Wednesday, August 27, 2008

Indian property | Lights on, nobody home | Economist.com

Indian property | Lights on, nobody home | Economist.com: "In a recent report, HSBC predicted that house prices across most Indian cities could fall by 25-30%.

Less than a year ago India’s property market was smouldering with excitement fuelled by unprecedented economic growth."

Thursday, August 07, 2008

The Indian Economy and Gold Imports - Seeking Alpha

Last night, I caught up with a HBS 08 classmate, Sini Jacob, for dinner. Amongst a wide variety of topics, one that we touched upon was the notion of India being another China. In light of that conversation, I found the article below very interesting.

The Indian Economy and Gold Imports - Seeking Alpha: "India was a big beneficiary of that flow, simply because of the misguided notion that India is another China, which it is not."

The alternative-energy bubble | Steve Tobak's views on dysfunctional corporate behavior - CNET News.com

The alternative-energy bubble | Steve Tobak's views on dysfunctional corporate behavior - CNET News.com: "The magnitude of the shakeout will be proportional to the gap between market demand and supply. In the case of the dot-com bubble--which also included Internet and telecommunications infrastructure, fiber optics, and communications chips--the shakeout was huge, affecting the public markets by almost a trillion dollars. The nanotech bubble, on the other hand, has been largely localized to the VC community.

As for the nature of this particular bubble, I'm not sure if my crystal ball is better than anybody else's, but my gut tells me that we're already getting way out ahead of ourselves.

As bubbles go, I think this one's going to be big. How big? You got me. But I think that global warming, alternative energy--and solar energy in particular--like Al Gore are all overblown. The energy crisis, on the other hand, is real, but nuclear energy's the answer. And that's all I'm going to say about that here.

What does all this mean to you? It depends on your risk profile. If you're young, I say you need to take risks. Should a great opportunity arise with one of these companies, by all means, go for it. But if you have a good job with a good company, or you don't have enough working years left in you to take significant risks, I wouldn't jump ship for a hot solar st"

India Inflation Woes May Continue - Seeking Alpha

India Inflation Woes May Continue - Seeking Alpha: "So one should not read too much into this recent stabilization in inflation. This euphoria may turn out to be a short-lived. Until then, pray for a divine intervention in the form of a good monsoon. It’s a shame on our policymakers that Indian agriculture has yet to witness a Promethean growth. The entire nation’s economic and monetary policy is held ransom to the performance of the south-west monsoon. Everyone in this emerging economic superpower, from the ordinary farmer to the RBI Governor, looks up to the skies for relief!"

Tuesday, August 05, 2008

Global Investing, BRIC by BRIC: Part II - Seeking Alpha

Global Investing, BRIC by BRIC: Part II - Seeking Alpha: "The budget for the current fiscal year (ending next March) proposes an 18% spending increase, and that’s after spending rose 24% last year. The state budget deficit (federal plus local) is around 7% of gross domestic product; in any kind of recession, that could easily spike to the 10% of GDP level at which deficits become difficult to finance.

There is hope on the horizon: An election is due in May 2009, at latest, and the center-right opposition is currently leading in the opinion polls. But wise investors know better than to base their investment plan on something as uncertain as that.

India’s other big problem is inflation, currently running at 8% per annum, which is higher than short-term interest rates. Higher commodity and energy prices have affected India as they have other countries; India’s position is made more difficult by the poverty of much of the population.

The Indian government has restricted exports of rice and has subsidized other foods and gasoline (the latter makes no sense socially since automobiles are largely owned by the middle classes).

Needless to say, these subsidies and restrictions make the budget deficit worse, and will pose an additional problem when they are lifted and newly unfettered consumer prices soar in response."

Businessworld - The Price Of Growth

Businessworld - The Price Of Growth: "That may sound preposterous in these nascent years of India’s economic renaissance, but there is evidence to suggest that Tata’s fears aren’t unfounded. The unprecedented growth in the economy has led to a spectacular rise in the costs. Corporate India’s interest expenses have risen 28.74 per cent in the Jan-March 2008 quarter — the fastest in the past 10 quarters, according to the Centre for Monitoring Indian Economy (CMIE) (see graph ‘Rising Costs’ on page 31). The West’s average is 2-7 per cent. Profit after tax as a percentage of income was among the lowest in the past 10 quarters, indicating a squeeze on margins. Salaries and wages have risen 22.44 per cent, the second highest in the past 10 quarters, while power and fuel costs are growing at a fast clip of 14 per cent. “India’s cost-competitiveness has eroded,” says Sanjay Verma, managing director of real estate consulting firm Cushman & Wakefield India. “India will lose out if it doesn’t offer anything other than a cost advantage.”

Citi’s India Equity Strategy report of May 2008 says an analysis of the rising costs of setting up business over the past three years — asset, capital and services based — suggests ‘business inflation’ could be as high as 10-35 per cent a year, well ahead of 7-8 per cent headline inflation. “It has become expensive to live in India but probably even more expensive to do business in India,” says the report.

Monday, August 04, 2008

Meredith Whitney: The credit crunch is far from over - Aug. 4, 2008

Meredith Whitney: The credit crunch is far from over - Aug. 4, 2008: "Whitney's current concern is that banks aren't slashing costs and cutting losses in their loan portfolios fast enough. On the cost side, she says, banks have yet to come to terms with the disappearance of the securitization market, which she believes will stay in hibernation for the next three years.

Why does this matter? From 2001 through 2005, for every dollar of bank capital used to make mortgage loans, 10 were supplied via investors in mortgage securities. All that secondary-market capital is now sidelined, but the staffing levels of bank lending departments don't yet reflect it.

By Whitney's reckoning, banks have laid off about 7% of their employees; she thinks the cuts need to reach 25%.
Time to get real

She also argues that banks need to 'get real' about how they're valuing their problem mortgage-related debt, much as Merrill Lynch has now done. Merrill recently sold a large package of toxic mortgage debt for just 22 cents on the dollar.

Whitney's idea of 'real' is pretty drastic. Whereas most banks are estimating 20% to 25% peak-to-trough declines in housing prices, the Case-Shiller housing futures traded on the Chicago Mercantile Exchange portend a much steeper 33% decline, she points out.

In fact, Whitney thinks the actual declines will be worse - closer to 40% - because of the loss of the securitization market and the paucity of mortgage credit available. And that means more defaults: "The consumer's ability to refinance his way out of trouble has diminished greatly."

Whitney's critics, and there are many among bankers and analysts, contend her bearishness at this point shows she simply doesn't now how to measure the remaining downside risk.

Her response: If she has no idea how to properly value bank stocks now, it's because the metrics don't work. Price-to-earnings ratios are useless when earnings are nonexistent. And valuing banks on price-to-book ratios is just as futile. Those book values - which reflect underlying assets and liabilities - are moving targets.