promoter purchase
+good or normal growth+
low pe
+good profit margin
+low debt (dont go for ones with high debt, if it flops, it can direct go to zero)
== great pick
Thursday, October 30, 2008
Sayings by Warren Buffet
A public-opinion poll is no substitute for thought.
Chains of habit are too light to be felt until they are too heavy to be broken.
Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised.
I always knew I was going to be rich. I don't think I ever doubted it for a minute.
I am quite serious when I say that I do not believe there are, on the whole earth besides, so many intensified bores as in these United States.
No man can form an adequate idea of the real meaning of the word, without coming here.
I buy expensive suits. They just look cheap on me.
I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.
If a business does well, the stock eventually follows.
If past history was all there was to the game, the richest people would be librarians.
It takes 20 years to build a reputation and five minutes to ruin it.
If you think about that, you'll do things differently.
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Let blockheads read what blockheads wrote. Let us do or die.
Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.
Never invest in a business you cannot understand.
Of the billionaires I have known, money just brings out the basic traits in them.
If they were jerks before they had money, they are simply jerks with a billion dollars.
Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.
Our favorite holding period is forever.
Price is what you pay. Value is what you get.
Risk comes from not knowing what you're doing.
The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.
The investor of today does not profit from yesterday's growth.
The only time to buy these is on a day with no "y" in it.
The smarter the journalists are, the better off society is. For to a degree, people read the press to inform themselves-and the better the teacher, the better the student body.
There seems to be some perverse human characteristic that likes to make easy things difficult.
We enjoy the process far more than the proceeds.
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
Why not invest your assets in the companies you really like? As Mae West said, "Too much of a good thing can be wonderful".
Wide diversification is only required when investors do not understand what they are doing.
You do things when the opportunities come along.
I've had periods in my life when I've had a bundle of ideas come along, and I've had long dry spells. If I get an idea next week, I'll do something. If not, I won't do a damn thing. You only have to do a very few things right in your life so long as you don't do too many things wrong.
Your premium brand had better be delivering something special, or it's not going to get the business
Friday, September 12, 2008
KYC: Know Your Company
Know Your Company
These are a few things we need to ask ourselves before we pin down an investment.
Transparency:
Is the company in which you are planning to invest or hold shares communicative with the necessary information on resource raising?
Does the company have an interactive website packed with every conceivable detail, update regularly and easily navigable?
Are changes in address and other missives from you taken note of and rectified in the shortest time possible?
Is there prompt credit of dividends of your saving account and bonus shares into your demat account?
Market Intelligence:
Order wins, tie-ups, accidents at manufacturing facilities, and aggressive takeover bids can affect the stock prices, positively or negatively.
Liquidity of the stock in your portfolio will suffer if it is shifted to the compulsory-delivery category.
Change in Ownership:
Is your company seeking to allot preferential shares to the promoters without any valid reason?
Are promoters selling shares (an indication that something is amiss), or they quietly consolidate holding through open market purchases(a signal that they have confidence in the future, or may want to thwart an unwanted raid).
Have the owners suddenly decided to transfer ownership to a holding company? Are you satisfies that this move was in the interest of the company’s many businesses?
Demerger of divisions, accompanied by the offer of shares in the news company based on valuation, is given a thumbs-up by the market as it brings clarity and focus to a company doing too many things.
Know your intermediary:
Whom will you invest through? Can you access them easily, either physically or through the internet?
Do they maintain a proper record of your transactions and are thorough in after-sales services?
Are they been penalized by the market regulator for any irregularities?
Wrong stock selection is excusable. But not investment in opaque companies.
These are a few things we need to ask ourselves before we pin down an investment.
Transparency:
Is the company in which you are planning to invest or hold shares communicative with the necessary information on resource raising?
Does the company have an interactive website packed with every conceivable detail, update regularly and easily navigable?
Are changes in address and other missives from you taken note of and rectified in the shortest time possible?
Is there prompt credit of dividends of your saving account and bonus shares into your demat account?
Market Intelligence:
Order wins, tie-ups, accidents at manufacturing facilities, and aggressive takeover bids can affect the stock prices, positively or negatively.
Liquidity of the stock in your portfolio will suffer if it is shifted to the compulsory-delivery category.
Change in Ownership:
Is your company seeking to allot preferential shares to the promoters without any valid reason?
Are promoters selling shares (an indication that something is amiss), or they quietly consolidate holding through open market purchases(a signal that they have confidence in the future, or may want to thwart an unwanted raid).
Have the owners suddenly decided to transfer ownership to a holding company? Are you satisfies that this move was in the interest of the company’s many businesses?
Demerger of divisions, accompanied by the offer of shares in the news company based on valuation, is given a thumbs-up by the market as it brings clarity and focus to a company doing too many things.
Know your intermediary:
Whom will you invest through? Can you access them easily, either physically or through the internet?
Do they maintain a proper record of your transactions and are thorough in after-sales services?
Are they been penalized by the market regulator for any irregularities?
Wrong stock selection is excusable. But not investment in opaque companies.
Paying Dividends Or Issuing Bonus Shares
Paying Dividends Or Issuing Bonus Shares: A Prudent Move
It makes sense to return cash to investors in the form of dividends or recapitalizing part of the reserves into paid-up capital when the company cannot utilize the reserves well enough to give significant growth in the revenue and profit. Holding excess cash would only lead to diminishing of return on capital employed (ROCE). If a company is high on cash (represented by general reserve), which is not being optimally utilized, then the net profit/capital employed ratio would come down as reserves form a component of capital employed. Thus it’s better to distribute the company’s gain among the shareholders.
It makes sense to return cash to investors in the form of dividends or recapitalizing part of the reserves into paid-up capital when the company cannot utilize the reserves well enough to give significant growth in the revenue and profit. Holding excess cash would only lead to diminishing of return on capital employed (ROCE). If a company is high on cash (represented by general reserve), which is not being optimally utilized, then the net profit/capital employed ratio would come down as reserves form a component of capital employed. Thus it’s better to distribute the company’s gain among the shareholders.
Rang De Marketing
Submitted by Neelu Saluja.
fashionmeter.blogspot.com
Introduction
Back in the 1950s, people depended mainly on the radio, the printing press and the black and white television as media for advertising. These three media largely limited the visual experience of the viewer, as there was not a wide spectrum of colors used here. However, as technology advanced and introduced the television with color and the Internet, advertisements have become increasingly vibrant and diverse, along with the importance of color in advertising.
Color is all around us. It is the lenses by which we perceive the world. Thus, it is essential for designers of advertisements to be aware of the different responses different colors will bring about and thus have the ability to make the choice of which color to use to enhance their advertisement. Generally, colors can be compartmentalized into two categories: warm, bright and loud colors like red or orange and passive, serene and soothing colors such as blue or green. Designers must use these colors to their favor and compliment the general attractiveness of the advertisement or the underlying message. Colors, other than emotionally affecting people, also have physical effects. They may affect the visibility of an object, for instance, a yellow or white object may look larger than the same object of other colors. Another example would be that human responses are 12% quicker than usual under red lighting. Other than the responses some colors may be able to stimulate, most of them hold human-constructed meaning or significance as well.
Submitted by Neelu Saluja
fashionmeter.blogspot.com
fashionmeter.blogspot.com
Introduction
Back in the 1950s, people depended mainly on the radio, the printing press and the black and white television as media for advertising. These three media largely limited the visual experience of the viewer, as there was not a wide spectrum of colors used here. However, as technology advanced and introduced the television with color and the Internet, advertisements have become increasingly vibrant and diverse, along with the importance of color in advertising.
Color is all around us. It is the lenses by which we perceive the world. Thus, it is essential for designers of advertisements to be aware of the different responses different colors will bring about and thus have the ability to make the choice of which color to use to enhance their advertisement. Generally, colors can be compartmentalized into two categories: warm, bright and loud colors like red or orange and passive, serene and soothing colors such as blue or green. Designers must use these colors to their favor and compliment the general attractiveness of the advertisement or the underlying message. Colors, other than emotionally affecting people, also have physical effects. They may affect the visibility of an object, for instance, a yellow or white object may look larger than the same object of other colors. Another example would be that human responses are 12% quicker than usual under red lighting. Other than the responses some colors may be able to stimulate, most of them hold human-constructed meaning or significance as well.
Red
Associated with all things intense and passionate, danger, fire, energy and excitement
Highly erotic
Symbol for violence, blood and war
High visibility → used for road signs
Indicates courage → used in many countries' flags
China - indicates celebration or luck
India - color of purity (used in weddings)
Brands using this color- Virgin signifying purity.
Yellow
Color of sunshine
Indicates energy, optimism, joy, hope and warmth
Seen before other colors when placed against black
Symbol of spontaneity and impulsiveness
Dull yellow is associated with decay, sickness, jealousy and deceit
Asia - symbol of royalty and sacredness
Brands – Aditya Birla Group, Yellow Pages.
Blue
Depth and stability → color of the sky and sea
Symbol of freedom
Associated with tranquility, wisdom and loyalty
Symbolic of cleanliness, technology and security
Slows human metabolism → calms and soothes
Masculine color
China - associated with immortality
Hindus - the color of Krishna
Jews - holiness
Middle East - protective color
Brands using blue- all detergents and cleaning products pre-dominantly use blue which is a symbol of cleanliness.
Orange
Associated with enthusiasm, attractiveness, stimulation, creativity and warmth
Increases oxygen supply to the brain; an invigorating effect
Symbol of fall and harvest
Ireland - religious significance (Protestant)
Green
Associated with Nature, youth, fortune and vigor
Also associated with feelings of envy and jealousy
Sharp and acute → not a relaxing color
Connotes inexperience (a greenhorn)
Darker green associated with money
Improves vision
The color of Islam
Brand using this color – Onida which enhances its tag line “neighbour’s envy owner’s pride.
Purple
Connotes royalty, nobility, wealth and extravagance
Symbolic of wisdom, magic and arrogance
Associated with mourning
75 percent of pre-adolescent children prefer purple to all other colors
Brand using this color - Thai airlines to signify royalty .
Gray
Associated with security and solid
Connotes maturity, old age and dignity
Symbolic of conservativeness and boredom
Brown
Associated with Earth, home and comfort
India - the color of mourning
White
Connotes purity, simplicity and faith
Associated with clinical elements → hospitals
Color of perfection
Represents peace or virginity → color of doves and snow respectively
Japan - white carnations signify death
Black
Gothic representations → death and evil
Symbol of grief
Associated with power, mystery and fear
Positive connotations - elegance and class
Aggressive and strong color
Thus, advertising can be enhanced through the use of specific colors to attract attention .
Conclusion
The best colors for advertising are those that make people comfortable or stimulate their senses. A color scheme that incorporates warm colors encourages people to linger, leading restaurants to choose deep burgundy, burnt orange, and similar colors. They stimulate warmth and comfort, and when people relax over dinner, they are more likely to enjoy a leisurely dessert or a nice cup of coffee, thus spending more money.
Hot colors are some of the best colors for advertising when it comes to products like fast food. Bright red and yellow are hot colors, indicative of fire, and they stimulate excitement. Warm and hot colors will encourage people to eat more, which translates to revenue. Virtually all logos, advertisements and menus of fast food chains feature these colors, which is no accident.
Cool colors have their own niche. Colors like green and blue are some of the best colors for advertising when it comes to over the counter medicines and other health products. Blue is associated with tranquility, and also represents water, a life force. The color blue can actually slow a person's heart rate, and it reduces appetite, (which is why is not chosen for restaurants). Certain shades of blue indicate dependability, making it a good color for business ads. Blue is also a popular color for uniforms, worn by mail carriers, security guards and other officials. Darker blue uniforms are usually worn by more authoritative figures, such as police officers.
It has been debated whether or not blue is one of the best colors for advertising online. Many websites use at least some blue in their color schemes. Whether or not it is one of the best colors for advertising, it is a popular choice for online ads. Colors like sky blue and certain shades of green can also be effective since they evoke the feeling of being outdoors.
According to research, black and white can be two of the best colors for advertising. They are used to signify power and create a sense that the company is highly professional. Often a splash of color, such as red, is included to accent the starkness, but the main colors are black and white.
You may wish to hire someone to choose the best colors for advertising your business or product, and develop a color scheme for you. Or, conduct an experiment: look over several websites and see which ones you are most comfortable viewing. Which ones influence you to linger? Content is of course important, but don't underestimate the influence of color.
Submitted by Neelu Saluja
fashionmeter.blogspot.com
Friday, August 29, 2008
Components Of Petrol Prices
Suppose if the petrol price per litre is Rs 51.90, here the break-up of cost calculated by the government:·
Basic Price = Rs 21.93 ·
Excise duty = Rs 14.35 ·
Education Tax = Rs 0.43 ·
Dealer commission = Rs 1.05 ·
VAT = Rs 5.5 ·
Crude Oil Custom duty = Rs 1.1 ·
Petrol Custom = Rs 1.54 ·
Transportation Charge = Rs 6.00 ·
Total price = Rs 51.90
So for a Rs 22 litre petrol at pumps, consumers in India pay Rs 28 tax extra.
Basic Price = Rs 21.93 ·
Excise duty = Rs 14.35 ·
Education Tax = Rs 0.43 ·
Dealer commission = Rs 1.05 ·
VAT = Rs 5.5 ·
Crude Oil Custom duty = Rs 1.1 ·
Petrol Custom = Rs 1.54 ·
Transportation Charge = Rs 6.00 ·
Total price = Rs 51.90
So for a Rs 22 litre petrol at pumps, consumers in India pay Rs 28 tax extra.
Sunday, August 24, 2008
PE Ratio (multiple)
Stocks Which Are Profitable, Not Expensive
Investors should strategically buy stocks or sectors that are riding the boom. When markets are slipping, things are just the opposite. Some investors say, ‘buy in a falling market’, but it would be difficult to put your finger on one sector or stock as the right one. But sometimes the idea would be right. Bottom line – investing becomes confusing.
To identify good stocks, investors estimates various ratios like dividend-yield, price earning to growth, price to book value, price to earnings, etc. Investing by analyzing PE ratio (multiple) is like looking for discounts while shopping. Lower the PE, lower the amount investors are willing to pay for it and vice versa. However, some stocks like L&T and HDFC will command a very high PE multiple, because of the investor confidence on these stocks.
Now that the various stocks have corrected by 60-70% of their value, investors refuse to pay high price to buy them. Some savvy-shoppers try to avoid paying too much by buying low PE stocks.
Example:
Company XYZ- stock price- 500
EPS-20
Therefore, PE = 25.
Company ABC- stock price – 1,000
EPS-20
PE=50.
Market does not look at whether EPS is similar. It is more important in growth in EPS. Company’s PE ratio normally reflects investors’ expectations for future growth in EPS.
Market sentiments play a big role in pricing. Thus PE ratio may not necessarily reflect reality. In this case investors are willing to bet even on high PE stock because according to them, present valuation is cheaper than what it should be. Thus it is important that an investor not only looks as the PE ratio but also at the earning growth prospects over next several quarters.
Investors should strategically buy stocks or sectors that are riding the boom. When markets are slipping, things are just the opposite. Some investors say, ‘buy in a falling market’, but it would be difficult to put your finger on one sector or stock as the right one. But sometimes the idea would be right. Bottom line – investing becomes confusing.
To identify good stocks, investors estimates various ratios like dividend-yield, price earning to growth, price to book value, price to earnings, etc. Investing by analyzing PE ratio (multiple) is like looking for discounts while shopping. Lower the PE, lower the amount investors are willing to pay for it and vice versa. However, some stocks like L&T and HDFC will command a very high PE multiple, because of the investor confidence on these stocks.
Now that the various stocks have corrected by 60-70% of their value, investors refuse to pay high price to buy them. Some savvy-shoppers try to avoid paying too much by buying low PE stocks.
Example:
Company XYZ- stock price- 500
EPS-20
Therefore, PE = 25.
Company ABC- stock price – 1,000
EPS-20
PE=50.
Market does not look at whether EPS is similar. It is more important in growth in EPS. Company’s PE ratio normally reflects investors’ expectations for future growth in EPS.
Market sentiments play a big role in pricing. Thus PE ratio may not necessarily reflect reality. In this case investors are willing to bet even on high PE stock because according to them, present valuation is cheaper than what it should be. Thus it is important that an investor not only looks as the PE ratio but also at the earning growth prospects over next several quarters.
Gold
Gold is Gold
Analysts believe that Gold should be a part of the portfolio. In 1849, gold was discovered in California. During financial crisis, countries have turned to gold for help. In 1937, when agricultural production slumped, India sold 1,400 tonnes of gold. In 1991, the Indian government shipped out 45 tonnes of gold to temporarily bail out the country of a severe money crunch. In 1979, at the height of oil crisis, the US dollar was devalued, buyers lost confidence in the currency and bought gold instead.
3 major areas of gold: Jewellery, Industry and Investing.
Jewellery accounts for 60% of the demand for gold. India is the largest consumer of gold and accounts for one-fifth of the global gold trade. 30% of the demand comes from investors who trade in gold exchange traded funds and from countries that hold gold as an alternative currency.
Reasons for the demand of gold
Investors are shifting from equities to gold. The US economy has been spinning into a recession because of a huge bumper consumer spending. The recent subprime crisis accelerated the shift.
With the dollar losing its grip, Asian countries have begun substituting dollars with gold in their investment portfolio.
China, which did not allow people to own gold, has deregulated. In 2002, Shanghai Gold Exchange was formed; opening up the demand floodgates so much that by 2007 China has overtook US to become the second largest consumer of gold.
Gold will be Gold
Of every 100 tonnes of gold, 70 tonnes comes from gold mines, of which 35 tonnes comes from 8 countries alone. Prodcutiong of gold is stagnating in few countries due to exhaustion of inexpensive mine-able gold resources and strict environmental laws.25% of gold comes from sale of gold reserves from the country. A treaty signed in 1999 for sale of 400 tonnes of gold annually by participating banks expires next year and don’t show any sign of renewal. Thus, going forward, gold prices are likely to stay firm.
Analysts believe that Gold should be a part of the portfolio. In 1849, gold was discovered in California. During financial crisis, countries have turned to gold for help. In 1937, when agricultural production slumped, India sold 1,400 tonnes of gold. In 1991, the Indian government shipped out 45 tonnes of gold to temporarily bail out the country of a severe money crunch. In 1979, at the height of oil crisis, the US dollar was devalued, buyers lost confidence in the currency and bought gold instead.
3 major areas of gold: Jewellery, Industry and Investing.
Jewellery accounts for 60% of the demand for gold. India is the largest consumer of gold and accounts for one-fifth of the global gold trade. 30% of the demand comes from investors who trade in gold exchange traded funds and from countries that hold gold as an alternative currency.
Reasons for the demand of gold
Investors are shifting from equities to gold. The US economy has been spinning into a recession because of a huge bumper consumer spending. The recent subprime crisis accelerated the shift.
With the dollar losing its grip, Asian countries have begun substituting dollars with gold in their investment portfolio.
China, which did not allow people to own gold, has deregulated. In 2002, Shanghai Gold Exchange was formed; opening up the demand floodgates so much that by 2007 China has overtook US to become the second largest consumer of gold.
Gold will be Gold
Of every 100 tonnes of gold, 70 tonnes comes from gold mines, of which 35 tonnes comes from 8 countries alone. Prodcutiong of gold is stagnating in few countries due to exhaustion of inexpensive mine-able gold resources and strict environmental laws.25% of gold comes from sale of gold reserves from the country. A treaty signed in 1999 for sale of 400 tonnes of gold annually by participating banks expires next year and don’t show any sign of renewal. Thus, going forward, gold prices are likely to stay firm.
Cement Industry Update
Cement Industry
Growth of 9% in the last three years has drawn attention of foreign companies to Indian cement companies. The industry’s average PE is down to 7 times currently.
Rising input (coal, fuel and power) costs and regulatory measures to check cement prices have made it difficult for players to make profits even after rising demand. Decline in valuation has also trimmed the enterprise value per tone of the major cement companies, down by an average of 42% since the start of the year.
M&A deals this year
La Farge(France)- acquired Ready mix concrete (RMC) business of L&T.
Holcim(Switzerland)- holds 41% stake in ACC, 36% in Ambuja Cement, plans to invest more in the country.
CRH(Ireland)- acquired My Home Industries. Announced 50% stake in the company(for a consideration of $452 million) increasing its capacity from 3.2 million tonnes to 4.2 million tonnes.
Vicat SA(France)- buyout of 6.6% in Sagar Cement increasing capacity by 2.5 million tonnes per annum.Other companies like Cemex(Mexico), Italicementi(Italy) too plan expansion in the country.
Wednesday, August 20, 2008
Global Economy
Global Economy
US subprime crisis will soon celebrate its anniversary along with soaring oil prices, commodity prices, food shortages, spiking inflation and sluggish economic growth.
All banks and financial institutions with exposure to CDOs have been affected by the subprime crisis. Fannie Mae and Freddie Mac, the two US government enterprises that are chartered by the US Congress to provide a national market for mortgages, are the only financial institutions who are buying and scrutinizing the US mortgages. There are many central banks holding huge inventories of securities issued by these banks.
Considering the scenario mentioned above, Ben Bernanke, the Fed Chief, believes that US economic growth is “skewed to the downside” and he assures the US congress that improving the health of the financial markets is his top priority.
The Global Economy Problem
Since agricultural land is diverted for production of alternative energy sources, food prices have soared.
Prices of raw material like iron ore, etc. have soared as a result of the growing demand for natural resources from development economies like China. Oil prices have risen as a result of rising demand.
Adding to the problems, the weak dollar, besides pushing up US import prices, export inflation to all countries whose currencies are linked to the US dollar.
It would be difficult to say which way the global economy will go now, but amidst all the uncertainty, growth of emerging economies, whose growth according to the World Bank is estimated to be 6.5%, may pull out global economy from the recession in the world market.
Global Stagflation
US and Europe have been enduring financial doldrums and dissipating growth since mid 2007, which aggravated to recessionary environment in mid 2008. Britain’s economy grew by just 0.3% in the first quarter of this year, the service sector showing the weakest performance. In Japan, world’s second largest economy, consumer spending saturated as a result of soaring oil and commodity prices. This problem has adversely affected the growth of high-performing BRIC nations too.
Washington based World Bank, in its Global Development Finance report, predicts the world economic growth to decline to 2.7% in 2008 versus 3.7% in 2007. GDP in US is expected to grow at 1.1% in 2008 versus 2.2% in 2007, whereas GDP of Europe could grow at 1.7%.
Paris based Organization for Economic Cooperation and Development (OECD) foresees weak growth, around 1.8%, for most of its 30 members. They predict the US economy to grow at 1.2% in 2008, whereas both Europe and Japan to grow at 1.7%. Growth in China is expected to slow to 9.4% vs. 11.9% in 2007, South Africa from 5.1% in 2007 to 4.2% and India from 8.7% to 6%.
Inflation in UK soared to 3.3% in May, and inflation in Japan rose to a decade high of 1.5%. Inflation in Singapore is recorded as 7.5%, in Russia as 12% and in India as 12%.
Inflation results when the supply of money exceeds demand. Thus the Fed should be raising interest rates, but instead they have been decreasing interest rates to combat the subprime crisis.
The current inflationary situation is not because of an overheating environment but by the 3 Fs- fuel, food and financial speculators. So interest rate hikes alone would not fight inflation. Rising interest rates would cause more recession. As cost of money rises due to rise in inflation, growth will halt, and inflation, rooted in the 3 Fs, will continue to rise. The solution: lower fossil fuel consumption, raise food production, curb excessive speculation, stimulate investments, incentivize capacity addition, nudge productivity increase and adopt sustainable technologies.Massive public and private investments are needed to promote sustainable technologies. Hybrid automobiles with advances batteries, green buildings, carbon capture, cellulose-based ethanol, safe nuclear power and other advanced technologies can combat growing energy demands. Solar power is another alternative to global energy requirements. For food supplies, new drought-resistant crop varieties, along with new irrigation technologies, can help more food production in the changing climatic conditions.
US subprime crisis will soon celebrate its anniversary along with soaring oil prices, commodity prices, food shortages, spiking inflation and sluggish economic growth.
All banks and financial institutions with exposure to CDOs have been affected by the subprime crisis. Fannie Mae and Freddie Mac, the two US government enterprises that are chartered by the US Congress to provide a national market for mortgages, are the only financial institutions who are buying and scrutinizing the US mortgages. There are many central banks holding huge inventories of securities issued by these banks.
Considering the scenario mentioned above, Ben Bernanke, the Fed Chief, believes that US economic growth is “skewed to the downside” and he assures the US congress that improving the health of the financial markets is his top priority.
The Global Economy Problem
Since agricultural land is diverted for production of alternative energy sources, food prices have soared.
Prices of raw material like iron ore, etc. have soared as a result of the growing demand for natural resources from development economies like China. Oil prices have risen as a result of rising demand.
Adding to the problems, the weak dollar, besides pushing up US import prices, export inflation to all countries whose currencies are linked to the US dollar.
It would be difficult to say which way the global economy will go now, but amidst all the uncertainty, growth of emerging economies, whose growth according to the World Bank is estimated to be 6.5%, may pull out global economy from the recession in the world market.
Global Stagflation
US and Europe have been enduring financial doldrums and dissipating growth since mid 2007, which aggravated to recessionary environment in mid 2008. Britain’s economy grew by just 0.3% in the first quarter of this year, the service sector showing the weakest performance. In Japan, world’s second largest economy, consumer spending saturated as a result of soaring oil and commodity prices. This problem has adversely affected the growth of high-performing BRIC nations too.
Washington based World Bank, in its Global Development Finance report, predicts the world economic growth to decline to 2.7% in 2008 versus 3.7% in 2007. GDP in US is expected to grow at 1.1% in 2008 versus 2.2% in 2007, whereas GDP of Europe could grow at 1.7%.
Paris based Organization for Economic Cooperation and Development (OECD) foresees weak growth, around 1.8%, for most of its 30 members. They predict the US economy to grow at 1.2% in 2008, whereas both Europe and Japan to grow at 1.7%. Growth in China is expected to slow to 9.4% vs. 11.9% in 2007, South Africa from 5.1% in 2007 to 4.2% and India from 8.7% to 6%.
Inflation in UK soared to 3.3% in May, and inflation in Japan rose to a decade high of 1.5%. Inflation in Singapore is recorded as 7.5%, in Russia as 12% and in India as 12%.
Inflation results when the supply of money exceeds demand. Thus the Fed should be raising interest rates, but instead they have been decreasing interest rates to combat the subprime crisis.
The current inflationary situation is not because of an overheating environment but by the 3 Fs- fuel, food and financial speculators. So interest rate hikes alone would not fight inflation. Rising interest rates would cause more recession. As cost of money rises due to rise in inflation, growth will halt, and inflation, rooted in the 3 Fs, will continue to rise. The solution: lower fossil fuel consumption, raise food production, curb excessive speculation, stimulate investments, incentivize capacity addition, nudge productivity increase and adopt sustainable technologies.Massive public and private investments are needed to promote sustainable technologies. Hybrid automobiles with advances batteries, green buildings, carbon capture, cellulose-based ethanol, safe nuclear power and other advanced technologies can combat growing energy demands. Solar power is another alternative to global energy requirements. For food supplies, new drought-resistant crop varieties, along with new irrigation technologies, can help more food production in the changing climatic conditions.
News on the Loose
Two years ago, Bharat Sanchar Nigam (BSNL), the Rs.40,953 crore state owned company, floated a tender of 45 million lines of GSM equipment worth $45 million. Out of this, 10 million lines have now been earmarked for 3G services.
The tractor industry in China grew up to 2,20,000 units in 2007 from about 56,000 units in 2003, a compounded annual growth rate of 40%. Mahindra and Mahindra (M&M) entered into a JV with China’s Jiangsu Yueda Yancheng Tractor Manufacturing Co. Ltd.
The tractor industry in China grew up to 2,20,000 units in 2007 from about 56,000 units in 2003, a compounded annual growth rate of 40%. Mahindra and Mahindra (M&M) entered into a JV with China’s Jiangsu Yueda Yancheng Tractor Manufacturing Co. Ltd.
Nano The Info
"Talking to the point is the fastest mean of communication."
Paraphrase any news, article, book or any peice of information and jot down only the important part .
Paraphrase any news, article, book or any peice of information and jot down only the important part .
Subscribe to:
Comments (Atom)