21 Dec 2009
On the first day of Christmas a large, private Indian bank informed its customers that credit limits would be reduced by 15% and the cash withdrawal facility was being, well, withdrawn. This message went not to delinquent but good customers paying over 36% interest a year.
The week before the RBI circulated an inquiry of bank holdings in debt mutual funds. The concern was that money printed by the RBI was not being lent but deposited in mutual funds and delivered to corporate clients in the commercial paper market because bank lending limits had been exhausted.
The banks response to the RBI was not to stop the mutual fund subterfuge but reduce lending to paying customers.
Depriving paying customers of spending power at the end of the quarter is not a choice banks make willingly unless there is much more to the story. The runaway food price inflation, 20% year over year, has handcuffed the RBI sooner than expected. Banks need to reduce risk and make room on the balance sheet for more government paper.
The ten year government bond yield has sauntered north of 7.75% from 7.4% one month ago. Rising rates lead to declining price for bonds held in bank trading portfolios and those lesser values must be marked to market at the end of each quarter.
Dealers are holding $10 billion worth of an unpopular, off period, 9 year and 11 month bond that is flailing in the face of a new ten year issue. There are few buyers for the new paper, and no buyers for the old paper which, even though it matures one month earlier, is 20 basis points less valuable.
The RBI plan to withdraw the 3% of GDP government spending over the course of the next two years has been truncated. In 2010 short term rates will rise by 3% while government borrowing will rip long term rates above 8.4%.
The Planning Commission is to be commended for its useful insight requesting $50 billion, half annual government borrowing, to prepare 500 million workers for jobs in 2030. Presumably a few of those jobs would be for a new economic team.
Make it a line item for the season of giving.
Monday, December 21, 2009
Friday, December 18, 2009
Clairvoyant
18 Dec 2009
The Treasury Secretary went up the hill to fetch a pale of integrity for TARP claiming that banks would repay TARP money early and there would be more of it for the taxpayer, money that is.
Citibank dutifully priced and sold shares to return $17 billion to Treasury which, along with $38 billion in tax concessions, removed Citi from the ICU list and permits it to pay executives market rates for losing money at a declining rate.
Unfortunately Citibank sold the shares at 3.18, which Treasury bought at 3.25 and were trading at $4.05 before the Secretary went up the Hill. Treasury says now it will hold the share for twelve months, conveniently past the mid term elections next year.
Citibank has friends in the Gulf. Saudi has come to its rescue early and often. In May of 2007 it was Abhu Dhabi which invested $7.5 billion at $37 a share with the right to buy more at $37.
AD was miffed that Citi sold shares at 3.18 without the courtesy to reduce the strike price on AD’s converts (the right at which AD can buy more Citi shares). Newly litigious AD sued Citibank for “misrepresentation” while it slipped $10 billion to Dubai to keep it out of the Arabian Sea.
The Kuwaiti's, though, got out $1 billion ahead of the game in Citi stock a week before the Secretary went up the Hill.
Clairvoyant.
The Treasury Secretary went up the hill to fetch a pale of integrity for TARP claiming that banks would repay TARP money early and there would be more of it for the taxpayer, money that is.
Citibank dutifully priced and sold shares to return $17 billion to Treasury which, along with $38 billion in tax concessions, removed Citi from the ICU list and permits it to pay executives market rates for losing money at a declining rate.
Unfortunately Citibank sold the shares at 3.18, which Treasury bought at 3.25 and were trading at $4.05 before the Secretary went up the Hill. Treasury says now it will hold the share for twelve months, conveniently past the mid term elections next year.
Citibank has friends in the Gulf. Saudi has come to its rescue early and often. In May of 2007 it was Abhu Dhabi which invested $7.5 billion at $37 a share with the right to buy more at $37.
AD was miffed that Citi sold shares at 3.18 without the courtesy to reduce the strike price on AD’s converts (the right at which AD can buy more Citi shares). Newly litigious AD sued Citibank for “misrepresentation” while it slipped $10 billion to Dubai to keep it out of the Arabian Sea.
The Kuwaiti's, though, got out $1 billion ahead of the game in Citi stock a week before the Secretary went up the Hill.
Clairvoyant.
Wednesday, December 16, 2009
Desert Excrement
16 December 2009
The Prime Ministers Office is paying 100% more for its mealtime onions and its intrepid economic team headed by an ex IMF professor observes that inflation will be over 7% by March 2010.
StanChart Bank thinks inflation will be closer to 8.5%. Either way, it is much higher than the RBI expectation of 5%, higher than the expected GDP growth of 7% (Asian Development Bank) before government spending is weaned, and without consideration for government borrowing to keep the printing press running through the fiscal year.
Moody’s believes that India is in a “comfortable” foreign exchange and fiscal position so it will upgrade India’s debt rating. Maybe Moody’s is reviewing data that is three years old, or the RBI supplied data that is three years old, or Moody’s is applying Nakheel Construction math to the data.
India imports capital to pay its oil bill and balance the budget. The foreign exchange position of the RBI, over $270 billion, does not come without claims. The net claim number, the amount India would have to pay or receive if creditors cashed in their chips simultaneously, is actually a negative $50 billion, plus or minus.
Now, creditors, investors, will not head for the exit at the same time, but “comfort” is in the eye of the beholder.
Creditors in Dubai have beheld that despite $10 billion supplied by Abhu Dhabi to Nakheel’s bondholders, Dubai lacks a legal framework for restructuring, or, subtly put, no bankruptcy law that protects lenders from Bedouins in the desert.
Nakheel creditors may be comforted in thorough financial analysis that reveals the only cash flow or collateral for attachment is money received by Nakheel to collect Dubai’s sewage.
Precisely.
Dubai creditors are in deep, desert excrement.
They should retain Elin Woods' California divorce lawyer who will use California’s “no fault” divorce laws to nuke the pre nuptial agreement rewarding Mrs Woods half of whatever Mr Woods was able to earn in his few waking moments.
The easy math. $1 billion divided by 14 admitted consorts is roughly $70 million each.
Mrs Woods could send flowers and chocolates to the seven in her column and have enough left over to buy a condo, or a few, in Dubai, cheap, with all the modern facilities.
The Prime Ministers Office is paying 100% more for its mealtime onions and its intrepid economic team headed by an ex IMF professor observes that inflation will be over 7% by March 2010.
StanChart Bank thinks inflation will be closer to 8.5%. Either way, it is much higher than the RBI expectation of 5%, higher than the expected GDP growth of 7% (Asian Development Bank) before government spending is weaned, and without consideration for government borrowing to keep the printing press running through the fiscal year.
Moody’s believes that India is in a “comfortable” foreign exchange and fiscal position so it will upgrade India’s debt rating. Maybe Moody’s is reviewing data that is three years old, or the RBI supplied data that is three years old, or Moody’s is applying Nakheel Construction math to the data.
India imports capital to pay its oil bill and balance the budget. The foreign exchange position of the RBI, over $270 billion, does not come without claims. The net claim number, the amount India would have to pay or receive if creditors cashed in their chips simultaneously, is actually a negative $50 billion, plus or minus.
Now, creditors, investors, will not head for the exit at the same time, but “comfort” is in the eye of the beholder.
Creditors in Dubai have beheld that despite $10 billion supplied by Abhu Dhabi to Nakheel’s bondholders, Dubai lacks a legal framework for restructuring, or, subtly put, no bankruptcy law that protects lenders from Bedouins in the desert.
Nakheel creditors may be comforted in thorough financial analysis that reveals the only cash flow or collateral for attachment is money received by Nakheel to collect Dubai’s sewage.
Precisely.
Dubai creditors are in deep, desert excrement.
They should retain Elin Woods' California divorce lawyer who will use California’s “no fault” divorce laws to nuke the pre nuptial agreement rewarding Mrs Woods half of whatever Mr Woods was able to earn in his few waking moments.
The easy math. $1 billion divided by 14 admitted consorts is roughly $70 million each.
Mrs Woods could send flowers and chocolates to the seven in her column and have enough left over to buy a condo, or a few, in Dubai, cheap, with all the modern facilities.
Tuesday, December 15, 2009
The Worm Turns
Indian advance tax paid on income admitted to by businesses is expected to rise 3% this year net of refunds despite an economy that was reported to grow by 7%.
Domestic debt mutual fund assets doubled because banks absorbed printed government money with no intention of lending but collecting interest instead.
Domestic equity mutual fund outflows increased the last two months because taxi drivers appreciate markets that double are blessings from above.
Economists agree that Indian inflation will exceed 8% next year while economic growth without government intervention will be less than 6%. The RBI will have to increase short term interest rates by at least 3% (300 basis points) while the government will continue borrow goosing ten year bond yields toward 8%
McDonalds, Dominos, Toyota, and Honda will pay more for materials but will not be able to raise prices because money for their customers will be more expensive and there will be less available after the RBI does its job.
Markets are complacent.
The cost of insurance measured by the expected price changes of options traded on stocks and indices is nestled at 20% annualized, roughly 20% below historical averages, and half of what insurance will cost if indices drop by 5%.
In January it was twice as expensive to insure lending to the Turks than the Greeks (credit default swaps which payout if the government defaults on an interest payment, wonder what the Ottoman Empire would have made of them). Today, the Turks are a better risk (cheaper insurance).
Abu Dhabi bailed out Dubai with $10 billion, $4 billion for the bond payment and $6 billion more for pain and suffering to come. The cost of this good deed was to equalize the cost of insuring oil blessed Abu Dhabi debt with that of oil less Dubai.
Major US banks have returned the TARP handcuffs foisted on them a year ago by Secretary Paulson. When summoned a year ago, the bank chiefs came to Washington early, stayed late and long enough to collect $10-$25 billion of taxpayer money each.
On the Monday morning after Oprah, the same suspects, “fat cat bankers”, claimed to be grounded by “inclement weather” and were unable to accept the President’s hospitality though they did attend the meeting by conference call.
The worm turns.
Domestic debt mutual fund assets doubled because banks absorbed printed government money with no intention of lending but collecting interest instead.
Domestic equity mutual fund outflows increased the last two months because taxi drivers appreciate markets that double are blessings from above.
Economists agree that Indian inflation will exceed 8% next year while economic growth without government intervention will be less than 6%. The RBI will have to increase short term interest rates by at least 3% (300 basis points) while the government will continue borrow goosing ten year bond yields toward 8%
McDonalds, Dominos, Toyota, and Honda will pay more for materials but will not be able to raise prices because money for their customers will be more expensive and there will be less available after the RBI does its job.
Markets are complacent.
The cost of insurance measured by the expected price changes of options traded on stocks and indices is nestled at 20% annualized, roughly 20% below historical averages, and half of what insurance will cost if indices drop by 5%.
In January it was twice as expensive to insure lending to the Turks than the Greeks (credit default swaps which payout if the government defaults on an interest payment, wonder what the Ottoman Empire would have made of them). Today, the Turks are a better risk (cheaper insurance).
Abu Dhabi bailed out Dubai with $10 billion, $4 billion for the bond payment and $6 billion more for pain and suffering to come. The cost of this good deed was to equalize the cost of insuring oil blessed Abu Dhabi debt with that of oil less Dubai.
Major US banks have returned the TARP handcuffs foisted on them a year ago by Secretary Paulson. When summoned a year ago, the bank chiefs came to Washington early, stayed late and long enough to collect $10-$25 billion of taxpayer money each.
On the Monday morning after Oprah, the same suspects, “fat cat bankers”, claimed to be grounded by “inclement weather” and were unable to accept the President’s hospitality though they did attend the meeting by conference call.
The worm turns.
Monday, December 14, 2009
Sublime
The US Congress will vote to increase the debt limit from $12 trillion to $14 trillion before the end of the year to avoid having to do so in an election year, 2010.
When does the ridiculous become sublime?
Is there a US debt Chandrasekhar Limit
The Chandrasekhar Limit is defined as:
"For main-sequence stars with a mass below approximately 8 solar masses, the mass of this core will remain below the Chandrasekhar limit, and they will eventually lose mass (as planetary nebulae) until only the core, which becomes a white dwarf, remains.
Stars with higher mass will develop a degenerate core whose mass will grow until it exceeds the limit. At this point the star will explode in a core-collapse supernova, leaving behind either a neutron star or a black hole.".
Is there a limit on the amount of debt the US can generate before a total implosion occurs (the end result of a supernova).
It seems Iceland could not print or generate enough debt to save itself. Zimbabwe has the market cornered in 10 Billion dollar notes. How long will the dollar as Reserve Currency and medium for exchange in oil last?
The US has 3 Trillion dollars committed to this "rescue" effort. Is 6 trillion too much? 9 Trillion? 30 Trillion? At what point will the system break down and go supernova?
http://seekingalpha.com/article/177907-u-s-debt-is-there-a-limit
When does the ridiculous become sublime?
Is there a US debt Chandrasekhar Limit
The Chandrasekhar Limit is defined as:
"For main-sequence stars with a mass below approximately 8 solar masses, the mass of this core will remain below the Chandrasekhar limit, and they will eventually lose mass (as planetary nebulae) until only the core, which becomes a white dwarf, remains.
Stars with higher mass will develop a degenerate core whose mass will grow until it exceeds the limit. At this point the star will explode in a core-collapse supernova, leaving behind either a neutron star or a black hole.".
Is there a limit on the amount of debt the US can generate before a total implosion occurs (the end result of a supernova).
It seems Iceland could not print or generate enough debt to save itself. Zimbabwe has the market cornered in 10 Billion dollar notes. How long will the dollar as Reserve Currency and medium for exchange in oil last?
The US has 3 Trillion dollars committed to this "rescue" effort. Is 6 trillion too much? 9 Trillion? 30 Trillion? At what point will the system break down and go supernova?
http://seekingalpha.com/article/177907-u-s-debt-is-there-a-limit
Sunday, December 13, 2009
California Christmas
NEW YORK: Privately-held real estate company Fairfield Residential LLC filed for bankruptcy protection on Sunday, saying that the collapse of the US real estate and capital markets has made it difficult to continue without restructuring.
The company, which filed a voluntary Chapter 11 bankruptcy petition in Delaware, said it has agreed with its significant lenders on the framework of a plan of reorganization that would allow it to continue its property management, asset management, construction services and general partner functions.
Fairfield said in a statement that the plan maintains the company's existing infrastructure in a new operating company, but that some assets not assigned to the new operating company will be assigned to a liquidating trust.
Fairfield specializes in multifamily housing and is based in San Diego, Calif. The case is In re: Fairfield Residential LLC, US Bankruptcy Court, District of Delaware, No. 09-14378.
The company, which filed a voluntary Chapter 11 bankruptcy petition in Delaware, said it has agreed with its significant lenders on the framework of a plan of reorganization that would allow it to continue its property management, asset management, construction services and general partner functions.
Fairfield said in a statement that the plan maintains the company's existing infrastructure in a new operating company, but that some assets not assigned to the new operating company will be assigned to a liquidating trust.
Fairfield specializes in multifamily housing and is based in San Diego, Calif. The case is In re: Fairfield Residential LLC, US Bankruptcy Court, District of Delaware, No. 09-14378.
Saturday, December 12, 2009
Bondos
The Petroleum Minister requested $6 billion in oil bonds from the Finance Ministry in the supplemental budget and was refused.
To save face the Minister said that oil subsides are not viable in the long run and that a formula will be worked out to pass “excessive cost” to the consumer through price increases above some level. What level and what formula?
The short story is that the borrowing demands of the government are catching up with it. The supplementary funding list recently submitted, $5 billion, included monies for food and fertilizer subsidies, the metro, Air India, and the National Calamity Fund, which may well be the oil policy, but no bonds for the oil marketing companies.
Ten year government bond yields are 7.51% with the march futures trading above 8.4%. The market expected that the oil bonds would be issued in December, and without them the oil marketing companies will post a loss for the quarter. When the ten year vaults past 8% enthusiasm for holding equities wanes.
Worse still is the implication that the government is up against its borrowing ceiling without a sensible plan, or clue, for the 75% of the countries oil requirement that is imported.
The supplementary budget request gives way to the budget to be announced in February which promises to be an exercise in anxiety, or, at the very least putting the arm on the World Bank to do more than recapitalize the banking sector.
To save face the Minister said that oil subsides are not viable in the long run and that a formula will be worked out to pass “excessive cost” to the consumer through price increases above some level. What level and what formula?
The short story is that the borrowing demands of the government are catching up with it. The supplementary funding list recently submitted, $5 billion, included monies for food and fertilizer subsidies, the metro, Air India, and the National Calamity Fund, which may well be the oil policy, but no bonds for the oil marketing companies.
Ten year government bond yields are 7.51% with the march futures trading above 8.4%. The market expected that the oil bonds would be issued in December, and without them the oil marketing companies will post a loss for the quarter. When the ten year vaults past 8% enthusiasm for holding equities wanes.
Worse still is the implication that the government is up against its borrowing ceiling without a sensible plan, or clue, for the 75% of the countries oil requirement that is imported.
The supplementary budget request gives way to the budget to be announced in February which promises to be an exercise in anxiety, or, at the very least putting the arm on the World Bank to do more than recapitalize the banking sector.
Monday, December 7, 2009
Pushing on a Chinese String
The US consumer borrows to spend one out of four dollars in the global economy. US consumer debt approached $1 trillion in 2008 but declined 20% since. This year banks mailed 40% less pre approved invitations for consumers to spend.
The US Treasury bailed out banks to encourage consumers to spend. The Federal Reserve and foreign governments lend money to the US Treasury to encourage banks to encourage consumers. Banks are spending money on bonuses to reward management for abysmal performance while depriving the US postal service of income from shipping credit cards to consumers.
The Treasury Secretary says that $150 billion of the $700 billion TARP money will be returned by the end of 2010 and may be spent on initiatives to create jobs, which presumably TARP has not done.
The Treasury Secretary presumes that the commercial real estate market is fairly priced with mausoleums of office space for which mortgages will continue to be paid in 2010. The financial stability of the global economy is an interesting speculation and may be outside the Secretary’s expertise and opinion whether TARP monies will be repaid.
This is not good news for textile makers in Bangladesh who require US consumers to consume with great vigor. The elimination of $200 billion from US consumer demand deprives the global economy of $1.6 trillion in spending.
If the US consumer does not spend who will? The Indians?
India’s bilateral with the US is less than $50 billion. It runs an annual trade deficit of about $90 billion, $180 billion of exports against $270 billion of imports. Oil accounts for one third of the imports which is subsidized for the masses.
Government owned oil marketing companies pay the market price for oil and sell it at a lower government set price. In exchange the OMC’s receive government IOU’s, oil marketing bonds, which are in turn sold to the Reserve Bank of India at a premium placing the RBI in the business of printing money to buy oil.
The Indian consumer is genetically apt at price discovery. McDonald's has been in India for over six years with branches throughout the country and has yet to turn a profit or repatriate a dividend. Undeterred they press on with value meals priced at $2 which cost $2.05 to deliver. But the bathrooms are the cleanest in town.
There are consumers in India able to afford global brands at international prices but they account for less than half a million of the 41 million registered tax payers and most of India’s $25 billion of non essential imports.
India was insulated from global financial adventures because money cannot come and go as it pleases, the government owns seventy percent of the highly regulated banking industry, and international trade, other than remittances from laborers building castles to the sky in the Gulf, is modest.
Even if India grows its $1.2 trillion economy by 5% in fiscal 2010, though the financial community prays for twice that, the net addition to global commerce will be less than $60 billion or a bad week at the office for Berkshire Hathaway.
There is always the Chinese.
The Bank of International Settlements (BIS) reports that the Chinese have lent $1 trillion since March of this year without concern for the capital to support lending or the creditworthiness of the borrowers.
The BIS observes that “asset quality” in China may be challenging, which is a polite way of saying that Chinese banks have a date with uncertain repayment destiny unless they lay off the risk or raise more money to cover expected losses.
In fairness to the Chinese, existing bad loans, before the fresh lending, are higher than admitted because in a military dictatorship bank managements have little discretion.
The Chinese would turn to their advisers, Goldman Sachs, for advice on which suspects would provide takeout financing before the Chinese economy is taken out.
And Goldman may point them in the direction of Sovereign Wealth Funds which traffic in $3.1 trillion. Kuwait on request invested $3 billion in Citibank earlier this year and exited with a billion dollar profit last week.
Why exit from the poster child for TARP if the recovery is just beginning as the Treasury Secretary promises?
Fair question from Sheiks who understand inflating paper is easier than the pushing the economy up a string of Chinese lending.
The US Treasury bailed out banks to encourage consumers to spend. The Federal Reserve and foreign governments lend money to the US Treasury to encourage banks to encourage consumers. Banks are spending money on bonuses to reward management for abysmal performance while depriving the US postal service of income from shipping credit cards to consumers.
The Treasury Secretary says that $150 billion of the $700 billion TARP money will be returned by the end of 2010 and may be spent on initiatives to create jobs, which presumably TARP has not done.
The Treasury Secretary presumes that the commercial real estate market is fairly priced with mausoleums of office space for which mortgages will continue to be paid in 2010. The financial stability of the global economy is an interesting speculation and may be outside the Secretary’s expertise and opinion whether TARP monies will be repaid.
This is not good news for textile makers in Bangladesh who require US consumers to consume with great vigor. The elimination of $200 billion from US consumer demand deprives the global economy of $1.6 trillion in spending.
If the US consumer does not spend who will? The Indians?
India’s bilateral with the US is less than $50 billion. It runs an annual trade deficit of about $90 billion, $180 billion of exports against $270 billion of imports. Oil accounts for one third of the imports which is subsidized for the masses.
Government owned oil marketing companies pay the market price for oil and sell it at a lower government set price. In exchange the OMC’s receive government IOU’s, oil marketing bonds, which are in turn sold to the Reserve Bank of India at a premium placing the RBI in the business of printing money to buy oil.
The Indian consumer is genetically apt at price discovery. McDonald's has been in India for over six years with branches throughout the country and has yet to turn a profit or repatriate a dividend. Undeterred they press on with value meals priced at $2 which cost $2.05 to deliver. But the bathrooms are the cleanest in town.
There are consumers in India able to afford global brands at international prices but they account for less than half a million of the 41 million registered tax payers and most of India’s $25 billion of non essential imports.
India was insulated from global financial adventures because money cannot come and go as it pleases, the government owns seventy percent of the highly regulated banking industry, and international trade, other than remittances from laborers building castles to the sky in the Gulf, is modest.
Even if India grows its $1.2 trillion economy by 5% in fiscal 2010, though the financial community prays for twice that, the net addition to global commerce will be less than $60 billion or a bad week at the office for Berkshire Hathaway.
There is always the Chinese.
The Bank of International Settlements (BIS) reports that the Chinese have lent $1 trillion since March of this year without concern for the capital to support lending or the creditworthiness of the borrowers.
The BIS observes that “asset quality” in China may be challenging, which is a polite way of saying that Chinese banks have a date with uncertain repayment destiny unless they lay off the risk or raise more money to cover expected losses.
In fairness to the Chinese, existing bad loans, before the fresh lending, are higher than admitted because in a military dictatorship bank managements have little discretion.
The Chinese would turn to their advisers, Goldman Sachs, for advice on which suspects would provide takeout financing before the Chinese economy is taken out.
And Goldman may point them in the direction of Sovereign Wealth Funds which traffic in $3.1 trillion. Kuwait on request invested $3 billion in Citibank earlier this year and exited with a billion dollar profit last week.
Why exit from the poster child for TARP if the recovery is just beginning as the Treasury Secretary promises?
Fair question from Sheiks who understand inflating paper is easier than the pushing the economy up a string of Chinese lending.
Friday, December 4, 2009
Hard Stuff
The RBI is long 200 tones of Gold at $1,178 an ounce and wants to buy another 200 tones from the IMF to keep Vietnam out of the sea.
Goldman Sachs and the World Bank believe India’s GDP can return to 9% year over the next three years. Morgan Stanley is in the 7-9% range. The World Bank is talking its book having increased India exposure to $7 billion while pumping $400 million into Rajasthan looking for water.
In the first two quarters reported Indian GDP growth was 6.1% and 7.9%. But if government spending is subtracted the numbers are 5.5% and 4.7%.
The Finance Minister today agreed that return to 9% growth is an ambition for India, but “may be challenging” in the short term.
Yes, doubling real growth is a challenge for any economy in a world expected to be one percent better off next year, and a fairytale with an unseemly end for those who should know better.
The Russians are swapping old rubles for new rupees.
A Russian government agency is buying 20% of another Russian government agencies holding in an Indian telecom joint venture for $700 million. The payment works down the Rupee Ruble roulette wheel outstanding between the countries since the government reinvented math 30 years ago.
Portfolio investors added $15 billion to the pot this this year but accepted less invitations to the party, 111, about half the five year average of 250, despite the index being up 70% this year. Good performnace numbers not unexpected with the printing press in the RBI basement overheating, but difficult to replicate when the Government comes to market to borrow through February.
The market trades at 17 times earnings facing a rising ten year bond yield, 7.36% expected to reach 8.35% by March, and onion prices that are ripping.
Yields over 8% imply a fair value for earnings of roughly 12 times. The market is pricing in an expectation of 33% growth in earnings over the medium term to break even.
The RBI has pumped M3 by 40% since 2007, and 18% this year. The market remains 20% below the best levels of 2007.
Gold at $1,800?
Goldman Sachs and the World Bank believe India’s GDP can return to 9% year over the next three years. Morgan Stanley is in the 7-9% range. The World Bank is talking its book having increased India exposure to $7 billion while pumping $400 million into Rajasthan looking for water.
In the first two quarters reported Indian GDP growth was 6.1% and 7.9%. But if government spending is subtracted the numbers are 5.5% and 4.7%.
The Finance Minister today agreed that return to 9% growth is an ambition for India, but “may be challenging” in the short term.
Yes, doubling real growth is a challenge for any economy in a world expected to be one percent better off next year, and a fairytale with an unseemly end for those who should know better.
The Russians are swapping old rubles for new rupees.
A Russian government agency is buying 20% of another Russian government agencies holding in an Indian telecom joint venture for $700 million. The payment works down the Rupee Ruble roulette wheel outstanding between the countries since the government reinvented math 30 years ago.
Portfolio investors added $15 billion to the pot this this year but accepted less invitations to the party, 111, about half the five year average of 250, despite the index being up 70% this year. Good performnace numbers not unexpected with the printing press in the RBI basement overheating, but difficult to replicate when the Government comes to market to borrow through February.
The market trades at 17 times earnings facing a rising ten year bond yield, 7.36% expected to reach 8.35% by March, and onion prices that are ripping.
Yields over 8% imply a fair value for earnings of roughly 12 times. The market is pricing in an expectation of 33% growth in earnings over the medium term to break even.
The RBI has pumped M3 by 40% since 2007, and 18% this year. The market remains 20% below the best levels of 2007.
Gold at $1,800?
Thursday, December 3, 2009
Onions
The RBI admits that reduction in remittances from the Gulf may have a larger affect on certain parts of India than others.
It is comforting to know that the RBI is conversant enough with over half India’s annual capital requirement to appreciate that if Indian workers from the UAE have not been paid for four months, and a fraction may not be paid ever, that this may not be good news in Kerala.
The good sheiks running Nakheel Construction indicated to the Nasadq Bourse in Dubai that the trading of their bonds was inconvenient, price down 50%, and that trading should be halted until the sheiks believed it convenient, or had a better story to tell.
The RBI is nonetheless emboldened with the second quarter GDP growth numbers, 7.9% versus an expected 6.1%, to suggest that it will review its forecast of 6% GDP growth for the fiscal year in January.
Presumably the RBI will contrast the GDP growth numbers with the growth in direct tax collection, + 3.7%, for the same period and ask the niggling question, well, how is that possible?
The intrepid sleuths at Live Mint are to be commended for their review of the Indian GDP numbers excluding the effect of public spending concluding that growth comes in at 4.9%.
Yes, 4.9%, not 7.9%, and not even the adjusted 5.5% of the previous quarter and closer to the economic reality of direct tax collection. Indirect tax collection, customs and excise, by the way, for the month of October was down by 10%.
Government spending in India has included tax cuts, lower interest rates, and an increase in pay for government employees.
The RBI began the process of making credit less available last month by increasing the amount of money banks had to set aside to buy Indian government bonds because, among other things, Indian equity prices are up over 65% for the year.
That was before food prices started hopping. Onions have doubled, potatoes are up 40%, pulses 50% and prices for essential items in November 17%. Onions are a killer, and can be for bankers well as politicians. The bonus for government employees has been paid.
The RBI should revisit its 6% growth estimate for the year, but get the direction right.
It is comforting to know that the RBI is conversant enough with over half India’s annual capital requirement to appreciate that if Indian workers from the UAE have not been paid for four months, and a fraction may not be paid ever, that this may not be good news in Kerala.
The good sheiks running Nakheel Construction indicated to the Nasadq Bourse in Dubai that the trading of their bonds was inconvenient, price down 50%, and that trading should be halted until the sheiks believed it convenient, or had a better story to tell.
The RBI is nonetheless emboldened with the second quarter GDP growth numbers, 7.9% versus an expected 6.1%, to suggest that it will review its forecast of 6% GDP growth for the fiscal year in January.
Presumably the RBI will contrast the GDP growth numbers with the growth in direct tax collection, + 3.7%, for the same period and ask the niggling question, well, how is that possible?
The intrepid sleuths at Live Mint are to be commended for their review of the Indian GDP numbers excluding the effect of public spending concluding that growth comes in at 4.9%.
Yes, 4.9%, not 7.9%, and not even the adjusted 5.5% of the previous quarter and closer to the economic reality of direct tax collection. Indirect tax collection, customs and excise, by the way, for the month of October was down by 10%.
Government spending in India has included tax cuts, lower interest rates, and an increase in pay for government employees.
The RBI began the process of making credit less available last month by increasing the amount of money banks had to set aside to buy Indian government bonds because, among other things, Indian equity prices are up over 65% for the year.
That was before food prices started hopping. Onions have doubled, potatoes are up 40%, pulses 50% and prices for essential items in November 17%. Onions are a killer, and can be for bankers well as politicians. The bonus for government employees has been paid.
The RBI should revisit its 6% growth estimate for the year, but get the direction right.
Wednesday, December 2, 2009
Borrow Long to Lend Short
India is an emerging market economy privileged with a current account and budget deficit. The country imports more than it exports and its government spends more than it taxes. Unfortunately for India the rupee is not the reserve currency of the world nor is oil priced in it.
The Reserve Bank of India understands that for India to pay its oil bill it has to import capital to do so. For a banker borrowing long to lend short is welcome provided there are interested suppliers of capital. Too little capital investment will put the country back on the World Bank respirator. Too much capital investment will inflate assets beyond the living standard of the average, impoverished farmer.
Fortunately for India the world believes the country will have GDP growth of between 7-9% for the next three years, Stephen Roach, Chairman, Morgan Stanley Asia, and that inflation and deficits are of no concern. Ok.
Then tax collection should be of no concern either. Direct tax collection from business and individuals has been flat through November of this year despite the Government claiming economic growth of over 7%. Economists have scurried to cubicles to update excel spreadsheets.
The trade numbers tell another story. India exported $90 billion and imported $150 billion of goods and services in the first half of the year. For India to be self sufficient in trade it would have to increase exports by 50% in relation to imports, which is hard to do when oil accounts for 30% of the import bill, or over 70% of India’s requirements, and is subsidized for the masses.
This $100 billion annual deficit is met by FDI (Foreign Direct Investment), FII (portfolio investment in stocks), Remittances, ECB’s (External Commercial Borrowings), and Erin Wood's divorce settlement.
Half the deficit is covered by $45 billion remitted by workers from the Gulf, think Dubai. FII runs at roughly $15 billion a year, and FDI recently about the same. The RBI turns on and off the ECB faucet to cover the difference before deciding whether to put the arm on the World Bank recapitalize Public Sector Banks and fund IIFCL.
The capital flows are defensible for investors provided GDP growth is growth, and asset prices rise.
But the RBI would rather hold gold than paper having bought a chunk from the IMF which will need the money to buy the lows if the tax guys are right.
The Reserve Bank of India understands that for India to pay its oil bill it has to import capital to do so. For a banker borrowing long to lend short is welcome provided there are interested suppliers of capital. Too little capital investment will put the country back on the World Bank respirator. Too much capital investment will inflate assets beyond the living standard of the average, impoverished farmer.
Fortunately for India the world believes the country will have GDP growth of between 7-9% for the next three years, Stephen Roach, Chairman, Morgan Stanley Asia, and that inflation and deficits are of no concern. Ok.
Then tax collection should be of no concern either. Direct tax collection from business and individuals has been flat through November of this year despite the Government claiming economic growth of over 7%. Economists have scurried to cubicles to update excel spreadsheets.
The trade numbers tell another story. India exported $90 billion and imported $150 billion of goods and services in the first half of the year. For India to be self sufficient in trade it would have to increase exports by 50% in relation to imports, which is hard to do when oil accounts for 30% of the import bill, or over 70% of India’s requirements, and is subsidized for the masses.
This $100 billion annual deficit is met by FDI (Foreign Direct Investment), FII (portfolio investment in stocks), Remittances, ECB’s (External Commercial Borrowings), and Erin Wood's divorce settlement.
Half the deficit is covered by $45 billion remitted by workers from the Gulf, think Dubai. FII runs at roughly $15 billion a year, and FDI recently about the same. The RBI turns on and off the ECB faucet to cover the difference before deciding whether to put the arm on the World Bank recapitalize Public Sector Banks and fund IIFCL.
The capital flows are defensible for investors provided GDP growth is growth, and asset prices rise.
But the RBI would rather hold gold than paper having bought a chunk from the IMF which will need the money to buy the lows if the tax guys are right.
Tuesday, December 1, 2009
Ghosts
The Government of India will borrow $1 billion in Treasury bills and $20 billion in ten year bonds by Friday. GOI needs to add $50 billion to the till by February to keep the lights on in addition to the $50 billion borrowed already.
Borrowing is up because tax revenue is down no matter that Government statisticians claim that the economy grew at 7.9% in the second quarter of this year. The tax guys have still put less in the sack than expected so either they are collecting more and reporting less, friendly assessments, or the statisticians need to goose their models.
Government bond yields before the GDP data was released were at 7.19% for the 10 year and jumped to 7.29%, not because of the GDP numbers but because of the coming supply. The interest rate futures curve in India, yes, there is one, implies interest rates of 8.33% by March 2010.
This growth, or expected growth, comes with a price. The rains in India were less than expected so crop supplies are down and prices are up. India may import essential commodities this fiscal year, and, in the meantime, the 50-100% increase in agricultural line items may run inflation into the double digits so 7% growth is underwater with inflation over 8%.
How bad is it?
The realty fraternity has approached public markets to issue $3 billion in shares, again. They claim that $1 billion of it will be used to repay lenders, $1.3 billion will be used in buying properties that they only partially own, if at all, and the remaining $700 million, well, it is not precisely clear though important to note that Rolls Royce just launched the Ghost in India with a baseline price tag of half a million dollars.
Sounds like about 1400 units sold.
Borrowing is up because tax revenue is down no matter that Government statisticians claim that the economy grew at 7.9% in the second quarter of this year. The tax guys have still put less in the sack than expected so either they are collecting more and reporting less, friendly assessments, or the statisticians need to goose their models.
Government bond yields before the GDP data was released were at 7.19% for the 10 year and jumped to 7.29%, not because of the GDP numbers but because of the coming supply. The interest rate futures curve in India, yes, there is one, implies interest rates of 8.33% by March 2010.
This growth, or expected growth, comes with a price. The rains in India were less than expected so crop supplies are down and prices are up. India may import essential commodities this fiscal year, and, in the meantime, the 50-100% increase in agricultural line items may run inflation into the double digits so 7% growth is underwater with inflation over 8%.
How bad is it?
The realty fraternity has approached public markets to issue $3 billion in shares, again. They claim that $1 billion of it will be used to repay lenders, $1.3 billion will be used in buying properties that they only partially own, if at all, and the remaining $700 million, well, it is not precisely clear though important to note that Rolls Royce just launched the Ghost in India with a baseline price tag of half a million dollars.
Sounds like about 1400 units sold.
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