We had earlier cited that Warren Buffett is of the opinion that the US economy is past the critical point in its efforts to recover from the recession. But not everyone believes so. Professor Nouriel Roubini, who was among the first to gauge the true extent of the global financial meltdown says, "The financial system is severely damaged, and it's not just the banks. It's going to be death by a thousand cuts." He adds that more than 1,000 financial institutions could go under when the crisis is finally over and housing prices should fall by another 12 % in the next year. This is in sharp contrast to Buffett’s view that the worst is over for the residential real estate sector.
Interestingly, another financial stalwart, Bill Gross of Pimco believes that tracking the housing sector is not of much use anyway, as it cannot lead the US out of the recession. In fact, Bill Gross believes that Americans should not expect a robust bull market. He says, "It’s time to recognize that things have changed and that they will continue to change for the next - yes, the next 10 years and maybe even the next 20 years."
So, what is the takeaway for the individual investors in all of this? Firstly, that it is futile to look for a consensus on which way the broader economy is going to go and when. Secondly, thankfully genuinely long term investors need not lose sleep over the issue. As Warren Buffett said on the topic earlier this week, "I'm not buying them (stocks) based on whether we're coming out of the recession in three months or six months or a year. I'm buying them because I think we're getting good value over time. And I think it is a mistake for investors to focus on business forecasts instead of looking at the intrinsic value of the business." We believe that this also applies to investors here in India.
It is now well known that even as the developed economies were gripped by the global financial meltdown, China and India stood strong. And that is reflected in the foreign direct invest (FDI) flows to the region. Today’s chart shows the FDI inflow into India in 2008 and compares it with the developed economies as well as other emerging markets. While China is now the 3rd largest FDI recipient country in the world, after the United States and France; India ranked at the 13th place is fast catching up. In fact, China and India are ranked numbers one and three, respectively, as the most preferred FDI locations in United Nations Conference on Trade and Development’s (UNCTAD) World Investment Prospects Survey 2009-2011.
Building good quality roads are an essential part of infrastructure development but in India it is not that simple. This is because the fragmented and often confusing rural land ownership environment in India’s hinterland has posed a significant challenge. As a result there are many projects which are not finding bidders and some others are yet to be completed. However, Indian Minister of Transport and Highways Mr. Kamal Nath does not seem to be unduly worried. The government wants to acquire land for a big roads development project and Mr. Nath contends that this is not a contentious issue since it has the right to use land for road development. As reported in the Wall Street Journal, the government is looking to build around 7,000 kilometers of roads a year for the next five years, costing them US$ 85 bn, of which US$ 45 bn is supposed to come from the private sector. On these, it is looking at a return of 15% to 16%. While the focus on infrastructure development is certainly a positive, obviously execution is going to be a big challenge.
Primary articles, especially food items have pushed the inflation rate into the positive territory this week. After staying negative for 13 weeks, the inflation index was recorded at 0.12% despite a high base rate of 12.4% during the same period last year. Demand for primary articles especially food items coupled with weak monsoons have pushed up the prices. Moreover, speculative activity in perishable items like fruits, vegetables and milk has added further pressure on the prices. Although, we have received good rainfall in the recent days, which have reduced the shortfall, shortage in items like paddy and sugar will continue. Further, water reserves are still inadequate. This is expected to result in the shortfall of water for irrigation of the winter crops. In spite of the government’s recent steps including import of raw sugar and crack down on hoarders, we expect higher prices to rule during the coming months.
Memories of the Lehman collapse are fresh in the minds of most people who have lost money due to the credit crisis. Moreover, many of them are even more grief stricken now than they must have been when the whole debacle actually happened. That’s because even though one year has gone by, many of the lax regulations that didn’t put a check on the problem have still not been reformed. But things have are now beginning to gather momentum. Yesterday, the US market regulator, the SEC, proposed new rules designed to prevent conflicts of interest and provide more transparency for Wall Street's infamous credit rating industry.
This industry, dominated by three large players (Standard & Poor's, Moody's Investors Service and Fitch Ratings), has been widely criticised for its role in the causing the financial crisis. This is because they were the ones that were being relied upon and paid to give advice to people about the safety of securities. And even though that is the entire essence of their job, they completely failed at warning people about the toxic nature of the subprime mortgage securities. In fact, their recklessly awarding these securities an ‘investment grade’ rating is what contributed to such a large mass of people actually buying them without even giving them a closer look, thus directly contributing to the spread of the crisis. It comes as a big relief that with the proposal of the new rules, the SEC intends to come down hard on these companies. Let’s hope that this helps prevent creating another such problem in the future.
Walk into any McDonald’s in Mumbai and you should be mentally prepared to wait in a queue before placing an order. Once that is done, finding a place to enjoy the meal at the restaurant is another task. This is especially the case on weekends. Considering that these restaurant chains are so busy, can you ever imagine it running into losses? Well, a leading business daily has reported the McDonald’s in India has accumulated losses to the tune of around Rs 4 bn. It may be noted that this figure is not yet verified. As per the company spokesperson, "There is nothing extraordinary about accumulating losses when you are starting in a country with a great potential and growing fast." It is true that McDonald’s is a relatively new company in India. It’s been around for only thirteen years. We believe, it will be interesting to note how it fares in the days ahead as it will indicate what other franchises can expect out of India.
after starting the trade on a negative note, the Sensex largely languished in the red during the day. At the time of writing, the Sensex was down 50 points. The Indian markets seemed to be moving in tandem with other Asian markets, most of which also displayed weakness and closed in the negative. Europe, however, is trading in the positive currently.
The time bomb of public debt
Source: World Investment Report, 2009, UNCTAD
Interestingly, another financial stalwart, Bill Gross of Pimco believes that tracking the housing sector is not of much use anyway, as it cannot lead the US out of the recession. In fact, Bill Gross believes that Americans should not expect a robust bull market. He says, "It’s time to recognize that things have changed and that they will continue to change for the next - yes, the next 10 years and maybe even the next 20 years."
So, what is the takeaway for the individual investors in all of this? Firstly, that it is futile to look for a consensus on which way the broader economy is going to go and when. Secondly, thankfully genuinely long term investors need not lose sleep over the issue. As Warren Buffett said on the topic earlier this week, "I'm not buying them (stocks) based on whether we're coming out of the recession in three months or six months or a year. I'm buying them because I think we're getting good value over time. And I think it is a mistake for investors to focus on business forecasts instead of looking at the intrinsic value of the business." We believe that this also applies to investors here in India.
It is now well known that even as the developed economies were gripped by the global financial meltdown, China and India stood strong. And that is reflected in the foreign direct invest (FDI) flows to the region. Today’s chart shows the FDI inflow into India in 2008 and compares it with the developed economies as well as other emerging markets. While China is now the 3rd largest FDI recipient country in the world, after the United States and France; India ranked at the 13th place is fast catching up. In fact, China and India are ranked numbers one and three, respectively, as the most preferred FDI locations in United Nations Conference on Trade and Development’s (UNCTAD) World Investment Prospects Survey 2009-2011.
Building good quality roads are an essential part of infrastructure development but in India it is not that simple. This is because the fragmented and often confusing rural land ownership environment in India’s hinterland has posed a significant challenge. As a result there are many projects which are not finding bidders and some others are yet to be completed. However, Indian Minister of Transport and Highways Mr. Kamal Nath does not seem to be unduly worried. The government wants to acquire land for a big roads development project and Mr. Nath contends that this is not a contentious issue since it has the right to use land for road development. As reported in the Wall Street Journal, the government is looking to build around 7,000 kilometers of roads a year for the next five years, costing them US$ 85 bn, of which US$ 45 bn is supposed to come from the private sector. On these, it is looking at a return of 15% to 16%. While the focus on infrastructure development is certainly a positive, obviously execution is going to be a big challenge.
Primary articles, especially food items have pushed the inflation rate into the positive territory this week. After staying negative for 13 weeks, the inflation index was recorded at 0.12% despite a high base rate of 12.4% during the same period last year. Demand for primary articles especially food items coupled with weak monsoons have pushed up the prices. Moreover, speculative activity in perishable items like fruits, vegetables and milk has added further pressure on the prices. Although, we have received good rainfall in the recent days, which have reduced the shortfall, shortage in items like paddy and sugar will continue. Further, water reserves are still inadequate. This is expected to result in the shortfall of water for irrigation of the winter crops. In spite of the government’s recent steps including import of raw sugar and crack down on hoarders, we expect higher prices to rule during the coming months.
Memories of the Lehman collapse are fresh in the minds of most people who have lost money due to the credit crisis. Moreover, many of them are even more grief stricken now than they must have been when the whole debacle actually happened. That’s because even though one year has gone by, many of the lax regulations that didn’t put a check on the problem have still not been reformed. But things have are now beginning to gather momentum. Yesterday, the US market regulator, the SEC, proposed new rules designed to prevent conflicts of interest and provide more transparency for Wall Street's infamous credit rating industry.
This industry, dominated by three large players (Standard & Poor's, Moody's Investors Service and Fitch Ratings), has been widely criticised for its role in the causing the financial crisis. This is because they were the ones that were being relied upon and paid to give advice to people about the safety of securities. And even though that is the entire essence of their job, they completely failed at warning people about the toxic nature of the subprime mortgage securities. In fact, their recklessly awarding these securities an ‘investment grade’ rating is what contributed to such a large mass of people actually buying them without even giving them a closer look, thus directly contributing to the spread of the crisis. It comes as a big relief that with the proposal of the new rules, the SEC intends to come down hard on these companies. Let’s hope that this helps prevent creating another such problem in the future.
Walk into any McDonald’s in Mumbai and you should be mentally prepared to wait in a queue before placing an order. Once that is done, finding a place to enjoy the meal at the restaurant is another task. This is especially the case on weekends. Considering that these restaurant chains are so busy, can you ever imagine it running into losses? Well, a leading business daily has reported the McDonald’s in India has accumulated losses to the tune of around Rs 4 bn. It may be noted that this figure is not yet verified. As per the company spokesperson, "There is nothing extraordinary about accumulating losses when you are starting in a country with a great potential and growing fast." It is true that McDonald’s is a relatively new company in India. It’s been around for only thirteen years. We believe, it will be interesting to note how it fares in the days ahead as it will indicate what other franchises can expect out of India.
after starting the trade on a negative note, the Sensex largely languished in the red during the day. At the time of writing, the Sensex was down 50 points. The Indian markets seemed to be moving in tandem with other Asian markets, most of which also displayed weakness and closed in the negative. Europe, however, is trading in the positive currently.
The time bomb of public debt
Source: World Investment Report, 2009, UNCTAD
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