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.