Tuesday, February 3, 2009

Germany's bad bank model - Taking shape?

You will by now heard about the BAD BANK or the AGGREGATOR BANK of US that would take the bad illiquid toxic assets on to its own balance sheets to bring in much needed confidence in the financial system in the country.
Now Business week carries an article where they mention the silent developments taking place in the strongest of European economies - Germany.

DB which lost $5.2bn in 2008, is supposedly leading the developments shaping the BAD BANK model for the nation. Last Monday Hugo Bänziger, the chief risk officer at Deutsche Bank, appeared before members of the conservative Christian Democratic Union's (CDU's) finance committee to promote the potential benefits of a "bad bank."

But this bad bank may not be a single outpost of all the financial toxic assets/ liabilities like that in US but might be a series a privately held banks in Germany. Another critical difference is the risks taking would be that of the shareholders in these institutions and not that of the government. But where ever the need of liquidity will be felt - government would suply that into the system.
Thus increasingly, we are seeing an era come into being where we have the governments having greater control over our lives and through the corporations that run the economy and thus us.

In the meantime, German government is discreetly planning to nationalize Hypo real estate, a measure which would be raised a lot of outcry few months back.
And mind you folks this is something that would occur in future as a common occurence....


Britain on the brink of collapse?

Off-lately, the voices on the collapse of the British Sterling's future impending doom have gone through the roof.... Since, currency strenght represents the strenght of the economy, hence a doomed Sterling is representative of the doomed UK economy which produces few tangibles apart from limited crude production in the coming times of inflationary (Not now, but in coming times HYPER INFLATIONARY HOLOCAUST) is not far away....

Britain came very close to collapse recently as revealed by one of the government ministers ---- Have a look at the article below ----
A Rabbit In Every Hat
I’d like everyone to take note of this revelation published in the UK’s Daily Mail one week ago:
Revealed: Day the banks were just three hours from collapse
By Glen OwenLast updated at 11:21 PM on 24th January 2009
Britain was just three hours away from going bust last year after a secret run on the banks, one of Gordon Brown's Ministers has revealed.
City Minister Paul Myners disclosed that on Friday, October 10, the country was 'very close' to a complete banking collapse after 'major depositors' attempted to withdraw their money en masse.
The Mail on Sunday has been told that the Treasury was preparing for the banks to shut their doors to all customers, terminate electronic transfers and even block hole-in-the-wall cash withdrawals.
Only frantic behind-the-scenes efforts averted financial meltdown.
If the moves had failed, Mr Brown would have been forced to announce that the Government was nationalising the entire financial system and guaranteeing all deposits.
But 60-year-old Lord Myners was accused last night of being 'completely irresponsible' for admitting the scale of the crisis while the recession was still deepening and major institutions such as Barclays remain under intense pressure.
The build-up to 'Black Friday' started on Monday, October 6, when the FTSE 100 dropped by nearly eight per cent as bad news on the economy started to multiply.
The following day, Chancellor Alistair Darling began all-night talks ahead of an announcement on the Wednesday that billions of pounds of taxpayers' money would be used to pour liquidity into the system.
Source: Rob Kirby
If this is the situation in Britain, then I would ask how is US placed right now?

Till then cheers

Deflation Vs Inflation debate

For a well versed or well read person, these days and the investors all around the world - one question might be rendering their nights sleepless till the d-day arrives.

For the issue right now with the major developed economies is the debt deflation occuring, enabling the Fed and other major central banks to inflate the economy through various fiscal and monetary tools in their arsenal. The activity would go as along as the deflationary concerns are abound in the market - also giving Fed and other central banks an excuse to let their printing binge go on.

Let us see the events unfolding in the Fiat currency economies.

Your monetary theory states that the inflation/ deflation depends on the following three factors

  1. Money supply into the economy

  2. Money velocity into the economy

  3. Output of the economy

Thus, right now the velocity surely has reduced, due to the risk aversion entering the system, people hoarding money onto their Dollars and UST bills. In addition with all the unprecedented losses having taken place in the past year, Fed is providing money to the banking and financial industry to TRY to make them solvent. The estimates range from $3.6 trillion (Nouriel Roubini) to Goldman Sachs coming out with $4 trillion

Monday, January 12, 2009

Currency devaluations !

This post would just be a short one offering some insights about coming booms !
  1. Our sources tell us that some kind of devaluation of Yen is in the offing in near time in the future.
  2. Also this week is going to be extremely dreadful for gold may be going down by 10%, already it has fallen about that extent.
  3. J.P. Morgan is in increasing trouble with the stock price being bamboozeled in last couple of days. Watch out there is someting serious brewing there, we already know their derivatives book may be the reason for their impending troubles. (JPM $24.91, down $1.6)
  4. Today morning in Closing bell CNBC US, news was Morgan Stanley entering into JV business with investing into the Smith Barney of Citigroup. Mind you this is another of the ways Morgan through the US government is pumping money into the already failed Citigroup by our reckoning.
  5. US could lose 2mn jobs in 2009 - a news report by a research group

Keep up the spirits


US Debt:New Sources

As of today, US is not having bit of problem generating debt for its expenses at extremly trivial costs compared to what the emerging markets might be giving. Just go and check the returns on 1yr, 3yr, 10yr and 30yr UST bills.
Considering the balance sheet of US, pundits have started the raga of announcing that the UST is a grand bubble so start shorting it. In a way they are right, but what is the right moment to short the Treasury bubble?
What happens, when countries like China and Japan stop financing the US debt? It may be of importance if we just look at the strong winds of change in the baby boomers generation in US. There are enough indicators by the investment gurus well versed with the situation, that now baby boomers might turn to a savings oriented community rather than consumption oriented. So the savings rate are going to provide US government a sizeable proportion of the reserves making their life bit not much easier, but still it would help.

Wednesday, January 7, 2009

Another Madoff?

Did India and this world needed another of the PONZI scheme, well no one could have thought that IT sector in India and that too a top tiered company Like Satyam would be put under the cirumstances that Mr. Raju has put it in.
More so it is seemingly a combination of Enron and Madoff combined with books cooked and assets being shown when none were there.
It is certainly a big blow for Indian industry reputation but to the experts it would not be a surprise considering, such events are more likely to happen when the things are tough and thus it becomes all the more difficult to keep all the skelotons in your cupboard.
What is clear, that increasingly examples are coming to light in this era of greed where promoters even after having taken their companies public, have treated them as personal fiefdom not caring about the other stakeholder interests.
May be Mr. Raju you can go and apply at the Federal Reserve since you have excellent credentials now or team up with Bernie Madoff after he is released from house arrest.

Here comes another Madoff...

Tuesday, January 6, 2009

Inflation or Deflation going forward

Hi there
Welcome to the new year. Going back and looking at 2008, it was a tough year for most of the investors. Well, I what our think tank says: 2009 might turn out to be equally if not more volatile because of the interventions by the Central banks and governments around the world. After all Interventions dont let the market funtion the natural way.
Alot my reads these days have the mention of the debate going on about if Inflation or Deflation will have taken hold going forward and thus what are the implications for investments for the year 2009 and beyond.
Well, I like to bring to light a definition of inflation in terms of two major theories, given by two major school of thoughts.
According to the Austrian school of thought: Inflation is a monetary event and not an economic one, thus the relative increase in the money supply compared to the economic activity will lead to more money compared to assets, thus would lead to an increase in the asset prices.
Thus increase in money supply relatively, leads you to inflation.
Whereas, Keynesian school of thought says that inflation is an economic event, wherein the event itself leads to a general increase in the prices of assets. That means economic advancement leads to increase in the prices of goods over a period of time.
Going into the details of the definition is not the aim of this post, but let me state that Keynesian school has always used by the ruling elite to obfuscate and mislead the masses to retain their grip over the scheme of things and as usual general public content being safe with status quo does not dwell and study history has no inkling of what is right way.
So, going by the Austrian school of thought, second half of 2008 has been a pure deflation because of the evaporating money and money supply in critical markets: be they debt or credit or commodity markets.
But would it remain so going forward?
Make your own conclusions: Considering the capital infusions Central banks all over the world have made into the system and the lower interest rate regimes they all are embarking upon thus making the availability of the money cheaper + punishing the savings of people, money supply and velocity will have to increase over time.
Thus one factor that one would have to watch out for would be the money velocity which right now in US is below 1, meaning that the capital infused into the system has not trickled down into the veins of the economy. If the people all over the world, decide not spending whatever money has been infused, thus keeping the money velocity down, then Central banks would have to create an 'expectation of inflation', so that in anticipation of prices increasing in the near term, people start spending and thus the cycle tends to feed itself leading to what is generally being termed by the experts right now as INFLATION HOLOCAUST.