Sunday, November 11, 2007

Subprime Nemesis

This quarter earnings have been very unkind to the global financial giants. The global corporate world witnessed billions of dollars write off, staggering losses in quarter earnings report, ouster of CEOs and top honchos.
When we had thought, the worst was over the ugly head of Subprime has again raised. The same rating agencies which few months back rated Subprime bond with highest grade has cut down its rating. Its biggest impact was felt by Investment banks which had high exposure to Subprime backed CDOs . The Investment Banks unable to find buyers for its CDOs have started writing it off from the books. The first jolt came in August when BNP Paribas wrote off $ 2 billion, which gave jitters to the global financial market.

But recently(18th Oct) the huge write off by Merril Lynch of $ 7.9 billion has left the financial market stunned. Adding to wound was the report that Merril Lynch still has a huge exposure in Subprime market and it is cleaning its balance sheet by transferring its Subprime investments to a hedge fund. Though the securities giant has vehemently denied the acquisition but still the damages were gigantic. The chopper fall on CEO Stan O’nell and board voted him out. The crisis triggered a alarm bell to Fed also which cut Fed rate by 0.25% to wade off the looming crisis. The rational of Fed’s rate cut has been questioned by many analysts who felt that with booming asset prices it will further fuel the inflation.

The report cards of all the financial giants across the globe has come as a dampener. The total reported losses till now due to sub prime has reached a gigantean aggregate of $ 55 billion. When every time we thought that the mess of Subprime was over more write offs resurfaced. No one for sure knows how big and how much more of sub prime is left in the books of the financial giant.

The current crisis has also questioned about the rationality of the investment banker. From the annuls of the history all the major crisis has been exacerbated by the investment bankers. The investment banking business got a major setback during 1998 financial crisis by the collapse of Long Term Capital Management. The dot com bust in 2001 again brought huge losses to the investment banks. Post dotcom in soft interest regime investment banks raised like phoenix and made huge profits. It lead to huge build up across many asset classes but soon bolt in the blue came from Subprime defaults. Till now investment banks were making hay but the sun has set now. The banks are playing safe by focusing on asset management and wealth management and avoiding risky assets. But investment bankers have always reverted back from the lows and have created new booms. It will be a eager wait to see what will be the next bubble that investment bankers spawn.

Saturday, November 03, 2007

Global Financial Imbroglio

The popular belief is, what goes up must come down. If that is to be believed then where is our global economy heading. After a few years of great run up, in the valuation across all the asset classes, the decelerating forces have raised its heads. Since, the start of this year ,pundits’ prediction of a slow down in US economy has started sounding logical. They have always doubted where the US economy is heading with such a huge increase in budget deficit. The excessive consumerism backed by heavy borrowings by US citizen had its nemesis in the form of “Sub prime mortgage crisis”.
Technology, liberalization, globalization, lead to easy global fund flow and gave rise to “Carry Trade”. In February 2007, when Bank of Japan raised its interest rate from 0 to 0.5%, the jitters were felt across the global financial market. . The precedence of “South East Asian crisis” came back fresh into the mind of people.
The history of last decade in financial market has been cyclic in nature. The booming economy of South East Asian tigers got punctured by Asian financial crisis. The two major factors causing the crisis were the US economy’s recovery from recession and the raise in the Fed rate. Next came in the Information Technology boom followed by a gold rush in dotcom. Cashing on the euphoria dotcom companies started entering primary market. Investors forgetting the basic principles of investing, of investing in companies with sound business models, soon faced the hard reality. The bubble begin to burst and final nail in the coffin came as a form of 9/11. What followed was a period of recession.
The period of 2002 to 2005 under the guidance of Alan Greenspan saw cuts in the interest rate from 6% to 2%. The pumping of money by Fed into the economy lead to a rally in stock prices followed by other assets. Most importantly, it led to a boom in housing. Ultimately the boom busted in the form of Sub prime crisis. Subprime mortgage originations grew from $173 billion in 2001 to a record level of $665 billion in 2005, which represented an increase of nearly 300%. The repercussions led to consumer spending going down, the credit crunch, the slump in housing market and jitters in stock market. The economy is so threatened that the Federal Reserve set aside its worries about inflation and on September 18 cut short-term interest rates by half a percentage point for the first time in four years, hoping a shot of stimulus would head off a recession. Commodities had the biggest monthly gain in 32 years, led by wheat, crude oil and gold, as the dollar's slump enhanced the appeal of energy, grains and precious metals as a hedge against inflation.
Are we heading towards softening of interest rates? That the coming time only will tell. But, whatever be it, Fed must be cautious in reigniting inflation and spawning new bubbles. Japanese economy is showing signs of recovery. If that sustains then we will see hardening of interest rate by Bank of Japan which will lead to unwinding of carry trade and lot of global trembling.
India also had its dream run up in the global boom. The commodities, real estate and stocks have sky rocketed. Though the rally is suppose to be backed by fundamentals of India growing at fastest, but are we enough shock proof ? After a dream run up Japanese economy cooled down, so did South East Asian countries. Now, the onus is here on Govt. and RBI to keenly follow the development and formulate maximum risk management strategy.

Friday, August 17, 2007

Finance Continuum @ SJMSOM

The much awaited day of finance continuum came, and left with great imprint in our mind. The grandiose and magniloquence of the event, outreached our expectations by manifold.
The event started with our esteemed keynote speaker, Shailesh J Mehta, taking on the dais. His eloquence on “Financing the India Growth” left us spellbound. He started off with sharing how India is in vogue in west, be it bollywood, restaurant, weeding or fashion. He further added that without a India connection or Indian entrepreneur on board in a startup, it is difficult of convince a VC in silicon valley about funding. He classified the strengths which will be our growth drivers in days to come. The young working population, successful diasporas, great English linguistic skills, change in mindset from conservatism to consumption. But, showing the rosy side he did cautious us of many impediments that lies on the road. He pointed out the chocking infrastructure in our cities, red tape hassles and hostile geo-political situation. He made us think by saying, believe in principle based economy not rule based economy. Those days of Govt Control and authority are gone. He instigated spark in us by saying lot of potential is there to be untapped and we future generation have to make best out of it.
This speech was followed by panel discussion .The discussion opened with the concern on crisis created Sub Prime Mortgage Rate. The crisis was created by unprecedented liquidity leading to investments in risky assets. But Mr Saurabh(VP, HSBC) comforted us by saying every crisis gives buying opportunity. Then the discussion shifted to underdeveloped debt market. Mr Jayanto added, lack of liquidity in debt market hampers implementation of marked to market in debt and thereby effecting the price discovery mechanism. They strongly voiced for the need of better credit and bond market in India. Need of debt currently are infrastructure, products and participants. Mr Vikash(MD, Carlyl) pointed out the pain areas of bond market are pension and public investments not allowed, need for proper demarcation of roles and responsibilities between RBI & SEBI, trading is not user friendly and lack of uniformity in inter-state stamp duty. They felt we need to come out of vanilla offering in bond market and initiate new and innovative products. Mr Vikash added FII investments in bond market without caps will be welcome thing. The discussion then shifted from debt market to equity market. Mr Gaurav(MD, Rothschild) added how post Maruti IPO, billion $ new offerings have become natural. This talked about the increasing investor confidence. They then touched upon the biggest investment thirsty sector, infrastructure. They felt PP, BOT, BOOT models have to be created. They also felt further inflows for investment can come from FII by implementing capital account convertibility. Last part of the discussion focused on financing SME. They felt it can be best implemented by developing affective and efficient bond market.
The post lunch session was started by Mr. Anup Kapadia(VP, Rothschild). He gave us an exhaustive analysis of statistical analysis of India growth story. Since opening up of economy he divided India’s economic journey into six phases-Liberalization(91-96), Asian Crisis(97-99), Y2K(99-01), WTO(01-03), India Shining(04-06), Global India(06-07). He applauded the chutzpah by Tata Steel on acquiring Corus. He then explained the case study of Bharati and its corporate financing strategy over the years.
The much eagerly and anxiously awaited evening fall soon. The expectation and euphoria could be guessed by the huge build up in audience. Why should it not be, as it was the time for ace investor Mr. Rakesh Jhunjhunwala(Bull) to take on the dais. He started by sharing his philosophy- “To win all wars despite losing many a battle”. He stressed on the importance of reading, experiencing and learning. He attributed a part of his success to his value pick of PSU jackpots back in 2000. He advised for resisting temptations instead buy right, hold tight and exit in frenzy. The days ahead he plans to devout for philanthropic cause. Rare Enterprise director, Mr. Manish, described him as independent thinker who is passionate about equities. To him means remain more important than the end. His golden quote “Be greedy, but long term greedy-understand the importance of time”. Giving the future guidelines, he believed despite the minor jitters of global crisis, he strongly felt within a span of 5 years Sensex will scale 25000. The time with him flew in flicker and soon it was time to bid him bye and close this years continuum.

Tuesday, August 07, 2007

Best of Luck!!!!

Black Thumb!!!! This is how my thumb looks.
It happened on our photo shoot for placement brochure. The day was grandiose with all of us daintily dressed in our extravagant business suite. With sweltering heat and the very concept of posing before the camera, I was getting jitters. Since my childhood I had faltered very badly in any modeling pose I had tried for my pictures. Either the closed eyes or the open mouth, something or the other had always played the spoil sport in my search for a photogenic picture. Here also after a lot of retakes and to the exasperation of the photographer, something average was managed. Relieved to be back in natural world of expression, I was amazed to see the effort of a girl standing in the photo shoot queue. Immaculately styled hair, shimmering carmine gloss, crisply tailored suite and complementing it was perfect pair of stilettos. Looking at her effort that had gone for this shoot I could not resist myself but to wish her “Best of Luck” , with thumb pointing up. Next what happened was unbelievable to my eyes. As she turned back with a smile to react to my compliment, the tragedy struck. She stepped right into a banana peel lying on the floor and making and making a somersault landed 180 degree flat on the ground. For a moment, I could not realize what had happened. While the other guys got busy lifting her I was so shocked that I stood standstill with thumb pointing up.

Monday, July 30, 2007

Life Pre and Post SJMSOM

Pre life, jump from bed, slip into formals and fight it out with traffic on the road.(SP Road in Hydb, OMR in Chen, Hosur Road in Blore).
Post life, its morning 8 and I am already late for the class. Bike got demoted to bicycle. Roll on the bicycle through the pristine woods of the campus. Palpitating, I enter the class to find Prof. half way through his PPT.

Pre life, reaching my cubicle, I open my Outlook with anxiety and very much to my expectations new mails have arrived. New mails, from onsite &#%#$(censored abuses) for delivery made last night which has been diagnosed with major bugs.
Post life, fighting it out with fellow mates in Eco class ON “impact of free market economics in Africa’s economy”.

Pre life, its lunch time but still I am running debugger up and down in my code of few thousand lines. Till now, bug is challenging me with catch me if you can, I am clueless.
Post life, after enjoying a sumptuous lunch in canteen its time to go online and check inbox. Aila!!! Got a lecture now to attend on Stats. Rush to the seminar room and drowse in the glory of flexible chairs and A/C.

Pre life, sun is setting down but no relief. At last the nuisance in the code has been detected and its time for a fix. God knows when I get done with it.
Post life, time to hit the swimming pool. Sportsman inside me can not resist the temptation after seeing such a grandiose sports infrastructure.

Pre life, its dinner time and thanks god, I have somehow managed to fix that nuisance. Now, time to get back home. Back home its me and my idiot box and soon I am off to dreamland.
Post life, done away with dinner and now it is time prioritize, as time is a scarce commodity here. Work for a Bplan for a hour, draft mails for the sponsorship of finance feast, complete the assignment and open the books at last. If rumor is to be believed a surprise quiz awaits tomorrow. Oh!!!Its 3 AM and time to hit the sack. Morning class of 8o’clock is already knocking.

Thursday, July 12, 2007

New Chapter of Life

Like Diwali, CAT also became a annual festive of my life. Both made me wait till the year end and once there, they left without any trace, making me look forward to the next year. Following the trend, this year too proved no different. After a heart wrenching verbal section which gave me enough jitters to declare myself inapt for CAT and hang up boots forever.
But being a Software engineer back up plan is always solace in onsite. Wasting no time, I too got my H1B visa stamped and started getting ready to jet set. But, as life has its way, without any hope and with low morale I somehow pulled myself to the hall to write JMET. The biggest shock came to me when I realized that I did pretty well in the exam and I had some chance. But, by then stage got set for my trip to Chicago. That night, after lot of introspection, retrospection, soul searching , I decided to try for IIT and drop onsite.
Next day called for high drama with all my seniors bombarding me for my unprofessional approach and asked for my reason to back out. Being a big movie fan it didn’t take me much time to cook up the biggest story of my life which had all shades of love, violence, caste, anger and a perfect potboiler. I told my seniors, going onsite is not that important to me as losing my lady love. I don’t know how convincing I was, but my seniors gave me chance to stay back in offshore. But it did resulted me in straining my relation with my seniors. It ultimately made me look for a change of job and successfully I could manage a new job. But further confusion was added by HRD ministry when they halted the result and I was already running out of time to make a shift to new company. But as they say better late then never, at last result came out and it gave me immense relief to see my name on the list. Now, after enjoying 2 months vacation I will be joining SJMSOM on 18th July. Hope I do excel there.

Monday, April 09, 2007

Shivganga & DD Hills trip

Last weekend it was my turn to write my Motor Cycle Diaries, and following the Che Guevara inside me I teamed up with my school gang. The trip was to Shivganga (56 Kms from Blore) and DD Hills( 100 Kms from Blore) and here it goes……….
With bandana, sunglasses, sunscreens and resetting bike’s trip meter we started off from Bangalore city in the morning. But as it was the first day of the month in B’lore our plan got a setback when we had to stand in ICICI ATM queue for a hour, thx to IT & ITES brothers eagerly for this day of the month. After toiling with much cursed B’lore traffic, soon we hit NH4. It was a great biking experience with Bill using full throttle of Pulsar to Gairik using extreme maneuvering skills of Yamaha. After a smooth cruise we soon hit the Shivganga. But, the life threat came to me when I realized that bikes don’t go to the top of the hill and gal with us was adamant to visit the Shiva temple up there. I thought it would be a big sin on my part if I don’t help a gal visiting, Shiva temple(Shiva-Gal-Monday-Big Connection). While climbing the mountain I realized the contrast of walking miles in treadmill and walking in real. Reality is always tuff. But thx to the enthralling beauty of the hill, it did make me reach the top. From Shivganga we headed towards DD Hills. After a 2 hour ride and constant acclivity we reached the DD Hills peak. “Mind blowing” is one word that I can use to describe my feeling watching the sun go down. With DJ nature spinning its own track and twilight creating a trans effect, badly we missed our blended drink . Till we realized it was nine at night and we decided to get back. With heavy hearts and no mood to return we loaded ourselves to the bikes and started downhill journey. The ride downhill was amazing with moon in my eyes and wind in my hair…I felt like I was flying. And as they say.. every good things come to an end…so has been my tryst with DD Hills. Now back to the square, remembering the beautiful moments I am pening to capture the emotions.

For pics..check