Friends,
The US house didn't pass the $700 bn bailout pacakage yesterday.
There were difference of opinion about the solution.Whether US needs to infuse money in US system is the only way.....and hence it didn't get pass.There can be some more amendments in the pacakage and it should get passed on Thrus or Friday latest.
Actually these pacakage is not for USA only but for the entire world.All the liquidity has got sucked up in SubPrime Mortgage and stocks going down has made the things more bad.
The stock market and the stocks is the lifeline of US economy.Unlike India where Indian government use to invest in Bonds and infra project , in US the entire money they use to get from 401k and IRD is invested on companies and hence when the Dow tanked by 777 points and Nasdaq went down by over 200 points there were shivers running down the government.By not passing the $700 bn bill, market tanked by 777 points and Dow and Nasdaq lost ovwr $1 trillion in Mcap and that was far greater loss then the amount they were going to infuse in the system.
Well,this bailout pacakage is for buying subprime mortgage sec from the banks and financial institution and it is not going to come to Zero.As and when these houses are sold US government will get the money back.How much time it will take is to be seen.But it can take 2 to 3 years to find buyers maybe even at 20% discount.
But as the money is sucked in the housing sector , US needs to bring in $700 bn to keep the money circulating because as of now there is no liquidity and all loan and credits are stopped.
Even for bringing back the normalcy in banks and Financial Institution there is a need for the pacakage to get passed.
Now coming to our market , yesterday should have been the worst day for our market and it should have not only tanked but also closed over 1000 points down.But neither of that happened.
I personally feel that as soon as bailout pacakage get passed our market should stabilise.
There seems to be a strong support at 12300 levels.Let us see whether we see below 10k levels !
But the message our market send was clear...that don't take granted the US market moevment.We can do something different......
hi rajeev, i am a smaal time exporter. can you shed some light on what is the implication of all of this mayhem on the usd-inr?? is the rupee in a free fall, will it ever gain back its strength against dollar? thank you for you time.
ReplyDeleteVikram,
ReplyDeleteWell,I am no big a financial expert.I am a science PG.
All I write is my reading and my analysis.
But Dollar seems to loose its value.Rupee should not be so weak.
When US fed and government pours in $250 bn as first go,they are going to print it and pour it because there is no liquidity in US system and then after that also the other $500 bn will have the same fate.The things will only look up for dollars when they will able to sell the Houses that has fell in thier neck and that can take 2 yrs atleast that what I am seeing.
If Indian Rupee is taken into account , I feel it should fare better in next year or so.
As said by RJ in recent interview at NDTV , our government should sell our bank and our econmy and our currency stability to the world and show them that see,in India , our banking system is still strong and have great transperacy and laws that makes our economy and currecy stable.
It is time for our government to show to the world that actually India is implying all corporate governance and as our domtestic story is strong we are 90% insulated to world financial crisis.
The thing is every Bull market needs moneny to pour in to run and that is where the flaw is.With liquidity drying up to NIL , it will be difficult to see a bull market in near future.
The money that were coming from FII's are stopped and actually they are selling at every opportunity.
As RJ pointed out if the world GDP is made of 25% of US GDP and that 80% of US GDP comes from Housing sector and consumer spending I wonder with housing sector to remain to stand still for couple of years how will US be able to show the growth?
All the sectors related to housing will automatically be laggards in US and that is going to be a big blow to them.
I have no doubt that US will come back again as they have vast lands and very less population , hence they will be able to come back again.But I think the experts had to find some other sector for growth ,as an economy, no country can surrvive long only on Housing sector and consumer spending.
But as I wrote,as tey have less population and hence can take care of things more easily then countries with high density of population, as we all know with 1or2 children how it is esay to run a house then with 5-6 children....
That is the simple equation.
Hi Rajeev:
ReplyDeleteWhat will be the impact on IT companies in India?
+ve for IT companies is $ has appreciated.
-ve slow down in US and Europe economy.
I don’t know how true it is but I have heard news that lots of IT/BPO companies have started cutting jobs. If this will happen our growing Middle Class which is so much dependent on these high paying sector will surely suffer this will have cool down affect on our economy for atleast few more quarters.
Let me know your thoughts
Thank you,
Hiren Shah
Hiren,
ReplyDeleteYour guess is correct.If US slows down then there can be ripple effect on IT majors like Infy, TCS, Wipro etc.....
Even as Europe is also having the same kind of Subprime mortgage problem....it becomes useless for IT major to have been diversified.
Yes, the middle class can get concerned on that as well.
Seems the world will see a demand distrcution type of scenario for couple of years.
Untill the houses that went bust in subprime mortgage are sold the whole housing sector will be at standstill level and no one knows how many are there?What is the total liability of such subprime mortgage houses with US government.
But yes,the infusion of $700 bn , which is as big as buying a whole country somewhere else in the world,will do loads of relief to US financial system.
This is a once in a life time scenario.This has never happened in past in such a big magnitude but as the things are not the same as was in 1929, I think the recession should not be prolonged as much as it happened in 1929.
I think the world and US economy should bounce back sooner then anyone thinks.
Stocks are battered and they are getting butuchered like they will become Zero.....
But the thing one should remember is that this has happened due to lack of liquidity and not due to lack of asset.
Be calm and cool.That is the order of the day.Every bull market dawns after bear market.
But I am seeing now crude at $50-60 range if the demand distruction is going to happen.
Dear rajeev,
ReplyDeleteRead all your comments above,i really understood as it was put out in a very simple logical reasoning terms and ideas.
iske liye i salute you and cant stop reading your mails again and again since it is such a mecca of information and decipitation.
frankly speaking in short am i correct if i say that, the next bull run will start only if the f11 comes back,or we have good liquidity in the global scenerio.
as well as since the liquidity shall come only if the housing sector is sold and money is in the hands.
arnt we talking the bull run to start some where around december 2009 and above.
do reply
thanks
Ramesh