Trendwhizo's Notes

...shhh...it's the LIBOR, stupid...

2012-02-10T12:03:00.003-05:00

Check out this news on Financial Times about the probe regarding LIBOR manipulation.

Trendwhizo did mention about the manipulation (through reflexivity) in the Nov 2011 post here.

Good to see that the investigations have yielded some results and were not inconsequential.

The next investigation must be launched on potential corruption in the process of European banks assets sales. Credit Suisse sold some assets to Apollo at 57% discount and funded the sale (WTF!). Similar other such transactions are happening as Trendwhizo blogs this. Many more may happen than now, if this rout is not nipped in the bud. After all, the banks have reduced the bonus pools substantially.

about india, the fiis, and the great trendwhizo trade

2012-01-30T07:18:00.015-05:00

The herd of Foreign Institutional Investors (FIIs) provided yet another opportunity for the local operators (DIIs, UHNIs, et al) with just one strategy.

Now, the great Trendwhizo trade. INR falling (for whatever reason) in conjunction with a perilous fall in equities (Reliance Industries was at lowest EV/EBITDA for the decade while the Ambanis were ready to bet $12bn more in Capex), provided a unique opportunity:

Simplistically put, the trade entailed taking the currency attribution & taking the country attribution; stock-picking didn't matter. The Indian central bank's actions the currency attribution (through policy changes and INR support) as well as the country attribution (by almost ending the tightening cycle).

The result was a total 1-month return of 22.14% with:

Ccy attribution: 8.4%
Country attribution: 13.5%

Finally, when the rest of the herd followed, exit the trade. Time has come to take some chips off the table. Check out the 22.14% 1-month DEFTY (Dollar Nifty) returns with only one month.

Source:Bloomberg

This does not imply that Trendwhizo will unwind all the positions. However, some long positions will be scaled down for sure.

To study the correlation of FII allocation and performance of Indian equities, the following graph is interesting. Just understand that the allocation falls off at end of year as it resets to 0 every year.

Source: Bloomberg

This just beats the dead horse.

Trendwhizo expects to see a larger allocation in the coming years. To put it aptly in Jhunjhunwala's words - "sab nafe ki daaru hai ... jo chale gaye hai wo aa jayenge" ... meaning "it's all about intoxication through profits - once they (investors) see the green in the Indian equity asset class, they will come"

As I blog this, the Planning Commission of India is inviting experts to provide inputs for efficiently allocating and utilizing the $1 trillion from FY13-FY18. Such a capex cycle will provide plenty of fortune-making opportunities.

In Trendwhizo's personal meet with the global gurus of investing (public and private) such as Sir Evelyn de Rothschild, Sir Martin Sorell, et al, it was very clear that India will provide plenty of opportunities to make money; if not in publicly listed equities, then in private equity!

facebook ipo

2012-01-29T18:23:00.008-05:00

Facebook finalized to file for an IPO this week. Even though Trendwhizo plans to short it eventually, it is not prudent to do so in the first few days the following reasons:

a. Low float: Overpriced companies stay protected from bear raids of value vigilantes via low float. Groupon (NASDAQ: GRPN) is a case in point.

b. Inventory build up: In the initial days following the IPO, the market makers are still picking up the stocks in order to develop an inventory. Even though market makers are price takers and liquidity providers, the low float mentioned earlier tends to transform them temporarily into a price-setters.

c. Broad market sentiment: The decline in VIX and 5% gains in S&P500's YTD returns indicate that there is a certain euphoria in the equity markets. DXPL indicates that the Equity shorts are at $360b, which is a low in the $360b-$420b range for North America.

d. Pent-up demand: may propel initial IPO price to new stratospheric valuation levels (contingent upon broad market sentiments). Trendwhizo wouldn't be surprised if Facebook's market cap reached beyond that of Apple's (but would take it as an opportunity to bet against such a high price)

In the past, Facebook decided to offer shares only to non-US clients. The company doing such a thing is so unpatriotic. In order to circumvent the regulations, they worked with Goldman Sachs to offer the potential gains to non-US investors (or US money parked offshore).

If Zuckerberg & Co. wants to 'take-the-money-and-run' then they must do so right now, when there is calm before the storm (see video below).

This event, in Trendwhizo's opinion, marks an early sign. So far, the year has been good for long equity investors and it ain't a bad idea to take the chips (in long direction) away from the table.

found the money!

2012-01-08T11:36:00.012-05:00

Finally, KPMG found the allegedly missing sum of $1.2bn from customers accounts. The consequences were favorable for some clients and not so favorable for others.

The ex-Goldman Sachs chief and ex-NJ governor Mr. Corzine mentioned in his prepared statement:
“I simply do not know where the money is, or why the accounts have not been reconciled to date”

He repeatedly stated that there was no intent in whatever happened. After watching his hearing at Capitol Hill on CSPAN, Trendwhizo thinks that he was very well lawyered up. In a prepared statement, he accurately mentioned:

However, that hearing also made one thing clear: even he wasn't sure where the money went :D.

Don't worry, he is not alone. Most of the leadership at the top of the large financial firms is as clueless as Mr. Corzine about what some of their Ops do.

Bob Diamond didn't know how many tax-haven based offshore subsidiaries Barclays had at the Treasury Select Committee's evidence deposition. Bob was forced to admit that he didn't know.

Additionally, the lack of detailed Ops knowledge is very well depicted in a recent movie Margin Call; as you go higher up, the lesser you understand the business operations.

Scene a
Will Emerson: I don't get any of this stuff'.... (when Peter asks him to check out the spreadsheet Eric leaves)

Scene b
Will Emerson: ...honestly I don’t even understand what you guys do.

Scene c
Will Emerson: Well... take a look at this model and you might understand.
Sam Rogers: Speak, you know I can’t read those fucking things they put together.

Scene d
Sam Rogers: You know that I don't understand any of this

Scene e
John Tuld: I don't get any of this stuff'

Finally, for the customers, one important lesson learnt was-
READ YOUR AGREEMENTS WITH YOUR BROKERS.

Check out Jon Corzine videos below:
Morning session

Afternoon Session

insider trading, snb, and code of conduct

2012-01-05T12:20:00.004-05:00

Swiss central bank President Philipp Hildebrand's wife's transactions are being questioned. Trendwhizo thinks this is purely political in nature as the amount involved (~$500k) is just peanuts compared to what was at stake. Especially, the fact that such matters have to be guarded in secrecy and were yet leaked, makes it appear as a political smearing campaign.

An acquaintance quoted 'This nature of egregious insider trading can't be easily found even in emerging markets such as India (sorry, can't speak about China).' However, I don't think this was an insider trading at all. Most probably, it was a matter of coincidence. I am not here to defend Phillip or his wife; it's just too small an amount for someone to take advantage of in the currency markets.

Trendwhizo agrees with the FT op-ed indicating that Central Bank must avoid even whiff of conflict of interest. However, if the law of the land were not violated then Mrs Hildebrand's matter must be left alone. Now, if the SNB code of conduct needs amendment, then it's a different story altogether. In absence of that, Hildebrand is justified in saying: "Ich bin unschuldig"....

'Draghi Put' put to test

2012-01-02T22:18:00.005-05:00

Similar to Bernanke put, the Draghi put (@ 7%) is in action. We saw the bond auctions for debt-rollover go relatively well due to the arrangement created by ECB.

Trendwhizo has reduced shorts in Euro since the last post here. The re-building of shorts will begin once the recent low of 1.2918-20 is broken again and/or any indecision in Europe causes further crisis chaos and/or the Draghi put becomes ineffective at any future bond auctions.

the return of shadow banking

2011-12-29T12:36:00.003-05:00

An interesting article in FT figured the resurgence of shadow banking system. Though Trendwhizo concurs with the article's findings, the agreement with Batchvarov's comments is limited, i.e., if shadow banking shrinks, the shrinkage in the regular banking will be more than that of the shadow banking.

joke of the day

2011-12-12T14:50:00.002-05:00

A 5 Year Greek CDS at 10K+. Enjoy !

EU Summit: there is no bazooka!

2011-12-11T21:24:00.009-05:00

We didn't see any resolution to the European sovereign debt crisis.

There were three possible resolutions:

a. Transfer of wealth from the rich nations to the heavily indebted ones: The possibility of this being exercised is next to EU explosion. However, it's an option.

b. Write down the debt: Angela Merkel tried doing this. Earlier, we saw the private sector holders of the debt were asked to take a 50% haircut. We saw the two-fold outcome:

Private sector decided to stay away from any of the upcoming auctions. This led to sovereign debt yields climbing up significantly and further intensified the crisis.
MF Global provided an evidence of what will happen to companies exposed to European sovereign debt; no one knows who's next (read potentially European Banks).

If Merkel had her way, she would apply a further haircut on the private sector debt and make it up to 99% to prevent the governments' turn to take the haircut. ECB clearly opposed this as it risked fallout of a contagion. Angela stepped back and gave up the insistence; after all there's something for Deutsche Bank to lose in it as well.

c. Inflate the way out: Germans have horrifying memories of the 30s and hyper-inflation. As a result, their orthodox stance is in direct contrast towards this stance. Nonetheless, Germany will not be able to hold out on it's own if this is the only option left.

We saw that Mario Draghi almost talked Italy into one step towards default. This affected the German-Italian 10year spread as it went from 389 bps (on 12/7) to 444bps (on 12/8). Check here. The 5 year Italian bond yield is back up over 6.5%. The markets will neither forget nor forgive.

ECB's status prohibits it from financing the member governments per the Maastricht treaty and Draghi is in no mood to violate it. Periphery bonds may suffer significantly. Italy and Spain stand the risk of losing access to the access to markets. Unless the new treaty is formed quickly among the willing nations, ECB has no bazooka !

the rigged casino

2011-12-01T14:03:00.005-05:00

The following rant was by an Australian investor and an acquaintance.

"It's confirmed. The world's developed markets are no different than the developing markets w.r.t. insider information and rigging.

Here are few evidences:

Exactly 48 hours prior to concerted action by the Central Banks, there is a gap-up opening in the US markets. Check out the opening for 11/28/2011 for the US markets. Later, post-announcement as well, the markets open gap up.
Top Hedge Funds received Henry Paulson's a word in advance of the Fannie event.
Buffett gets a Buffett-only deal with Bank of America - pure crony capitalism
A board of directors member of Goldman Sachs and ex-McKinsey chief Rajat Gupta delivered Buffett investment news to Galleon. Similarly, Anil Kumar was convicted for insider trading.

This is a rigged casino!"

facebook ipo: the perfect short

2011-11-29T17:56:00.011-05:00

Facebook announced that they will consider filing for an IPO prior to year end. This seems to be in line with the 2012 IPO plan. An offering of $10B will make it the biggest tech IPO of all time.

Is Facebook really worth $100B?
Of course, for the people who will end up subscribing the IPO. Groupon (Nasdaq:GRPN) did get a $24B valuation for a week or so. In fact, GRPN went up beyond IPO price due to shortage of stock available for lending for shortsales. Eventually, it broke the IPO price. Ditto with Angie's List. Zynga is coming up. Most probably, Facebook will break the IPO price on the downside as well.

This offers opportunity as Trendwhizo plans to short the stock. Here are the reasons:

History of mis-steps.
Facebook has decided to settle on privacy issues by agreeing to be annually audited for the same.
Revenues are barely going to cross $4B.
Growth rate: The number of users reported in Jul 2011 were 750M (source). Oct 2011 had 800M users. This is barely any growth to command this nature of valuation (50x sales).
Social Operating System unveiled at F8 is a good idea but the price is too high.

Keep in mind, on day 1, we may see a price action on the upward side. However, eventually, the market cap of $100B is not sustainable for a firm with $2-3B revenues and a maturing user-growth trajectory.

In a future austere world, Facebook would probably deserve a valuation of around $10B. So, there is 90% downside on the stock at it's offering price. Short baby, short !

Meanwhile, enjoy the following video:

On a side note, this development and the timing re-affirms Trendwhizo's conviction that all asset prices are about to melt. Earlier this year, WSJ reported that Goldman Sachs bought a stake in Facebook (at $50B valuation) and played the usual Wall St game of selling it to clients at a 20 point (or more) spread. Goldman Sachs faced significant issues and decided to sell to non-US investors as a work-around after this development. These private investors need an exit as liquidation sales have started globally along with bank runs in Greece.

why gold stocks are underperforming gold ?

2011-11-29T16:41:00.005-05:00

Gold stocks have underperformed gold by a considerable margin.

Frequently, I am asked the reason by acquaintances. Sometimes, Trendwhizo has been pitched by mining firms at investor conferences with the premise that Gold stocks will catch up with Gold price. Trendwhizo thought about it and barring a few miners, doesn't buy the premise. Here are the reasons why:

ETFs: Following ETFs are available in the US market to investors (both, institutional and retail). Given this option, the tendency to swing by for the miners is reduced.
- Direct: GLD, IAU, AGOL, DGL, SGOL, UBG
- Indirect: BLNG, DBP, GLTR, JJP
Gold pricing by analysts (both sell-side and buy-side) in their proforma sheets is anywhere between $800/oz to $1200/oz and that leads to relatively lower price targets. This can render the stocks valued at lesser prices.
Do the gold mining companies' management teams deserve a premium in terms of their production decision making?
- Management of majors try to buy out juniors at bizarre prices. For instance, there is a rumor about NG being potentially shopped for by Barrick at a 40% premium to market price.
Buying stocks of Gold miners is betting on future production of the firm. The propensity to undertake this bet is not widely accepted two reasons:
- Humans work on memories. Last time a gold bull run happened in 1970s, it took 8 years to reach the top and just one year for the price to loose 75% in price. Given this memory, investors tend to prefer 'betting on gold directly as against gold miners if they need an exposure to Gold. Investors tend to assume mean-reversion even though this time around noone knows when it will happen.
- Risk aversion on part of investors due to current macro developments
Gold production prices are going up. The first time when Trendwhizo blogged about gold, the price was 550/oz. Now, it is anywhere between 650-800/oz depending on the property. If you are a Maudore (TSX:MAO.V), you may be lucky and find high yield field (they've gotten upto 1100g/t) and low cost per oz. If you are trying to get from a widely dispersed field, then your cost may even be above 800/oz.

Trendwhizo concludes that

the bets on gold miners (esp majors) is not a good way to get exposed to gold unless
a. your analysis indicates an excess production than discounted in the m-cap
b. there is a substantial 'gearing' effect, which isn't reflected in the current m-cap
betting on the minors is a speculative bet and has potential to pay off significantly

Soros and Paulson invest in their gold miners in both ways: cautiously and speculatively leveraging their understanding of the 'gearing' effect.

wenn die Hölle los!

2011-11-23T15:52:00.008-05:00

The title of this blog is in German and it means 'when hell broke loose'.

"The German auctions didn't attract bids for clearing even €6bn. Such a disaster !" Trendwhizo exclaimed to his colleague overseas while on phone and walking on a treadmill. The other side responded - "Sigh.. let's hope we don't have a 800 points down day on Dow!"

If Germany can't sell the bonds, will they be able to fund the banks? ...the banks, which gave funding to troubled European nations. Say Deutsche Bank. Check out the NY Times article here.

An interesting insight was put up in Financial Times' FT AlphaVille article here. May be that provides some explanation on why neither European markets nor US markets had a free fall.

The chitter-chatter of large bond desks suggests that the European credit markets are close to frozen. Equity in certain banks may be wiped out as the banks will have to raise capital at half their current market prices.

This event suggests one thing for sure that even banks don't want to line up for repairing capital base by subscribing to euro-denominated assets.

Trendwhizo committed to shorts in € and blogged about it here. In addition, Trendwhizo is also short European banks. What's next? I would suggest the readers of this blog to check out the following video by Trust Well's (over $100bn AUM) Komal Sri-Kumar's point of view here.

paulson's woes seem to be lessening

2011-11-18T09:54:00.004-05:00

Paulson & Co continues to stay under intense scrutiny by investors as the group's largest fund lost almost 44% YTD (Oct). However, Delphi listing yesterday must have come as some relief. We saw ~18 million shares traded and the speculation is that a large portion of that execution could be from Paulson & Co.

Such a listing of Delphi will allow put a value to those holdings. Trendwhizo is not sure how the accounting FV was managed during the preceding days. It will be interesting to see

Also, there was a big pop in Novagold a couple of days ago on CEO change.

Gold prices dropped over $50 yesterday and continue the sign of weakness - I think liquidation happened with a large firm or large firm's subsidiary. The whole commodity complex collapsed with oil, gold, etc taking a hit in prices. The risk-off trades were on.

Bloomberg reported recently that Paulson reduced his risk from 81 to 50 and now, from 50 to 30 recently.

All in all, Nov 2011 NAV for the Advantage Plus fund will probably show some of those losses recover.

meadowood capital

2011-11-14T18:12:00.005-05:00

Let's hope this fund doesn't turn out to be the next LTCM. The founder has an impressive background. In the past, Andrew Mullhaupt was co-head of SAC and held positions at Morgan Stanley and Renaissance Technologies. Also, he has a Ph.D. from Courant Institute (NYU). He has joined with some bankers to form this firm. Their initial office will be at 712 Fifth Ave as per this article.

I wonder whether Bob Frey will join this fund or not though I am not sure if he will give him his position at SUNY Stony Brook.

Now, I hope this choice of name doesn't confuse the hell out of potential investors:

There's a San Fran based Meadowood Capital, whose founder is Brad K as can be seen at the linkedin profile here.

There's a principal investments firm, based in DE, by a similar name Meadowood Capital LLC formed in 2006 as indicated here. One of the guys from this firm has gone to join Raytheon.

forming Euro shorts

2011-11-13T18:00:00.014-05:00

My previous commentary on Euro here indicated that Merkel's and France's opposing stance are not healthy for the Euro. One year later, even though they have come forth as much more coherent than before, I still have doubts; accordingly, I have been systematically short EURUSD whenever it reached 1.40+. Recently, Trendwhizo got one such opportunity with the short squeeze pushing the pair beyond 1.42.

When the rally in the pair started, I attended a conference FX11 Summit at Bloomberg. The host asked Ken Rogoff a question: "Why did the Euro rally?"
To this, Rogoff replied: "I don't know".

Obviously, he is an economist and ex-IMF chief and therefore, shouldn't be asked to comment upon speculative markets. He added further that his research along with Carmen (and documented in the book This time is Different) indicated that in the last eight centuries, whenever you have net debt > 90% of GDP, there are inherent issues with sovereign debt. When that limit is reached, debt must be either restructure ini better terms or have some kind of default. A guess towards the cause was that the markets may not fund further sovereign debts for such a country.

If you want to catch up with what's in store for Italy, check out this video while reminiscing the game of Mario:

I don't think EURUSD is likely to stay strong significantly longer than a few weeks/months. The correlation between S&P and EURUSD will eventually break. Currently, the S&P and EURUSD have had very high correlation, especially since the summer. Whether S&P will follow suit and collapse is not up for discussion here because we have seen cross-asset correlations go haywire during times of crises. However, EURUSD definitely will dip lower regardless of the political will of the members to keep it together. Here are few reasons why:

Under-estimated mess: The cost of resolving the mess with Portugal, Italy, Ireland, Greece, and Spain is estimated at 3 trillion Euros as against 2 trillion. A levered 2 trillion Euro EFSF will not be able to handle this issue
Structural problem: When Euro zone was formed, the member nations lost the monetary independence (printing ability) as well as the central bank, which could support the sovereign bonds. Italy's bond yields went up over 7.45%. ECB's purchases are keeping it below 7%.
Capacity issue: Largest Euro debtor nation is Italy with 1.8 trillion Euro. If markets refuse to fund it, Germany and France will not be able to redeem the 2-3 trillion Euros by themselves.

Here's the hedge on this strategy: Long energy and precious metals

If ECB decides to monetize it's way out, I want to keep myself appropriately hedged. Here are certain other positions:

Gold
Gold miners (throughout the world: TSX, ASX, US)
Crude Oil
Long selective assets in Emerging Markets (risky hedge but I have my reasons)

In addition, there are several other long positions in the portfolio such as :

La Niña positions: La Niña conditions are present across the equatorial Pacific*
Europe is going to face the severest winter of the millennium.

This implies utilities, and nat gas and other energy companies.
* http://www.cpc.ncep.noaa.gov/products/analysis_monitoring/enso_advisory

Of course, these trades are nimble-footed. Trendwhizo initiated these a few weeks ago and will continue until circumstances change dramatically. If the endgame changes, so will this strategy.

margin call

2011-10-28T11:18:00.004-04:00

Trendwhizo has one word for this movie - authentic.

Last week, Trendwhizo checked out the premiere of J.C.Chandor's first feature titled Margin Call. He gave a prologue and was pretty down to earth. Below is his picture while exiting Angelika. Unfortunately, it was a limited release movie. This probably could be attributed to the limited budget of $3.5MM reported on imdb.com. Kevin Spacey starred in it. I am not sure if any earnings/revenue sharing model was implemented. It's available in both, theaters as well as movie-on-demand.

Margin Call was neither Hollywood-type Wall Street 2 nor a biased documentary such as Inside Job. The movie fell at the right spot between being a book's copy and being an engaging feature film for the right audiences.

the new frontier

2011-10-10T19:39:00.001-04:00

Trendwhizo has been astonished by the returns from Australia in the past month or so. He believes it must be an essential component of portfolio for Alpha seekers. Watch out this space for further news.

operation twist

2011-09-26T13:37:00.004-04:00

Bernanke had no choice but to introduce Operation Twist. It took care of two things:

a. Precious Metals (Gold, Silver, et al.) cooled off due to no announcement of additional money supply

b. Indicated to the markets that he will not go General Mugabe's route :P

How can we benefit from this? My first and immediate bet was to go ahead and buy the ETF with the symbol TLT !

Check out the performance since announcement in the graph below:

here comes the hotstepper ...SNB intervention

2011-09-06T06:34:00.000-04:00

As expected here by Trendwhizo, the SNB has intervened. Check out the news bit here about SNB pledging unlimited currency purchases and the pop of 8.27% in the last couple of hours or so.

I wonder once SNB has exhausted, the CHF appreciation will continue. Interventions barely work. However, for short term technicians, this will be detrimental for any short positions; most of them must have stopped out.

This decline in CHF was expected (as noted in this post) and Trendwhizo had covered shorts and went short since noon on Friday prior to entering the long weekend.

go CHF go !

2011-09-02T07:12:00.007-04:00

Trendwhizo's bet on CHF against the intervention has paid off over this week!

Phillip Hildebrand's Swiss National Bank will have to work harder I guess....may be over the labor day when the American counterparts will not be working on account of Labor Day holiday. With this in mind, Trendwhizo will be covering his positions by noon today.

So far, so good.

The currency portion of portfolio on 8/31 at 8.58 am.

All those positions were closed during the day on 8/31 as the SNB intervention began. Some stopped out, some hit the limits.

Later, new positions were initiated. The positions look like this at the time of this post (9/2/11 at ~ 7 am)

go CHF go !

rendezvous with Alison Williams

2011-08-13T16:45:00.005-04:00

To enhance the ecosystem of Bloomberg products, the firm has been conducting several training and point-of-view sessions in after-work hours .

Bloomberg Industries module of Bloomberg terminal offers industry dashboards. Correspondingly, BI Bank allows an individual to analyze Banking sector with relevant characteristics. Users can just type BI on the command line on the terminal to see which industries are covered in this.

Trendwhizo got to meet and pick some brains of Senior Analyst of Bloomberg Industries on Banking and Credit Cards industry. She had some interesting data about the industry.

One of the highlights was the perspective that the cost structure of the industry is causing margin squeeze. The Fed's commitment to keep rates at near zero level in conjunction with lower GDP growth forecasts is causing a flattening of yield curve. This will put significant pressures on banks, who borrow short term and lend long term. Also, the deposits wouldn't be a primary source of funds unlike the past as depositors wouldn't be attracted to near-zero yields from their CDs. For banks with good credit card portfolio, the expense structure appears a bit healthier as everything is pegged against LIBOR and they can sustain the margins.

Based on above statements, Trendwhizo asked if further consolidation would happen such that credit card portfolios will continue to sell at premium (a case in point being that Capital One buying US credit card unit for HSBC). Alison said the banks don't have a choice and substantiated by indicating the amount of credit cards mails (with a graph in BI Bank Data Library), which have gone out.

Further, a question was raised about the FDIC banks' receivership. To this, Alison said that the macro-indicators point to a relatively challenging time but banks have sobered up and have much healthier capitalization compared to what they had while going into '08 and '09. Also, private sector deals are enhanced leading to relatively lesser closures by FDIC.

Trendwhizo thinks that despite of attempts from banks to have credit cards portfolio expansion, the consumers may not have significant consumption propensity and hence, this move may not enhance the margins as desired.

Also, Trendwhizo has a point of view that the attempts of the large banks to de-lever has generated and will continue to generate excess capital. Read the transcript of JP Morgan Chase's discuss here. Lower capacity utilization for conservative risk management is going to hurt returns to shareholders.

Further, the Basel III and G-Sifi compliance is going to generate additional expenses for future quarters.

With some banks, periodic issues may emerge. For instance, in case of Bank of America, the mine-field like loans portfolio inherited from Countrywide will cause some significant disruption. BofA execs have already expressed that Countrywide acquisition was a mistake here.

Overall, the Banking industry (with pure S&L story) doesn't appear to be a story to stay invested in.

P.S. Check out Alison's TV appearance below.

go gold go....

2011-07-26T02:13:00.005-04:00

Trendwhizo's bet on gold is paying off. Gold hit yet another all time high at ~USD 1624 per ounce. What does this mean? Well, one thing is for sure - the John Paulson critics will be silenced for sometime after last 3 months of litany.

Just two weeks ago, Christin Tuxen, an analyst at Danske Bank, had expressed a view that gold will reach the 1600+ levels here while it was at 1566.

With the drama unfolding at the Capitol Hill (read: Obama v/s Boehner addresses last night), gold is set to soar even higher after some correction. Keep reading this space.

Trendwhizo would like to take this opportunity to point out that the gold miners are selling at good value prices. In next year or so, the smart ones will be re-rated and their valuations will provide avenues for alpha-seekers.

In June, there was a NYSSA conference on Metals and mining. Despite of presentations being focused on m

ostly Canadian companies (and rightfully so because they have tons of natural resources), there were few generic sessions on precious metals category. Interesting insights were provided.

Following this lead, my independent analysis gave me certain parallels in the US listed gold miners space. Watch this space for the insights I would share.

Till then, go Gold go !

the greatest trades of all times

2011-07-22T12:56:00.010-04:00

Interesting compendium here on The Greatest Trades of All Times.

These individuals truly delve in what Taleb calls 'Extremistan'.

If Jack Schwager had to write his book's sequels, these individuals would be definitely interviewed for it. Of course, they don't need a validation by a biographer interviewing them because they've already been biographed in one way or the other.

the day when the LIBOR died

2011-07-15T10:07:00.006-04:00

Click here to check this NYTimes article. LIBOR or 'london interbank offered rate' was watched carefully during the 2008 Global Financial Crisis. However, it's significance depleted drastically with the EU crisis for the PIIGS (Portugal Ireland Italy Greece Spain).

Why is this so bad?

Today, LIBOR is not reflective of the banking system's short term health. It is similar to driving a car, whose Check Engine light is malfunctioning. It is masking deep-rooted and critical issues in the banking industry's health.

Who do we blame this on?

Blame it on the politicians: The politicians have forced the Federal Reserve (indirectly) to print additional cash by keeping Fed Reserve's one of the fundamental duties to have job creation. This excessive money supply has led to the three month dollar LIBOR to below 0.25%. Banks are not doing Interbank lending; instead they are parking money with Fed directly.

Reflexivity: As LIBOR was made the prime indicator of the banking health, it is believed that prime players concerted an effort to make it appear stable (contrary to the actual health) while the EU crisis was happening. Investigations are still pending an outcome.

Blame it on Basel III: The advent of Basel III and some of the completed implementations of Basel II in US as well as across the Atlantic in Europe are indications that banks (and non-banks alike) are piling up huge cushions of cash !

Blame it on Dodd Frank Act: Capital definitions have changed.

What will happen to the Mortgages given out with LIBOR as the basis ? They will stay as is.

What's the alternative? Interest rates on sovereign debts.

MOIL allotment status

2010-12-12T14:04:00.008-05:00

Check your MOIL IPO allotment status at : Karvy

MOIL Initial Public Offering (IPO) was heavily oversubscribed (over 35 times in retail). Accordingly, the subscription, which applicants received was very low. The maximum limit in Retail was 2 lacs, i.e. about 527 shares given that there was a constraint to apply in lots of 17. Most of retail applicants got 17 shares.

The retail applicants, who applied using ASBA were smart compared to those who didn't. ASBA or Application Supported By Blocked Amount allows market participants to keep money in their accounts while applying for the IPO. This provision allows the investors to earn interest in their bank account. SEBI introduced this method in July 2008 to streamline the public offering process and resolve some of the investor grievances associated with delays in refunds. The proportion of ASBA usage by Retail investors is low. However, it should improve over time and if it doesn't then it implies that newer and newer crops of Retail investors are entering the markets.

The funds and HNIs have received still lower allocation. There is an unmet appetite among the investors and this will manifest on the day of listing (15-Dec-2010). Current grey market premium was in the 175-225 range. Most probable buying will happen from the domestic mutual funds. Later, in January, most of the buying will happen from FIIs. Fundamentally, the firm's value, with conservative valuation standards, stands at around INR 450/share. However, due to this pent-up demand, I will not be surprised to see a 100% gain (INR 750/share) on listing for the mini-Navaratna.

the tale of two offerings: moil v/s claris

2010-11-26T07:51:00.008-05:00

Indian IPO market is exhibiting either discernment or confusion. The case in point are the two IPOs of Claris Life Sciences and MOIL.

Claris Life Sciences has some very famous and well-entrenched market participants as the Lead runners (specifically ENAM) and is rated by Fitch as IPO Grade 3. The offer had following distribution of shares: 52% to QIBs, 36% to Retail, and rest for non-institutional bidders. By due date, this offer was subscribed only 0.53 times. The day before due date, the offer was subscribed barely (none in QIB section, none in NII section, and just very less in RII section). This resulted in price band revision from 278-293 to 228-235. This ~20% discount was made essential either because the FIs were discerning or because the market correction (mostly attributed to the FII sell-off for the year end) substantiated less fancy valuations.

MOIL has equally well-entrenched market participants and is rated by Fitch as IPO Grade 5. The offer has following distribution of shares: 49% to QIBs, 34% to RIIs, 15% to NIIs and rest to Employees. On first day, the issue was subscribed 0.86 times.

Clearly, the markets were either confused about the impact of public sector banking bribery case or was very discerning about the quality of paper coming to the markets.

allotment status for Power Grid FPO

2010-11-23T10:32:00.005-05:00

If you are searching whether you received allotment for the Power Grid FPO or not, then your search ends here. Here's the link for the same.
http://mis.karvycomputershare.com/ipo/
It's an easy-to-use and intuitive interface for the FPO applicants to see their status. The grey market premium was about 10-11 for the listign. However, with today's decline in share price, it seems that Baliga's outlook that the stock will decline to 94 may turn out to be true.

shorting euro...again !

2010-11-03T07:51:00.004-04:00

Trendwhizo is of the opinion that at 1.41 Euro is over-valued vis-a-vis AUD, Yen, and USD. To express this view, short positions have been established via AUD, Yen, and USD.

First, Euro region issues are far from over. Specifically, the Ireland bailout package will not be an easy one as the bailout package will take time to kick in.

Next, the rift between Angela Merkel's proposal and France's stand regarding socialization of losses causes lack of consensus towards remedy leading to higher uncertainty about the Euro region on the whole.

The strategy would be to keep on adding short positions until Euro reaches the 200 DMA on each of the pairs and once that level breaches (if it breaches) wait out for a good time to cover.

Despite of such a bleak outlook Trendwhizo secretly wishes that the single currency does not break up!

coal india limited

2010-11-02T18:46:00.009-04:00

Coal India IPO Allotment Date of listing is on November 4th 2010 and the allotted shares are likely to be credited to the Demat accounts of investors from November 1st. The government aims to raise $3.5 billion from the IPO and the retail portion of the IPO was oversubscribed by 2.31 times only.

Coal India IPO allotment status is available online at:

http://www.linkintime.co.in/site/ipo.asp

The registrar for Coal India’s IPO – Link Intime has finally made the Coal India IPO allotment and refund details available online on their website. Retail Investors who have been waiting for more than a week can now visit the registrar’s website along with their application numbers to know the complete details of the allotment.

FDIC may not be getting it

2010-06-24T19:39:00.007-04:00

Trendwhizo is not sure how FDIC gains or even does risk management by detering dud-buyouts.

Check out this Bloomberg article that details accounts of how private money is now chasing banks that are about to fail but not the banks that have failed and been seized by the regulator.

In the past, it was blogged here about why FDIC has no choice. Trendwhizo believes that FDIC still has no choice. The second half of this year will show the wrath of the double-dip in housing recession and the time when FDIC may have to start giving controls to some of the private equity (PE) players. Why second-half thou may ask?

First, the Quantitative Easing (QE) is stopped. QE was fundamentally responsible for FDIC to not close significant number of banks in 2009. They would've easily closed 1000+ banks as it happened in the last cycle of bank-closures (1987-1991) as against just 300.
Second, State and City governments has about 2.5 times deficit than post-dot-com bubble recession. This will lead to approximately 1 million job cuts. The private sector may not have ability to absorb this workforce. This will lead to some additional defaults.
Finally, the second half of 2010 will potentially show the effect of supply from inventory of the banks, which have foreclosed houses ( in their curate) from the last 4 years or so. The charge-offs associated with this inventory sale may be so high that it might be bigger than the write-offs from the last 4-5 years combined. Check out Meredith Whitney's interview below outlining the same (at around 10:20 or so).

While FDIC's intentions are conservative risk management, they may have to start trusting the market players and allow control of failed banks. These players are not going to wager on just sliced-diced assets of the bank; they want steak, not hamburgers.

relative value arbitrage

2010-05-26T17:52:00.006-04:00

A clear relative value arbitrage is available in form of Apple-Microsoft pair trade. When I read in The New York Times about Apple becoming the most valuable company in technology, beating even Microsoft - I just leveraged my pair-trade with a conviction.

This trade will yield decent returns as long as the trader can hold on to the trade despite of margin calls !

Enjoy !

jaw dropping drop !

2010-05-06T19:26:00.018-04:00

Today was an interesting day. I got to cover my shorts (either by selling my puts or by unwinding my other derivatives positions). I was expecting correction and the fashion in which it rolled out was amusing.

There is plenty of speculation surrounding why it occurred. Trader error, EU zone govt defaults, overnight European bank lending rates are climbing, etc. rumors kept on making the rounds. VIX was above 40 and it helped me to sell my options positions. 70 % of analysts had converted their ratings from Sell to Buy and that's about time that you are on the border of starting to have a correction- again, I didn't expect this 1000 point drop. Specifically, I was able to get out of my AAPL short positions. AAPL dipped in between for a while below 220 !

Interesting pictures can be seen below.

Precisely at this point, my colleague tells me - "check out DOW" and I said - "check out s&p500" and then it goes down further to 9%

Kramer says PG can't be there at 45 when PG is at 45-47. Pick up 50K PG right now and boom, it moves 10 bucks ! This is the exact time when I start covering my shorts - run for the cover.

I have been bearish with a macro-view since last month and have been expressing it with a short straddles. It was as if there was an Almighty intervention that allowed me to be able to cover the shorts.

Watch here - it starts climbing and reaches 59 in a minute. This shows how markets can offer interesting opportunities. I remember getting a similar opportunity of selling Kotak PSU Bank ETF a month ago in Indian Equity markets at a bizarre price above normal.

Implied vol rose above 40.

Now, that the storm has rested, the vol is down. PG is above 60 in minutes after that panic.

Did Trendwhizo tried doing value-hunting? Well, tried - but in vain. Most of the time went in getting orders filled for the short orders. Before one could blink, prices went up. Proctor and Gamble, mentioned above, was a case in point. One could search for banks for less but with GS issue and EU zone banks issue, which conservative investor would consider banks as value at this point and these prices? I would've bought INFY at 40 - but the opportunity never arose !

Let us see what happens in emerging markets tonight !

This event reminded me of Madonna's 4minutes song - I'm outta time and all I got is 4 minutes, 4 minutes :)

short...short...short...

2010-04-30T14:05:00.005-04:00

Shorting Euro, shorting USD (via USD-JPY pair) and net-short equities !

Net short in equities implies that there are underlying long portfolio positions - however, the amount of short positions tally up to a net short equities position. I do not intend to hold this short position for long - just a few weeks. Besides, it is expressed mostly in form of options.

Happy Shorting !

The only long is in Gold !

notes on a senate hearing - goldman sachs making lemonade

2010-04-27T16:20:00.005-04:00

"He looks hot," a colleague of mine saying about Tourre, while he was testifying to Congress to Senate Governmental Affairs Subcommittee for Investigations. The entire affair was interesting. The Goldman witnesses held their own very well while the Senators were trying to probe aggressively. The funny jail-dressed group made good visual impressions - I hope some artist captures the whole sight in form of a painting or something.

The Birnbaum back-and-forth w.r.t. his short on Bear Sterns and Timberwolf CDO made interesting points. The Senator had to tell him - we are not stupid!

An interesting question was asked about email protocol whether Goldman Sachs had a policy against asking employees to not raise ethical questions about the bank on email. All the witnesses replied negatively down the line.

Mr. Levin was very critical of Mr. Sparks for praising his employees for travelling the world, selling CDOs, structuring like 'mad' and 'making lemonade from some big old lemons. He added 'You should have regrets.'

Later, the same Mr. Levin berated David Viniar saying that "I have a problem with this operation where you are selling the security in which you have a short position." He brought up a point almost making an analogy of Boiler Room to Goldman Sachs. Levin lost it in between and used the word 's**t' in a Congressional hearing. Viniar responded saying - it is unfortunate to have anyone say (that the security was full of crap) on an email (laughs) and/or any form of communication.

Finally, the last panel had Mr. Blankenfeld. He was calm, composed, and handled most of the questions well. He also used a disarming tactic by admitting that Goldman Sachs along with other investment banks was responsible for the housing bubble and subsequent crash. He was humble and did not exhibit the hubris that he did in the alleged 'I am doing God's work' statement would exhibit.

All in all, Trendwhizo feels that GS was targeted, the senators were not sharp in their line of questioning, and most possibly the set of regulations that will come out will be half-baked or not well thought of. If they want a good set of regulations, they must hire some of the baggage-less ex-bank-chiefs along with people such as Brooksley Born.

short selling AAPL

2010-03-27T22:40:00.005-04:00

Trendwhizo has accumulated a significant short position in AAPL by the close of Friday. It's market cap suggests an excessive valuation. Also, the current price is factoring in excessive expectations from iPad. Trendwhizo holds a contrarian view with a strong conviction and hence, has accumulated a significant short position. Part of the conviction is backed by selling of stocks by insiders.

buying on dips

2010-02-01T22:21:00.003-05:00

Trendwhizo continues to buy in Indian Equity markets on every dip. Added positions in variety of sectors (Apollo Tyres, Igarashi, HOCL, Linc pen, Dhampur Sugar). Also, bullish on commodities. Triveni Engineering is set to open high !

midcaps galore !

2009-12-10T06:04:00.009-05:00

Indian markets are and will remain abuzz in the Midcap section for times to come. Trading the BSE Midcap and Nifty Midcap 50 indices would be interesting. For foreign investors, the S&P S&P CNX Defty would be an interesting one to track. Here are a few notes from Trendwhizo

Viceroy Hotels, Garware Wall Ropes, Balmer Lawrie, Apollo Tyres,VIP Industries, Bilcare, and Geojit remain some of my old favorites. I added Sugar stocks (Balrampur Chini, Dhampur Sugars) recently as my new favorites.
Logix Microsystems, and Geometric Software are the dark horse plays in the technology sector.
Max India, certain pharma funds, and mid-cap pharma stocks formed the healthcare representation in my portfolio.

jobs recovery imminent

2009-11-27T09:29:00.004-05:00

Trendwhizo was bang on the money regarding double-digit unemployment rate in early 2008 here. Now, Trendwhizo will make another bold prediction now: the turnaround is imminent. Though the consensus estimate is that it will take atleast 2-3 years for the unemployment rate to reach 5%, the recovery in the job market may be much faster than this consensus.

Look around, the prices have already started signaling a significant recovery in GDP. I don't get the deals on purchasing goods and services that I used to a few months ago. I feel poor again ;). It is easy to jump to a conclusion that we may have a jobless GDP recovery. However, one must keep in mind that unemployment rate lags the actual GDP's performance.

There are tentative increases in demand and overtime is used by management teams of companies as an effective tool. If this overtime goes beyond a certain threshold, then it makes economic sense to hire new staff and that in turn, will take care of unemployment. We will drop to single digit unemployment rate in the Q1-2010.

MoAF panel discussion

2009-11-06T19:22:00.008-05:00

Succinct yet Informative and effective is how I would describe the MoAF's panel discussion on "Did the Economists get it wrong?" You can watch the entire recording here. Yes, the Trendwhizo does appear in the video several times.

Robert J. Shiller would not have been in the city for this topic with a better timing. I was reading his book Animal Spirits while he came in. I got to get an autograph from him on my copy :)

Bob thinks that financial innovation, if made available to common man, and not just Wall St., will provide an effective way to avoid systemic risk. For instance, he proposes Housing index futures be made available in smaller denominations in order for common man to pariticipate. Justin Fox presented an interesting POV. In his opinion, financial innovation got us here - will it be able to solve the problem?

Bob's response to that issue was that lack of regulation and not financial innovation alone was responsible for the current state of affairs. His ideas resonate with Barney Frank's speech- check out his speech citing non-regulation (and not de-regulation) as the cause.

Theresa questioned the effectiveness of a body (if Chairman Barney Frank's bill passes) which would govern the financial institutions with a systemic risk perspective. IMHO Barney Frank is relatively more knowledgeable than other Congressmen and probably, that's why he is the Chairman of committee for financial services. Theresa's opinion was that despite of the bill that Barney Frank is trying to forward, about a third of the participants won't be covered by it. I wanted to ask her more about it in the social time. However, I used that time for knowing certain other information from her.

During the social hour, I got to check out the museum with a new acquaintance. Specifically, I got to have a walking tour of Women on Wall St. exhibit currently up there along with some social mingling.

sexy meets wall st. - Georgia Anderson

2009-09-08T18:02:00.005-04:00

Georgia Anderson - She's the instant popular hit amongst the trading community with all the edgy shows as well as viral marketing. She's a Gaga-like marketer who's launched a great site. I am still not sure if she's a hoax though I see a youtube video of hers.

If it's a hoax, it's an interesting experiment to check out how fast viral stuff gets around in the trading community - because the first day this lady's news broke out amongst traders, they've been tweeting, IMing, emailing about her with in a splash of

For Trendwhizo's fans, here's the video on youtube:

Goldman took advantage of reflexivity in oil price manipulation !

2009-03-29T13:15:00.008-04:00

Check out this Forbes article which lays a potential theory behind Goldman Sachs's involvement in oil price manipulation.

If the report is true, then Goldman Sachs systematically took advantage of reflexivity (life work of George Soros) in the market to manipulate oil prices. The analyst report regarding oil price super-spike had elements of insider news in it. There was no fundamental reason for the super-spike to come in a few months when the economy was showing signs of weakening in the entire globe.

In the investments industry, as a matter of Code of Ethics, the analysts and sales teams are firewalled from each other. However, pillow talks can always happen. This is more so in case of Goldman Sachs as they dodged the bullet in subprime loans....and now, this report on the oil price manipulation. CFTC investigation yielded nothing conclusively.

immigrants and the US housing market

2009-03-26T21:29:00.007-04:00

About a year ago, Trendwhizo had the following conversation with an apparent congressman on a flight -

C: What are you reading?

T: It's a book on the new paradigm for the financial markets by George Soros

C: well, nothing's going to change here. We are confident that everything will be alright.

T: Are you sure?

C: Yes. Well, there may be a few hiccups here and there but we will pull it off - like we've always done.

T: Okay.

C: You see, everyone is dancing in this dance with us. Noone can see us fail and survive themselves.

T: However, what if there is a severe catastrophy ?

C: Such as?

T: Outright seizure of market functioning. I've seen what happens when that happens

C: Ah, that's out of scope. May be in developing nations it happens - not here in US.

T: What makes you so sure ? There was 1987 and there is something coming up now.

C: What makes you so sure that we will have 1987 repeat again? Where are you living? The world has changed and there has been a great moderation.

T: Sir, with all due respect, do you still follow that bubble which Greenspan built?

C: What bubble ? It is all real

T: Well, there is a housing bubble and then there is a super-bubble.

C: Let us assume we fail. What is the solution you propose? I really think about my constituency and would like to pick brains of people who I find interesting. Besides, I have nothing to do on this flight.

T: I would take a resource-based view. What's the best resource that the US has? Educational institutions and immigrants.

C: What are you saying?

T: Leverage the educational institutions for multiple purposes - export educational services, support breakthrough innovations (for instance in healthcare IT) to drive down costs, etc

Besides, facilitate immigrants with an easier process.

C: How will it help me? When the unemployment numbers rise, the immigrants will compete for a shrinking pie. You are not making any sense.

T: Immigrants have built this country. If the housing market is opened to the immigrants with certain incentives, there will is a latent demand for the increasing housing inventory.

A good example of immigrant supported real estate market is California.

C: Yes, but that inflates asset prices. Today, some of my constituents are happy that they can finally, afford a house now!

T: Okay - then face the trouble with deflation and eventually, depression.

C: No - there's gotta be a better way around.

....

...

And, today, I see an article in WSJ - Immigrants Can Help Fix the Housing Bubble

George Soros opines that the commercial real estate will fall 30% further. My simple analysis of bank's portfolios and their breakups by asset inventory indicates that this forecast is a highly probable scenario.

With record low mortgage rates, I am ready to buy a house right now if I get the right incentives.

Well, I will let the politicians decide on that.

building short broad based positions via ETFs

2009-03-17T09:50:00.003-04:00

Trendwhizo is expressing a very bearish view via loading up on some of the ETFs. His choice belongs to but is not restricted to the following list:

Short NASDAQ-100 Index PSQ

Short Dow Jones Industrial Average SM DOG

Short S&P 500® Index SH

Short Russell 2000® Index RWM

UltraShort NASDAQ-100 Index QID

UltraShort Dow Jones Industrial Average SM DXD

UltraShort S&P 500® Index SDS

UltraShort Russell 2000® Index TWM

UltraShort Basic Materials SMN

UltraShort Consumer Goods SZK

UltraShort Consumer Services SCC

UltraShort Financials SKF

UltraShort Health Care RXD

UltraShort Industrials SIJ

UltraShort Oil & Gas DUG

UltraShort Real Estate SRS

UltraShort Semiconductors SSG

UltraShort Technology REW

UltraShort Utilities SDP

covering BARC as the towel is thrown in !

2009-03-03T09:42:00.008-05:00

Covering up the shorts on BARC between 80-85.

Trendwhizo was on the money again. Below is the chart from Thursday, when the shorts were established ! 26-27% decline is enough for 4-day (Thu-Tue) call.

reflection on a crisis

2009-02-28T10:31:00.005-05:00

Interesting youtube video which I will ask every investor to watch. Two thinkers of our times and their views about the current crisis.

Trendwhizo is always game for the breakpoints of a system - as those are the points where max benefits are to be made !

shorting BARC for some big gains

2009-02-26T15:19:00.005-05:00

Trendwhizo is completely convinced that BARC is over-priced; uh-oh ...that's not a good word in a bear market for the company's stock price.

Trendwhizo has added it to his conviction sell list and has accumulated a huge short position on BARC in the 112-120 range. Now, let the bloodbath begin !

note on USD-INR

2009-02-07T21:16:00.005-05:00

Trendwhizo is of the opinion that INR is about to bottom out in a few months. We will see 44-45 levels once that happens. Money will flow into emerging markets in next couple of years - not in as big a way as from 2005-2007; however, fairly substantial enough to push up the conversion rates, maintain market buoyancy, and push up some specific stocks.

-------

On a side note, I laughed on reading this article titled: Currency plays googly for Indian players. Before these participants engage in such ludicrious acts, they must seek advice from experts. Trendwhizo had outlined clearly that USD had bottomed out here and here. Now, if only IPL's chief financial officer (CFO) had followed my logic. Ditto for the players such as Sachin Tendulkar and Yuvraj Singh. They need money managers who are savvier than their current ones.

on the money

2009-01-03T17:16:00.007-05:00

Trendwhizo was on the money regarding the call on US govt's action. Check this news from last week here about Indymac's buyer(s).

Refer to the article titled "no choice", which outlines two suggestions on the steps that US government must take to save deepening of this crisis.

First, the call was on the basis of banking operations, bank closings, information available to public, and some rational thinking as against any insider information from Dune.

Second, the reasons were clearly outlined for such a rational conclusion. Particularly, my association with US banking operations provided me insights.

Third, I make some further observations:
a. The attempt by Dune Capital Management is not due to them finding these assets cheap but due to their desire to save the markets.

b. In case the theses in point a is not true, then we are in for a big rally in multiple asset classes. In that case, the commodities rally will outlive the stocks rally.

rakesh jhunjhunwala's interview by priyanka chopra - 2008

2008-12-17T20:40:00.007-05:00

Check out this interesting interview of Rakesh Jhunjhunwala by Priyanka Chopra !

satyam and the art of PR

2008-12-17T20:40:00.004-05:00

Satyam could never manage PR well. When I read this article, it reminded me the past event of stock options and the acquisition of khoj.com, which were not handled astutely as well.

If Ambanis can invest in as diverse businesses as textile, petroleum, and software, then why not Rajus? If the Rajus would have had the similar PR skills as that of the Ambanis they would've been able to wing this one by.

Learn Raju Learn !

are you kidding me?

2008-12-14T11:38:00.006-05:00

In a bid to make a sale, silly controversial articles such as this one are published; this time by cfo.com. It is delirious and at best, outrageous. A truly pragmatic CFO with long term interests of its shareholders will not take amateur actions as mentioned in the article .

Along with the car company, you have to take up the promises they made. This renders the business uneconomic. I stick to my earlier point of letting the car makers go bankrupt. Any attempt to save them going ahead is similar to hitting the snooze on the alarm on a critical day for too long.

There is a reason why the govt is exempting these companies from 382 rather than buying the car companies themselves. The govt knows that most of the legacy homegrown car companies are going to be extinct sooner or later. Hence, they allowed exemption than buying itself. As it is one ponzi scheme of social security is enough to keep the artists of government busy. If they run another ponzi scheme of buying the auto companies then capital will surely flee the country.

michael lewis on wall st

2008-12-05T16:29:00.002-05:00

Michael Lewis, the famed author of Liar's Poker, interviewed with Fool here.

resilience

2008-11-28T06:52:00.002-05:00

Check out this link about what some of the most shrewd players in the industry have to say about resilience and the Indian markets.

no choice

2008-11-26T12:06:00.008-05:00

Finally, FDIC had to expand its Qualified Bidders List. Check out this article. There has been a surge in the number of bank failures (22 as of now) and a dramatic increase in number of banks of watchlist (171 as expressed in this article).

Trendwhizo indicates that there are two prime issues that need to be addressed ASAP:

1. Creating a formalized market for the assets in question and allowing price-discovery to happen.

2. Allowing non-banking entities to bid in the process - demand side.

A certain demand exists for the bank assets. These assets on sale are being mispriced. as certain players who have cash but but are not chartered as banks. Hence, the inefficiency in the current market. James Simons from Renaissance Technologies resonates with this idea and he had expressed this in the Congress testimony below. He also adds that some of the banks will not like such a new market due to the fact that it will whack down their balance sheets ultimately resulting in failure. However, there are good assets which are being mis-priced due to the absence of such a market for any investing entity.

What makes me curious is that even the newly chartered bank holding companies (such as the former investment banks such as Goldman Sachs) are not in a condition to buy any of the smaller sets of asset pools. That does not send out good signals in the market.

Is the water above the head? Not yet. As per the above mentioned article, only 2 % of the FDIC watched banks are on the watchlist as against 10% in the 87-91 S&L crisis. The assets of these banks are close to $116bn per the above article. Also, the assets are less than 1% of the total assets under US banks. Besides, on average, only 13% of the banks on the watchlist end up failing. Also, there are banks that were not on the list which fail. Personally, I fear the later.

The former figures in the article are convenient to believe that we are not in a bad shape. However, how much time does it take to get there?

Check out some of the solutions expressed by some of the erudite financial players:

gold

2008-11-22T12:10:00.005-05:00

Trendwhizo has been accumulating tremendous positions in Gold for a few weeks.

Trendwhizo feels that the US govt was successful in artificially manipulating and keeping the Gold prices low.

With Fannie and Freddie news earlier this year, there would have been a sudden exodus from USD to Gold. However, since June/July 2008, there has been a coordinated mandate to regulate and keep gold prices low artificially. This was with an attempt to scare the hell out of the Gold investors. Of course, this was done with good intentions of keeping the markets sane and avoiding any catastrophe.

The volatility induced by the artificial suppression of the precious metal was the prime reason why Trendwhizo converted his Futures positions to delivery.

As we head into a recession, it seems like the time has come for Gold to emerge as the asset of choice. Trendwhizo says that go and buy Gold !

On a related note, check out Obama's radio to the nation this morning.

should GM be saved - II

2008-11-20T07:34:00.003-05:00

Here's an article that's in agreement with what Trendwhizo expressed here.

Another article that supports Trendwhizo's argument is from NY Times : Let Detroit Go Bankrupt.

Trendwhizo has been on-the-money so far - let us see.

notes

2008-11-17T23:15:00.002-05:00

We were right on our call about Yahoo - Jerry Yang had to step down. Whether it was too late or not, it didn't matter. He gave up finally after all the damage was done.

Check this news piece. Yaaahooooo!!!!

Yes, its true - an entrepreneur craves for control and not as much for the money (after a certain threshold).

should GM be saved?

2008-11-12T06:37:00.004-05:00

Politicians (such as Nancy Pelosi) are lobbying hard to save GM, a leading US automaker. However, what's popular need not be the right thing to do. Trendwhizo expresses a point of view that GM must enter bankruptcy. There are legacy costs which will be borne by the tax payers in case GM is bailed out. These are mistakes by earlier managers as they made promises that cannot be kept.

Deutsche Bank came out with a sell call on GM with a target of 0$. Of course, it would be proven wrong if the Fed bails out GM at taxpayer's expense. GM does not have cash to go through the next year - a business 101 lesson: Always keep your eyes on the CASH!

Politicians emphasize the social consequences of GM's bankruptcy. However, they never emphasized the social consequences of Lehman's bankruptcy. This popularity game has no rationale. GM has outsourced most of its functions and these contracts are very expensive. Primarily, the contractors of GM include bunch of old-timers at GM itself. Hence, if GM is bailed out, then it will result in taking away contracts from these old-timers who are politically well-connected. So, is GM too well connected to fail? We'll see.

bear rallies

2008-10-14T08:33:00.003-04:00

You know what Trendwhizo advises in such bear rallies.... buy cheap out of the money puts.

VIX, though down from 75 levels, is still at 55 levels. That is fairly high. The nationalization of assets will take time.

The cheers brought to the markets are just due to a bleeding person's bleeding being stopped at the battlefield. The stoppage of bleeding doesn't assure that any of the functional abilities of the bleeding person will be saved and/or restored.

Not every sector is helped by the actions of the govt. Differentiated investments will begin. Distressed investment companies (asset/capital mgmt cos or hedge funds) will sell in these rallies as they have both, the redemption pressure as well awareness that real economy will not improve at least in the next 4-5 months.

happy shorting !

whoo-hoo!

2008-09-26T09:44:00.003-04:00

The WaMu website still says - Feel the Whoo Hoo!

lol

Trendwhizo concurs with Steinbrueck's comments here - Whoo hoo!

i.o.u.s.a.

2008-08-27T02:04:00.007-04:00

I.O.U.S.A. , a movie made by the Concord Coalition. I saw this in a suburb of Kansas City, where I listened sorrow of a lower-income security/cop service person.

There are interesting phrases in the movie:
schizophrenic budget was the one that caught my attention the most.
Red ink tsunami was another one !

The movie highlights that Bush exchanged principle for principal. The last treasury secy was fired due to differences of opinions. Bush always did what he wanted to do. The new movie W. would highlight how carefree, irresponsible, and zany George W. Bush Jr. was. I do not understand how this nation, a self-proclaimed symbol of democratic success, could elect him for a second term. I understand that American people didn't have a choice as Kerry was aweful candidate as a competition against Bush. Thanks to George Soros that we could have Obama as a formidable competitor this time.

If a financial warfare happens (similar to that of Britain v/s US over Suez Canal), US will not be able to withstand it. As it is, the blunt statements made by the likes of dubyaman that has ignited the oil war (not the war on terror- but the OPEC v/s US war).

I wish everyone sees the movie by Warren Buffett about thriftville v/s spendville. Soon, in a few months, we will see how spendville loses its hard assets to the rest of the world that falls in the thriftville regime !

All in all, the movie is well made for the common man to understand with good illustrations. A movie that every leveraged economy's citizen, policymakers, and players must watch.

roubini and the big picture

2008-08-16T23:07:00.014-04:00

2 trillion $ in debt losses - yes, that's what Roubini forecasted here....and that doesn't look like a big number to me. The reason I say that is because I feel that busts (alike booms) tend to overdo on the downside. I don't see a bottom for the US atleast until middle of the next year.

I have had Roubini's Global Econo Monitor as one of my favorites link on this blog for a while. I constantly monitor the global economic trends. I see that noone wants to extend credit to the US anymore. Roubini is called as the Dr. Doom and Gloom by the idiots who want to conveniently believe that US will maintain its financial supremacy despite of this debacle.

Yes. It is a debacle. Banks failing all around. Spreads increasing. Credit markets seizing !

There is cash waiting on the side. However, they don't indicate confidence in the US. US falling in distress will provide them these assets at much cheaper price. What will the lawmakers in the US do about such a collusion by global forces?

Collusion? yes, it is a collusion that despite of the SWFs having trillions of dollars in their pocket, do not intend to extend a line of credits. Some of that money felt foolish of themselves (re: ADAIG investing in Citi).

Unless the United States starts acknowledging its partnership issues and starts respecting its partners in a new multi-polar world order, it will not get adequate support. The credit markets will seize up and then the govt will be the the lender of last resort.

Per Trendwhizo's analysis, the US sovereign ratings will go down and hence, the discounting to invest in US will increase. Given that US will not be able to generate the required rate of returns, the investment money will evaporate. There will be a downward pressure on the wages to make those rates of returns and the standards of living will suffer. Consumption will be hit.

US is in a condition that GM was a decade ago. From there, GM has constantly lost its supremacy. It's just a structural issue - demographics, high headedness, poor foreign policies, poor energy policies, and poor long term planning (re: social security promises, etc).

Roubini 's statement is an understatement with a typical academic conservativeness. I believe the condition is much worse out there. It will worsen further.

paulson's new fund to aid ailing banks?

2008-08-16T23:07:00.013-04:00

He was on their short side against them. Now, he is on the long side to buy them. Interesting systematic maneuvere by the ex-Bear Stearns banker John Paulson.

Check this article about Paulson's new fund to invest in bank's needing capital. This may sound as a good news for banks trying to dress-up their balance sheets or repair them by selling some of their assets. However, I am sure Paulson will ask for deals which are hard to give; the banks will give'em anyways. After all, it's not their money or stake that is getting diluted.

Let us see what happens next. In case the bank is not listed, I would be interested in seeing what kindda actions this fund takes. A general consensus is that since 1967 the housing markets have bottomed out at 3.5% & peaked at 5%. However, Trendwhizo doesn't feel that this metric is worth looking at. The prime reason is that we are in historic times and the superboom from the post WWII era to now is over for a while. This is a historic recession unlike any other seen for last 3 decades.

Will Paulson's fund help? If the collusion of the global players' ends then Yes.
Will I put my money in his new fund right now? No.

Will he be able to raise considerable amount of money with this thought - probably in a few months once we see several large financial institutions gone down.
Will I put my money in his new fund then? Maybe. Depends on my other investment options then.

I am researching other hedge funds that might be short on Europe in a similar way. UK market will crack similar to US - however, slower than the US speed of wealth destruction - but a definite one. I want a UK banks shorting fund ! John Paulson - are you listening?

jobless #s in the US

2008-08-01T08:35:00.004-04:00

Rick Santelli puts it in appropriate words:
"The current rally is similar to a terminal cancer patient rejoicing due to not having a cough bleeding." I agree with him as I feel that today's market rally was just winning a battle than winning a war. However, don't get me wrong - I am not saying that the economy cannot be resilient and bounce back. My stance is that unless we see macro-numbers improving significantly with fundamental actions taken by both, the govt as well as the populace at large, I am not ready to get bullish on the US economy.

Jobless numbers were well within expectations. However, a sharp uptick of unemployment to 5.7% and an uptick in part-timers concerns me. Trendwhizo says this is a harbinger of worse news yet to come.

Some experts do not rule out the possibilities of hitting a bottom during this downturn. Cash levels are fairly high. As soon as capitulation happens, some parties would come in with money. Trendwhizo has a contrarian view to this view. Smart money such as that of George Soros is still on the short side. Of course, the smart money is fairly nimble-footed. However, there are many other reasons that Trendwhizo observed why US cannot get out of this soon.

Super-boom's bust is the prime reason. Home equity was used as ATM by many folks to support of consumption disproportionate to current assets and realistic future earnings. Once the equity starts depleting, the differential cannot be coughed up and the asset price deflation occurs. This results in neighbor's house prices going down as well. Hence, even when the neighbor may not have used the home-equity, they still suffer. It's a contagion.

credit crunch...

2008-07-26T23:23:00.003-04:00

Interesting interview with Soros about the credit crunch and where we are headed. This was conducted in May 08. As he says, we are seeing an overshoot on the downside in the housing market.

Jhunjhunwala had indicated issues with American economy way back in May 07 last year.
Check here.

opinion on fast money :)

2008-05-29T20:38:00.003-04:00

At 2038 hours, my opinion was reflected on CNBC's Fast Money. The question was "What is oil being driven by?"

My email to fastmoney@cnbc.com was that the index speculators are pushing the prices too early. I elaborated that the index speculators implied the pension funds, the university endowments, etc.

Masters Capital Ltd.'s research data was shown to prove the point I had indicated.

Another interesting data point that Fast Money provided was about the CFTC, who have been investigating the rise in the oil prices on NYMEX since December '07. As usual, they are delayed and misguided... delayed as we are way too ahead in the game and misguided as the bubble is in a much more organized way via invisible fund managers. Besides, anyone can hold up Deutsche Bank's Michael Lewis's crude estimates to justify the price of oil prices !

I do not deny that there are fundamental reasons for the oil to rise. However, the price rise right now has been too soon too fast.

On a different note, I would like to watch the show more often. However, work commitments and conflicting priorities do not permit me the luxury. I had to switch off the television set in my hotel right after that piece as I had to get back to some work.

usd volatility (contd.)

2008-05-17T23:33:00.006-04:00

Trendwhizo was bang on-the-money once again. Check out this post on Jan 23 about USD-INR directional forecast here. Compare and contrast it with the chart below:

The USD went down a bit after that to mark a bottom near end of Jan and later, ramped above 42.5 to hit a multi-month high !

As mentioned here, inflation raised its ugly head to make real interest rates fall precipitously. It was obviously not easy to make money on long INR given the fact that every tom-dick-harry and also-ran hedge fund manager was making a bet on long INR.

Further commentaries will be available soon.

cnbc's erin in mumbai....

2008-05-16T10:16:00.005-04:00

Erin Burnett, one of my favorite CNBC hosts, is in Mumbai and having a live coverage with the hobnobs of the industry out there. This is part of quest to search the Global Market movers. It's hot out there in Mumbai - both, metaphorically and literally.

A few months ago, I saw CNBC out here in US starting to have flashes of Sensex in India. This was during the event of 5% bounce back from a precipitous fall. Today, CNBC team from US is capturing Mumbai on the whole.

Are they late? Hell No.... Mumbai has had its fair share of media coverage. However, a whole segment dedicated to itself endorses its dominance in the new world order. They have a long innings to play as things have just got started.

There was a factual error about VT- it's no longer Victoria Terminus....it is Veerjijamata Terminus. I hope she doesn't land in trouble by the fanatic sect of Shivsena and the likes.

Erin brought up a nice point about Ravi Narain of National Stock Exchange kidding with the NYSE chief about...how Indian exchanges were all electronic and how NYSE needs to catch up with times. Here's the interview with Ravi Narain on other topics in which they discuss myriad of topics from goals of NYSE and Goldman Sachs taking up stake in NSE to evolution of NSE.

Trendwhizo thinks that given all this - a good opportunity will be in form of Financial Technologies and related stocks. Fin

celebrating indian entrepreneurship...

2008-04-26T21:45:00.005-04:00

UK list has 2 spots in top 5 occupied by Indians ! Mittal tops London fourth time in a row; Hindujas follow at fourth position - click here. At 27 b pounds, he exceeds the duke by a factor of 4x !

Forbes list of top 10 richest folks has 4 spots by Indians !
Forbes had 36 recorded Indian billionaires, second only after the United States.

Its not just the second generation folks such as the Ambanis and the Mittals, but also about the first generation folks such as Kavitark Shriram (Google fame), Bose (acoustics fame), et al.

Cheers to Indian entrepreneurship!

subprime primer

2008-03-27T11:05:00.003-04:00

For all the Trendwhizo blog visitors, here's a link to a primer on subprime someone put up and floated in a public forum: click here.

nasdaq portal market - rennaisance for indian companies

2008-02-14T11:44:00.001-05:00

Check out this news here of how Indian companies could rake up USD 8.3b from the overseas investors.

usd volatility

2008-01-23T08:36:00.000-05:00

Trendwhizo comments on USD and especially, on the movements yday.

Situation:
USD was highly volatile during the stock market correction. It went from 39.15 levels to 39.75 instantly and then retreated.

Drivers:
1. Long positions in USD with a view to express the speculation that foreign money will exit India. (contributed to uptick)
2. Interest rates differentials widened. (contributed to retreat)

Will this continue?
The USD-INR equation will stabilize in the medium term. Contributing factors:

1. Long USD positions are pared down as Fed cut interest rates by 75 bp. Speculators will get back to long INR positions quickly as they will NOT see signs of foreign money fleeing out of India. In fact, foreign money built in more positions alike Trendwhizo (Igarashi, et al). PSU Banks and buyback MNC candidates are another set of stocks that is under radar of seasoned and savvy investors.

2. Indian interest rates have peaked out. PC can't keep the interest rates at the lofty high levels with an excuse to control inflation. PC will be forced to have creative ways to curb inflation than just interest rates. SLRs could be good way but there are other options as well. If interest rates in India start heading lower then it will result in a short term trend-reversal in USD fall due to interest rate cuts.

On a side note, real estate asset prices will correct in some of the overbought markets. Once again, for a fresh infusion of capital, it will be a great opportunity - but that is on a different timeline than the currency piece.

Trendwhizo sees USD depreciating in the short term and then mean reverting back to current levels or slightly above in the next few months.

good time to build portfolio in india !

2008-01-22T01:46:00.002-05:00

Finally, one gets opportunities once again - to build a good portfolio !

This is a sale event going on due to inventory overload - lol ! Take advantage of it. This is just a speculative bubble's burst giving an opportunity ! At the FY08 earnings of 800, anything in the range of 12k to 16k on sensex is bound to be a good bargain. At FY09E earnings of 1000, 12k to 16k on sensex looks really good. So, carry on buying esp in stocks showing value and having good management!

Some of the reshuffle which Trendwhizo had observed were buying in the defensives such as FMCGs and pharma - which were an indicator of the smart-money move.

Go ahead and get your dream companies at cheap prices.... :) This is especially true for cash stocks.

As Jhunjhunwala indicates - the story is intact - the crash will test your conviction in the India story !

Global markets faced a turmoil and Dow Jones futures are sharply down. Everyone is expecting a carnage on Wall St. Trendwhizo feels that it is ok to have a carnage on Wall St. However, the freshly allocated funds since Sept 07 is not showing conviction - as seen from the falls in the markets. A hint of the turnaround will be indicated by local MF buying. ;). Indian MF managers have shown prudence in their investing styles vis-a-vis the foreign fund managers. Unfortunately, many of these managers are being poached by the foreign funds.

CAUTION: We may see the ugly head of inflation going ahead. Hence, the govt may decide to slow down the growth as a populist measure to win the elections. This series of event can possibly hurt the markets at large as the current valuations are backed by an assumption of growth. However, this must not make one shy from investing in India. Indian markets are much cheaper than the Chinese markets. If money has to go in the EM space, it will be with an increased allocation for India.

indian real estate: jaipur and nashik will be the dark horses !

2007-12-01T08:01:00.001-05:00

Jaipur, a place that's been on my radar and investment portfolio since a while. When government announced the international airport in a budget about 4-5 years ago, I was certain that this place is going to have value unlocking.

Fashion Sourcing in jewelry, carpets, handicrafts or Art Sourcing was one aspect that I could think of. However, with the recent advent of Infosys in the region with a 200 acre SEZ in last few quarters, I am sure that the valuation of real estate in the zone.

Infosys has clearly filled up their capacities in Pune (24k by June) and Bangalore (23k by June). These cities have also indicated how arrival of Infosys brings prosperity to the region. The folks who earn in USD convert these by sending the money back home and buying stuff that they yearned for: housing, services, etc for so many years and could never buy it - either because credit was considered sinful or because they didn't have the basic down payment for the credit as well. As USD converted INR becomes available to these folks, they quickly buy traditional assets such as Gold, Real Estate, etc and the remaining money goes towards services.

One can benefit in two ways from this boom:
a. Have a services shop (preferably next to the airport or at some popular market hub, say Sanganer in case of Jaipur)
b. Have a property piece !

Hinjewadi gave superlative returns in the past in Pune. Now it's the turn for:

Sitapura (near Jaipur) in the North
Nashik in Maharashtra in the West
Rajarhat near Kolkatta in the East
Kochi, Vizag in the South

dreadful?

2007-11-19T18:54:00.002-05:00

I don't understand why seasoned pros express surprise over the subprime issues. Check this article in which the ING strategist Brian Gendreau expresses the same.

Wasn't this obvious? Wasn't this expected? I am not even a professional investment strategist (though I strategize my personal portfolio:P) and I knew about this coming - check here.

Kudlow mentions w.r.t. the market that I am sick of this pessimism - it is un-American! I dont understand why he feels that way.

evolutionary change in FOMC: Communications

2007-11-14T09:33:00.000-05:00

The last rate cut sparked a debate if the Fed's action is weighted heavily by the Wall St and not considering the wider consensus. Also, one of the Reserve bank's president expressed divergence from the FOMC view and action to cut the 25 basis points. This has led to Bernanke announcing the new FOMC approach to communication of deliberation that went into decision making. This is a step in the direction of making decisions more transparent.

Last week, Jim Rogers, mentioned in this article, that the lowering of interest rates is causing short term solution but a medium to long term disaster. However, one thing to be cognizant of is the potential conflict of interest between Fed's action and Jim's positions. Jim co-founded Quantum Hedge Fund along with George Soros. Hence, there is a possibility that he was short and the Fed's action wiped off his shorts.

Bernanke clarified that the GDP growth is not under the control of the Fed as there are other factors such as the aging population and its medicare and social security costs (labor force participation), crude oil costs (supply shock), etc. He conveyed that the Fed can control and will target price stability and unemployment.

Warren Buffett backed him up on this one at the CATO meeting going on right now. He took the illustration of Leona Helmsley's dog, who got $ 12 m in the will, for an illustration. She became known as a symbol of 1980s greed and earned the nickname "the Queen of Mean" after her 1988 indictment and subsequent conviction for tax evasion. One employee had quoted her as snarling, "Only the little people pay taxes." Another old man brought in the topic of Gone with the Wind for an illustration - "Death, taxes, and child-birth. There's never any convenient time for them." to express why we have to reconsider the promises made by the earlier governments to the aging population today.

Ben also expressed that the Congress must have a long term view while making decisions about these factors such as medicare and social security. Most of the earlier decisions were made by Bush with a short term intent of getting votes.

For growth, Bernanke put the ball back in the court of public indicating that folks must value their mortgage first and then go towards monetary policy understanding. This was in reaction to someone raising the point that this transparency will make a few 100s on Wall St more knowledgeable but that may not translate into common man understanding the effects of these decisions as the press is the only channel for their understanding. Ben reacted to that

Someone asked Bernanke if these changes were structurally incompatible and this was a question in my curious mind as well. This is because as far as I understand and as Bob Dalton taught me that Fed manages by playing with the perception of people. If over a long term, we open up everything, wouldn't the perception-play be eliminated? Ben took a radically opposite stance on this ridiculing Norman, Bank of England's central bank chief in 1921-1941, used to say - Never Explain, Ever Excused. Ben added that this was a continuum to opening up of Fed's decision-making rationale and a step on the road to openness. It is productive. These changes are evolutionary and may be subject to change based on the on-going feedback and experience.

This indicates advocacy towards transparency and diversity inclusion - diversity from the persepctive of professional backgrounds, regional backgrounds, and policy analyses backgrounds of the FOMC's constituent FRB's presidents. The new communication strategy is a work-in-progress and will illuminate folks about the dispersion of participant members. This will enhance accountability as well.

On a sidenote, a new thing I got to know about the Fed's attempt to propagate economic interests, is the Fed Challenge competition for high school seniors in which the teams have to act as FOMC :). Prof Sleet had taught us Bernanke's text for Macroeconomics course at CMU. I didn't feel the need for any formal education in macroeconomics as I had learnt about it earlier - however, I wanted to check how they do it in the American system. I was glad I did it. If someone needs to be educated about the same, I would highly recommend the textbook by Bernanke. Its a Macroecon 101!

My point of view is that this is a good step in the right direction. I would back Warren's points of view to the Congress at today's Cato meet.

profit booking

2007-11-10T14:13:00.001-05:00

Trendwhizo's been booking profits since last few sessions due to the macro numbers. Of course, this is applicable for momentum counters and some cash counters. There is a divergence in the valuations of stocks and the macro numbers, a classic sign of an intermediate top.

Subprime has started melting the US housing market as expected. I have started checking out open houses with an aim to get one in the next 2 years.

time to sell?

2007-11-04T15:17:00.000-05:00

Reduction of interest rates will not solve the systemic issue.
Pushing in 100s of billions of liquidity will also not solve the problem - it is more seminal. The correction has to be in the way of life - in form of a lean behavior. This could realize in various ways.

As Jhunjhunwala puts it - "drunk on credit" - I like the phrase ! I am scheduling a few profit booking moves now.. ! I want to take some money off of the table - be assured.

Besides, gold is a good asset to check out. Moreover, I want to keep more cash ready for more bets at the bottom of this next correction and/or to build short positions. Also, there are other places to build positions (such as BPCL, HPCL, MNC buyback candidates, etc) where value persists !

race to US presidency

2007-11-02T01:26:00.000-04:00

This topic belongs here. Absolutely ...it affects business, international policies, etc everything.

Warren Buffett is betting on Hillary.... check out - even Frank Lucas , ex heroin king on the streets, is betting on Hillary Clinton !

Personally, I like OBama...however, the population at large has a perception that he has to mature a bit - before he may take the role ! However, I say, he needs to be given a chance to prove that he is matured. I guess, ppl want someone who can clear a "Bush mess". In the past, a Clinton has done it and so shall the other Clinton do it again, is the confidence that folks are expressing in their votes.

NIIT's response to Aptech's domination in computer education China

2007-10-28T00:31:00.000-04:00

A market entry strategy by NIIT in China, given Aptech's domination there comprises of a tie-up with Adobe. Here's the news story.

Aptech has about a third of the market there - with a Chinese partner. My earlier research report for a Strategy course while in school suggested that China has to be entered with a local partner. GuanXi is extremely powerful in China, something I've witnessed with my Chinese friends and researched a lot about.

Personally, I feel that both NIIT and Adobe must revisit this strategy of theirs, if they want to be successful at capturing the organized tech education market in China.

fashion sourcing....

2007-10-25T18:40:00.000-04:00

A US Fashion house opened a production facility in Jaipur. Read details here.

I would use the term backward integration for this move if they would've formed it as an alliance with a local supplier and allude to it as fashion sourcing, if they would've planned to start sourcing their work to other vendors in the market. This move will stay under microscope by several others to decide on their moves to the Indian shores for supply.

This is not uncommon. It had happened in case of China. Companies from US, including Levy, had entered the Chinese market in a similar way.

What drove this was the need for quality and entry in Indian markets. This may sound similar to fashion sourcing of cheap labor. However, that's not the driver for the move. The driver for the move is the nature of fragmented Indian supplier market in this space and the lack of quality standards. If a set of local suppliers emerge, who can deliver desired quality clothes, then we would have more such facilities opening up.

Particularly, I like the fact that they are opening a wholesale as well as retail shop in Jaipur to address domestic consumption needs. Given the USD/INR situation, addressing domestic market is an imperative. However, will there be a domestic market if USD goes to 32? That's an interesting thought !

On a sidenote, is this good for trendwhizo's Jaipur real estate? The original hypothesis was from the international airport perspective and possible IT facilities opening up - fashion will be a new dimension - need to check it out in more details.

spectacular

2007-10-17T00:47:00.001-04:00

Unable to balance the trinity, the finance ministry of India pulled the trigger on this one. They used SEBI as a tool from their toolkit.

celebrations continue

2007-10-15T18:34:00.002-04:00

Trendwhizo strikes gold yet again !

Check out the index components here. I have not seen this type of bullishness and price-discovery earlier. I have seen circuit filters - but not this type of bullishness in a non-circuit environment - SAIL was up 15% - wow - reminds me of Valentine day of y2k!

On the other hand, this is sheer desperation. No FII/hedge fund wants to be left out. There is a paradigm shift as mentioned in the blog post in Sep beginning. You can read about it here. Markets (just the index) have given 20-25% returns since then.

Perception of risk about India as an emerging market (EM) has changed and hence, the higher weightage of India in EM portfolio for hedge funds. This also implies that some other country's capital allocation is reduced and may be getting net outflows. If none of the EMs are having net outflows then probably the money is flowing out of the developed markets, mostly wannabe EM investors allocating new capital to hedge funds.

However, now we are running into the classic chicken first or egg first issue. Benchmarking is leading hedge funds to take insane risks and exposures to EMs. Competing hedge funds are all running for the gold and that's leading to a risky situation from mad race perspective. Hedge funds buy because it is in every other hedge fund manager's portfolio and is appreciating quite a lot - lol !

Keep booking profits whenever you deem necessary - this party wont last forever !

let the celebrations begin !

2007-09-07T02:02:00.001-04:00

Recently, I was busy shopping - shopping for equities and this time, for higher returns. Today, I sat down to blog this as we are going to hit a new high on the BSE Sensex soon. And its no news. Trendwhizo takes contrarian stance - and always has. It helped Trendwhizo in March, which was blogged here. Clearly, outperformance was evident in the picks made then.

Thus, recently, Trendwhizo may have exited Tisco partially to add in Aegis/Punj Lloyd/Aban Offshore/Balmer Lawrie/HOCL/Hitachi/Gati/TCIL/TCIFin etc

The sub-prime meltdown provided great opportunity. Trendwhizo personally feels that the capital flows should divert to India as the perception of risk is skewed against India. Western countries get higher valuation despite of wrong premiums placed on the risk - why?

Is this sustainable? No

Will savvy investors diversify the risks? They should. Indian equities have got everything that markets value.

Further re-discovery of more stable EMs will lead to global equity rallies. US markets may not have as much of a rally. India wont outperform China - but will definitely play a catch-up.

Let the celebrations for a new-high begin !

housing bust - opportunity or threat?

2007-08-21T14:47:00.000-04:00

Read this article on Bloomberg here. It outlines how home foreclosures have increased and the condition is about to get worse for the next 9-12 months!

Why is it a threat?
Global liquidity will be sucked up. The prosperity in the emerging markets will be impacted. Jobs will be affected. There could be economic unrest. A more gloomy picture can extend this economic unrest to a social unrest. Eventually, a bad recession, as that in 1929 - which eventually leads to a war?

However, I will depart from this idea. The history is not a foreteller of the future and especially not when huge amounts of knowledge has been gathered to help economists.

Consumption smoothing in US will be destroyed. Reasons? Financial innovation of repackaging and spreading out the risks in the system have turned really nasty. I do not rule out ban of certain securities if these things turn nasty and uncontrollable.

Liar's poker indicates how economic decisions made at a national level change the securities' markets and make bonds the lucrative game on Wall st. It would be interesting to see if there would be economic decisions to reverse the financial innovation of repackaging risky loans? through regulations? No .... US has proven too bad to handle a regulation ...SoX, Telecom, etc any others?

Why is it an opportunity?
If you are considering investment in real estate in US, it will present an opportunity in next couple of years. However, I would like to pick it up on the way up of economic indicators rather than hazarding a guess on the bottom during the way down :)

We've lot more to bleed in the US housing market - so collect cash and check out houses in the mean time, if you wanna make a killing !

USD bottoming out - II

2007-08-08T23:37:00.000-04:00

Check out this article on Economic Times here. Investors rushing to buy IT stocks.

Trendwhizo posted an article on USD bottoming out here. Also, it was clearly mentioned, how to act to benefit from it.

Trendwhizo catches the trend way in advance...once again :)

The fundamental reasons for the call were as follows:
1. In PPP terms, INR had overshot way above. If there is a persistent argument against PPP, then INR had overshot in GSDEER (Goldman Sachs Dynamic Equilibrium Exchange Rate) terms as well.

2. RBI had to intervene:

The trade has huge odds in their favor.
(40.40/41 is the level they are monitoring !) How did they reach that decision? Read further:

a. In order to loosen inflationary pressures, letting the INR run amuck was a good idea. It also helped lower sterilization costs. The idea was to square the impossible trinity of capital inflows, managing the exchange rate, and controlling the monetary base. With inflation going down (4.37%) relative to what it was earlier, the RBI can intervene.

b. Pressures from export lobbies. For a low-income economy such as that of India's letting INR run wild has implications on the population that is finding it difficult to generate jobs at a similar pace. Primary driver for higher paying jobs is export and if they become less competitive in the global context then we will fall down at a greater speed.

c. India has positive inflation differential with partner countries, implying a depreciating INR in PPP terms. This ties back to point 1.

3. BBOP will deteriorate in next year. Some hedge funds will try to lock in their superlative gains at higher INR rates. NRI accounts wont be as huge. FDI growth wont reach estimates.

A caveat is that - this outlook is only for the short term (about a year). If India continues to remain at a similar pace and agenda, alongwith political stability (that's a big if), we may have an appreciation similar to JPY - from 380 to 120 ! How did they achieve this? By enhancing their TFP or total factor of productivity.

I am not a party-pooper and I am a firm believer that INR/USD will be 30 some day. However, it will take increasing TFP on govt's part. To achieve it, GoI has to take more fundamental steps similar to the ones taken by S. Korean govt or the Japanese govt.

"I sold all my real estate"

2007-07-31T02:07:00.000-04:00

Jim Cramer is super-bang on-the-money!
Check this out ! I wish Bee would've listened to me in this case and not bought the house in Fall 05.

Rakesh wants to be Rakesh !

2007-07-30T00:31:00.000-04:00

"Rakesh Jhunjhunwala wants to be Rakesh Jhunjhunwala."

candid interview by Rakesh Jhunjhunwala (RJ) ended in this fashion.

I dont understand, is media so dumb? He has given so many public speeches but they still ask him the same silly questions.

I have put a google search task which emails me any new findings about the individual. I have put that on several folks who I want to track. Time and time again, I have found out that they dont let much said in public.

When I met Rakesh Jhunjhunwala in Dec 2004, he was far more open. I guess, ppl must have quoted him and asked questions and hence, the defensive and closed approach in his recent interviews.

He is secretive - say the interviewing person - however, who isnt?
Does Bill Gates tell you what's the next huge deal they are working on ? They were smart enough to pull out digg from Google.

Does Warren Buffett tell you what's the next company where he's picking up stake at?
The answer is a resouding "NO".

When one is large enough, one has to be secretive - otherwise, the opportunity which you've spotted gets lost. In that aspect, I must say hedge funds etc are well-protected. They must be having exposures well enough in multiple countries and multiple assets - but they are super-secretive as they dont want to lose the opportunity that they see and someone else is myopic to see.

Coming back to philosophy of successful people, they've made themselves documented well enough. Warren Buffett or RJ - they are independent thinkers and intelligent. I guess it is a trait of most of successful folks who made it on their wit - they stick to their convictions!

RJ had given me just one lesson in Dec 04 which I am yet to fully master - "Do good homework and stick to your conviction" - I am good with the homework part. However, lack on the conviction part even today. I have to work on it. Trendwhizo shall work on it to make it better...Trendwhizo shall be Trendwhizo !

strategic move by kkr

2007-07-09T14:33:00.000-04:00

KKR makes a strategic move - click here to read the details.

In order to get more returns, Kravis and Roberts from the KKR fame, have asked their partners to source deals from sources other than i-banks as well. They want to become an i-bank crossed with a VC (in a way).

Obviously, i-bankers will be poached out at a fancy price. This has been the trend right from the MBA passouts till experienced partners/MDs in i-banks.

Can the i-banks survive this on-slaught of talent-poaching from PE firms? Time will tell !

KKR has always been able to take risky steps due to greedy nature of the partners at the firm. ..."Barbarians at the Gate" is an evidence of it. Late 80s....we are seeing the 80s again with the entire PE firms' comeback.

Blackstone was 9 years younger to KKR but few % points more efficient in terms of the returns. Blackstone got a better IPO vis-a-vis KKR. KKR has become this huge mammoth now. ...about 100bn $ worth holdings and 560k employees in those holdings. ...just too huge. They gotta deliver now - w.r.t. the returns which they've made investors believe that they can deliver. In order set the expectations right, they try to warn the investors - however, greed knows no bounds.

In order to access cheap capital, they are accessing the equity markets. Read the previous article on PEs & IPOs. A respected board of director had simplified the mindset of an entrepreneur accessing the capital markets via equity offering in an IPO - it is done in order to get access to cheap capital.

Let us see how well do the banks receive this move? Will KKR continue to hoard talent on the Street? Will KKR fall flat with such risky moves? Will KKR be able to deliver the returns which ppl are expecting?

time will tell...

PEs and IPOs

2007-07-09T14:22:00.001-04:00

Why are PEs coming out with IPOs?

The answer to this lies in the session we had with Bill Pounds, Dean Emeritus at MIT, and a long an insider within the top tiers of corporate life. He had been adviser to the Rockefeller family for about a decade (1981-1991). He was a CMU alum and hence, came down for a small chat about Corporate Governance at Tepper.

As per him, the best form of organization exists under best form of CEO. There needs to be research based on data in order to carve out best practices while hiring a CEO. CEO - a central role which makes things happen despite of tough times - the captain of the ship.

His thoughts were simple and efficient.
He explained how when the entrepreneur wants to keep everything to himself/herself, they keep the company in proprietorship. However, when they want to access cheap capital they go public. In public structure, today, atleast in the US, the incentives of so many players are aligned in different directions.
CEO wants the biggest pie of the cake - he wants his money - he doesn't care how.
Regulators want maximum regulation - no matter at whatever costs it comes.
BoD wants vacations (I guess he was kidding) to swanky places in the names of meetings of the BoD.

Thus, value creation remains aside when it comes to such a setup. Above all, the naive investor in the US is made to believe that 10% is a good return. Thus, the expectation in the stockmarket is about 10-12% only. If you ask these entrepreneurs whether they will work for something which gives just 10-12% return - they would exclaim - hell no. The returns have to be atleast 30% - even if you want to start a pizza shop or a barber's corner.

Thus, PE ppl, first get the company off the market....improve it and then put it back to the market. The prime question is whether public at large must subscribe to such IPOs of restructured firms?

Once the PE folks are out, what is the gurantee that the firm will not become dysfunctional to the original position? How would you value such an asset, which has uncertainty about results and dependency on PE folks?

Coming back to IPOs of PEs themselves....it is quiet evident that they are out there to access cheap cash because they are finding it hard to sell the risky bonds it to the organized bankers. The case in point if the recent US Foodservice debacle in which KKR suffered a bit. Imagine, where would KKR go after the best of the banks on the street said no? - the capital markets !

Do they think that the public at large is gullible enough? or are they?
Time will tell.....

till then - we continue our search for value across the board.

valuation

2007-07-09T12:01:00.000-04:00

There goes half of your introductory basics in valuation - click here!

SC Ruling on BPOs

2007-07-09T11:51:00.000-04:00

http://www.reuters.com/article/fundsFundsNews/idUSBOM30635220070709

The link above represents that doing business with India is more rational than the South American firms, where laws and regulations are changed by the govt to favor ego-maniacal rulers (case in point, Venezuela). Letsee what shift of focus does this bring to the rise in BPOs in India.

Gems at the bottom of the pyramid

2007-07-03T15:36:00.001-04:00

I still remember this phrase from C.K.Prahlad's writeup on Corporate Social Responsibility.

Today, there are increasing set of examples. The one that occured to me today are solar light fixtures - check this article here. For his views on what should corporates learn from rural India - check out this article.

What impresses me about his writing is the ability to have the objectivity and independence in the thought process - no matter how weird or non-conformist it might sound.

Today, in India, the probability of success of a startup is very high. Therefore, if one plans on such a business - one can think in this direction - gems at the bottom of the pyramid. Personally, I know a VC group in California - who focus only on ideas making life of Indian middle class easier. They know that they can hit the large customer base at one shot. I guess - they are being smart!

stock pick: tfci

2007-07-02T11:33:00.000-04:00

Recently picked up Tourism Finance Corporation of India Ltd. It kept hitting the circuit after that.

Prime reason to pick it up was significant reduction in NPAs and an upturn in the business cycle.

One can find more research on it at:
http://investing.businessweek.com/research/stocks/people/people.asp?symbol=TFCI.BO

In the medium to long term, corporate defaults will increase (starting from the west). Hence, this is not a sustained excellence stock. This is a cigar-butt nature of stock which is to be picked up and then when fair price is reached, one must sell it. The range I would look at for reasonable price is 28-30.

USD bottoming out

2007-06-09T02:33:00.001-04:00

What do you shop for now?

Of course, beaten down IT stocks - esp, the ones with well-hedged positions. Buy, buy, buy !
Infy, WIT, SAY, etc.

India = Bird of Gold

2007-05-10T16:00:00.000-04:00

says who?

This time, McKinsey Global Institute:
Check out their report at: http://www.mckinsey.com/mgi/publications/india_consumer_market/index.asp

Earlier, in 2003, ENAM had come out with a report to similar effect and I loaded up my portfolio with some leverage. I am glad I did that. Thereafter, when my guru Mr. Jhunjhunwala explained me how to build convictions in my investment decisions (when I met him in Dec 2004), I leveraged my portfolio and the index was still just 6k !

Of course, ENAM is ENAM (NM...as ENAM...they are the trendsetting Indian investors...Nemish and Manek) and McK is McK (a consulting soul!). McK came out with a report quite late and I am surprised with why it took them uptil 2007 to come up with such a report. Was it analysis paralysis and/or was it lack of bandwidth?

However, in the report, I liked the classification of the population (Globals, seekers, aspirers, deprived....as against middle class, poor, rich, etc) and the possible future repurcussions. A typical McK work !

deloitte's PE for India

2007-04-22T15:16:00.000-04:00

In this article, Deloitte thinks that it will be able to consolidate mom-n-pop's IT shops in India for scale and maturity, give them processes' treatment and be able to sell it for more.

I think that in order to have successful outcome from private equity or PE, one needs more than just process consultants and mergers. It has to be the inherent incentive structure and the culture of the company. Infy, TCS, etc have matured and grown ppl over a period of time. Deloitte India hasn't been much of a success when compared with Infy, TCS, etc. They have achieved wage-arbitrage objective from the ODCs. However, the maturity is simply not there.

Wage-inflation is hitting the bottomline of everyone at offshore. Thus, Infy, TCS, etc want to get into higher margin business whereas Deloitte, Accenture, etc want to achieve what Infy, TCS, were able to achieve.

Prime reason why Accn and Deloitte have to pay higher to employees is due to lack of onsite-opportunities. The entire carrot-on-the-stick game in Infy/TCS is about possibility of onsite opportunities.

Besides, there is flexibility to move between offshore-onsite for the employees facilitating their other societal duties such as marriage, etc. If one joins Deloitte in the US, one has to take a paid-leave to goto India for marital proposals, etc. whereas while one is in Infy, all one has to do is request to the Project Manager that you want to move offshore and they will send you offshore in some time. :). It is this flexibility to move in global locations without loss-of-seniority or pay that makes the workplace of desi service providers highly attractive.

This is enough to justify the supply side. Now, lets talk about the demand-side.

In a rendezvous with an American bank's Sr. VP (in charge of outsourcing), I heard that they no longer hire KPMG/Deloitte for their IT shop's work because Infy and CTS provide them whatever they want at cheaper cost and the relationship is highly evolved. Thus, we can see that KPMGs and Deloittes of the world are having buy-side issues as well.

It will be interesting to watch out how all this turns out. I will not hazard a guess or a prediction.
However, I will place my money on Infy for the stocks as always :)

trendwhizo does it again

2007-04-13T11:04:00.000-04:00

On March 4th, trendwhizo had an article on opportunities
This article clearly quoted Tisco as one of the best bets available.
A clean 25% in just about a month :)
Tisco is a longer term bet though !

indian ministers and PR

2007-03-13T11:53:00.000-04:00

Some of the Indian ministers need good PR executives. For instance, check out this interview of Kamalnath, commerce minister, with CNBC TV18's Udayan. Apparently, Udayan seemed to be paid by the cement lobby and Kamalnath is fairly rigid on his instance.