Aprils Fool

You know it is Aprils Fool Day when


The biggest bank in Switzerland (UBS) announces US$ 19 billion of writedowns in its quarterly results, posts a net loss for the quarter and the share price goes up.

Though analyst estimates were US$ 11 billion of writedowns, the losses were greater than expected.

Dont know what was happening?
Was it like the shareholders thought UBS was playing an April Fools prank on them?

Well I do agree on the saying
"Markets can remain irrational longer than you can remain solvent"

DISCLAIMER:
I DO NOT WORK FOR UBS AND HAVE NO VIEWS ON THE STOCK PRICE NOR DO I OWN ANY.
THIS IS MY PERSONAL VIEW AND MY SURPRISE ABOUT STOCK PRICES BEHAVING IN A CERTAIN WAY ON A CERTAIN DAY.
THIS VIEW IS NOT SHARED BY MY EMPLOYERS OR COLLEAGUES.

Mumbai as an International Financial Center

Recently (yes I am always late in such posts) there was a Percy Mistry Committee on how to create Mumbai as an International Financial Center.

Ajay Shah has given the most comprehensive coverage here (His blog is one of the best on the Indian Financial Sector at the moment)

Though the intentions are good, and required urgently as well, especially since Indian firms are in a takeover spree this year, and a well developed financial center would enable them to raise more money for such take overs, (Like Tata Steel buying Corus, or Suzlon acquiring Repower, or even UB Group buying Whyte and Mackay ... this list can go on for ever ...)

There are a couple of hurdles for the same, (as per my view)

1. For any place to be an International Center for any thing (not just financial center) the location has to be welcoming to the most talented foreigners. I am not just talking about the US or Europe. One can see London is the financial center for all of europe, while Frankfurt is not. The city of London has 1 in 3 who is born outside of the UK. Same thing can be said about New York, Tokyo, Hong Kong and Singapore. (Atleast with respect to nationalities working in the Investment Banks)
2. To attract such talent just money is not an issue, but also one needs to have world class infrastructure that can attract people to migrate to such a place. Though India has a lot of talented people, I belive in the value of diversity as well as the "Wisdom of Crowds"
3. The local political parties should also be welcoming enough, and not demand for job quotas, either for the backward classes, or for the local communities (i.e. sons of the soil) Right now Maharashtrians are rioting when Biharis come to give the Railways exams, I doubt people would be so welcoming to Chinese, Koreans, Japanese, Lebanese, apart from the Americans and Europeans who run the financial industry world wide
4. Most importantly, in any place there needs to be some kind of certainty in the working days. Mumbai has 2 days lost due water logging during the monsoons, and has another day possibly lost due to a strike or a bandh. This would lead to uncertainties in settlements of trades.
5. Most important is a captive market. Though there is a market right now for M&A advisory, and for raising Equity Capital, there is not an active Debt Capital Market, also on the asset side there is not active investor base who would be buying complex financial securites. (though we have had an informal derivatives market such as Badla, and there is a huge betting market on the monsoons)
6. Another aspect of the local market is that we need to have foreign firms wanting to list their stocks on the Indian Exchanges. Indian Currency and Stocks and bonds should be traded else where. Indian Mortgages should be securitised and sold all over the world from Tokyo to Sao Paulo.
7. All apart one thing which can be easily addressed is the regulatory aspect, and I hope this step is quickly corrected by the government. India surely has the manpower from the best institutions who can run such a business

Thus in my opinion, though Mumbai will definitely be a Regional Financial Center, providing the financing needs for Indian as well as neighbouring South Asian countries.

More over Mumbai has stiff competition from established centers such as Hong Kong, Singapore, Tokyo and now even Shanghai.

But frankly speaking, I hope I am proved wrong, and Mumbai does become "The Global Financial Center"

India and China Boom or Bust

In the last few days the Chinese Stock Market has risen exponentially, and is prone to high volatility. Though on a smaller scale the same thing is true about the Indian Sensex and Nifty Indices.

Some people (Bulls) might say that this is due to deep structural changes due to higher profitability of these firms, some may say it is due to the Yuan being undervalued, some may say due to the growth of exports and the resilience of the US economy and the American consumers still consuming has led to this growth.

Where as on the other end the skeptics remind us that these are all the signs of a bubble. Remember the Nikkei Crash in 1989. (the Japanese Stock Index Nikkei 225 was nearly 39,000 then and it crashed to reach 15,000 thus losing 60% of its value) This crash has been followed by 15 years or recession or depression. (I am not qualified enough to use the correct terms)

Similarly the South East Asian crisis in 1997, left South Korea, Malaysia, Indonesia scarred.
The currency plunged, and stock markets crashed. The companies went belly up.

Its 10 years since that crisis. And we can see similar signs of exponential growth.
An article in Livemint , by Subramanian Swamy looks at the possibility of India and China facing a slow down or a bubble burst, in case proper financial reforms are not made in the two fastest growing countries.

Also will populist politics in India pull all this growth down?
The Honourable Prime Minister Dr. Manmohan Singh has considered liberalization with a human face, while his leftist coaliation partners from CPM, have totally denounced liberlisation, and are asking for further control of the economy.
I remember May 2004 when the Stock market tanked on comments made by the Left.

Will that happen again?

Only time will tell. Right now let us all make hay while the Sun shines.

Housing boom or bust??

Disclaimer:
The author is seriously incompetent to make any rational judgement and comment on the general state of economy, politics or any other matters. All the views are personal and not endorsed by any of the firms that might have employed him in the past or are currently employing him.


Recently with many of my friends actually moving to buy a house (well I think for those people in the fast lane, who got married soon after b-school, and now are getting settled by buying a house), people were contemplating the decision to rent or buy.

Many people believe that house prices can simply never come down (this imagination is fuelled by the current housing boom in India, just like the rest of the world) and people in India would rather pay an EMI (monthly mortgage payments) of Rs 50,000 instead of renting the same flat for Rs. 25,000.
That is negative carry of Rs. 25,000 a month!!!
All this for convinience of not moving frequently, and believing that the same house would keep appreciating in value by the same amount each month.

Since my dad works in the construction industry in Mumbai, I do know that housing prices can be equally volatile, but yet not every one believes me.

Thankfully for skeptics, the US Subprime housing crisis has already started and people have started accepting the Reality.

I found this link on the Freakanomics blog which has plot the inflation adjusted house prices from 1890 onwards.
This confirms the current trend since mid 1990s about the skyrocketing housing prices (driven in an era of low inflation, easy consumer financing, growing economy and rising incomes) but go back a little further and the real picture emerges.

India like in every other thing is a little behind the rest of the world, and much more volatile than the rest of the world, would surely follow the suit.

so my advice to anyone right now: "Keep renting"
(Hahaha, this is keeping in mind the disclaimer above)
I am doing the same in London, (not that I have enough money to buy anyways)
And you can see the graph for yourself

Dammit its crossed 2 !!!! yippppppeeee .... arrrggggggggghhhhh

Haha, I am not talking about Sachin Tendulkars score, and the cheers which Indian cricket fans might have when he scores a few runs but I am talking about the Pound Sterling (GBP) the lawful currency of the United Kingdom which has appreciated to be worth more than 2 USD.

Working on the trading floor in an investment bank, we all were anticipating this move since last december, that it might occur some time, but it finnaly breached the barrier last week.
And we heard the cries of anguish and happy depending on which trader was long or short which currency.

All the colleagues and friends started talking about, how this might affect their bonus at the end of the year. (Since we all work in an American Bank, compensation is in USD, but we live in UK so expenses are in GBP)

And all my indian friends are complaining about how their wealth has fallen due to the surging rupee (INR). (INR went up from being 46 to the USD to 41.68 in the last couple of months)

Even for me it has been mixed feelings all my current savings are worth more, and my parents are suddenly richer (though not that they would ever understand the currency markets)
My future earnings might be a little lower.
But dammnit. Why complain in currencies moving by 5-10% a year when I should be more bothered about increasing my own salary by working harder (or should i say smarter??)

Anyways not all my readers might appreciate the importance of this post, people might consider what is the importance of currency rates (and many including my parents think they are normally fixed through out) the FX rate and the interest rate in the different economies provide tremendous arbitrage opportunities.

Take for instance the Yen carry trade. People borrow in japanese yen (at 1% per annum) and deposit money in US Dollars (at 5% per annum) this looks like neat 4% profit, but you are exposed to the currency fluctuations.

I guess bigger than the Yen carry trade has been the Turkish Lira and the Brazilian Real.
With Rates being 16-20% and the currency appreciating, its sure has been some investment.
(Imagine, you could borrow in Yen at 1% and invest in Turkish Treasury bills and get a return of 18%, so much money to be made, just for taking some currency risk!!!)

Well though all these ideas appear fantastic in hindsight, if one loses on such trades, you would surely be branded as an idiot.

Anyways enough of gyaan on FX (foreign exchange for my non banker readers) lemme now mope around on my loss of future wealth. :P