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Archive for the ‘Global Economy’ Category

A Moody insider says rating agencies conflicted

Posted by fairval on August 23, 2011

Rather strong language here from a senior Moody hand, in an article in The Guardian. Some excerpts:

William Harrington, a former senior president at Moody’s, claims the organisation’s senior management interfere with analysts’ independent assessments.

This salient conflict of interest permeates all levels of employment, from entry-level analyst to the chairman and chief executive officer of Moody’s corporation,” Harrington said in a filing to the US financial regulator the securities and exchange commission (SEC), which is considering new rules to reform the agencies.

Harrington claims that Moody’s uses a long-standing culture of “intimidation and harassment” to persuade its analysts to ensure ratings match those wanted by the company’s clients. He says Moody’s compliance department “actively harasses analysts viewed as ‘troublesome‘ ” and said management “rewarded lenient voting”.

“The goal of management is to mould analysts into pliable corporate citizens who cast their committee votes in line with the unchanging corporate credo of maximising earnings of the largely captive franchise,” he said in the 78-page filing submitted earlier this month.


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India’s rising labour supply

Posted by fairval on July 30, 2010

India's rising labor supply

It seems we will outsupply all other countries including China in incremental labour supply coming to the market in the next 10 years (chart from a goldman report). So this could be India’s golden decade

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Asian Exports

Posted by fairval on June 25, 2010

Asian Exports

A good chart from a Morgan document, showing exports, by destination, from Asian countries.  US is not such a big component for most countries. I would have thot it was more.

And as usual, Indian data is the most dodgy. If u add up all the export columns for 2009, Indian total is very far away from 100%. It comes to about 55%. So where it the rest of 45% going? Africa and Latam?

For China, the total of the 4 2009 columns comes to 86%. For all other countries also, it is more than 80%.

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US Savings

Posted by fairval on June 23, 2010

US Savings Rate

The shock and awe part of the recovery process is long over.That was the easy part. Now comes the interesting part, as developed world starts to work on paring budget deficit.

What do their consumers do? If they continue to save as well, then global demand will be hit

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Asian Industrial Production

Posted by fairval on November 20, 2009

Note how some manufacturing export led economies got battered

While much of Asia looks like it has recovered, Japan is still down in the dumps. A 20% or more drop in industry output is humungous. Dont know they are coping with it. There would be riots in India if that happened.

Malaysia is also still down. Vietnam is rocking. And India certainly looks pretty good in that bunch. No wonder, FII money has been pouring in this year, and goras are increasingly crowding my neighbourhood.

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US – Consumer demand rebounding

Posted by fairval on October 9, 2009

In a significant development, US same store sales (SSS) moved into positive territory in Sep09 after 12 negative months (a Thomson Reuters report). It should stay positive headign to the Christmas season, since last year it plunged at that time.
This could act as a positive for US markets, since it appears this is above market estimates. Says the report –

The Thomson Reuters Same Store Sales Index rose to an overall 0.6%, beating final expectations of -1.1%; the first positive in a year and the best showing since July 2008. Retailers were able to beat expectations, following easier year-over-year comparisons. The increase should not be read as “a return of the consumer,” but rather viewed in the context that retailers benefited from easier comparisons, a later start to the back-to-school season, and a later Labor Day holiday. Seventy-eight percent of retailers beat expectations, 4% percent met and 19% missed. The strength was driven by lower prices at value-oriented stores, such as Ross Stores, Kohl’s and Aeropostale. Accordingly, these retailers increased their earnings guidance.

September 2009 results are critical because they marked the beginning of easier year-over-year comparisons (negative SSS), and retailers are taking advantage of this by learning from their past mistakes. Retailers have been trying to avoid last year’s inventory disaster, as consumers remain frugal during the economic slowdown. Consequently, value retailers like Ross are successfully managing leaner inventories this year and expect continued growth moving forward. Ross expects “a 5% to 6% same store sales gain in October” (Source: ROST Press Release 10/08/09).

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Hyperinflation – an elementary writeup

Posted by fairval on August 7, 2009

An article by Quantum Fund on Hyperinflation. Explains it in simple words. Tho check what an MF will do to sell a fund — call US a ‘banana republic’.

A lot has been talked about the unprecedented money supply growth and its eventual translation to inflation. In History, there have been episodes of currency crises in different parts of the globe on account of run away increase in money supply resulting from printing more money. A few of the occurrences turned really worse and were identified as era of “hyperinflation”. To recall a few, Zimbabwe experienced hyperinflation for much of this decade and not to forget the well-known Germany’s Weimar Republic hyperinflationary period in the 1920s.

Hyperinflation is just inflation at an extremely high rate. Usually this also means the inflation is out of control and its level is not precisely predictable.
There is no precedent for the current world money order. The magnitude of increase in money supply has been much higher this time around. However, history provides us some insights to how worse can it get.
Hyperinflation – Germany’s Weimar Republic (1921-23)
When it comes to Hyperinflation, Germany’s Weimar Republic era of 1921-23 serves as perhaps the best documented cases in modern history. While there is a lot of information in the public domain, this was recently described in a recent article by Peter Krauth. Many are unaware of the dire consequences of hyperinflation; a glimpse at what happened in Germany can be hair-raising.
During the World War I in 1914, Germany opted to finance the war by borrowing rather than increasing taxes. The German policy makers chose borrowing because they expected to win the war and intended to force the losers to pay for the cost of the war. It was thus logical to the policy makers to use borrowing rather than taxation.
But Germany lost the war and the victors imposed heavy reparation payments upon her. The reparation payments were perceived as unfair in Germany and the social democratic government was reluctant to impose the burden of their payment upon the German population.
The government, strapped for funds, resorted to printing money. The value of the mark relative to other currencies fell thereby increasing the cost of imported goods. Prices rose increasing the cost of running the government. This necessitated the printing of even more money. Prices rose further and the exchange rates for the mark dropped even more. The result was hyperinflation.
At first, Germans reacted to the higher prices by economizing and reducing their consumption. But when they realized that it was not just a matter of some things being more expensive but instead that the mark was losing value they reacted by spending their marks as fast as possible. This meant that there was little constraint on prices.
There were winners as well as losers in this hyperinflation. Those on fixed incomes and who were owed a specific amount of money found that the real value of their holdings reduced to zero. But those who owed money found their debt effectively wiped out.
The German mark devalued significantly in terms of gold prices. The paper mark/gold mark ratio went from a one-to-one ratio in 1921, all the way to a one-to-1.0 trillion ratio in 1923.
Just imagine what would happen to gold in any remotely comparable situation involving the U.S. Dollar. The dollar acts as a world reserve currency. There has been an unprecedented and explosive growth in money supply. The dollars are being created just by printing more of them without any asset backing it. They are nothing more than pieces of paper with black ink.
The U.S has been accumulating deficits over years. The deficit is likely to increase over $2 trillion; worrying its creditors. The dollar holds its value only as long as the greenback’s holders maintain their faith in the currency. The moment people decide they don’t want your dollars, they become worthless, or at least worth much less.
As seen in the above example on Germany, currencies lost value as their quantity of the money in system increased considerably. In that case, it will take a lot more dollars today to buy the same thing one bought with fewer dollars earlier.
There have been evidences of currency losing their entire value creating a hyper inflationary scenario. Like in Zimbabwe, people carried sacks full of notes to pay for their daily purchases. Also, during the Weimar mark inflation, people pushed wheelbarrows full of German marks to the bakery just to purchase a loaf of bread.
Is the US a banana republic?
A currency meltdown occurs when governments face overwhelming gaps between revenues and expenditures; foreign investors abandon the currencies as they race for the exit, leaving a trail of worthless paper.
A decline in the value of dollar will affect the entire global economy. The US dollar acts as the world reserve currency and most of the world trade happens through exchange of dollar currency. China with USD 2 trillion* of US Dollar notes will be the worst affected. That is why the Chinese government is buying hard assets – including gold.
(Source: Quantum Mutual Fund).

Posted in Classroom, Global Economy | 1 Comment »

Eco Data

Posted by fairval on January 10, 2009

FY10 forecasts are coming close to 5% range for India (2009 here is almost equivalent to what we call FY10). Looks quite dismal everywhere except China.

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Now to European Banks. UBS next?

Posted by fairval on September 20, 2008

The crisis is clearly not over, tho central banks are trying their best. An article today says this — 25% of US mortgage owners have their mortgages ‘underwater’, i.e, the market value of the house is less than the value of the mortgage remaining to be paid. That is serious stuff. A serious slowdown has to occur. All these bailouts have to go hand in hand with serious reform of financial markets in the US.

But, more importantly, who’s going to fail next? Could be a few European banks, implies an article in the Times of India. Some excerpts from this article —

Sometime last year, after the first round of the subprime housing finance crisis had hit Wall Street banks, there was a meeting of central bank chiefs from both the developed and developing economies. Reserve Bank of India governor Venugopal Reddy, too, was present at the meeting. After discussing the potential impact of the collapse of the US housing finance market, the meeting focused on one question: Whether the whole truth in regard to the impending crises should be told at one go or revealed in smaller instalments. It was finally decided that the truth was perhaps too enormous for the global financial and economic systems to be able to digest in one single shot.

Now just imagine if the collapse of Bear Stearns, Freddie Mac, Fannie Mae, Lehman Brothers, American International Group (AIG) — together with a balance sheet size of well over a trillion dollars (the size of India’s GDP) — had occurred in one fell swoop. The global economy might have got shaken to its roots.

It was a European central banker who strongly argued that the truth about the sheer fragility of Wall Street biggies must be told in digestible bits. He knew what he was talking about. For, the impact of the Wall Street crisis on European banks is yet to be fully revealed. That part will become known in the weeks to come . The European central bankers, including Bank of England, are ready with emergency funds to support banks which might be in distress because of their exposure to Lehman Brothers, AIG and so on.

And so, now we know better perhaps why was Bear Sterns chairman Jimmy Cayne playing bridge on the weekend his firm was going into seizure (but was finally acquired). Well, maybe he knew weeks in advance what was going to happen, and was powerless or disinclined to do anything else about it.

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Lehman and the coming Global Recession

Posted by fairval on September 17, 2008

When the music’s over…

Since the post of 25 Aug, where we wrote Indian markets are ignoring a lot of bad news floating around in global markets, the following has happened —

– Fannie, Freddie nationalised
– Lehman gone
– Merrill acquired

But the worst is not over yet..
– AIG, Washington Mutual in deep trouble
– There have to be some European names in trouble
– Global recession — talk of this has not acquired centre stage, atleast as far as i can make out. In the 25 Aug post, we mentioned a Bloomberg survey which said there was a 50% chance of a global recession. What is the chance of that now? One would imagine 60-70%.
– Malaise spreading to other parts of housing market. Washington Mutual is in trouble becos of ARMs – adjustable rate mortgages. That is one step above sub prime. Apparently in the US market, Fannie and Freddie were the most responsible lenders. If they had to be nationalised, there is a lot of muck still out there in the US market
– One article recently mentioned that 25% of US households are below the ‘fuel poverty line’. They dont have enough money for their fuel needs. Thats a new one. What does this mean? What about snowballing credit card debt defaults?

My sense is – the central theme for analysts and money managers now should be —
– what happens if there is a global recession.

Punita Sinha wrote yday in Economic Times ‘time for momentum investing is gone. Back to basics now’. True.

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