Monday, December 25, 2006

>Ranbaxy Profits Vs Price Movements

>Can you predict short term movement in a stock using fundamentals?
>Can you predict the movement in stock if the CEO of the company gave you inside info for coming quarter results...! ?

The image proves beyond doubt that having access to fundamental results of coming quarters well in advance did not help you at all..!

Then how would you trade the markets in short term?

Thursday, December 21, 2006

>Chinas 700B$ US Assets

U.S. Treasury Secretary Henry Paulson is headed for confrontation with a Democratic-controlled Congress over China trade.

We warned of this in yesterday's Financial Intelligence and see serious problems ahead.

The U.S. government now has the very tough job of explaining to the U.S. Congress and citizens that, with some $700 billion in liquid dollar assets that it could liquidate, China holds the trump cards in trade negotiations with America.

Worse still, as we warned in Financial Intelligence (Nov. 9, 2006), China can now effectively dictate terms to the U.S. government and even exert undue influence over U.S. internal affairs, such as the Federal Reserve target interest rate.

Despite the growing evidence, this calamity still goes largely unreported in the main stream American news media.

The awful yet largely hidden reality is that China already holds the cards in the massive international currency battle looming over the U.S. dollar and, through it, over U.S. interest rates. But many appear to stick their heads in the ground and ignore it.

Winston Churchill once observed that those with their heads to the ground place their bottoms in a most vulnerable position.

Bloomberg also reports today that Swiss political science professors, Simon Evenett and Michael Meier found that six Senate seats and 16 seats of Representatives were lost to candidates supporting trade sanctions against China.

An yet, China has only to hint of an intention to liquidate even a small percentage of its dollar holding to send the dollar tumbling even from its present depressed levels.

Bloomberg also quotes the comments of some leading Americans on the issue of U.S.—China trade. To some observers, they will sound as if they have come from a different planet of make-believe nostalgia for the "good old days of American dominance."

The AFL-CIO is reported to have contributed some $40 million to help the Democrats win control of Congress. Speaking of China, their executive director, Robert Baugh, said, "They (the Chinese) are going to get exactly what they deserve from Congress." How money talks when an un-elected person can speak on behalf of the American Legislature!

Democrat, Sander Levin, (Mich.) alleged that Paulson's policy towards China, "confirms the fact that China has been controlling their currency to gain a major unfair advantage in its trading relationship." Of course, he is absolutely correct. But, he appears to have forgotten the old adage that, "Nothing's fair in love or war." What few realize is that, as far as China is concerned, this is "war."

Even Republican Representative Donald Manzulle (Ill.) is reported to have said, "The Democratic Congress is going to be a lot more fueled to do something dramatic against China." If the U.S. Congress does get "fueled" against China, to where does he think the U.S dollar will fall or that interest rates will have to rise, or what the effect of such tightening will be upon an already uncertain economy?

One has to wonder what such important people think about before they make such statements. Worse still, if they are not posturing, but actually believe what they say, one has to wonder how much they even remotely understand of the true nature of world affairs.

It is all very worrying and goes to show just how difficult a job our government and particularly Treasury Secretary Paulson and Fed Chairman Bernanke will face in 2007.

In short, they will have the daunting task of facing the U.S. Congress, the American people and even the millions of foreign holders of U.S. dollars (Eurodollars) with the awful reality that, within reason, China already effectively controls U.S interest rates!

Such a revelation, as yet unreported in the mainline media, will come as a great shock to many people and nations.

We believe this awe-inspiring realty will dawn early in 2007. Hence our consistent advice to our financially conservative readers/investors, that they accumulate gold and to keep bond investments short.

We feel sure that almost all our readers will sincerely wish both Paulson and Bernanke a happy New Year.

>Further Tightening Ahead? Banks: Sector Update

We believe that there is a high probability of a further tightening by the RBI through either a 25bps reverse repo rate hike or moderate CRR hike over the next few months. Our premise is that the core inflation (ex food and energy) is rising, CPI inflation at 7-7.3% is high and the recent CRR hike is unlikely to dampen the "excessive credit expansion" to levels within the comfort zone of the RBI. The fourth quarter of last year had seen an abnormal situation of stretched liquidity, panic borrowing on the back of rising interest rates and a curtailed government spending due to stretched government finances. In the current year, all these factors are working in the opposite direction and will foster a comfortable liquidity environment, which will tend to be inflationary and support the strong credit expansion. We believe that the recent statements made by government (post the CRR hike) are indicating that a further tightening could be in the offing.

"Inflation should be below 5% and toward 4%. We will take more measures as and when necessary to moderate inflation."
Finance Minister on 11th Dec 2006 after CRR hike

"India's interest rates are not directly linked to moves made by US Federal Reserve. Every central bank has to take its policy decisions.
"Rakesh Mohan - RBI Deputy Governor on 12th Dec 2006

"We have to be ahead of developments and take pre-emptive action rather than fall behind and take corrective action. It is too early to say that inflationary expectations have come down. Credit growth and money supply are still too high."
Finance Minister on 19th Dec 2006

However, over the medium term we expect inflation risks to moderate driven by falling food and fuel prices and hence don't expect a sustained and rising interest rate scenario; such a hike could be near to the end of a tightening cycle.

While the tightening will temporarily hurt the sentiment for banking stocks, there will not a sustained P&L impact. The hike will not significantly impact government bonds as there is a huge demand for SLR and hence bond losses for banks will be restricted. However it will impact deposit rates (both bulk and retail) and will pave the way for the PSU banks to push through a PLR hike. Although there may be temporary pressures on bank's NIMs due to lag effects is passing on the higher costs, sustained margin pressure is unlikely. In this environment, we would continue to favour banks that have either strong pricing power in lending market or have a high quality liability profile and sensible growth strategy. ICICI bank, Centurion bank, SBI, PNB and Andhra Bank remain our top picks in the sector.

Friday, December 15, 2006

>Currency Appreciation will hurt Exporters

Jewellery, IT and Pharma Exporters lose at the Rupee gains against the Dollar

The recent weakness in the U.S. dollar is sending tremors through a popular practice in foreign-exchange trading, raising the potential for further instability in global currency markets.

The practice is known as the carry trade: Investors borrow money in a country in which interest rates are near zero, such as Japan, and invest it in a country like New Zealand, where interest rates hover above 7%. The trade works best when currencies involved remain relatively stable -- sharp currency moves can wipe out gains from the difference in interest rates.

Weighing heavily on the dollar recently: expectations the Federal Reserve will reduce interest rates in 2007, making dollar assets less attractive to investors. Yesterday, the Fed left its benchmark short-term rate unchanged.

Already, the U.S. dollar's tumble against the euro is prompting some observers to predict that currency rates around the world will be more volatile going forward.

That is bad news for the carry trade and, possibly, for other currencies and some stock markets. The stakes are high: The last time these trades unraveled was in the spring, when investors spooked by the prospect of rising Japanese interest rates abandoned riskier investments in countries from Iceland to Turkey.

Stocks in developing countries plummeted, along with some of their currencies. In Iceland, a favorite destination for the carry trade, the country skirted a full-blown financial crisis.
Despite that turmoil, market watchers say the carry trade has proved irresistible, thanks to the continued allure of low-cost borrowing in Japan and elsewhere. "

There are a lot of people who still have these trades on," says Paresh Upadhyaya, a portfolio manager at Putnam Investments in Boston. At the same time, he says, "Things are lining up that could unwind them any day now."

One such factor would be fluctuation in currency rates. For most of the past six months, exchange rates for major currencies have remained relatively stable in comparison with prior periods. For carry traders, that has meant they could reap returns from the difference between the interest rates in two countries without worrying that a currency swing will erase their profits -- or worse.

But the recent selloff in the U.S. dollar will lead to larger fluctuations in other currencies, BNP Paribas argued in a recent report, including those low-interest-rate currencies that fund the carry trade, such as the Japanese yen and the Swiss franc. "Carry traders need to be cautious," it warned.

Some market observers believe an unwinding of carry trades can unfold in a gradual way that wouldn't rock markets. Others say experience shows these reversals are rarely an orderly affair.
"Everyone is always looking for the magic signal on how to get out before [the carry trade] unravels," says Richard Clarida, global strategic adviser at Pacific Investment Management Co. and a professor at Columbia University in New York. "Carry trades work until they don't."
Adding to the uncertainty is the fact that no one knows exactly how big the carry trade is.
One indicator of its vigor can be found in the weekly reports from the Chicago Mercantile Exchange on currency futures.

Hedge funds and currency speculators use futures positions to mimic the mechanics of the carry trade, since such instruments also reflect the interest-rate differentials between countries.
The most recent CME figures show that while speculators have reduced such trades, they still have substantial short futures positions in the Japanese yen and the Swiss franc -- two currencies commonly used to fund the carry trade -- and considerable long positions in the Australian dollar and the New Zealand dollar, two currencies used to extract profits from the trade. In the currency markets, short positions are agreements to sell a currency on a specified date, while a long position is a purchase order.

Others see the dimensions of the carry trade in data on financial flows in and out of Japan.
In a recent note to clients, Goldman Sachs said the size of the carry trade outstanding involving yen is "substantial" and could account for a large chunk of the country's balance-of-payments surplus, which is 4%-5% of gross domestic product, or the total value of goods and services produced in the nation.

If the trade were to unravel, the investment bank said, the yen could strengthen as investors buy the currency to cover their borrowings. On the flip side, the currencies that served as investment vehicles could tumble as investors sell their holdings.

Central banks are paying attention. In November, Bank of Japan Governor Toshihiko Fukui told the Japanese Parliament that there was a big risk that a sharp shift in the country's interest-rate outlook could spark "a rapid unwinding" of yen carry-trade positions and "bring on various distortions."

The reverberations would extend well beyond financial-market players. Regulators in South Korea, for example, are investigating the ballooning number of yen-denominated loans granted by local banks. Lured by the low interest rates attached to such loans, individuals have plowed the proceeds into higher-yielding assets like real estate, spurring fears of a bubble.

Meanwhile, in their constant search for bigger returns, carry traders are starting to focus on currencies in emerging markets, where interest rates can be even higher than in developed countries.

Thanks to increasing trading in these markets, traders have become more comfortable borrowing in Chilean pesos and investing that amount in Turkish lira, or borrowing in New Taiwanese dollars and investing in Hungarian forint.

These trades, too, can reverse rapidly, prompting currencies to tumble. If investors were to get spooked as they did earlier this year, the likely losers would be countries with a large current-account deficit, such as South Africa and Hungary, says Mark Farrington, head of currency at Principal Global Investors in London.

Saturday, December 09, 2006

>Ups and downs of the dollar

How the current dollar drama unfolds could end up affecting more than just the price of T-shirts at Wal-Mart or the number of German tourists visiting Yosemite National Park.

A weaker dollar, over time, could help the world economy become better balanced with America less reliant on borrowing and Asia less dependent on exports to fuel development. But realignment also holds risks. It would impose some hardship on Americans, and on the many nations that sell goods to them. A sudden shift could jolt US consumers with higher prices at a time when some economists worry about a possible recession.

"Most economists agree that in the long term, the dollar has to go down" to help shrink the mammoth US trade deficit, says Axel Merk, who manages the Merk Hard Currency Fund in Palo Alto, California. Yet in the short run, "it's in nobody's interest in the world for the dollar to go down."

The current slide may or may not persist. But when the dollar falls relative to other currencies, it tends to make US exports cheaper and, thus, more attractive on world markets. And it makes foreign imports more expensive to American consumers.

That doesn't mean the dollar's value is a magic fix for the US trade deficit, which has reached unprecedented proportions. But many economists see it as part of the answer to this imbalance in global trade.

The dollar's recent weakness continues a pattern that began in 2002. Why now and will it continue?
A weaker dollar would affect the purchasing power of Americans when they buy goods or services from other countries. The shift wouldn't be noticed at the supermarket as much as it would be at stores like Target or Best Buy. "It would mean those things that are so cheap at Wal-Mart would be a little more expensive," Engel says. "The flip side is that workers might move back toward some sort of export industries." To some degree, the trade deficit and the buoyant dollar in recent years are signs of US economic strength. Imports often surge in an expanding economy.
Still, many economists say that at some point and sooner might be better than later the trade deficit must fall.

America's deficit in the current account has surged to over $800 billion a year equal to about 7 per cent of the gross domestic product. That's up from 1.7 per cent of GDP a decade ago.
There's no precedent for a major economy to maintain this level of imbalance. The higher the imbalance goes, the greater the risk of a hard adjustment.

Exchange rates are a piece of a larger puzzle. Another factor is that the US has a low rate of savings due to federal deficits and consumer borrowing. The trade deficit mirrors this. Trade barriers in other nations are another factor.

Still, a lower dollar could play a role in resolving the imbalance.
If China allowed the yuan to rise, "the dollar would also fall against most Asian currencies," says Peter Morici, a University of Maryland economist. Falling imports would raise the US savings rate, he says.

Martin Feldstein, a Harvard University economist, has pointed out a precedent in the 1980s for a currency-driven easing of the trade deficit. As the dollar fell, the gap closed without fanning inflation or causing a recession. He said America should have a 'competitive' (lower) dollar abroad alongside a 'strong' dollar at home whose purchasing power is not eroded by domestic inflation.

By Mark Trumbull, The Christian Science Monitor

Friday, December 08, 2006

>Genius Or Mastery

Susan Polgar walked into her chess club in Queens, NY and decided it would be a special evening for the men and boys gathered around the various chessboards. She stated, "Tonight, everyone gets to play me." And so it was, each opponent received five minutes per move to her one minute. Slowly but surely, she beat every single challenger. Ms. Polgar is no ordinary player, she has earned the designation of Grandmaster. There are approximately 950 Grandmasters in the world and the first female Grandmaster. There are only 11 female Grandmasters in the world. One of the other 11 is her sister Judit. They have a third sister Sophia who is also a champion. How did this happen?

It helps that they had a father who was a famous Hungarian psychologist, Laszlo Polgar, who published a book called "Bring Up Genius!" After studying hundreds of great intellectuals, Laszlo identified one common thread. This was early and intense specialization in one particular area. This is also the theme of Tiger Woods. Laszlo thought the public school system would do no better than create a bunch of mediocre achievers so he decided to homeschool his offspring and taught them chess from a young age because he felt it would do wonders for their confidence.

Anders Ericcson is a professor of psychology at Florida State University who spent 20 years developing a case for Laszlo's theories on genius and came up with a few of his own. I don't know if you would call it genius, maybe mastery is a better word. Ericcson argues that "extended deliberate practice" is the true key to success, not any innate skills. "Nothing shows that innate factors are a necessary prerequisite for expert level mastery in most areas."

The only exception would be in sports where size is a factor in athletic achievement. Ericcson interviewed 78 German pianists and violinists and his research revealed that by age 20 those who reached mastery had practiced approximately 10,000 hours or 5,000 more hours than a less accomplished group.
He argues that unless you are dealing with someone like Mozart or Einstein, it's the hard work that makes all the difference in the world.

Ognjen Amidzic is a neuroscientist from Switzerland. He was once an aspiring chess player but reached a plateau by age 23 and quit. He devoted his life to figuring out what went wrong. He studied the brains of Grandmaster chess players as well as highly trained amateurs like himself. His conclusions were very interesting.

==>What he found was when Grandmasters play chess they access areas for long term memory and higher level processing is activated.

==>When amateurs play they only use short term memory.

==>What he discovered was Grandmasters have committed anywhere from 20,000 to 100,000 patterns to memory. These people have a gigantic hard drive of information they can retrieve automatically to come up with the right play.

His research suggests chess titans may be born with a tendency to process thoughts through their frontal and parietal cortices, the part of the brain responsible for longer term memory.

What his research does not reveal is whether anyone can develop this tendency as his research on older players suggests they haven't developed their frontal lobes to the same degree.
But how many people are actually permitted to develop the way Laszlo Polgar raised his children? Amidzic's research also suggests that when amateurs take in information, many times they are only relearning the same things over and over without improvement.

Lazslo saw to it that he
attacked areas that needed improvement to make his children into the champions they are.

The source of this information comes from the August 2005 issue of Psychology Today, "The Grandmaster Experiment," by Carlin Flora.

What I'm getting out this article is that mastery is something we can learn. We must be willing to put long hours into any discipline. I don't care if it's karate, piano, chess, accounting, engineering, acting, dancing or trading. I'm not talking about going on a roll of hard work for a few days, weeks or months. You have to dedicate years.

What disturbs me most about the trading game is the late night infomercials that claim they can turn you into a winning trader after a weekend seminar. At the show in Las Vegas there were any number of black box software program proprietors which claimed that all you had to do was press a button and you'd be successful. Sorry, folks, I'm not buying that nonsense.

What might be the tipping point of this research is the work of Dr. Joe Dispenza from "What The Bleep" fame. He has proven beyond a shadow of a doubt the brain forms new neuro transmitters when we learn new activities or practice new habits.

When we give up habits like smoking those wires in the brain shrivel up and die.

So it's not out of the realm of reason to think that with the proper tools and environment certain areas of the brain can become more developed over time.

But really, how many people are willing to devote 10,000 hours of intense study to a new skill? Not only do you have to dedicate years to the process, whenever you hit a snag in your development you have to work on it to the point where you actually figure out what you did wrong so you can advance to the next level. If you aren't doing that, you've got the definition of insanity.

In conclusion, I believe that success in financial markets has a direct correlation to your commitment level, the amount of time you put into it as well as the time you spend fixing attacking your weakest link. If you are already doing it and getting the results, great! Keep doing it. If not, if you are honest with yourself, you'll know why you aren't getting the results you desire and you know what you need to do about it.

Edited By Jeff Greenblatt

Tuesday, December 05, 2006

ACC v/s Lafarge v/s Holcim

The 'cement story' is once again in the limelight. Global cement majors have been eyeing the Indian cement market for some time now. What makes the Indian cement market so attractive?
India is a developing country and so there are good growth opportunities. India's GDP is expected to grow at 8% annually and so the cement sector, being a core infrastructure sector, is expected to grow at 8% to 10% annually.

The world over, especially in developed countries, growth has slowed down, so the companies are moving to developing economies to tap the growing market. Cement being a bulk commodity, cannot be transported over long distances and hence there has been a scramble among global giants to acquire capacities in the country.

Against this backdrop, let us see how ACC, one of the largest cement companies in the country, compares with global giants like Lafarge and Holcim.

ACC: The company has a pan India presence and is particularly strong in the northern and the eastern regions. ACC has undertaken modernization and up gradation of its old plants. It has converted wet process of cement manufacturing to energy efficient dry process and has also reduced excess workforce. All this helped it to improve performance. Earlier, because of its old plants and excess workforce and a leveraged balance sheet, company always underperformed compared to domestic and multinational players. The capacity augmentation of its plants and favorable demand supply scenario has proven positive for the company.

Lafarge: Lafarge, world's largest cement producer, is among the first transnational to enter the Indian market and has already emerged as a market leader in the eastern region. Lafarge is increasingly focusing on developing economies like India, as diversified presence helps it to effectively counter the lower growth rates in its mature markets.

Holcim: Holcim, the Swiss giant, is one of the world's leading suppliers of cement, as well as aggregates, concrete and construction related services. It has a strong market presence in over 70 countries and across all continents.

Though, Lafarge was first transitional to enter India, it expanded at lower rate. Holcim entered later but has acquired major stake in two of India's biggest cement companies, Gujarat Ambuja (GACL) and ACC, the latter being in consortium with GACL. Lafarge is not looking beyond Eastern markets and expanding through brown filed and Greenfield expansion plans.

Holcim on the other hand, through its stake in ACC and GACL, has presence all over India. Holcim has targeted western markets through GACL and a stake in ACC (company that has pan India presence) will benefit it to explore other markets.

Let us have a look at the financial and operating performance of the three companies in recent times.
Parameter* Units Companies
ACC Lafarge Holcim
Capacity (MT) 18.3 160.0 160.4
Operating parameters

Net Sales (US$ m) 715 20,676 14,774
Sales CAGR - (FY03-05) (%) 6.7% 13.4% 27.4%
Operating margin (%) 16.2% 14.8% 25.1%
Net margin (%) 17.0% 6.9% 12.3%
Return ratios

RoNW (%) 25.5% 8.8% 15.4%
RoA (%) 11.8% 6.6% 4.8%
Debt to equity (x) 0.90 0.15 0.89

Price to earnings (x) 22.7 17.2 16.2
Enterprise value per tonne (US$) 256 212 192
*FY05 data
ACC's operating margins have expanded by 400 basis points since FY03 on account of operational efficiencies achieved. Earlier, company was operationally less efficient than its global peers mainly on account of its old plants and it was also hurt by lower realisations in the Indian market. Its net margins, excluding extraordinary effect of profit on sale of refractory business, stood at 8%.

Though 8% is lower, when compared to its transnational players and its performance in FY03, company has improved its performance. This can be attributed to better realisations on account of demand growth led by housing and infrastructure activities, apart from reduction in operating costs and reduced debt burden.

Holcim's performance also improved substantially on account of its expansion plans, reduction in debt and efficient use of resources. Exploring newer and developing markets has helped the company. In FY03 the capacity difference between Holcim and Lafarge was almost 6 MT but now both are almost neck and neck.

In case of Lafarge, increases in repairs, maintenance and distribution costs, as well as higher fuel and energy costs, negatively impacted earnings. Moreover it operates in saturated markets where margins tend to be lower and this is manifested in lower return ratios for the company.

As far as valuations are concerned, ACC because of its presence in a growing market and better operating parameters, trades at a premium over its much fancied rivals like Holcim and Lafarge, where high growth in developing economies get offset by a rather sedate growth in mature economies like the European nations and the US.

Monday, December 04, 2006


Warren Buffett CNBC November 2006 Interview

In a rare interview with the worlds second richest person, Warren Buffet, CNBC anchor Liz Claman takes an inside look into his surprisingly simple life in WARREN BUFFETT:
THE BILLIONAIRE NEXT DOOR, a CNBC one-hour special that aired on CNBC on

Sunday, December 03, 2006

>Poor Dad vs. Rich Dad

My Poor Dad Says My Rich Dad Says
"My house is an asset." "My house is a liability."
Rich dad says, "If you stop working today, an asset puts money in your pocket and a liability takes money from your pocket. Too often people call liabilities assets. It's important to know the difference between the two.
"I can't afford it." "How can I afford it?"
The statement "I can't afford it" shuts down your thinking. By asking the right question, you mind opens up and looks for answers.
"The reason I'm not rich is because I have you kids." "The reason I must be rich is because I have you kids."
"I'm not interested in money." "Money is power."
"When it comes to money, play it safe - don't take risks." "Learn how to manage risk."
"Pay myself last." "Paid myself first."
Rich Dad always took a percentage off the top of any income he earned. He put this money into an investment account that went toward purchasing his assets. Poor Dad spent all his money first and never had any remaining for investments.
Believed that the company you worked for or the government should take care of your financial needs. Believed in financial self-reliance and financial responsibility.
Focused only on academic literacy. Focused on financial literacy as well as academic literacy.
Learned only the vocabulary of academia. Learned the vocabulary of finance – "Your words are the most valuable tools you have."
"I work for my money." "My money works for me."
Thought that making more money would solve his financial problem. Knew that financial education was the answer to his financial problems: "It's not how much money you make that's important – it's how much money you keep and how long you keep it."