traded down for the day, Citi was up!! Similar story with MOS.. they cut down the sales estimates and pulled back their guidance, reason being the uncertainity of commodity markets (and the fertilizer prices). This material sector is one of my hot favourites. It is yet another long term play..

Song: "Good People" - Jack Johnson.
Mood: 'I wish life had a rewind button'

US officially is (has been) in a recession.. .finally..

NBER topday has officially confirmed that US economy had slipped into a recession in December 2007. 

"U.S. economy entered a recession in Dec 2007 marking the end of the 73 months expansion that began in Nov 2001 (previous expansion of the 1990s lasted 120 months). The decline in economic activity in 2008 has met the standard for a recession. The 1.2 million fall in employment in 2008 was the biggest factor in determining the start of the contraction". 

Growth forecasts by OMF and OECD are evised downward.. and financial institutions, economists, fortune tellers have been predicting a gloomy Q4 and 1H 2009. Goldman Sachs forecatsed that growth would contract -5% in 4Q08; -3% in 1Q09  and -2% in 2Q09; 9% unemp rate by end of 2009.. Merrill Lynch is predicting that growth will shrink -4.5% in Q4-08 and -4% in Q1-09.. and the ever bearish Roubini makes an intimidating prediction that  U.S. will experience most severe recession since WWII, much worse, longer and deeper than 1970s and 80s recessions. Recession will continue until at least 2009-end with a cumulative GDP drop of over 4%, unemployment rate will likely reach 9%. And, gropwth figures from Bloomberg survey - -3% in Q4 and -1.5% in Q1-09 .. 

Over the weekend, I was talking to Shakib about the markets and told him that the worst is not yet over and last week's rally was a holiday euphoria... I did want to short the market on Friday, but well,, if only I had enjoyed a little less on Thursday night!! :) 

With todays drop of 679 points, DJ and S&P have given up most of the last week's gains.. Now, INDU stands about -39% YTD, NASDAQ -47% and S&P -44%. How far will the stocks fall from here!!.. well., at current levels the indices are still up about 9% from the october bottom.. And there is not sign of any good news from any corener.. Todays manifacturing data from both US and UK was pathetic.. US manufacturing data showed weakness not seen in 26 years, while the UK manufacturing sector suffered an "unparalleled blow" in November according to the latest report on the sector. For US, the report showed that the index of activity in the manufacturing sector fell to 36.2 in November from 38.9 in October, with a reading below 50 indicating a contraction in the sector.. 

In addition, news from the other corner of the world, China: Surveys of manufacturers suggest that the sector, which accounts for 40% of China's GDP, is in contraction as external demand for Chinese goods falls and domestic demand is depressed by the decline in housing prices and construction sector. Export orders, output and new orders all shrank. Crude steel (-17% y/y), electricity (-4%, the first fall in a decade).. Federation of Hong Kong Industries predicts that 10% of an estimated 60- 70K Hong Kong-run factories in the Pearl River Delta will close this year. 

The market, my view, would continue to test the support levels of October.. As Dow reaches 7500, I would start buying the 3X Etfs, though I do fear that even 7000 levels might be breached...

Like always, thought I will compensate for my long weekend posts.. but well.. 

Song: "Leave out all the rest" - Linkin Park. 

Mood: 'Need a hug!!'

"How does it feel to be a third world country?" - Excerpt from Ricky Standup comedy!

"At the bottom of a panic, the news doesn’t have to be good for stocks to rally, it just has to be less bad than what has already been discounted". and in my view the market stil has to reach that sort of a point. More bad news is to come in the folloawing quarters and the stocks should atleast reach the already made lows, if not make new lows. !! 

Today the market had an amazing 400 point rally.. The main contributory factor to today’s tightening was the US government’s rescue of Citigroup announced over the weekend. Citi bank will now receive guarantees on over $300 billion of distressed assets and a $20 billion capital injection. 

The 400 point rally is preposterous for the Citi bailout.. Housing data was out and it, like any other economic data, was disappointing.. Meanwhile, the outflows from EM is still continuing. For most of the EM, the FDI or FII is a significant contributor for the growth.. so,  as long as these withdrawls do not show a sign of revival, the dollar is going to get strong.. and the EM currencies are going to get weaker.. Anyu sign of dollar weakness would be temporary.. I guess, a strong dollar would continue well into 1-2Q of 2009. 

With Congress balking at a rescue for the auto industry, and Chrysler and General Motors warning that they could face bankruptcy without one, investors are worrying about financial companies’ exposure to the Big Three, as well as to automotive suppliers and dealers. Over the past three years, big banks like Bank of America, Citigroup and JPMorgan Chase helped the automakers sell more than $56 billion of new debt securities. That figure does not include $47 billion of risky loans made to various affiliates of Chrysler, Ford and G.M. that are backed by auto leases and car loans to individual car buyers, some of whom are now struggling to pay their own bills as the economy craters. Many of these auto bonds and loans have plummeted in value as things have gone from bad to worse for Detroit’s once-proud carmakers. A $7 billion term loan that Ford issued in 2006, for instance, was trading for 32 cents on the dollar late last week in the secondary, or resale, market. Considering this, the banks still have more write offs to go. and not to forget the consumer loans, commercial loans... 

Today, I sold my BGU (3X levered Russel Large cap index) too early after I had a return of 30% in two days.. If I had caught the peak, i would have made 50% in two days!! ..It would not be a bad idea to short BGU for the next week or so,, and then buy it back again.. 

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Gold - I was a eternal bull on Gold, though I wrongly own the equities of a gold mining company. It was a wrong judgement on my part coz, after all a gold mining company's stock is  a stock and it would not be spared from the overall equity selloff. The wise thing would be to own the Gold ETF (GLD), or the gold coins. Today Gold rallied and crosse dthe $800 mark, mainly coz the Dollar has weaked against Euro. 

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Deflation case: 

• The Bureau of Labor Statistics announced last week that the seasonally adjusted consumer price index fell by 1% during the month of October, implying an annual deflation rate around -12%. That's the biggest monthly drop in the CPI since publication of seasonally adjusted changes began in February 1947. The core CPI (excluding food and energy) saw its first decline in a quarter century.  
• The yields on inflation-indexed Treasuries for medium-term maturities are actually higher than those for regular Treasuries. If taken at face value, that means investors anticipate an average deflation over the next 5 years at a -1.29% annual rate. A TIPS Treasury is adjusted for inflation and thus is less risky and should yield less than a regular treasury, in nomral inflationary situations.. 
• Extremely low yields on short-term Treasury bills.
• The rate at which the economists are revising the GDP growth forecast downward is astonishing. Now, US is no longer expected to GROW in 2009. 
  

And the FED is aware that in case of deflation, prevention is better than cure. The traditional means with which the FED could contain the risk of deflation and jump start the economy is to lower the fed funds rate. But, FED slready has lowered the target rate to 1%. But, the bad news is that any lowering of interest rate (though the FED would lower it by 50 bps in its Dec 15-16 meeting) the effective fed funds rate (this is the effective rate at which banks lend to each otehr overnight) and 3 month T-bill are already 50 bps below the target Fed rate of 1%. 

---------

The weekend was fun, 2 days of golf and tennis with Shakib.. :) 

Cigs: Friday - 2; Satday - 1; Sunday -0; Monday - 1. 

Urge: Friday - 2; Satday -5 may be.. Sunday - 0, Monday - 5!! 

Today me Sammie and Harish saw the standup comedy of a British artist Ricky Gervais, writer of The Office (UK version).. Amazingly hilarious.. It was beautiful, the way he builds the story, making it lively and comical as he builds it up, and ends the story in a grand crescendo .. with a bang climax.. Though at times the british accent was hard to comprehend, it was amazing on the whole. 

Song: "Stairway To Heaven" - Led Zepp.  

This song is an OST of one of my fave movies "Almost Famous". Vamshi hated it.. Well, this song was not made part of the movie coz of the length of the scene.. 

Mood: "I wish I could DRUM! "

Technical levels defied!!!

New lows!!

Dow at 7,552.29 down 444.99 (5.28%) Nasdaq at 1,316.12 Down 70.30 (5.07%) S&P 500 at 752.44 Down 54.14 (6.71%).

Crude briefly dipped below $50 a barrel today, continuing a steep correction that began in July. However, the broad economy or the market does not seem to be happy abouot it.. . A global recession next year looks probable, with both developed and emerging economies expected to slow. But the outlook for the world’s major economies becomes gloomier by the day. Yesterday’s US inflation data - which showed the sharpest fall in prices since records began - triggered fears of deflation. Higher than expected unemployment figures today added to negative sentiment (The U.S. Labor Department said that jobless claims were up 27,000 last week to 542,000, the most in 16 years). Investors are worried whether the stimulus plans and the bailout plans would work the way out if it..

The uncertainty surrounding the future of the big three Detroit car makers has been weighing on the market all week, and will continue to do so until the situation is clarified. Today for abrief moment there were headlines that the bipartisan group had come to an agreement and the market, every sector, every stock rallied. And when the actual news that the congres did not come to an definite rescue plan and that they are going to re-convene for another hearing of D3 sent the market tumbling again. The state of the market is very fragile (or may be its the wrong word), unpredictable, and it is more of a gamble sort than an fundamental driven investment.. I personally, am not ready to long any stock, and short either.. you never know when the market makes a + or - 1000 point move..

Problems in the CMBS market have also become worse. Fears of defaults are perhaps an even bigger factor. Two major JPM CMBS deals are reported to be close to default yday.. . The market is looking for names that have the biggest exposure to CMBS. Citi among all banks has the largest exposure to CMBS , and not surprisingly so, it got wacked. Today the investors turned toinsurers. Hartford Financial and Lincoln National, two life insurers with large commercial mortgage exposure have seen their spreads spiral upwards in recent days, and both are now trading upfront. Even property/casualty insurers with relatively strong capital positions, such as Chubb and Allstate, widened sharply on fears of investment losses. And the situation is going to get even worse from here..

Even guys at Goldman gave in to the volatility and the unpredictability of Oil prices. Today , in their Commodity note, GS said that they are closing all of their oil trading recommendations. Well, thats what you do when you are wrong consistently.. If you get it wrong every time you do it, you better stop doing it.!! :)

Tracking the $700 Bn bailout..

Is FED committing the same mistake that it is trying to rectify or regulate!! Courtesy Alea..

Fed balance sheet leverage: 50

Total assets: $2,076 billion

Capital: $41 billion

---

These days a look at 52-week lows makes me feel nostalgic.. the same companies propping up again and again.. Todays nteworthy list contains:

F - Well, hanging by the prospect of a bailout..

GM - Same case as above. The next hearing is convened in December.

AAPl

GOOG - after all, online advertisement spending is not recession proof...

BAC, C, GE, GS and hell lot of other financials - same old story.. a fear of more skeletons in the closet!!

But if I were to be a long term investor, long term being 2-3 years, there are plpanty of investment oppurtunities around.. Of the companies I would buy:

3M COMPANY (MMM)

Apache Corp (APA)

AT&T (T)

Home Depot (HD)

Eli Lilly (LLY)

Walgreen (WAG)

Johnson Controls (JCI)

Citi (C) - if it is still kicking after 1-2 quarters..

General Electric (GE)

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On the persoanl front, lately I am being preoccupied with some trivial/nontrivial things. I hope things get sorted out soon..

I spoke with a friend of mine today, complaining about myself.. She patiently listened to the whole 30 odd min of conversation and after I ended it, she forwarded me the link of my last/lost blog.. Its been quite sometime since I read/updated it.. I had to stop it because carthiik had come to know that I smoke through one of my posts. Anyways, it was fun reading through my past!!

Song: "Dream On" - Aerosmith

Mood: Pathetic!!

Cigs: 1

Urge: 1

A lazy day.

Market tanked.. and the forcast points to a doomsday!!! 

Shall post the content tomw.. 

The guilt/shame of letting your parents down is a million times worse than the pleasure you get from smoking a life time of cigarettes.. 

Cigs smoked : 2

No of times had the urge to smoke: 2!!

Yes, in this respect, I continue to disappoint myself!! 

Song: "Fix you" - coldplay.

Mood: Dull!! 

Random post..

Finally, the CEO's of big banks come to their senses and decide to forgo their bonuses.. GS started it, UBS and Barclays followed suit.. Citi executives should wake up and make the same, in addition to all the cost (employee) cutting they are doing.. 

John Paulson, not in any way related to Hanky Paulson, has reversed his bearish call and started buying Residentail Mortgage backed loans. Well, John is one of the Hedge Fund managers testified before the congress a couple of days back. The real question is - whether he really believes that the market has bottomed out, or whether he was arm-twisted to change his stance. 

Jerry Yang, the infamous CEO of Yahoo has finally stepped down, and the rumors of Yahoo and MS merger are going rounds again.. Cliffs and Alpha Natural Resources have finally called off their merger plans citing the economic uncertainty and the commodity market conditions as reasons. Lowes and Target joined the list of retail companies reported weaker sales, though today Home Depot, the largest home-improvement retailer, reported 3Q profit that fell LESSER than analyst estimates. 

It was fun listening th etestimony of Detriot Three (CEO's of Ford, Chrysler, GM) before the congress today making their case for a federal bail out. Though the congress is skeptical about getting the bailout money back, I dont think not bailing out is an option before them. 

UK economy explained.. It is far more wrose than many anticipate!! 

US govt better have a clear picture of what it got itself into by spending about 4 T in bailing out and fixing the economy.. Most of it is borrowed by selling treasuries. Considering the fact that the tax dollars would be less in 2009 (with all the unemployment around and the losses by the corporates) and the interest expense to be more than what it is, dollar is going to weaken drastically I guess (in 2009)..

Song: 'Re-offender" - Travis.

mood: Pensive!

An interesting trivia on this band I like.. This band seems to have gained their limelight when during a concert it suddenyl started raining as they started singing their 'then' famous song ' Why does it always rain on me?? 

No of Cigs smoked : 0

No of times had the urge to smoke :  May be 10 times.. 

Congratulagtions SMU..

We made SMU proud today... :) .. SMU is ranked 18th is Business Week's latest Fulltime MBA B-School programs.. Seems our batch did a very good job and gave tonnes of positive feedback on the program.. But I personally believe that Cox is not as great a MBA program as 18th rank vouches it to be... I believe a B-Shcool should best be judged by 1. Faculty 2. Profile and quality of Students 3. Career Services .. and not by average GMAT score, salary forgone to pursue an MBA, % of international students, scholarships, Capital expenditures or by endowments.. Cox, had (note: its not 'has'), some amazig faulty before.. But most of the good Professors left the campus because of the quality of the studenst and the school management.  I did talk with some of my favourite professors about the quallity of my class mates.. Well they were infact disapponted by the 'lazy' 'easy going' attitude of the class.. and when asked why they do not do anything about it, the answer was, the management wants the Profs to be mild with the students, assignments, exams and grades.. Now COX has just three Professors I regard 'Exceptional', from about six before.. 

Cox students who make up the class are not best of the breed.. They lack the drive and initiative to do an MBA,, they do it for the sake of doing it. and this attitude is reflected in the way they are prepared for the classes, assignments and exams. Career Management Center is another drawback of Cox.. they SUCK!!! No doubt Cox has an amazing alumni network,,, and CMC does very litlle to pursue the companies, or to push the students in pursuing the companies.. Finally, the genaral management of the school.. It sucks to a even larger extent.. Its the management's responsibility to make sure a decent crowd is recruited for the program. But, i have not seen any improvment in the students quality now and before.. One of my class mate has lied about his professional experience to get an admit.. and he is an inconspicious asshole.. yet he made it to the class.  He is not a sole example/exception. there were a couple in every batch that came in.. 

Anyways, my point is - had the management had put SOME effort in recruiting students, be more linient to the Professors than to students and improving the career services (by improving I mean firing the whole CMC department), Cox should indeed be worth standing at 18th position of all US MBA schools.. Ofcourse, I am proud to be a Cox graduate, as it is what shaped up most of what I am now... Congratulations SMU.. Congratulations COX.. 

Citi has announced job cuts of 52,000 in near term and bring their headcount to 300,000..Quite a big cut indeed.. and the market didnt percieve it as a good news though the job cuts would reduce expenses of about 50-52 Bn in 2009. 

Nothign concrete has come out of the G20 meeting over the weekend. There were few statements but no guidance os soothing of any sort.  Meanwhile, Japan, Hongkong and France officially declared that they are in a Recession. 

Had a lot to cover, but was troo lazy to write it.. 

Song: "Breakdown" - Jack Johnson 

Mood: Calm.. 

No of Cigs smoked: 1

No of times I had the urge to smoke : Every minute!! :(

Stuck in the Middle.

After 6 straight 'declines' by 'potential brides', I write this in retrospect. 

Everyone, I believe, has multiple facets to their personality. I have two, one a traditional, conservative, decent telugu kid and the other, an outgoing, openminded, carefree, westernized confused kid. This 'split' personality has translated into my lack of conviction about the kind of girl I want or need. When I interact with my undergrad friends and my family, I tend to be the first kind of me, so I, at that very moment, tend to be interested in a homely, traditional girl. Next moment, I find myself in the company of, say, Harish and Sammie, and the whole paradigm shifts and a 'modern' girl appeals to me. 

With every girl I had to talk with, I say the exact same things verbally- that I am reasonable, practical, I smoke, I booze, I party over the weekends, I love rock music, hate telugu movies or songs, hate IT, I am a semi 'gult', not so very inclined to settling in US,  I am not money oriented, I am very particular about 'she' working, I shy away from 'decisions' and 'responsibilities', . But the tone in which I say projects me as someone that they are not interested in..

With a conservative and traditional girl, my involuantary words/actions tend to project myself as a pseudo 'gult', with a prejudice against 'gults', and from the girl's perspective, I probably would be a non-compromising guy with a preconceived condescending notion about 'certain' things. With a girl who, say, likes Pink Floyd, the tone, involuantry again, would be pretty toned down and I come across as a shy, confused guy and may be a guy with low self-confidence. 

Well, there is another reson for my 'dual-mode'; I am scared to hilt by the mere fact that arranged marriage in itself is a risky proposition. And when I interact with any kind of girl in that confused state of fear, I tend to be more inclined towards the other kind.

Smoking and boozing, I guess, recude my chances even further. But I believe its always better to be bare-faced about them, rather to lie about it. I know a bunch of friends who didnt admit it with their fiancee before marriage, and when the 'wife' came to know about it, they promised they quit, but yet continue to smoke. I dont want to be one. By being brazen about my habits I do not mean to flaunt it, I am being frank and unpretentious about it.... however, I agree that it is a hard point to convey in a single one-on-one meeting or a couple of emails/calls. Another counter argument is that if I think I could quit it after the marriage, why the f*** can I not stop it NOW!! ...

Had a wonderful and yet disturbing last couple of weeks. No regrets what soever.. I need to fix myself before I start cribbing about the girls. As a first step, I officially am quitting smoking  again!!  

Song: Sprite Commercial

Mood: Relaxed!!!

'Wild' is back again!!

Yday market swing was pretty dramatically wild.. a 11% swing from the intraday bottom to the peak.. But I believe it is just a technical correction.. Nasdaq has tested its Oct bottom and once it touched it, it bounced back strong, gaining about 7% for the day. Dow ended 550 points up for no reason either.

Yday jobless calims data and todays US Retail Sales data was not any good. Retail Sales slid  by a record 2.8% in Oct, the fourth consecutive  monthly decline and the largest percentage point drop since records began in 1992. Retail sales report details the dollar value of purchases made at retail stores (auto dealers, department stores etc.. ). It is useful to divide the data into auto and non auto components, since automotive sales are prety volatile and in these markets they are adversely affected by the banks inability to lend money. Excluding auto the purchases dropped 2.2%, almost twice as much as 1.2% drop anticipated by the economists. Consumer confidence data this month remained near the lowest level since 1980. 

Add to the  mix the redemptions at hedge funds and the money thats being pulled out of Mutual funds and fund of funds. According to a research firm, nutual funds posted an outflow of $31.8 Bn in the week ended Nov 12, compared to an inflow of 2.2Bn the previous week. Hedge funds had to pay back $40.1 Bn in October, the largest outflow ever. and Fund of Funds lost about $38.3 Bn. Further more, the research firm expects the funds to continue selling liquid assets regardless of the price and performance. 

Consumer credit is the next shoe to drop!!!

Yday American Express sought to convert itself to a bank holding company so as to access the FED support - a clear indication taht Amex is cash strapped. Lately Amex has been facing problems in debt markets to raise money as investors were shying away from the companys debt because of increased credit card payment shortfalls. Infact CEO of Circuit City attributed the short fall of credit card sales, and the unavailability of (cheap) credit to buy electronic goods as a factor to its downfall. Consumer banks have started to tighten the lending standards and raised the annual percentage rate for credit card debt. In its latest filing JPMorgan noted that the charge offs (% of loans that can not be recovered) are expected to rise for the next two quarters, and for the first 9 months of the year JPM set aside 11.5 Bn to cover the potential losses in the consumer loan portfolio - three times the corresponding 2007 figure. Well, things are not definitely looking good either for the Thanks Giving or for the Christmas.. I hope I get good deals on my WII, PSP and SLR!! 

Interesting 'light' read: A piece by Michael Lewis (author of Liar's Poker), calling "The End" of Wall Street. 

I wish I had added something more to this post instead of talking with some old friends of mine.. :) .. One of my closest junior, ex-booze mate, ex- roommate and my friend is coming down to Dallas. Its been more than 5 years since I last saw him. I am longing for the weekend already, all eager to meet him. Lately, over the weekends, I find myself in the company of some good'ol friends!! Its FUN!!! :)  

Song: "you dont know how it feels" - Tom Petty. 

Mood: Nostalgic!

 

Everything is BIG in China!!! even the stimulus package!!!

China announced a long-rumored 4 trillion yuan ($586 billion) stimulus plan to invest in low-rent housing, infrastructure in rural areas, as well as roads, railways and airports to spur expansion, helping sustain chinese growth . It will also increase purchases of grain to support the price for rural farmers and allow tax deductions for fixed asset investment as previously rumored. The funds, almost 1/5 of China's 2007 GDP, will be used from now till end of 2010. This investment dwarfs the stinulus plan outlined by Treasury and Fed, and gives all the more reason for Fed to announce a second leg of stimulus plan.

Though the news is pretty positive for the asian markets, there are doubts on the amount ($586 M). THough the notional amount is 4T Yuan, the incremental spending is just 1-2 T yuan. however, the news and the spending would benifit the housing and infrastructure industries in China, and might as well life the prices of Steel, Iron ore, building materials and indirectly shipping. In addition, this stimulus plan would provide the much needed employment for the unemployed and help restore consumer confidence.

It would be interesting to see how Chinese Govt would finance such a stimulus plan. Over the years the govt spending has increased at 30%, much above the rate at which the revenues increased. With falling corporate profits, planned tax cuts, rebates the fiscal deficit is definitely going to bloat, and well, it is not good going forward for China.

Though the prices of commodities, asian and other international markets saw a rebound, US markets quickly erased the early gains and ended in red for the day. Well, the fear of pulling the plug on GM over shadowed the positive news. Deutsche Bank issued a SELL recommendation on GM and with a target price of ZERO.. yes absolute Zero!!! The company is not worth anything for the current shareholdders. GM is currently trading at a 62-year lwNews of Circuit City going belly up also added to the market panic.

Ethanol Stocks:
PCIX (PAcific Ethanol), Aventine, Vera Sun.. down big YTD, though there is tremendous govt backing for ethanol use in gasoline. Govt has mandated production of 11.1 Billion gallons of ethanol to be used in gasoline, and the current production capacity very much facilitates it. But the questions are, would the US consumer revert back to his Normal driving habits, and bring the gasoline demand to peak levels again.. and would the oil trade at above 100 dollars level again!! . I do not know the answer, but by the way the market is treating these stocks, the answer should be NO!!.

Five Factors That Give You The Big Picture Of The US Dollar

Song: "The world I know" - Collective Soul
Mood: Confused!

Job data is out.. and well,, as expected .. worse than expectations!!

U.S. job losses continued its accelarating fall this month pushing the unemployment rate to 14-year highs in October. Nonfarm payrolls tumbled 240,000 in October, largerr-than-expected 22000. The unemployment rate soared 0.4 percentage point to 6.5%, its highest since March 1994. Us has thus far lost 1.2 million jobs this year.

Sector wise, Manufacturing and construction were the worst hit.
manufacturing -90,000
construction -49,000
business and professional -45,000
financial-sector -24,000
retail -38,000
leisure and hospitality -16,000 jobs.
temporary employment -50,000

In addition, economists at GS and other investment banks piled on the data with their own bleak job data forecasts. GS today wrote that the unemployment rate is expected to rise to 8.5% by the end of next year and trend even higher in 2010. They also forecast another rate cut by Fed, to 0.5% by Dec. "We do not see a resumption of anything close to trend grwoth before 2010" they added. Btw.. GS yday added another 3500 layoffs to its already 1500 odd headout cut. Sadly, I was shocked to know that my friend is one among the 3500.. bad times indeed... Bottom line: the beating will not stop!! :)

and am off to San Diego!!

and.. the euphoria fades!!!

Was lazy for the past one week to post anything new.. 

Over the last two days the euphoria of a new president and a hope for 'change' are over written by a fresh batch of disappointing data in manufacturing, job, sevices, CDS, weak earnings data. Not many companies have posted a significant upside earnings surprise and markets started to sink in the reality that we are no where near to knowing the length or depth of the downturn. 

I safely sold most of my investments and waiting for the market to turn!! Today I was forwarded a list of 3x ETFs. 

BGU - R1000

TNA - R2000

ERX - R1000 Energy

FAS - R1000 Financials

BGZ - short R1000

TZA - short R2000

ERY - short R1000 Energy

FAZ - short R1000 Financials.

A better investment strategy would be to own shorts for a couple of weeks and to buy the longs after a couple of weeks. JPM CEO today addressing Korean banks did say that the down turn would come to an end in the next four months but US would struggle with the economic problems for another year. However, the stock market front runs the recovery in the economy. 

The first Xmas card has arrived!! Courtesy - FT.. 

BofEngland lately has been facing a lot of criticism for it bystander stance when Fed has been agressively cutting teh intrest rates to stimulate teh economy. Today BofE has responed with a surprise slash in the interest rates of 1.5%, when the estimated cut was 0.5% -1%. Bank rate is now at 3%, lowest in more than half a century. The rationale behind such an agressive cut is pretty clear - global recession is inevitable and the world is coming to an end :) .. Followed by BofE rate cut, there was wide spread speculation that ECB would follow the suit, however, ECB resorted a more conservative stance and cut the rate by a mere 0.5%.

Oil.. its good to see oil trading at 60 dollar level today, however, todays IEA report predicts that the 60-70 dollar oil would be short lived. In its flaagship report that is going to be out tomorrow, IEA predicts that oil would trade at 200 dolls a barrell by 2030 and 100 by 2015 for teh fact that the companies would not be able to pump NEW oil to offset the deciling production levels from older levels. Yet, the market seems to be paying no heed to IEA report, and for now market is subscribed to the global slowdown theory. 

Its time to go short dollar, I guess. One source of dollars strengthening is the lack of dollars among G7 countries and emerging nations. With the currency swap provision with non G7 nations, such as South Korea, Brazil , Mexico and SIngapore, dollars are pumped into the system and would ease the dollar-buying pressure for these nations.  Another argument in favor is that the repatriation of funds to US is subsiding, with global equity markets stabilizing. It would not be a bad idea to start buying GLD. 

Tomorrow is going to be yet another i nteresting day with  more unemployment and non-farm payroll data coming out. Today new jobless calims data and continuing jobless claim data sort of gave a glimpse of what to expect. New Job less calims stand at 481000, versus expectations of 479000. The consolation is that the revised previous weeks figure was 485000, indiacting a 4000 decline. Continuing jobless claims grew again and now sits at 3.84 million from a revised 3.72 million. Unemployment is expected to stand at about  6.3% tomorrow, last month it being 6.1%.  Non-Farm Payrolls are also expected to come in -200,000. Fingers crossed, for the index to reach 8000 mark!! 

A scary picture on what would happen should the Detriot three should go belly up.. Gist: If they cease to exist, the first year total employment impact would be a loss of 3 M jobs.. in economic terms, it would reduce US personal income by 150Bn in first year and about 400 Bn in three years, and a total governement income tax loss of 150 Bn in three years. The second scenario in whihc the automakers recover 50% each  in second and third year is slightly less scary. I dont think governement would be willing to let any of the auto maker go under. Last week Treasury has rejected GM's appeal to lend 10Bn. Today evening the auto makers had a meeting with Pelosi to discuss a possible bail out. Analysts  forecast that GM lost $3.51 a share in the quarter, or about $1.9 billion. Ford is expected to report a loss of 93 cents a share, or $2.2 billion. Is it worth buying F or GMC... With the bailout almost possible, it should not sound like a bad idea though. F now is trading at $1.97 and GM at 4.99.. 

A must read article .. 

Nouriel Roubini foresees a hard landing for chinese economy.. This eternal bear was pinpointedly right on the current crisis. 

Tomw I am flying to San Diego.. 

Song : Butthole Surfers - "pepper"

Mood: lazy

For what it's worth

Sammie, me and Harish watched Tropic Thunder on Sunday.. A "short" background tune from the movie sounded very familiar. After a couple of google attempts, I did get the song. the song was sung by Buffalo Springfield -" For what it's worth". Amazigly 'feel good' lyrics, coupled with a resonating guitar plucks, a soothing 70's melody!! . This also is an OST from one of my all time favourites "Forrest Gump".





Had a pretty nice weekend.. Went to see an exhibition match starring Jim Courier and Anna Kornikova... The best part of the whole thing is I came as close as 1 foot distance to Anna.. She is a doll!!! I was so stupid that I kept taking her pictures instead of asking her autograph.. Anyhow, I was very excited to having seen her so upclose..





Where is the Rupee headed?
Couple of my friends were asking me this question, and I thought I will write something about it.
Exchange rate is traded like a commodity and is set by the same demand and supply fundamentals. If forex investors see an opportunity in Indian markets, they pump in cash into the system by buying Indian rupee (Rupee appriciates). Conversely, when investors flee indian markets, selling the rupee, the currency depriciates. over the last couple of years, the net foriegn inflows grew from $6.8 Bn in 2000, and 15.4Bn in 2004 to 26.5 Bn in 2006. Strong economic growth, corporat eperformance, cheaper borrowing terms overseas, higher domestic interest rate have been driving these inflows. Offlate, the reversal has started to happen. The weakness in emerging markets (EM amrkets were the worst hit.. Brazil, Korea, China, India, Pakistan... ) has forced the investors to liquidate Rupee assets and hold the cash in dollar terms. This has been driving the Indian currency down( and exchange rate up). Sales of Indian shares by overseas investors this year exceeded purchases by a record $12.2 billion as the Sensex slid more than 55 percent.. When would the run end?? when the liquidation of the local assets end. which inturn would end when investors retain back the confidence in Indian stock market, and when investors stop investing in safe havens - gold and dollar. But with the crdit crisis spread across the globe the only two currencies that are showing strength are the dollar(safe bet) and yen ( reversal of carry trade).. Is there anything RBI could do? Well, they could increase the interest rates.. but at the expense of domestic corporate growth. Is a lower rupee bad for teh economy.. well.. the argument sways either wise.. Lower rupee is good for the exports.. It would make domestically manufactured products cheap for foreign nations.. at the same time, it would make imports expensive... I personally think that it might reach 52 before gaining its strength again.

Outrageous news: Goldman Sachs in talks with Citi for a merger.. Goldman merging with a traditional consumer bank was long anticipated as it is now a bank holding company, but,, the plans of merger with Citi is not quite... If the deal goes through, it would be an intimidating combination,, though Citi no longer is as good and BIG a bank it was earlier. Also, it seems the money thats put in the banks as preferred stock by the Fed/Treasury, is not being used for purposes it should have. In an internal employee meet of JPM, when an employee asked the question when would JPM start issuing loans with the treasury money, Dimon literally said 'never' and added taht the money would be used to 'gobble' weak banks. Well, Bear Stearns, Wamu and whats next in the bag of JPM.. anyways, with banks using up the capital to shore up their balance sheets or to 'acquire' weaker counterparts, I dont think the revival is going to take its sweet course..

Meantime, DOW is down 230 points today.. and the trend of last minute collapse is no longer a trend but a rule!! ( a drop of about 430 points in the last 30 min.. wtf!!) .. Interesting are the headlines in my inbox.. Midway in the day it was 'Stocks shed early losses and post a gain' and later in teh evening the headlines read 'stocks shed mid day gains'... :) ..

An interesting graph from FT..


showing the swing of the markets in intervals over a day before and after the lehman collapse. Notice the action in the first and the last hour.. huge moves.. Its hard to predict, well, its stupid not hard, to even try to predict the market moves by fundamentals.. The market is way beyond teh reach of fundamental explanation.

Goldman Sachs is planning to cut 10 per cent of its workforce in response to the worsening economic environment. The cutbacks will fall most heavily on areas such as fixed income and investment banking. Most of the cuts would be in London and Newyork offices. And I sit and gloat!!! :)

The Fed today has set the interest rates it will charge companies for the commercial paper it will buy from them under the CPFF program. Earlier last week, GE said that it would access funds from the CPFF program. This should help the cash squeezed corporations. Corporations typically issue 1day to 30 day commercial paper to finance their working capital. The revival of the 1.4 T CP market should bring down the key rates (LIBOR, CDS spreads). This should prompt a weak rally in the market over this week and may be into the next, but this prediction comes with a discalimer!! :)


Tax plan of McCain and Obama simplified..

Finally, an interesting article to prove that every assumption on the stock market demise is untrue.. All the claims about the current grim situation

1. Bank lending to non-financial corporations and individuals has declined sharply.
2. Interbank lending is essentially nonexistent.
3. Commercial paper issuance by non-financial corporations has declined sharply and rates have risen to unprecedented levels.
4. Banks play a large role in channeling funds from savers to borrowers

are proved wrong.. This is what I am talking about.. You can never be sure of what you think is right, in these markets..

A bad start of the day..

Its not good when your boss wakes you up at 6:00 in the morning, cancels a breakfast with an analyst, and demands to be in the office by 7:00..
Well, dow futures are down 550 points ( and futures trading actually was stopped as a circuit breaker kicked in), Korean market is down 10%, Nikkei is down about 9%, Newzealand is at a 2 year low, other asian markets sharply down..

Market just opened,... and Dow down 250 points in the first one minute of the opening.. 313 now..

I will start buying the index at 7500 level!! Gold is below 700 levels, oil briefly touched 61 dollars not paying any heed to OPEC's 1.5M barrels a day cut.. The best time to buy gold.. :)

Quote of the day!

Quote of teh day by Jim Reid, Deutsche Bank:

"It’s a depressing world when the only safe haven at the moment is a country that has recently nationalised its two largest mortgage companies, bailed out the world’s largest insurance company, is spending $700bn buying toxic assets, is injecting $250m into its largest banks after high profile failures and is about to go on a fiscal expansion the likes it has never before seen in its history."

Fuck!!! I didnt read/post anything concreate tonight... Restlessly preoccupied for most part of the day with something. I hope/wish/pray  everything goes fine. 

Yeh hein 'Dow Jones' meri jaan!! :)

Well,, the cat is shot down!! Dow down about 514 points.. A pretty non-volatile day, as the news and neagtive earnings of the companies sinked in, the index kept falling. A neat trend in the p[ast weeks market - when ever the market is up, it is up on a very light volume, it is not a sign of strength or optimism..  and, most of the market action is happening in the last one hour of trading.. 

Last week Rio warned about the slowdown in China, putting downward pressure on commodities. Today BHP followed suit pushing oil and other commodities even lower. Oil, now is trading at $67, off from its high 0f $147, as concerns about demand slowdown mount across the globe. It is interesting to note that, the implied probability in $45-$55 oil futures is 7 times the normal average probability. OPEC was concerned about the falling oil price and has called for an emergency meeting on Friday. There would definitely a production cut, and the analysts and the cartel members differ on how BIG the cut would be (the range is 500,000 barrels to 2.5M barrels). I do think that oil is headed to $60 - $65, but prior to the meeting it would briefly touch ~$75, before falling back to $65 again.

Countries that are on the verge of bankruptcy - Iceland, Argentina, Russia, Hungary, Ukarine, Pakistan - and the list should pile on..

Walmart US division head had some interesting insights on consumer spending. In a "disturbing" trend, Castro-Wright said Wal-Mart for the first time is seeing a paycheck-related spike in sales, suggesting consumers are rushing to buy such necessities as soon as they have the cash. The percentage of overall sales from the days surrounding those pay periods has risen 250 basis points indicating consumers have reached a level where they are spending on a paycheck-to-paycheck basis. He added that many consumers have "maxed out their Credit card limits" and are quickly changing (read - cutting down) their spending habits. Though the retail stocks are punished, there is more downside room, as a NOT-MILD RECESSION is not fully priced in the stock price.

Earnings:

Allegheny Technologies, is one of the largest and most diversified specialty metals producers in the world, today reported earnings of  144.1M or 1.45 per share on sales of 1.39B. Provided guidance for Q4 in the range of 1 -1.10, and full year guidance of 5.51 - 5.61, below the estimates of 1.38 and 5.64 resp.Stock is trading at 22.81 and relatively unchanged after the earnings release. Much of the earnings weakness in earnings is attributed to the economic downturn and the strike at Boeing, delay of Boeing 787 program and screwed up margins as the raaw material costs have fallen significantly. However, management is bullish on teh cash flow in the future, including a significant reduction in managed working capital. With about 4x earnings, no short-term debt obligations, decent cash on the balance sheet and long-term oppurtunities in electrical energy generation and distribution and medical markets, I guess this stock is a value stock.

ATT (T) posted earnings of 3.2 B or 67 cents per share on revenues of 31.3 Bn below the estimates of 71 cents. 

*another incomplete post* .. 

Sammie made us watch a hindi movie tonight.. Yeh hein Mumbai meri Jaan.. a feel good movie... a perfect depiction of Mumbai, TV commentators, Mumbai police.. The movie is about how 5 people living in Mumbai are affected by the bomb blasts on 7/11. I loved the smooth ending,, an ending which makes one feel light and happy!! 

Second day in a row the market didnt fluctuate around unch!

State Street today released the Investor Confidence Index. Global Investor Confidence decreased by 17.5 points to 58.2, lowest level since State Street started maintaining the data in 1999, from a revised September level of 75.7. The steepest decline being from North America.



Fed is continuting its efforts to do everything at its disposal to revive the money markets. Today Fed has announced a purchase plan to buy $600 billion of money market mutual funds' assets that have been hit with redemptions by investors. A money fund mainly buys the highest rated debt (Commercial Paper) which matures in under 13 months. In current situation, the money market fund could not sell the debt paper they own to meet the redemptions. This step by Fed would limit the redemptions by the investors and hopefully would stop the fire sale of assets.

Kirk Kerkorian, a phamous investor, is seeling off his stake in F.. He had bought about 140M shares of F at an average price of 7.20, and had sold 7.3M shares at an average price of 2.43. Assuming he sells his remaining stake at teh same price he would have to take up 600M in losses. :) .. 600M!!! fuck!! anyhow, the point that Kerk is tryin to make is taht F has very dim growth prospects going forward. I on the hand have invested in ford, and waiting for teh price to hit 3.00.

Market was down abour 230 points today, and Dow is just over 9000.. I guess investors now are dscounting weak earnigns more than the credit market problems. Infact, the credit market has started to show some signs of improvemtn. TED spreads are coming down, Libor is off from its peak, CP market is improving, CDS spreads of the companies are narrowing.. Said that, I dont think that marks the begniing of the good times. Banks still are not willing to extend credit to corporates, earnings across sectors are still weak, global recession chances are still looming, consumer confidence is making a new low..

Highlights of todays earnings"
AAPL reported earnings of 1.26 cents for the third Q, on revenues of 7.9 Bn. the consensus was 1.11 cents and revenues of 8.05 Bn. Though on the faec of it, it might seem that AAPL has beat the estimates, AAPL is reputed to give a conservative guidance and later beat the estimates.

Yahoo reported 9 censt on 1.33 Bn of revenues. inline with the estimates.

CAT (barometer for the industrial growth) reported 1.39 cents on 12.15 B of revenues. Missed the estimates of 1.43 on 12.43 Bn revenues.

Schlumberger (SLB) reported third quarter earnings of $1.29 per share on revenue of $7.26 billion. The consensus earnings estimate was $1.26 per share on revenue of $7.02 billion for the quarter. But again, with oil back at 70 levels, the drililng activity would be limited.

Intel (INTC) reported third quarter earnings of $0.35 per share on revenue of $10.22 billion. The consensus earnings estimate was $0.34 per share on revenue of $10.26 billion for the quarter. Semi conductor sector is BAD!

The growth engine has slowed for a breath!

China macro figures released today, show that 3Q08 China GDP growth of 9% emerged below onsensus estimates of 9.7% and compares to 2Q08 growth of 10.1%. The figures formally confirm the comments made last week by CEO of Rio Tinto of a Chinese slowdown, however growth of 9% during a quarter when industrial output was curtailed due to the Olympics with rolling nine month growth of 9.9% is still exceptionally strong. Growth is forecast at 8-9% in 2009. With faling commodity prices, the risk of an inflation has abated and that should give the govt officials some leeway to cut the interest rates or to take steps to kick start the growth!!

*Semi post intended to post yday! *

Movie night!!

Today I watched a hindi movie Shourya, with Rahul Bose in the lead. I liked the movie a lot, more coz of Rahul, I guess. The movie is about an army officer's transformation from an easy-going person to a 'responsible' one. A court drama is the center stage of the movie, and was captivating. Rahul was excellent as a Lawyer, reckless youngster and as a friend.

Tomorrow, we are plannign to give a send off party to a friend of ours at Six Flags.

more bad news yet Dow up 400 points..

The U.S. Labor Department said that the consumer price index was unchanged in September and up 4.9% from a year ago. The Federal Reserve said that industrial production was down 2.8% in September, hurt by Hurricanes Gustav and Ike. The Philadelphia Federal Reserve's regional index of manufacturing fell from +3.8 to -37.5 in October, the lowest in 18 years. Overnight, central banks added another $254 billion of funds to keep the money markets liquid. Also, the Swiss government invested 6 billion Swiss franc in its biggest bank, UBS, and is planning to take $60 billion (U.S.) worth of troubled mortgage securities off of the bank's books. Citigroup said that they lost $2.8 billion in the third quarter and Merrill Lynch lost $7.5 billion.

Yet, DOW was up 401 points.. Well, there is no point in trying to reason the market moments.

Investors have withdrawn about 43 Bn from hedge funds in the month of Sept, in a month the market was down about 6%. I wonder what the number would be in Oct when the market is down 17% MTD. Citadel( $15 Bn Assets Under management, down ~30% YTD) and Highland Capital ($14 Bn Assets Under Management), two big hedge funds, are unwinding the positions at firesale prices, though Citadel denied it as a rumor. I guess, the redemptions from hedge funds would be more than 50Bn atleast for the month of Sept, and the selling spree from the hedge funds would continue, pushing the stocks even lower. Gold dropping $50 in three minutes and comments from the veteran are indicative that commodites are not spared either and that its a massive sell-off action thats driving the markets. Watch for DOW heading to 7500 in this month or the next!

Update on BDI (Baltic Dry Index): Last time I mentioned it, it was at 2764, and today its at 1506 - the lowest since 2002.

Banks and dealers’ overall direct borrowings from the Fed averaged a record $437.53 billion per day in the week ended October 15, topping the previous week’s $420.16 billion per day. During the week ended Oct 1st, the figure was about 370 Bn. THis should be a good indicator in predicting the initial signs of a recovery in credit markets/economy - A lower figure is a sign of banks starting to trust each other and start lending over night money to the other banks..

Well, another unfinished post..I wasted most of my post office time chatting with Harish and Sammie, and in watching some dumb movie.. I added just one paragraph on markets post office hours!!Well, No regrets.. !!

Today I spoke with a friend of mine, after a very long time.. almost 11 years. It felt so good talking to him, and made me forget all the "bitter sweet" crap thats going on. He was my junior in HPS.. now got married and working as a Field Manager sort of job in hyd. One thing that was strikingly different betwen him and me was that he was 'HAPPY'. Well, I am not saying that I lead a SAD life, but his happiness was different.. a "SECURED", "UNCONDITIONAL" happiness that you can flaunt only when you are living among 'YOUR' poeple. Damn!! I miss India!! I wish I were THERE!!

After all these many years you expect the other person to have changed.. But he didnt, not even a single bit, at least he didnt make me realize that he did. .. .. Me, when I talk to my undergrad classmates or schoolmates, the first thing they say is that I have changed (not in a bad way though). The way I talk, the way I hold myself back from being hyperactive, the way I selectively choose sentenses as I speak, the was I keep silent when I have nothing to say. Even my mails to people are "formal". Fuck.. the corporate experience and MBA has made me diplomatic,,.. and that is something I dont want myself to be!!

Good night.. enough of introspective crap!! Come tomw, and I shall be back to normal again..

Song: "I am the highway" - Audio Slave
Mood: Gloomy

Holy Dow!

Market down 733 points.. Am I right or what!!! :) .. 20 of the previous 23 trading sessions, Dow index has made a three digit move.. putting it another way,, the market has been UP only in one session so far - 940 point monday move .. This is the perfect definition of volatility and no wonder VIX is back on the track to make a new peak ( at 69.5, its shy of just 6 points to make a new high)..

Today, I listened to a 2 hour analyst call of Chesapeke (CHK).. The stock was trading at $40 last month and is at $16.. Most of the last weeks drop in share price is attributed to the insider selling (The CEO of the company had to sell 31M shares to meet his margin calls). I was tempted to buy the stock during the call, as the management was pretty bullish on the outlook of the company. I stepped back after I plotted the price action of Natural gas and XTO (another natural gas company). Historically the stock price has closely tracked the price of Nat Gas, but off late there has been a big digression,.. Now again, they are hand-in-hand.



The best thing to do, now, is to stay side lined till there is a recovery in Nat gas Prices. Well, I do not think the prices of Nat gas are going to improve in the short term (1-2 months). Ac to the U.S. Energy Department Nat gas inventories increased 88 billion cubic feet in the week ended Oct. 3 to 3.198 trillion cubic feet. The department's next supply report is scheduled for tomorrow, and the average estimates predict an increase of another 63B cubic feet. Add to it, a mild weather prediction that would curtail the demand for heating the homes. I would rather stay short these Nat gas stocks.

Rating agencies have coem to their senses more than needed I guess. Last week Moody's played around with MS credit rating (jeopardizing the Japanese bank and MS deal).. Today, S&P said it may downgrade $280.1 billion of Alt-A mortgage securities. Last month, ratings companies downgraded about $118 billion of prime- jumbo and Alt-A bonds. In August the figure was $ 200 Bn.. This is going to make the things even worse.. Banks would have to shore up cash to meet the capital requirements, and they can raise neither equity nor debt as the equity and debt markets are in deep kaka. More selling of assets follows.

Today, Intel (INTC), JPMorgan Chase (JPM), and Wells Fargo (WFC) should be doing well. They earned the right with outstanding numbers for the last quarter. But, each is up only modestly, 1% or a bit better. They have been dragged into the pit by the news that retail sales were poor last month, down 1.2%. There was not much surprise in the retail figures. The economy is in a recession. It was bad, and there is more coming. However,10 Reasons why you should be bullish..

A couple of days back I heard a tune on my radio and was trying hard to recollect the singer, the song and the movie.. Struck me today that the song is "Bitter Sweet Symphony" by Verve, and the first time I heard it was in the movie "Cruel Intentions". I have been playing that song on my comp since noon.. :).. ( The tune, supposedly, be pretty similar to "The Last Time" by Rolling Stones..

Early conclusion.. but well, ydays action was a dead cat bounce!!

The market opened with a ~ 200 point gain, but by the end of the day, the market ended ~60 points down. Well, it might be a profit taking from ydays rally, or the wait-and-see approach as tomorrow some of the financial institutions have their earnings release date.. JPM, WFC... Should be an interesting day tomw.

Verizon has trouble getting the committed capital for the 28.1 Bn acquisition deal of Alltel. Seems every one - hedge funds, PE firms, banks, Soveriegn Wealth FUnds are hoarding cash.

The American Bankers Association asked the Securities and Exchange Commission on Monday to override accounting rule makers’ new guidelines on mark-to-market accounting, saying they still relied too heavily on distressed asset values. Another step away from the definition "free-capital-markets". It is the bankers who vouched for mark-to-market accounting when the asset valuations were shooting through the roof.. Now that there is no market for those toxic derivative products they want the rule to be evoked. Ironical is the fact that why now are the banks worried when the treasury is willing to buy 700Bn (now it is 450 Bn as 250Bn is put aside to buy the preferred stock of banks) of bad assets from banks??? May be, 700Bn is not enough to cover the BAD assets!!

Lehman CDS data point: The payment calculations so far performed by the DTCC Trade Information Warehouse (an electronis exchange where the CDS are settled) relating to the Lehman Brothers bankruptcy indicate that the net funds transfers from net sellers of protection to net buyers of protection are expected to be in the $6 billion range (in U.S. dollar equivalents). That is way below the $250 Bn figure that is floating around (even I quoted the same number in my prev post). If thats the case, I guess the problems regarding the Lehman bankruptcy are overblown and the "recovery" or stalibilty shlod occur sooner than the estimates..

Oil trading at 79 dollars.. national average for gas is $3.16 and expected to lose another 20-30 cents. This I guess, is the greatest stimulus package that anyone can ever expect!! :).. Will save millions of dollars from tax payers pockets!! - Another reason why the recovery should be sooner.

Earnings :

INTC (Intel) reported today after the market close. Reported 35 cents estimates being 34 cents. 

Genentec Reported.. Revenue line beat the estimates but earnings did not.. 

I thought I will start writing about the earnings report as the earnings has started. but.., my schedule seems tight to properly end the post.. Should change it.. I write more than half of my blog before I leave the offcie. After I come home the time just flips past.. I watch an episode of "two and a half men", chat with Sammie and Harish,, go for a jog, come back, eat, watch part/full Sammie's movie of the day,spend some time over the phone .. and thats it -- its freaking bed time.. Either I should start scribbling early, or I should squeeze my bed time!!