Thursday, 25 December 2008
Sunday, 30 November 2008
Thursday, 20 November 2008
It all seems to have begun with the, ‘madness-on-hindsight-multi-layered leveraging’ created out of the housing mortgage market in the US, which at that time was booming. Ultimately as the housing collapse occurred the defaults at different levels made us aware that it was a bubble that had existed then and that it has given us busted feeling now.
The Global Sub-Prime and India
The first waves of sub-prime hit us in the form of FII withdrawal from the Indian equity markets with the simultaneous mad rush for the USD. The whispers about US banking failures appeared distant. We brushed the concern away with our belief in the resilience of the Indian economy and waited for the FIIs to return back, and aggressively too. Infact we still are hopeful of the ‘pull back’ as evident from the fact that the RBI in its policy review in October 2008 has only marginally lowered our GDP growth rate from 8% to between 7.5% to 8.00%.
As the sub-prime keeps unfolding we need to examine and estimate the impact it might have, on our banking and financial systems and the economy, on a continuous basis. Keeping in mind that it was a housing slow down that had triggered the sub-prime crisis it might be interesting and worthwhile to visualize possible heightened default scenario in the Indian housing finance market as well.
The Indian Housing Finance Market
The Indian Housing finance has had a phenomenal growth during the 21st century. From being around 3.5% of the GDP in 2001 it has grown to almost 8.5% to 9.00% of the GDP in 2007. The fact that the GDP itself has grown through these years accentuates the housing finance growth.
The aggressive lending of the Banks in the housing sector is evident from the quantum jump between 2001 and 2005 . A dissection of the retail portfolio of banks also helps in clarifying the position further.
The subtle bubble
The housing loan outstanding has grown by around 300% from 1.35 lac crores in 2005 to reach an outstanding figure of 4.00 lac crores (as estimated above) in 2008. It may also be safe to assume that the real estate prices across the country and across different segments have appreciated by around 40% to 50% between the periods of 2005 to 2008.
It means that when the property prices corrects by around, say 30%, the original margins on the loans will shrink, not withstanding the fact that a part of the loan might already have been repaid. There might be cases, and may be a majority of them, wherein over financing can emerge.
What ought the banks be doing?
Banks are required to do periodical valuation of the mortgaged properties to ensure that proper security is available for the advances granted. Different banks may have different norms and different frequency of inspection and valuation. Considering the sudden melt down in the property prices it might be advisable for the bankers to do more frequent valuations of the property so as to realistically reflect the market prices on their appraisal forms.
The question however remains as to what to be done in case over valuations are identified. Do we raise the installments thus heightening the probability of default? Or do we reschedule by extending the period of repayment?
Also most importantly, should the banks be asked to recognize the uncovered portion of the housing loans and be asked to make a blanket provision for the excess financing in the housing sector? Remember even a 5% provision on the 4.00 lac crore outstanding will be Rs.20000 crore which is enough to wipe out the combined profits of many an Indian bank put together. Or are they to give the over-financing part a miss, thus allowing the over valued properties to continue in their balance sheets until they are bust by a bubble?
Sunday, 26 October 2008
"Strip show on Sarah palin" the news paper said.
The adjoining photo ensured a fair amount of eye ball time, as proven by my neighbours eyes still clinging onto it unblinkingly.
Though certainly a good 'warm-up' reading on an early morning train ride, somehow it took me on a different train of thought.
Sarah, an American Vice- presidential candidate who belongs to one of the two major political schools, on one side. A little known, sleazy, strip club in a particular state in the country, on the other.
Wednesday, 23 July 2008
By around 10 a.m I was in Muscat the Omani Capital. A stroll through the arrival and a climb up the stairs (or escalators - choice available) brought me to the small waiting lounge for the passengers. Traffic was thin, probably being early morning. The overall feel was of a small hotel with its mosaic, glazed tiles, glittering lights and all. Early in the path of human material progression, I should say.
In a corner was the money changer , manned by a tough looking guy who I guess would not have minded bashing you up, incase you happened to pay a lower exchange by mistake. Strangely even after spending some 2-3 hours in the lounge I couldnt find anyone exchanging any currency there. The Omani Riyal I noticed was quoating some where around Rs.110/-.
Not in a mood to exchange any currency, I strolled in to the duty free. They had an assortment of things right from kids toys and chocolates to clothes and other home gadgets. But the major emphasis I felt was on liquor, cigarretes and pefumes - the goods in demand by the immigrant Indian population , returning home on holidays.
The onward flight to Cairo was uneventful , except for the "thug-ess" of a stewardess who distictly gave the "dont mess with me " signal , especially to those passengers who were trying to give off a "I ve seen a lot of these" - attitude, when asked to put on the seat belts. Some of those who wished to use the wash room when the seat belt sign was on , were given a training on "libidinal control" by her and strapped on to their seats.
LAND OF PHAROAS
The smell of pyramids and an ancient culture were evident, even as I landed at Cairo International. Unlike in Oman the feel was entirely of a natural civilisation that had evolved over a period of time. The placed smelt of "HISTORY". Being winter , the chill was in the air. But the cold was pleasurable rather than being a harsh one. The Cairo International was in the process of further development/renovation as construction activity was going on. Though smaller than Mumbai International, it was colourfully painted on the outside, an attractive shade of wine red . The marble and granite in place of mosaic and glaze tiles were heartening to note.
The luxurious buses arranged by the tour operator took us through the deserts. We had to go across the city crossing the river Nile to reach our hotels where we were booked in for the trip.
As we left the airport area and entered the suburbs of the city the roads started getting congested with traffic. The slight drizzle, that had started, made the place look dirty. What really brought down my heightened holiday expectations were the innumerable unplastered, moss walled, houses and the apartment like honey comb structures, again unplastered and moss walled, that were seen at the side of the roads. I gazed in dismay, at those unfinished houses in large numbers, with muddy, sloshy lanes separating them. "Under developed", "fourth world", "slums" etc were some of the word that floated around in my mind during that melancholic feeling. Those houses had a different story to tell later.
The ride took us across the Nile in to the deserts once again, with the wide expanse of the white sand lifting up my spirits . The arrival at the hotel was the most welcome thing that could've happened to me then. Though not exactly a jet lag, slight home sickness could be felt, I have to admit. Hence after a strong tea, powered with snacks, I sank in to the fluffy double matress and under the warm blanket. The drizzle continued outside.
Lined up were the light and sound show of Pyraminds in the evening and the tent dinner at the foot hills of the pyramids.
THE TENT DINNER
The siesta continued in the bus ride to the Pyramids, until I was woken up roughly by the suddden revelry that broke out on our arrival there. The revelry was pre-arranged to welcome us, and none of the heroics that we never did , caused it. The tent was a beautiful red and quite in contrast to the white and grey sand.
As Egyptian music flowed, so did the wine and on stage was an Egyptian dance drama. The music was very rythmic and matched our Arabian thoughts. As the grand finale of the programme, was the famed Belly dance. Though show of skin does titillate, its not simply that. The dancers are rigourously groomed as in any other art form , I was told.
As I ventured a bit further in to the darkness shrouded desert, away from the tent, the dark expanse of sand in front did give an eerie thrill. The wind was very strong and cold was biting. The moon came out after a while. Still the dips in the desert were quite invisible even from a few feet away, anyone could hide there- it was trechearous. Some local arabs stopped me from going further out in to the desert, they said "distances are deceptive in the desert", which I realised after I had to walk for almost 25 minutes to reach back, trying to keep the tent in view. Iwas told that the temperature outside was around 2.0 degree centigrade.The tent was a world of warmth.
THE PYRAMIDS OF GIZA
We rode up the hills , up and away from the valley. Metal detectors and a little careless frisking after, I stood beside those massive structures - the Pyramids of Giza. Three in the vicinity of one another. The Wonder -built by king "Cheops", a similar one built by his son and a much smaller one beside that. But in a few kilometers radius in the same desert , I was told that there are more than a thousand pyramids, big and small all put togather.
(The second largest on in the photo is the actual wonder and the bigger pyramid. The visibly largest is smaller and built ona higher ground.)
2,00,000 stones were used to built the Pyramid, the stones at the top weighing around 2.0 tonnes and those at the bottom weighing aound 15.0 tonnes. The stones were brought from the valley. Pulling up the stones to those heights is unimaginable just for one thing - the pulleys were yet to be invented. Sticking them togather was another issue - no cement , no concrete. Walking around the structures took me around 35 minutes. Roughly 3 kms - the base? The Pyramid was built over a period of 30 years. Not that it takes so long. Its because, the common people were involved in building it and not just the slaves. The Nile valley used to be flooded for 3 months in ayear , during which time the people of Egypt came up to built their beoved Pharoah a beautiful abode in heavens - The Pyramid. After the floods they went back to the valley, to their farms.
Intrigued by the absence of any desendants to the Pharoahs I enquired about the same.
"We are the descendants" - my guide said. Seeing the expression of disbelief on my face he ventured further- "The Pharoahs had more than hundred wives, i.e. publically acknowledged. What to say of the others. So you see..."
"I myself have 3 wives" - he said grinning. He sounded as if he is about to close the deal for acquiring one more.
I dont know what makes it an awesome figure. There is something about it that draws u towards it. A sort of fearlessness, standing alone there towering above us. Folklores and stories apart - its simply magnificient. Also probabaly its the only real thing which has the face of a Pharoah. Simply put its induces a feeling of power and fear too.
Taxis are all black. The city is full of vehicles but the traffic, though with jams, was more or less orderly. Around 5 million people enter Cairo every day to leave in the evening. Driving all the way into and out of the city. Petrol is aorund 1 Egytpian Pund i.e. INR 8/- around i.e around 1/5 of a US $. At the heart of the city, is the Anwar Sadat memorial - a fitting tribute to one of their modern day presidents whom the people revere.
A place worth a special mention is the Khan-el-Khalili market which has all that Egypt has to offer to a shopping tourist. Its bustling with activity 24 x 7. All the paraphernalia, from an ancient Pharoanic civilisation - to the modern Egypt are avilable there. Right from the pharoahs war weapons to the belly dancers revealing clothes. Since Iam neither a war hero nor a belly dancer I left the market with a few 'papyrus paintings'. These are beautiful and colourful paintings on Papyrus . Again since Iam not an expert, either on papyrus nor on paintings, my judgements on the quality were based on the looks of the shops and shop keepers. Graver the face of the shop keeper- the more serious the shop keeper and hence more genuine the material. Also the richer the ambience of the shop, the better the quality.
The Nile Cruise
Nile , the longest river in the world and mother to one of the earliest civilisations in the world, supports the Egyptians even now - like a true mother. By feeding them through the tourism revenue . The Egytpians, atleast in Cairo, have constructed some palatial boats to carry the tourists along the river. The cruise lasts a few hours long, with food, drinks, and entertainment provided inhouse. Its certainly worth a ride, if not for the river, then for the lively entertainment.
Though lively for me, the ride must have been monotonous for the artists, for day in and day out 365 days a year they do the same. But , as true proffessionals,the smile never left their face while they performed.
Back to the Pavilion
I once again lay back on the fluffy mattress at my hotel, ruminating over the past few days , gazing out the window through the smoke rising from my cigarette.
A few things came back strongly to me again and again, the Pyramids, the air thick with historical mystery and the heavy scent of tourism in their economy.
As I paid for a few things at the duty free at the airport, I enquired about some other items on the display.
After a brief look at me the man at the counter enquired - " Tourist"?
"Yes" I said
He came around the counter and in all politeness , carefully, showed me the antique pieces one by one which I had enquired about.
He , as all modern Egyptians , or atleast Cairoites, seem to have successfully turned into true tourism proffessionals.
The Pharoahs might have have flogged thousands of slaves to death while making the Pyramids. Many of his so called present day desendents and those of the slaves too, have a lot to thank those deeds of the Pharoahs for the bread they break daily.
Saturday, 5 April 2008
Hollowed cheeks say it all,
Unkempt , the soiled hair;
Not for her, anyone to care.
Homeless, a roaming gypsy
A shame for all and to see.
Diseased and worse
The dogs life, of hers
Pass by do I, so do many;
A glance even, not from many.
Pity profuse and sympathy,
From me the man so busy.
The self and proclaimed decency;
The Righteous souls of the society.
Me and others, my fellow beings,
Not for her a place amongt us.
The pavement seat and the filth;
Hands groping, hunger or by habit ?
That tin pot and morsels of food,
Left overs from us, the kindly souls.
Smirk did my lips,
"Mad women", muttered with hiss.
"Burden" said the society,
Not for her any anxiety.
From that dark corner;
Behind the rubbish heap
Crawling and in smiles
The little one.
Rush to her, he did,
As fast as he could.
Sublime and unsupressed,
Joyous and elated.
Ragged but rich;
Filthy but loving.
Mad for us,
But mother for him.
[Bless them O'lord, where ever they are. For those two whom I saw really need that help]
Tuesday, 25 March 2008
>Estimated deployment of 30000 troops and $30bn.
>Actual deployment of 150000 troops and approx $600 bn till now.
>The most liberals estimates of the subprime crisis expect write downs of only $300 - 400 bn.
J.Pierpont Morgan rallied the Bankers and Trust institutions in 1907 to withstand the onslaught of recession. The write downs amounted to around $18bn. By coincidence it was J.P.Morgan,the bank, that bailed out Bear stearns in 2008 March.
Thursday, 20 March 2008
When first Ben Bernanke cut the the overnight window rate in last September (2007) it almost went unnoticed, except for the huge upswings in the Indian equity markets and some mumblings in the background about recession , slow down etc, largely it was accepted as a matter of routine monetary policy. Then followed a series of aggressive rate cuts finally resulting in a total of 3% cut in just under 6 months, which is phenomenal by any monetary policy standards.
Even till recently the desperation in the rate cuts were not understood properly, not only by the world but in the US too. This is evident from the statement by President Bush that one (read FED) should not over react.
That was before Bear Stearns caved in.
Until then subprime was yet another new topic of financial management. Reaction and over reaction was a matter of opinion.
The overnight caving in and the subsequent Fed orchestrated (and $30bn guarantee too) buy out , albeit at dirt cheap price, of Bear Stearns by JP Morgan heightened the public sensitivity to the subprime issue. Dramatically instead of cautioning against over reaction, the clamour for aggressive rate cuts was more audible. The sub prime "problem" in the public opinion had become "crisis".
Sunday, 16 March 2008
Probabaly no. The unsaleable papers do not transform to saleable ones in a months time. Hence follow up action can be almost certain from the Fed and JP Morgan is likely to lend a helping hand yet again.
In all probability we may witness a take over of Bear Stearns by JP Morgan. Atleast it seems to be a strong possibility as the heated weekend meetings suggest between Bear Stearns, JP Morgan & JC Flowers , another US bank which may make a bid for parts of the Bear Stearns business as it does not have the where withal to take over the entire business of BS unlike JP Morgan which can.
Its attractive looking from JP Morgan side too. Bear Stearns which was trading at $160 per share last April is at $36 now. In all probability JP Morgan is likely to offer a price not more than $15 per share. What helps them further is that S&P recently down graded BS to "BBB" from "A" ,which is now just above the junk bonds. The down grading further ensured that the market may not touch BS even witha a barging pole making its operations difficult, for a while atleast. Also JP Morgan may not lend much credence to the BS book value of $80 per share. The icing on the cake might probabaly be the swanky BS buliding in New York, much liked by the JP Morgan CEO Jamie Damon, as compared to the austere surroundings at the JP Morgan building around the corner.
Probabaly those who had the hardest bump of all were the BS employees. Not that they will face retrenchment. Infact many of them will be inevitable if JP Morgan is to run the show. The bump is hard simply because they own 25% of BS and most of them have their net worths already eroded significantly. Each one of them must surely be ruing the failure to cash in on time and take early retirement and instead are sprucing up for more hard work ahead.
Yet another set of losers may be in the New york Metro area, where the Highly paid , High Net worth BS employees, including BS CEO Allan Schwartz, will be found with tighter purse strings.
Monday, 10 March 2008
Crude continues its march, and Ben Bernanke in all likely hood is ready for another round of rate cuts to fuel his economy, which is in the grips of a probabale stagflation.
Is it time we got out of the equity markets and entered gold atleast now? A few indicators may help us make a decision albeit a speculative one at that.
1. To insulate their economies against a dipping dollar some of the Asian countries, the Russians & other petro dollar countries converted some of their reserves into Euro. The Euro Zone saw an inflow of around 200 billion Euros in the first half of 2007.
2. Vladimir Putin has advised the Russian Central Bank to increase gold reserve portion by 10% and other countries may follow.
3. The Asian economies and Petro $ countries are sitting on $6.6 trillion of reserves. A small shift from them in to gold will have telling effect. Will the shift happen?
4. The strengthening rupee in the previous year increased the domestic demand for gold by 72% and India is the largest market for gold. Will the demand be sustained?
5. Demand from Gold ETF are on the rise, as also the demand from Middle East and China too.
6. The supply side of Gold is shrinking as also the demand, as the price rises. The Indian demand for gold fell by around 62% in the 4th quarter of 2007.
7. The global supply is also shrinking due to power problems in China & South Africa and also because the mines are yielding less.
8. Gold is unique in that, almost 90% of the mined gold is still in existence, so they can always be shifted as per the regional demands.
Will the gold move towards the eventual technical targets that some analysts are forecasting i.e from 1200 per gram to almost 4800 per gram on the back of further weakening of USD and rising crude? Or will the US economy start picking up causing strenghtening of the USD thus taking the sheen off Gold prices? Do I sell what I have and make a killing on a right sell call? OR do I accumulate further and make an almost 400% return on again a right call but on the buy side. Do i follow the herd and buy into gold or does it ring alarm bells in me that yet another crash is on its way - this time in gold markets.
Its not my wish to make decisions for u but to remind u that the decisions and also the P/L are entirely yours.