Mr. Bernanke’s steps on stimulus:
• Make securities held by banks liquid (like MBS, CMBS...etc.)
• Banks get cash for the securities that they hold
• If Inflation rises, sell these securities back to banks and suck the liquidity.
In my earlier articles, I explained what banks are doing with this money (which they get by selling securities to Mr. Bernanke) and why Mr. Bernanke’s experiment is failing.
The day, Mr. Bernanke decides to tighten, stocks all over the world will fall like pack of cards. Perma-Bear will be back with bang, as Dollar index will touch 120. If Mr. Bernanke continues with present set-up, nothing major will happen. It is stupid to predict Inflation or deflation at this time. All depends on action of Mr. Bernanke. There are also other factors like; Intelligence agencies, Chinese approach etc.
Small example on related topic is in next paragraph.
Cadbury stock languished at 400 pence only to jump on the possibility of offer by Kraft Foods. Kraft foods succeeded in taking over Cadbury. By taking over Cadbury, Kraft foods insulated itself from any erratic currency movements. If dollar falls, it gets more dollars for sales overseas. If dollar does not fall, it has nothing to lose. Please note that talk of the town is “Dollar Fall”. Takeover of such companies is paid in dollars, which is just a paper (which has value at the moment).
-Shrihas Pandharkar
© Copyright. No reproduction, please.
DYOR.
Saturday, 23 October 2010
Monday, 11 October 2010
Economic Growth and ponzi scheme
Let me take my own example. Let us say I earn 40,000 Pounds. With that salary, I can buy a house worth 300,000. This is possible due to availability of credit. Let us say, I buy that house and after few years find that house is worth 450,000. I sell it to Z and buy some other assets. Z who bought house at 450,000 will approach bank for credit. Once Z satisfies all credit checks, he gets a loan. Is this an example of economic growth? No, it is an example of ponzi scheme. Z sells this house for one million and world thinks economy has expanded.
Now, I will explain you how world believes we grew. I may use 450,000 that I earned from selling house to buy some goods. My buying goods generate demand for goods, in turn keeps factories busy...in turn factories employ people...in turn generates wage income... cycle continues....
Example in Paragraph 1 equally applies to Stock markets, bond markets and all such markets. Remember what Greenspan said recently. He said, “If stock market remains high forever there will be no need of stimulus”. All are ponzi schemes. But, that is where opportunity lies. One can become rich if he/she plays well. Unfortunately, “playing well” is very difficult.
Now, let us say, I break this ponzi scheme and instead of buying assets/spending money, I bank it. Am I stopping ponzi scheme? No, I am not, in fact, I am encouraging. Banks take my money as deposit and give loan to let us say hedge funds against some security. Hedge fund runs ponzi scheme with my money. Someone who banked money thinking ponzi scheme ended, is repenting now.
When can such ponzi scheme stop? Answer is, after currencies collapse. Some people argue that if currencies collapse then assets denominated in those currencies should rise. I am not denying that. Asset prices will spike in (and for) a very short time. But, in shorter run (2-5 years), excess built in the system will be sucked.
The question is, when and which currencies will collapse? Answer to “which” is easy but answer to “when” is difficult. That is why I request all small investors to get out from certain markets. The time is NOW. Small investors may repent for some time as in Paragraph 4 but not forever.
-Shrihas Pandharkar
DYOR.
© Copyright. No reproduction, please.
Now, I will explain you how world believes we grew. I may use 450,000 that I earned from selling house to buy some goods. My buying goods generate demand for goods, in turn keeps factories busy...in turn factories employ people...in turn generates wage income... cycle continues....
Example in Paragraph 1 equally applies to Stock markets, bond markets and all such markets. Remember what Greenspan said recently. He said, “If stock market remains high forever there will be no need of stimulus”. All are ponzi schemes. But, that is where opportunity lies. One can become rich if he/she plays well. Unfortunately, “playing well” is very difficult.
Now, let us say, I break this ponzi scheme and instead of buying assets/spending money, I bank it. Am I stopping ponzi scheme? No, I am not, in fact, I am encouraging. Banks take my money as deposit and give loan to let us say hedge funds against some security. Hedge fund runs ponzi scheme with my money. Someone who banked money thinking ponzi scheme ended, is repenting now.
When can such ponzi scheme stop? Answer is, after currencies collapse. Some people argue that if currencies collapse then assets denominated in those currencies should rise. I am not denying that. Asset prices will spike in (and for) a very short time. But, in shorter run (2-5 years), excess built in the system will be sucked.
The question is, when and which currencies will collapse? Answer to “which” is easy but answer to “when” is difficult. That is why I request all small investors to get out from certain markets. The time is NOW. Small investors may repent for some time as in Paragraph 4 but not forever.
-Shrihas Pandharkar
DYOR.
© Copyright. No reproduction, please.
Saturday, 9 October 2010
QE2
If QE1 did not yield anticipated results, then why is Mr. Bernanke going for QE2?
Deeper thinking makes me believe that it has nothing do with stimulating American economy. Please do not get me wrong. My guess is Mr. Bernanke wants China to abandon fixed exchange rate policy (or atleast revalue its currency). The only way he can do it is to inflate.
I think Mr. Bernanke thinks that China will have to take notice of trillions of dollars flowing in the world and revalue its currency. But, what if China plays it smart?
Note that China helped Greece when Greece was almost written off. Note that Russians asked China to dump treasuries at the height of 2008 crisis (In his testimony, Mr. Henry Paulson informed this to senate, if my information is correct).
In my opinion, Stimulus money is buying stocks in emerging markets and is not helping Americans as much as it is expected to. In my opinion, stimulus money is helping emerging economies more than American economy. Note that in capitalist model, people will tend to invest money for maximum returns (taking into account risks involved). Note the diminishing return theory proposed by the author of this article.
-Shrihas Pandharkar
DYOR.
© Copyright. No reproduction, please.
Deeper thinking makes me believe that it has nothing do with stimulating American economy. Please do not get me wrong. My guess is Mr. Bernanke wants China to abandon fixed exchange rate policy (or atleast revalue its currency). The only way he can do it is to inflate.
I think Mr. Bernanke thinks that China will have to take notice of trillions of dollars flowing in the world and revalue its currency. But, what if China plays it smart?
Note that China helped Greece when Greece was almost written off. Note that Russians asked China to dump treasuries at the height of 2008 crisis (In his testimony, Mr. Henry Paulson informed this to senate, if my information is correct).
In my opinion, Stimulus money is buying stocks in emerging markets and is not helping Americans as much as it is expected to. In my opinion, stimulus money is helping emerging economies more than American economy. Note that in capitalist model, people will tend to invest money for maximum returns (taking into account risks involved). Note the diminishing return theory proposed by the author of this article.
-Shrihas Pandharkar
DYOR.
© Copyright. No reproduction, please.
Saturday, 2 October 2010
Keeping in Control
Financial assets decide allocation of capital. Productive assets generate real income for the economy.
Why am I saying this? A partial successful attempt was made to make London the financial hub of the world. Policy makers looked at opening statements of this article and they noticed something.
Due to expansionary policies, individuals were expected to have more disposable income in their hand. What would one do with excess income? He would buy assets (allocate income). Individual would need someone expert in allocation of income. Therefore, someone who is expert in allocation of income would charge fees for nothing (I am saying “nothing”, here due to disclaimer clause by all financial advisors). This expert would decide allocation of income and not individual himself. Enter “Hedge Fund managers”.
In 2008, money was lost. Note that in 2008 money was lost, no one lost productive assets. If money was lost then it was made up by STIMULUS. Who lost money? Answer is “banks lost money”. Banks were given money, so simply speaking, no one lost money except few companies/individuals that went under. That is what we call “ALLOCATION OF CAPITAL”.
Now, here is the real danger. Year 2008 will repeat itself but in some other form. This time it is going to be banks/individuals holding dollars. That is what I call “ALLOCATION OF CAPITAL”.
Now, you know why attempts were made to make London the financial hub of the world. To CONTROL..,
Shrihas Pandharkar,
DYOR.
© Copyright. No reproduction, please.
Why am I saying this? A partial successful attempt was made to make London the financial hub of the world. Policy makers looked at opening statements of this article and they noticed something.
Due to expansionary policies, individuals were expected to have more disposable income in their hand. What would one do with excess income? He would buy assets (allocate income). Individual would need someone expert in allocation of income. Therefore, someone who is expert in allocation of income would charge fees for nothing (I am saying “nothing”, here due to disclaimer clause by all financial advisors). This expert would decide allocation of income and not individual himself. Enter “Hedge Fund managers”.
In 2008, money was lost. Note that in 2008 money was lost, no one lost productive assets. If money was lost then it was made up by STIMULUS. Who lost money? Answer is “banks lost money”. Banks were given money, so simply speaking, no one lost money except few companies/individuals that went under. That is what we call “ALLOCATION OF CAPITAL”.
Now, here is the real danger. Year 2008 will repeat itself but in some other form. This time it is going to be banks/individuals holding dollars. That is what I call “ALLOCATION OF CAPITAL”.
Now, you know why attempts were made to make London the financial hub of the world. To CONTROL..,
Shrihas Pandharkar,
DYOR.
© Copyright. No reproduction, please.
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