03 November 2010

QE2 - The Fed's Big Gamble: Here's What Could Go Wrong

The Fed's Big Gamble: Here's What Could Go Wrong-



Matthew Craft, AP Business Writer, On Wednesday November 3, 2010, 6:34 am EDT
The Federal Reserve is about to take a huge risk in hopes of getting the economy steaming along again. Nobody is sure it will work, and it may actually do damage.
The Fed is expected to announced today that it will buy $500 billion to $1 trillion in government debt, and drive already low long-term interest rates even lower. The central bank would buy the debt in chunks of $100 billion a month, probably starting immediately.
Economists call it "quantitative easing." It gets the name "QE2" -- like the ship -- because this would be the second round. The Fed spent about $1.7 trillion from 2008 to earlier this year to take bonds off the hands of banks and stabilize them.


Here's how it's supposed to work this time: The Fed buys Treasury bonds from banks, providing them cash to lend to customers. Buying so many bonds also lowers interest rates because demand for Treasurys leads to higher prices and lower yields. Interest rates are linked to yields. Lower rates encourage people to borrow money for a mortgage or another loan.


At the same time, lower interest rates make relatively safe investments like bonds and cash less appealing, so companies and investors take the cash and buy equipment or other investments, like stocks. The S&P 500 takes off and Americans celebrate with a shopping spree. Businesses see a rise in sales and begin hiring again, and a virtuous cycle of more spending and more hiring ensues.


But many analysts and even supporters of the plan see dangers. It could make the weak dollar even weaker and lead to trade disputes with other countries. It could lead bond traders to believe that higher inflation is on the way, and they could derail the Fed's efforts by pushing rates higher. Many investors argue that it may create bubbles as hedge funds and other speculators borrow cheaply and make even bigger bets on stocks, commodities and markets in developing countries like Brazil.


"It's a desperate act," says Jeremy Grantham, co-founder of the investment firm GMO. Grantham says it's a clear message from the Fed to the rest of the world: "The U.S. doesn't care if the dollar weakens."

Here is a look at the ways the Fed's strategy could backfire:


--DOLLAR DROP
As word trickled out over recent months that the Fed was planning a new round of bond purchases, the dollar sank. It hit a 15-year low to the Japanese yen Nov. 1. Why? In the simplest terms, a country that cuts interest rates makes its currency less attractive to the worlds' investors. The interest rate is also the investors' yield, the payout they receive. When that yield falls, the world's banks move their money into countries with higher rates. They may exchange U.S. dollars for Australian dollars then invest the money in higher-paying Australian bonds.


"The Fed aims to push up the prices of stocks, bonds, real estate, and you name it," says Bill O'Donnell, head of U.S. government bond strategy at the Royal Bank of Scotland. "Everything is going to go up but the dollar."
A drop in the dollar can help companies like Ford that sell their products abroad. When the dollar weakens against the euro, for example, one euro buys more dollars than before. Foreign customers notice the price of the Explorer they've been eyeing is lower in their currency, yet Ford still pockets the same number of dollars for every sale.
The downside is that a weakened dollar pinches people in the U.S. because anything produced in other countries becomes more expensive, like oranges from Spain or toys from China.
"Look around you," says Thomas Atteberry, a fund manager at First Pacific Advisors. "How many things can you find that were made in the U.S.A?"


--BLOWING BUBBLES
Buying bundles of Treasurys knocks down interest rates, making borrowing cheap. But it also motivates investors to move out of safe investments into riskier ones in search of better returns. The stock market, for instance, rises in value and everyone with some of their savings in stocks feels wealthier. Ideally, it produces what what economists call a "wealth effect": People who feel better off spend more.

The problem, according to some critics, is that cheap borrowing costs and buoyant markets make a fertile environment for bubbles, which eventually pop. "The effort to help the economy sets up another more dangerous bubble," says Grantham, who warned of Japan's surging real estate and stock markets in the 1980s, soaring Internet stocks in the 1990s and the housing market in the 2000s.

Stocks in developing countries are a likely candidate for the next bubble. Cash from Europe and the U.S. has plowed into emerging markets, such as Brazil and Chile, since the financial crisis, largely because these countries have less debt and faster economic growth than in the developed world.

Another concern: Hedge funds borrowing cheap money can magnify their bets, taking a loan at 2 percent to buy a security that's rising 10 percent. They sell the security, pay off the bank and pocket the rest. That's true whenever interest rates remain low. Falling rates allow speculators to borrow larger amounts. In the extreme, losses from hedge funds and other borrowers can put their banks at risk and leave governments to clean up the mess.
The game only works as long as the investment keeps climbing. When the bubble breaks, the fallout can devastate an economy.

"I think bubbles are the main villain in this piece," Grantham says.
Cheap debt provided the fuel for the housing bubble, allowing home buyers to take out larger loans on the belief that somebody else would buy the house at a higher price. Fed chief Ben Bernanke's answer, Grantham said, is to start the cycle over again by blowing a new bubble. "All they can do is replace one bubble with another one," he said.

--FALLING FLAT
For others in the bond market, the greatest worry isn't that the Fed will flood the economy with dollars and lets inflation run wild. It's that the Fed will prove too timid.
"Whether QE2 works or not will be decided by the bond market," says Christopher Rupkey, chief economist at Bank of Tokyo. "Without a big number that gets the market's attention, the program they announce could be dead on arrival."

News reports that the Fed may spend less than the $500 billion bond traders have been betting on has helped push long-term rates higher in the last three weeks. David Ader, head of government bond strategy at CRT Capital, sketches one scenario if the Fed shoots too small. Say the Fed announces a $250 billion plan. The yield on the 10-year Treasury note, which is used to set lending rates for mortgages and corporate loans, could jump from 2.6 percent to maybe 3.2 percent.

"If the Fed's efforts fail we suddenly look like Japan," Ader says. "Japan started off wimpishly, then did it again, and again and then they wound up losing a decade."



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India, emerging mkts to benefit from QE2: Edelweiss 



Nifty may
eye 7000 by
Jan, RIL...


 DiwaliMuhuratPicks_INDIACAPITAL_021110.pdf

SRC: YAHOO FINANCE, MONEYCONTROL

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Vote for CNN HEROES









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 The Only Indian (2010) Nominated for this Award










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Stock Reports











Range-Bound Trading

 

 

Atul

 


Nifty daily analysis

 

 

Heard on the Street 




Technical calls for intra-day 

 

 

 

Intraday F&O calls 

 

 

 

SHIPYARD update- ABG & BHARTISHIPAYRD

 

 

DIWALI PICK - BAJAJ HOLDING

 

 

 

SONATASOFTWARE Break-Out looking good

 

 

BEL(BHARAT ELECTRONICS) Weak Defence

 

 

 

Src: ET, NCP blog , Myiris, bramesh blog, akp blog and etc

 

 

 

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02 November 2010

Morning calls




FIIs raise stake in 25 sensex companies









02 Nov 2010
Consolidation Ahead
House View
 
 
 
 
 
Technical Calls:BHEL,Axis bank and Hind Petro 
Nifty daily analysis 
 
 
 
 
 
SUZLON Energy Analysis
 
 
 
BANK NIFTY With 50 DMA 





Unitech Update

 

 

Sensex bounces from 19750-19800 as expected. Jet Airways, Eimco Elecon and Mtnl interesting charts.

 

 

 Src: All Leading blog and webs

 

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31 October 2010

Diwali 2010 to Diwali 2011 Picks


















My DIWALI PICKS 2010


LARGE CAP



1. HUL 2. CIPLA 3. ICICI 4. RELIANCE 5 .NALCO

6. ADANI  7. BHARTI AIRTEL   8. TCS   9. OIL  10. COAL INDIA



MEDIUM AND SMALLCAP



1. ZUARI     2.  GEODESIC    4.  KPR MILL   4.   SPML  INFRA  5 . ITNL    


6. COX & KINGS  7. NAHAR SPIN   8.  HEG    9. THERMAX   10. IGL



11.  INDO RAMA   12.  ONMOBILE   13. SARDA ENERGY


14. GUJFLOURO    15. ARSHIYA   16.   RSWM   17. GOENKA  


18. MARICO  19. AMTEK AUTO   20. FORTIS
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Stock and Market Reports




TECHNICAL ANALYSIS: Index Outlook — Holding above key support
The month of October acted true to its notorious reputation and rudely yanked back the Sensex just 2 per cent short of its life-time high. But a serious crash was averted thanks to the unshakeable belief of overseas investors in the ... 



STOCKS: EID-Parry: Buy
The stock of EID-Parry offers a good investment proposition for investors with a two/three-year holding period, as it trades at a deep discount to the intrinsic value of its sugar and farm input businesses ... 

STOCKS: Piramal Healthcare: Sell
Shareholders can remain invested in the stock of Piramal Healthcare in the near-term. With its key cash cow sold to Abbott Labs, the stock's current valuations largely take support from the cash value on ... 


STOCKS: Dewan Housing Finance: Buy
Fresh investments with a more-than-two-year-horizon can be considered in the stock of Dewan Housing Finance, a non-banking finance company that extends loans predominantly to lower and middle-income groups and has presence in Tier-II and ... 



IPOS: Gravitas India: Avoid
Investors can consider giving the IPO from lead metal recycler, Gravitas India, a miss on account of the company's weak operational track record, and forays into foreign markets such as Ghana, Senegal, and Ethiopia without the desired ... 




TECHNICAL ANALYSIS: Pivotals
The stock advanced Rs 14 in the previous week and is still testing key resistance in the band of Rs 1,090 and Rs 1,100. Short-term trend is up for the stock. However, inability to move above Rs 1,110 will lead to the stock moving sideways in ... 

TECHNICAL ANALYSIS: Stock Strategy
IFCI (Rs 69.9): After gaining sharply in the last three months, IFCI changed track last week. It now finds an immediate support at Rs 69-68 and resistance at Rs 72. A conclusive close below Rs 69 has the potential to weaken the stock to ... 


TECHNICAL ANALYSIS: Query Corner: Bank of India reversing from all-time high
I have shares of Kingfisher Airlines purchased at Rs 87 and Crest Animation at Rs 110. Please advise the outlook for these stocks. Suresh ... 


STOCK MARKETS: Ringing in the new year
Lights, sound, action. And, of course, the abundance of culinary delights. With the festival season well under way and Diwali just round the corner, it is that time of the year again, when “feel-good” is thick in the air. Some of ... 




STOCKS: 52-WEEK FLOP: VISHAL RETAIL
Slackening sales and inventory pile-up and heavy debt despite a vast store network and a diversified value-for-money product line left Vishal Retail mired in difficulties. Vishal's value offering shielded it from sales declines during ...  



 Src: Businessline.com
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29 October 2010

Morning Calls (29.10.10)















Technical Pick – Cummins India
Recommended Action for Cummins India is Buy
 
 
 
Technical stock Picks
JB Chemicals & Pharmaceuticals Ltd. has been making higher tops and higher bottoms
 




Hindustan Unilever Ltd
HUL is India's largest fast moving consumer goods company
 
 
 
Intraday F&O calls   (For 29.10.2010 trade)




Technical calls for intra-day(For 29.10.10 trade)
 
 
 
 

Strong Technical Pick – City Union Bank

 

 

GLENMARK more rally possible

 

 

HDFC looks weak

 

HINDUNILEVER - waking up after 10 years!

 

 

 

 

 Src: HDFC, NCP blog, Mktcalls, AKP blog and etc

 

 
 
 
 
 
 
 
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28 October 2010

Just a Information to You

The world's least corrupt nations 




Denmark.
     Next
Denmark (Rank 1) Denmark along with two other countries have been ranked as the world's least corrupt countries.
With a score of 9.3, Denmark has consistently topped the Transparency International's Corruption Perceptions Index.
The country has a strong tradition of openness to global trade and investment, and transparent and efficient regulations are applied evenly in most cases.
Denmark also boasts an efficient, independent judiciary that protects property rights, and the level of corruption is extraordinarily low, according to the Index of Economic freedom.
Three countries share the first position in the Transparency Index.


More @ The world's least corrupt nations 




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India's 10 most valuable companies




Workers at a coal mine.
     Next
Coal India IPO has become a runaway success, beating all records to become the largest public issue in India. The initial public offer by Coal India has generated a total demand for shares worth Rs 2,34,716 crore (Rs 2.34 trillion), the biggest in the history of India's primary market.
The state-run Coal India has surpassed the record of Reliance Power IPO that had attracted bids valued over Rs 2.05 trillion.
R-Power, in January 2008, had beaten the record of Mundra Port and SEZ's IPO that hit the market in 2007 and had received bids worth about Rs 2,00,000 crore (Rs 2 trillion).
All set to get listed on the Bombay Stock Exchange and the National Stock Exchange on November 4, CIL is aiming a plum position among India's most valued companies.


The IPO, priced in a band of Rs 225-245 per share has been oversubscribed 15.17 times.


More @ India's 10 most valuable companies 



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7 hatchbacks to choose from this Diwali  


Tata Nano.
     Next
CarDekho.com

The year 2010 has been a year of car launches with one new model hitting showrooms every month.
So, this Diwali the Indian car buyer has ample options to choose from.
There were a number of new launches and upgrades in the hatchback category.
So, here is low down on all the choices buyers have this Diwali in the hatchback segment in two price ranges.
Hatchbacks in the Rs 100,000 - 300,000 category:
Tata Nano -- The people's car is powered by a 35-horsepower engine and it is about 10 feet long, weighs approximately 1,300 pounds, has an all-sheet-metal body, a rear two-cylinder engine, small tubeless tires, a reinforced passenger compartment, crumple zones, seat belts and achieves a top speed of 106kmph.
Tata Nano buyers in Maharashtra, West Bengal, Uttar Pradesh and Karnataka have reason to rejoice as Tata Motors has officially opened bookings of the Tata Nano in these states.
Customers who have not booked a Nano in these states can now purchase the Tata Nano directly from showrooms.
The company has finance tie-ups with Tata Motors Finance, ICICI Bank and State Bank of India.
Tata Motors has tied up with a total of 25 banks to offer loans for purchasing the Tata Nano at attractive rates of interest.
Tata Nano's price went up by 3-4 per cent this July due to an increase in the price of raw materials.
The hike was of Rs 3,700 to Rs 6,894 for different variants, based on ex-showroom, Delhi, prices.

Image: Tata Nano.
Photographs: Courtesy, CarDekho.com






More @ 17 hatchbacks to choose from this Diwali  


Src: Rediff




 
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