In his latest weekly New York Times  column, Nobel Prize-winning economist Paul Krugman put forward arguments that were so nonsensical that the award committee should ask for its medal back. Recent rhetoric from Washington has put the economic relationship between the U.S. and China squarely on the front burner, and Krugman is demanding that we crank up the flame. This week 130 members of Congress sent a letter to Treasury Secretary Timothy Geithner demanding that the Obama administration designate China as a "currency manipulator". Following that, a bipartisan group of senators introduced a bill that looks to force the Obama administration's hand. For its own part, Beijing invites criticism by continuing to deny its utterly obvious currency agenda. 

Nigeria's controversial oil industry bill is expected to eventually pass but the government may find it tough to later shift gears as international oil firms targeted under the legislation scale back their investments. The Nigerian parliament is debating the Petroleum Industry Bill, an attempt at oil-sector reform in which Abuja can negotiate “downward” a foreign firm's share of profits and impose higher royalties and taxes, said Peter Pham, director of the Africa Project at the New York-based National Committee on American Foreign Policy and an associate professor at James Madison University in Harrisonburg, Virginia. Despite potentially spending billions of dollars, a firm not seen as “fully exploiting” an oil block may risk having it turned over to a Nigerian upstart instead, Pham added.

In the beginning of February ’10, capital market regulator Securities and Exchange Board of India (SEBI) made crucial changes in the valuation methods of liquid funds and ultra short-term funds that could hurt their current popularity in the short term. But in the long term, it is aimed at steering the industry focus more on retail than institutional investors. From 1st July this year all debt funds will have to value their debt papers as per the prevailing market prices if they mature after a period of three months, down from the earlier six months. The same valuation method rule will be applied to money-market instruments as well. SEBI had made this mandatory through a circular issued on 2nd February. As a result, liquid plus schemes will become volatile depending on market swings and will no longer show consistency in increase or decrease in the net asset value under the current amortization method.

Time is the biggest healer. The reason lies in the 2010-11 Budget speech of Finance Minister Pranab Mukherjee. He said, “In 2009 when I presented the interim Budget in February and the regular Budget in July in this august House, the Indian economy was facing grave uncertainties. Growth had started decelerating and the business sentiment was weak. At home, there was added uncertainty on account of the delayed and sub-normal southwest monsoon, which had undermined the kharif crop in the country.” The FinMin added, “There were concerns about production and prices of food items and its possible repercussions on the growth of rural demand. Today I can say with confidence that we have weathered these crises well. Indian economy now is in a far better position than it was a year ago.”

With the recent fuel price hike and Budget 2010-11, the UPA government has demonstrated a will to reduce fiscal deficit to 5% levels. The current deficit, at nearly 7% of GDP, is a testament to two broad factors: increased government spending during UPA’s first tenure and measures to counter effects of the September ’08 meltdown. The latter in the form of a robust stimulus package announced in January ’09 helped cope with a looming downturn. Inevitably, a rollback was the moot point prior  to Union Budget 2010-11. The stimulus package - comprising cuts in excise duty and CENVAT rates - was effective in calendar year 2009 to enable an approximate 7% growth in GDP. The manufacturing sector was a significant beneficiary of this.

The markets have already given a thumbs up to the Budget as the Sensex soared before giving up some gains. Industry stalwarts have been analyzing what aided markets despite low expectations prior to the Budget. Also apprehensions with respect to the extent of the stimulus withdrawal possible in the Budget had kept market participants away from investing. Union Budget 2010-11 is not a gamechanging Budget but is an incremental and conservative one to keep the economy on track. For the pharma industry the increase in the weighted deduction for in-house R&D from 150% to 200% is a positive. It will be effective till 31st Mar ’12. The finance minister’s decision to improve food security and healthcare systems in the country is also highly commendable. In the current years’ Budget, the government increased the outlay to the healthcare sector to Rs 22,300 crore from Rs 19,534 crore. The annual rural health survey for effective spend under the NRHM scheme and the convergence of NREGA with wider health insurance coverage through Rashtriya Swasth Bima Yojana is an innovative step to increase healthcare cover in rural India. The only positive step to help indigenous manufacture of consumables and implants is the import duty waiver for the manufacture of orthopedic implants.

Mamata Banerjee, the Union Railway Minister, under the leadership of Prime Minister Manmohan Singh, played safe and presented a please-all budget on 24th February, which according to her is aimed at “not only growth but also the common man”. With her decision to keep railway tariffs unchanged for the next year, she managed to bring cheer to the masses but could not provide concrete answers as to how she would meet expenditures to overhaul the 157-year-old railway network. Through the budget, she made way for the private players to join as partners in important projects. This will allow the railways to raise money and fund key projects. The proposed budget laid an outlay of Rs 41,426 crore. Of these, Rs 4,411 crore will be spent on laying new railway lines covering 1,002 km and Rs 1,302 crore will be spent on passenger amenities. This is the highest ever planned outlay to provide an efficient railway network through dedicated freight and passenger corridors.

Convergence with International Financial Reporting Standards (IFRS) by 2011 has become mandatory. The Ministry of Corporate Affairs (MCA) recently announced dates for achieving convergence with IFRS by next year. This landmark announcement has set to rest the uncertainty surrounding IFRS convergence in India. While the countdown to convergence has already begun, companies are confronted with formidable challenges, on the verge of initiation of the actual transition process. They have innumerable queries awaiting reply. Several important issues need to be addressed urgently. The phased approach to IFRS convergence - which is consistent with the current proposal in the United States of America - will greatly smoothen the IFRS convergence journey for both medium-sized as well as small listed companies. Transition from the Indian Generally Accepted Accounting Practices (IGAAP) to the International Financial Reporting Standards (IFRS) has gained momentum over the last few months.

Crude oil prices tread water for the week as uncertainty about demand continued to weigh on the market. Prices were down slightly on the week, with the benchmark West Texas Intermediate settling on Friday at $81.24 a barrel, compared with $81.50 a week ago. Not even relatively bullish forecasts for oil demand, such as the International Energy Agency’s report on Friday raising its forecast by 70,000 barrels a day for 2010, or the decline in the dollar could propel oil prices forward. One analyst even predicted crude oil prices dipping below $60 a barrel in the second half of the year. Ronald-Peter Stöferle, a raw materials analyst at Austria’s Erste Bank, said that oil is relatively expensive by historical standards, and current prices are not justified by demand.

Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkable accommodating fellow named Mr. Market who is your partner in private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his. Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.

Jobs data indicating that U.S. economic recovery might be picking up steam finally pushed crude oil futures decisively over the stubborn $80 a barrel threshold. Nymex’s benchmark West Texas Intermediate settled Friday at $81.50 a barrel, a seven-week high, after topping $82 in intraday trading. An unchanged unemployment rate of 9.7% and a smaller-than-expected drop in payrolls propelled both stocks and commodities higher on Friday. Earlier in the week, industry job data also came out better than expected, pushing crude just above the $80 a barrel mark. Any improvement in the labor market would translate into more commuter driving, more vacation driving this summer and generally greater energy demand, analysts said.

The elections in Iraq on March 7, 2010, are likely to serve as an important indicator of the prospects for a resolution of the long-running dispute over the administration of the ethnically mixed and resource-rich province of Kirkuk in the north of the country. The Iraqi Kurds have repeatedly called for Kirkuk to be transferred to the control of the semi-autonomous Kurdistan Regional Government (KRG), which already administers three provinces in the predominantly Kurdish north of Iraq. The other ethnic groups in Iraq – including the Arab-dominated government in Baghdad – are equally insistent that Kirkuk should remain under central control and that any oil or gas revenues should be divided between the entire population of the country rather than all going to the KRG. The failure to resolve the issue of the eventual status of Kirkuk threatens not only prospects for permanent political stability in Iraq but also hopes of extracting the province’s huge reserves and building new oil and gas pipelines from Kirkuk to Turkey, and from there to energy-hungry Western markets.

With Yemen’s oil revenues plunging, the government’s push into the gas market seemed like an economic saving grace for a state wracked by poverty and terrorism, but analysts warn more thought should be given to carving out the country's post-petroleum era. The infamous Christmas Day bomber’s attempts to blow up a jet approaching Detroit – which Yemen-based al Qaeda in the Arabian Peninsula claimed responsibility for – has drawn unwanted attention to the country’s vulnerability to terrorist movements. Dwindling oil and water resources, high poverty and illiteracy, a ballooning population, rebel uprisings and separatist movements have made Yemen ripe for extremism. Nestled in the southern tip of the Arabian Peninsula, Yemen is highly reliant on oil money, which accounts for 70 percent of the budget. But total reserves amount to about 2.8 billion to 3 billion barrels, which “really isn’t much to write home about,” S. Rob Sobhani, president and founder of Caspian Energy Consulting in Potomac, Maryland, told OilPrice.com.

It is astounding how many economists, government officials, and Wall Street strategists construe the current economic conditions as evidence of a bona fide recovery. It is a testament to the power of the rose colored glasses handed out by our nation's leading universities that such a feeling could be widely held despite the clear and present danger that compounds daily. The myopia leads us to enact policies that actually exacerbate our problems. The "remedies" are postponing, perhaps indefinitely, a true recovery. The oracles who have described the nature of this imminent recovery do so based on their conviction that consumer spending is slowly returning to levels that existed prior to the recession. New data released today seems to support this view, with consumer spending up 0.5% in January. However, missing from their analysis is any plausible explanation as to why consumers will be able to sustain such spending given the plunge in income and credit, and the lack of available savings. In fact, the same January spending report showed that personal income increased by only 0.1%, while the savings rate slowed to the smallest since 2008.

Crude oil broke through the $80 a barrel ceiling repeatedly during the week but kept falling back as hedge funds placed big bets on the Euro’s decline. The fiscal drama in Greece held global markets hostage much of the week as worries about the impact of the Greek crisis on the euro outweighed comments from Federal Reserve chairman Ben Bernanke about continued low interest rates in the U.S., pushing the euro down against the dollar and damping crude prices. The euro recovered some ground on Friday amid new reports of European aid for Greece after falling to a nine-month low of $1.3440 on Thursday. Germany’s state-owned bank KfW may take part in a planned Greek bond offering next week, according to market reports.

While the Iraqi government has made overtures to its Kurdish counterpart in the north to end an oil standoff, much remains in doubt without an actual law keeping the industry in check - rules which this time the Kurds are pressing for rather than Baghdad. For a long time, the northern Kurdistan region was seen as the most attractive oil market in the country but the latest bid rounds in December and subsequent contract signings in the south have made it suddenly “less clear that Baghdad actually needs an oil law with Kurdistan, because they’re actually doing pretty well on their own,” said David Bender, an analyst in the Middle East practice of the Eurasia Group’s Washington office. Iraq’s government initially pushed for petroleum-sector legislation, but lately the Kurdistan Regional Government (KRG) has been motivated to act “so they don’t get sort of left behind, with this new international oil interest in Iraq,” Bender argued.

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.

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.

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.

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.

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.

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.

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).

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.

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.

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.

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.

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.