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Category Archives: Euro Zone

……..and Markets Came Tumbling Down ……..an attempt to explore the Cause..

……..and  Markets Came Tumbling After

Perhaps, both Dr. Manmohan Singh as Leader of Ruling Party in Power and Mr. Pranab Mukherjee, as Finance Minister went up there, this budget session, to specially put the Indian GDP in higher growth trajectory. Probably all went in vein. All accepted; but then what could be the reason at the route of it? Is anyone interested and involved in finding out the route cause or all are merely trying to make the smart, logical and rational guesses.

Many experts have been found blaming it on the variety of issues, and the sum of these issues is much larger number than all the experts giving their opinion put together. It signals an impression that now a doctoral thesis should be presented on ways of identifying that the individual, who is well dressed and has somehow made it to a position of power and claiming to be expert of domain, is really an expert or a garbage vomiting biological machine.

Pictorial Representation Market Crash

Market Crash of Two Different Centuries     1930 — &–2008

The reasons forwarded by expert for any wanted or unwanted oscillation in the national economy has as much probability of being found in few phrases mentioned below, as much is for any oscillation happening in mood of markets, in next day trading session.

An Attempt:

1. Probably this is an outcome of policy paralysis at the level of Government…

2. It is due to fear being felt by FIIs due to the possible provisions of GAAR on P- Notes…..

3. This is being reflected as the Rupee is getting weaker……

4. It is due stubbornness being shown by RBI Governor by not easing interest rate…

5. It is an outcome of inflationary pressure…..

6. Because European markets opened on lower side…

7. Euro zone crisis is having its impact felt… as all the economies are networked these days….

8. Prices of Crude Oil are moving northwards due to possible stance of USA on Iran’s nuclear issue..

9. The monsoon has cracked a joke on us….

10. The quarter -1 , 2, 3, 4 data for industrial output were not promising….

11. There is a growth being noticed in unemployment rate in USA….

12. Forecast of Chinese economy has taken the fizz out of the market….

13. All this is due to the nation’s money lying in the tax heavens abroad….

14. The growing fiscal deficit is responsible for it….

15. It is the burden of subsidy that is killing the government…..

16. Investors’ are fearful of risky assets and they going for Cash or preferring cash..

17. The Greece crisis has taken its toll….

18. The Spaniards are going uncontrolled……

19. It is due to the Vodafone issue..Where FM wants to put a tax with Retrospective effect..

20. Rupee falters on rupee outflow fear…..

21. Now markets are waiting for first signal of Mr. Hollande, the new President of France.….

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N. The grocery seller was saying that Fed is in for an interest rate hike…..

N+1. I heard my taxi driver telling to someone that it is being stage managed by the government…

N+2. There is a foul smell of some foreign hands behind it…….

This is not the end of the list, and therefore just an illustrative one has been put up. Please feel free to add your suggestions. The names will be sent to Nobel Committee which supposed to announce the Current Years’ Nobel Prize Winner in Economics by conducting a free and fair lucky draw from it…..

                                                                                                                     Always Yours— As Usual —– Saurabh Singh

US Prez Barack Obama as well as The rest of the world, too, is having nightmares about a possible US debt default

Last Seven Sleepless Night of United States President Mr. Barack Obama

The Reason Behind the Phenomenon has been detailed below in Issue and It’s possible reason Format.

What is the crisis about?

Since 1917, the US Congress has stipulated that there has to be a statutory limit on US public debt (debt of US federal govt). This limit has been periodically raised and now stands at $14.3 trillion (95% of the US GDP). The US will hit this limit on Tuesday, Aug 2, unless Congress approves a fresh hike. But the Republican-controlled House of Representatives and Democrat-controlled Senate haven’t been able to work out a consensus

Why are they fighting?

The Republicans want any debt limit hike linked to deep cuts in govt spending. They want the increase to be effective for a year, with fresh discussions after that. The objective is obviously to make it an issue ahead of the 2012 presidential elections. Democrats favour tax increases and a one-shot raising of the ceiling. They are also opposed to any cuts that could jeopardize the economic stimulus and welfare payments

What happens if debt ceiling is not raised?

US govt can’t pay     employees, social security benefits, defence contractors, medical insurance bills and interest to lenders. Credit rating will plunge from top ‘AAA’ to bottom D’
What will be the global impact?

Govts, investors and businesses across the world will stop investing in US bonds. There will be panic in financial markets globally, with investors exiting equities for safe havens like liquid cash and gold

Does it affect India?

Indirectly, though much less than countries/blocs with big trade and debt dealings with US, like EU and China. Still, a worldwide downturn could hit Indian exports and FDI flows

When did this debt accumulate?

 Barack Obama (fighting recession, wars in Afghanistan and Iraq) $2.4tn

George W Bush (wars and tax cuts) $6.1tn

Bill Clinton $1.4tn

George Bush $1.5tn

Ronald Reagan $1.9tn

Earlier $1tn

Whose money has the US taken?

Foreign countries (including China $1.2 tn) $4tn

US public and cos $3.6tn

US federal system $6.2tn

 

Always Your — As Usual Saurabh Singh

FEELING HEAT ON US DEBT : EARNINGS AND INDEX POISED TO EXHIBIT UNWANTED OSCILLATIONS

Wrangling over the US debt ceiling and questions marks over corporate earnings mean markets are unlikely to get a break any time soon.

Wall Street is set to close its worst three months in a year as July draws to a close next week after a roller coaster ride for markets. Whacked out fund managers hitting the beach in August may find themselves fiddling with their BlackBerrys more than the little umbrella in their cocktails.

“I need a vacation, man. After all the stuff that’s happened in the last three months I’m pretty much shot, I’m getting weird,” said one New Jersey-based fund manager, who was packing his bags for a destination in the Caribbean as temperatures topped 100 degrees Fahrenheit in New York City.

With euro zone leaders having reached a deal for yet another bailout for debt-laden Greece, investors will be free to chew over the rancor in Washington with even more attention.

Negotiations between President Barack Obama and the top Republican in the House of Representatives, John Boehner, still looked far from a deal to avert a looming US default, lawmakers said on Friday, raising the likelihood of more volatility next week if no solution is reached over the weekend.

“It’s likely an agreement in any form will cause a relief rally for equities,” said global head of sales trading at Dahlman Rose in New York.

“Coming on the heels of overall pretty good earnings numbers and some sort of resolution in Greece and that could make for a rally in the market,” he said.

But on the other side of the coin, the prolonged and partisan dispute over solving the country’s debt crisis means there is still a big downside risk.

“Who knows where that is going to go,” as per an analyst at MF Global in Chicago. “We’re vulnerable to a buyers’ strike if we don’t get any news.”

In addition, the corporate earnings season suggests other risks could dog the market. Despite generally good results so far, there have been some worrisome signs. The S&P 500 rallied 6% in the run-up to reporting season, but earnings misses from big industrial names like Rockwell Collins and Caterpillar Inc weighed on the Dow and S&P 500 on Friday.

Earlier in the week several big consumer names such as Whirlpool and Pepsi warned about sluggishness in developed markets, sending their shares sharply lower.

“The market still has a high degree of skepticism in it,” said the analyst, summing up the earnings season so far.

As per him, he will be closely following earnings from sector and economic bellwethers next week. Those include the package delivery company UPS, chipmaker Texas Instruments, and online retailer Amazon.

Around 30 percent of the S&P 500’s USD 12.3 trillion market caps have reported earnings so far. They have outpaced consensus estimates by 3.8%, and only 7% have missed estimates, according to data from Morgan Stanley.

But share prices of those that have fallen short of estimates have taken a severe beating. Given the fragile sentiment a few more prominent misses could derail the market.

“The market is punishing these misses more than it is rewarding beats, an asymmetry we have been calling for and we forecast will continue,” wrote Morgan Stanley’s US equity strategist in a note to clients.

“Our view remains that first half of the year numbers are achievable but the second half of the year looks challenged,” he said.

Next week is also a big week for economic data. Fears of a slowdown in the economy have been a large driver of market volatility over the last few months, and the coming releases will be parsed very closely.

They include early regional manufacturing data from Chicago and New York, a reading of consumer sentiment, and a first reading of US growth for the second quarter, expected to show the economy grew just 1.9% in the period.

Bob Doll, chief equity strategist at Blackrock, one of the world’s largest fund managers with around USD 1.6 trillion of equities under management, said this week that the US economy is at a critical juncture.

Doll points out that since 1960 every time year-on-year growth has fallen under 2% the US economy has gone into recession.

“Our bottom line view is that investors should maintain a reasonably constructive bias toward risk assets, but should also be prepared to scale back exposure if evidence of economic growth acceleration does not materialize.”

Always Yours — As Usual —- Saurabh Singh

Note: Compiled from published News and Views

Finance in History – A compilation by Saurabh — Part II

Finance in History: Labor Days

The Lowell Mills offer a lesson in the perils of focusing on labor costs at the expense of technology.

The building of Samuel Slater’s mill in Pawtucket, Rhode Island in 1793 marked a genuine paradigm shift: the transition of cloth-making from the home to the factory. A decade or so later, wealthy Bostonian Francis Cabot Lowell followed Slater’s example by surreptitiously copying English spinning and weaving technology. After visiting the cotton mills of Manchester, England and taking copious mental notes, he returned to Boston and raised $400,000 from wealthy friends and family to recreate what he had seen in Great Britain.

Thus began the American Industrial Revolution, and with it, another sort of shift. The new cloth-making business put both capital and labor to work on a scale that demanded not just new machines, but new management. Unfortunately, the accounting and financial technology of the day wasn’t up to the task. Financial managers of the time focused on the familiar — costs of labor and materials — but oddly enough, often ignored the potential challenges of maintenance, obsolescence and technological change that came with their new machines. Without a good understanding of the importance of depreciation and reserves, writes one historian, “The known expense of labor received more attention than the largely unknown problems of capital expense.”

Initially, however, a management focus on labor seemed a happy development. An idealist, Lowell did his utmost to improve upon the grim working conditions he had witnessed in England, where, in the early 1800s, English laborers had no minimum wage and generally worked twelve to fourteen hours a day, six days a week.

Lowell set about creating a worker’s utopia. He recruited girls and women, ages 15 to 35, from surrounding farming communities and promised their understandably wary families that they would live in chaperoned boardinghouses and have access to a church, a library, and healthy social activities. They would receive weekly wages, an unheard-of luxury for a farm girl, even if she did have to work six 10- to 12-hour days (almost as long as her English counterparts) to earn it.

Lowell’s five-story factories were a brilliant early construct of vertical manufacturing. Each mill had machines to clean the raw cotton, turn it into yarn and thread, weave it into cloth, and then print the finished cloth with colorful designs. The U.S. Congress helped matters considerably by imposing prohibitive tariffs on imported cloth, protecting the Massachusetts producers from their British competition.

If the water wheels powered these mills along the Merrimack, treasurers ran them. Sitting at the top of the largest early American companies, treasurers (not presidents) held shares in their organizations and conveyed the wishes of the shareholders in Boston to the agents who managed the mills in Lowell. Although flawed, the structure made sense. For agents, labor costs were paramount, while shareholders worried most about the cost of raw cotton and the price of cloth — the most important U.S. export of the early 19th century. Detailed accounting information provided essential communication between managers and investors separated by the miles between Boston and Lowell.

As early as 1826, Lowell’s utopia began to give way to competitive pressures. England, which bought much of America’s raw cotton, continued to turn it into cotton cloth at a ferocious pace. In response, the U.S. mills tried to increase productivity by speeding up production and productivity. A woman who had once tended one loom soon found herself tending four.

In 1834, the Lowell Mill’s directors tried another tack — cutting fixed labor costs. When management announced that the women would have their wages cut, the Lowell Mill girls, as they were called, went on strike, or in the language of the day, they “turned out.” After only a few days, the strike collapsed and their attempt to forestall the wage cut failed.

Two years later, management decided it had to cut costs again, though not its own, and again it targeted its women operatives. Pay was to be cut by $1 a week, and simultaneously, the amount the girls paid the company for their rooms in the boardinghouses was to increase. At the time, they were sleeping two to a bed and eight to a room. This time, over a thousand women turned out, striking for several weeks.

Throughout, the women’s efforts to improve their working conditions were undermined by the willingness of later immigrants, first Irish, then Italian, to take whatever wages were offered. Ultimately a six-year depression that began in 1837, brought on by overly easy bank credit and rampant real estate speculation, ended any attempt at labor organization. Jobs disappeared by the thousands, and what little power the fledgling labor movement had evaporated.

Of course, if savings on labor costs created intolerable conditions for mill workers, the demand for cheap cotton had bred an even more ghastly system. The raw material used in the mills came from the South, and was grown and picked by slaves. Two-thirds of the Southern cotton was sold to England. The other third was shipped north to New England. Many workers sympathized with the plight of slaves and supported abolitionism, but also suffered themselves when the Civil War broke out. Realizing that they would make more selling raw cotton than by making cloth, Lowell’s mill owners closed their mills and sold off the contents of their warehouses.

Many of the mills reopened after the war, but eventually most moved to the South themselves. Although most attribute this development to the lure of cheaper labor and proximity to raw materials, another factor played a part. As the management hierarchy of the mills suggests, investors focused on finance and labor. Responsibility for technology — specifically, the machines that spun, wove, and finished the cloth — was relegated to an outside superintendent. As Steven Lubar reports in “Managerial Structure and Technological Style: the Lowell Mills, 1821-1880,” shareholders challenged the need for skilled (and therefore costly) managers for these machines. Neither the management system nor the accounting systems (this was before the day of useful cost accounting) fostered an appreciation for the role technology played in operations. As a result, the Lowell mills were slow to repair and slower to invent more efficient machinery. In the end, operators found it simpler to start over in a new location than to repair old machinery.

Today, of course, even the southern mills are closed, with almost all textiles made overseas. But you can still visit the remarkable cotton mills of New England. They’re museums.

Finance in History: Blood and Treasurers

Those who guard the crown jewels need good internal controls.

Roget’s Thesaurus has made a bizarre word familiar to many college students who have found themselves at a loss for words. Compiled by Dr. Peter Mark Roget and published in 1852, Roget’s Thesaurus is a vast categorization of English words — and their friends, siblings, and relatives.

But how did he come up with a word like “thesaurus?” Simple. It’s the Latin word for “treasure.” Back in the 15th century in Scotland, treasurers were called “thesaurers,” and the royal thesaurer had the plum job of guarding the royal treasure trove.

To become thesaurer, a fellow clearly had to be known for his honesty, strength, courage, martial experience, suspicious mind, and self-restraint. One wonders how often the inventory of the royal thesaury (treasury) was conducted and whether the King and Queen were there to congratulate themselves on their fine thesaurus.

Besides the psychological comfort of knowing you have a pile of jewels in a vault nearby — and a trusted thesaurer to make sure they don’t wander off — the king’s jewels must have helped convince lenders of his creditworthiness. A bit like Fort Knox when the United States was on the gold standard.

The flaw in that idea, though, is that crown jewels are anything but a liquid asset. They represent, instead, the classic buy-and-hold strategy. The British gem collection is a 900-year long position in precious stones and metals.

Despite the manifold and elaborate precautions taken by the thesaurer, an audacious brigand almost got away with stealing Britain’s crown jewels in 1671. The perpetrator was an Irishman with the improbable name of Colonel Blood, and he did it by preying upon the Assistant Keeper of the Jewels, an elderly dupe named Talbot Edwards. Revenge certainly played a part in the bloody plot, seeing that the British had taken Blood’s land in Ireland.

Disguising himself as a humble man of the cloth, a parson, Blood made several preliminary visits to the Tower of London, intent on insinuating himself into the good graces of the assistant jewel keeper. Like so many visitors to London who were soon to follow, he took the Tower tour to give the crown jewels a good once-over. The jewels first went on display in the 1600s, and even back then the jewel keeper was allowed to make some money on the side acting as tour guide.

After several increasingly chummy visits, Blood went so far as to propose that his nephew marry Edwards’s daughter, a nice match considering he claimed the nephew was worth 300 pounds a year. The assistant jewel keeper and his wife thought this sounded like a bit of all right.

A few days later, Blood brought his “nephew” (actually his son), to meet Edwards, and they were accompanied by two of their friends. While supposedly waiting for Blood’s wife to join them, Blood persuaded the jewel keeper to show him, his nephew, and their two companions the jewels one more time.

Once Edwards unlocked the vault, they decided the time was especially opportune to bash him in the head with a mallet and stab him to death. Scooping up the jewels, Blood crushed the king’s crown, the better to hide it under his frock. Before they could make their pious exit, however, Edwards’s son stumbled in on them and raised a hue and cry. The plunderers were apprehended, probably by a cohort of the Tower guards, the Beefeaters. The lucky king reclaimed his jewels and dented crown.

Besides housing the crown jewels, the Tower of London was the home of many famous prisoners. Some, including Richard III’s two nephews, Anne Boleyn, Lady Jane Grey, Sir Thomas More, and Guy Fawkes, never left. Queen Elizabeth I, Sir Walter Raleigh, and Rudolph Hess, on the other hand, were only temporary residents.

Weirdly enough, Colonel Blood never joined their ranks. King Charles II met with him after his disastrously botched heist, gave him back his confiscated Irish estates, and is thought to have taken him into his service as a spy. The moral of the tale, apparently, is that the bold entrepreneur often ends up a whole lot better than the treasurer.

Finance in History: Bankruptcy

Chapter 11 may be tough, but it beats death, dismemberment, slavery, exile, prison, and other insolvency solutions.

“Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” (Charles Dickens, David Copperfield)

Misery indeed. Bankruptcy is no picnic even today, but through the ages it has been the source of much literal pain. The word “bankruptcy” comes from an Italian practice of the Middle Ages — “banca rotta” — which means “bench-breaking.” The term describes the punishment administered to businesses that failed: local fiscal authorities came to the market and smashed the bankrupt business’s table.

Through the ages, people or businesses have gone bankrupt in two ways, either running out of money and thus being unable to repay debts, or being forced to close as a result of fiscal mismanagement. Either way, bankruptcy has often carried a punitive dimension.

Death, dismemberment, slavery (for the debtor and family members), indentured servitude, exile, and debtors’ prison have all been used as punishment. Dickens did not use the word “misery” lightly.

And yet the first known effort to regulate bankruptcy was surprisingly modern in its approach. Appearing in the Code of Hammurabi, which dates to Babylon around the 18th century B.C., the law stipulated that a bankrupt’s possessions were to be divided among creditors in proportion to the amount of money each was owed.

Alas, those would soon come to be seen as the good old days, because by 621 B.C., when Draco ruled Athens, the punishment meted out to “deadbeats” (literally, one who is “completely exhausted”) was death. Or they and their families might be sold into slavery, with the proceeds going to creditors. If that strikes you as Draconian, well, consider the source.

A generation later the Athenian statesman and poet Solon decided this was perhaps a bit too severe. Under his legal reforms the bankrupt and his family had to give up their citizenship but not their freedom — or their lives.

The Romans, however, soon turned back the sundial. Under the Twelve Tables of Rome, promulgated in 451 B.C., maiming became the appropriate sanction. Instead of getting his money back, the creditor was given a pound of flesh — or perhaps more, depending on how much was owed. Debtors were cut up and their parts distributed among creditors on a pro rata basis. (The Roman writer Petronius would later satirize this practice in The Satyricon, a portion of which describes a plutocrat whose will decrees that any friend, parasite, or hanger-on who wants to collect his inheritance must eat a piece of the dead man’s corpse.)

Fast-forward to Renaissance England, where Henry III established the practice of imprisoning debtors in the 13th century. By the time of Henry VIII, in the mid-16th century, the first bankruptcy statute (as opposed to insolvency law) was enacted. It applied only to merchants and traders, since they were considered the only people who had a legitimate reason to borrow money, and provided a way for their debts to be addressed (sans death, torture, or even prison) in the event that a storm at sea sank their boats and thus their fortunes, or similar circumstances beyond their control led to bankruptcy.

That statute did not get the common man off the hook, however. And once someone landed in debtors’ prison it was often nearly impossible to get out. Family or friends might come forward to pay the prisoner’s debts; if not, debtors had to rot, presumably coming to appreciate, as they did, the error of their ways.

The absurdity of debtor’s prison, of course, is that a bankrupt’s ability to repay his creditor from prison is precisely nil. That may be why, in some countries, creditors were required to pay the costs of incarcerating their debtors. The open-ended prison sentence could be cut short, therefore, should the creditor tire of throwing good money after bad.

If you were lucky you might end up a “peon,” a term that originally described a bankrupt person condemned to work without pay for a creditor until the debt was paid off.

While bankruptcy was generally a bigger problem for the debtor than for the creditor, that wasn’t true in every case. In the 14th century, Italian bankers unhappily discovered that England’s Edward III was an unreliable credit risk, but couldn’t do much about it. And in the 18th century, English goldsmiths, the principal bankers of the era, slid into bankruptcy after the Stuart kings found it inconvenient to pay back their loans. Worse, if the bankers were deemed to be charging too much interest their fingers would be burned.

Today bankruptcy still entails pain, if only in the form of many, many meetings with lawyers. And Dickens’s lesson still rings true: having slightly more than you need is infinitely better than having even slightly less. Unless, of course, your credit card offers rewards points and a low introductory rate.

Still to Cont……………………………………………………………………

Always Yours— as Usual———–Saurabh Singh


A CHILL DOWN THE SPINE & RESULTANT SHUDDERING CADENCE IN VOICE OF UNITED STATES ECONOMY: IS IT RECESSION KNOCKING AT THE DOORS…—–WELCOME TO ACT TWO…

A Chill down the Spine & resultant Shuddering Cadence in Voice of United States Economy: Is it recession knocking at the doors…

Recap of Act- 1 of the play……..just for linking the thread…..of continuum…to….Act-2 ….
Welcoming the audience to the play titled “Is it a spiral of recession knocking at the doors…”

The stage….United States of America….. & lead actor…..United States Economy…..it’s year 2007…midway…..

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EURO & TOMORROW

A small financial earthquake with Greece as its epicenter has suddenly exposed the vulnerability of EURO [€] which till now on all the positive sentiments and emotions was growing from strength to strength. The experts started murmuring as if ‘€’ was heading to replace US $ as a world currency. To utter surprise, these murmurings were not ensuing any sudden discovery of some hidden attribute of ‘€’ that made it invincible. Comprehending the reasons leading to such developments was not less than any enigma for people, save those experts. In absence of any rationale, the rationality was even in fix. Now it was turning extremely important and urgent to search the reasons behind it. Any rational individual can never be in rest having landed in a state of permanent disorientation.

Swapping the Position but Who? US Dollar with Euro or Euro with US Dollar

Swapping the Position -- Story of US Dollar and Euro

But then curiosity has its own merits. So if nothing positive was happening in euro zone and particularly with ‘€’ itself, then the next probable reason could be hunted in happening of something negative at a greater rate with any of its counterparts.


Search on these lines started yielding positive developments very soon. Probably it had much do with the sense of insecurity created as a consequence of turbulence, aftershocks created due to grounding of giants of US economy and resultant acceleration of volatility in market value of US Dollar.


The Greece debacle had proved the inability of ‘€’ zone in managing with, what is known as Sovereign Debt Crisis.


The symptoms hidden under the curtain and therefore out of site were of much more grave nature than those of U S economy. Any experienced hands could have easily felt that the Average – Debt – to- GDP ratio that was exhibited by Euro Zone to feel comfortable was not a homogenous outcome.


It was sheltering a great difference in the way of lack of any mechanism, when it comes to deal with a situation termed sovereign debt crisis. The feel of it alone was capable enough to cause a crack in smooth warm smile.


U S Dollar in Transition

U S Dollar in Transition

Here I stop myself to let you feel the second dip of recession. The actors and stage both have changed probably for the time being.

So, to remind you,

It’s being once again repeated that the

stage now happens to be Europe [€ Zone],

& the participating actors would be economies of nations forming € Zone.

We will meet once again after the end of this act to see how the story ends or is it unfolding of just another act.


So you are welcome to……the year…2010….spring…..

……………Always Yours……….As Usual……………….Saurabh Singh

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