iCharts Discussions

[pkholla]

vinay: i will need ak(47)'s cooperation in psychoanalyzing the previous interactions !!! rgds, prakash holla

[vinay28]

just go through our exchange in this thread and in his blog (as also in nifty view with him and sam)

[ajayhkaul]

[pkholla]

[ajayhkaul]

[vinay28]

I presume you have seen this as well

http://www.brettsteenbarger.com/articles.htm

[ajayhkaul]

[ajayhkaul]

[vinay28]

something I received although a bit too long
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Is democracy in India compelling the politicians to fair well against European govt.?

The debt crisis certainly is far from over. After US got downgraded by S&P's last year for the first time in history, European countries are now facing the heat. Moody's has slashed debt ratings of Italy, Spain and Portugal. What is more, the ratings agency has issued warnings to France, Britain and Austria. The main issue for this downgrade seemingly is that European leaders are not doing much to reverse the downslide of their respective economies. Indeed, what was observed last year was policy paralysis gripping European leaders. This threatened the existence of the Euro. With some European leaders gunning for a rescue package and Germany favouring austerity measures, conditions in Europe only worsened. One big hurdle was overcome when Greece agreed to a tough austerity package recently. But Europe still has a long way to go caught that it is in a vicious circle. This is because the only way that debt can be cut down is to resort to austerity measures. But the latter will only choke growth in economies which are already reeling under recession making the repayment of debt that much more difficult.

On the other side...

That Reserve Bank of India (RBI) Governor Dr Subbarao is not in praise of the government's functioning is no news. In a recent interview he once again criticized the government's policies on spending. According to him, the government should have a definite plan to control its debt and spending. Else, inflation control would be tough. At the same time, he has also blamed the extravagant policies for the country's decelerating economic growth.

As per Dr Subbarao, the government's unproductive policies are responsible for a huge quantum of money that has flown into the monetary system. This money is responsible for the increasing prices of asset classes which in turn is fuelling inflation. Unless the government rationalizes its spending through sensible policies, it is difficult to rein in inflation. The RBI meanwhile continues to counter allegations of anti growth policies.

Is India's central bank like the duck in one of Warren Buffett's famous analogies? The pond in which the duck is swimming witnesses heavy rains. This causes both the level of the pond and the bird to rise. However, the bird is under the impression that its rising has been caused by its own paddling skills instead of the rains. Now, replace the duck with the RBI and the level of the pond with the rupee's appreciation of the past few weeks and a clear picture emerges. The rupee's appreciation is being touted as a victory for the RBI.

In reality though, most of that must have been caused by the re-emergence of Foreign Institutional Investor (FII) inflows into the country we believe. Is rupee's appreciation likely to continue? We don't think so. The problems in the developed world are far from over. Thus, the hot money that has come in may go out just as fast. This could then cause the rupee to go down once more, probably settling at an even lower level than before. In view of this, the RBI has its task cut out. It can ill afford to get complacent. What makes matters worse is the fact that there is very little that even the RBI can do. Unless we make our economy resilient enough by boosting exports and reducing our fiscal deficit, we will con tinue to be at the mercy of hot money.

Cost of Living:

If steep food and fuel inflation has given the impression of Mumbai being one of the most expensive cities to live in, think again. Major cities in other parts of the word have slid on the affordability index much faster. The cost of living index shows that living cost in Mumbai were nearly half of that in New York and Shanghai and a third of that in Zurich at the end of December 2011.

(Data source: Economist)

Banking Sector - Robustness

Operating in a scenario where economic headwinds play spoilsport is bad enough. If the sector is banking you have additional roadblocks. Unwilling customers, tight liquidity and risk on asset quality are central to the business of banking. They get accentuated when the economy is in a downturn. But for a certain group of entities, whether the economic scene is good or bad does not matter. Making wrong business decisions, albeit unwillingly, is part of their mandate from the owners.

Public sector banks in India have the best resources at their disposal. They have sufficient capital backing from the government to begin with. Sufficient penetration and scope to cater to a young, prospering under banked population is noteworthy. Above all they have adequate and affordable manpower with growing efficiency rate. When compared with their peers in the West, these entities seem to have business models that can hardly go wrong. Yet, one economic cycle after the other is spent getting their books in order. Reason being, they are government owned.

True unlike their Chinese peers, large Indian banks do not operate like the government's treasury. They do not fund asset bubbles or cater only to corporate heavyweights. Thanks to a strict regulator, their disclosure norms are also far better. However, their submission to the government's social commitments takes the wind out their sail. Every time the GDP growth looks good, the government ups its subsidies for the poor. Giving out cheap loans through the PSU banks is one of the most favoured tactics. One it does not hurt the fiscal deficit directly. Secondly, if the loans were to turn bad, the solution is easy. All the government needs to do is allow loan restructuring. That means the inevitable bad loans would turn into NPAs over a prolonged period. Needless, to say that the interest of minority shareholders in the bank is hurt. Every time the bank goes through the pain of loan write-offs, its net worth gets eroded. However, the bad business decision of offering ch eap loans to ineligible borrowers is repeated again and again. The December 2011 results show a host of PSU banks carrying restructured loans and gross NPAs totaling 7 to 11% of their total loan book.

(Source: Company data, Mint)

Whether or not the PSU banks have efficient management is beside the point. Even the ones that do have little autonomy to use their skills. Having government ownership in few banks is not a bad idea. But it is high time these entities call for more freedom and proactive management.

Indian Information Technology (IT) industry :

Uncertainty in the global economic scenario has been hurting job creation for quite some time now. However, the Indian Information Technology (IT) industry seems to be at the forefront of job creation! As per the National Association of Software and Services Companies (NASSCOM), this industry would be adding around 2.3 lakh jobs in the current financial year (FY12). Not just that, even for the coming fiscal year FY13, it has already made job offers to 1 lakh fresh graduates. The job creation is not restricted to India alone. The Indian software industry has created more than 25,000 jobs in the US over the past several years. The industry has been growing at a fast clip for the past two decades. And the growth story is no more about body shopping or low value jobs. The industry seems to be moving up in the value chain at an aggressive pace. A growth estimation of 16% on the back of just 10% additional employees speaks volume in this regard. With more clients looking for greater cost efficiency and the Indian government's commitment for e-governance, the industry is set to keep its growth momentum in the future.

[ajayhkaul]

what price democracy ?

[ajayhkaul]

Potential GAME CHANGER ?

Until Monday the big banks were spending an inordinate amount of time fighting and lobbying against a single rule proposed in the financial form legislation of 2010, the so-called Volcker Rule.


The proposed rule prohibits banks from doing what is known as proprietary trading, trading aimed at making profit for the bank, rather than fulfilling a client’s order. A battle has been raging over how narrowly proprietary trading should be defined. If a bank buys 100 Italian bonds and holds them for five days before selling them, is that proprietary trading? This becomes a question of what the bank’s intent was when it originally bought the bonds, which the banks say is just too difficult to do.

Jamie Dimon, the chief executive of JPMorgan Chase & Co. summed up the angry sentiment of many bankers when he went on Fox Business Network on Monday.

“Protecting the system I agree with, but starting to talk about intent; for every trader, we are going to have to have a lawyer, compliance officer, doctor to see what their testosterone levels are, and a shrink, what is your intent?” Dimon said during his appearance.

JPMorgan also submitted a 67-page letter laying out its position, according to Bloomberg. That is in addition to the five separate letters sent in by the Securities Industry and Financial Markets Assn., and the many other letters submitted by other industry groups.

The California pension system, CalPERS, wrote its own letter acknowledging that the rule will probably make trading more expensive, but said that this was a price worth paying for the additional stability the rule could bring to the financial markets.

The most visible opponent of the banks has been the man who inspired the rule, former Federal Reserve Chairman Paul Volcker. He submitted his own five-page letter to the SEC on Monday addressing concerns that the rule would drive up the price of buying and selling assets through the banks, and make the markets less liquid.

“My short answer to each of these objections is: ‘not so’.” he wrote.

Proprietary trading, he said, is “at odds with the basic objectives of financial reforms: to reduce excessive risk, to reinforce prudential supervision, and to assure the continuity of essential services.”

[vinay28]

Warren Buffett: Why stocks beat gold and bonds
February 9, 2012: 5:00 AM ET

In an adaptation from his upcoming shareholder letter, the Oracle of Omaha explains why equities almost always beat the alternatives over time.

By Warren Buffett

FORTUNE -- Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway (BRKA) we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power -- after taxes have been paid on nominal gains -- in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.

From our definition there flows an important corollary: The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability -- the reasoned probability -- of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period. And as we will see, a nonfluctuating asset can be laden with risk.

Investment possibilities are both many and varied. There are three major categories, however, and it's important to understand the characteristics of each. So let's survey the field.

Investments that are denominated in a given currency include money-market funds, bonds, mortgages, bank deposits, and other instruments. Most of these currency-based investments are thought of as "safe." In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge.

Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal. This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control.

Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 today to buy what $1 did at that time. Consequently, a tax-free institution would have needed 4.3% interest annually from bond investments over that period to simply maintain its purchasing power. Its managers would have been kidding themselves if they thought of any portion of that interest as "income."

For taxpaying investors like you and me, the picture has been far worse. During the same 47-year period, continuous rolling of U.S. Treasury bills produced 5.7% annually. That sounds satisfactory. But if an individual investor paid personal income taxes at a rate averaging 25%, this 5.7% return would have yielded nothing in the way of real income. This investor's visible income tax would have stripped him of 1.4 points of the stated yield, and the invisible inflation tax would have devoured the remaining 4.3 points. It's noteworthy that the implicit inflation "tax" was more than triple the explicit income tax that our investor probably thought of as his main burden. "In God We Trust" may be imprinted on our currency, but the hand that activates our government's printing press has been all too human.

High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments -- and indeed, rates in the early 1980s did that job nicely. Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label.

Warren Buffett: Your pick for Businessperson of the Year

Under today's conditions, therefore, I do not like currency-based investments. Even so, Berkshire holds significant amounts of them, primarily of the short-term variety. At Berkshire the need for ample liquidity occupies center stage and will never be slighted, however inadequate rates may be. Accommodating this need, we primarily hold U.S. Treasury bills, the only investment that can be counted on for liquidity under the most chaotic of economic conditions. Our working level for liquidity is $20 billion; $10 billion is our absolute minimum.

Beyond the requirements that liquidity and regulators impose on us, we will purchase currency-related securities only if they offer the possibility of unusual gain -- either because a particular credit is mispriced, as can occur in periodic junk-bond debacles, or because rates rise to a level that offers the possibility of realizing substantial capital gains on high-grade bonds when rates fall. Though we've exploited both opportunities in the past -- and may do so again -- we are now 180 degrees removed from such prospects. Today, a wry comment that Wall Streeter Shelby Cullom Davis made long ago seems apt: "Bonds promoted as offering risk-free returns are now priced to deliver return-free risk."

The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer's hope that someone else -- who also knows that the assets will be forever unproductive -- will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.

This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce -- it will remain lifeless forever -- but rather by the belief that others will desire it even more avidly in the future.

The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As "bandwagon" investors join any party, they create their own truth -- for a while.

Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the "proof " delivered by the market, and the pool of buyers -- for a time -- expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: "What the wise man does in the beginning, the fool does in the end."

Today the world's gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce -- gold's price as I write this -- its value would be about $9.6 trillion. Call this cube pile A.

Let's now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world's most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today's annual production of gold command about $160 billion. Buyers -- whether jewelry and industrial users, frightened individuals, or speculators -- must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops -- and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil (XOM) will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

Admittedly, when people a century from now are fearful, it's likely many will still rush to gold. I'm confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

Our first two categories enjoy maximum popularity at peaks of fear: Terror over economic collapse drives individuals to currency-based assets, most particularly U.S. obligations, and fear of currency collapse fosters movement to sterile assets such as gold. We heard "cash is king" in late 2008, just when cash should have been deployed rather than held. Similarly, we heard "cash is trash" in the early 1980s just when fixed-dollar investments were at their most attractive level in memory. On those occasions, investors who required a supportive crowd paid dearly for that comfort.

My own preference -- and you knew this was coming -- is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola (KO), IBM (IBM), and our own See's Candy meet that double-barreled test. Certain other companies -- think of our regulated utilities, for example -- fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.

Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See's peanut brittle. In the future the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce.

Our country's businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial "cows" will live for centuries and give ever greater quantities of "milk" to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. Proceeds from the sale of the milk will compound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well).

Berkshire's goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety -- but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we've examined. More important, it will be by farthe safest.

This article is from the February 27, 2012 issue of Fortune.

Posted in: Berkshire Hathaway, Berkshire Hathaway shareholder letter, bonds, gold, investing, stocks, Warren Buffett

[vinay28]

http://telegraphindia.com/1120206/jsp/frontpage/story_15098135.jsp

A top expet on markets has advised europeans (govts and people) to wake up and invest more in EMs

[ajayhkaul]

Japan Central Bank unexpectedly added 10 trillion yen ($128 billion) to an asset-purchase program and set an inflation goal after an economic slide fueled criticism it has been slower to act than counterparts.

An asset fund increased to 30 trillion yen, with a credit lending program staying at 35 trillion yen, the Bank of Japan said in Tokyo today. The BOJ also said that it will target 1 percent inflation “for the time being.”

Stocks rose and the yen weakened against the dollar as the central bank expanded stimulus for the first time since October to revive an economy that shrank an annualized 2.3 percent last quarter. Lawmakers had urged extra efforts to counter deflation after the Federal Reserve adopted a 2 percent inflation target and the European Central Bank expanded its balance sheet.

Today’s decision “shows the BOJ bowed to political pressure,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “There will probably be limited impact on the yen’s gains.”


Notice something ? Across the world Central banks are going ballistic with printing .

No one wants a strong currency anymore !?

[psalm]