Readings

Americans Are Not Deleveraging (Yet)

4 comments Written on September 21st, 2010 by
Categories: Readings

A guest post at Naked Capitalism talks about how American consumers are actually spending, not deleveraging.

  • 6 million homeowners are not paying their mortgages, and the $8 billion in cash thus freed per month is being spent.
  • The rest of them aren’t cutting down debt on their own – their banks are cutting it for them. Of the $610 billion in reduced household debt, $588 bn is a result of post-default write-downs!
  • The equity portion of real estate has fallen (due to falling prices) by half – but household debt is still at about the $12 trillion levels, not very different. In that sense leverage has gone up.
  • The overhang of debt and the banking system is slowly being transferred to the government (read: taxpayers), which is why deleveraging is simply not happening.

America has become dependent on debt, so much that it seems they can’t imagine life without it. For instance, in an Obama show on CNBC yesterday, there was a question about “what changes have you made?” – his reply was that if your kids need student loans we have kept them cheap, if you need credit cards, we keep them honest, if you need mortgage loans we make sure you continue to get the best deals. All about making sure people still get access to cheap debt; on the back of a crisis that was caused by cheap money.

We’re not in much better shape over in India – a lot of our economy is also debt, but a large chunk is not institutionalised – i.e. from friends, family, local moneylenders, gold backed borrowing and so on. Institutional lending has been easily available to people who don’t really need the money – large corporates, IPO financing and credit cards for the rich – and very difficult for those who really do, like the local shop owner, or a driver that needs a motorbike to commute, or a low-income household for their kid’s education. In a way, the Obama processes may make sense to people here, but honestly there is only talk and no real appetite to expand credit to where it’s really needed. Why? Because we can’t think about double digit NPAs in a highly leveraged system (i.e. if you can lever your money 10x, you can’t have 10% losses on your exposure, it wipes you out). And double digit NPAs will happen – because if you expand credit the unscrupulous people will find ways to grab the money and run, far earlier than the actually credit-deserving people understand their newly available access. There are no easy answers, though; the status quo will not be disturbed unless there is a shakedown, and there will be a shakedown from an area we least expect.

Going back to the US, read about nearly 7 million houses that aren’t currently in the market – the “shadow inventory”. That’s a lot of houses. They won’t all come on to the market at the same time, but they’ll keep prices from going up too much – as prices come, the houses will be listed. A large lender, GMAC, has stopped its foreclosure process because of a technical problem with the process (they’re not sure they can claim ownership of the mortgage with current paperwork,  and have perhaps filed false affidavits to foreclose) and the discussion is getting more and more interesting. If there’s a problem with ownership paper-trails, foreclosures might be stopped for longer, and the shadow inventory will only build up. Meanwhile, living rent-free is the in-thing, I imagine.

Links – Private Banks, MMYT Lists, China’s Empty Apartments

1 Comment » Written on August 13th, 2010 by
Categories: Readings

A new discussion paper by RBI on the entry of New Banks in the private sector.

MakeMyTrip goes up 90% in their US listing. Pile onto the India Bandwagon, people! MMT hasn’t made any money and won’t in the near future, but who gives a rat’s ass. This is great for people like @Cleartrip who supposedly are profitable on a cash-flow basis (twitter conversation). I think all of them should go public.

Dhirendra Kumar on Fundamentals Weighted Indexes and how market-cap weighting (Sensex, Nifty) on Indices has skewed stock returns.

Through Business Insider: China has enough empty apartments to house 200 million people. That’s about 65 million empty apartments.

An article on Independent Financial Advisors versus Banks in the MF game, with some excellent data and graphs.

Steve Keen on “The Roving Cavaliers of Credit” on Banking, the absence of a money multiplier, a credit economy and how private banks are the ones that actually create money. Incredible read. HT @tejus_sawjiani.

Readings: Self-Investing, Rent-Free, Ripoffs, Salary Hikes and More…

2 comments Written on April 7th, 2010 by
Categories: Readings

Some interesting links:

  • Value Research: You’re smart enough to learn about investments yourself. (HT: Samarth Modi)
  • Trader Mark: Live rent free for three years? Just default on your mortgage. That’s what Mark says is driving up retail growth while there are so many houses underwater and so much unemployment. If you don’t have to pay a mortgage, you can spend on other things, like iPads. And if you stop paying, banks aren’t willing to foreclose early – there are modification programs (you can enrol, pay a bit and then redefault), there is way too much backlog for the foreclosures and recent Mark To Market suspension rules means banks don’t want to take a loss by booking it.

    (Funda is this: As long as you own the asset, you can mark the collateral at it’s purchase price. But if you foreclose and sell it at market value, you gotta show the booked loss. For banks booking of the loss is a huge capital problem – when you lever your capital 20x, then every $100 you have you can take on $1900 as debt and lend it all out. If you take a $40 loss, then your capital is $60, 20x of that is $1,200 – then what? Gotta return the extra debt taken, by redeeming current loans – which, haha, is not going to happen, because they’re all underwater mortgages pretending as good loans.)
  • Matt Taibbi: How the nations biggest banks are ripping off American cities with predatory deals.
  • WSJ: India gets double digit salary hikes. Human resources consulting firm Hewitt Associates found in a recent survey that the average pay increase in India this year will be 10.6%, as opposed to 6.6% last year. [Darn. I quit job at wrong time]
  • ICICI Sells residential building at 17,000 per sq. ft. in Prabhadevi, Mumbai to Videocon for 61cr.
  • Fundoo Professor: The Alchemy of Finance at Reliable Engineers (Brilliant)

  • Links for 29 Mar 2010

    Comments Off Written on March 29th, 2010 by
    Categories: InfoEdge, Readings

    It’s one of those days I have too much to read, so…

    • Day Traders 2.0 – Wired, Angry and Loving It (NYT). Indian markets are also full of day traders, and it’s as difficult a deal here. The interesting part is in a web offering I think will make a lot of sense for India as well, but more on that later.
    • Shankar Sharma, the person toted as the big angry bear on CNBC, has a one-year ban reinstated by SAT, and steps down from the board of First Global.
    • Brett Steenbarger on the Longer Term View (Weekly) of Risky asset performance. The global recovery may not exactly be gaining steam.
    • Sunk Costs, an invisible, pervasive peril : This line made me think - “Just touching an item in a store makes you more likely to purchase it.”
    • KPCB and Sherpalo exit Info Edge. They sold 4.05% of stake for 86 cr. a few days back. Remember they bought it for Rs. 245 in 2006, and the share’s quoting above Rs. 800 now. It seems that Insiders are selling the shares in HUGE numbers; Kapil Kapoor, the exec chairman, recently sold 50,000 shares. Info edge might see negative sales growth for FY10, says Hitesh Oberoi, COO.
    • (In the above article – turns out StudyPlaces.com got $3m funding, $1m each from KPCB, Sherpalo and InfoEdge, and was recently acquired by Educomp for half - $1.5m. Another unfortunate money losing story of the Indian Internet)

     

    Links: Lehman, ICICI, Billionaires, IIP and Sugar

    Comments Off Written on March 12th, 2010 by
    Categories: Readings
    • WSJ: Lehman Torpedoed Lehman – A bankruptcy court examiner investigates and finds that senior Lehman executives fudged its balance sheet, kept the board uninformed and bumped up asset values.
    • ICICI Bank stops giving out free lifetime cards. What’s happening in there? They recently sold their CEO’s house. Insiders have started selling – two of them, including an ED, have sold between 70-100% of their holding in the last week. Building up fee income and clearing out assets? The stock has been doing amazingly well, up over 15% in the last month.
    • The Index of Industrial Production (IIP) data for Jan 2010 shows a 16.7% increase since Jan 2009. The data is unreliable, because the revisions are huge. Example: The December release last month showed an index value of 331.7 – it has been revised to 334. Similar revisions on the downside happen all the time. Better, perhaps to look at seasonally adjusted figures, available online through Ajay Shah’s blog, will probably get updated with Jan figures next week. In December the headline was over 16%, but the SAAR was 11%.
      image
    • Sugar seems to be in the news, and for a change because prices are going down. Perceptions of scarcity are changing, it seems, with ex-mill prices falling to Rs. 34 from Rs. 40. Sugar is a highly political industry and Maharashtra/UP are the big players. Sugar companies make money – 3-4 rupees a kg – from by-products like mollasses or co-generated power, but both have political controls like how much you can store, who gets paid for excess power etc. Global prices are also on the way down, but nowhere near the cycle lows.
    • China might increase rates, from accelerating inflation, says Bloomberg. Inflation in China has reached 3.5%, which to India will seem like a fantastically low figure for a country growing, er, faster than us. But the fudging in China is of gargantuan proportions – when the data is bad, the response is usually to keep data hidden, or massage it appropriately. Yes, everyone’s doing it nowadays but China is the master of the art.
    • Forbes releases the list of worldwide billionaires, and Marketfolly highlights the “hedgies” (fund managers) on the list.

    Linkfest: Michael Burry, Real Estate…

    11 comments Written on March 5th, 2010 by
    Categories: Readings
    • Michael Lewis on The Great One-Eyed Fund Manager Michael Burry. What an inspiring read.
    • Matt Taibbi on Rick Santelli’s rant on Predatory lending where he said “You can’t cheat an Honest Man”. Yeah, dude, come to India’s ULIP world and I’ll show you how honest people can easily be cheated out of their money. The similarity: Neither regulator gives a rat’s ass.
    • Mumbai’s BKC land auction fails to get a single bid. A 435 crore expectation for 34,000 sq. foot land didn’t get takers. A friend mails in details – for a (low) construction cost of Rs. 1000 per sq. ft., the project will cost nearly 600 crores, and with a 200 Rs. per sq. ft. rental, realisation will be 38 cr. a year, probably 25-30cr. after costs. That’s a cap-rate of 5%, when rents are as high than downtown Manhattan (where you can get $4 a month rents easy); Comparative returns in Manhattan are near 7% today.
    • DLF says levy on property tax is counterproductive. A clarification on wednesday noted that only 1/3rd of the agreement value is “service”, so only that portion will be taxed, reducing the quantum of increase to 3.33% on the agreement value. Weighing that as more important than the land sale failure in the earlier link, and the interest rate increases by banks, real estate players went up between 4% and 10% today. [I’m kidding. They could have gone up on any reason, but it’s fun to invent reasons for an indisputable fact]
    • Martin Wolf on the Indian Elephant charging through the crisis. He says that India’s GDP grew 14% in nominal (non inflation adjusted) terms in the last five years, so why are we cribbing about a 6% fiscal deficit?
    • Salil Tripathi on how India lost it’s M.F. Husain. I hardly get political on the blog but I find it dirty that a bunch of goons can hold anyone to ransom in this country. When a Raj Thackeray says obviously anti-someone things, there is no move to arrest him; because he is only talking, they say. M.F.Husain didn’t even talk – he just painted – and he should be arrested? We need to change this country; we’re younger than Husain, and we don’t have to leave.

    Linkfest on Greece

    Comments Off Written on February 10th, 2010 by
    Categories: Greece, Readings

    Greece is on the verge of default or a bailout or a bit of both, it seems. The idea of any of these events happening has spooked world markets; now any rumour seems to come with big market moves – an indicator of a panic move in the offing. Who knows, maybe we’re in the middle of the panic move – remember, markets the world over have corrected 10% – and the next round is near.

    • At Naked Capitalism: A description of the rumour that started markets rolling upwards, that Germany would back a Greek Rescue. First, the telegraph kicked in an article saying the German Finance Minister was going to rescue them, and German banks have exposures of €43bn in Greece.

    Wolfgang Schäuble, Germany’s finance minister, has asked officials to prepare a plan in time for a summit of EU leaders on Thursday, according to reports in the German media. The options include either a loan from EU states or some sort of institutional EU response.

    Germany’s apparent backing for a bail-out comes despite worries that it will lead to the breakdown of fiscal discipline across the Club Med region. It also raises troubling questions of fairness. Ireland has tackled its own crisis by slashing wages and going far beyond any measure so far offered by Greece, yet Dublin has not received help.

    Germany’s dramatic shift in policy changes the character of the euro project. It follows weeks of soul-searching in Berlin, and after increasingly loud pleas from Brussels, Paris and southern capitals. The deciding factor was concern that letting Greece fail risked a “Lehman-style” run on Club Med debt, with systemic spill-over across Europe.

    German exposure to the region amounts to €43bn in Greece, €47bn in Portugal, €193bn in Ireland, and €240bn in Spain, according to the Bank for International Settlements. German lenders are already vulnerable, with the world’s lowest risk-adjusted capital ratios bar Japan…

    “Government spokesman Ulrich Wilhelm rejects as unfounded reports citing coalition sources saying a decision for aid for Greece has in effect been made,” a government official quoted him as saying. Reuters had earlier reported a senior German ruling coalition source as saying euro zone countries had decided in principle to help Greece.

    • Reader MK shouts out a link that Goldman Sachs helped Greece mask it’s true debt. With Euro treaties limiting deficits to 3% and debt to 60% of GDP, Greece used complex swaps with “fictional exchange rates” to get some creating financing, thus moving out some debt to 10-15 years later. The treaties don’t treat such swap liabilities (“derivatives”) as real debt, so it doesn’t get counted – but hey, it’s debt because the structure makes it repayable. The problem with derivatives is in their abuse to do regulatory arbitrage – if they now change the rules,  everyone else who’s made these kind of trades gets smashed. And heck, that’s the ONLY reason they won’t change the rules. This is just sick.
    • Roubini on Greece: Greece has 13% fiscal deficits coming up. There’s political problems in actually cutting it (Strikes, unrest and all that – that’s potential alternate venue for the Shiv Sena/MNS). Three coinciding events – ECB’s stimulus exit, Dubai’s default and Greek deficit revisions from 3.7% to 12.7% (Gee, you think that last one might be a little important?) did the damage. Roubini thinks they’ll have to cut spending, no matter what; default is not an option.

    Readings: Goldman/AIG, Obama’s Sellout, Dubai and China

    4 comments Written on December 12th, 2009 by
    Categories: Readings
    WSJ: Goldman Fuelled AIG Gambles
    Goldman Sachs Group Inc. played a bigger role than has been publicly disclosed in fueling the mortgage bets that nearly felled American Insurance Group Inc.

    Goldman was one of 16 banks paid off when the U.S. government last year spent billions closing out soured trades that AIG made with the financial firms.

    Goldman originated or bought protection from AIG on about $33 billion of the $80 billion of U.S. mortgage assets that AIG insured during the housing boom. That is roughly twice as much as Société Générale and Merrill Lynch, the banks with the biggest exposure to AIG after Goldman, according an analysis of ratings-firm reports and an internal AIG document that details several financial firms' roles in the transactions.

    In Goldman's biggest deal, it acted as a middleman between AIG and banks, taking on the risk of as much as $14 billion of mortgage-related investments. Then Goldman insured that risk with one trading partner—AIG, according to the Journal's analysis and people familiar with the trades.

    The trades yielded Goldman less than $50 million in profits, which were mostly booked from 2004 to 2006, according to a person familiar with the matter. But they piled risks onto AIG's books, which later came to haunt the insurer and Goldman. The trades also gave Goldman a unique window into AIG's exposure to losses on securities linked to mortgages.

    When the federal government bailed out the insurer, Goldman avoided losses on its trades with AIG covering a total of $22 billion in assets.

    Interestingly, the problem here isn't what Goldman did, but that it got the bailout inspite of what it did (they got paid in full for their "insurance" when AIG was bailed out, effectively bailing out Goldman). The outrage is just not there yet, but it feels like it should be if you read Matt Taibbi on Obama's Big Sellout:
    What's taken place in the year since Obama won the presidency has turned out to be one of the most dramatic political about-faces in our history. Elected in the midst of a crushing economic crisis brought on by a decade of orgiastic deregulation and unchecked greed, Obama had a clear mandate to rein in Wall Street and remake the entire structure of the American economy. What he did instead was ship even his most marginally progressive campaign advisers off to various bureaucratic Siberias, while packing the key economic positions in his White House with the very people who caused the crisis in the first place. This new team of bubble-fattened ex-bankers and laissez-faire intellectuals then proceeded to sell us all out, instituting a massive, trickle-up bailout and systematically gutting regulatory reform from the inside.

    How could Obama let this happen? Is he just a rookie in the political big leagues, hoodwinked by Beltway old-timers? Or is the vacillating, ineffectual servant of banking interests we've been seeing on TV this fall who Obama really is?

    Whatever the president's real motives are, the extensive series of loophole-rich financial "reforms" that the Democrats are currently pushing may ultimately do more harm than good. In fact, some parts of the new reforms border on insanity, threatening to vastly amplify Wall Street's political power by institutionalizing the taxpayer's role as a welfare provider for the financial-services industry. At one point in the debate, Obama's top economic advisers demanded the power to award future bailouts without even going to Congress for approval — and without providing taxpayers a single dime in equity on the deals.

    The piece is outrageously blunt, and Taibbi is seriously outraged. Most of this might sound ordinary to us in India, where politics and business are designed to go hand in hand; we would hardly be surprised to know that a Satyam's Raju had political connections and used them well, or that the Government has always bailed out anything that it wants with no respect for the taxpayer. Still, a phenomenal read to see how rotten systems all over the world are.

    FT: Why Dubai's debacle does matter:

    Dubai’s ambitions weren’t merely domestic. Dubai World and its subsidiaries, with their assumed government backing, went on a debt-fuelled global buying binge. Dubai’s economy expanded rapidly in the boom. But much of this growth came from construction projects of dubious economic merit. When the music stopped, property prices crashed. Knight Frank estimates the vacancy rate for Dubai office buildings is 40 per cent. Yet planned new construction is set to double the city’s office space over the next couple of years.

    There is a country on the other side of Asia, whose currency is also pegged to the dollar. Although its economy is expanding rapidly, short-term interest rates are below 2 per cent and the money supply has grown by 30 per cent over the past year.

    This country is experiencing a real estate boom. Reports tell of a newly constructed ghost city with dwellings for a million people. Speculators are reportedly snapping up luxury developments, which remain unoccupied long after completion. Despite a 20 per cent vacancy rate in the capital city, new skyscrapers are being planned.

    This country’s economy is also state-directed. Its rulers are looking for 8 per cent annual GDP growth as they seek to diversify their economy away from exports. State-owned enterprises are borrowing and investing to meet this target. Construction and infrastructure are taking an ever greater share of GDP, even though many projects are likely to prove unremunerative. A mentality of “build and they will come” prevails.

    In short, economic conditions in China have much in common with those that prevailed until recently in Dubai. The population of China is roughly a thousand times greater than the tiny emirate’s. For this reason alone, the lessons from Dubai should be heeded.

    China will probably take some time to blow up, especially in real estate. India has had it's smallest real estate downturn ever, making builders go nuts about building tiny little apartments costing upwards of a crore. A 4000 sq. ft. house in San Diego lists for 800K (4 cr.) with no takers, and they're trying to sell a 4750 villa in the outer edge of gurgaon for 3.2 crore (Vipul Tatvam Villas - bad road leading up, delayed two years from the Feb 08 completion, and all stuff like parking etc. will be extra. I know only because this place is right behind where I live). The amount of overbuilding in commercial real estate is mind-boggling (in the metro cities); but it seems the markets can remain irrational longer than I can survive! So till then, what problem? Music playing, must dance.

    Linkfest: Outrage, China, Mutual funds off Trading Terminals

    Comments Off Written on November 17th, 2009 by
    Categories: Readings
    Links for reading:
    • Main Street tells Wall Street, "Get A Real Job" (Bloomberg)
      In the 14 years I’ve written columns for Bloomberg News, I’ve had plenty of feedback from investors who said they lost money at the hands of corrupt brokers, plus a steady stream of vitriol from financial executives who say I’m clueless, stupid, and deserve to lose my job.

      I have never, though, been bombarded with anything like the fury and frustration expressed this time by people far removed from Wall Street, ranging from computer programmers to administrative assistants to the caretaker of an estate. Typically a handful of e-mails will float in; this time the number topped 60 and counting.

      It's just starting, but it's too little, and obviously too late. With US unemployment (disguised as "U6") at 17% and counting, there's increasing amounts of despair in the real economy while the financial institutions are smoking something else. It's now obvious that the powers are on the side of the financials - so I think there will be a lot more anger before they even acknowledge that a sense of fairness must prevail.
    • Naked Capitalism: China Lambastes Dollar "Carry Trade", Diverting Attention from its Currency Manipulation

      Excellent article on how the US policy is geared towards helping banks recapitalize easily, with low interest rates (you can't get lower than zero) and high spreads. To understand this - how easy is it for you to make a profit if you know you can buy from a market and sell it to the "Fed" at a slight profit? That's the kind of game going on with things like Mortgage Backed Securities and so on. Plus, the idea is to spike asset prices rather than clean up banks.

      More importantly though, on China, Yves Smith says it like no one else can. China's massive growth has been because of a conveniently pegged Yuan; the US can't cut it's debt levels unless it runs a current account surplus - which will spell death for China's export led economy. China hasn't a right to scream Wolf, says Yves, as it was a problem they started by buying up dollars and pegging the Yuan in the first place. Great read.

    • Mutual funds will soon be traded from brokerage terminals. Sub-brokers are, after all, present in every small town in the country; and allowing them to sell mutual funds provides a distribution reach no one else has. Unfortunately this will mean some entry loads again, in the form of brokerage. But that, at 0.5% must feel a lot lesser than the 2.25% the funds used to charge.
    • John Paulson buys 2% of Citibank, sells 2 million Goldman shares. He made a killing shorting sub-prime, and now he's buying out the guys the government owns. Sweet. Don't read too much into the GS sale, though.
    • John Mauldin forwards Hugh Hendry's commentary (Eclectica, November 2009) - a fantastic read on the Dollar, China's huge inventory and capacity and Why Deflation is more likely in the next year than Inflation.

    Linkfest: Shadow Inventories, New Normals, Bridges to Nowhere

    1 Comment » Written on September 28th, 2009 by
    Categories: Readings
    Random links:
    • U.S. "Shadow Inventory" Crosses 7 million houses. With real estate developers going gung-ho again in India, and rising RE prices, it might be cheaper to invest in the US rather than locally - and there you get much better than the 2-3% rental yields you get here.

      But the situation in India is not as good as they make it out to be. It's highly non-transparent, very broker-cartel controlled and there's a looming hungama about Diwali. Prices going up? DLF's latest offering in Capital Greens "Phase 2" Delhi, at 7,500 a square foot was lapped up, they say. And yet, you see online ads of sellers in Phase 1 - to be ready much earlier than phase 2 - at 5,500. Been tracking real estate prices in Gurgaon, Navi Mumbai and Bangalore - rates are NOT going up.

    • John Mauldin welcomes you to the New Normal - where the U.S. needs to create an average of 250K jobs a month, to get back to 5% umemployment in five years. That's not been seen anytime in the last 10 years, or in average 10 year periods, or even the best 10 years of the last 20. They need to create those jobs, for sure. And I have a strong feeling this will result in the going away of jobs from other places, if it has to.
    • Natural Gas has exploded up 60% in the last month. Yet, the storage capacity of gas has been reached, says Bloomberg. If it wasn't such a bitch to transport, the Ambani brothers would have stopped fighting over these issues long back. Oh, and the government's lopsided policy of "gas allocation" at different prices to different industries doesn't quite help. Will the glut crush them all?
    • India's Credit Growth, as of Sep 11, is less than 14% - the lowest in the recent three years or so. Banks are raising capital betting on a turnaround; they expect it to scale to 20%. The RBI seems to agree. With the sixth pay commission hike arrears - worth 17,500 cr. - being released in September, the next month should see some improvement in consumer good sales, and provide glitter to Diwali. We'll have to see if it sustains after the earlier-than-usual Diwali season is through.
    • Interesting reading on China's Investment Boom: The Great Leap into the Unknown (HT @lukkha) China has more spare cement capacity (340m tonnes) than the consumption of India, USA and Japan combined! (And in India's we're going nuts adding to capacity) The story has a lot more fascinating details like how China has overtaken Japan in the infamous "Bridges to Nowhere" madcap infrastructure spending metric. An example: they had to use 380 kg. of dynamite to blow up a bridge in Sichuan so they could rebuild it and thus "spend the stimulus money".

    LinkFest #7: Inflation, Home Loans and Loads

    2 comments Written on January 19th, 2007 by
    Categories: MutualFunds, Readings
    Read Home Loan agreements before signing (Rediff)
    The three authors of this fantastic article tell you important gotchas about Home Loans - the fine print of the agreement is pitched against you. Be it reset clauses on fixed rate loans, ambiguous and aggressive definition of "defaulters" or simply by removing your negotiating power with the builder by directly giving them money, home loan documentation is set up to work against you. Obviously, coming from the financer, this is expected, but you can object and get certain clauses altered or in some cases, removed.

    Will you sign a document, quoted as from Citibank, which has: "The bank shall at its sole discretion alter the terms of this agreement by written intimation sent to the borrower by courier. Any amendment proposed by the borrower shall be valid only if made by a written agreement signed by both the parties.". No changes by sole discretion to ANY agreement can be allowed - that's equivalent to signing a blank cheque.

    Inflation surges to 6.12% (Economic Times)
    Inflation this week has moved up to 6.12%. This is very high and will be of serious concern in the Finance Ministry and the RBI. Now you can surely expect a rate hike in the next RBI meeting on Jan 31 - this may adversely affect banks, real estate development companies and companies where debt is very high.

    Load Factor (Value Research Online)
    Never understood what an Entry Load or Exit Load is? Look here for a fairly comprehensive understanding of loads. What the author missed here was information about what funds are truly no-load, the Vanguard kind that revolutionised the mutual fund industry in the US. Answer: None. Nearly every single fund we know has a load, either on entry or exit.

    Earlier Linkfests: 1, 2, 3, 4, 5, 6

    LinkFest #6: Resolutions, Funds and Buffet

    1 Comment » Written on January 5th, 2007 by
    Categories: MutualFunds, Readings
    Seven Resolutions for mutual fund investors in 2007 (MoneyControl)
    Sanjay Matai tells you seven things to remember and follow: Be wary of NFOs, Share prices and NAVs are not the same, don't time the market, don't look at dividends, invest according to needs, balance your portfolio and of course, remember rules 1 to 6 through this year. I like the concept but I disagree with two things: I don't recommend "balancing" your portfolio, and I don't recommend not timing the market. Why?

    Balancing portfolios is not a good idea. Stay overweight on equities if you can take the risk, and stay overweight on debt if you have huge loans to take care of. Timing the market may sound insane, but it is not very difficult to know when the market is overbought or oversold to a large extent. Even a strategy as simple as comparing the Sensex PE with the projected sensex earnings growth - if the former is higher, sell, if the former is lower, buy - will work to your advantage. I think we just need to get smarter.

    Index funds: Tracking errors galore?(Value Research Online)
    Index funds should closely track the index they are linked to. Yet, many Index funds in India don't seem to! Some Index funds have bigger cash reserves than necessary, some others have underperformed the index by 12-13%.

    Reverse Mortgages (Economic Times)
    Living in an owned property is a liability - and in your old age, you have little use for it as an investment - after all, if you sell it, where do you live? Renting is a choice but every year you have the fear that the landlord might not extend the lease. Solution: Reverse mortgage your own house to a financial institution, and have them pay YOU in installments, every month. If you want it back, you just have to pay them the money they gave you, and if you die, the institution sells your house and distributes the remaining money among your heirs. But read through the rules carefully.

    The Warren Buffet Story (Moneycontrol)
    Some interesting details about one of the greatest investors of our times. What can I say? Read this article.

    Avoiding miskakes and making safe investments (Amar Pandit)
    A set of things to do if you want to avoid common mistakes in investing. I agree with Amar in a lot of the things he says, except where he does not recommend timing the market. But the rest of the advise is sound, and I'd like to emphasise one thing: Become a smart investor. And focus on "smart".

    Earlier Linkfests: Linkfests: 1, 2, 3, 4, 5.

    LinkFest #5 – Myths, advice, caution and all…

    Comments Off Written on December 28th, 2006 by
    Categories: Readings
    Let your money work for you (Equitymaster)
    The three D's of investment - Diversification, Dollar Cost averaging and Discipline are touted in this equitymaster article. I beg to differ on a few things: Don't use "Dollar cost averaging" - Rupees are more likely all that is available to you. Cost averaging is part of Systematic investments - but average with the right investments, not dumb ones. Diversify, but not to the extent that your returns are bad because of diversification - buy good companies or mutual funds. Don't buy twenty diversified funds! That's way too much diversification for you, plus it doesn't work really. And disciplined investing - that's very much recommended.

    5 common investment myths (Personalfn)
    A good article about what people tend to believe and the ground reality. That Rs. 10 is not a better buy than a Rs. 100 fund (I agree), long term is not necessarily good, investments and risk taking abilities are individually unique, SIPs are not necessarily good (I agree), and that you can actually diversify too much.

    Unshining India, (Dhirendra Kumar, Value Research Online)
    A very interesting take on how people are going berserk just led by the "India shining" story. Everyone and his aunty is buying property because they feel that the economy cannot go down. Led by the lucre of a booming economy, investors are putting money down based on future calculations of income, earnings, GDP growth, whatever - and additional fuel comes from TV channels, fund managers, investment advisors and the like. My thumb rule for you is: When people tell you "if you don't invest now, it'll be too late", that's the time to stop and play some gully cricket. But read this article - I wish Kumar had expanded a little more, and pushed his point through rather than sitting on the fence.

    MF vs. Sensex, Sensex wins? (Economic Times)
    Turns out mutual funds have underperformed the equity indexes this year. This is the case with the US over the last few years too. Is India now becoming a mature market?

    Earlier Linkfests: 1, 2, 3, 4

    LinkFest #4: Open Letter, Real Estate bubble, Money Today

    1 Comment » Written on December 15th, 2006 by
    Categories: MutualFunds, Readings, RealEstate
    Open letter to analysts from a harried investor (Author unknown)
    A seriously hassled investor telling the TV analyst what he thinks of him. This is quite applicable to India as well. Eventually I will provide a table of all the recommendations by various analysts on a shared Google Spreadsheet. We will then see the date of recommendation and the high/low prices after that - perhaps we will be able to see if their "predictions" are anywhere close.

    A new Insurance and Mutual Fund company: Bharti-AXA
    A new entrant to the Indian financial world, Bharti-AXA will set up a mutual fund AMC and an insurance company. This can result in two things: Fund manager churn from an existing AMC if they try to grab one, and more NFOs. Let's see how it goes.

    SEBI suspends Reliance Broking arm for four months (Sify)
    SEBI has uncovered some broker regulation violations by Reliance Stock and Share Broking in 1999, when it was part of the RIL group. It has therefore suspended it from trading for the next four months. This company is now owned by the Anil Ambani group; and supposedly is not doing all that much business anyhow.

    Money Today: A new magazine
    I picked this up at a newsstand recently and was quite surprised to see some excellent articles. Read about their latest insurance calculator much on the lines of my article.

    Is there a bubble in real estate? (IndiaEconomy.org)
    A very interesting article and discussion around whether the spurt in real estate prices in India constitutes a bubble. The parallels with Japan, America and indeed, earlier Indian events are quite revealing. I've commented there too.

    Earlier Linkfests: 1, 2, 3

    LinkFest #3:Gold, and Mutual funds

    Comments Off Written on December 7th, 2006 by
    Categories: Gold, MutualFunds, Readings
    India has 0.4% of the Worlds mutual fund assets (Economic Times) With about 3.41 lakh crore in assets, India's just about 0.4% of the world's assets. Less than 2% of our GDP is available in funds, so the opportunity to grow is tremendous! In fact, just last month, 30,000 crore was invested in mutual funds.

    Buy Gold? (Value Research) What's the fuss about gold, and how to invest in it. Interestingly the author also talks about how he might earn more money if he talked more about gold investments rather than mutual funds.

    Top 10 Mutual Funds (Outlook Money)
    Outlook Money researches and lists the top 10 funds bases on "RaR" - Risk Adjusted Return. Some very good funds figure here.

    Earlier LinkFests: 1, 2

    LinkFest #2: Keeping it Simple, NFOs, Gold.

    Comments Off Written on December 1st, 2006 by
    Categories: MutualFunds, Readings
    The Simple Life
    (Dhirendra Kumar,Value Research Online)
    Investments are about simplicity; the simpler the concept, the better it is for investors. The author talks you through the simplest investments ("piggy banks") and tells you why it's necessary and preferable to keep things as clear as possible. Insurance is therefore, he says, an "unhealthy mix of insurance and investment" - two concepts he advises you to keep separate. I cannot agree more.

    Closed Ended Funds Galore! (Economic Times)
    Ever since SEBI has disallowed amortisation of initial expenses by open ended mutual funds, AMCs have introduced (largely) only closed ended funds. Initial expenses are chargeable by AMCs upto 6% of assets, now applicable only to closed ended funds. AMCs are taking the opportunity to take this money investors and hide it in smoke and mirrors; amortisation allows you to slowly take money out in a trickle every month, and as an investor you realise only when it's too late! Luckily SEBI says it's looking into this.

    Case in point: Reliance Equity Opportunity fund had 1700+ crores subscribed in its NFO in March 2005. Current portfolio is 1200 crores. That means 6% initial expenses (105 cr) are now being paid by a smaller asset base, a hit of nearly 9% at this point. No wonder the fund's not performed as well as it's peers.

    Is "NEW" fashionable? (Personalfn)
    The author is perplexed by the attraction to something "new" in one's portfolio. There are good reasons why one should invest in a new fund, but a low NAV is not one of them - in fact, the unit price should be completely ignored. It reiterates the problem we see today; of too many similar NFOs and irrational exuberance in purchasing them.

    Should you buy Gold from your bank? (Personalfn)
    Some banks seem to be overcharging for gold, and justifying it saying that they give you a certificate for the purity of gold. But they don't seem to like their own certificate, for they won't buy back the gold from you at all. Jewellers, branded and unbranded, will do so and usually charge much lesser charges for the gold itself.

    New funds launched: SBI One India Fund, Reliance LT Equity Fund (review), HSBC TaxSaver (review). Previous Linkfests: 1.

    LinkFest #1: How to select a fund, Managing Investments etc.

    1 Comment » Written on November 23rd, 2006 by
    Categories: Readings
    This is going to be part of my LinkFest Series: A set of links organised for you every week.

    How to select a Diversified Mutual Fund - Personalfn
    If you have been confused about how to select a mutual fund which invests in equities, this article is a good start. AMCs perplex their investors with too many schemes, and then advisors complicate the matter by giving advise based on the commissions they get (rather than the best fund for investors). Let me add some links for you:

    Managing your own Investments - Value Research Online
    A simple way suggested to manage your fund investments.

    Twice a year, try and get an idea of whether the mutual funds you own are doing roughly as well as most of their peers (the same kind of funds). You don't have to have funds whose past performance is absolutely the best (in fact it is dangerous to do so). As long as they are better than perhaps two thirds of other funds (that is, they are in the top third), it's fine.
    Again, excellent advise. If you are older and need constant money, do check dividend regularity also.

    Index funds by Personalfn
    An introduction to "passively managed" funds which simply trace an Index. Such funds have beaten every other fund in the US, but it's not been so in India. Until 2006, of course, when index based stocks have shown a lot more momentum than the midcaps. A good area to watch.