Power tussle?

As per reports, congresssmen are saying "USA has up till April to raise debt limit..."

As per reports, Bernanke is saying "Do not play game of chicken...."

I expect S&P to touch 20 DMA in next few days and bounce back to 1373.6. That is likely to be major top

Die is cast?

I have been very busy in last few weeks and there was nothing exciting to post on.

Let me have a look at ratio of construction to maintenance people in a plant.

When plant is under construction, ratio of construction to maintenance people is 100 to 1. You need brilliant and intelligent people to solve problems.

Once the plant is constructed and trial runs are over, ratio of construction to maintenance people is 1 to 100. You do not need brilliant and intelligent people. You need people who can do monotonous jobs, as plant just needs to be maintained safely. I am not underestimating intelligence of maintenance people. But, I am driving rather different point.

If you want to maintain country as it is, you do not need migrants. Therefore, policy makers have to decide whether they want to maintain plant or do upgrades.

India and China are under construction. Developed economies are not.

-Shrihas Pandharkar

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Japan and World Markets

My heart goes for people of Japan but let me have a look at how strange things can become.

In last few days, no fund managers bothered to notice economic data and most of them were glued to TV sets watching Japan. World financial markets discussed Nuclear reactor Number 3 , 4....how critical it is.....and so on. Now, anyone interested in world financial markets would have become expert in Nuclear power generation,... how nuclear plant operates,....what precaution needs to be taken etc...

I am not underestimating fallout if worst had happenned. My point is world financial markets are best tutors. World financial markets will teach you nuclear power generation, deep water oil exploration etc.....and everything...

-Shrihas Pandharkar

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Buy Japan?

My heart goes for people of Japan.

Nikkei is expected to touch 6100 intrday in next about Month. It is SOUND BUY at that level.

-Shrihas Pandharkar

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Illusion?

Let me have a look at 3G/4G communication technologies. These techonlogies allow people to surf web from their Handheld.

Let us say, I log in to my account on Skype or Yahoo using Handheld. All of us know that with yahoo messenger, one can call friends (who are also on Yahoo messenger) for free. Now, let us say, I log on to my yahoo/skype account and talk to my friend using Handheld (with 3G/4G).

End result is, I speak to my friend for free (excluding cost of 3G/4G provider). I extend this further and I can speak to my boss/work colleagues also for free.

Get the picture?

Big investment firms do go wrong but if someone is valuing Facebook at 50 billion dollars, there is some sense.

-Shrihas Pandharkar

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Team-Work

I will help you and you help me.

FED will help Banks and Banks will help FED. FED indirectly asks banks to create bubble by asking them to buy "Facebook" at 50 Billion dollars and "Twitter" at few billion dollars. This is how bubbles are engineered.

Now, if any bank does not co-operate, it is not team player. FED then withdraws support to this bank and bank goes under. Therefore, if FED asks banks to value "Facebook", then it must be done. Some months later, GOOD NEWS about Facebook can be filtered for valutions to further go up.

Let me explain you how trap is set. Bernnake is right when he is following expansionary polices. If paper valuation does not increase, then all banks are in trouble. When FED runs stimulus program and takes MBS on its book, it helps create liquidity. However, for the show to go on, House prices must go up. If they do not go up, trap is set. Dollar must be debased for house price to go up. If dollar is debased, it has risk of losing its reserve currency status. If that happens, USA will pay for oil in Yuan or some other currency and that is when real inflation will kick in.

The reason is, lot of jobs that exist today do not belong to "Necessities OF LIFE".

Therefore, FED must somehow create categories which may be called "Necessities OF LIFE".

-Shrihas Pandharkar

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Cruel World Financial Makrets?

Event that caught attention last week was, "dollar fell during Libya crisis".

Dollar is (or was) considered safe heaven currency and suddenly people bought gold, swiss franc, silver and yen during this crisis.

Ben Bernanke gave enough hints about extension of QE programs to infinitive and yet S&P moved up little.

Till date, World financial markets worked in America's favour giving it due credit for military/technological superiority, talent base cutting across every field etc.

As you see, situation is slowly changing. World financial markets will stop giving credit to America.

"Facebook" deal by Goldman Sachs and "twitter" deal by JPM is another attempt to inflate bubble.
1980s- Housing boom
1990S- Tech boom
2000s- Housing Boom
2010s- Attempt of Tech. Boom?


-Shrihas Pandharkar

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Psychology

Most of the emerging economies are blaming Mr. Bernanke for food inflation. His Ph.D. thesis was on great depression of 1932.

People are faling to understand some lessons in psychology.

If you are given excess money, which is more than you spend on your daily needs, what you do with that excess money? Answers will be different depending upon risk profile of person. If you had asked this question in 1990s to someone from emerging economies, most would have banked excess money. If you had same question to someone from developed economies, most would have thought of investing some where. The reason is, people from developed economies had seen their neighbours prosper by investing excess money. Same time, people from emerging economies had seen their neighbours fail by investing excess money.

However, we are now in 2011. Situation has changed dramtically. China and India constitute about 50% of world population. Both these economies are integrated. Integration of such huge economies will definitely increase demand for raw material and commodities. Dr. Bernanke should not be blamed for this.

However, this is almost maximum that we can have as far as global integration is concerned. Tomorrow, if Nepal economy gets integrated with world economy, it will not even cause a ripple as Nepal is miniscule economy.

Coming back to lessons in psychology, if one has excess money, he tends to invest in 2011 unlike "banking excess money" as in 1990. Almost, 90% of the high risk investment fail, but investment which succeds gives gigantic returns not only for investor but also for the rest of the world.

Inventions in semiconduction technology is prime example. Hopefully, we will continue on same path. But, this can happen only if Bernanke suceeds. If he fails, people will look at their neighbours. Neighbours who invested and lost (in 2014).


-Shrihas Pandharkar

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Complexity

There are millions of finance professionals all over the world. If you take survey of finance professionals, you will notice that very few are working in world financial markets. So, if you speak to finance professionals, not many know how currency market behaves or how stock market behaves or how bond market behaves (as some among them could be working in audit, taxation etc.).

Now let me zero down on people working in world financial markets. Among those working in world financial markets, someone working in bond markets does not know stock markets or currency markets. It is also true for professionals working in stock markets or currency markets. Now among these professionals, there are further specialisations like someone working only on EUR/USD pairs, someone covering only Oil and gas sectors etc.

This is where opportunity lies. As most of the professionals, named above will have their spare cash/funds parked with some fund managers. Their private pension will be managed by some pension funds.

Few years down the line, let us say Mr. Bernanke’s gamble fails. Can anyone guess what will happen? Retail people will have no money to pay credit card/utility bills. Pension funds will have filed for bankruptcy and people who worked hard to secure their retired life will see their savings/pension disappearing. Lawsuits will be filed.

Losers will be all including finance professionals named above. However, finance professionals who have learnt something other than their 9-to-5 jobs will survive.

Note that in 2008, many finance professionals working in world finance markets lost their jobs. Some had worked on trading desks. These people tried trading in their own account and most of them failed miserably. The reason, "they did not learn anything other their 9-to-5 job"

That is why I love these markets. Only fittest survives. “Fittest” does not mean physically or mentally fit. “Fittest” in world financial markets is defined VERY differently.

-Shrihas Pandharkar

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Facebook valuation

It is true that if my age is known then it will be easy for companies to sell me specific product. It is true that if my location is known then it will be easy for companies to sell me specific product. It is also true that if my interests are known then it will be easy for companies to sell me specific product.

Facebook collects all such information. Naturally, looking ahead Facebook should command some valuation.

Note that google made similar attempt with Orkut but it is close to failure. Some years before same thing happened with free emails where people said you could market products if email ids are known.

My question is why facebook valuation of 50 billion dollars why not 200 billion dollars or why not 1 billion dollars?

In fact, I see great potential in search engines. I search for something, and my search words are stored in Google computers. I could be anywhere in the world but my searches are known to everyone (as Google can sell this information). When I search something, information including IP address and MAC address goes to Google. In fact, if one correctly analyses search data/words, Google will be worth lot more.

-Shrihas Pandharkar

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Getting interesting

Currency market is getting interesting. The question is, what happens if all these happen together;
• Almost all major currencies (including some emerging economies) appreciate against dollar by let us X %
• Oil rises by same percentage (oil remains priced in dollars).
• All other commodities rise by same percentage (commodities remain priced in dollars)

Can anyone guess what will happen to Inflation in USA?

Can anyone guess if inflation in other countries will go up by same percentage as in USA? (please account for cost push inflation only)

Intelligent people will get the picture.

What I wrote above is definitely going to happen. As a result, Mr. Ben Bernanke will be forced to abandon his grand experiment and start tightening.


-Shrihas Pandharkar

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Inflation, deflation

Inflation is roaring its head in emerging economies and some developed economies. Everyone is fully convinced at the moment that we will have inflation...and this will be end game.

Worried about inflation, policy makers will start tightening. However, there is always lag between easing (QE) and its effect. Inflation may become more visible by second quarter of 2011 and that is when policy makers will make mistake of tightening.

As a result of these actions of policy makers in response to perceived threat of inflation, We will definitely have deflation by around 2013 end. Policy makers will try to reverse but will fail. Nature will take its own course.

DOW will touch 32000 by year 2032.

-Shrihas Pandharkar

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Creditor's problem

If bank lends small money and debtor defaults then it is a problem for debtor. If bank lends huge money and debtor defaults then it is banks problem and bank can go under.

Let me first start with Euro zone. Germany is most financially sound economy in euro zone. Naturally, when it comes to supporting other euro zone members, countries will look at Germany. In this case, Germany becomes creditor and other nations become debtors. All of us know magnitude of problem in Euro zone. Therefore, if Germany offers credit using its own money and if debtors default then Germany will also be taken down. Naturally, Germany would like member states to not default (in short, Germany would like its member states to become better economies by controlling expenditures, increasing exports etc.). But is that possible if member states do not want to control expensditures? The answer is “NO”.

Same thing can be said about China, which is the biggest creditor nation. USA is debtor nation in this case. Let me take example of this moment. At this moment, almost all Americans are enjoying better lifestyle compared to Chinese. Americans are using borrowed money to fund their lifestyle, which is better than Chinese. However, note that China is in transition period where present-day generation takes pain for future generations. After some decades, reverse will be true when Americans will work hard and Chinese will have better lifestyle than Americans even when Americans work hard and that will be called transition period.


-Shrihas Pandharkar

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Can single country stand up?

Everyone in this world is blaming USA for food inflation. Basic of inflation is demand-supply gap.

Now let me break down arguments in small parts.

Some decades before, most of the people from emerging economies had lower living standard than today. Governments of these countries opened up economies and foreign investors came rushing in. These investors poured billions of dollars. These incoming dollars raised living standard of people.

People from all such economies should note that their own currency has no standing. It is because dollars are coming in; that they are seeing this wealth effect. If all these dollars are withdrawn, then these economies will be back to square one. Therefore, they should not blame incoming dollars for food inflation.

Neither of these economies are self sustainable. All these people should ask themselves a a question, what will happen if all dollars are withdrawn? Some of the big economies from emerging area import oil worth 50 billion dollars annually. These countries will not be able to pay for oil if they do not export goods or services.

These countries will do well to ignore inflation for short period and instead plan to become self-sufficient.

-Shrihas Pandharkar

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Brilliant

That was brilliant.....

News just on bloomberg in next paragraph,

"Bernanke Says Fed Failed to See Broader Risks From Housing....At one Federal Open Market Committee meeting in mid-2005, Fed governors and regional presidents heard staff briefings suggesting that the U.S. mortgage system “might bend but would likely not break” from a large home-price drop, and that the market may rest on “solid fundamentals,” Bernanke said in a Dec. 21, 2010, letter to the Financial Crisis Inquiry Commission, providing his views and revealing new details on FOMC meetings from 2005 to 2008. Given these and other analyses, it was hard for many FOMC participants, in the summer of 2005, to ascribe substantial conviction to the proposition that overvaluation in the housing market posed the major systemic risks that we now know it did...."

In another senate hearing, Mr.Bernanke was asked a question about gold price rise, he said "I do not understand gold price movements"...

Above two paragraphs are self explainatory.

-Shrihas Pandharkar

Fake?

UK economy contracted by 0.5% in last quarter of 2010 as per intial estimate. Some newpapers claimed it is due to snow.

Economists failed to understand difference in approach by UK government and US government. UK government started implementing austerity plan some time in June-July2010. Results are there for you to see, IMO. Long-term results are expected to be good for UK economy in general. But, who cares for long-term?

Everyone in this world is suffering from short-sightedness except for some who are in minority. There is no long-term here, everything is shor-term.

One of the hedge funds in SE Asia plans to return money by this month-end even after giving spectacular returns in 2008 (note, I am talking of year 2008). The reason; it could not match performance with crowd in 2010 (because it was basically volatility play).

The day USA winds down STIMULUS, US economy will collapse in another quarter as results from UK shows.


-Shrihas Pandharkar

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Biggest Enemy

Last few weeks, I was brainstorming to predict how things can go wrong with the USA. After few days, I realised that I should have searched my own home instead of searching outside somewhere.

Let me elaborate. Biggest enemy of powerful person is he/she himself/herself. It is also true for any entity.

Let us say, FED is engineering rally in stocks by following ZIRP policy. If benefits reach common man then rally will definitely explode on upside. Many people are convinced that this is FED induced rally. However, if benefits do not percolate down to common man then can anyone guess what will happen? Americans will vent their anger against everyone including FED.

I think I also have to watch out social mood in the USA apart from stocks.

-Shrihas Pandharkar

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I will have retired

Some of the reasons of 2008 collapse according to the policy makers are short-term-benefits and greed.

Let me first take a quick look at short-term-benefits. Policymakers stood up and blamed bankers for short-term-benefits. They said such behaviour needs to be curbed because it pays bonus based on short-term return that trader generates and not long-term profits. Same policy makers are now supporting STIMULUS. STIMULUS will generate short-term benefits and not long-term.

Back in 2004, policy makers patted themselves for profits that banks generated. In another five years (in 2008), same policy makers started blaming bankers.

It just needs some country to stand up and bring resolution in IMF to price oil in some other currency. Once that happens, Americans will suffer for generations from ill effects of stimulus. The USA may use all its military/intelligence power to prolong that from happening. However, it has to happen one day. But, by that time, FED chief will have retired. Policy makers will then blame myopia of FED RESERVE...and life will go on....

-Shrihas Pandharkar

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