Global Outlook Archive

I should have!

“I should have bought Walter Energy (WLT/$79.70/Outperform) at $67, or North American Energy Partners (NOA/$10.03/Strong Buy) at $8, or (insert the stock of your choice), a week or so ago” . . . was the cry on the Street of Dreams last week as the “selling stampede” seems to have bottomed in the typical 17- to 25-session timeframe. Indeed, the climatic action of February 4th and 5th, whereby the DJIA lost 268 points on the 4th followed by another Dow Dive early the next day that reversed to upside leaving the senior index up 10 points, appears to have been the “low” we have been anticipating. That sense was reinforced last Tuesday when the NYSE experienced a 90% Upside Day, meaning that over 90% of the volume came on the upside with an attendant 170-point Dow Wow. It was the first 90% Upside Day since November 9, 2009 and was accompanied by a breadth reading of 5 advancing stocks for every 1 declining issue. The result elicited a strong expansion in Lowry’s “Buying Power Index” (read: demand) with an even more pronounced contraction in their “Selling Pressure Indicator” (read: supply). Moreover, the DJIA has now strung together more than three consecutive sessions on the upside, which also suggests that the “selling stampede” is over. Recall that stampedes tend to last 17 to 25 sessions, with only one- to three-session counter-trend attempts before exhausting themselves, and Tuesday was session 19 in the downside skein. Accordingly, the four-day positive “pop” should be viewed as a reversal of the nearly four-week “wilt.”

Indian pharmaceutical industry has tremendous potential to grow from the current levels

A highly organized sector, the Indian pharmaceutical industry is estimated to be worth $4.5 billion, growing at about 8% to 9% every year. The pharma industry in India ranks very high in Third World countries, in terms of technology, quality and range of medicines manufactured. Globally the Indian pharmaceutical industry ranks fourth in terms of volume (with an 8% share in global sales), 13th in terms of value (with a share of 1% in global sales) and produces 20% to 24% of the world’s generic drugs (in terms of value).

Performance of Indian companies was not so great during the quarter

The quarterly results of companies are out and many market pundits are evaluating the performance. Prima facie, however, the quarterly results seem to have failed to cheer market participants. Though strong growth was witnessed in some pockets, the overall performance of companies was not so great during the quarter. The year-on-year (y-o-y) growth numbers for different profit and loss items look very robust. One, however, should not forget that such growth has come on the back of a lower base. The December ’08 quarter (the so called base) was at the bottom of the commodity and the economic cycle. The performance of India Inc was really subdued during that quarter. Having said so, one can’t rule out the fact that the upward growth trend still continues for India Inc. For instance, the analysis of around 2,200 companies (excluding companies from banking and oil & gas sector) that have declared their quarterly results reveals that the aggregate revenue of these companies grew at 13.7%, reckoned on a year-on-year basis. And this growth rate is one of the highest in at least last the eight quarters. And this is higher than the growth rate of 2% to 3% seen in the previous quarters.

Share prices of Indian sugar companies have gone up but still the risk-reward ratio is not in favour of investors

Off late sugar companies and their share prices have been in the limelight. Stocks of most sugar companies have gone up significantly in the recent past in the hope of favourable developments in the industry. Briefly, world’s two largest sugar producers namely Brazil and India are expected to have lowered their production this year and the coming year. The impact is already seen on the global sugar prices. Indian sugar prices are inching higher and making multi-year highs. According to estimates, the world sugar production was about 154.2 million tonnes in 2008-09 as against the consumption of 164.6 million tonnes, leading to a deficit of 10.3 million tonnes. In India also, the situation was bleak as sugar production deficit reached about 7 million tonnes. No wonder sugar prices are trading at multi-year highs of about Rs 45 per kg.

Indian banks focus on other income segments will continue with a special emphasis on fee income pie

In the recent quarterly review of the monetary policy, the Reserve Bank of India (RBI) lowered the credit growth target for the banking sector for the current year to 16% from 18% targeted in October ’09. The deposit growth rate was also reduced to 17% from 18%. According to India’s central bank, the increased availability of funds to banks from domestic non-banking sources like capital markets, commercial papers and external sources like depository receipts and direct investments, have resulted in lower credit growth for the banking sector. The tepid corporate sector credit also saw numbers moving downwards. Preliminary calculations carried out by the RBI indicate that the total flow of funds from banks, domestic non-banking and external sources to the commercial sector during 2009-10 (up to 15th Jan ’10) was Rs 5,89,000 crore, marginally lower than Rs 5,95,000 crore in the corresponding period of the previous year.

Needs in safety and protection make security a recession-proof industry

The Indian Security Market is farm fresh. It has not yet been tapped fully. Not many people think of having a business in this sector and investors are not even smelling the profit it holds. But it is an industry in the making. It has the potential to be a rather large sector in the very near future, given the lifestyle changes the world is witnessing. A small example would be the terrorist attacks. Now there might have been a drought or a killing or a mini-riot in the 19th century but was ‘terrorist’ even a word back then? Not really. However, the new century has brought with it a number of evils in the form of racism, fascism and ultimately terrorism. These are a few reasons why ‘security’ has found a new meaning in our dictionaries.

Testing times

In the recently announced monetary policy review, Reserve Bank of India (RBI) Governor D Subbarao said, “A bigger risk to short-term economic management and medium-term economic prospects emanates from the large fiscal deficit.” In simple terms fiscal deficit is the negative gap between higher government expenditures and lower revenues. The government fills this gap by borrowing against government securities. In July ’09 Subbarao had said, “Managing the government borrowing programme to finance the large fiscal deficit posed a major challenge for the Reserve Bank.” So, is higher government borrowing bad for the Indian economy? The answer is quite subjective. Typically, higher borrowing requires higher debt servicing that is interest payments.

Libya faces tough energy sell following Scant Oil & Gas claims and Government fiascos

The Libyan government has been sounding off lately about boosting the profile of its oil and gas market, but it’s questionable whether international companies will ignore the government’s missteps in the industry - not to mention the recent lackluster energy finds - and keep injecting money into the North African country. The head of Libya’s National Oil Corp., Shokri Ghanem, has his eye on expanding gas exploration and production in a bid to raise exports to Europe, as well as privatizing oil refineries and the petrochemical sector, according to an interview he gave this month to the Oxford Business Group. Once an international outcast for its penchant for terrorism and weapons of mass destruction, Libya now wants foreigners to take a greater stake in the oil market and in turn encourage local firms to play a larger role as well.

Paper Hangers

At a time when more and more offices are going paperless, governments in most of the developed world are doing the opposite. Finance ministers from Washington to London, Tokyo, Madrid, and, most pointedly, Athens, are attempting to paper over gaping financial chasms in the global economy by issuing ever greater quantities of currency and debt. But paper can only stretch so far. The key problem facing the western world is the 80-year decline in central banking discipline. In truth, these banks have become little more than the private piggy banks of their parent governments. Often furtively, central banks have "bought" ever larger amounts of government debt, which has allowed a consequence-deferred spending spree. The result has been decades of apparent economic growth and prosperity.

The Great white hurricane

“Unseasonably mild and clearing,” was the weather forecast going into the Ides of March back in the year of 1888. And it was true, as temperatures hovered in the 40s and 50s along the East Coast. However, torrential rains began falling, and on March 12th the rain changed to heavy snow, temperatures plunged, and sustained winds of more than 50 miles per hour blew. The “Great White Hurricane” had begun! In the next 36 hours some 50 inches of snow would blanket New York City and the winds would whip that snow into 40- to 50-foot snowdrifts. Telegraph and telephone lines were snapped, fire stations were immobilized, New Yorkers could not get out of their homes, 200 ships were blown aground, and before the storm was over 400 people would die. The resulting transportation crisis led to the construction of New York’s subway system.

Crude Oil prices take a dive after a week of gains

Crude oil prices took a dive on Friday after a week of gains from U.S. blizzards were undercut by another move in China to tighten monetary policy. China’s central bank raised reserve requirements for its banks for the second time this year as it tries to curb lending and avoid asset bubbles from forming in an overheated economy. China is the world’s second-largest importer of oil, after the U.S., and one of the world’s fastest-growing economies, so energy markets are very sensitive to any change in conditions there.

Fear takes the wheel

Over the past three or four years a strange phenomenon has developed in the global investment markets. With some exceptions, many asset classes, in particular domestic and foreign equities, commodities, and foreign currencies have tended to move in the same direction on a day to day basis. The mega-correlation has lasted so long that most now take it for granted. This leaves investors with relatively simple choices: when to get in to the market in general and when to park assets in cash and U.S. Treasuries. However, few recall that this pattern is relatively new in the annals of financial history. Fewer still realize the reason for the current anomaly.  From my perspective the most logical explanation is fear, which has become global, pervasive, and persistent. Traditionally, when investors fear inflation they buy stocks, commodities, gold, and foreign currencies, and sell dollars and U.S. treasuries.  When they fear deflation they sell stocks, commodities, gold, and foreign currencies, and buy dollars and U.S. treasuries. The problem is that right now, no one knows which one to fear. Depending on the news the pendulum swings from one extreme to another on a daily basis.

Euro Trashed?

The European experiment with a trans-sovereign currency is facing its first acid test. The flashpoint today is Greece, which looks set to default on its debt barring some outside intervention. While many commentators have been squawking about the immediate crisis as if it were the end of life on Earth, I would like to zoom out and discuss the history and longer-term outlook for the euro and its parent, the European Union. The launch of the euro was a major milestone in the sixty year process of European federalization. Economic considerations have always led the charge, from a normalization of tariffs to a free-trade area to a customs union. Still, the launch of a pan-European fiat currency and central bank without a unified political apparatus behind it was always considered a risky move. Since its launch, the euro has outperformed expectations, establishing itself both as the world's secondary reserve currency and the second most traded currency after the U.S. dollar. Because of this stellar introduction, the euro has been proposed as the new primary reserve currency in place of a devaluing U.S. dollar. However, its unusual foundation presents risks to which most investors are unaccustomed.

Iran unfazed by Congressional threats of New Energy Sanctions

U.S. lawmakers are toughening their stance on Iran’s energy industry with new economic penalties, but experts doubt the Islamic regime will pay much attention and is more likely to open the doors even wider to other players eager to replace fleeing investors. Long on Congress’ radar screen, Iran is being targeted by two bills: The Senate’s Dodd-Shelby Comprehensive Iran Sanctions, Accountability and Divestment Act passed in late January; and the House’s Iran Refined Petroleum Sanctions Act approved in December. The bottom line is these bills, once signed into law by President Obama, will pursue financial institutions and businesses that do business in Iran’s energy sector or help the regime build its refining capacity.

Roger Redux?!

“Who framed Roger Rabbit?!”... except in this case we are referring to Roger Blough. Return with us now to those thrilling days of yesteryear. The year was 1962, John Kennedy was President, and Roger Blough, the then CEO of U.S. Steel, had signed an agreement with President Kennedy not to raise prices. However, just four days later he raised steel prices right in President Kennedy’s “face.” The outraged President went after Mr. Blough and when Roger Blough tried to argue his point, Jack Kennedy stated, “My father told me that all steel men are #@Q&%!” The battle lines were thus drawn; government contacts were switched from U.S. Steel in favor of steel companies that didn’t raise prices, and with that governmental incursion into corporate America, the D-J Industrial Average (DJIA) shed 26% in just six weeks. Fast forward to today. The major banks have paid outsized bonuses right in the “face” of President Obama; and, it appears he has gone after them. Accordingly, the stock market has gone into the dumper, as can be seen in the attendant chart (for the record, I am neither a Republican nor Democrat; so stated before I get another onslaught of hate mail). Whether the 1962 analogy continues to “fit” remains to be seen, but it is a very interesting comparison that participants should ponder since we continue to believe the markets are in “selling stampede” mode.

Oil prices fall sharply as general market sells off

After starting the week on a firmer note, oil prices fell sharply toward the end of the week in a general market sell-off as investors sought the dollar as a safe haven amid worries about European Union economies. Debt problems that have plagued Greece are now spreading to Portugal and Spain, driving the euro down temporarily below $1.36 and bringing the dollar to an 8-month high. Because oil and other commodities are priced in dollars, gains in the U.S. currency usually translate into declines in oil prices. Even a decline in the U.S. jobless rate below 10% on Friday could not stop the downward trend in commodities.

More Government equals fewer jobs

With today's unexpected decline in December payrolls, the cry for more job-related stimulus will grow even louder. But the sad truth is that any new stimulus or jobs bills will ultimately swell the ranks of the unemployed, thereby raising calls for an even bigger federal effort. If we are not careful, government regulations, subsidies, and spending, all designed to fight unemployment, could push the labor market into a death spiral. Regulation acts like a tax on job creation. By subjecting employers to all sorts of extra expenses when they hire people, regulations increase the cost of employment far beyond the wages employers actually pay their workers. In fact, some regulations are specifically tied to the number of workers employed. This provides some employers with a strong incentive to stay small and not hire.

More Government equals fewer jobs

With today's unexpected decline in December payrolls, the cry for more job-related stimulus will grow even louder. But the sad truth is that any new stimulus or jobs bills will ultimately swell the ranks of the unemployed, thereby raising calls for an even bigger federal effort. If we are not careful, government regulations, subsidies, and spending, all designed to fight unemployment, could push the labor market into a death spiral. Regulation acts like a tax on job creation. By subjecting employers to all sorts of extra expenses when they hire people, regulations increase the cost of employment far beyond the wages employers actually pay their workers. In fact, some regulations are specifically tied to the number of workers employed. This provides some employers with a strong incentive to stay small and not hire.

Rewards Abroad

President Obama's State of the Union message only serves to reinforce my forecast that investors will continue to find better returns in markets outside America and in currencies other than the U.S. dollar. Indeed, the reward gap may well increase. Nothing in the President's speech indicated willingness to do the hard work of cutting spending. Rather, he reiterated his commitment to a costly new healthcare entitlement and more spending on make-work programs. Only days later, his budget acknowledged that, even before factoring in the cost of his proposals, the federal government is unlikely to be in surplus for the foreseeable future. In response, Moody's has issued a warning that the United States' triple-A credit rating is not unassailable. In short, the trend set some ten years ago will continue.

Black pepper will literally be the king of spices

We have seen a spectacular rally in most spices complex ranging from turmeric to cuminseed (jeera) to cardamom. Apart from these, spices such as nutmeg, mace, cloves, star aniseed, cassia rallied sharply in the spot markets in the last quarter of 2009. However, it has been a muted year for black pepper. Due to the arrival of new crop, markets have remained under pressure. Due to rising population and stable production, the carry forward stocks of most of these spices are depleting at an alarming rate. Steady uptick in exports and gradual improvement in demand are the main reasons for a sharp upside in this complex. The best example was turmeric was in the year 2009. Between 2002 and 2007, India’s turmeric exports moved up exponentially but domestic production was not rising at the same pace. In 2008-09 we saw a spectacular rally in the yellow spice with prices moving up to Rs 14,000/quintal from Rs 2,200/quintal, a rise of more than 600% in a year.

Cash Reserve Ratio (CRR)hike can be a solution to the problem of rising inflation

The year 2009 saw investor wealth double and in many cases even triple. This was the most powerful and phenomenal turnaround that any bear market has ever witnessed in the history of the stock markets. And the best part is that this is not the end of the road for this rally. All technical and fundamental indicators point towards a more robust growth in the economy and a more sustained rally in the stock markets in the year 2010. But a price has to be paid for this vibrant economic growth. Strong growth leads to stronger demand, which automatically translates into higher prices. And these high prices ultimately culminate into higher inflation. Inflation appears to be one of the many dark clouds in this otherwise spotless clear blue sky of stock markets.

Food processing industry is all set to become one of the highest yielding sectors in India

There are a few upcoming industries which will soon spell gold and India’s food processing industry is one of them. Gone are the days when all Indians could think of was fresh food. Of course, that still tops the charts. But the new generation is open to a number of options and food processing is certainly one of them. Food processing has indeed come a long way. The Ministry Of Food Processing Industries (MOFPI) is the nodal agency of the Government of India for processed foods. It is responsible for developing a strong and vibrant food processing sector with emphasis on stimulating demand for appropriate processed foods, achieving maximum value addition and by-product utilization, creating increased job opportunities particularly in rural areas, enabling farmers to reap the benefits of modern technology and creating surplus for exports. In an era of economic liberalization where the private, public and co-operative sectors are to play their rightful role in the development of the food processing sector, the government acts as a catalyst for bringing in greater investment into this sector. This will guide and help the industry in a proper direction, encouraging exports and creating a conducive environment for the healthy growth of the food processing industry.

Sluggish credit growth may make the Banking sector unattractive

The entire world may want to congratulate India and China for their knee-jerk walk out of the financial slowdown. Double digit growth in India’s index of industrial production (IIP) for two consecutive months, rebound in gross domestic production (GDP) and reports of rising exports are all positive indicators of the Indian economy getting on a firm footing. But there are still some pain points in the economy. According to the latest data released by the Reserve Bank of India, bank credit for the fortnight ended 1st Jan ’10, grew by 13.7% on an annual basis. The corresponding growth last year was higher at 23.8%. It is certainly not a good indicator for the economy at large. If one looks at the year-to-date credit growth, which is a petty 9%, it’s a clear sign of sluggishness. Even at the peak of the crisis, the off take fell to around 13% last year. The second half of the financial year, traditionally, witnesses higher credit off-takes and with positives like burgeoning IIP and positive GDP expectations, the situation would keep improving from here, feel bankers and analysts.

Reserve Bank of India has more challenges to face

Reserve Bank of India (RBI) Governor Duvvuri Subbarao last week announced a hike of 75 basis points in the Cash Reserve Ratio (CRR) to fight rising inflation, when he presented the monetary policy review for the quarter ended December ’09. The hike in CRR - the portion of deposits that banks are required to park with the RBI – would phase out Rs 36,000 crore worth of liquidity from the system in two stages, namely - 50 basis points from 13th Feb ’10 and another 25 basis points from 27th Feb ’10. On a global note, Subbarao acclaimed the increasing signs of stabilization wherein the Asian region showed a relatively stronger rebound. Improved global economic performance during the third and fourth quarters of 2009, prompted the International Monetary Fund (IMF) to reduce the projected rate of economic contraction in 2009 from 1.1% in October ’09 to 0.8% in January ’10. The IMF has also revised the projection of global growth for 2010 to 3.9%, up from 3.1%.

As the Middle East peace talks hit deadlock, talk of Israel joining the European Union increases

The Middle East peace talks are at a deadlock. Negotiations between Israel and the Palestinians to move ahead with the plan established by the so-called Quartet – the US., U.N., EU and Russia -- have faltered and come to a complete standstill. Continuing with this inertia will have a long-term negative effect on the future of the region both from a political point of view as well as from a business perspective. With the exception of a few risk-takers, what company or business executive would be willing to invest in the Middle East once the region plunges onto the abyss amid renewed violence? And whenever trouble brews in the Middle East it tends to spill over into other parts of the world.  The risk that Mideast violence could spread to nearby Europe might have been one of the reasons that pushed Italian Prime Minister Silvio Berlusconi to say that Israel should be admitted into the European Union earlier this week. Berlusconi made the statement during an official state visit to Israel. Berlusconi, of course, is one of Israel’s strongest supporters.

10 Geopolitical & Economic Predictions for 2010

A great - and still growing - divergence appeared in 2009 between public statements by leaders and their public performance. The politicized, romanticized theater of increasingly populist “democratic” leaders and media seemed to be of a different planet from activities taking place in the real world. While a large part of the global population appears still transfixed by words, there is a growing perception that great fissures already rend the global strategic architecture. This is a trend which will compound during 2010.

Selling Stampede?

It should be noted, however, that in the summer of 2008 the leverage in the financial system was far greater than it is today; and, the derivative “spider web” that had been knitted into balance sheets was legend. As the brainy GaveKal folks observe, “Almost every financial market participant is now operating with far less leverage and there are risk managers looming behind every equity and bond trader.” Accordingly, we think the odds of another post-Lehman type of meltdown are de minimis. Further, we believe the decline that began on January 20th is merely the normal correction everybody has been looking for since July. Buttressing that view is the fact the advance/decline line is firm (read: the breadth is still good), the number of new annual lows on the NYSE is not expanding, the yield curve remains steep, none of our proprietary intermediate indicators have rendered a “sell signal,” and the list goes on. All of this suggests the cyclical bull-market is still intact and stock prices should find support at, or above, the 200-day moving average (DMA), which is currently at approximately 1013 basis the S&P 500 (SPX/1073.87). Moreover, readers of these missives should not have been surprised by the recent stock slide.

Despite strong GDP growth energy prices sink lower

Crude oil futures slipped below $73 a barrel for West Texas Intermediate late Friday as a temporary boost from strong GDP figures failed to last and let prices sink to a one-month low. Earlier in the week, China, weak refinery demand and slumping tech stocks all conspired to keep energy prices low, with prices oscillating around $73 a barrel. U.S. gross domestic product grew at a seasonally adjusted 5.7% annual rate in the fourth quarter, the Commerce Department reported on Friday, its fastest pace in six years. The previous quarter had registered growth of 2.2% and the year-ago period saw a downturn of 5.4%. For 2009 as a whole, GDP contracted by 2.4%, the worst record since 1946.

The Precarious State of our union

In this week's much anticipated State of the Union address, President Obama again demonstrated his poor understanding of the fundamental problems that confront our nation.  By following the advice of the same people who helped guide our economy to the precipice of total collapse, Obama now threatens to push it over the edge. Notwithstanding his well crafted lip service regarding future spending restraint, the essence of his current program is for more government spending and larger deficits. For all his talk about job creation, his policies will further burden those who might otherwise create those jobs with higher taxes and more regulation. While he did call for tax cuts for the middle class and offered what amounts to bailouts for those struggling to repay student loans, such cuts do nothing to promote growth in the near term and will add to the deficits in the long term.

Geronimo!

As a former army parachutist with a bad head for heights, I recall standing in the doorway of an aircraft while my jumping instructor shouted: "Don't look down!" He understood that my unease with parachuting combined with the sight of thousands of feet of open air could be enough to elicit panic. Many investors in today's American stock and bond markets appear to be getting the same advice. While in my predicament, I had a parachute and a rudimentary understanding of how to use it, I fear that American investors have nothing to break their fall. Looking down from the lofty nominal heights of today's American stock and bond markets, there is cause for real concern.

“You’ve Got Mail”

It’s been said that if you tell 100 people something bad is going to happen 50 of them will hate you immediately, and if you are right, the other 50 will hate you as well. Over the years I have found that axiom devastatingly true and last week was no exception. Indeed, shortly after releasing my strategy report last Tuesday I received a number of emails. This one was typical: “Mr. Saut: In my life I do not believe I have encountered a larger burst of hot air than regularly shows up in your weekly so called commentary. More importantly, every time you have gotten bearish since your admittedly good ‘call’ of the market’s bottom last March, the stock market has rallied. The beginning of 2010 is just the latest example. Why don’t you get another job?!”

Congress sacks samoan economy

Like many football fans around the country, I recently tuned into a heavily promoted 60 Minutes segment on the uncanny ability of tiny American Samoa to produce a steady stream of NFL players. Although it was certainly interesting to learn how Pacific island warrior culture translated seamlessly into the disciplines of American football, and how the island's players adapted to the hard-scrabble terrain and poorly funded athletic fields, the most interesting aspect of the piece concerned economics rather than sports. In passing, the narrator mentioned that American Samoa had recently experienced major setbacks, both natural and man-made. Earthquakes and tsunamis had left scores dead and inflicted major damage on the islands' infrastructure. More ominously, one of the two major tuna canneries, which together accounted for up to half of the islands' private sector jobs,[i] had closed. If the second cannery closes, as 60 Minutes mentioned is a distinct possibility, American Samoa will become completely dependent on Federal support. Whether the reporters considered the subject off-target for their piece or simply could not connect the dots, the pending economic disaster was left largely unexamined. However, the Samoan situation offers a very clear lesson for the rest of America about how government policies can devastate an economy, and how the road to hell is paved with good intentions.

Reflections across the pond

Having been among the economic engines of Europe for much of the past decade, it appears as if the British economy has run out of steam. Inflation is rising while bankruptcies and unemployment continue to swell. It is a problem that would have left Lord Keynes' head spinning. In many ways, the responses of the U.S. and U.K. governments to the financial crisis have been very similar. So far, the American advantages in size and reserve currency status have allowed us to avoid the storm-clouds now descending upon Britain. But these advantages only provide a temporary respite. In the meantime, the slow-motion collapse in Britain offers a glimpse of our own future - and a chance to prevent it.

“Neverland?!”

I recalled Ms. Duncan’s comments last week, about people easily relating to fantasy inside the D.C. beltway, as I sat in front of a camera waiting to do a segment on network TV. While I waited, the voices of the members of the Financial Crisis Inquiry Commission (FCIC) resonated in my ear. While it’s true they are not currently members of Congress, most of them have been in politics at one time or another, and all of them were appointed to the FCIC by our Congressional leaders. Accordingly, most of them are just as political as Congress. There was one member of the commission, however, who was/is truly qualified (IMO) to opine on what caused the financial fiasco. Brooksley Borne, a name likely unknown to anyone outside of my business, warned of the pending crisis when she was chairperson of the Commodity Futures Trading Commission (CFTC) in the late 1990s, but her warnings were ignored by our Congressional leaders and therefore by the regulators responsible to Congress. And that, ladies and gentlemen, is the real story behind the financial crisis.

Reliance Mutual Fund is one of the fastest growing fund houses in the industry

For a common man interested in the meteoric rise of the Indian stock market, there is no better financial instrument than a mutual fund to get all the advantages of investing in the markets directly at a lower cost, without having to worry about the expertise required to invest in stocks. A mutual fund is a trust that pools the savings of investors who share a common financial goal. The money thus collected is then invested in shares, debentures and other such capital market instruments. Mutual fund schemes cater to needs like financial position, risk tolerance and return expectations of investors. The income earned and the capital appreciation realized is then shared with the investors in the proportion of units owned by them.

The Real clinchers for SBI Life have been customer loyalty and performance

The performance of the insurance sector in financial year 2008-09 was largely influenced by the sub-prime crisis. The sub-prime crisis which started in the United States in late 2007, evolved as a financial crisis in the US and later engulfed Europe and UK. By late 2008, it seeped into Asia as well. As a result, the financial meltdown deepened in many countries of the world, thus forcing the respective governments to take necessary steps to come out of the catastrophe. Besides increased unemployment in various countries, economic growth was also hampered. Even IMF and World Bank lowered the world economic contraction for 2008-09 to 1.1%, lower than what was projected earlier.

Best time to invest in the Indian Hotel Industry sector

Incorporated in 1986, Royal Orchid Hotels Limited (ROHL) operates 13 properties across seven destinations with 1,093 rooms across India along with its subsidiaries, joint ventures and associates. Of these, five properties are located in Bengaluru, two each in Mysore and Pune and one each in Jaipur, Goa, Hyderabad and Ahmedabad. ROHL has properties of various categories across key business and leisure destinations to cater to a wide array of customers. Most properties of the company are categorized under four distinct brands viz. Hotel Royal Orchid (five star business hotels), Royal Orchid Central (four star business hotels), Royal Orchid Suites (four star extended stay hotels) and Royal Orchid Resorts (leisure hotels). In addition to this, it operates one property under the brand called Peppermint in Hyderabad and one under the international brand called ‘Ramada’ in Bengaluru. The company has a distinct unique strategy and the emphasis is on low set-up cost through the combination of ownership and asset light properties (leased) leading to higher returns. The company covers all aspects of the hospitality industry like rooms, catering, restaurants, bars, etc and has a tie-up with Wyndham Hotel Group for Ramada brand of hotels.

Aurobindo Pharma aims to increase its formulations business

One of India’s many success stories, the pharmaceutical industry is ensuring that essential drugs of good quality are made available at affordable prices to the vast population of the country while competing with some of the best names in global markets. Leading the pack is Hyderabad-based active pharmaceutical ingredient (API) manufacturer Aurobindo Pharma Ltd. The company was promoted in 1986 by Nityananda Reddy and a small, highly committed group of professionals. It became a public venture in 1992 and commenced operations in the year 1988-89 with only a single unit manufacturing semi-synthetic penicillins (SSPs) at Pondicherry. Aurobindo Pharma went public in 1995 by listing its shares in various stock exchanges in the country. The company is the market leader in semi-synthetic penicillin drugs. It has a presence in key therapeutic segments like SSPs, cephalosporins, antivirals, CNS, cardio-vascular and gastroenterology. The company has an addressable market estimated at US $209 billion for its product basket. This buoyant trend for generics is expected to continue and Aurobindo will seek to ride the trend. Company chairman PV Ramprasad Reddy says, “We will be the best partner for all our stakeholders. I have a dream for Aurobindo as well as courage and stamina to transform ourselves into one of the top three pharmaceutical companies in the country aided by our dedicated team of over 6,900 people. We shall continue to shape our organization for the future and promote the interests of all our stakeholders.” He says, “Members will appreciate our successful track record in converting opportunities throughout the product chain has demonstrated the depth of our skills and expertise. We are confident that we can continue to deliver on our promises underpinning these competencies. Our performance culture will remain the hallmark of our success and an assurance for all our stakeholders. Our company’s essential strategy and direction continue to remain unchanged.” Reddy adds, “We shall pursue strong growth and solid returns from an integrated and internationally spread pharmaceutical business. The emphasis will continue to be on increasing the formulations business, adding to the product pipeline and gaining meaningful presence in premium as well as emerging markets.”

Sterlite Industries remains a good long-term player

India's largest non-ferrous metal company Sterlite Industries is the best bet for India's growing appetite for non-ferrous metals. The main reason is that it is one of the largest players in India having the advantage of its own mines. Also, its presence across major metals like copper, aluminium, zinc and lead makes this company well diversified. The growth of the company will closely follow since the demand for these metals keeps on increasing as the economy grows. Besides, Sterlite’s plans to foray into the power sector will be the growth driver of the company in the future and could be rewarding for shareholders in the long run.

Demand for IT will continue to improve in the coming quarters resulting in higher volumes for Indian companies

The Indian IT sector has gone through a rollercoaster ride in the last three years. The sector, which had badly underperformed in the last two years, has started outperforming the broader indices this year. Consider this: the BSE IT Index declined by 16% in calendar year 2007 compared to a 46% rise seen in case of the Sensex. In 2009, however, the BSE IT Index surged upwards by a whopping 124% compared to 76% increase in the Sensex. The year 2008 was obviously a bad year for both the indices due to the global financial meltdown. Now that investors are showing increased confidence in the IT sector, it is better to understand this sector in slightly more detail and carve out the investment strategy for the year 2010.

Poland's Economy is no joke

Watching the world's leaders stumble their way through the economic crisis, it often feels as if political success and economic understanding are mutually exclusive. Even the Chinese, who over the past generation have engineered a dramatic turnaround from their Maoist economic nightmare, show a remarkable willingness to pursue a monetary policy (a currency peg to the U.S. dollar) that yields no benefit to their citizens. Amid this morass of economic quackery, it is refreshing to see a clear ray of sanity emanating from one country: Poland.

Predictions?!

“It’s tough to make predictions, especially about the future.” So said Yogi Berra in an era gone by. Yet, every year, during the week of the Epiphany, we make predictions about the year ahead, write them down, and lock them up in our safety deposit box to be read the following year. This year was no exception. Accordingly, last week we opened the lockbox and placed this year’s predictions in it and retrieved last year’s list. Interestingly, a number of last year’s “guesses” were smack on the mark. Of course we jest, yet we find it just as silly that Wall Street indulges in a similar charade as pundits pontificate on what is going to happen in the new year. Indeed, every December the media trots out the same “seers” to predict where the various markets will be 12 months later. Take Barron’s as an example. For as long as we can remember Barron’s has polled the same Wall Street strategists as to what they were forecasting for the year ahead.

Things fall apart in Eurozone

As fears of a dollar meltdown have loomed ever larger in recent years, major investors, including central banks, have moved significant portions of their cash reserves into the euro, the currency of the European Union (EU). And while it is true that the euro offers some shelter from the American economic catastrophe, the currency does come with baggage that investors should not ignore. Introduced as an accounting medium in 1990, the euro became an actual currency in 1992. It is currently issued by 16 of the 27 EU member countries, representing some 329 million people. With almost $1 trillion in circulation, it is the world's largest physical currency.

Regulators seek to throw light on hedge fund impact in energy trading

Do hedge funds have an impact on energy trading? While the answer might seem intuitive, the debate as to whether they actually do has come to resemble the medieval theological dispute about how many angels can dance on the head of the pin. Because, like angels, many trades in energy futures are invisible, and it is often not possible to pinpoint where they take place. And yet, for most of us, including lawmakers on Capitol Hill, it seems obvious that when hedge funds buy and sell billions of dollars worth of oil and gas futures, it must be having an impact on energy prices. While hedge funds and other speculative traders would never dream of taking delivery of a barrel of oil, their trading activity affects the prices for actual consumers of oil and gas and their downstream customers – or so it would seem.

It's not our fault

It seems that the primary qualification needed by any chairman of the Federal Reserve is the ability to never admit error, no matter how damning the evidence. During his tenure on the job, Alan Greenspan set the standard for implausible deniability. But in a speech last weekend in Atlanta, current chairman Ben Bernanke did the Maestro one better. In a tortured academic dissertation, Bernanke explicitly denied any Fed culpability for inflating the housing bubble and for the financial crisis that began when it burst. Despite his best efforts, no one seemed particularly convinced. By taking such an absurd stand, he has destroyed any credibility he may have had left. In his presentation to the National Economic Club, Bernanke claimed that ultra-low interest rates in the early in the Bush years were appropriate given the conditions at the time, and that they therefore did not a contribute to the housing bubble. Instead, he laid blame squarely at the feat of an "under-regulated" financial sector which had designed and sold unconventional and exotic mortgage products, such as adjustable-rate and interest-only mortgages. According to Ben, it was these irresponsible lenders (who he now hopes to regulate), not low interest rates, that caused the housing bubble.

Annus Horribilis

Now that 2009 has passed into history, analysts have flooded the public with their opinions on how the events of the past year will impact the coming years. While most are optimistic, I feel that last year's developments have greatly exaggerated the imbalances in the U.S. economy. Although we may see a temporary respite from the turbulence, these mistakes will hinder our long-term viability. I fear that we have gone down a road that will destroy the value of the dollar and may even threaten the political stability of the United States. While celebrating nominal gains in GDP, consumer confidence, and home prices, most commentators conveniently ignore the deep freeze that persists in the private credit markets. The lack of risk capital continues to strangle small businesses - the main creators of new jobs. The Administration has only worsened the situation by positioning itself as an enemy of business, creating great uncertainty among entrepreneurs. So moribund is the labor market that the economic boosters now cling to the oxymoronic hope of a "jobless recovery."

Lessons

Year-end letters are always hard to write because there is a tendency to talk about the year gone by, or worse, attempt to predict the year ahead. Therefore, we are titling this year’s letter “Lessons” in an attempt to share some of the lessons that should have been learned over the past year. We begin with this quote from an Allstate commercial featuring Dennis Haysbert: “Over the past year, we’ve learned a lot. We’ve learned that meatloaf and Jenga can actually be more fun than reservations and box seats. That who’s around your TV is more important than how big it is. That the most memorable vacations can happen ten feet from your front door. That cars aren’t for showing how far we’ve come, but for taking us where we want to go. We’ve learned that the best things in life don’t cost much at all.”

Is the Nabucco Pipeline worth the projected $11.4 billion

Inside Beltwayistan, a number of Bushevik oil patch zombies still roam the recession-blasted landscape mindlessly chanting their Caspian mantra, “Happiness is multiple pipelines” - with the caveat that they flow westwards and bypass both Russia and Iran. They’ve now added a new word to their vocabulary, “Nabucco,” and worse, have bitten a number of Obama administration officials and visiting European politicians, who have joined their shuffling ranks. Their thinking remains somewhat clouded by primordial memories of Bush’s “fuzzy math,” as the statistics about Nabucco are contradictory, to say the least. State Oil Company of the Azerbaijani Republic (SOCAR) vice president Elshad Nasirov is now threatening to start selling Azerbaijan’s natural gas, currently Nabucco’s sole projected provider of throughput, to Asian countries if Europe further postpones Nabucco’s construction

Gold ETFs have made investing in the yellow metal more convenient and competitive

Gold recently touched new record highs and has been rewarding investors richly. It has outperformed all other classes of investment in the past one year. But the billion dollar question or rather the bullion dollar question is whether gold will continue its upward trajectory or whether the current rally has peaked out in the near term. Whatever the answer, one thing is for sure, gold as an asset class is indispensable and should form an integral part of each and every individual’s portfolio. This is because the yellow metal has proved to be the best hedge against inflation, the asset with maximum liquidity, a financial protection during times of economic or political crisis or war as well as a proven entity with the least value erosion as compared to other asset classes such as equity, debt instruments, commodities, etc. With the dollar getting weaker with each passing day, investment in gold has been rising steadily with gold becoming the natural fall back safety net against currency erosion. The quantum of amount allocated varies from individual to individual and is basically governed by the risk appetite, fund availability, goals and the time frame in which these goals are to be achieved. There are a variety of ways by which an investor can invest in gold. He can buy gold in the physical form namely gold bars, gold biscuits or gold jewellery. There is also the new kid on the block called gold ETFs (Exchange Traded Funds).

A shot in the arm: Indian pharmaceutical sector has a bright future

Pharmaceutical manufacturing is a research-based industry in India. Our country is the second largest producer of pharmaceuticals by volume and 13th by value. It accounts for around 8% of the global production. The Indian pharma industry is highly fragmented and employs around 5,00,000 people directly. Presently the contract manufacturing outsourcing market is worth around $1 billion and is growing at over 40%, thrice the global market. The size of the Indian pharma industry was believed to be around $17 billion in 2007-08 with exports consisting of nearly 52% of the total market. In India, approximately 270 research-based pharmaceutical companies and 8,000 small generic companies make up a highly competitive market that produces high quality medicines at costs lower than any other country. There are about 119 US Food and Drug Administration (FDA) approved and 84 UK Medicines and Healthcare products Regulatory Agency (MHRA) approved plants.

Caught in a tug-of-war: Bank consolidation in India

Considering the growth prospects of India, it can easily be said that banking and financial services will be of key importance to fuel the growth in the future. Currently there are around 34 listed banks catering to the needs of the nation and about 70% of the market share rests with government-owned banks. However, in a world where size is equated to financial soundness, Indian banks are mere pygmies. India’s largest commercial bank, the State Bank of India stands in the 57th place in the list of top 1,000 commercial banks’ ranking by Fortune. Its assets are a tenth of the world’s biggest bank, Citigroup. Even Chinese banks are far larger than banks in India. The Industrial and Commercial Bank of China’s (ICBCs) deposit base is eight times that of SBI. According to a recent study by Associated Chambers of Commerce and Industry (Assocham), consolidation in the Indian banking sector is necessary to enhance global competitiveness. Presently, banks are not able to compete in the global arena in terms of fund mobilization, loan disbursal, investment and rendering of financial services due to the fragmented nature of the industry.

Proceed with caution: US, Europe and Asia economy outlook and GDP forecast

Finally, we have a reason to be happy. The global recession seems to have come to an end. World economies, including the US posted growth in GDP numbers in the latest quarter. But does it give an immediate reason to party? Not exactly. Barely a year after the collapse of the Lehman Brothers, the world seemed to be getting in order. However, the Dubai debacle brought back risk into the equation. Fear also looms large over East European countries where deficit is nearly four times higher than the acceptable levels. Hence party time still seems some moons away. Recovery is still in a ‘work in progress’ form in many economies. No economy has posted normalcy without some or the other stimulus. So, before fixing our eyes on select economies, let’s remember that stimulus-propelled recovery is a myth because only when the clutches are taken away do we get to see how the economies move without support. The world has a new order going forward. While there are differing opinions, there is no denial of the fact that the East is stronger than the West. According to a late November report on global economics, commodities and strategy research, Goldman Sachs economists expect a recovery with 4.2% global growth in 2010.

Can Iraq Escape the Resource Curse

What was once considered a pipe-dream could become reality: after decades of dictatorship, war and international sanctions, Iraq’s massive oil reserves are set to be tapped proper and the country once known for two overflowing rivers could be crowned oil king. If the seven oil projects awarded to foreign oil companies this weekend, and the three from an auction earlier this year, develop as planned, within eight years, Iraq will see its oil production capacity leap to more than 12 million barrels per day (bpd). “We think it is a big victory for Iraq to be able to be a leader in the world,” Iraqi Oil Minister, Hussain al-Shahristani, said after the auction. Saudi Arabia, the world’s largest producer at 8.18 million bpd, has a capacity of just over 11 million bpd today, after slower demand growth halted plans to expand to 12.5 million bpd by the end of this year.

Bernanke presses his luck

The vast majority of economists now say that the recession is over. Many expect nominal GDP growth as high as four percent in 2010. Now, with the economy assumed to be back on stable footing, some in the private sector are starting to talk about inflation. While agreeing that growth has returned, the Federal Reserve and the Obama administration do not see inflation as a threat. To them, the political costs of ongoing recession far outweigh any medium-term considerations about the value of the dollar, hence their determination to hold short-term interest rates to around zero. This has created unnatural conditions in the U.S. Treasury market and is limiting the prospects for real growth. 

Dropping the bomb on health care

As business owners undergo the yearly ritual of passing through eye-popping health insurance premium increases to their employees, it's easy to understand why any attempt at health insurance reform would be met with some degree of hope. Unfortunately, President Obama and his Democratic allies in Congress are about to take a very bad system and make it unimaginably worse. While ramming their new legislation through Congress, the Democrats have taken great pains to point out that they do not intend to "socialize medicine."  But make no mistake, that's where we're headed. Even if some na?ve centrists believe that their efforts have denied the Left a total victory, the practical implications of the current legislation sow the seeds for complete capitulation.

China secures gas supply from Turkmenistan: Who’s the true winner?

On December 14, 2009, an inauguration took place that deserves more attention than it received because it marks an economic power shift to the benefit of three Central Asian countries and China and to the detriment of Russia.  The presidents of China - Hu Jintao, Turkmenistan - Gurlanguly Berdymukhamedov, Kazakhstan – Nursultan Nazarbayev, and Uzbekistan -Islam Karimov, inaugurated the Central Asia–China gas pipeline that links Turkmenistan’s natural gas fields on the Caspian Sea to the Western Chinese border in the Xinjiang province. This pipeline then connects with the West-East Gas Pipeline that crosses China and supplies cities as far as Shanghai and Hong Kong. 13 billion cubic meters (bcm) are supposed to transit through this pipeline in 2010, 30bcm by the end of 2011 and over 40bcm by 2013. Ultimately that pipeline could supply China with more than half of China’s present day natural gas consumption.

Turning Point?

Winter officially begins today with the arrival of the Winter Solstice. Recall that solstice means “standing-still sun;” and on December 21st at 5:47 p.m. (EST) the sun will “stand still” over the southern Pacific Ocean (Tropic of Capricorn). At that time the sun’s rays will be directly overhead, giving the impression that the sun is truly standing still. This phenomenon occurs twice a year (winter solstice and summer solstice), for as Earth orbits the Sun the north-south position of the Sun changes due to the Earth’s changing “tilt.” The dates of maximum tilt to the Earth’s equator correspond to the winter and summer solstice, while the dates of zero tilt are termed the vernal and autumnal equinox. In these latitudes most people “frame” the winter solstice as the shortest day of the year. The quid pro quo is that the French consider it the longest night of the year! No one is quite certain how long ago humans recognized the winter solstice, and began heralding it as a turning point, but a turning point it is since the sun will set a minute or two later each day from here into the summer solstice (June 21st), which just happens to be the shortest night of the year

By Popular Demand

As for the e-mailer’s point of “profits only being the result of cost-cutting,” we have often spoken of this recession’s anomaly whereby productivity soared due to “cost cutting.” Since Corporate America had no other lever to “pull” is it any wonder it turned to cost-cutting, which was the only vehicle left under its control. We have also argued that such cost cuts would allow any incremental pick-up in final demand to flow to bottom-line earnings. The result is that profits have exploded at the largest ramp-rate since mid-1975; and if past is prelude that profit surge should lead to an inventory re-build that drives a capex cycle that leads to a hiring cycle and then comes a pick-up in consumption. As our friends at the astute GaveKal organization opine, “Following the hiring cycle is consumption. Importantly, consumption comes on the back-end of the cycle.”

Buy on the cannons and sell on the trumpets!

To be sure, Friday’s figures were clearly a “positive news announcement” given that employment payrolls declined a much less than expected 11,000 in November versus the median forecast of down 130,000. Meanwhile, there were sharp cuts in the two previous months’ reports for a combined improvement of 159,000 jobs. The result was an unemployment rate of 10.0% instead of the estimated 10.2%. Interestingly, Average Weekly Hours worked rose in November, as did Temp-Help (52,400 from 44,100). These are not unimportant data points since if past is prelude they suggest there will be new hiring in the months ahead. Then too, the GDP per worker stands at roughly $122,000 and it rose by 2.8% in the last reporting period. In past recessions any time this figure has increased by 2% or more it has defined an inflection point for corporate hiring.

As Good As Gold

As the price of gold has pulled back from its recent run up to $1,200, many investors are left to ponder what exactly drives the movement of such an important and financially sensitive commodity. Most people are aware that gold prices respond to inflation expectations and that central banks, as the largest holders of gold, are big players in the market. But there is a very murky understanding as to why and how these players affect prices, and what their ultimate goal may be. Although I profess no great insight into how central bankers from Bombay, Berlin and Beijing are looking to manage the global gold market, a better understanding of how our current system came to be provides some clue about gold's recent behavior.