An interesting question has been posed, mainly by pundits concerned with peak energy but also by economist and fund managers -- whether the economy will shrink dramatically if the economy does not offer the promise of growth. This subject or question can be rephrased in several ways, such as "if the economy doesn't grow, will it collapse?" or, as Bill Gross of PIMCO theorized in his August 2010 Investment Outlook "...Not only growth but capitalism itself depends on a growing population," as, Bill Gross states, that a growing population implies steady growth in consumer demand.
However, most articles on this topic state capitalism will collapse without higher demand in the future, without going into detail as to why. Why, in more depth, will shrinking demand -- and also importantly lower expectations of demand -- lead to dramatically lower GDP numbers? This is to say, why can't capitalism exist in a steady state (no growth)?
John Maynard Keynes would answer this question based on the relation of investment to consumption demand as components of GDP, as explained in Chapters 5 and 6 of his General Theory of Employment, Interest and Money. The largest component of GDP is consumer demand. In the US consumer demand ranges from a high 60% of total GDP to low 70%s of GDP. Investment ranges around 15% of GDP (the other parts of GDP according to GDP = C+ I + G +(E-I) are net exports and governmental spending, which total in the US approximately 15% of GDP).
The investment component of GDP is related to the consumption measure, in so far that businesses will not invest in new capital and equipment unless they expect a steadily increasing market (demand) for their products and services.
So, if the businesses expect future demand to be lower, they will dramatically cut back on investment - why would a business invest in more capacity if it doesn't expect to have higher sales? This means that the 15% of GDP represented by investment will drop significantly faster than the 70% of GDP represented by consumption. John Maynard Keynes referred to the attitude of businesses to invest famously as "animal spirits" -- this phrase was recently picked up by George Acklof and Robert Shiller in their book with the same title, published in 2009. (Keynes exact discussion of animal spirits argued for a non-rational contemplation of future investment, verses other schools of economics that argued that investment was rational, but for this purposes of this post, we will not go into detail on this, the discussion however is important for implications on the future equilibrium of aggregate demand and aggregate supply in terms of GDP)(and actually is a bit beyond the understanding of the author :).
A Malthusian version, where peak energy or peak food results in high prices and therefore lower consumption, would also impact future investment, and also carry a re-enforcing cycle between consumer demand and investment (however the details of the exact transmission mechanism from higher prices to investment could be different than expectations of lower demand from for example higher saving rates, which is not analyzed here, in so far peak energy would be a production issue, not at first a demand issue).
The relation between investment and consumer demand can be explained as a self-reinforcing cycle. We can see many examples of re-enforcing cycles in nature, such as theoretically higher temperatures, which melt snow caps, which then do not reflect as much solar radiation, which then leads to higher temperatures, which further melts snow caps etc (this is theoretically proposed by scientists such as the late Steven Schneider of Stanford University). In a GDP measure, lower consumption could reinforce a lower investment, which in turn could reinforce lower consumption, leading to a downward cycle which means significantly lower GDP at the final equilibrium.
The idea here is relevant in so far that sustained declines to consumer demand, from a declining population (in Bill Gross's concerns, outlined above) to lower levels of consumer credit, to deleveraging of consumer debt, to average declines in expenditures from declining capital gains from property, can all lead to significantly lower GDP than at first calculated based on reduction in demand, through the relationship of demand with investment.
The analysis appears to be supportive of emerging economies such as China and Brazil (at first glance) in which businesses are more confident of future demand, in terms of a positive, self-reinforcing cycle between consumer demand and investment by business. (both Petrobras and Vale of Brazil have announced record breaking investment budgets for 2011 and beyond, for example at over $US70Bn and $US20Bn, respectively).
However, the analysis does not initially (in the author's opinion) support slower growth economies that are deleveraging, such as many EU countries, and the US. Businesses in the US and certain countries in the EU may not be as confident of future demand increases, due to deleveraging of consumers in these countries, and other factors.
As a final note, this relation of demand and investment explains some rational of John Maynard Keynes insistence on governmental, stimulus spending, which would find its way, through Keynes' multiplier (which is incidentally currently being debated in the economics profession, in terms of its size and impact on the overall economy), which, in turn, would support demand and then support investment, as businesses would be more likely to invest in an expanding economy.
Showing posts with label Stock Market Notes. Show all posts
Showing posts with label Stock Market Notes. Show all posts
Wednesday, 19 October 2011
Frontier Gold Is the Andewa Deposit Legit
Frontier Resources (FNT.AX) has move from sub-..10 to mid .30's in a week -- the main reason is the announcement of exploratory drilling information at the Andewa prospect on the island of New Britain in Papua New Guinea.
Frontier has 7 deposits in Papua New Guinea - the main source of value is Andewa in the Island of New Britain- the firm is implying that there is gold deposits between 14 to 66 g/ton in this region which stretches for about 7 km, at a good seam -- in comparison Barrick Gold, the world's largest gold producer averages about 2 g/ton, so this would be 7-33x more concentrated.
Actually Frontier also has 2 projects in Tasmania, but again the best potential is the Andewa project in PNG. (actually the Bulago deposit is also promising, see below)
I sort of don't believe the numbers. I was searching through the world's richest gold mines and all have gold per ton numbers below 3 g/ton see:http://www.minefund.com/mineral-deposits/richest-deposits.php
This would be by far the most rich gold find in the database --well so far I've searched Barrick's deposits (in their annual report, and the Polyrus Gold (Russia) deposit which is #2 on the list and this averages 1.5 g./ton.
The newest release has some geological data but not nearly enough to establish reserve numbers - so far this is all in the beginning stages.
The firm is really small, having to raise capital even for exploratory drilling. (they had to raise $A1.1M to survey the region -- Frontier will certainly have to raise capital to develop the project. Actually the deposit looks like it is close to the coast, so could be served by water transport, see a map of the projects in the 2010 Annual Report, p. 3: http://www.frontierresources.com.au/
Previously in 3/10 Frontier announced another 67 g/ton deposit, this time on the main island of PNG, in the Bulago deposit, but this didn't generate much excitement -- I don't know why all of a sudden the latest report has really made the stock go off, but the previous ones did not. (more word of mouth, or a better geological survey, actually I don't know).
Anyway I'll be researching more and will try to find out if the find in legit.
Frontier has 7 deposits in Papua New Guinea - the main source of value is Andewa in the Island of New Britain- the firm is implying that there is gold deposits between 14 to 66 g/ton in this region which stretches for about 7 km, at a good seam -- in comparison Barrick Gold, the world's largest gold producer averages about 2 g/ton, so this would be 7-33x more concentrated.
Actually Frontier also has 2 projects in Tasmania, but again the best potential is the Andewa project in PNG. (actually the Bulago deposit is also promising, see below)
I sort of don't believe the numbers. I was searching through the world's richest gold mines and all have gold per ton numbers below 3 g/ton see:http://www.minefund.com/mineral-deposits/richest-deposits.php
This would be by far the most rich gold find in the database --well so far I've searched Barrick's deposits (in their annual report, and the Polyrus Gold (Russia) deposit which is #2 on the list and this averages 1.5 g./ton.
The newest release has some geological data but not nearly enough to establish reserve numbers - so far this is all in the beginning stages.
The firm is really small, having to raise capital even for exploratory drilling. (they had to raise $A1.1M to survey the region -- Frontier will certainly have to raise capital to develop the project. Actually the deposit looks like it is close to the coast, so could be served by water transport, see a map of the projects in the 2010 Annual Report, p. 3: http://www.frontierresources.com.au/
Previously in 3/10 Frontier announced another 67 g/ton deposit, this time on the main island of PNG, in the Bulago deposit, but this didn't generate much excitement -- I don't know why all of a sudden the latest report has really made the stock go off, but the previous ones did not. (more word of mouth, or a better geological survey, actually I don't know).
Anyway I'll be researching more and will try to find out if the find in legit.
High Reserves but Some Operating Problems
I did some more research on Polyus and they had some mixed operating performance in 2010 -- their biggest mine, currently Olimpiada showed a decrease in production of almost 30%, from 839,000 ounces in 2008 to 584,000 ounces in 2009 -- apparently the problem is that two other mines are close by, and Polyus is allowing ore from the other two mines to be processed at the processing center at Olimpiada, which caused problems with the exaction of ore. The solution appears to build a separate processing center (which can crush the ore, and exact the gold by a bath of high-grade acids and chemical solutions) but it doesn´t appear that the firm has this in the works.
Another concern was that the production was up 10% y/y to 1.39M ou (approx) but the profit didn´t increase, mainly due to higher costs -- I´m not sure I did note that the mines are spread around the country in mainly three locations, which are extremely far away from each other (well over 1000 miles), so the co isn´t getting any syngeries from the operations.
Polyus is having serious problems with its acquisition of KazahkGold, and is going to divest this -- about 2 years after acquiring it -- the owners of Polyus and the ruling family (Nazerbyev) of Kazakhstan really got into an argument. On the negative side, KazahkGold was the one asset so far that is significantly increasing production
Current forecast is for 1.5M ou, which one analyst takes to mean that the problems at Olimpiada will continue. The capital expenditures appear to be (according to UBS) well under maintance levels -- strangley, the CEO (who is also the owner to the New York Nets) wants to sell the firm, not develop it.
The basic idea is to find Gold miners which are the most undervalued on reserves. Below is a useful chart by UBS that shows potential undervaluation by reserves, since Gold is not really concentrated in one geographical area, there are many firms and it does appear that Polyus is undervalued, although perhaps not by a whole lot (in the chart below, Anglo Gold, Harmony and Gold Fields appear to be the cheapest on an EV/Reserves and Resources). I´ll look into these -- (although I´m not sure how these miners stack up against individual gold mines, I did like the fact that Polyus had one very large mine in the works -- will research).
Another concern was that the production was up 10% y/y to 1.39M ou (approx) but the profit didn´t increase, mainly due to higher costs -- I´m not sure I did note that the mines are spread around the country in mainly three locations, which are extremely far away from each other (well over 1000 miles), so the co isn´t getting any syngeries from the operations.
Polyus is having serious problems with its acquisition of KazahkGold, and is going to divest this -- about 2 years after acquiring it -- the owners of Polyus and the ruling family (Nazerbyev) of Kazakhstan really got into an argument. On the negative side, KazahkGold was the one asset so far that is significantly increasing production
Current forecast is for 1.5M ou, which one analyst takes to mean that the problems at Olimpiada will continue. The capital expenditures appear to be (according to UBS) well under maintance levels -- strangley, the CEO (who is also the owner to the New York Nets) wants to sell the firm, not develop it.
The basic idea is to find Gold miners which are the most undervalued on reserves. Below is a useful chart by UBS that shows potential undervaluation by reserves, since Gold is not really concentrated in one geographical area, there are many firms and it does appear that Polyus is undervalued, although perhaps not by a whole lot (in the chart below, Anglo Gold, Harmony and Gold Fields appear to be the cheapest on an EV/Reserves and Resources). I´ll look into these -- (although I´m not sure how these miners stack up against individual gold mines, I did like the fact that Polyus had one very large mine in the works -- will research).
Imperial Metals, Duluth Metals and Amerigo Resources
In Canada mining companies are required to publish their best estimates of the net present value of their mines. In the US, only oil companies are required to do this. The value of a mining company should equal the future net discounted profits from mining operations, so this is really a great resource.
So I've been spending some serious time going through the filings. I found 3 very interesting firms. First:
Imperial Metals:
Imperial Metals is listed in Canada ticker: III.TO but also has a US OTC listing. III mines copper and gold -- have two main mines now that generate around $C40M at $3.40 copper and $1000 gold -- stock is at a market value of $781M -- the net present value of a new project, Red Chris, is $C2.5Bn, at $3 copper (current copper is at $4.10 per pound) and $1000 gold (currently gold is at $1500 ou). Revenues will be about 70-30% copper gold. Red Chris is starting up at Dec 2013.
Present value of the current projects are around the current market value, so once the market anticipates the Red Chris, the market value should appreciate to around $C2.5Bn. This is a gain of 210% by the end of 2013, so in 2 and a half years (we'll see if we get this, but do expect Imperial to sell close to net present value). I've checked many other mining firms and they sell close to the market value of the mines. This one is unusual since they don't highlight the Red Chris project very much in their investor presentations, I had to dig to find it.
The Red Chris project in British Columbia is really large -- has about 2 M tons of copper at a cutoff of 0.3% grade and 5.5M ou gold at a cut off rate of 0.55 g ton. To put this in perspective, the largest copper co in the world is Codelco (Chile) which has 77 M tons of copper (albeit at a cut-off grade of 1%), and Barrick is the world's largest gold producer, with 130 M ou gold -- Red Chris is smaller, but still isn't too small.
Environmental issues have been settled at the supreme court of British Columbia so the mine is moving forward with high probability.
Duluth Metals:
Duluth (DM.TO) has a 50% concession of the Nokomis reserve in Northern Minnesota, which is 48% Nickel, 36% copper and approx 8% palladium. The future value of this reserve is $800M (for Duluth's share) albeit starting in 2017, while Duluth's current market value is $269M, so a gain of 200% by 2017. The present value of the income is calculated based on $7 nickel (currently nickel is at $11) and $1.75 copper (Copper is currently $4.10) -- so really the net present value should be significantly higher.
Duluth has a major mining partner, Antofagasta, so the project is likely going through. The main issue is the 6 year wait to production, but note Duluth has a net cash position of $26M so won't go bankrupt and Antofagasta will pick up the majority of the development costs. In anticipation of the production, the share price should rise -- or the co can sell itself.
Last firm: Amerigo Resources:
Interesting company, Amerigo (ARG.TO) treats the tailings (the waste rock and sludge) from Codelco's largest mine, El Teniente -- which is the world's largest underground copper mine and also a major producer of Molybdenum. Interestingly, the tailings have an average grade of 0.125% copper -- probably due to the fact that the El Teniente mine has very high grade reserves, in excess of 2.0% copper. Many new mines are coming online with around 0.3% copper, since new high grade copper deposits are very, very rare -- Amerigo has all the infrastructure set up and electricity etc, so margins are ok.
Amerigo produces a lot of copper, in excess of 1M pounds per year -- also produces a lot of Molybdenum by treating the tailings (I don't know the split between copper and Moly revenues -- need to research). They have forecast production of over 1 M tons of copper to 2021, which is a lot.
The co was selling at around $C2-$C3 before the financial crisis, now it's at $C1.20 , market cap of $C200M -- back in 2007 they earned $30M, in 2007 they earned $40M (but with a $8M one time gain). They paid dividends of $7M in 2006 and $11.2M in 2007 so should have record earnings this year, as copper prices are at an all time high.
I found a research report here: http://www.baystreet.ca/articles/research_reports/fundamental_research/Amerigo041511.pdf Fair value is estimated at $2.00 per share, approximately, according to this report.
NPV is not given in the technical reports since the mine isn't fully owned by them but projections are given, production is expected to remain steady to at least 2025.
One issue, is that they have the contract with Codelco until 2021. They have renewed it twice in the past so shouldn't be a problem but there is still risk.
So I've been spending some serious time going through the filings. I found 3 very interesting firms. First:
Imperial Metals:
Imperial Metals is listed in Canada ticker: III.TO but also has a US OTC listing. III mines copper and gold -- have two main mines now that generate around $C40M at $3.40 copper and $1000 gold -- stock is at a market value of $781M -- the net present value of a new project, Red Chris, is $C2.5Bn, at $3 copper (current copper is at $4.10 per pound) and $1000 gold (currently gold is at $1500 ou). Revenues will be about 70-30% copper gold. Red Chris is starting up at Dec 2013.
Present value of the current projects are around the current market value, so once the market anticipates the Red Chris, the market value should appreciate to around $C2.5Bn. This is a gain of 210% by the end of 2013, so in 2 and a half years (we'll see if we get this, but do expect Imperial to sell close to net present value). I've checked many other mining firms and they sell close to the market value of the mines. This one is unusual since they don't highlight the Red Chris project very much in their investor presentations, I had to dig to find it.
The Red Chris project in British Columbia is really large -- has about 2 M tons of copper at a cutoff of 0.3% grade and 5.5M ou gold at a cut off rate of 0.55 g ton. To put this in perspective, the largest copper co in the world is Codelco (Chile) which has 77 M tons of copper (albeit at a cut-off grade of 1%), and Barrick is the world's largest gold producer, with 130 M ou gold -- Red Chris is smaller, but still isn't too small.
Environmental issues have been settled at the supreme court of British Columbia so the mine is moving forward with high probability.
Duluth Metals:
Duluth (DM.TO) has a 50% concession of the Nokomis reserve in Northern Minnesota, which is 48% Nickel, 36% copper and approx 8% palladium. The future value of this reserve is $800M (for Duluth's share) albeit starting in 2017, while Duluth's current market value is $269M, so a gain of 200% by 2017. The present value of the income is calculated based on $7 nickel (currently nickel is at $11) and $1.75 copper (Copper is currently $4.10) -- so really the net present value should be significantly higher.
Duluth has a major mining partner, Antofagasta, so the project is likely going through. The main issue is the 6 year wait to production, but note Duluth has a net cash position of $26M so won't go bankrupt and Antofagasta will pick up the majority of the development costs. In anticipation of the production, the share price should rise -- or the co can sell itself.
Last firm: Amerigo Resources:
Interesting company, Amerigo (ARG.TO) treats the tailings (the waste rock and sludge) from Codelco's largest mine, El Teniente -- which is the world's largest underground copper mine and also a major producer of Molybdenum. Interestingly, the tailings have an average grade of 0.125% copper -- probably due to the fact that the El Teniente mine has very high grade reserves, in excess of 2.0% copper. Many new mines are coming online with around 0.3% copper, since new high grade copper deposits are very, very rare -- Amerigo has all the infrastructure set up and electricity etc, so margins are ok.
Amerigo produces a lot of copper, in excess of 1M pounds per year -- also produces a lot of Molybdenum by treating the tailings (I don't know the split between copper and Moly revenues -- need to research). They have forecast production of over 1 M tons of copper to 2021, which is a lot.
The co was selling at around $C2-$C3 before the financial crisis, now it's at $C1.20 , market cap of $C200M -- back in 2007 they earned $30M, in 2007 they earned $40M (but with a $8M one time gain). They paid dividends of $7M in 2006 and $11.2M in 2007 so should have record earnings this year, as copper prices are at an all time high.
I found a research report here: http://www.baystreet.ca/articles/research_reports/fundamental_research/Amerigo041511.pdf Fair value is estimated at $2.00 per share, approximately, according to this report.
NPV is not given in the technical reports since the mine isn't fully owned by them but projections are given, production is expected to remain steady to at least 2025.
One issue, is that they have the contract with Codelco until 2021. They have renewed it twice in the past so shouldn't be a problem but there is still risk.
What Will Happen When Greece Defaults?
Greece will likely not be able to pay back the full value of its debt, due to the fact that Greek debt to GDP is 140%. Many market commentators are stating that a Greece default will not cause a significant move in the markets ("Greece is only 3% of EU GDP" or "A full meltdown is very unlikely but the market must price in this very unlikely event")
These commentaries do not perform a cause and effect analysis -- meaning, what would occur in the case of a Greek default, if one takes into account the impact on banking institutions, and national economic activity, in a step by step, sequential analysis? Such an analysis shows that significant problems occur with a Greek default for the EU and world economy and markets.
If Greece defaults, then the value of its bonds will drop by 50-80%. Note that the average sovereign default since 1980 according to Moody's has seen net losses of between 50-60%, but Greece is has significantly more debt than the average default, so losses would likely be higher.
Greek Banks would be insolvent:
This default in turn would cause the major banks of Greece (which in turn hold Greek sovereign debt) to go bankrupt. As the Greek government cannot guarantee the deposits of the Greek banks, the deposits of these institutions would be wiped out.
Significant Declines in Greek GDP:
What would happen to Greece's gdp? Many large banks go bankrupt in Russia in 1998 (although not in Argentina to the same extent in 2002-2003, as Argentina limited the amount of funds deposit holders could withdraw) as Russia defaulted on its debt in that year. Russia's GDP fell approximately 50% from 1992 to 1996, then recovered somewhat from 1996 to 1998 but then declined a further 15% fro 1998 to 2000. Argentina's gdp declined approximately 15% from 2002 to 2004. Both countries began to recover when their currency declined significantly and the export market (as both Russia and Argentina are major commodity exporters) picked up.
Greece's GDP would likely fall more than 15%. The world economy is more fragile currently, so a recovery in two years may not occur, through an export led recovery, so the slump would likely last for several years. The issue of leaving the Euro would have to be addressed -- instituting a new currency in a very difficult economic environment would be problematic.
Other Southern EU Banks at Risk:
Deposits in other southern European Union countries would be at risk, in so far that account holders in Italy, Portugal, Spain and Ireland would see Greek banks default, then attempt to transfer their deposits to safe havens, whether northern European banks. Italian, Portuguese, Irish and Spanish banks would be at risk from direct losses from holdings of Greek bonds (total outstanding Greek debt is over $400Bn, held mainly by European banks). As the southern EU governments are already highly levered, it is not likely that they would have the ability to raise funds to bank stop losses in their banking systems.
Southern EU Countries GDP at risk of significant decline:
Southern EU banking insolvency would be a significant risk, which could drive declines in Southern EU gdp.
French and German banks with exposure to Greek debt would be at risk:
Deutsche Bank and the major French banks have significant exposure to Greek debt, which would mean significant losses at these banks, and likely a need for government assistance. As both France and Germany have debt to GDP ratios in the 80% range, further payments to their banks would likely move their respective debt to GDP levels to close to 90%, which is the cut-off range (according to Harvard economics professors Kenneth Rogoff and Carmen Reinhart) for markets funding debt to GDP without significant issues (although this 90% cut off grade has received some criticism as being too arbitrary, however 90% likely does not leave too much room for further debt financed growth or assistance).
Certain Hedge funds will likely go insolvent and will likely have to liquidate, driving stock values down:
In the October 2008 crash, according to the book "The Quants" many large quantitative and macro hedge funds which were levered had to panic sell in order to meet investor redemptions. With the unprecedented volatility in the markets from a Greek debt, some larger hedge funds would have to liquidate, driving asset prices down.
Mutual Funds would see higher redemptions, causing selling to drive the market down:
Most mutual funds have been bullish through this crisis and have encouraged their investors to hold through the long term. Mutual funds had record low levels of cash in July and many have seen significant declines in equity values since that time. Further the average mutual fund investor is likely an aging baby boomer who is nearing retirement. All these factors point to higher redemptions.
Pension Fund Values would decline, leading to unrest:
Pension funds as a whole are more heavily invested in equities, due to the fact that they can assume a higher rate of return on equities (more in the range of 8-9%) verses bonds (in the range of 4-6%). The projected value of the pension plan is highly dependent on the projected return on plan assets. With panicked selling, pension plans would see the value of their assets decline significantly.
Safe Haven Assets would increase in value:
Safe haven assets are likely the US dollar, the Swiss Franc, potentially precious metals (however precious metals are held by hedge funds, which would likely liquidate in the short term).
Government Bailouts of Banking Institutions would be even more unpopular with the public, worsening the banking crisis.
The public of many countries is already upset with the banking bailouts of 2008 and 2009, and would not be in any mood for continued bailouts. This would complicate efforts to shore up bank balance sheets, making the banking crisis worse than otherwise would be. As banking crises have a "cumulative" character - the farther they are allowed to fester, the more the public panics and withdraws funds, potentially causing and worsening a bank run -- the unpopularity of bailouts can only worsen events for the banking system.
Recovery for Southern Europe would be more protracted, due to a weaker than normal world economy and therefore export market:
Both the United States and China are currently slowing -- China is attempting (successfully) to slow housing and infrastructure spending, however this means that commodity demand from China is slowing. This, in turn, impacts the major regions more dependent on commodity export: Latin America, the Middle East, Russia, Australia. This means that the EU will have a more difficult time utilizing exports to dig itself out of crisis.
What can be done to avoid a Greek Default?
As this analysis shows that a Greek default would be extremely problematic for the EU and world economy as well as stock markets, the question is, what can be done to avoid a Greek Default?
Either the EU, or another institution such as the IMF, should come in and guarantee Greek debt so that banks are assured of receiving 90%+ of their full value of their bonds. If the full value of Greek bonds are more or less assured, the chain of events described above will not occur.
However, likely the sovereign debt of the other Southern EU states, Italy, Spain, Portugal as well as Ireland needs to be backstopped as well in order to stop potential defaults of these countries, which in turn would cause banking crises moving to economic to market crises.
What would be the amount of funds needed to guarantee Greek and Southern EU debt?
Something in the range of 50-80% of Greek Debt would be needed to fully backstop this debt, meaning funding in the range of $200Bn to $360Bn. This is likely at the highest range for France and Germany combined to fund. Germany's debt to GDP is 80%, and German GDP is $3.33 Trillion, meaning that Germany can afford $333Bn before it moves to 90% debt to GDP (the danger zone, according to Rogoff and Reinhart). France's debt to GDP is also approximately 80%, and France's GDP is approximately $2.65 Trillion, meaning France could contribute $265Bn before reaching 90% debt to gdp.
Both France and Germany would therefore be seriously strained to provide a backstop to Greek debt, and the UK (also at 80% debt to GDP) is not in the Eurozone, and would likely significantly resist paying for Greek debt. Other countries with relatively low debt to gdp such as Finland (48% debt to GDP) only have smaller GDP levels (Finland's GDP is approximately $222Bn). Of course, Southern EU countries such as Spain and Italy cannot provide funding to Greece, in so far that their debt to GDP levels are already too high and the markets would likely not support these countries issuing more debt.
The problem is that not only Greek debt needs to be guaranteed, but also Italy, Spanish, Portuguese and Irish debt needs to be guaranteed. Italy currently has a debt to gdp of 119% with total debt outstanding in the $2.5Trillion range. In order to get this debt down to a manageable 80%, total funds would be needed of approximately $700Bn. All in all, the total backstop for Europe to guarantee all its "in danger" countries would likely be over $1Trillion.
Overall, it appears unlikely that France and Germany or a combination of other European countries can backstop $1trillion.
Can the IMF provide funding to Europe?
The current lending capacity of the IMF is approximately $400Bn -- so the lending capacity of the IMF would have to be increased. To get to $1Trillion, the United States (which contributes 17% to the overall IMF funding capacity) would have to increase $106Bn, which is possible, but politically unlikely. Other countries, such as Japan (which contributes 6% to the IMF budget) would have a difficult time raising funds to contribute to a vastly increased IMF lending capacity. Overall it appears the IMF will have a very difficult time guaranteeing EU debt alone.
Can a combination of IMF and the EU Guarantee Southern EU Soveriegn Debt?
This is possible, but would require the IMF taking the lead, as it is difficult to see how the northern EU states and France could guarantee more than $400Bn, while over $1 Trillion would likely be needed. An increased funding capacity to $500-$700Bn for the IMF is more possible -- meaning additional funding by $200 to $300Bn. This would require close cooperation between the IMF and the EU, which appears very difficult currently, politically. But financially, it is possible although difficult.
Conclusion: Greek Default and Southern EU Sovereign Defaults Very Possible -- if not likely -- without joint EU -IMF Bailouts
Currently as of the beginning of October, it does not look as if there is the political will to get the EU and IMF coordinating on a combined, increased bailout package, which would require significant additional funding (read: additional taxes) for the EU from France and Germany and increased funding for the IMF (read additional taxes for IMF member countries). The likelihood of this occurring is very difficult to say, but cannot be considered "the most likely outcome" meaning that the probability is higher for less than a needed guarantee for southern EU debt materializing in the future.
These commentaries do not perform a cause and effect analysis -- meaning, what would occur in the case of a Greek default, if one takes into account the impact on banking institutions, and national economic activity, in a step by step, sequential analysis? Such an analysis shows that significant problems occur with a Greek default for the EU and world economy and markets.
If Greece defaults, then the value of its bonds will drop by 50-80%. Note that the average sovereign default since 1980 according to Moody's has seen net losses of between 50-60%, but Greece is has significantly more debt than the average default, so losses would likely be higher.
Greek Banks would be insolvent:
This default in turn would cause the major banks of Greece (which in turn hold Greek sovereign debt) to go bankrupt. As the Greek government cannot guarantee the deposits of the Greek banks, the deposits of these institutions would be wiped out.
Significant Declines in Greek GDP:
What would happen to Greece's gdp? Many large banks go bankrupt in Russia in 1998 (although not in Argentina to the same extent in 2002-2003, as Argentina limited the amount of funds deposit holders could withdraw) as Russia defaulted on its debt in that year. Russia's GDP fell approximately 50% from 1992 to 1996, then recovered somewhat from 1996 to 1998 but then declined a further 15% fro 1998 to 2000. Argentina's gdp declined approximately 15% from 2002 to 2004. Both countries began to recover when their currency declined significantly and the export market (as both Russia and Argentina are major commodity exporters) picked up.
Greece's GDP would likely fall more than 15%. The world economy is more fragile currently, so a recovery in two years may not occur, through an export led recovery, so the slump would likely last for several years. The issue of leaving the Euro would have to be addressed -- instituting a new currency in a very difficult economic environment would be problematic.
Other Southern EU Banks at Risk:
Deposits in other southern European Union countries would be at risk, in so far that account holders in Italy, Portugal, Spain and Ireland would see Greek banks default, then attempt to transfer their deposits to safe havens, whether northern European banks. Italian, Portuguese, Irish and Spanish banks would be at risk from direct losses from holdings of Greek bonds (total outstanding Greek debt is over $400Bn, held mainly by European banks). As the southern EU governments are already highly levered, it is not likely that they would have the ability to raise funds to bank stop losses in their banking systems.
Southern EU Countries GDP at risk of significant decline:
Southern EU banking insolvency would be a significant risk, which could drive declines in Southern EU gdp.
French and German banks with exposure to Greek debt would be at risk:
Deutsche Bank and the major French banks have significant exposure to Greek debt, which would mean significant losses at these banks, and likely a need for government assistance. As both France and Germany have debt to GDP ratios in the 80% range, further payments to their banks would likely move their respective debt to GDP levels to close to 90%, which is the cut-off range (according to Harvard economics professors Kenneth Rogoff and Carmen Reinhart) for markets funding debt to GDP without significant issues (although this 90% cut off grade has received some criticism as being too arbitrary, however 90% likely does not leave too much room for further debt financed growth or assistance).
Certain Hedge funds will likely go insolvent and will likely have to liquidate, driving stock values down:
In the October 2008 crash, according to the book "The Quants" many large quantitative and macro hedge funds which were levered had to panic sell in order to meet investor redemptions. With the unprecedented volatility in the markets from a Greek debt, some larger hedge funds would have to liquidate, driving asset prices down.
Mutual Funds would see higher redemptions, causing selling to drive the market down:
Most mutual funds have been bullish through this crisis and have encouraged their investors to hold through the long term. Mutual funds had record low levels of cash in July and many have seen significant declines in equity values since that time. Further the average mutual fund investor is likely an aging baby boomer who is nearing retirement. All these factors point to higher redemptions.
Pension Fund Values would decline, leading to unrest:
Pension funds as a whole are more heavily invested in equities, due to the fact that they can assume a higher rate of return on equities (more in the range of 8-9%) verses bonds (in the range of 4-6%). The projected value of the pension plan is highly dependent on the projected return on plan assets. With panicked selling, pension plans would see the value of their assets decline significantly.
Safe Haven Assets would increase in value:
Safe haven assets are likely the US dollar, the Swiss Franc, potentially precious metals (however precious metals are held by hedge funds, which would likely liquidate in the short term).
Government Bailouts of Banking Institutions would be even more unpopular with the public, worsening the banking crisis.
The public of many countries is already upset with the banking bailouts of 2008 and 2009, and would not be in any mood for continued bailouts. This would complicate efforts to shore up bank balance sheets, making the banking crisis worse than otherwise would be. As banking crises have a "cumulative" character - the farther they are allowed to fester, the more the public panics and withdraws funds, potentially causing and worsening a bank run -- the unpopularity of bailouts can only worsen events for the banking system.
Recovery for Southern Europe would be more protracted, due to a weaker than normal world economy and therefore export market:
Both the United States and China are currently slowing -- China is attempting (successfully) to slow housing and infrastructure spending, however this means that commodity demand from China is slowing. This, in turn, impacts the major regions more dependent on commodity export: Latin America, the Middle East, Russia, Australia. This means that the EU will have a more difficult time utilizing exports to dig itself out of crisis.
What can be done to avoid a Greek Default?
As this analysis shows that a Greek default would be extremely problematic for the EU and world economy as well as stock markets, the question is, what can be done to avoid a Greek Default?
Either the EU, or another institution such as the IMF, should come in and guarantee Greek debt so that banks are assured of receiving 90%+ of their full value of their bonds. If the full value of Greek bonds are more or less assured, the chain of events described above will not occur.
However, likely the sovereign debt of the other Southern EU states, Italy, Spain, Portugal as well as Ireland needs to be backstopped as well in order to stop potential defaults of these countries, which in turn would cause banking crises moving to economic to market crises.
What would be the amount of funds needed to guarantee Greek and Southern EU debt?
Something in the range of 50-80% of Greek Debt would be needed to fully backstop this debt, meaning funding in the range of $200Bn to $360Bn. This is likely at the highest range for France and Germany combined to fund. Germany's debt to GDP is 80%, and German GDP is $3.33 Trillion, meaning that Germany can afford $333Bn before it moves to 90% debt to GDP (the danger zone, according to Rogoff and Reinhart). France's debt to GDP is also approximately 80%, and France's GDP is approximately $2.65 Trillion, meaning France could contribute $265Bn before reaching 90% debt to gdp.
Both France and Germany would therefore be seriously strained to provide a backstop to Greek debt, and the UK (also at 80% debt to GDP) is not in the Eurozone, and would likely significantly resist paying for Greek debt. Other countries with relatively low debt to gdp such as Finland (48% debt to GDP) only have smaller GDP levels (Finland's GDP is approximately $222Bn). Of course, Southern EU countries such as Spain and Italy cannot provide funding to Greece, in so far that their debt to GDP levels are already too high and the markets would likely not support these countries issuing more debt.
The problem is that not only Greek debt needs to be guaranteed, but also Italy, Spanish, Portuguese and Irish debt needs to be guaranteed. Italy currently has a debt to gdp of 119% with total debt outstanding in the $2.5Trillion range. In order to get this debt down to a manageable 80%, total funds would be needed of approximately $700Bn. All in all, the total backstop for Europe to guarantee all its "in danger" countries would likely be over $1Trillion.
Overall, it appears unlikely that France and Germany or a combination of other European countries can backstop $1trillion.
Can the IMF provide funding to Europe?
The current lending capacity of the IMF is approximately $400Bn -- so the lending capacity of the IMF would have to be increased. To get to $1Trillion, the United States (which contributes 17% to the overall IMF funding capacity) would have to increase $106Bn, which is possible, but politically unlikely. Other countries, such as Japan (which contributes 6% to the IMF budget) would have a difficult time raising funds to contribute to a vastly increased IMF lending capacity. Overall it appears the IMF will have a very difficult time guaranteeing EU debt alone.
Can a combination of IMF and the EU Guarantee Southern EU Soveriegn Debt?
This is possible, but would require the IMF taking the lead, as it is difficult to see how the northern EU states and France could guarantee more than $400Bn, while over $1 Trillion would likely be needed. An increased funding capacity to $500-$700Bn for the IMF is more possible -- meaning additional funding by $200 to $300Bn. This would require close cooperation between the IMF and the EU, which appears very difficult currently, politically. But financially, it is possible although difficult.
Conclusion: Greek Default and Southern EU Sovereign Defaults Very Possible -- if not likely -- without joint EU -IMF Bailouts
Currently as of the beginning of October, it does not look as if there is the political will to get the EU and IMF coordinating on a combined, increased bailout package, which would require significant additional funding (read: additional taxes) for the EU from France and Germany and increased funding for the IMF (read additional taxes for IMF member countries). The likelihood of this occurring is very difficult to say, but cannot be considered "the most likely outcome" meaning that the probability is higher for less than a needed guarantee for southern EU debt materializing in the future.
Brief Stock Market Notes
i wanted to give you an overview of what I see today and explain how you should view things, emphasizing the need to understand your own investment strategy, because I know that those who read this site comprise ST traders, swing traders and long-term investors.
For those who read my latest special report, today's market activity should come as no surprise. As you will recall, I mentioned the likelihood of a short-term bounce in the market.
However, that does not necessarily mean tomorrow will be an up day. The market is in the PROCESS of forming a short-term trend (at this point). That means that over the short-term, if a ST upward trend is confirmed, you should see higher lows and higher highs.
The following 5-day chart of the DJIA illustrates the breakout that occurred at the end of Thursday's tradng session. While the technical data is not quite convincing enough for me to conclude that a ST upward trend has formed, based on analysis of other (undisclosed data) I feel that this trend will become more definitive in the coming days.
But remember, this is a short-term uptrend that I am discussing; very short-term at this stage.
Keep in mind the 1-month chart of the DJIA. As you can see, it is down. When put into context of the 1-month chart, this ST trend (once again, not conclusively confirmed) has meaning only for day traders.
This means that I am defining short-term in days rather than weeks. So if you aren't a ST trader (very ST) be careful. Don't allow yourself to fall for false signals like most investors.
Meanwhile, for downside risk, it should be obvious what support level to watch out for. I discussed this in the recent report. Examine a chart of the DJIA and you should be able to spot it with ease.
Any violation of this level should be interpreted as evidence of significant downside.
For now, the market has bounced off this level and is likely to continue the upward ST trend (assuming no major events occur). But once again, I would not advise playing this unless you are making day or (maybe) swing trades.
Adding to more ST upside could be the (premature) announcement of success BP is reporting with its top kill plugging method.
Those who might have jumped into BP based on the price points I provided have seen nice gains. I expect BP to continue upward as long as the news remains positive. However, you might consider taking partial profits down the road depending on how much shares rise versus time (the higher the rise over the shorter period would be reason to trim down) since I feel this drama is far from over.
Remember, shares of BP can move fast. And they can turn just as fast on the downside, depending on how much the media dramatizes the oil spill.
In a report I released last week, I stated that I felt shares would fall below $40 before it was all said and done (although this was certainly no guarantee). Shares have fallen as low as $40.61, which is pretty close to my sub-40 level.
Any rapid spike (even over a period if a few days) should be evaluated for profit-taking. You should also factor in the effect of rising oil prices.
Others who are less active might want to hold on, and add to their position if it makes sense from a cost basis standpoint. Otherwise, you might want to save your cash for other opportunities.
Some might wish to sell covered calls to lock in some income in order to reduce downside. For instance, the 42 Jan 10 calls (strike price as $42) traded for close to $6.50. If your shares get called away in January, you would have locked in a nice 21% profit (15% for the calls plus 3 dividend payments).
I would be surprised if management lowered the dividend in 2010 (just a guess). If shares don't get called away, you've lowered your cost basis to around $34, which is an excellent price to cushion against a market collapse.
Remember, while the ST trend in the DJIA might look attractive for entry, you need to keep the longer-term picture in persepctive. If you elect to chase momentum, you need to understand the longer-term picture. No one knows what this may be. We can only go by probabilities which change daily based on new developments.
Keeping a grasp on the longer-term picture will help you manage risk and determine whether you should be staying out or making short-term trades.
So what am I doing?
I'm about 20% to 25% invested. I trimmed down to that level towards the end of 2009, as discussed in the newsletter. Since then, I have exchanged some positions, but have not added to my holdings by much.
I am not in a position right now to play day or swing trades. If I were, I would be looking for more upside. But I certainly would not risk much capital. The last thing you want to do is get locked into positions. Investors should always be cautious of trading liquidity during periods of global uncertainty, such as what we currently face.
And I am generally not a fan of stop-loss orders due to the type of trading strategy I employ.
Over the past couple of weeks, I have not added to any positions other than with oil-related securities.
If I had to bet on it, I'd say that the DJIA will reach new (ST) highs over the next few days, up to (most likely 10,500) and perhaps as high as 10,700 ( 100pts) at the best of scenarios prior to retracing back down towards key support levels. But of course this is only what I see today. There are many variables that can change things in just one day. Things can change on a dime.
Always remember this. Large short-term price movements (whether up or down) are usually inaccurate. In other words, such movements are very often counteracted by retracements.
This is why you need to keep the intermediate and longer-term picture in sight. When combined with patience, it becomes easier to ride the ups and downs of the market.
Understand your investment strategy and apply it to where you see things headed, after adjusting for risk, your own liquidity needs and so forth. If you are not able to construct an investment/trading strategy based on these core principals, you should not be in this market.
If you are an investor, whether you have a 401(k), IRA, or you invest in individual securities, you need to be armed with the best available insights. You can get them by subscribing to the AVA Investment Newsletter
For those who read my latest special report, today's market activity should come as no surprise. As you will recall, I mentioned the likelihood of a short-term bounce in the market.
However, that does not necessarily mean tomorrow will be an up day. The market is in the PROCESS of forming a short-term trend (at this point). That means that over the short-term, if a ST upward trend is confirmed, you should see higher lows and higher highs.
The following 5-day chart of the DJIA illustrates the breakout that occurred at the end of Thursday's tradng session. While the technical data is not quite convincing enough for me to conclude that a ST upward trend has formed, based on analysis of other (undisclosed data) I feel that this trend will become more definitive in the coming days.
But remember, this is a short-term uptrend that I am discussing; very short-term at this stage.
Keep in mind the 1-month chart of the DJIA. As you can see, it is down. When put into context of the 1-month chart, this ST trend (once again, not conclusively confirmed) has meaning only for day traders.
This means that I am defining short-term in days rather than weeks. So if you aren't a ST trader (very ST) be careful. Don't allow yourself to fall for false signals like most investors.
Meanwhile, for downside risk, it should be obvious what support level to watch out for. I discussed this in the recent report. Examine a chart of the DJIA and you should be able to spot it with ease.
Any violation of this level should be interpreted as evidence of significant downside.
For now, the market has bounced off this level and is likely to continue the upward ST trend (assuming no major events occur). But once again, I would not advise playing this unless you are making day or (maybe) swing trades.
Adding to more ST upside could be the (premature) announcement of success BP is reporting with its top kill plugging method.
Those who might have jumped into BP based on the price points I provided have seen nice gains. I expect BP to continue upward as long as the news remains positive. However, you might consider taking partial profits down the road depending on how much shares rise versus time (the higher the rise over the shorter period would be reason to trim down) since I feel this drama is far from over.
Remember, shares of BP can move fast. And they can turn just as fast on the downside, depending on how much the media dramatizes the oil spill.
In a report I released last week, I stated that I felt shares would fall below $40 before it was all said and done (although this was certainly no guarantee). Shares have fallen as low as $40.61, which is pretty close to my sub-40 level.
Any rapid spike (even over a period if a few days) should be evaluated for profit-taking. You should also factor in the effect of rising oil prices.
Others who are less active might want to hold on, and add to their position if it makes sense from a cost basis standpoint. Otherwise, you might want to save your cash for other opportunities.
Some might wish to sell covered calls to lock in some income in order to reduce downside. For instance, the 42 Jan 10 calls (strike price as $42) traded for close to $6.50. If your shares get called away in January, you would have locked in a nice 21% profit (15% for the calls plus 3 dividend payments).
I would be surprised if management lowered the dividend in 2010 (just a guess). If shares don't get called away, you've lowered your cost basis to around $34, which is an excellent price to cushion against a market collapse.
Remember, while the ST trend in the DJIA might look attractive for entry, you need to keep the longer-term picture in persepctive. If you elect to chase momentum, you need to understand the longer-term picture. No one knows what this may be. We can only go by probabilities which change daily based on new developments.
Keeping a grasp on the longer-term picture will help you manage risk and determine whether you should be staying out or making short-term trades.
So what am I doing?
I'm about 20% to 25% invested. I trimmed down to that level towards the end of 2009, as discussed in the newsletter. Since then, I have exchanged some positions, but have not added to my holdings by much.
I am not in a position right now to play day or swing trades. If I were, I would be looking for more upside. But I certainly would not risk much capital. The last thing you want to do is get locked into positions. Investors should always be cautious of trading liquidity during periods of global uncertainty, such as what we currently face.
And I am generally not a fan of stop-loss orders due to the type of trading strategy I employ.
Over the past couple of weeks, I have not added to any positions other than with oil-related securities.
If I had to bet on it, I'd say that the DJIA will reach new (ST) highs over the next few days, up to (most likely 10,500) and perhaps as high as 10,700 ( 100pts) at the best of scenarios prior to retracing back down towards key support levels. But of course this is only what I see today. There are many variables that can change things in just one day. Things can change on a dime.
Always remember this. Large short-term price movements (whether up or down) are usually inaccurate. In other words, such movements are very often counteracted by retracements.
This is why you need to keep the intermediate and longer-term picture in sight. When combined with patience, it becomes easier to ride the ups and downs of the market.
Understand your investment strategy and apply it to where you see things headed, after adjusting for risk, your own liquidity needs and so forth. If you are not able to construct an investment/trading strategy based on these core principals, you should not be in this market.
If you are an investor, whether you have a 401(k), IRA, or you invest in individual securities, you need to be armed with the best available insights. You can get them by subscribing to the AVA Investment Newsletter
Monday, 10 October 2011
Stocks To Buy- Features Traders Want A Trading Service
Becoming involved in the market used to be a privilege only for the higher-class, now, due to a number of new options, even investors wanting to invest a lower amount can do so also. Online sources are perhaps one of the greatest utensils for any investor to work with when looking for stocks to buy. There will be a few serious essentials that need to be thought through before investing through the internet.
Reputation may possibly be one of the biggest considerations when scrutinizing stocks to by. To check the status of a company offering the stock, look at stock reports, find out money that is spent compared to their earnings and possibly even partake in their company forum
A lot of the popular stock providers have created their own trading web sources. These will usually be rather good options. Although some of the less popular companies, can be good opportunities too.
Online sources that offer stocks to buy for customers do not guarantee the type of shares they may be looking for. Verify what markets a site offers prior to making a decision.
Since your fund details will be inserted on this source, it will be a good idea to guarantee the site and your information are thoroughly protected.
Many investors find that some sites charge a higher amount per transaction than others. The benefit of investing online is that fees are less than fees from a broker.
Good internet trading sources offer customers access to help if they need it. If the sites you are pondering do not, they might be worth passing up, even if the fees are reasonable. The truth is, even the most knowledgeable traders need assistance at times. An online source that offers access to help with technical issues will be a plus.
Choosing which stocks to buy on the internet will be one of the best ways for just about any person to get engaged with the market. Finding the most beneficial source to invest through will probably require some effort. Analysis will have to be done before providing personal, fund details over the Internet. Yes, most trading sources will be extremely reputable, but you do not want to choose the one that is not.
Bloggers who are want to get more info about retirement investing, then please make sure to check out the site that is mentioned right in this paragraph
Reputation may possibly be one of the biggest considerations when scrutinizing stocks to by. To check the status of a company offering the stock, look at stock reports, find out money that is spent compared to their earnings and possibly even partake in their company forum
A lot of the popular stock providers have created their own trading web sources. These will usually be rather good options. Although some of the less popular companies, can be good opportunities too.
Online sources that offer stocks to buy for customers do not guarantee the type of shares they may be looking for. Verify what markets a site offers prior to making a decision.
Since your fund details will be inserted on this source, it will be a good idea to guarantee the site and your information are thoroughly protected.
Many investors find that some sites charge a higher amount per transaction than others. The benefit of investing online is that fees are less than fees from a broker.
Good internet trading sources offer customers access to help if they need it. If the sites you are pondering do not, they might be worth passing up, even if the fees are reasonable. The truth is, even the most knowledgeable traders need assistance at times. An online source that offers access to help with technical issues will be a plus.
Choosing which stocks to buy on the internet will be one of the best ways for just about any person to get engaged with the market. Finding the most beneficial source to invest through will probably require some effort. Analysis will have to be done before providing personal, fund details over the Internet. Yes, most trading sources will be extremely reputable, but you do not want to choose the one that is not.
Bloggers who are want to get more info about retirement investing, then please make sure to check out the site that is mentioned right in this paragraph
Waht is Investment Risk
Do you want to learn how to make $10,000 dollars or more a month by trading stocks? A small group of investors will be taught a secret stock market loophole which allows intelligent stock investors to cash in big time.
As an investor, many of your choices will probably be made based upon your investment danger tolerance. Some people are bearish, believing that the market will decline, while others are bullish, anticipating that the market will rise in value. Also, buyers might be labeled into threat tolerance categories based upon their willingness to simply accept funding threat for any given level of portfolio return. There are four primary classifications of traders primarily based upon risk tolerance, together with Aggressive, Reasonably Aggressive, Reasonable and Conservative. Are you aware which kind of investor you might be?
Aggressive Investors
Aggressive buyers are most frequently focused on funding growth by means of the usage of equity investments. Their funding time frames are generally 7-10 years at a minimum, and they are prepared to accept portfolio risk in any given yr in exchange for an elevated anticipated portfolio return over the long term. The funding return that they expect to earn is on common higher than the market returns annually as a whole. For instance, the market usually earns on average 10% per yr in returns, whereas an aggressive investor is seeking returns often above 12% per yr on average.
Moderately Aggressive
Moderately Aggressive investors are additionally looking for capital development by the use of equity investments, however, their risk tolerance is decrease than that of an aggressive investor and they sometimes are seeking market common returns, not above market average returns. Whereas the overall investment goals are often similar to aggressive traders, their general portfolio combine incorporates extra average investments and is often more diversified across asset classes to supply more portfolio stability. The recommended investment timeframe is between 6 and 10 years.
Reasonably Conservative
Reasonably Conservative buyers will usually have a portfolio that is more blended, searching for a balance between investment progress and capital preservation. A reasonably conservative investor is far less keen to just accept portfolio worth variations on a 12 months to 12 months foundation and is often in search of an funding revenue stream from their portfolio. To balance out the chance in the equity facet of the portfolio, a reasonably conservative portfolio will often contain bonds, actual property and other fixed revenue investments. The common fee of return that a moderately conservative investor targets is between 6-8%, and the common funding timeframe is generally between three-6 years.
Conservative
A conservative investor is seeking capital preservation and is usually looking for current income from their portfolio’s assets. The time frame for a conservative investor is generally under 3 years in size, causing the portfolio to typically contain a higher ratio of money property and bond property in order that it could possibly stay liquid in addition to in order that it may well provide an income stream. While there will be some fairness part to a conservative portfolio, the extra common asset lessons will be actual estate, particular person bonds or bond funds, money and possibly fixed annuities.
An investor’s threat tolerance will change as their funding time frames change and as their funding targets change. Risk tolerance is designed to serve as a guide for portfolio investment picks and ought to be considered prior to the collection of a given investment. You possibly can determine what your personal danger tolerance is by evaluating your private goals as well as by finishing a danger tolerance quiz.
As an investor, many of your choices will probably be made based upon your investment danger tolerance. Some people are bearish, believing that the market will decline, while others are bullish, anticipating that the market will rise in value. Also, buyers might be labeled into threat tolerance categories based upon their willingness to simply accept funding threat for any given level of portfolio return. There are four primary classifications of traders primarily based upon risk tolerance, together with Aggressive, Reasonably Aggressive, Reasonable and Conservative. Are you aware which kind of investor you might be?
Aggressive Investors
Aggressive buyers are most frequently focused on funding growth by means of the usage of equity investments. Their funding time frames are generally 7-10 years at a minimum, and they are prepared to accept portfolio risk in any given yr in exchange for an elevated anticipated portfolio return over the long term. The funding return that they expect to earn is on common higher than the market returns annually as a whole. For instance, the market usually earns on average 10% per yr in returns, whereas an aggressive investor is seeking returns often above 12% per yr on average.
Moderately Aggressive
Moderately Aggressive investors are additionally looking for capital development by the use of equity investments, however, their risk tolerance is decrease than that of an aggressive investor and they sometimes are seeking market common returns, not above market average returns. Whereas the overall investment goals are often similar to aggressive traders, their general portfolio combine incorporates extra average investments and is often more diversified across asset classes to supply more portfolio stability. The recommended investment timeframe is between 6 and 10 years.
Reasonably Conservative
Reasonably Conservative buyers will usually have a portfolio that is more blended, searching for a balance between investment progress and capital preservation. A reasonably conservative investor is far less keen to just accept portfolio worth variations on a 12 months to 12 months foundation and is often in search of an funding revenue stream from their portfolio. To balance out the chance in the equity facet of the portfolio, a reasonably conservative portfolio will often contain bonds, actual property and other fixed revenue investments. The common fee of return that a moderately conservative investor targets is between 6-8%, and the common funding timeframe is generally between three-6 years.
Conservative
A conservative investor is seeking capital preservation and is usually looking for current income from their portfolio’s assets. The time frame for a conservative investor is generally under 3 years in size, causing the portfolio to typically contain a higher ratio of money property and bond property in order that it could possibly stay liquid in addition to in order that it may well provide an income stream. While there will be some fairness part to a conservative portfolio, the extra common asset lessons will be actual estate, particular person bonds or bond funds, money and possibly fixed annuities.
An investor’s threat tolerance will change as their funding time frames change and as their funding targets change. Risk tolerance is designed to serve as a guide for portfolio investment picks and ought to be considered prior to the collection of a given investment. You possibly can determine what your personal danger tolerance is by evaluating your private goals as well as by finishing a danger tolerance quiz.
How To Trade Currency
Do you want to learn how to make $10,000 dollars or more a month by trading stocks? A small group of investors will be taught a secret stock market loophole which allows intelligent stock investors to cash in big time.
Foreign exchange trading, also referred to as Forex buying and selling, has become increasingly more common with buyers and traders these days. With the continued recession within the capital markets, a lot of folks believe shopping for and selling of currencies is a protected investment. Whenever you have a look at the mechanics of a currency spot trade, the possibility of creating wealth is somewhere around 50%.
With each currency spot transaction, someone loses money whereas the other individual makes some. Despite this, not everyone is profitable from trading currencies. As a matter of reality, it’s estimated that almost 80% of all currency traders lose cash in their attempts.
Utilizing these statistics, one can easily assume that the 20% of profitable traders either have access to some kind of insider info or a mysterious solution to manipulate the market. But even the United States, British, and Japanese governments have systematically failed of their earlier makes an attempt to manipulate the world’s currency markets; which squelches that possibility all together.
The actual fact is, worthwhile currency traders are simply higher at using accessible information than their unprofitable counterparts are. Worthwhile traders understand how to choose the most applicable data from the big heap of economical information that is released by governments and establishments on a day by day basis. They understand find out how to head off information overload and zoom in on solely an important facts and numbers that are most probable to impact the currency market. With that in thoughts, these are the five main nationwide financial reviews that each successful trader looks at:
Unemployment Reports. Unexpected surprises in unemployment figures generally have a big effect on the Forex market. If, for example, the anticipated unemployment charge is 6% for a selected country, but the report reveals an precise fee of 4%, then this could trigger a strengthening of the national currency.
Curiosity Rates. Rates of interest are immediately related to the strength of a specific currency. When interest rates transfer up, it draws in international traders and can lead to a stronger currency. The alternative takes place when rates of interest go downward.
Shopper Price Index. The CPI is a month-to-month report that measures the prices of goods in a country and compares this to salaries. An abrupt hike up in inflation is all the time damaging to the energy of a currency and so it is important to take care of a close eye on this economic indicator.
Trade Balance. The trade balance measures how much a country exports and how a lot it imports. A trade deficit signifies that exports surpass imports and a rustic is sending out more cash than it’s taking in. This has a really noticeable impact on the demand for a international locations currency. However one must remember that a trade deficit is not always a foul thing. One must take into account the precise conditions of a rustic to see why a trade surplus or deficit exists.
Retail Sales. A monthly report of retail gross sales is presumably the best indicator of the common person’s ideas about his nations economy. Sentiment performs a highly critical role in spending patterns, which, in flip, affects the power of a nations currency.
To earn cash with Forex trading over the lengthy-run, you also have to learn how to adhere to steady trends and indicators and place your orders accordingly. That’s the surest, if not the one method, of buying and selling currency for profits.
Foreign exchange trading, also referred to as Forex buying and selling, has become increasingly more common with buyers and traders these days. With the continued recession within the capital markets, a lot of folks believe shopping for and selling of currencies is a protected investment. Whenever you have a look at the mechanics of a currency spot trade, the possibility of creating wealth is somewhere around 50%.
With each currency spot transaction, someone loses money whereas the other individual makes some. Despite this, not everyone is profitable from trading currencies. As a matter of reality, it’s estimated that almost 80% of all currency traders lose cash in their attempts.
Utilizing these statistics, one can easily assume that the 20% of profitable traders either have access to some kind of insider info or a mysterious solution to manipulate the market. But even the United States, British, and Japanese governments have systematically failed of their earlier makes an attempt to manipulate the world’s currency markets; which squelches that possibility all together.
The actual fact is, worthwhile currency traders are simply higher at using accessible information than their unprofitable counterparts are. Worthwhile traders understand how to choose the most applicable data from the big heap of economical information that is released by governments and establishments on a day by day basis. They understand find out how to head off information overload and zoom in on solely an important facts and numbers that are most probable to impact the currency market. With that in thoughts, these are the five main nationwide financial reviews that each successful trader looks at:
Unemployment Reports. Unexpected surprises in unemployment figures generally have a big effect on the Forex market. If, for example, the anticipated unemployment charge is 6% for a selected country, but the report reveals an precise fee of 4%, then this could trigger a strengthening of the national currency.
Curiosity Rates. Rates of interest are immediately related to the strength of a specific currency. When interest rates transfer up, it draws in international traders and can lead to a stronger currency. The alternative takes place when rates of interest go downward.
Shopper Price Index. The CPI is a month-to-month report that measures the prices of goods in a country and compares this to salaries. An abrupt hike up in inflation is all the time damaging to the energy of a currency and so it is important to take care of a close eye on this economic indicator.
Trade Balance. The trade balance measures how much a country exports and how a lot it imports. A trade deficit signifies that exports surpass imports and a rustic is sending out more cash than it’s taking in. This has a really noticeable impact on the demand for a international locations currency. However one must remember that a trade deficit is not always a foul thing. One must take into account the precise conditions of a rustic to see why a trade surplus or deficit exists.
Retail Sales. A monthly report of retail gross sales is presumably the best indicator of the common person’s ideas about his nations economy. Sentiment performs a highly critical role in spending patterns, which, in flip, affects the power of a nations currency.
To earn cash with Forex trading over the lengthy-run, you also have to learn how to adhere to steady trends and indicators and place your orders accordingly. That’s the surest, if not the one method, of buying and selling currency for profits.
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Day trading online within the United States has turn out to be a robust trend in current years. And whereas development charges in the US have been sluggish lately, the US has nonetheless maintained a strong greenback, which continues to be used because the unquestioned international standard. Unemployment rates have been higher than the place they are now, but shopper spending is at a standard pace.
However what does all of this have to do with the stock market?-Surprisingly a lot. Macroeconomic tendencies are quite merely the sum of microeconomic decisions and realities. If the economic system general is suffering, there is a good probability that most corporations are additionally experiencing slow progress charges, which will be mirrored in share prices on the NASDAQ.
This also implies that day traders will really feel the strain; some could even avoid trading altogether out of a way of despair, which can additional lag progress rates. Most of stock buying and selling websites are actually based in America. In order that means that you will always have an enormous choice of companies to choose between on your stock trading services.
Day trading online in the USA is a giant business and lots of people establishing online companies are making some huge cash, often by signal-up and repair fees. But the actual winner might be the patron–the one who signs up for the web site: these folks get into the online stock buying and selling world and might make a real killing when they’re buying and selling all the best sorts of stock.
However you do must have some form of knowledge about buying and promoting stocks if you end up taking part in online stock trading. Brokers can be found to offer you any advice whenever you want it; and if you’re all the time failing to earn, then you must really give a broker a name, simply to see in the event that they can help you out of your losing streak.
USA is recognized by many as the house of the strongest and largest stock market. That is why foreign buyers from around the globe choose to take a position a good amount of their money in US-primarily based business. For you to take advantage of out of the US stock market, you want to be able to know when to buy and sell.
Should you do not know when to say that sufficient is sufficient for that share, then you definitely should not be buying and selling at all. A lot of people have exact methods-technical or elementary-to determine exactly when to buy and to trade and exactly how a lot to diversify to handle danger appropriately; and these are the people who find themselves usually incomes a steady income.
Day trading online within the United States has turn out to be a robust trend in current years. And whereas development charges in the US have been sluggish lately, the US has nonetheless maintained a strong greenback, which continues to be used because the unquestioned international standard. Unemployment rates have been higher than the place they are now, but shopper spending is at a standard pace.
However what does all of this have to do with the stock market?-Surprisingly a lot. Macroeconomic tendencies are quite merely the sum of microeconomic decisions and realities. If the economic system general is suffering, there is a good probability that most corporations are additionally experiencing slow progress charges, which will be mirrored in share prices on the NASDAQ.
This also implies that day traders will really feel the strain; some could even avoid trading altogether out of a way of despair, which can additional lag progress rates. Most of stock buying and selling websites are actually based in America. In order that means that you will always have an enormous choice of companies to choose between on your stock trading services.
Day trading online in the USA is a giant business and lots of people establishing online companies are making some huge cash, often by signal-up and repair fees. But the actual winner might be the patron–the one who signs up for the web site: these folks get into the online stock buying and selling world and might make a real killing when they’re buying and selling all the best sorts of stock.
However you do must have some form of knowledge about buying and promoting stocks if you end up taking part in online stock trading. Brokers can be found to offer you any advice whenever you want it; and if you’re all the time failing to earn, then you must really give a broker a name, simply to see in the event that they can help you out of your losing streak.
USA is recognized by many as the house of the strongest and largest stock market. That is why foreign buyers from around the globe choose to take a position a good amount of their money in US-primarily based business. For you to take advantage of out of the US stock market, you want to be able to know when to buy and sell.
Should you do not know when to say that sufficient is sufficient for that share, then you definitely should not be buying and selling at all. A lot of people have exact methods-technical or elementary-to determine exactly when to buy and to trade and exactly how a lot to diversify to handle danger appropriately; and these are the people who find themselves usually incomes a steady income.
Stock Market Works Is Key To Creating Wealth When You Buy Stocks Online
Stock Market Tips
Do you want to make money by learning how to buy stocks online on the stock market? Are you looking for the latest stock market tips and investing news?
If you’re an online day trader you may be used to watching the numbers roll by on the bottom of your display throughout a information cast about stocks. These numbers are very important to many people because they make their money with online stock trading. They steadfastly watch the stock markets like a hawk watches its prey to see how their investment is doing after they have decided to buy stocks online.
To know the stock market you first want to understand what stocks are and how you can use stock trading to earn money. Stocks are the capital raised by an organization once they sell. Shares are supplied through the stock market and the money taken in from those becomes the corporate’s stocks
There are a number of main stock exchanges in the world where shares are traded. Company’s stocks are increased and decreased every day. One in every of these stock markets is the NASDAQ. NASDAQ stands for National Association of Securities Sellers Automated Quotations. The NASDAQ is a United States based stock market. It’s the world’s first electronic based mostly stock market. It additionally trades extra shares every day than some other stock market which means it has probably the most influence on stocks.
Another massive stock market that is United States primarily based is the Dow Jones Industrial Average. You may hear someone say that the Dow is up or down that is what they’re referring to. Many stocks are introduced on the Dow. Many different international locations also have an amazing impact on stocks. In Europe almost every country has their very own stock market this contains Portugal, Germany and Lisbon. The individuals residing and dealing there comply with put money into the stock market there and identical to in North America the stocks rise and fall.
The stock investors who deal with the shopping for and trading are called stock brokers. Their job is to sell and trade the shares that their clients request. It’s a demanding and rewarding job being involved immediately in stocks this way. Stock brokers could make a lucrative revenue and those that examine the markets and understand all the ups and downs have a particular advantage. For the everyday particular person to get involved in stocks they need to do a little bit of research. It might be sensible if a big amount of cash is concerned to talk to a stock broker. Their job is related to stocks and no one is better certified to help you with stock market investing and making profitable investments.
Stock market brokers are paid on commission to buy stocks online and subsequently their drive is to invest in shares that may finally turn a profit. Usually a stock broker has extensive information with just some stocks and he concentrates on those. When you determine to put money into a share that a sure stock broker is very well versed in, it is perhaps prudent to have him or her deal with your dealings. They’ll offer the very best recommendation as to when to purchase and when to sell.
There are other avenues accessible for individuals interested in buying stocks and that’s the online stock trading companies. Many of those firms permit anybody to enroll and buy and trade their very own shares. This may be a great way for someone to be launched to the world of stocks and with some analysis and practice they will make themselves a profit.
Start Making Real Money By Trading Stocks Online – Learn Here
How To Buy Stocks Online – Stock Market Investing
If you are interested in learning how to buy stocks online, then you have plenty of options available to you. There are several online stock market trading platforms which make it affordable and safe to trade stocks online. Some of the ones we recommend are Sharebuilder, Scottrade, Etrade, Charles Schwab, and TD Ameritrade. Any of these stock market trading companies would be a good choice for stock market investing newbies or veterans alike who wish to buy stocks online. These companies usually charge a fee per trade made. The competition in the online stock trading industry has driven the cost to make stock trades online way down over the recent years. It is pretty common to make stock trades in real-time for five to ten bucks per trade these days.
Many of the online stock trading firms will offer plenty of stock market resources so that you may do your own stock market research before you actually buy stocks online. Some will even let you automatically deposit funds on a weekly or bi-weekly basis that you may then invest in stocks with. If you’re ready to dive right in and check out a stock you are interested in then you can use the interactive stock market chart below to look-up and research your stock of interest.
Why Diversify When Buying Stocks Online?
Investing is a risky venture whether or not you are a seasoned pro or a rank novice. If you want to buy stocks online and it’s your first time then it’s essential to realize at the beginning that all investing is a risk of some sort. There isn’t any such thing as danger free investing although certain sorts of investments definitely contain more dangers than others. That is the principle motive that it is so essential to have a stock portfolio that is diversified sufficient to offer some insulation from devastation because of one stock, bond, or fund performing poorly whereas also making a noticeable distinction when one performs terribly well.
In different phrases, diversifying your portfolio tempers the dangers you take by investing to some degree. You’ve got heard the outdated saying “never put all of your eggs in one basket” I’m sure. Diversifying your portfolio moves your eggs around so that your nest egg has a couple of layer or safety from the evils of the world and the fickle minds of men and the New York Stock Exchange.
You need to diversify your investment portfolio in order that one sector or one stock does not have the power to sink your financial future in one fell swoop. You need to feel secure that your investments are secure to some extent regardless of the numerous dangers you will face. The truth is you want that sense of safety with a view to proceed investing and building your financial future. You will find that it is practically not possible to work on a financial future you do not believe in.
If that isn’t sufficient however you want to diversify so that you’ve got the opportunity to unfold the wealth a bit too. You need to have just a few alternatives to take the risks that make the real money within the stock market game. You can’t actually do this if all your monies are tied up in ventures which can be designed to play it secure and run the marathon. It’s good, from time to time to feel the wind in your hair as you sprint towards your monetary goals reasonably than going on the snails pace in exchange for security. In other words, diversity brings a sense of steadiness to your portfolio too.
There are all types of investments. You will find many alternative corporations, many different sectors, different types of stocks, bonds, funds, and all method of funding opportunities that each deliver to the desk a unique sort of danger and a different sort of safety upon which you’ll feast while organizing your portfolio in a meal that should is supposed to final a lifetime and keep your loved ones fed, clothed, and comfortable for many years to come. With a purpose to do all of this stuff your monetary situation must be as well rounded as you might be as a person and your stock portfolio needs that liberal arts education that features a little bit of everything.
In the event you can accomplish this with your stock market portfolio then your financial outlook needs to be much brighter and bolder than it might be in case you left all your efforts in one basket and dined on one plate for the remainder of your life. Take the time to take a look at your financial holdings and see how progress is going. When you buy stocks online you always want to track everything closely and keep up with the latest stock market tips and news.
Do you want to make money by learning how to buy stocks online on the stock market? Are you looking for the latest stock market tips and investing news?
If you’re an online day trader you may be used to watching the numbers roll by on the bottom of your display throughout a information cast about stocks. These numbers are very important to many people because they make their money with online stock trading. They steadfastly watch the stock markets like a hawk watches its prey to see how their investment is doing after they have decided to buy stocks online.
To know the stock market you first want to understand what stocks are and how you can use stock trading to earn money. Stocks are the capital raised by an organization once they sell. Shares are supplied through the stock market and the money taken in from those becomes the corporate’s stocks
There are a number of main stock exchanges in the world where shares are traded. Company’s stocks are increased and decreased every day. One in every of these stock markets is the NASDAQ. NASDAQ stands for National Association of Securities Sellers Automated Quotations. The NASDAQ is a United States based stock market. It’s the world’s first electronic based mostly stock market. It additionally trades extra shares every day than some other stock market which means it has probably the most influence on stocks.
Another massive stock market that is United States primarily based is the Dow Jones Industrial Average. You may hear someone say that the Dow is up or down that is what they’re referring to. Many stocks are introduced on the Dow. Many different international locations also have an amazing impact on stocks. In Europe almost every country has their very own stock market this contains Portugal, Germany and Lisbon. The individuals residing and dealing there comply with put money into the stock market there and identical to in North America the stocks rise and fall.
The stock investors who deal with the shopping for and trading are called stock brokers. Their job is to sell and trade the shares that their clients request. It’s a demanding and rewarding job being involved immediately in stocks this way. Stock brokers could make a lucrative revenue and those that examine the markets and understand all the ups and downs have a particular advantage. For the everyday particular person to get involved in stocks they need to do a little bit of research. It might be sensible if a big amount of cash is concerned to talk to a stock broker. Their job is related to stocks and no one is better certified to help you with stock market investing and making profitable investments.
Stock market brokers are paid on commission to buy stocks online and subsequently their drive is to invest in shares that may finally turn a profit. Usually a stock broker has extensive information with just some stocks and he concentrates on those. When you determine to put money into a share that a sure stock broker is very well versed in, it is perhaps prudent to have him or her deal with your dealings. They’ll offer the very best recommendation as to when to purchase and when to sell.
There are other avenues accessible for individuals interested in buying stocks and that’s the online stock trading companies. Many of those firms permit anybody to enroll and buy and trade their very own shares. This may be a great way for someone to be launched to the world of stocks and with some analysis and practice they will make themselves a profit.
Start Making Real Money By Trading Stocks Online – Learn Here
How To Buy Stocks Online – Stock Market Investing
If you are interested in learning how to buy stocks online, then you have plenty of options available to you. There are several online stock market trading platforms which make it affordable and safe to trade stocks online. Some of the ones we recommend are Sharebuilder, Scottrade, Etrade, Charles Schwab, and TD Ameritrade. Any of these stock market trading companies would be a good choice for stock market investing newbies or veterans alike who wish to buy stocks online. These companies usually charge a fee per trade made. The competition in the online stock trading industry has driven the cost to make stock trades online way down over the recent years. It is pretty common to make stock trades in real-time for five to ten bucks per trade these days.
Many of the online stock trading firms will offer plenty of stock market resources so that you may do your own stock market research before you actually buy stocks online. Some will even let you automatically deposit funds on a weekly or bi-weekly basis that you may then invest in stocks with. If you’re ready to dive right in and check out a stock you are interested in then you can use the interactive stock market chart below to look-up and research your stock of interest.
Why Diversify When Buying Stocks Online?
Investing is a risky venture whether or not you are a seasoned pro or a rank novice. If you want to buy stocks online and it’s your first time then it’s essential to realize at the beginning that all investing is a risk of some sort. There isn’t any such thing as danger free investing although certain sorts of investments definitely contain more dangers than others. That is the principle motive that it is so essential to have a stock portfolio that is diversified sufficient to offer some insulation from devastation because of one stock, bond, or fund performing poorly whereas also making a noticeable distinction when one performs terribly well.
In different phrases, diversifying your portfolio tempers the dangers you take by investing to some degree. You’ve got heard the outdated saying “never put all of your eggs in one basket” I’m sure. Diversifying your portfolio moves your eggs around so that your nest egg has a couple of layer or safety from the evils of the world and the fickle minds of men and the New York Stock Exchange.
You need to diversify your investment portfolio in order that one sector or one stock does not have the power to sink your financial future in one fell swoop. You need to feel secure that your investments are secure to some extent regardless of the numerous dangers you will face. The truth is you want that sense of safety with a view to proceed investing and building your financial future. You will find that it is practically not possible to work on a financial future you do not believe in.
If that isn’t sufficient however you want to diversify so that you’ve got the opportunity to unfold the wealth a bit too. You need to have just a few alternatives to take the risks that make the real money within the stock market game. You can’t actually do this if all your monies are tied up in ventures which can be designed to play it secure and run the marathon. It’s good, from time to time to feel the wind in your hair as you sprint towards your monetary goals reasonably than going on the snails pace in exchange for security. In other words, diversity brings a sense of steadiness to your portfolio too.
There are all types of investments. You will find many alternative corporations, many different sectors, different types of stocks, bonds, funds, and all method of funding opportunities that each deliver to the desk a unique sort of danger and a different sort of safety upon which you’ll feast while organizing your portfolio in a meal that should is supposed to final a lifetime and keep your loved ones fed, clothed, and comfortable for many years to come. With a purpose to do all of this stuff your monetary situation must be as well rounded as you might be as a person and your stock portfolio needs that liberal arts education that features a little bit of everything.
In the event you can accomplish this with your stock market portfolio then your financial outlook needs to be much brighter and bolder than it might be in case you left all your efforts in one basket and dined on one plate for the remainder of your life. Take the time to take a look at your financial holdings and see how progress is going. When you buy stocks online you always want to track everything closely and keep up with the latest stock market tips and news.
Alstom Projects-Inability to pass thru cost hikes
Alstom Projects-Severe Margin Compression, Inability To Pass Thru Costs.
CMP Rs 680; BSE: 532309
-French Power Equipment producer Alstom Projects has produced a poor set of numbers for FY08, with EPS a mere Rs 11.
-On FY08 earnings, stock fetches a PE of 64.
-This PE is thrice the PE being offered to BHEL, which has a order book nearly 10 times the size of Alstom and better & consistent earnings quality.
-The Alstom Project stock has under-scored what was shown by the results of Siemens and Bhel, that there are no pass thru provisions in any contract whatsoever to accommodate Steel price hikes, and resultant compression of margins.
-A conservative earnings projection and and even more conervative PE multiple should give Alstom Projects a Fair Value of Rs 250.
CMP Rs 680; BSE: 532309
-French Power Equipment producer Alstom Projects has produced a poor set of numbers for FY08, with EPS a mere Rs 11.
-On FY08 earnings, stock fetches a PE of 64.
-This PE is thrice the PE being offered to BHEL, which has a order book nearly 10 times the size of Alstom and better & consistent earnings quality.
-The Alstom Project stock has under-scored what was shown by the results of Siemens and Bhel, that there are no pass thru provisions in any contract whatsoever to accommodate Steel price hikes, and resultant compression of margins.
-A conservative earnings projection and and even more conervative PE multiple should give Alstom Projects a Fair Value of Rs 250.
Alstom Projects-Unmitigated Disaster
Alstom Projects India Ltd has announced the following results for the quarter & year ended March 31, 2008:
The Unaudited results for the Quarter ended March 31, 2008
The Company has posted a net profit of Rs 15 million for the quarter ended March 31, 2008 as compared to Rs 362 million for the quarter ended March 31, 2007. Total Income has increased from Rs 4315 million for the quarter ended March 31, 2007 to Rs 5204 million for the quarter ended March 31, 2008.
The Audited results for the Year ended March 31, 2008
The Company has posted a net profit of Rs 733 million for the year ended March 31, 2008 as compared to Rs 1094 million for the year ended March 31, 2007. Total Income has increased from Rs 12545 million for the year ended March 31, 2007 to Rs 15869 million for the year ended March 31, 2008.
The Consolidated results are as follows:
The Audited consolidated results for the Year ended March 31, 2008
The Group has posted a net profit of Rs 765 million for the year ended March 31, 2008 as compared to Rs 1114 million for the year ended March 31, 2007. Total Income has increased from Rs 12565 million for the year ended March 31, 2007 to Rs 15901 million for the year ended March 31, 2008.
Safe Harbor Statement:
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
Nothing in this article is, or should be construed as, investment advice.
The Unaudited results for the Quarter ended March 31, 2008
The Company has posted a net profit of Rs 15 million for the quarter ended March 31, 2008 as compared to Rs 362 million for the quarter ended March 31, 2007. Total Income has increased from Rs 4315 million for the quarter ended March 31, 2007 to Rs 5204 million for the quarter ended March 31, 2008.
The Audited results for the Year ended March 31, 2008
The Company has posted a net profit of Rs 733 million for the year ended March 31, 2008 as compared to Rs 1094 million for the year ended March 31, 2007. Total Income has increased from Rs 12545 million for the year ended March 31, 2007 to Rs 15869 million for the year ended March 31, 2008.
The Consolidated results are as follows:
The Audited consolidated results for the Year ended March 31, 2008
The Group has posted a net profit of Rs 765 million for the year ended March 31, 2008 as compared to Rs 1114 million for the year ended March 31, 2007. Total Income has increased from Rs 12565 million for the year ended March 31, 2007 to Rs 15901 million for the year ended March 31, 2008.
Safe Harbor Statement:
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
Nothing in this article is, or should be construed as, investment advice.
The Great Reflation and its incumbent repercussions
Fed: A Monetary Solution For A Supply Side Problem?
By reneging on the mandate to target Inflation, the Fed and most Central Banks have made themselves subservient to Commodity speculators across the globe. As demand compresses interest rates are cut, as supply become an issue Speculators horde up on Commodities using leverage pushing inflation further.
Either way the belief rests, that the Fed will intervene to keep interest rates low. As Real Interest Rates turn negative, Investors have little reason to save depreciating dollars.
So who suffers? Wage seekers of all varieties and Rent seekers in Stocks.
While expected policy fallout of the credit crisis centers on changes to regulatory regimes, the likely monetary policy may have far greater macroeconomic consequences.
The credit crisis turned the spotlight on financial system excesses that allowed record levels of leverage to accumulate--including bank lending against risky, cyclically priced assets.
Policy responses have focused on regulatory reform. However, a greater policy impact may be a changed monetary policy framework.
Inflation targeting. A generation of central bankers has applied a doctrine of "inflation targeting," which uses a model-based approach:
--The "Taylor rule" sets a desirable inflation rate to maximize employment.
--The central bank uses interest rates to adjust growth toward the inflation goal, assuming there is a known equilibrium interest rate for stable full employment.
Asset prices. This model traditionally excludes asset prices, assuming that:
--these adjust around the equilibrium interest rate (i.e., are self-correcting);
--financial regulators should monitor leverage, not the central bank; and
--markets are better than central banks at identifying asset bubbles.
Recipe for failure. This approach became a victim of its own success:
--Financial markets became confident in central bank willingness to control inflation.
--This created profitable leverage structures within central bank model parameters.
--Leverage drove up asset prices--which, as they rose, provided collateral for further leverage.
Fed easing. As the U.S. Federal Reserve does not have an inflation target and couches its price stability mandate over a long horizon, it can allow inflation to rise without formal constraint.
Yet its loss of credibility fighting inflation allows wage demands to rise:
-- 1970s surge. Commodity--especially oil--prices drove inflation in the 1970s. However, when the Fed eased monetary policy to accommodate this, the general price level took off, and workers demanded compensation.
-- Tech bubble. When the Fed raised rates after its 2001-02 post-"tech bubble" easing, markets reacted by using increasing leverage to achieve desired returns, since they were confident the Fed could control inflation and keep interest rates low.
"Great reflation"? Historical trends might be categorized as: "great inflation" in the 1970s; "great moderation" in the 1980s-present; and a period of surprise inflation today, which might be christened "great reflation."
Globalization. Globalization may be helping lay foundations for reflation. A recent Bank for International Settlements paper sketches this relationship, considering interacting demand- and supply-side forces:
--High 1970s inflation was demand-driven (e.g., government deficits financed social programs) eventually leading to oil price rises and a wage-price spiral.
--The "great moderation" has been supply-driven, especially given Asia's rise as a low-cost producer. Globalization has expanded labor supply, introducing low-cost imports and restraining Organization for Economic Cooperation Development wage growth.
This suggests that central-bank inflation targeting in advanced economies has been relatively unimportant.
Safe Harbor Statement:
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
Nothing in this article is, or should be construed as, investment advice.
By reneging on the mandate to target Inflation, the Fed and most Central Banks have made themselves subservient to Commodity speculators across the globe. As demand compresses interest rates are cut, as supply become an issue Speculators horde up on Commodities using leverage pushing inflation further.
Either way the belief rests, that the Fed will intervene to keep interest rates low. As Real Interest Rates turn negative, Investors have little reason to save depreciating dollars.
So who suffers? Wage seekers of all varieties and Rent seekers in Stocks.
While expected policy fallout of the credit crisis centers on changes to regulatory regimes, the likely monetary policy may have far greater macroeconomic consequences.
The credit crisis turned the spotlight on financial system excesses that allowed record levels of leverage to accumulate--including bank lending against risky, cyclically priced assets.
Policy responses have focused on regulatory reform. However, a greater policy impact may be a changed monetary policy framework.
Inflation targeting. A generation of central bankers has applied a doctrine of "inflation targeting," which uses a model-based approach:
--The "Taylor rule" sets a desirable inflation rate to maximize employment.
--The central bank uses interest rates to adjust growth toward the inflation goal, assuming there is a known equilibrium interest rate for stable full employment.
Asset prices. This model traditionally excludes asset prices, assuming that:
--these adjust around the equilibrium interest rate (i.e., are self-correcting);
--financial regulators should monitor leverage, not the central bank; and
--markets are better than central banks at identifying asset bubbles.
Recipe for failure. This approach became a victim of its own success:
--Financial markets became confident in central bank willingness to control inflation.
--This created profitable leverage structures within central bank model parameters.
--Leverage drove up asset prices--which, as they rose, provided collateral for further leverage.
Fed easing. As the U.S. Federal Reserve does not have an inflation target and couches its price stability mandate over a long horizon, it can allow inflation to rise without formal constraint.
Yet its loss of credibility fighting inflation allows wage demands to rise:
-- 1970s surge. Commodity--especially oil--prices drove inflation in the 1970s. However, when the Fed eased monetary policy to accommodate this, the general price level took off, and workers demanded compensation.
-- Tech bubble. When the Fed raised rates after its 2001-02 post-"tech bubble" easing, markets reacted by using increasing leverage to achieve desired returns, since they were confident the Fed could control inflation and keep interest rates low.
"Great reflation"? Historical trends might be categorized as: "great inflation" in the 1970s; "great moderation" in the 1980s-present; and a period of surprise inflation today, which might be christened "great reflation."
Globalization. Globalization may be helping lay foundations for reflation. A recent Bank for International Settlements paper sketches this relationship, considering interacting demand- and supply-side forces:
--High 1970s inflation was demand-driven (e.g., government deficits financed social programs) eventually leading to oil price rises and a wage-price spiral.
--The "great moderation" has been supply-driven, especially given Asia's rise as a low-cost producer. Globalization has expanded labor supply, introducing low-cost imports and restraining Organization for Economic Cooperation Development wage growth.
This suggests that central-bank inflation targeting in advanced economies has been relatively unimportant.
Safe Harbor Statement:
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
Nothing in this article is, or should be construed as, investment advice.
No Reversal In Crude Oil Price, Even With Increased Supplies
OPEC Secretary-General Abdullah el al-Badri said Sunday oil prices would likely go higher and that the group was ready to raise production if the price pressure was due to a shortage of supply - something he doubted.
"Oil prices, there is a common understanding that has nothing to do with supply and demand," al-Badri said on the sidelines of an energy conference in Rome.
Oil prices reached a new high Friday at $117 a barrel.
A host of supply and demand concerns in the U.S. and abroad, along with the dollar's weakness, have served to support prices, even as record retail gasoline prices in the U.S.
appear to be dampening demand. Crude prices have risen as much as 4 percent last week.
The OPEC chief said the Organization for Petroleum Exporting Countries "will not hesitate" to increase production if the group thought the higher prices were due to shortages. But he said more oil will not solve the high prices.
OPEC's production levels were just one of many factors, he said.
"But how much higher it will go, of course it depends on a number of things: the political situation, whether there is a natural catastrophe, whether there are speculations in the market, whether there are strikes in certain producing countries. So there are many other factors other than OPEC production," al-Badri said.
"Oil prices, there is a common understanding that has nothing to do with supply and demand," al-Badri said on the sidelines of an energy conference in Rome.
Oil prices reached a new high Friday at $117 a barrel.
A host of supply and demand concerns in the U.S. and abroad, along with the dollar's weakness, have served to support prices, even as record retail gasoline prices in the U.S.
appear to be dampening demand. Crude prices have risen as much as 4 percent last week.
The OPEC chief said the Organization for Petroleum Exporting Countries "will not hesitate" to increase production if the group thought the higher prices were due to shortages. But he said more oil will not solve the high prices.
OPEC's production levels were just one of many factors, he said.
"But how much higher it will go, of course it depends on a number of things: the political situation, whether there is a natural catastrophe, whether there are speculations in the market, whether there are strikes in certain producing countries. So there are many other factors other than OPEC production," al-Badri said.
ICICI Bank-Signs Of A Slow-Down
ICICI Bank
Life Insurance – First Signs of Slowdown? Getting insured or losing your retirement nest?
ICICI
Prudential has announced that its new business premiums (on APE basis) grew by 40% YoY in the quarter ended March 2008 (F4Q08). Given that the growth rate in Jan–Feb was about 100% YoY, this implies a sharp slowdown in sales in March to about 20% YoY.
If this slowdown were to persist, then in our view, this would have negative implication on valuations being ascribed to life insurance businesses in India and also on fees income, which the private banks were generating from distribution of life insurance policies.
Capital market weakness has caused this slowdown, in our view –
We believe that more than 80% of policies being sold by private insurers in India are unit linked. This implies that investors were potentially looking at life insurance as a way to participate in the bull-run in stock markets.
However, returns clearly disappointed investors in 2008. If we look at average returns generated by various life insurers in 2008, they declined by between 18-30% in F4Q08. This may have caused the slowdown.
India is over-penetrated in life insurance given income and saving levels –
One of the arguments favoring continued growth in life insurance has been that if markets are weak, insurance companies can easily move towards traditional policies – we think it will not be
easy to get growth from traditional policies for the industry, as a whole.
If we look at premium / GDP in India, it is likely to have been above 5% in 2007 – which
is significantly higher than most developing countries. We believe that this over penetration was driven by investors using the insurance route to invest in markets.
If markets remain weak, then we may see continued slowdown in the life insurance business in India.
This slowdown should have implications on valuations –
We are currently building in fairly robust growth in new business in F2009 (around 40-50% across insurance companies) and then applying an 18-20x multiple to value life businesses.
However, if growth continues to remain weak, which is dependent on capital markets activity, then there is clearly significant downside to our valuations.
We believe the companies most at risk are Reliance Capital, ICICI Bank and Kotak Bank.
Fees income will also face adverse headwinds for private banks –
Private Banks were booking a significant amount of fees on distribution of life insurance:
1. Life insurance distribution made up about 5% of total fees for ICICI Bank.
2. Third party distribution (life insurance + mutual funds) contributed 18% of retail commissions for HDFC Bank.
3. We do not have the exact numbers but believe that Axis Bank was booking significant fees on distribution of life insurance products.
If capital markets remain weak, this source of fees income, which was growing in triple digits, will likely slow down.
Hence, weakness in life insurance can impact both earnings and valuations of Indian financials. Given that these stocks are still trading at high multiples, we maintain our Cautious view on the sector.
Performance of Unit Linked Insurance Schemes
NAV 31-Dec-07 30-Mar-08
% Change
ICICI Prudential (Maximiser) 69 56.2 -18%
Bajaj Allianz (Equity Growth) 17.9 13.9 -22%
Reliance Life (Equity) 34.1 24.8 -27%
SBI Life (Equity Fund) 42.6 33.2 -22%
Birla Sunlife (Multiplier) 10.9 8 -27%
Kotak (Aggressive Growth) 39.2 29.7 -24%
HDFC Standard (Growth) 81.3 63.8 -21%
Source: Company data, Morgan Stanley Researc
Life Insurance – First Signs of Slowdown? Getting insured or losing your retirement nest?
ICICI
Prudential has announced that its new business premiums (on APE basis) grew by 40% YoY in the quarter ended March 2008 (F4Q08). Given that the growth rate in Jan–Feb was about 100% YoY, this implies a sharp slowdown in sales in March to about 20% YoY.
If this slowdown were to persist, then in our view, this would have negative implication on valuations being ascribed to life insurance businesses in India and also on fees income, which the private banks were generating from distribution of life insurance policies.
Capital market weakness has caused this slowdown, in our view –
We believe that more than 80% of policies being sold by private insurers in India are unit linked. This implies that investors were potentially looking at life insurance as a way to participate in the bull-run in stock markets.
However, returns clearly disappointed investors in 2008. If we look at average returns generated by various life insurers in 2008, they declined by between 18-30% in F4Q08. This may have caused the slowdown.
India is over-penetrated in life insurance given income and saving levels –
One of the arguments favoring continued growth in life insurance has been that if markets are weak, insurance companies can easily move towards traditional policies – we think it will not be
easy to get growth from traditional policies for the industry, as a whole.
If we look at premium / GDP in India, it is likely to have been above 5% in 2007 – which
is significantly higher than most developing countries. We believe that this over penetration was driven by investors using the insurance route to invest in markets.
If markets remain weak, then we may see continued slowdown in the life insurance business in India.
This slowdown should have implications on valuations –
We are currently building in fairly robust growth in new business in F2009 (around 40-50% across insurance companies) and then applying an 18-20x multiple to value life businesses.
However, if growth continues to remain weak, which is dependent on capital markets activity, then there is clearly significant downside to our valuations.
We believe the companies most at risk are Reliance Capital, ICICI Bank and Kotak Bank.
Fees income will also face adverse headwinds for private banks –
Private Banks were booking a significant amount of fees on distribution of life insurance:
1. Life insurance distribution made up about 5% of total fees for ICICI Bank.
2. Third party distribution (life insurance + mutual funds) contributed 18% of retail commissions for HDFC Bank.
3. We do not have the exact numbers but believe that Axis Bank was booking significant fees on distribution of life insurance products.
If capital markets remain weak, this source of fees income, which was growing in triple digits, will likely slow down.
Hence, weakness in life insurance can impact both earnings and valuations of Indian financials. Given that these stocks are still trading at high multiples, we maintain our Cautious view on the sector.
Performance of Unit Linked Insurance Schemes
NAV 31-Dec-07 30-Mar-08
% Change
ICICI Prudential (Maximiser) 69 56.2 -18%
Bajaj Allianz (Equity Growth) 17.9 13.9 -22%
Reliance Life (Equity) 34.1 24.8 -27%
SBI Life (Equity Fund) 42.6 33.2 -22%
Birla Sunlife (Multiplier) 10.9 8 -27%
Kotak (Aggressive Growth) 39.2 29.7 -24%
HDFC Standard (Growth) 81.3 63.8 -21%
Source: Company data, Morgan Stanley Researc
The Last Thing Needed Is A GDP
Will India's forecast GDP Growth Turn Out To Be A Mirage?
Close to 20 per cent of the direct demand for Cement and Steel comes from Residential, Commercial and Industrial Construction activity in India. This figure can rise substantially, should the 200 odd notified SEZs begin to come up to the development stage.
With an unprecedented rise in Global Commodity prices including that of Oil, Food, Cement, Steel, other Metals and Fertilisers, the Indian Planners need to re-think whether Banks are going ahead with funding unwanted, and unrealistic Commercial Real Estate and SEZ Development plans.
Already Credit Suisse, CLSA & Deutsche Bank have downgraded Indian Real Estate, from valuing stocks like Parsvnath, Purvanakara, HDIL, DLF, Unitech and Ansals at premium to NAV, all stocks are now being valued at a discount to NAV as land bank values have plunged. The last to join this race to downgrade Realty stocks is Enam, which in its April Strategy report has announced plans to Downgrade the sector including DLF.
Investors may be surprised, but speculation persists in the market, that MGF-Emaar whose IPO bombed in late January 2008, has short term liabilities in excess of Rs 2500 crore related mostly to land acquisition and stalled projects in Chandigarh and Gurgaon, even as cheques begin to bounce. Again, I am saying, all this is unconfirmed and can just be plain and simple rampant speculation spread by competitors.
What cannot be denied that Real Estate development has become a big contributor to GDP growth, through derived demand for Materials and direct demand for Homes and Offices-this could be atleast 1 to 2 per cent of GDP. And an evident and actual slow down will have its repercussions on GDP growth and Banks in particular, especially housing finance institutions.
A very marginal step in thwarting the development of this Bubble was taken on Thursday night by a 50 bps CRR hike by the RBI, which will invariably lead to a rise in lending rates by Banks, unless the Banks can lower deposit rates and continue to lend to Commercial Entities at the existing rates. The other impact, would be to raise lending rates while keeping the Deposit rates intact. The third alternate is to raise Deposit rates, should Banks continue to grow.
Now, beaten down Banks like ICICI Bank and so many others may see a Short Squeeze at some point in time, but they will be imperilling their own Balance Sheet structure, by lending more and growing more in an insuportive business envrionment.
People like Krishnan Thiagrajan of JP Morgan think that Banks become the best bet to play up the Indian Economic Growth. But listen carefully to what he said on CNBC the other night, and doubts arise. His view, portfolio managers are moving away from "capital intensive projects and weeding out stocks which have huge expansion plans linked to additional debt".
The thought divergence is stark, "lending is good, but not good if it is made to those who need capital". So what is India's growth story except for a $ 450 bn infra spend in the ongoing XIth plan period.
Such confusion in the mind of fund managers underlines dearth of business ideas, a disconnect from Reality and living under an illusion of multi-fold stock market gains in the previous 5 years. I would expect investors to be extra cautious in the coming few months, as the slow down becomes evident in massively declining corporate earnings under the twin impact of a Rise in Commodity prices and a fall in GDP growth.
As a way of spending your quality Sunday time, read on what appeared in Forbes recently:
HOME OWNERS STUCK IN UNFINISHED PROJECTS
At the new community of Seapine Estates, street names like Sea Foam Drive and Shoreline Road are meant to evoke a feeling of coastal tranquility. Instead, the two dozen or so residents of this New Jersey Shore development, near Atlantic City, feel anything but peace.
The Pennsylvania builder went bankrupt last summer and halted work, leaving open foundations, unfinished homes and empty streets that have invited outsiders to dump trash, spray graffiti and race cars.
As America's housing market has foundered, homeowners who bought into newly rising projects at just the wrong time have found themselves marooned in stalled, abandoned or largely unoccupied developments with little place to turn, placing a strain on them and municipalities forced to pick up the pieces.
Experts say it's one of the least examined aspects of the housing downturn, and one that has struck many parts of the country, from areas like Las Vegas, which experienced rampant speculation and overbuilding, to cities where construction was more restrained such as the Jersey Shore and Philadelphia.
The housing market remains in the doldrums: All but one of 20 metropolitan areas showed home price declines in January from a year ago, down 10.7 percent overall, according to the latest figures from the widely watched Standard & Poor's/Case-Shiller home price index.
Sixteen of the 20 metro areas posted record lows, with Las Vegas and Miami tying for the weakest market. Only Charlotte, N.C., bucked the trend, eking out an almost 2 percent gain.
Ken Bachman, 37, who lives on a half-empty street in Seapine, feels trapped. When he leaves the house every day, he has to look at an unsightly, unfinished home across the street.
Bankrupt Elliott Building Group of Langhorne, Pa., had planned more than 200 houses in the development with prices starting around $300,000, but residents say the community is only about a fifth occupied.
"It's an undesirable place to live right now," Bachman said. "Homes have been on the market for sale in here for over a year and they're just not selling, because who wants to move into a development that's bankrupt?"
One third of over 200 cities surveyed have seen an increase in abandoned or vacant properties in their communities as well as other forms of blight, according to a report released last month by the National League of Cities in Washington.
Nearly 60 percent said lenders have not offered to help cities deal with the fallout from foreclosures and other problems in housing.
"In more cases, cities are picking up the slack by maintaining the homes, mowing the lawns and making sure that neighborhoods with abandoned housing are safe," said Christiana McFarland, research manager at the league's Center for Policy and Research. "It's a strain on resources."
More than 25,000 vacant and abandoned properties cost eight Ohio cities at least $63 million, as local governments deal with job losses and the foreclosure crisis, according to a February report commissioned by ReBuild Ohio, a coalition of local government, nonprofit and civic groups.
At the unfinished Seapine Estates, Denise and Kevin Urtubey, parents of a toddler, worry about the safety of their daughter. Cars have raced down the street in the middle of the night; a couple was found having sex toward the back of the development; tubs and other debris have been dumped in empty lots.
"It wouldn't have happened if the neighborhood's completed. It's not a dead-end street. It's just that nobody's back there," said Denise Urtubey, 27.
Like abandoned and foreclosed homes, unfinished houses and projects are not merely community nuisances. They also contribute to the glut of inventory dragging down the market.
In the past year, builders that have filed for bankruptcy include Levitt and Sons in Fort Lauderdale, Fla.; TOUSA Inc. in Hollywood, Fla. and Neumann Homes Inc. in Warrenville, Ill.
Unfinished communities - as was the case with Seapine - are more likely to come from small or medium-size builders because they are more prone to run into financing problems than large builders, said Joe Snider, housing analyst for Moody's Investors Service in New York. Larger builders, like D.R. Horton Inc., typically won't leave homes half-finished but will instead build out a phase and stop until demand picks up.
Eric Bryant has been waiting since last June for his upscale Toll Brothers Inc. community in Las Vegas to start filling up.
"Since I moved in, we've had one cancellation, 10 homeowners did move in and then no sales since then," said the 43-year-old real estate agent and tax accountant. He spoke from his home, one of three on the street and 11 in a community designed to hold about 90.
"It's very quiet, it's extremely quiet," he said.
The house looks out over an expanse of rocky desert interrupted at neat intervals by a handful of homes in various stages of completion at the mid-$500,000 and up community. A sign in an adjacent empty lot beckons: "Lot #49 Future home of ______."
"I know it will turn around, I don't know how long it will take. I would like to see growth, but I don't see it any time in sight for this community," Bryant said. Horsham, Pa.-based Toll Brothers did not return calls for comment.
In Philadelphia, where overbuilding has been described as moderate, a glass-encased condominium building called Nouveau promised residents a modern, upscale urban lifestyle. Units were originally priced at $600,000 to $1.5 million.
But since Todd Zaki Warfel, 36, moved in last July, it's been lonesome: Only four of the building's 16 units are occupied.
He's also had tussles with developer CREI LLC, which he said left some areas unfinished for months. The lobby is finally getting tiled and missing glass is being replaced. CREI said it had to replace an architect and there was an incorrect shipment of glass from the manufacturer in September.
When fewer than half of the units in a project have been sold, the developer usually retains control of the homeowners association, diminishing the clout of residents if they wish to get things done.
As for Seapine, Egg Harbor Township officials said they've notified the insurers who issued $2.3 million in construction bonds to finish building the streets and other infrastructure or pay the town to do the work. They said they would sue if necessary.
Bank of America has taken over 180 of the lots at Seapine while 22 properties are in litigation over liens, the builder's attorney said.
Bank of America has received several offers for the lots, Bank of America spokeswoman Shirley Norton said, but that it will be up to whoever buys the properties to decide what to do with the development.
Even a quick sale would not guarantee a quick fix in today's market. Builders are being squeezed by tightening credit, weak buyer demand and cash flow problems as banks in some cases pressure them to pay down more of their loans as land values decrease, said Dave Seiders, chief economist for the National Association of Home Builders.
That means Denise Urtubey might have to wait a while before Seapine becomes a real community filled with neighbors and kids.
"I don't know what's going to happen to the neighborhood," she said, wistfully. "It's kind of sad that we won't have all the people we were expecting to have
Close to 20 per cent of the direct demand for Cement and Steel comes from Residential, Commercial and Industrial Construction activity in India. This figure can rise substantially, should the 200 odd notified SEZs begin to come up to the development stage.
With an unprecedented rise in Global Commodity prices including that of Oil, Food, Cement, Steel, other Metals and Fertilisers, the Indian Planners need to re-think whether Banks are going ahead with funding unwanted, and unrealistic Commercial Real Estate and SEZ Development plans.
Already Credit Suisse, CLSA & Deutsche Bank have downgraded Indian Real Estate, from valuing stocks like Parsvnath, Purvanakara, HDIL, DLF, Unitech and Ansals at premium to NAV, all stocks are now being valued at a discount to NAV as land bank values have plunged. The last to join this race to downgrade Realty stocks is Enam, which in its April Strategy report has announced plans to Downgrade the sector including DLF.
Investors may be surprised, but speculation persists in the market, that MGF-Emaar whose IPO bombed in late January 2008, has short term liabilities in excess of Rs 2500 crore related mostly to land acquisition and stalled projects in Chandigarh and Gurgaon, even as cheques begin to bounce. Again, I am saying, all this is unconfirmed and can just be plain and simple rampant speculation spread by competitors.
What cannot be denied that Real Estate development has become a big contributor to GDP growth, through derived demand for Materials and direct demand for Homes and Offices-this could be atleast 1 to 2 per cent of GDP. And an evident and actual slow down will have its repercussions on GDP growth and Banks in particular, especially housing finance institutions.
A very marginal step in thwarting the development of this Bubble was taken on Thursday night by a 50 bps CRR hike by the RBI, which will invariably lead to a rise in lending rates by Banks, unless the Banks can lower deposit rates and continue to lend to Commercial Entities at the existing rates. The other impact, would be to raise lending rates while keeping the Deposit rates intact. The third alternate is to raise Deposit rates, should Banks continue to grow.
Now, beaten down Banks like ICICI Bank and so many others may see a Short Squeeze at some point in time, but they will be imperilling their own Balance Sheet structure, by lending more and growing more in an insuportive business envrionment.
People like Krishnan Thiagrajan of JP Morgan think that Banks become the best bet to play up the Indian Economic Growth. But listen carefully to what he said on CNBC the other night, and doubts arise. His view, portfolio managers are moving away from "capital intensive projects and weeding out stocks which have huge expansion plans linked to additional debt".
The thought divergence is stark, "lending is good, but not good if it is made to those who need capital". So what is India's growth story except for a $ 450 bn infra spend in the ongoing XIth plan period.
Such confusion in the mind of fund managers underlines dearth of business ideas, a disconnect from Reality and living under an illusion of multi-fold stock market gains in the previous 5 years. I would expect investors to be extra cautious in the coming few months, as the slow down becomes evident in massively declining corporate earnings under the twin impact of a Rise in Commodity prices and a fall in GDP growth.
As a way of spending your quality Sunday time, read on what appeared in Forbes recently:
HOME OWNERS STUCK IN UNFINISHED PROJECTS
At the new community of Seapine Estates, street names like Sea Foam Drive and Shoreline Road are meant to evoke a feeling of coastal tranquility. Instead, the two dozen or so residents of this New Jersey Shore development, near Atlantic City, feel anything but peace.
The Pennsylvania builder went bankrupt last summer and halted work, leaving open foundations, unfinished homes and empty streets that have invited outsiders to dump trash, spray graffiti and race cars.
As America's housing market has foundered, homeowners who bought into newly rising projects at just the wrong time have found themselves marooned in stalled, abandoned or largely unoccupied developments with little place to turn, placing a strain on them and municipalities forced to pick up the pieces.
Experts say it's one of the least examined aspects of the housing downturn, and one that has struck many parts of the country, from areas like Las Vegas, which experienced rampant speculation and overbuilding, to cities where construction was more restrained such as the Jersey Shore and Philadelphia.
The housing market remains in the doldrums: All but one of 20 metropolitan areas showed home price declines in January from a year ago, down 10.7 percent overall, according to the latest figures from the widely watched Standard & Poor's/Case-Shiller home price index.
Sixteen of the 20 metro areas posted record lows, with Las Vegas and Miami tying for the weakest market. Only Charlotte, N.C., bucked the trend, eking out an almost 2 percent gain.
Ken Bachman, 37, who lives on a half-empty street in Seapine, feels trapped. When he leaves the house every day, he has to look at an unsightly, unfinished home across the street.
Bankrupt Elliott Building Group of Langhorne, Pa., had planned more than 200 houses in the development with prices starting around $300,000, but residents say the community is only about a fifth occupied.
"It's an undesirable place to live right now," Bachman said. "Homes have been on the market for sale in here for over a year and they're just not selling, because who wants to move into a development that's bankrupt?"
One third of over 200 cities surveyed have seen an increase in abandoned or vacant properties in their communities as well as other forms of blight, according to a report released last month by the National League of Cities in Washington.
Nearly 60 percent said lenders have not offered to help cities deal with the fallout from foreclosures and other problems in housing.
"In more cases, cities are picking up the slack by maintaining the homes, mowing the lawns and making sure that neighborhoods with abandoned housing are safe," said Christiana McFarland, research manager at the league's Center for Policy and Research. "It's a strain on resources."
More than 25,000 vacant and abandoned properties cost eight Ohio cities at least $63 million, as local governments deal with job losses and the foreclosure crisis, according to a February report commissioned by ReBuild Ohio, a coalition of local government, nonprofit and civic groups.
At the unfinished Seapine Estates, Denise and Kevin Urtubey, parents of a toddler, worry about the safety of their daughter. Cars have raced down the street in the middle of the night; a couple was found having sex toward the back of the development; tubs and other debris have been dumped in empty lots.
"It wouldn't have happened if the neighborhood's completed. It's not a dead-end street. It's just that nobody's back there," said Denise Urtubey, 27.
Like abandoned and foreclosed homes, unfinished houses and projects are not merely community nuisances. They also contribute to the glut of inventory dragging down the market.
In the past year, builders that have filed for bankruptcy include Levitt and Sons in Fort Lauderdale, Fla.; TOUSA Inc. in Hollywood, Fla. and Neumann Homes Inc. in Warrenville, Ill.
Unfinished communities - as was the case with Seapine - are more likely to come from small or medium-size builders because they are more prone to run into financing problems than large builders, said Joe Snider, housing analyst for Moody's Investors Service in New York. Larger builders, like D.R. Horton Inc., typically won't leave homes half-finished but will instead build out a phase and stop until demand picks up.
Eric Bryant has been waiting since last June for his upscale Toll Brothers Inc. community in Las Vegas to start filling up.
"Since I moved in, we've had one cancellation, 10 homeowners did move in and then no sales since then," said the 43-year-old real estate agent and tax accountant. He spoke from his home, one of three on the street and 11 in a community designed to hold about 90.
"It's very quiet, it's extremely quiet," he said.
The house looks out over an expanse of rocky desert interrupted at neat intervals by a handful of homes in various stages of completion at the mid-$500,000 and up community. A sign in an adjacent empty lot beckons: "Lot #49 Future home of ______."
"I know it will turn around, I don't know how long it will take. I would like to see growth, but I don't see it any time in sight for this community," Bryant said. Horsham, Pa.-based Toll Brothers did not return calls for comment.
In Philadelphia, where overbuilding has been described as moderate, a glass-encased condominium building called Nouveau promised residents a modern, upscale urban lifestyle. Units were originally priced at $600,000 to $1.5 million.
But since Todd Zaki Warfel, 36, moved in last July, it's been lonesome: Only four of the building's 16 units are occupied.
He's also had tussles with developer CREI LLC, which he said left some areas unfinished for months. The lobby is finally getting tiled and missing glass is being replaced. CREI said it had to replace an architect and there was an incorrect shipment of glass from the manufacturer in September.
When fewer than half of the units in a project have been sold, the developer usually retains control of the homeowners association, diminishing the clout of residents if they wish to get things done.
As for Seapine, Egg Harbor Township officials said they've notified the insurers who issued $2.3 million in construction bonds to finish building the streets and other infrastructure or pay the town to do the work. They said they would sue if necessary.
Bank of America has taken over 180 of the lots at Seapine while 22 properties are in litigation over liens, the builder's attorney said.
Bank of America has received several offers for the lots, Bank of America spokeswoman Shirley Norton said, but that it will be up to whoever buys the properties to decide what to do with the development.
Even a quick sale would not guarantee a quick fix in today's market. Builders are being squeezed by tightening credit, weak buyer demand and cash flow problems as banks in some cases pressure them to pay down more of their loans as land values decrease, said Dave Seiders, chief economist for the National Association of Home Builders.
That means Denise Urtubey might have to wait a while before Seapine becomes a real community filled with neighbors and kids.
"I don't know what's going to happen to the neighborhood," she said, wistfully. "It's kind of sad that we won't have all the people we were expecting to have
Sunday, 2 October 2011
Risk Aversion Dominates USD Gains Euro Weakens
The FX markets are extremely cyclical at the moment, from one week to the next we are seeing wild swings in sentiment. Last week focus fell on the Pound and a host of negative news forced the Pound lower against the majority of the world’s most actively traded currencies. This week it would appear that focus has now shifted towards selling the Euro
what is Average Interest Rate in share trading
Understanding the average interest rate can engage utilizing certain tools that can help customers track the rates that are available from a variety of credit sources. These tools could include specific tracking software as well as websites that post the current averages on a number of items such as certificates of deposit, automobile loans, mortgage loans, credit cards, and home equity loans. Such weekly averages can assist borrowers compare a variety of rates within a specific category,
Note; hi friends this website ,blog give day trading tips calls for indian stock market bse sensex traders,
(Interest Expense - Accounts Payable)
= ------------------------------------------
Liabilities
•This is a rough estimate, the proportion does not account for all.
•Using the before tax or after tax interest outlay will produce different results.
Note; hi friends this website ,blog give day trading tips calls for indian stock market bse sensex traders,
(Interest Expense - Accounts Payable)
= ------------------------------------------
Liabilities
•This is a rough estimate, the proportion does not account for all.
•Using the before tax or after tax interest outlay will produce different results.
Monday, 19 September 2011
Crude oil & Rate hike shock for markets
Renewed optimism that central bankers across Europe will take steps to ease the sovereign debt crisis fuelled a relief rally in the global stock markets. The developed markets registered healthy gains while emerging markets ended the week on a flattish note. The US stock markets rallied for five consecutive days and were up 4.7% during the week. However, it would be interesting to see whether the current momentum continues in the next week or not. Investors are keenly eyeing the outcome of the Federal Open Market Committee (FOMC) meet scheduled on Tuesday. Further, existing home sales data for the month of August would also be released on Wednesday. The outcome of these events is likely to set the momentum for next week's trade.
Indian stock markets managed to stay afloat during the week notwithstanding another rate hike undertaken by the central bank. Positive global cues overweighed rate hike concerns with Indian shares registering gains for third consecutive week. Amongst the other markets, Germany was up 7.4% while UK was up 2.9% during the week. However, Singapore (down 1.3%) and Hong Kong (down 2.1%) closed the week in red.
Now, let's take a look at key economic developments during the week. In its mid-quarter review of the monetary policy, the Reserve Bank of India (RBI) has continued with its hawkish stance. By raising the repo and the reverse repo rate, the central bank has now hiked policy rates for the 12th time in last one and half years. The repo rate was raised by 0.25 percentage points to 8.25%, while the reverse repo rate will now be 7.25%. The primary reason for the same has been the persistently high inflation that has been prevailing for quite some time now, which has been well out of the comfort range of the central bank. The latest IIP (Index of Industrial Production) was also quite low at 3.3% and many companies are facing the pressure of rising interest rates and input costs, which have hurt profits. Thus, it would be interesting to see for how long the RBI continues with its monetary tightening measures.
To combat firm international fuel prices and slide of rupee against dollar, petrol prices have been raised to the extent of Rs 3.14 at the end user level. The ad hoc price increase may to an extent reduce under recovery losses for state oil retailers and subsidy burden for companies like Oil & Natural Gas Corporation (ONGC). However, such piecemeal measures are just crude shocks to consumers and no substitute to clear pricing and subsidy sharing formulae for the sector. Rise in crude oil prices will further stoke inflation which is already above the comfort zone.
As per a leading financial daily, power companies may default on their loans. Companies like Power Finance Corp, Rural Elect., Tata Power, and Reliance Power are reeling under low tariffs, scarcity of fuel and land acquisition problems. Their new plants are not operating at the targeted capacities. They are likely to default on loans worth Rs 1,350 bn. As a result, banks are exercising caution while sanctioning loans for power projects. As per the Reserve Bank of India (RBI), banks have an exposure of Rs 2,923 bn loans to this sector. Of this half the loans have not yet been utilized and fund flow to new projects has almost stopped.
Now let's take a look at key corporate events during the week. Infosys is the frontrunner to acquire the health care business of Thomson Reuters. The deal is estimated to be worth approximately US$ 700 m. The health care unit is a provider of data, analytics and performance benchmarking solutions and services to companies, government agencies and health care professionals. This acquisition is a part of Infosys' strategy to diversify beyond banking services. The IT company had earlier maintained that healthcare is one of the key focus areas going forward. This is because health care, as a part of revenue contribution, was just about 1.1% at the end of the quarter ended June 2011. This is far less compared to Wipro which had 11% and TCS which had 6% contribution from healthcare.
Power major NTPC is expected to raise generation capacity to 36,000 MW by the end of this fiscal with the commissioning of two more 660 MW units at Sipat power project. The first 660 MW plant has already been commissioned. The 1,980 MW Sipat power project is the company's first supercritical plant and is 2% more efficient as compared to other thermal plants. Further, the company is working on projects of about 40,000 MW at present. Projects with capacity of over 14,000 MW are under various stages of implementation. It must be noted that NTPC is targeting to become a 128,000 MW company by 2032 with 28% capacity from non-fossil sources. NTPC's share in the country's generation was 27.4% in 2010-11, with 17.75% of the national capacity. It has planned capex of Rs 264 bn for FY12. However, fuel linkages and execution will be the key.
State owned Steel Authority of India Ltd. (SAIL) is set to raise its production from its iron ore mines to about 38 m tonnes. The move is in tandem with the company's Rs 700 bn mega expansion plan wherein it will increase hot metal capacity from 13 m tonnes to 23 m tonnes by 2012-13. In order to meet the higher raw material requirement, SAIL is following a three-pronged strategy to double its iron ore output from its captive mines at an expected investment of about Rs 103 bn. First, the company will increase production from existing mines through de-bottlenecking and deploying high capacity heavy earth moving equipment. Second, the company will enhance the capacity of existing mines at Kiriburu, Meghahatuburu, Bolani and Gua. SAIL also plans to develop new mines at Chiria and Taldih.
Movers and shakers during the week
Company 9-Sep-11 16-Sep-11 Change 52-wk High/Low
Top gainers during the week (BSE-A Group)
GTL Ltd 53 63 19.8% 440/49
Tulip Telecom 145 157 8.1% 200/132
Madras Cement 94 101 7.9% 128/81
Financial Technologies 800 861 7.6% 1430/690
Indiabulls Financial Services 151 162 7.4% 240/138
Top losers during the week (BSE-A Group)
Pantaloon Ltd 301 259 -13.8% 521/233
Marico Ltd 161 141 -12.3% 169/114
Koutons Retail 24 21 -11.9% 306/19
Indian Overseas Bank 113 101 -10.9% 175/102
Jet Airways 302 272 -9.8% 910/256
Source: Equitymaster
The recent rate hike undertaken by RBI has raised concerns over the already struggling real estate sector. The industry is currently besieged with high input cost and slumping sales due to waning buyer interest. And thus the current hike may not bode well for the industry. With festive season approaching there was an expectation that absorption rates across key cities may witness an uptrend. However, increase in repo rate means that home loans are about to get costlier. This would deter sales and further excruciate the pain for the developers. Unless the RBI dilutes its hawkish stance thereby making credit cheaper we do not expect a meaningful traction as far as home sales volumes are concerned.
Indian stock markets managed to stay afloat during the week notwithstanding another rate hike undertaken by the central bank. Positive global cues overweighed rate hike concerns with Indian shares registering gains for third consecutive week. Amongst the other markets, Germany was up 7.4% while UK was up 2.9% during the week. However, Singapore (down 1.3%) and Hong Kong (down 2.1%) closed the week in red.
Now, let's take a look at key economic developments during the week. In its mid-quarter review of the monetary policy, the Reserve Bank of India (RBI) has continued with its hawkish stance. By raising the repo and the reverse repo rate, the central bank has now hiked policy rates for the 12th time in last one and half years. The repo rate was raised by 0.25 percentage points to 8.25%, while the reverse repo rate will now be 7.25%. The primary reason for the same has been the persistently high inflation that has been prevailing for quite some time now, which has been well out of the comfort range of the central bank. The latest IIP (Index of Industrial Production) was also quite low at 3.3% and many companies are facing the pressure of rising interest rates and input costs, which have hurt profits. Thus, it would be interesting to see for how long the RBI continues with its monetary tightening measures.
To combat firm international fuel prices and slide of rupee against dollar, petrol prices have been raised to the extent of Rs 3.14 at the end user level. The ad hoc price increase may to an extent reduce under recovery losses for state oil retailers and subsidy burden for companies like Oil & Natural Gas Corporation (ONGC). However, such piecemeal measures are just crude shocks to consumers and no substitute to clear pricing and subsidy sharing formulae for the sector. Rise in crude oil prices will further stoke inflation which is already above the comfort zone.
As per a leading financial daily, power companies may default on their loans. Companies like Power Finance Corp, Rural Elect., Tata Power, and Reliance Power are reeling under low tariffs, scarcity of fuel and land acquisition problems. Their new plants are not operating at the targeted capacities. They are likely to default on loans worth Rs 1,350 bn. As a result, banks are exercising caution while sanctioning loans for power projects. As per the Reserve Bank of India (RBI), banks have an exposure of Rs 2,923 bn loans to this sector. Of this half the loans have not yet been utilized and fund flow to new projects has almost stopped.
Now let's take a look at key corporate events during the week. Infosys is the frontrunner to acquire the health care business of Thomson Reuters. The deal is estimated to be worth approximately US$ 700 m. The health care unit is a provider of data, analytics and performance benchmarking solutions and services to companies, government agencies and health care professionals. This acquisition is a part of Infosys' strategy to diversify beyond banking services. The IT company had earlier maintained that healthcare is one of the key focus areas going forward. This is because health care, as a part of revenue contribution, was just about 1.1% at the end of the quarter ended June 2011. This is far less compared to Wipro which had 11% and TCS which had 6% contribution from healthcare.
Power major NTPC is expected to raise generation capacity to 36,000 MW by the end of this fiscal with the commissioning of two more 660 MW units at Sipat power project. The first 660 MW plant has already been commissioned. The 1,980 MW Sipat power project is the company's first supercritical plant and is 2% more efficient as compared to other thermal plants. Further, the company is working on projects of about 40,000 MW at present. Projects with capacity of over 14,000 MW are under various stages of implementation. It must be noted that NTPC is targeting to become a 128,000 MW company by 2032 with 28% capacity from non-fossil sources. NTPC's share in the country's generation was 27.4% in 2010-11, with 17.75% of the national capacity. It has planned capex of Rs 264 bn for FY12. However, fuel linkages and execution will be the key.
State owned Steel Authority of India Ltd. (SAIL) is set to raise its production from its iron ore mines to about 38 m tonnes. The move is in tandem with the company's Rs 700 bn mega expansion plan wherein it will increase hot metal capacity from 13 m tonnes to 23 m tonnes by 2012-13. In order to meet the higher raw material requirement, SAIL is following a three-pronged strategy to double its iron ore output from its captive mines at an expected investment of about Rs 103 bn. First, the company will increase production from existing mines through de-bottlenecking and deploying high capacity heavy earth moving equipment. Second, the company will enhance the capacity of existing mines at Kiriburu, Meghahatuburu, Bolani and Gua. SAIL also plans to develop new mines at Chiria and Taldih.
Movers and shakers during the week
Company 9-Sep-11 16-Sep-11 Change 52-wk High/Low
Top gainers during the week (BSE-A Group)
GTL Ltd 53 63 19.8% 440/49
Tulip Telecom 145 157 8.1% 200/132
Madras Cement 94 101 7.9% 128/81
Financial Technologies 800 861 7.6% 1430/690
Indiabulls Financial Services 151 162 7.4% 240/138
Top losers during the week (BSE-A Group)
Pantaloon Ltd 301 259 -13.8% 521/233
Marico Ltd 161 141 -12.3% 169/114
Koutons Retail 24 21 -11.9% 306/19
Indian Overseas Bank 113 101 -10.9% 175/102
Jet Airways 302 272 -9.8% 910/256
Source: Equitymaster
The recent rate hike undertaken by RBI has raised concerns over the already struggling real estate sector. The industry is currently besieged with high input cost and slumping sales due to waning buyer interest. And thus the current hike may not bode well for the industry. With festive season approaching there was an expectation that absorption rates across key cities may witness an uptrend. However, increase in repo rate means that home loans are about to get costlier. This would deter sales and further excruciate the pain for the developers. Unless the RBI dilutes its hawkish stance thereby making credit cheaper we do not expect a meaningful traction as far as home sales volumes are concerned.
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