Stock Observatory 2012 4Q (October-December)

 

Stock Observatory – Fourth Quarter 2012 (October-December) – Published  daily from 28 September, 2012 at about 10:00 AM Indian Time.

We start from today last quarter’s Stock Observatory. While comments are welcome, the Author may not reply but will note them for enhancing the utility of this popular column in future.

Kalidas, October 1, 2012 (India Time)
USA


READERS PLEASE NOTE (Updates of Stock Observatory)

Dear Readers,

I have arrived in India and proceeding to Amravati today evening, and will reach there tomorrow (27/11)

Due to my continuous air travel, and also due to my helath being down for 3 days in Hong kong, I was unable to contribute on daily basis.

Also, My internet connection will be in place only after 2 or 3 days in Amravati, so I will restart on regular basis from possibly on Thursday 30/11 at the earliest. I have to buy a new USB modem (MTS or Vodafone) which connection will take effect after abour 2 or 3 days.

Kindly excuse me for the time being. I will be in Amravati for about 2 months during which I do not expect any interruptions

Anil Selarka
26/11/2012 – Mumbai


Stock Observatory India

Ref: ISO/12/102 of 2012-11-16, Friday, India Time 10.00 am)

Name Latest Px Change Date/Time Name mm/yy Latest Px Change Date/Time
Index       Commodity        

Dow Jones Index – US

12,542.38

-28.57

15Nov Close

Crude Oil WTI – US

Jan 13

85.87

-0.88

15Nov Close

S&P 500 – US

1,353.33

-2.16

15Nov Close

Brent Crude – UK

Dec 12

110.98

1.37

15Nov Close

Nasdaq – US

2,836.93

-9.88

15Nov Close

Gold –

Dec 12

1,713.80

-16.95

15Nov Close

NIkkei 225 – JP

8,995.91

166.19

16Nov Last

Gold – Spot

Spot

1,713.60

-0.70

16Nov Last

Hang Seng – HKG

21,149.80

40.84

16Nov Last

Silver –

Dec 12

32.67

-0.21

15Nov Close

Sensex- IN

18,471.37

-147.50

15Nov Close

Silver – Spot

Spot

32.49

-0.19

16Nov Last

Nifty – IN

5,631.00

-35.95

15Nov Close

Palladium

Dec 12

631.20

-10.35

15Nov Close

Platinum

Jan 13

1,573.30

-18.30

15Nov Close
Interest Rates       Metals        
FED Target Rate

0.2500

0.0000

15Nov Close

Iron/Steel

FED Funds Rate

0.1700

0.0000

15Nov Close

Copper

LME 3M

7,639.50

-0.50

15Nov Close
Prime Rate

3.2500

0.0000

15Nov Close

Aluminum

LME 3M

1,964.00

-6.00

15Nov Close
LIBOR Rates        
Govt. Bonds Yield      

1 Month – 1M

0.2075

0.0000

15Nov Close

3M – US

Stopped NA No Quotes

3 Months – 3M

0.3100

0.0010

15Nov Close

6M – US

Stopped NA No Quotes

6 Months – 6M

0.5230

0.0000

15Nov Close

12M – US

Stopped NA No Quotes

12 Months – 12M

2Y – US

0.2400

-0.0100

15Nov Close Currencies:        

5Y – US

0.6200

0.0000

15Nov Close

USD Index

81.0760

-0.0500

15Nov Close

10Y – US

1.5800

-0.0200

15Nov Close

Euro

1.2770

-0.0012

16Nov Last

30Y – US

2.7100

-0.0200

15Nov Close

Indian Rupees

54.6300

-0.2650

16Nov Last

 

US Market overnight & Asian Markets today

  1. Concern for fiscal cliff weighed on stocks again which went lower but at slower pace. It looks like that short term interest rates (1 month to 12 months) spiked higher, but they were not reported by various financial channel like Bloomberg. In other words, there were conscious attempt to suppress the price sensitive information from participant. This is the main reason we began to quote the rates on daily basis. The above stoppage or avoidance is prima facie indicator of troubles on interest rates front.
  2. Even NASDAQ stocks have started drifting mainly due to major downward movements by Apple and Microsoft (due to resignation of key person in charge of Windows 8). Google has also started drifting.
  3. S&P 500 is also lower suggesting broad based weakness in the market. However, we believe that there will be last minute agreement between the Democrats and Republicans. This belief stems from the recent Asian visit by President Obama. He would not have undertaken the trip if the home front was not so safe. We are reading two + two together.
  4. Some are projecting recent weakness in the market as beginning of crash or mini crash at least. They point to the widening of credit spread of late. Whenever the credit spread widens, it is reflection of interest rates getting higher.
  5. Even Bernanke was concerned of the spike in interest rates. He issued a statement that FED will take policy measures to revive the housing market. What he is hinting at that the rates will be pushed down if they do spike up. He forgets that monetary stimulus actions are not having desired effect, and what is required is fiscal measures (from Obama government) to ease the pressure. Obama is not bothered, he is on flying tour of Asia after getting tired of election related pressure which he eventually won.
  6. USD Index rosé while the markets fell. Even jobless claims rosé but the reason given was the post effect of storm Sandy. Such storms do not result in firing of people instantaneously but the bad numbers were always reported to sooth the investors sentiments.
  7. Major political changes in China did not have any effect. However, dissolution of Japanese Parliament by the present Prime Minister reveals the pressure on the government to avoid recession which is unavoidable. Almost major export company, like Panasonic, Sony, Sharp are in serious financial trouble. Sony is trading at 32 Years low. In another words, it is rated much lower than even bankrupt company.
  8. Singapore reported slower growth in GDP due to weak exports market. In other words, all point to the major weakness in US market to which Japan, Singapore, China, Taiwan and South Korea export. Still, US market is shown to be stable when it is not. Look at Walmart, it fell sharply yesterday.
  9. France reported better than expected GDP. Greece and Spain are still causing troubles for Euro. Euro is on weaker side at 1.2772 – once it crosses 1.33, then only we can say that the troubles in Euro zone is about to subside. Right now, it is not.
  10. Indian Stocks continued to slow down, more due to slower trading in Mumbai caused by the concern of Shiv Sena leader – Bal Thackerey who is reported to be critically ill. His party commands so much of fear that it has asked the residents of Mahim and Matuinga (close to his residence in Bandra) not to even light up the “diya” on the eve of Diwali. Many expect the violence in the city if he dies, which is more likely considering very critical medical situation as confirmed by the doctors.
  11. India Rupee rebounded slightly by 0.5% compared to general weakness in other non dollar currencies. We do not read too much about it because it looks like a small profit taking near sensitive Rs 55 level.

Indian Stocks: Our Observations and Comments

  1. Rakesh Jhunjhunwala recommends Geometric as dark horse. It is Godrej promoted IT company reportedly trading at fraction of valuation of other companies in that sector.
  2. Wochardt has reported scintillating numbers due to major rise in exports to US and UK. Its 80% profit comes from overseas. The stock is trading near high and may not be appropriate to take position now, but one may keep it on watch list.
  3. Banks are reported to be in major infusion of capital, suggesting they lost lot of capitals in bad loans. Finance Minister while calling for more infusion, the criteria for eligibility is to recover at least 20% of written down debt to get more funds or capital from the Government. It is not a practical suggestion. Banks write off only when they think that the advance is unrecoverable. How could then they claim that 20% could be recovered by them?
  4. RBI has been asked to finalize new rules for granting new banking license which may happen soon. It is possible that the company like IFCI, LIC Housing Finance may be elevated to become banks on its own right. We would accumulate these stocks on any weakness. IFCI is still at acceptable level of entry.
  5. Ashok Leyland, once recommended by us below Rs 25 in this column, rosé on strong earnings to close at RS 27.75. It is still at buy level, having seen improvement in its business. Our target price will be Rs 38 to 41 on higher side and Rs 36 on lower side. It also pays good dividend.
  6. Tata Global continues to do well. At Rs 177 it may be at higher level to enter, but below Rs 180 level is still an entry for profitable trade. We suggested this stock long before.

Special Situation:

  1. None today

OVER


Stock Observatory India

Ref: ISO/12/101 of 2012-11-15, Thursday, India Time 10.30 am)

Name Latest Px Change Date/Time Name mm/yy Latest Px Change Date/Time
Index       Commodity        

Dow Jones Index – US

12,570.95

-185.23

14 Nov Close

Crude Oil WTI – US

Jan 13

86.75

0.91

14 Nov Close

S&P 500 – US

1,355.49

-19.04

14 Nov Close

Brent Crude – UK

Dec 12

109.61

1.35

14 Nov Close

Nasdaq – US

2,847.05

-36.84

14 Nov Close

Gold –

Dec 12

1,730.01

5.60

14 Nov Close

NIkkei 225 – JP

8,748.29

83.56

15 Nov Last

Gold – Spot

Spot

1,727.75

1.40

15 Nov Last

Hang Seng – HKG

21,231.40

-210.58

15 Nov Last

Silver –

Dec 12

32.88

0.39

14 Nov Close

Sensex- IN

Silver – Spot

Spot

32.71

0.02

15 Nov Last

Nifty – IN

Palladium

Dec 12

641.55

4.95

14 Nov Close

Platinum

Jan 13

1,591.60

5.20

14 Nov Close
Interest Rates       Metals        
FED Target Rate

0.2500

0.0000

14 Nov Close

Iron/Steel

FED Funds Rate

0.1700

0.0000

14 Nov Close

Copper

LME 3M

7,640.00

-40.00

14 Nov Close
Prime Rate

3.2500

0.0000

14 Nov Close

Aluminum

LME 3M

1,970.00

-15.00

14 Nov Close
LIBOR Rates        
Govt. Bonds Yield      

1 Month – 1M

0.2070

0.0000

14 Nov Close

3M – US

0.1000

0.0050

14 Nov Close

3 Months – 3M

0.3100

0.0000

14 Nov Close

6M – US

0.1400

0.0030

14 Nov Close

6 Months – 6M

0.5230

0.0000

14 Nov Close

12M – US

0.1800

0.0000

14 Nov Close

12 Months – 12M

0.8605

0.0000

14 Nov Close

2Y – US

0.2500

-0.0040

14 Nov Close Currencies:        

5Y – US

0.6300

0.0060

14 Nov Close

USD Index

81.0860

-0.0300

15 Nov Last

7Y – US

1.0300

0.0050

14 Nov Close

Euro

1.2748

0.0012

15 Nov Last

10Y – US

1.6000

0.0030

14 Nov Close

Aussie Dollar

1.0361

0.0005

15 Nov Last

30Y – US

2.7300

0.0100

14 Nov Close

Indian Rupees

55.0350

0.0350

15 Nov Last

US Market overnight & Asian Markets today

  1. Lot of concern about Fiscal cliff. Pres. Obama and Republicans may not agree to the terms which has raised strong possibility about fiscal disagreement that may lead to budgetary default. However, this is ongoing phenomenon and at last moment, both parties may agree after some horse trading. Dow fell steeply to close near 5 months low.
  2. Treasury Secretary mentioned about the raising the taxes to balance the budget. This is no other reason for lower corporate profitability and sell of the market.
  3. Dollargained however. Whenever the Dow falls, the dollar index rises which means that most of the buying in US is domestic and not from overseas. If market fell, and European were the sellers, the dollar index would have fallen, not risen (Withdrawal of money from the market involved selling of dollar and buying of non dollar currency).
    • Aussie Dollar is strong of late, having breached 1.04 level once. In our opinion, breaching of 1.0350 is a sign of bullishness.
    • Euro was stable to higher but there was overall weakness due to Greece and Spain issue. It can not be said that Euro is out of trouble any time soon.
    • Rupee is showing marked weakness, reason of which is not known to this author. It appears that there are concerted efforts to weaken the currency in the Non Deliverable Forward market.
  4. Interest rates were a bit higher at short and long end. FED gave statement that it may have to resort to buying more bonds (to suppress its yield or lower the interest rates). In other words, FED is bent upon printing more and more money in months to come. This is a bullish stance for Precious metals. No significant movement for LIBOR rates. If there is no agreement for fiscal discipline, the rates may spike in future which may spell troubles for all market, except Precious metals. Please note that if the interest rates do rise, the Precious Metals may come down a bit initially due to higher rates for contracts. But once that effect is tapered off, the Precious Metals prices may go higher.
  5. Among commodities, Precious Metals to start with, the Gold was marginally higher while Palladium was lot firmer after recent sell off., It appears that there is lot of short recovering in this metals. Silver was much stronger than Gold, and it was outperforming its golden brother.
  6. Copper and Aluminum were down slightly, but it appears that Copper may start rising again due to opinion that China is recovering from slow down. Considering that Iron ore prices are also on slight rebound, it means that China manufacturing has started recovering. Rise in Silver prices may also be due to higher production of solar panels which mainly use the Silver as one of the essential element. Silver has attained alternative use from photography, and as such, its lower prices at any time will be a buy or accumulation opportunity. Solar power is going to stay, so also the use of silver.

Indian Stocks: Our Observations and Comments

  1. The index is of late weak in response to global market. More will be discussed tomorrow.
  2. I am sorry for missing two editions of Stock Observatory as I was down with fever for two days. I am fine now.

Special Situation:

  1. None today

OVER


Stock Observatory India

Attention Readers:

The stock observatory column will be available from tomorrow (13/11/2012 – India time). I have arrived in Hong Kong , and adjusting myself with the time difference and jet leg fatigue.

Kalidas, Hong Kong
12/11/2012


Stock Observatory India

Ref: ISO/12/101 of 2012-11-06, Wednesday, India Time 11.30 am)

To All Readers

Please be informed that due to my overseas travel, there will be no edition of Stock Observatory during 8/Nov/2012 (Wednesday) to 11/Nov/2012 (Sunday).

Regular edition will be published from 12/Nov/2012 (Monday) in revised format.

Thanks for your cooperation.

Kalidas (Anil Selaka)

USA, 7 Nov, 2012 (US Time)


Stock Observatory India

Ref: ISO/12/100 of 2012-11-07, Tuesday, India Time 11.00 am)

Index

Date & Time

Latest

Previous Close

Change +/-

Change %

52W High

52W Low

Dow Jones Ind. – US

05/11/12 Closing

13,112

13,093

19

0.15

13,661.87

11,231.56

S&P 500 – US

05/11/12 Closing

1,417

1,414

3

0.21

1,474.51

1,158.66

NASDAQ – US

05/11/12 Closing

2,998

2,982

16

0.54

3,196.93

2,441.48

NIkkei* – JP

06/11/12 Intra Day

8,966

9,007

-41

-0.46

10,220.00

8,120.00

Hang Seng* – HKG

06/11/12 Intra Day

21,851

22,006

-155

-0.70

21,847.70

17,613.20

Sensex* (BSE) – IN

06/11/12 Intra Day

18,763

18,770

-7

-0.04

19,137.29

15,135.86

NIFTY* (NSE) – IN

06/11/12 Intra Day

5,704

5,698

6

0.11

5,815.35

4,531.15

* = Today’s Intra Day       ’52W High/Low prices are revised on first day of each month
The US Current/Previous IDX data are of one day earlier due to different time zone.

US Market overnight & Asian Markets today

  1. Today is a day of Presidential election. From nearly almost granted victory of President Obama, the fortunes changed into highly competitive election. It was no longer “one sided election”.
  2. BREAKING NEWS: Obama Wins Re-election With Romney Defeated in Key States reported by Bloomberg with following remarks

“Barrack Obama, the post-partisan candidate of hope who became the first black U.S. president, won re-election today by overcoming four years of economic discontent with a mix of political populism and electoral math.

Obama defeated Republican Mitt Romney, according to television network projections that show the president winning the electoral votes needed for re-election.

 

Barrack Obama Wins Second Term as U.S. President

 

What will happen to United States and the World?

Taxes on rich will be raised. More manipulation of entire range of commodity market. Bernanke will gain endorsement to “print another $1 trillion in less than 9 months”, so Gold and Silver will gain over 18% in 2013. Gold may reach $1,935 in Mid 2013 and Silver will rise by 20% in dollar terms or $38.85 to $39.35 and may hit new high of $41 to $43 before settling down to $39 level for a while. The stocks are reaching new peak from where it will crash – it is written all over it. In short, President Obama will oversee another stock market crash which may require OE#4, 5, 6 & 7. Pressure on Euro zone will worsen so that the tension in US could be reduced. Greece may not leave Euro altogether, but may have “suspended membership” until its house is set in order. There will be wholesale liquidation of equity markets in 2013 – come September 2013.

US Debt may rise by another $2 trillions this time by the end of 2013. There will be many disagreement between GOP and Democrats.

Immediate Reaction:

Both Gold and Silver rose smartly recovering over 40% losses on previous sessions.

Currency:

Currency Pair/Index

Date & Time

7/11/12 IST

IST 5/11/12

Change +/-

Change %

52W High

52W Low

US$ Index 05/11/12 – Close

80.7500

80.5870

0.1630

0.2023

84.1000

74.7240

US$ per Euro 05/11/12 – Close

1.2782

1.2827

-0.0045

-0.3508

1.4201

1.2042

US$ per AUD 06/11/12 – Intra Day

1.0404

1.0330

0.0074

0.7164

1.0857

0.0958

US$ per GBP 06/11/12 – Intra Day

1.5974

1.6027

-0.0053

-0.3307

1.6310

1.5233

Indian Rs per US Dollar 06/11/12 – Intra Day

54.6600

54.0900

0.5700

1.0538

57.3375

48.6050

52W High/Low are revised on 1st day of month
    • Aussie Dollar rose smartly obviously under short recovery of future contracts, After a long time, the Aussie dollar has moved beyond 1.03 to close at 1.0404. May be it may falter a bit after result of presidential election. Due to Obama victory, which means that QE#3 will be put in practice, the dollar may turn weak or better to say that Aussie Dollar may gain by 8% in next 14 months.
    • While the stage is set for Indian Rupee to rebound, we are puzzled why the currency has suddenly turned weak when the strength was expected.
    • In India, the Gold will rise to Rs 36,500 by Sept 2013, and Silver between Rs 68,000 to Rs 71,000 per kg.
    • Oil may rise by 12% at least, so also other energy prices. (Gas and Electricity). Deficits may widen and India’s GDP may worsen to less than 3.5% in next 9 months. There will be triangular fight between RBI, Finance Ministry and Prime Minister;s Office.
    • Rates may not come down much, so the real estate prices, may react finally in metro cities.
    • FMCG stocks will prosper more in India, so also Retail stocks.

Interest Rates (US$)

Rates are weaker ahead of Presidential election. Let us see what happens next. We are sure that the rates this time will look up, wait until re-election formalities are over.

Commodities

Commodities

Month/Year

IST 07/11/12

IST 06/11/12

Change

Change %

Open Int 07/11/12

 OI 5/11/12

Change OI +/-

IST 07/11/12

Crude Oil WTI – US

Dec/12

88.71

85.65

3.06

3.57

328,132

350,335

-22,203

221,397

Crude Oil – Brent – UK

Dec/12

111.07

107.73

3.34

3.10

8,537

8,515

22

388

Gold – Nymex – US

Dec/12

1,721.36

1,683.20

38.16

2.27

277,932

289,615

-11,683

120,547

Silver – Nymex – US

Dec/12

32.03

31.13

0.90

2.89

71,185

74,300

-3,115

35,628

Palladium – Nymex – US

Dec/12

620.15

603.35

16.80

2.78

18,761

18,749

12

3,037

Platinum – Nymex – US

Jan/13

1,558.30

1,542.70

15.60

1.01

56,406

57,187

-781

6,253

OI = Open Interest; IST = Indian Standard Time

We stated yesterday “The manipulators have started buying back futures contracts after causing huge drop across the spectrum. Open Interest has come down across the spectrum suggesting buying back of shorted contracts.” And are pleased to tell you that we were correct in our assessment.

Gold opened at $1,746 in the morning trade, which is higher by $63. The short interest also came down by 11,700 contracts suggesting that most of the volume was directed to buy back the contracts to avoid delivery default. After short positons were satisfied, the gold price tapered off to $1,721 (by $25 from day high). On previous days, the prices were aritifically hammered down in paper trade.

Silver followed same pattern. Silver opened at $33.68 against previous close of $31.13 or massive $2.55 or by nearly 8%. It closed down at $32.03 which was $1.65 (or 5%) down from day high. Look at the volume and open interest. Open interest came down by just 3,115 contracts (each contract is of 5,000 oz). If such small quantity could engineer price move of 8% what would happen one day when entire short position may need to be covered up?

This is why we advised the readers to just buy these metals. And they should not hesitate to book the profits when gain is substantial in just few days

Indian Stocks:

  1. State Bank of India CEO is simply stupid. He asked Kingfisher Airline to infuse capital or else the Airline will not fly. Al right, the airline will not fly but what will happen to SBI, BOI, Axis Bank, IOB etc who might go 6 fathoms deep?
  2. Mallya is on the verge of selling United Breweries for almost $2 billions. So he has money, but will he throw at Kingfisher? Not much except occasional payment of salary of its employees
  3. When he is going to get so much of money, what prompted SBI CEO to burst open his loud mouth and give a warning that “his airline will not fly”. When the main promoter is going to get huge amount of cash, why make him an enemy”
  4. This proves that almost all CEO of Public Sector banks are “glorified Babus”. They are just 9 to 5 salary earners, bothering least about the company they run.
  5. It is time to buy some Kingfisher Airlines. It is speculative stock, but it will perfomr better than in the recent past. Invest upto 5% of investment capital.
  6. Our venerable Lakshmi Mittal is in serious financial trap. We have mentioned before that we do not like a company which buys new companies every other day. Lakshmi Mittal was buying newer and newer companies, including mines, and he contracted a debt of over $22 Billions (Rs 110,000 crores). His lead company – Arcelor Mittal – is facing severe squeeze on its rating with one agency S&P reducing the debt to “junk grade status”. He is not going to come out of this situation. He will bust and almost all of his projects in India will be put on hold or those projects may turn into NPA for financing banks.

Special Situation:

  1. None today

OVER


 

Stock Observatory India

Ref: ISO/12/100 of 2012-11-06, Tuesday, India Time 10.30 am)

Index

Date & Type

06/11/12

05/11/12

Change +/-

Change %

52W High

52W Low

Dow Jones Ind. – US

05/11/12 Closing

13,112

13,093

19

0.15

13,661.87

11,231.56

S&P 500 – US

05/11/12 Closing

1,417

1,414

3

0.21

1,474.51

1,158.66

NASDAQ – US

05/11/12 Closing

2,998

2,982

16

0.54

3,196.93

2,441.48

NIkkei* – JP

06/11/12 Intra Day

8,966

9,007

-41

-0.46

10,220.00

8,120.00

Hang Seng* – HKG

06/11/12 Intra Day

21,851

22,006

-155

-0.70

21,847.70

17,613.20

Sensex* (BSE) – IN

06/11/12 Intra Day

18,763

18,770

-7

-0.04

19,137.29

15,135.86

NIFTY* (NSE) – IN

06/11/12 Intra Day

5,704

5,698

6

0.11

5,815.35

4,531.15

* = Today’s Intra Day       ’52W High/Low prices are revised on first day of each month
The US Current/Previous IDX data are of one day earlier due to different time zone.

US Market overnight & Asian Markets today

  1. Obama and Romney election campaign is near close. The voting begins tomorrow and the result may be known within 24 hours or earlier if there is no close counts in any key state. The odd favors slightly President Obama, and there being no decisive events near the campaign close, the odd will favor sitting President. In any case, it is difficult to dislodge a sitting President even if he was not so popular. 4 Year term is too short for any President to make meaningful changes.
  2. If Obama wins, we are sure QE#3 will come along may be under different garb or in same old vanilla form. There is no way US can overcome the debt problem which runs into trillions of dollars, and which have risen over 45% in less than 4 years. It is to the credit of FED that it has managed to keep the rates so low that accrued interest liability does not add sufficient burdon on the exchequer.
  3. Dollar rosé on two counts, the uncertainty over President Election is nearly over and Euro zone troubles resurfacing in its origin Greece.
  4. Australia fined a unit of S&P heavily for giving AAA rating to a company whose bonds were passed on to certain institutions and individuals and collapsed thereafter. This is the first time a rating firm is being punished or condemned officially. It is just beginning.

Currency:

Currency Pair/Index

Date & Time

6/11/12 IST

IST 5/11/12

Change +/-

Change %

52W High

52W Low

US$ Index 05/11/12 – Close

80.7500

80.5870

0.1630

0.2023

84.1000

74.7240

US$ per Euro 05/11/12 – Close

1.2782

1.2827

-0.0045

-0.3508

1.4201

1.2042

US$ per AUD 06/11/12 – Intra Day

1.0368

1.0330

0.0038

0.3679

1.0857

0.0958

US$ per GBP 06/11/12 – Intra Day

1.5974

1.6027

-0.0053

-0.3307

1.6310

1.5233

Indian Rs per US Dollar 06/11/12 – Intra Day

54.6600

54.0900

0.5700

1.0538

57.3375

48.6050

52W High/Low are revised on 1st day of month
    • Aussie dollar rosé displaying latest firm trend in their currency.
    • Rupee fell by over 1% for no reason. Buy rupee and place it in FD for the time being.
    • Euro was weak on the back of news from Greece. Still it is within expected range.
    • Dollar index is trying to break out but we do not think it will. Let us see the post election event.

 

Interest Rates (US$)

Rates are weaker ahead of Presidential election. Let us see what happens next.

US Dollar (dd/mm/yy)

Abbv,

Yield % 06/11/12

Yield % 05/11/12

Yield Change

LIBOR 02/11//12

LIBOR 01/11/12

LIBOR Change

FED Funds Rate %

ffunds

0.17

0.17

FED Reserve Target %

target

0.25

0.25

Prime Rate%

pr

3.25

3.25

MATURITY

 

 

 

1 Month

1M

0.0000

0.2080

0.2100

-0.0020

3 Months

3M

0.0900

0.1000

-0.0100

0.3117

0.3127

-0.0010

6 Months

6M

0.1500

0.1400

0.0100

0.5357

0.5394

-0.0037

12 Months

12M

0.1700

0.1700

0.0000

0.8737

0.8755

-0.0018

2 Years

2Y

0.2800

0.2800

0.0000

5 Years

5Y

0.7000

0.7200

-0.0200

10 Years

10Y

1.6900

1.7100

-0.0200

30 Years

30Y

2.8800

2.9000

-0.0200

Latest = Today’s Rates (05/11/12) Real Time during Asian Time; Date = dd/mm/yy

Commodities

Commodities

Month/Year

IST 06/11/12

IST 02/11/12

Change

Change %

 OI 5/11/12

IST OI 02/11/12

Change OI +/-

Crude Oil WTI – US

Dec/12

85.65

84.86

0.79

0.93

350,335

354,908

-4,573

Crude Oil – Brent – UK

Dec/12

107.73

106.12

1.61

1.52

8,515

8,516

-1

Gold – Nymex – US

Dec/12

1,683.20

1,675.20

8.00

0.48

289,615

294,965

-5,350

Silver – Nymex – US

Dec/12

31.13

30.86

0.27

0.88

74,300

76,322

-2,022

Palladium – Nymex – US

Dec/12

603.35

599.65

3.70

0.62

18,749

18,802

-53

Platinum – Nymex – US

Jan/13

1,542.70

1,544.90

-2.20

-0.14

57,187

57,465

-278

OI = Open Interest; IST = Indian Standard Time

The manipulators have started buying back futures contracts after causing huge drop across the spectrum. Open Interest has come down across the spectrum suggesting buying back of shorted contracts.

 

Indian Stocks: Our Observations and Comments

  1. Tata Steel: This company was reported to have been fined Rs 6000 crores for illegal and excessive mining. The use of term “illegal” is not acceptable because the licenses were issued legally. If there is excessive mining, it is an administrative violation, not the legal one. Tata Steel which is trading at Rs 396 (Book value Rs 537) is trading at 21% discount to Net Assets. It has nearly 97 crore shares outstanding. It reported a Net Profit of Rs 6,700 crores or about Rs 68 per share. If the fine of Rs 6000 crore is a reality. It has potential to wipe off the entire previous year’s profit in one go. Nowadays, the state governments are so bankrupt, they are finding scapegoats to make more money by blackmailing. How could they afford to fine as much as Rs 6000 crores or nearly Rs 62 per share against its previous year’s profit of Rs 68+ per share?
  2. Kingfisher Airline: Vijay Mallya is close to selling its 51% stake in United Breweries to Diaggio for $2 billions, more than the real losses of Kingfisher Airline. Now, do not be under impression that he will pump this money into KFL – he will not except making occasional payment of salary. In any case, the stock of KFA may gain if the stake sale goes through. Hold this stock for a while.
  3. AIR INDIA: Government’s biggest elephant, is planning to sell its properties to get out of debt. They should sell at least 50% of such properties so that the banks financing it all along, will breathe fresh air and may be tempted to write back excess provisions (which may jack up the Net Profit of those banks and also reduce their effective NPA). Those banks are already depresses such as State Bank of India, Bank of India, Indian Overseas Bank, Axis bank etc. The government should make Air India a public entity and sell its substantial part of the stake to reduce its budget deficit.
  4. Chidambaram has started campaign against RBI. He has started giving pessimistic numbers of GDP growth which he estimates at about 5.5% this year, less than what RBI thinks. This is to bring psychological pressure on RBI to reduce the interest rate. There is no way “Government can walk alone” to revive the GDP growth. Higher growth needs higher monetary allocation at lower cost, but that resource belong to RBI.
    • Since the Indian stock prices are just 2% short of 12 months high, Chidambaram should sell the stake of many PSU so that not only budget deficit is reduced, but he can also lower the effective tax rate which may propel one of the biggest rally in SENSEX and NIFTY and the GDP growth could become a reality.
  5. Tech Mahindra, now owner of Satyam, has reported solid number and growth of 65%. Since the shares of Mahindra Satyam will be merged into Tech Mahindra, any rise in TM share price will ultimately benefit the old share holders of Satyam. Most hurdles of Satyam are removed, and it will have highly progressive path.
  6. Rupee dropped more than 1% in single day. Not a good sign but will such fall sustain. Better to send money to India now and place them in fixed deposits when the rates are still high.

Special Situation:

  1. None today 

OVER

 


 



Stock Observatory India

Ref: ISO/12/99 of 2012-11-05, Monday, India Time 11.30 am)

Overnight Events and Effects:

  1. It was a day of extreme manipulation in futures market on Friday. We are producing just one chart (Charts for other commodities have same pattern. Due to space we are not producing all of them).
    • The reason for such heavy manipulation was not the rise in jobs as touted but to avoid delivery default of almost all commodities for December Contracts. We will write separate article next week to show why these manipulations were attempted now.
    • It is significant that heavy short selling took place near the day close. The volume multiplied several times, and almost all commodities were heavily shorted in less than 10 minutes, near closing time so that only depressed prices are seen on the board.
  2. The reports suggest that the jobs created were more than expected, and that unemployment rate rose because many workers rushed to the jobs but their names were not eliminated from unemployment benefits. The labout department is counting only the incoming side of the jobs but does not seem to reduce the outgoing about force due to firing or some other reasons. It was just one way street. If 100 employees were appointed and 80 people lost jobs, the gain in jobs would be just 20, but if one does not count the outgoing side, then the job created will be 100. It is a gross job gain, not net job gain which should be used as criteria. But the fact is “only rules of convenience” is followed. The election is just few days away, so it is not advisable to go against the President at most sensitive time.
  3. The dollar index was pushed up to show reason for steep fall in other currencies, commodities etc. A gross gain of just 120000 in jobs is not a major event where the size of the about force is over 70 millions. An asset like Gold can not drop $40 in single session just because the employment gained by 120,000 plus. It was just derivative game in NYMEX and COMEX where the major players played out to the wishes of the FED/Treasury officials who caused heavy fall in commodities like Oil, Gold and Silver and pushed up US Dollar index by over 0.4%.
  4. The campaign is in final stage to sway the votes of the undecided voters. Give them good numbers and we get their votes, Obama is advised. Go ahead but do not take my name, could have been the President’s reaction.
  5. Warren Buffet is in the news again. Reports suggest that his company holds $48 billion cash but he would not pay a cent of dividend. He is said to be biggest philanthropist giving away his entire fortune of over $32 billions in charity.
    • Yes, he will give away his entire fortune to outsiders in charity but he would not pay even a cent of dividend to his own shareholders?
    • WHY? What could be the reason? No analysts or journalist ever asked him this question. Do you want to know what Kalidas thinks?
    • Well, most of the so called cash was generated in writing very long dated put options on markets on European type of future contracts against US type of future contracts. The US based future contracts permit exercise of options during entire life of the contract. That is,if the Put Option is for the year 2027, then the contract could be exercised in United States at any time from now until 2027
    • Not so in European zone. Their rules are different. The put option, European Style, can be exercised on fixed date which would be in most cases the expiration date. So if the Put Option he wrote dates back to 2025 or 2030, they can not be exercised by the buyer of the put option during the life of the contract, but he can exercise only on expiration date.
    • In other words, Mr. Buffet or his company will not have to face liability even if the put option goes against him. And whatever cash he received at the time of writing the put option, need not be returned until that fateful date arrives.
    • Thus, he can freely say that he has $48 billions in cash, but he would never say or state how much he owes to outsiders in European Commodity markets.
    • He appears to be following the footsteps of Bernanke his treatment of gold. According to official FED record, the United States is holding 8,134 tons of gold which are valued at original price of $42.22 per ounce (against $1680 per ounce the current market price).
    • In another separate table, same FED is showing the “Earmarked Gold” amounting to 6,297 tons of gold. An asset like Gold (or for that matter any monetary asset) earmarked is nothing but an “absolute liability” to true owner of the gold to whom the gold belongs to. Thus, Net Holding of Gold is not 8,134 tons of gold by United States but only less than 2,000 tons, or even less than that if we use the latest numbers.
    • You do not understand or you think that it is complicated. Let me explain you in vanilla language. Supposing you have Rs 1 crore as Fixed Deposit with the bank, and you hold photocopy of the receipt. You borrow Rs 95 lakhs against this FDR under existing rules to buy some property. The bank will lend you this money by “marking lien on the deposit” so that deposit is blocked from payment except just Rs 5 lakhs.
    • Now, if you want to boast about your wealth, you can show some one a copy of Fixed Deposit worth Rs 1 crores and also show him the property worth Rs 95 lakhs. But you would not show him your liability of Rs 95 lakhs against same FD. Your net FD is just Rs 5 lakhs, not Rs 100 lakhs or Rs 1 crore.

US & Asian Markets today

Index

04/11/12

02/11/12

Change +/-

Change %

52W High

52W Low

Dow Jones Ind. – US

13,093

13,233

-140

-1.06

13,661.87

11,231.56

S&P 500 – US

1,414

1,428

-11,819

-827.66

1,474.51

1,158.66

NASDAQ – US

2,982

3,018

-36

-1.19

3,196.93

2,441.48

NIkkei* – JP

9,001

9,059

-58

-0.64

10,220.00

8,120.00

Hang Seng* – HKG

22,026

22,097

-71

-0.32

21,847.70

17,613.20

Sensex* (BSE) – IN

18,774

18,756

18

0.10

19,137.29

15,135.86

NIFTY* (NSE) – IN

5,703

5,697

6

0.11

5,815.35

4,531.15

* = Today’s Intra Day     ’52W High/Low prices are revised on first day of each month
The US Current/Previous IDX data are of one day earlier due to different time zone.

* = live intra-day.

Currency:

Currency Pair/Index

5/11/12 IST

IST 2/11/12

Change +/-

Change %

52W High

52W Low

US$ Index

80.5870

80.1800

0.4070

0.5076

84.1000

74.7240

US$ per Euro

1.2827

1.2824

0.0003

0.0234

1.4201

1.2042

US$ per AUD

1.0330

1.0308

0.0022

0.2134

1.0857

0.0958

US$ per GBP

1.6027

1.6019

0.0008

0.0499

1.6310

1.5233

Indian Rs per US Dollar

54.0900

53.6450

0.4450

0.8295

57.3375

48.6050

Latest = Intra Day (01/11/12) Rates 52W High/Low are revised on 1st day of month
The US Current/Previous IDX data are of one day earlier due to different time zone.

Observation (Currency):

The dollar was pushed up in the name of gains of employment, but the real reason was to cause crash in commodity near settlement date. The commodities usually go down when US Dollar goes up, so when $ was pushed up by less than 0.4%, the Gold dropped $40 or 2.4%, Platinum dropped by $28 or 1.8% and Silver dropped by massive 4.5%. In short, the heavily indebted United States saw its paper currency going up by just 0.4% but hard assets like Gold, Silver and Platinum dropped by massive 2% to 4.5%.

It shows that paper is more valuable than the hard assets. They demean these precious metals by saying that they are worthless, and they do not generate income or pay dividend. US Dollar also does not pay interest worth the name, but it is valuable asset and others just piece of scraps.

This is not going to continue for ever. When the wrongs are not reversed in orderly fashion, then crash takes place and restore the true value. So always keep gold and silver as real assets that can protect against possible crash that may start from Futures markets

The sudden drop in gold and silver prices for no real reason is an opportunity to buy these assets. Just learn what other manipulators are doing and why, and you will make a good judgment call.

Interest Rates (US$)

US Dollar (dd/mm/yy)

Abbv,

Yield % 05/11/12

Yield % 01/11/12

Yield Change

LIBOR 02/11//12

LIBOR 01/11/12

LIBOR Change

FED Funds Rate %

ffunds

0.17

0.17

FED Reserve Target %

target

0.25

0.25

Prime Rate%

pr

3.25

3.25

MATURITY

 

 

 

1 Month

1M

0.0000

0.2100

0.2120

-0.0020

3 Months

3M

0.1000

0.0900

0.0100

0.3127

0.3127

0.0000

6 Months

6M

0.1400

0.1400

0.0000

0.5394

0.5399

-0.0005

12 Months

12M

0.1700

0.1700

0.0000

0.8755

0.8755

0.0000

2 Years

2Y

0.2800

0.2812

-0.0012

5 Years

5Y

0.7200

0.7400

-0.0200

10 Years

10Y

1.7100

1.7300

-0.0200

30 Years

30Y

2.9000

2.9100

-0.0100

Latest = Today’s Rates (05/11/12) Real Time during Asian Time; aAte = dd/mm/yy

Commodities

Commodities

Month/Year

IST 05/11/12

Prev. 02/11/12

Change

Change %

 OI 2/11/12

Prev. OI 01/11/12

Change OI +/-

02/11/12 Vol IST

1/11/12 IST Vol

Crude Oil WTI – US

Dec/12

84.86

87.09

-2.23

-2.56

354,908

373,442

-18,534

297,311

212,577

Crude Oil – Brent – UK

Dec/12

106.12

108.17

-2.05

-1.90

8,516

8,682

-166

1,081

227

Gold – Nymex – US

Dec/12

1,675.20

1,715.50

-40.30

-2.35

294,965

306,404

-11,439

223,444

120,009

Silver – Nymex – US

Dec/12

30.86

32.25

-1.39

-4.31

76,322

77,191

-869

62,648

29,549

Palladium – Nymex – US

Dec/12

599.65

612.45

-12.80

-2.09

18,802

18,637

165

2,914

3,820

Platinum – Nymex – US

Jan/13

1,544.90

1,573.20

-28.30

-1.80

57,465

57,415

50

8,072

8,210

OI = Open Interest; IST = Indian Standard Time

Most comments are made earlier so we avoid the repetition.

Look at the above numbers. The crash was engineered near the closing stage to buy back the contracts sold at much higher prices before. When the prices correct, the Open Interest do not come down but rise, but in present case, the Open Interest came down at much higher volume.

Observation (Commodities)

  1. Already observed under Currencies.

 

Indian Stocks: Our Observations and Comments

  1. None today as I did not have enough time due to my proposed travel out of USA.

Special Situation:

  1. None today

OVER


Stock Observatory India

Ref: ISO/12/98 of 2012-11-02, Friday, India Time 10.30 am)

Overnight Events and Effects:

  1. US reports released were considered more positive. The Bloomberg reported that …
    • “Manufacturing expanded more than forecast, consumer confidence rose to a four-year high and fewer Americans filed claims for unemployment benefits, pointing to resilience in the U.S. economy heading into the fourth quarter.
    • The Institute for Supply Management’s factory index rose to a five-month high of 51.7 in October from 51.5, the Tempe, Arizona, group reported today. The Conference Board’s sentiment index increased to 72.2, the highest since February 2008. Applications for jobless benefits fell by 9,000 to 363,000 in the week ended Oct. 27, the Labor Department said in Washington.”
    • While the jobless claim fell, the unemployment rate rosé marginally. We do not know the reason, but could be “mismatching of dates in relevant reports”
    • Another good report from Institute of Supply Managements Factory Index which rosé .. The report says as under: The Institute for Supply Management’s factory index rose to a five-month high of 51.7 in October from 51.5, the Tempe, Arizona, group reported today. The Conference Board’s sentiment index increased to 72.2, the highest since February 2008. Applications for jobless benefits fell by 9,000 to 363,000 in the week ended Oct. 27, the Labor Department said in Washington.
  2. That was enough to engineer the rally especially when the Presidential Election is just a few days away. Whatever numbers we see may be revised a month later, but right now, the efforts of the Administration is to convey “good feel” sentiments.
  3. Troubled Bank of America does not have to worry much for increased capital requirements (because it is American bank) but Deutsche Bank (from Germany, Europe) may be asked to increase its capital requirements in latest reassessment of norms. Who frames the norms and where they apply is not known to us, but surely it is wasted interests. The Europeans are just stupid and allow themselves to play into the hands of US manipulators.
  4. Japan and Hong Kong responded with a good rally in response to US numbers. A report in Japan suggested that the country is slipping into deflationary cycle. Japanse market is not bothered with the recovery, but merely looks at what happens in United States. Weaker Yen helped boost the market, forget whatever happens to that country economically. Push the Yen weaker, and the Japanese administrators will smile all way down…
  5. US always blackmail the global banks, latest being Standard Chartered Bank who is forced to settle with US regarding Iranian settlement. They will pay some fines to retain goodwill of US administration.

US & Asian Markets today

Index

Latest

Previous IDX

Change +/-

Change %

52W High

52W Low

Dow Jones Ind. – US

13,233

13,096

137

1.05

13,661.87

11,231.56

S&P 500 – US

1,428

1,412

-11,668

-826.35

1,474.51

1,158.66

NASDAQ – US

3,018

2,978

40

1.34

3,196.93

2,441.48

NIkkei* – JP

9,059

8,935

124

1.39

10,220.00

8,120.00

Hang Seng* – HKG

22,097

21,744

353

1.62

21,847.70

17,613.20

Sensex* (BSE) – IN

18,708

18,562

146

19,137.29

15,135.86

NIFTY* (NSE) – IN

5,689

5,645

44

5,815.35

4,531.15

* = Today’s Intra Day (1/11/2012) Indices   ’52W High/Low prices are revised on first day of each month
The US Current/Previous IDX data are of one day earlier due to different time zone.

China reported better numbers which helped Hong Kong to post rally. It is not known why the people look at China numbers because China being export oriented economy reports as shadow of what happens in US, UK and Europe. If they slow down, China will automatically slow down. China’s economic growth is result not the cause for the global economic problems.

Currency:

Currency Pair/Index

2/11/12 IST

IST 1/11/12

Change +/-

Change %

52W High

52W Low

US$ Index

80.1800

79.9090

0.2710

0.3391

84.1000

74.7240

US$ per Euro

1.2933

1.2965

-0.0032

-0.2468

1.4201

1.2042

US$ per AUD

1.0363

1.0376

-0.0013

-0.1253

1.0857

0.0958

US$ per GBP

1.6118

1.6126

-0.0008

-0.0496

1.6310

1.5233

Indian Rs per US Dollar

53.6450

53.8400

-0.1950

-0.3622

57.3375

48.6050

Latest = Intra Day (01/11/12) Rates 52W High/Low are revised on 1st day of month
The US Current/Previous IDX data are of one day earlier due to different time zone.

Observation (Currency):

US dollar rosé slightly on the back of positive numbers of less jobless claims, and rise in consumer confidence and rise in Factory index. Obviously, commodities fell again suggesting that there is ” No disconnect as yet between the dollar and commodity prices”

Interest Rates (US$)

US Dollar (dd/mm/yy)

Abbv,

Yield % 02/11/12

Yield % 01/11/12

Yield Change

LIBOR 02/11//12

LIBOR 01/11/12

LIBOR Change

FED Funds Rate %

ffunds

0.17

0.17

FED Reserve Target %

target

0.25

0.25

Prime Rate%

pr

3.25

3.25

MATURITY

 

 

 

1 Month

1M

0.0000

0.2100

0.2120

-0.0020

3 Months

3M

0.0900

0.1100

-0.0200

0.3127

0.3127

0.0000

6 Months

6M

0.1400

0.1500

-0.0100

0.5394

0.5399

-0.0005

12 Months

12M

0.1700

0.1700

0.0000

0.8755

0.8755

0.0000

2 Years

2Y

0.2812

0.2812

0.0000

5 Years

5Y

0.7400

0.7190

0.0210

10 Years

10Y

1.7300

1.6910

0.0390

30 Years

30Y

2.9100

2.8630

0.0470

Latest = Today’s Rates (01/11/12) Real Time during Asian Time; DAte = dd/mm/yy

There may be some distortion in above numbers. The closing numbers of previous day was changed to reflect near day closing change. There was no significant movement, except that short term rates depressed (they should have gone higher if jobless claims were less and factory index was higher) and long term rates recovered from steep sell off near the close of the previous day.

The LIBOR changed a little. The recent scandal is putting off many off the LIBOR rates. LIBOR, once a venerable and reliable market indicator, has lost its shine. It is considered as highly manipulated market.

Commodities

Commodities

Month/Year

IST 02/11/12

Prev. 01/11/12

Change

Change %

 OI 2/11/12

Prev. OI 01/11/12

Change +/-

02/11/12 Vol IST

1/11/12 IST Vol

Vol Change

Crude Oil WTI – US

Dec/12

87.09

86.24

0.85

0.99

373,442

382,625

-9,183

212,577

106,222

106,355

Crude Oil – Brent – UK

Dec/12

108.17

108.70

-0.53

-0.49

8,682

8,683

-1

227

284

-57

Gold – Nymex – US

Dec/12

1,715.50

1,719.10

-3.60

-0.21

306,404

308,154

-1,750

120,009

57,253

62,756

Silver – Nymex – US

Dec/12

32.25

32.32

-0.07

-0.21

77,191

76,594

597

29,549

14,462

15,087

Palladium – Nymex – US

Dec/12

612.45

609.80

2.65

0.43

18,637

18,795

-158

3,820

2,516

1,304

Platinum – Nymex – US

Jan/13

1,573.20

1,577.00

-3.80

-0.24

57,415

57,724

-309

8,210

6,662

1,548

OI = Open Interest; IST = Indian Standard Time

Observation (Commodities)

  1. Silver opened too high at $33.64 and then backed off. Gold rosé and there are reports that Gold bulls are taking strong long positions in the hope that QE#3 may boost the gold prices. Their sentiments were at highest level for over last 5 months

Indian Stocks: Our Observations and Comments

  1. WIPRO reported better than expected numbers reporting 24% rise in profit after consecutive profit falls in previous 4 quarters. It is also taking one unit private and closely held company to dilute Promoters stake from 80% to 75% – an interesting move which may be adopted by Essar Oil management.
  2. Large High Tech or software companies are charting good course for India. TCS, Infosys, HCL, Tech Mahindara and Mahindra Satyam, and now WIPRO are all reporting good numbers. Indian bourse is fast becoming Nasdaq where high tech firms are overshadowing the tangible asset growing firms.
  3. A tug of war is waging between RIL and Oil Ministry. The Oil Minister wants RIL to increase its gas production whereas RIL is simply ignoring that call and asks or better to say “dictate” the minister to raise the gas prices which is a “pre-condition” before RIL undertake the expansion plan. A green blackmail by RIL but they can not be expected to accept the lower price for 17 years. Gas is a dynamic commodity whose fortune changes every day in line with crude oil prices.
  4. A rift is developing between Chidambaram and Subba Raoi, RBI chief. The finance minister was having dialogue with the Prime Minister which reconfirm my opinion in stock observatory that “Subba Rao is on way out” . Out he goes of RBI, in he goes IMF or World Bank.
  5. Mahindra and Mahindra is doing extremely well, with every roll out of SUV is selling very well. Its profit rosé healthily and is much less prone to general trend in the industry. M&M is very good blend of Agro related Farm Tractor business, and highly adaptive Auto in the form of SUV. It is also entering Defence business, which means that M&M will be less prone to single most factor in future. M&M is top auto stock in India. Whenever the market corrects steeply, go for this stock and build up the position slowly.
  6. More in the weekend report that may be published on Monday morning India time.

Special Situation:

  1. None today

OVER



Stock Observatory India

Ref: ISO/12/97 of 2012-11-01, Thursday, India Time 9.30 am)

Overnight Events and Effects:

  1. Japan is in big news today. Panasonic, Japan’s one of the best electronic brand, reported $9.6 billions of losses – outdistancing even Sony and Sharp who are also in deep trouble. The losses so declared was nearly 100 times more than expected. Panasonic fired over 34000 employees last year, and may fire sizably more this year. The Electronics, once a forte of Japanese, is crumbling day by day.
    • The question today is, how come Panasonic reported 100 times expected losses today? Nothing can go materially wrong in leading manufacturing company overnight. The losses we guess could be due to two reasons – It may be financial derivative losses being recognized now (US brokers were selling spurious derivatives outside USA from Greece to Spain, Italy, Ireland, Portugal and now it seems that even Japan was included. Other reason could be due to deliberate concealment of losses in past few years, and that has become so unmanageable that the company finally threw in the towel and prepare the management team to stand before the media and apologizes by bending forward. Panasonic reported losses 4 years in a row whereas Sony has been reporting losses for 9 years in a row. Sharp is very close to filing bankruptcy and in fact it is in talk with Apple, HP and other leads in USA.
    • US Banks and Brokers have sold trillions of dollars of spurious derivatives such as CDO/CDS and Interest Swaps to all leading companies who are making solid cash money from their real manufacturing activities. These very companies, who do not have financial expertise, accept the advice from big banks, brokers and investment banks in USA and get trapped so much that they find difficult to come out.
    • What will happen to Japan and Japanese banks. When the top 4 or 5 giants such as SONY, PANASONIC, OLYMPUS, SHARP report several billions of dollars of losses, it means that the financing banks, mostly Japanese, must have been in extra ordinary situation of losing heavily – that may cause heavy stress in the financial system of Japan.
    • Watch out – Japan, not Europe, which has accepted spurious derivative products from USA, will be suffering “severe meltdown” of its financial system soon, may be in next 3 to 6 months.
    • The financial crisis has now spread to Japan also, it was there, but it was recognized today.
    • Most companies losing in derivatives, classify such losses as one time “Forex Losses”. It is not forex losses, but it is biggest monster – Paper Derivatives – that may be playing havoc. Almost all paper trades in derivatives are like a game of musical chair. When the music stops, the loser is caught.
    • This is all setting strong stage for the rally in Gold, Silver and Palladium in next 4 to 12 months. When the people trust no body, the only asset they trust is Gold, Silver and now new entrant – Palladium. When we wrote the article almost 2 years ago titled “Gold $6400 Silver $80” we were not wrong. This is why we never advise anyone to sell these assets so cheaply.
  2. The financial stress is so much in almost every country and region that one may see sudden jump in Interest rates which have been kept so low, almost near zero, for number of years (5 years in US, 5 Years in UK and Europe, and 18 years in Japan). When almost every currency gets debased, the money will flow to Gold and Silver ultimately, after remaining in US Dollar for a while.

 

US & Asian Markets today

Index

30/10/12

Previous IDX

Change +/-

Change %

52W High

52W Low

Dow Jones Ind. – US

13,096

13,107

-11

-0.08

13,661.87

11,231.56

S&P 500 – US

1,412

1,412

0

0

1,474.51

1,158.66

NASDAQ – US

2,978

2,987

-9

-0.30

3,196.93

2,441.48

NIkkei* – JP

8,917

8,929

-12

-0.13

10,220.00

8,120.00

Hang Seng* – HKG

21,642

-21,642

-100.00

21,847.70

17,613.20

Sensex* (BSE) – IN

#NUM!

19,137.29

15,135.86

NIFTY* (NSE) – IN

#NUM!

5,815.35

4,531.15

* = Today’s Intra Day (30/10/12) Indices 52W High/Low prices are revised on first day of each month
Previous IDX = Previous Day Official Closing Prices

* = live intra-day.

 

Currency:

Currency Pair/Index

1/11/12 IST

Prev. Close

Change +/-

Change %

52W High

52W Low

US$ Index

79.9090

80.1240

-0.2150

-0.2683

84.1000

74.7240

US$ per Euro

1.2965

1.2913

0.0052

0.4027

1.4201

1.2042

US$ per AUD

1.0376

1.0340

0.0036

0.3482

1.0857

0.0958

US$ per GBP

1.6126

1.6032

0.0094

0.5863

1.6310

1.5233

Indian Rs per US Dollar

53.8400

54.0100

-0.1700

-0.3148

57.3375

48.6050

Latest = Intra Day (dd/mm/yy) Rates 52W High/Low are revised on 1st day of month
Prev.=Previous Day Close

Observation (Currency):

It was a day for non US currencies such as Australian $, British Pound and Euro.

  1. Aussie dollar appear to be breaking out from lower range. We think that this time around, Aussie dollar will go to 1.08 level before consolidating at that level. It is time to enter the Aussie Dollar on any correction in India.
  2. British Pound is also making strides on the upside. It is about to break out from consolidation range. Compared to Aussie Dollar, GBP is relatively a weak currency. UK is still mired in recessionary trend, except occasional bouts of economic recovery.
  3. RBI Chief Subba Rao made the statement that he would not intervene the currency market to support the Rupee and in stead allow Rupees to find its own label. A welcome change in Subba Rao who must have read my article “Allow Rupee to Rise” published almost 2 years ago. Good news for NRI – they should not wait too long to send the remittances.

Interest Rates (US$)

US Dollar

Abbv,

Yield % 31/10/12

Yield % Prev Day

Yield Change

LIBOR 1/11//12

LIBOR Prev

LIBOR Change

FED Funds Rate %

ffunds

0.17

0.17

FED Reserve Target %

target

0.25

0.25

Prime Rate%

pr

3.25

3.25

MATURITY

 

 

 

1 Month

1M

0.0000

0.2120

0.2120

0.0000

3 Months

3M

0.1100

0.1100

0.0000

0.3127

0.3127

0.0000

6 Months

6M

0.1500

0.1500

0.0000

0.5399

0.5399

0.0000

12 Months

12M

0.1700

0.1760

-0.0060

0.8755

0.8875

-0.0120

2 Years

2Y

0.2812

0.2900

-0.0088

5 Years

5Y

0.7300

0.7240

0.0060

10 Years

10Y

1.7100

1.6970

0.0130

30 Years

30Y

2.8700

2.8570

0.0130

Latest = Today’s Rates (01/11/12) Real Time during Asian Time
Previous = Previous day’s Closing Prices

Observation (Interest Rates)

Not much change in interest rates, except at long end, where the rates rose after sharp mark down on previous closing affected by thin trading due to Hurricane “Sandy”. This confirms our suspicion that FED promoted agencies rush to the market near the close and force down the interest rate as desired by FED so that Home Recovery process is not affected.

LIBOR rates, which used to be standard are no longer respected or held in esteem in the past, after the disclosure of its manipulation by banks like Royal Bank of Scotland and Barclays. Everywhere, we see the crooks and criminals manning the stock exchange, currency board and Commodity Exchanges.

 

Watch this space on daily basis. This is the only numbers which will serve severe warnings of the troubles to come. The first effect of any major financial events will be felt here 

Commodities

Commodities

Month/Year

01/11/12 IST

Prev.

Change

Change %

1/11/12 OI IST

Prev. OI

Change +/-

Crude Oil WTI – US

Dec/12

86.24

85.30

0.94

1.10

382,625

394,325

-11,700

Crude Oil – Brent – UK

Dec/12

108.70

109.44

-0.74

-0.68

8,683

8,521

162

Gold – Nymex – US

Dec/12

1,719.10

1,710.00

9.10

0.53

308,154

310,356

-2,202

Silver – Nymex – US

Dec/12

32.32

31.85

0.47

1.46

76,594

77,435

-841

Palladium – Nymex – US

Dec/12

609.80

593.00

16.80

2.83

18,795

18,081

714

Platinum – Nymex – US

Jan/13

1,577.00

1,544.00

33.00

2.14

57,724

58,404

-680

Latest = Today’s Rate

 

 

 

 

 

 

 

 

Prev= Prev Closing Px

 

 

 

 

 

 

 

 

Observation (Commodities)

  1. Oil rose in US and fell in London slightly.
  2. Gold opened very high at $1,746 and then corrected back to $1720 region.
  3. Platinum rose smartly and Palladium rose highest 2.83% after sharp sell off on previous day.
  4. Silver is setting a new base around $32 level. It should gain 20% on upside within next 9 months.

 

Indian Stocks: Our Observations and Comments

  1. D. Subba Rao is getting wiser on currency front. First time ever there was a really positive comment from RBI chief that it will not intervene in currency market to support the Rupee and he will let Rupee to find its own level. He said thus:
    • QUOTE The central bankBSE -0.50 % will not intervene in the market with a target for the currency as it believes the rupee should find a level based on demand and supply irrespective of the size of the cover, Reserve Bank of India Governor Duvvuri Subbarao told economists and analysts. UNQUOTE. This was single most comment that would retain the job as Governor. Looks like our article “Allow Rupee to Rise” must have been read even if it is belatedly. We had sent copies of article to 4 Dy Governors of RBI, Some members of Economic Planning Division, Prime Minister and 4 other ministers.
  2. This is very encouraging comment for NRI, coming as it does after Chidambaram’s statement that he would prefer the Rupee to go higher which helps in controlling cost push inflation. (higher energy prices drive up electricity and then there is general price rise everywhere)
  3. FII appear to be making inroads into Kingfisher Airlines. FII are cutting stake in Jet Airways and Spicejet in favor of Kingfisher. It looks like some major FII Broker might have been involved in negotiations on behalf of some foreign airline, most notably from Gulf countries. They may be knowing something which we do not. KFA is surely a trading buy even if our preferred target is Rs 8 or below.
  4. Dish TV is making lot of waves of late. Its customer base has widened after especially “digitization phase” which was completed in short time. Its current tariff is likely to rise from 131 to 159, that is, by massive 20%. We would rate this counter as BUY.

Special Situation:

  1. None today

 


 

 


Stock Observatory India

Ref: ISO/12/96 of 2012-10-31, Tuesday, India Time 9.30 am)

Overnight Events and Effects:

    1. We are not producing tables today because US market was closed on Monday and Tuesday, as result of which nothing has changed except in some prices in futures market. We will cover all tomorrow.
    2. We are ignoring US markets and the hurricane Sandy effects which forced closures on Monday and Tuesday (US Time). Yesterday’s major event for Indian market was the policy pronouncements by RBI, its actions and reactions from every possible source. We will also evaluate the possible effects on the markets for next 3 months.

 

  1. FULL TEXT OF RBI GOVERNOR Mr. Subba Rao’s Speech:
    • It was a very very long speech as if it was an Annual event. But it was a quarterly event.
    • It was more like an “economic essay”, where the researcher is in quest of submitting final essay to earn the PH.D degree. The full monetary review was so much comprehensive that it took quite a time for this Author to digest what was being said. Yes, it was a fine document similar to Yudhiusthir’s famous saying in Mahabharata ” Naro va Kunj Rova” – it could be this or it could be that.
    • In any case, the entire review revealed the real personality of Subba Rao – and leads me to believe that he must have been “Dhrutrashtra” of Mahabharata fame in his previous birth.
    • If we compare Subba Rao’s repertoire of words used, we can say that it was all over “Ben Bernanke” again, this time in India, not in FED in United States. He liberally used the words like “economic weakness, inflationary expectations (a diversionary phrase coined by Bernanke), Eurozone troubles, Higher Oil prices (when the oil prices are at $85.50 against all time high $145 or about, how could they be considered as higher oil prices, we do not know), imported inflation, Core inflation (without so called volatile Food and Energy component) etc.
    • He was more pre-occupied with the “current inflation, potential inflation, systemic inflation, pass thru inflation, surfacing of under-reported inflation (due to higher diesel and petrol prices), inflationary expectations etc.”. He was not bothered about slowing of economic growth which came down from high of 9.2% to 5.8% now projected as result of his stubborn high interest rate policy.
    • He was also much concerned of the “India’s growing deficit which works out to little over 5% to GDP” that forced RBI to raise the interest rate. While he was very eloquent about United States, he did not compare even once why the interest rates in United States were just 0.25% (FED target rate) against India’s 8% when US Budgetary deficit to GDP ratio was as high as 7%. (against just 5.2% in India). He did not offer explanation why the rates in India should be so high at 8% against just 0.25% in United States.
    • It looks like that Mr. Subba Rao was trying to please IMF and World Bank with his essay to earn a job there against his tenure at RBI which he considers at risk.
    • Chidambaram was forthright. He hinted that
    • – higher interest rates were slowing down GDP growth in India.
    • – inflation monster is lesser evil than the lower GDP growth which affects the lives of every family in India.
    • Subba Rao however considered higher rates as result rather than cause for economic slowdown and lower GDP. It was more like “chicken and egg theory – which one is first?”
    • Chidambaram was on “fire fighting mission” after assuming control of Finance Ministry. First, he had to “undo” the immense damage caused by Pranab Mukherji to Foreign Investors by chasing Vodafone to pay the taxes that was the liability of some other company – Hutchison.
    • He (Pranab Mukherji) even introduced a rule which permitted Income Tax to change the law retrospectively and rolling it 50 years back. Chidambaram had to annul this rule change to bring back the confidence of foreign investors.
    • It was Pranab Mukherji who encouraged Subba Rao to resort to high interest rate policy which sawed the seeds of economic slowdown and wholesale destruction.
    • Chidambaram had to “fight fire on RBI front” where Subba Rao was hell bent to keep the interest rates very high that had the effect of “strangulating Indian economy”
    • Mr. Subba Rao derived strength from his predecessor and colleague from his home state in South India, Mr. C Rangarajan who was the Special Economic Adviser to the Prime Minister and also a member of Economic and Planning Commission. Mr. C. Rangarajan endorsed the idea of keeping the rates unchanged while easing CRR ratio by 0.25%
    • Mr.Chidambaram wanted RBI to cut the “REPO” rates to convey the clear message to all investors that “rates are about to wind down”. The cut in REPO rates benefits the whole economy.
    • Subba Rao, instead resorted to cutting CRR rates. Such actions have neutral effect on economy and benefits only a few banking and financial institutions, not most of the industrial borrowers and the general public. Cut in CRR rates do not bring down the market interest rates decisively.
    • CRR or Cash Reserve Ratio is a tool under which the money in circulation is increased or decreased. It may not reduce the cost necessarily.
    • When CRR is raised, it has effect of withdrawing excess money in circulation.
    • Similarly, when CRR is lowered, in present case by 0.25%, it is asking banks to keep the less funds with RBI, that is, withdrawing money from RBI. It does not necessarily reduce the market interest rates.
    • At the same time, Subba Rao asked the banks to make “more provisions on NPA” by raising the “provisioning from 2% to 2.75%”. That is, what is released under CRR cut is negated by the higher provisioning. This measure will lower the profitability of the banks and increase their Capital Adequacy ratio under Basel Rules III.
    • In short, Subba Rao was merely juggling various monetary tools. The Net Effect was almost Zero. Chidambaram wanted the real interest rates to come down by cutting REPO rates, whereas Subba Rao wanted to retain interest rates at same elevated level by using opposite tool of cutting CRR by 0.25%

 

The Net Effect of RBI action is negative when the expecation was to bring down the interest rates in real terms.

 

Mr. Subba Rao was obviously “defiant” and almost on the verge of insulting the Finance Minister Chidambaram by saying that” we believe you but we will wait for your actions” suggesting that while we believe you, we do not trust you. It was a “slap on the face of Chidambaram”

Mr. Chidambaram is in fix now. He must get rid of Subba Rao as soon as possible before the damage gets much deeper. Subba Rao appears to be saying “Hell with RBI, why not I go to IMF or World Bank?”

RBI policy may not be revised anytime soon until at least 3rd week of January, 2013. The Indian economy is therefore going to be hostage to RBI for another 4 months.

We believe that 3rd Quarter (December 2012) will be disastrous. The GDP growth may come down by another 2% points.

Indian Stocks: Our Observations and Comments

    1. Mahindra Satyam reported 21% reduction in profits mainly due to exchange losses. Most market participants have treated the numbers with enthusiasm. The stock may therefore perform better.
    2. Banking, Metals, Construction, and Real Estate will get hit due to RBI’s policy of non actions. We do not have Pro-active RBI but just a passive and reaction oriented financial institution.
    3. FMCG and Retailers might do well 

Special Situation:

  1. None today

OVER


 

Stock Observatory India

Ref: ISO/12/95 of 2012-10-30, Tuesday, India Time 9.30 am)

Overnight Events and Effects:

  1. US markets were closed on Monday (and Tuesday, tomorrow also) due to severe storm “sandy” which devastated the entire New York and north-east part. Future markets, operating from Chicago, were open however, but the turnover was thin due to absence of participant. On positive side numbers, retail spending and income level were up, better than expected, showing signs of recovery according to economists. USD Index traded little over 80, still it is range bound between 0.79 to 0.805 for number of months.
  2. Japanese economic data were weak which brought some weakness in Yen, to the glee of Japanese policy makers and Bank of Japan. South Korea showed record surplus of $3 billion plus (thanks to Samsung, LG, Hyundai, Kia) but its currency was Won was weaker again delighting Korean policy makers and bankers. Both countries are acting diametrically opposite.
  3. While almost all markets are within stone throw distance of all time high, the numbers churned out by some of the biggest banks tell the story otherwise. UBS, once nearly bankrupt at the height of financial crisis in 2008, is in shadow for some time, often its name is never heard on the street. UBS announced today that it will shut down its high risk trading division and client advisory services and FIRE 10,000 staff in cost cutting, fat cutting, business cutting, proprietary trading cutting and chopping off client advisory activities and at the same time get away from Fixed Income trading business (normally back bone of any major bank and investment bank firm). So, what is wrong – Why everyone is driving away from Fixed Income Trading? The reason is this business needs lot of capitals and with interest rates so low, nearly zero, surplus capital yield nothing to give any meaningful return on trading income and on idle capital. In short, the lowest ever interest rates, artificially managed to the bottom of a pit, are playing havoc in the market. If these banks with billions of dollars in kitty can not make money, how a Tom, Dick and Harry can make any money in this business?
  4. Japan reported that its Industrial production fell, forcing reaction from Bank of Japan to “ease its monetary policy”. Where is the room for easing by the way? BOJ has been keeping interest rates near zero for over 18 years now, and if this is not easing, what is the new definition of easing. In India, we are fretting over RBI for not cutting interest rates even by 0.25% from as high as 8%, whereas in western and Japanese word, the interest rates are near zero, and yet they wants to ease the monetary policy. The fact of the matter , that most developed nations do not understand, is that the real actions to resolve the financial crisis is to “raise the interest rates and lower the income tax” so that real money grows in the pockets of individual – who can make more money from high yielding savings, and make more savings by paying less taxes to the government.”

US & Asian Markets today

Index

30/10/12

Previous IDX

Change +/-

Change %

52W High

52W Low

Dow Jones Ind. – US

13,107

13,107

0.00

13,661.87

11,231.56

S&P 500 – US

1,412

1,412

0.00

1,474.51

1,158.66

NASDAQ – US

2,987

2,987

0.00

3,196.93

2,441.48

NIkkei* – JP

8,929

8,933

-4

-0.04

10,220.00

8,120.00

Hang Seng* – HKG

21,511

21,546

-35

-0.16

21,847.70

17,613.20

Sensex* (BSE) – IN

18,636

-18,636

-100.00

19,137.29

15,135.86

NIFTY* (NSE) – IN

5,666

-5,666

-100.00

5,815.35

4,531.15

* = Today’s Intra Day (30/10/12) Indices 52W High/Low prices are revised on first day of each month
Previous IDX = Previous Day Official Closing Prices
  1. US markets may remain closed on Monday and Tuesday due to forced holiday caused by severe hurricane Sandy which hit the New York on Monday morning. An estimated damage of $20 billions is the bitter pill that many insurers will have to take. Due to closure of the markets in US, there will not be any lead for Asia and that is, for India as well. At least for two days, the Asian and Indian market will be the king to act on their own. That is the real freedom.

Currency:

Currency Pair/Index

30/10/12

Prev. Close

Change +/-

Change %

52W High

52W Low

US$ Index

80.1240

80.1070

0.0170

0.0212

84.1000

74.7240

US$ per Euro

1.2913

1.2927

-0.0014

-0.1083

1.4201

1.2042

US$ per AUD

1.0340

1.0356

-0.0016

-0.1545

1.0857

0.0958

US$ per GBP

1.6032

1.6082

-0.0050

-0.3109

1.6310

1.5233

Indian Rs per US Dollar

54.0100

53.8065

0.2035

0.3782

57.3375

48.6050

Latest = Intra Day (dd/mm/yy) Rates 52W High/Low are revised on 1st day of month
Prev.=Previous Day Close

Observation (Currency):

We can not expect much actions due to closure of markets in USA. However, the future marekt is open, so expect some volatility in favor of dollar and against other currencies. This is god send opportunity to the manipulators.

Interest Rates (US$)

US Dollar

Abbv,

Yield % 30/10/12

Yield % Prev Day

Yield Change

LIBOR 30/10/12

LIBOR Prev

LIBOR Change

FED Funds Rate %

Target

0.25

0.25

FED Discount Rate %

Prime Rate%

PR

3.25

3.25

MATURITY

 

 

 

1 Month

1M

0.0000

0.2120

0.2120

0.0000

3 Months

3M

0.1100

0.1100

0.0000

0.3127

0.3132

-0.0005

6 Months

6M

0.1500

0.1500

0.0000

0.5429

0.5449

-0.0020

12 Months

12M

0.1700

0.1750

-0.0050

0.8875

0.8805

0.0070

2 Years

2Y

0.2900

0.2980

-0.0080

5 Years

5Y

0.7400

0.7610

-0.0210

10 Years

10Y

1.7200

1.7460

-0.0260

30 Years

30Y

2.8800

2.9020

-0.0220

Latest = Today’s Rates (30/10/12) Real Time during Asian Time
Previous = Previous day’s Closing Prices

Rates are lower but not much actions can be expected because major banks will be closed in major financial center – New York due to forced holidays. Dollar may rise in thin market in Chicago however that may cause weakness in commodity market.

 

Commodities

Commodities

Month/Year

30/10/12

Prev.

Change

Change %

Latest OI

Prev. OI

Change +/-

Latest Vol

Prev. Vol

Crude Oil WTI – US

Dec/12

85.30

85.54

-0.24

-0.28

394,325

398,611

-4,286

212,378

212,378

Crude Oil – Brent – UK

Dec/12

109.44

109.55

-0.11

-0.10

8,521

8,521

395

395

Gold – Nymex – US

Dec/12

1,710.00

1,708.70

1.30

0.08

310,356

314,511

-4,155

126,511

126,511

Silver – Nymex – US

Dec/12

31.85

31.74

0.11

0.35

77,435

78,481

-1,046

35,150

35,150

Palladium – Nymex – US

Dec/12

593.00

589.75

3.25

0.55

18,081

18,140

-59

3,791

3,791

Platinum – Nymex – US

Jan/13

1,544.00

1,533.90

10.10

0.66

58,404

58,827

-423

12,111

12,111

Latest = Today’s Rate

 

 

 

 

 

 

 

 

 

 

Prev= Prev Closing Px

 

 

 

 

 

 

 

 

 

 

Observation (Commodities)

  1. Nothing much can be said, except that Dollar is kept stronger in thin future market. As result, most commodities from Oil to Gold may remain sideways with weaker bias.

 

Indian Stocks: Our Observations and Comments

  1. India is awaiting for Mr. Subba Rao of RBI to ease the interest rates which many says may not happen after all. The latest survey of RBI just ahead of the monetary policy meeting projected “economic growth for 2012-13 to revise down from 6.5% to 5.7%” . So they are coming close to Kalidas numbers released in October 2011 that India’s GDP might shrink to 4.5% instead of all hulla bulla of double digit economic growth of 9% plus.
    • If Mr. Subba Rao is practical, he must act to reduce the rates aggressively by at least 0.50% in the form of REPO cut. There is no point to reduce CRR which is not a very effective monetary management tool. He has to compromise – whether to allow inflation a little bit higher or let the economic growth go down the hill? He knows that his tight monetary policy has caused India suffer GDP growth from high of nearly 9% to currently estimated at 5.7% by RBI in latest survey. When he knows that higher rates are causing GDP growth suffer, why should he pursue the same policy again and again?
    • Inflation control can not be achieved only by raising interest rates. If he allows the Rupee to find its own level, and do not interfere by sterilizing its rise, the main factor abetting inflation – Oil and Gas prices – will come down significantly. He has to do it, and should not expect Finance Ministry to take policy actions to reduce the budget deficits. Higher Rupee will bring down the subsidy bill, so the problem of deficit could be tackled easily by his fiscal actions, not by the actions of the Finance Ministry.
    • If RBI remains stubborn, and does not act but wants to only react, his days will be numbered, and Chidambaram should not waste time to consign him to the garbage can.
  2. United Breweryis riding high in spite of the fact that many of its shares are pledged to the banks to secure the borrowings of Kingfisher Airlines. The reason for strength is the possible take over or majority stake by German beer giant – Heineken. Good for Mallya.
    • One distinct trend has emerged in liquor industry. More and more international players are barging into strong growth oriented Indian market where the higher consumer spending from wealthy class is attracting foreign liquor producers. We have to find some gems in this sector. When the Super markets like Walmart expands, the major section that may expand within the store is the “Liquor –
      Wine, Whiskey, Rums, scotch, beers etc.
    • It is likely that “British style pubs may expand rapidly in India.”. Their growth will ensure success to new entrants in this industry. Most of the local producers are sitting on gold mine so far as their company is concerned.
  3. Mahindra Satyamis likely to show lower profit by 24% due to possible “exchange loss”. Why? Weaker rupee helps the profit of the software exporter, then in that case how would MS lose money? It means that they played against the rupee and sold dollar cheap in the forward market. In normal course, its profit should have grown by 14% compared to last year (due to Rupee depreciation from 47 to 54 now), but it is likely to lose on foreign exchange. It seems that financial management in Mahindra Satyam is out of order.
    • Business wise, MS will show real growth in business, addition of new large clients (US$ 50 Million plus category) and less attrition rate, that is, the employees are sticking to the job longer than in the industry, meaning that they see all round improvement in the company otherwise.
    • The stock is not reacting to negative news of lower earning growth on account of exchange loss. It looks like that most of the negatives are behind the closed door.
    • There is demand for this stock for another reason the stock gets back into “A” category stock, and we understand that Tech Mahindra may also get approved in MSCI Index, a popular benchmark for most fund managers. Many funds will be obliged to readjust their portfolio by buying new entrants and selling the outgoing companies.
  4. Essar Shipping and Essar Oil should report good numbers if the latest volume and price trend is any indication. It is possible that Essar Shipping may trade in upper circuit for 2 or 3 sessions, and Essar Oil too may expand its lead. Both of these stocks are still at buy level.
  5. Kingfisher Airlines may remain active for some time. We can invest at the moment only “speculative money” . We can not fight the government when it is in no mood of listening to reason. Bank stocks may continue to remain weak due to two chronic failures – Kingfisher and Deccan Chronicle. We are not talking about some infra and housing stocks.
  6. An interesting article in Moneycontrol titled – Bank’s Financials a Pack of Lies – RBI keeping mum ” written by Babu Moshai Saurabh Mukhejea of Ambit talks lot about the weak Indian Banking stocks. We do not necessarily subscribe to his views 

Special Situation:

  1. None today

OVER

 


 

 

 


Stock Observatory India

Ref: ISO/12/94 of 2012-10-29, Monday, India Time 10.30 am)

Overnight Events and Effects:

  1. Nothing to report today, as the markets were closed in US and other places.

US & Asian Markets today

Index

Current IDX

Previous IDX

Change +/-

Change %

52W High

52W Low

Dow Jones Ind. – US

13,107

13,103

4

0.03

13,661.87

11,231.56

S&P 500 – US

1,412

1,413

-1

-0.07

1,474.51

1,158.66

NASDAQ – US

2,987

2,986

1

0.03

3,196.93

2,441.48

NIkkei* – JP

8,930

8,927

3

0.03

10,220.00

8,120.00

Hang Seng* – HKG

21,504

21,462

42

0.20

21,847.70

17,613.20

Sensex* (BSE) – IN

18,691

18,625

66

0.35

19,137.29

15,135.86

NIFTY* (NSE) – IN

5,682

5,665

17

0.30

5,815.35

4,531.15

* = Today’s Intra Day Indices 52W High/Low prices are revised on first day of each month
Previous IDX = Previous Day Official Closing Prices

Dow was modestly higher but the earnings of major companies were sub par. All eyes are on how does the Apple markets its mini Ipad and how popular Windows 8 could be in days to come. Coming holiday months are best months for computer and its gadget makers.

Hang Seng is not able to move higher. Chinese Yuan gains is also cutting competitive edge of chinese exports. Japan is not able to take advantage of exchange strength of Yuan (= weakness of Yen). Only South Korea could take significant advantage of its higher competitive edge, and in fact, it is coming out as second most manufacturing nation in the world after China. In both Auto and Computer/TV industry, South Korea is pushing almost every other Asian nations on the sideline.

Currency:

Currency Pair/Index

Latest

Prev. Close

Change +/-

Change %

52W High

52W Low

US$ Index

80.1070

80.0300

0.0770

0.0962

84.1000

74.7240

US$ per Euro

1.2927

1.2931

-0.0004

-0.0309

1.4201

1.2042

US$ per AUD

1.0356

1.0342

0.0014

0.1354

1.0857

0.0958

US$ per GBP

1.6082

1.6107

-0.0025

-0.1552

1.6310

1.5233

Indian Rs per US Dollar

53.8065

53.7650

0.0415

0.0772

57.3375

48.6050

Latest = Intra Day Rates 52W High/Low are revised on 1st day of month
Prev.=Previous Day Close

Observation (Currency):

  1. Bloomberg reports “Libor Rigging in Singapore by UBS and Royal Bank of Scotsland. ” It further reports
    • QUOTE: At least two foreign-exchange traders at UBS, Switzerland’s largest bank, have been put on leave as part of an internal probe into the manipulation of non-deliverable forwards, a derivative traders use to speculate on the movement of currencies that are subject to domestic foreign exchange restrictions

UNQUOTE

  • This proves our past assertions that Paper Derivatives are being used to depress the currencies of emerging markets (such as India) through the use of “Non Deliverable Forwards”. This is similar to notorious practice in India known as “Dabba Trading” in Gujarat and Mumbai where unauthorized brokers and traders pass only book entries for the stocks bought or sold without physically buying or selling them
  • Indian Rupee is not freely floated. Some banks notably British and French banks (BNP) who issue from overseas offices (mainly from Bermuda or Cayman Islands) Fixed Deposit Receipts converting $ to Rupee at much higher rate (say at Rs 57 when the prevailing rates are just Rs 53.75) with condition that the settlement on maturity date wil be only in US Dollars (NOT in Indian Rupee) to avoid routing the transactions through normal banking system as registered in India under direct control of RBI.
  • The Government of India MUST ban such trading of rupees abroad and suspend the license of those very banks involved in such spurious Indian Rupee trading without RBI approval. In fact, this is much of a “crime against the state” and must be punishable by hanging to death, so that such financial crimes are not being repeated. By artificially devaluing the Indian Rupee overseas under NDF (Non Deliverable Forwards) contracts, the import cost of oil is inflated running into thousands of crores of rupees which have adverse effect of pushing up the inflation, which again forces RBI to raise the interest rates. In fact, RBI and entire Indian economy is played into the hands of some notorious banks from France and UK.
  • US allows free use of its USD to depress the other currencies for simple reason that it wants the banks and brokers to go on buying US Dollar which is being printed in trillions every year. They go on printing trillions of dollars, and countries like India go on suffering losing billions of foreign exchange in the process.
  • Aussie Dollar is firm and rising. Indian Rupee is on weaker side but the pace of decline has slowed to almost screeching halt.
  • Euro is slightly weaker but may weaken in next two days as US biased traders are rigging up “Spanish issue” which may hurt Euro. Higher dollar also caused the weakness in commodity prices.

Interest Rates (US$)

US Dollar

Abbv,

Yield % Latest

Yield % Prev Day

Yield Change

LIBOR Today

LIBOR Prev

LIBOR Change

FED Funds Rate %

Target

0.25

0.25

FED Discount Rate %

Prime Rate%

MATURITY

 

 

 

1 Month

1M

0.212

0.211

0.001

3 Months

3M

0.110

0.110

0.313

0.313

6 Months

6M

0.150

0.150

0.545

0.547

-0.002

12 Months

12M

0.170

0.170

0.880

0.880

2 Years

2Y

0.290

0.294

-0.004

5 Years

5Y

0.750

0.756

-0.006

10 Years

10Y

1.740

1.746

-0.006

30 Years

30Y

2.900

2.907

-0.007

Latest = Today’s Rates Real Time during Asian Time
Previous = Previous day’s Closing Prices

Not much significant change in interest rates, in fact some rates did weaken due to bond buying by FED to support USD and destroy Euro. Our local newspaper reports that the 30Y Mortgage rates have begun to go higher which will impact the mortgage markets, which in turn render housing market much weak.

Commodities

 

Commodities

Month/Year

Latest

Prev.

Change

Chng %

Latest OI

Prev. OI

Chng +/-

Latest Vol

Prev. Vol

Crude Oil WTI – US

Dec/12

86.28

85.50

0.78

0.91

398,611

401,528

-2,917

212,378

298,160

Crude Oil – Brent – UK

Dec/12

109.55

107.77

1.78

1.65

8,521

8,447

74

395

503

Gold – Nymex – US

Dec/12

1,711.90

1,707.20

4.70

0.28

314,511

315,515

-1,004

126,511

140,583

Silver – Nymex – US

Dec/12

32.04

32.08

-0.04

-0.14

78,481

79,975

-1,494

35,150

38,997

Palladium – Nymex – US

Dec/12

505.40

604.50

-99.10

-16.39

18,140

18,435

-295

3,791

4,855

Platinum – Nymex – US

Jan/13

1,546.00

1,568.80

-22.80

-1.45

58,827

58,500

327

12,111

10,235

Latest = Today’s Rate

 

 

 

 

 

 

 

 

 

 

Prev= Prev Closing Px

 

 

 

 

 

 

 

 

 

 

Observation (Commodities)

  1. Oil in US rosé slightly but almost twice the pace in Brent crude which is being used by over 3 Billion people in Asia and Europe. Oil prices are artificially deflated just to satisfy the consumers just a week ahead of Presidential Election in USA. Higher oil prices cost any candidate lot of votes, and Pres Obama is very conscious of this matter.
  2. Platinum was whacked down in active trading on increased volume. Open Interest remained same, which means that higher volume was used near the close of the market to depress the metal prices.
  3. Silver is relatively stronger compared to almost all previous metals. We believe that the stage is getting prepared for Silver to take off. There is a huge short position in Silver, and major banks are not in position to deliver this metal on expiration of contracts.
  4. Gold is still evergreen, it is waiting for accident to happen. However most people do not know what is really happening in adorable metal like Gikd

 

Indian Stocks: Our Observations and Comments

  1. FII are still Net Buyers. However they are also huge sellers in futures markets.
  2. All eyes are focused on RBI meeting on October 30. The stubborn inflation appears to have more effect on RBI to keep the interest rates high and kill India’s economic growth.
  3. Kingfisher Airlines is up on second day in row trading again at 5% upper circuit. There is no recovery news for the airline, except their action to make the salalry payment. We will be buyer only below Rs 8 and seller above Rs 14 or about, because nothing has changed in the Airlines.
  4. Tata Global is slowing down in volume. May be one can pick up more near Rs 141 or about. Whether one should buy Petronet or Tata Global, because both are near same price, we would allocat 65% in favor of Tata Global and rest in favoring Petronet. Both are good and ably managed companies.
  5. Among Auto stocks, Mahindra and Mahindra is strong, and may perform better improving by 10%. It looks like this time around, M&M may come up with bonus 1:1 basis. It is highly progressive company.
  6. Ashok Leyland is reasonably priced. (Rs 23.40) with good dividend yield of 4.32%. It is at good level to buy. TVS Motor (Rs 40 or about) is another good stock to watch and buy carefully.
  7. Essar Group has moderated a bit, but most stocks having strong uptrend usually come down for a day or two before making rapid strides. Both Essar Oil and Essar shipping fits into this category. Both are still in accumulation stage. Both should report good quarterly numbers during this month end.

 

Special Situation:

  1. None today

OVER


 

Stock Observatory India

Ref: ISO/12/93 of 2012-10-26, Friday, India Time 11.30 am)

Overnight Events and Effects:

  1. Dow was up near the close of the day, after being on negative side for quite some time. Apple earnings were found a bit weak.
  2. Warren Buffet won through Berkshire Hathaway Inc. an auction for a portfolio of Residential Capital LLC’s loans with a $1.5 billion bid, adding to Warren Buffett’s bet on a housing market recovery. So, Buffet is betting on housing recovery. Big guys make big mistakes, this is the proof. Kalidas questions his judgment as to how the housing recovery could be robust when it is at low end of interest rate cycle (near Zero). What happens when the interest rates finally recover even modestly by 3% (so that mortgage loans would cost over 5.5% to 6.0% against less than 3% now). A rise in mortgage rate by just 1% on median home loans of $300,000 (against market value $350,000) will be $3,000/year or $9000/year for entire loan of $300,000, that is, additional installment of $750 per month.
  3. While most of the companies in US are projecting less revenue and profits, and also warning “job cuts” in coming quarter, US statistics say that consumers are spending more and that GDP growth will be rising @1.8% pace against 1.3% in the previous quarters. So, the GDP is growing when the major companies are reporting business tending down. Good!
  4. Genius KKR, the leverage specialists, is struggling to close its Leveraged Buy Out Fund of $8 billions as many investors are shying away from private equity investment. KKR past year record is not so encouraging, they say.
  5. King of Online retailing, Amazon reported its first loss since 2003. So the biggest online retailer is also not doing that well, but US GDP is said to be rising, and all other vital markets like Housing are reported to be on recovery track. How do they conclude that housing market is improving? Their measure is granting of fresh Mortgage Loans which has risen. The truth is that the people are liquidating high interest carrying old loans and borrowing new Mortgage Loans in “refinancing exercise”. It is the same loan but treated as new at lower costs. Old wine new bottle, is the apt idiom in this context.

US & Asian Markets today

Index

Current IDX

Previous IDX

Change +/-

Change %

52W High

52W Low

Dow Jones Ind. – US

13,104

13,077

27

0.21

13,661.87

11,231.56

S&P 500 – US

1,413

1,409

4

0.28

1,474.51

1,158.66

NASDAQ – US

2,986

2,982

4

0.13

3,196.93

2,441.48

NIkkei* – JP

8,952

8,977

-25

-0.28

10,220.00

8,120.00

Hang Seng* – HKG

21,643

21,820

-177

-0.81

21,847.70

17,613.20

Sensex* (BSE) – IN

18,700

18,758

-58

-0.31

19,137.29

15,135.86

NIFTY* (NSE) – IN

5,689

5,705

-16

-0.28

5,815.35

4,531.15

* = Intra Day Indices            
  1. Hang Seng Index dropped sharply after few days of solid rise, may be it is a profit taking.
  2. Nikkei is also weaker in spite of nearly 4 month low of Yen. Normally weaker yen encourages the market, especially the exporters stock. Japan is ultimately an exporting country. But it has lost most of its manufacturing sharpness to China, and also to Malaysia, Thailand, Indonesia.
  3. Indian market is relatively strong. The good news was that Kingfisher Airlines resolved its dispute with the staff to finally pay 4 months overdue pay (there are 7 months salaries due). The stock therefore started trading with 5% upper circuit, but it may not last long. The disastrous actions of DGCA and Aviation Ministry to suspend the license was the most damaging event.

Currency:

Currency Pair/Index

Latest

Prev. Close

Change +/-

Change %

52W High

52W Low

US$ Index

80.0300

79.929

0.1010

0.1264

84.1000

74.7240

US$ per Euro

1.2940

1.2979

-0.0039

-0.3005

1.4201

1.2042

US$ per AUD

1.0316

1.0347

-0.0031

-0.2996

1.0857

0.0958

US$ per GBP

1.6117

1.6119

-0.0002

-0.0124

1.6310

1.5233

Indian Rs per US Dollar

53.7650

53.7000

0.0650

0.1210

57.3375

48.6050

Latest = Intra Day Rates

Observation (Currency):

US Index was pushed up in an attempt to lower inflationary indicators. Same old game.

  • British Pound was the biggest winner of late, due to the reports that the country may report higher GDP and will come out of “double dip recession”. British Pound is within striking distance of hitting all time high – it is just 1.3% away from the top level.
  • Aussie dollar is doing well of late.
  • Indian Rupees is still towards weaker side. Most eyes are focused on RBI Policy on interest rates that may be announced on October 30, that is, after 4 days.

Interest Rates (US$)

LIBOR 1M LIBOR 3M LIBOR 6M LIBOR 1Y
T 1M T 3M 0.11 +0.01 T 1Y 0.18 0.00 T 2Y 0.30 +0.01
FED Target 0.25 T 5Y 0.80 +0.01 T 10Y 1.79 -0.01 T 30Y 2.94 -0.03

Obviously, FED was buying bonds on long end to reduce their yield which has been rising of late. Higher Yield (= Higher Interest rates + falling bond prices). This is done to assuage the consumers who are flocking the banks to refinance the mortgage at lower rates.

Commodities

Commodities

Month/Year

Latest

Previous

Change

Chng %

Latest OI

Prev. OI

Change +/-

Crude Oil WTI – US

Dec/2012

85.50

86.05

-0.55

-0.64

401,528

403,204

-1,676

Crude Oil – Brent – UK

Dec/2012

107.77

108.49

-0.72

-0.66

8,447

8,365

82

Gold – Nymex – US

Dec/2012

1,707.20

1,713.00

-5.80

-0.34

315,515

318,712

-3,197

Silver – Nymex – US

Dec/2012

31.91

32.08

-0.17

-0.53

79,975

81,328

-1,353

Palladium -Nymex – US

Dec/2012

601.10

604.50

-3.40

-0.56

18,435

18,496

-61

Platinum – Nymex – US

Jan/2013

1,566.40

1,568.00

-1.60

-0.10

58,500

58,715

-215

Observation (Commodities)

  1. Again the attack was on commodities. Crude in US is falling (which is not reflected in the retail pump prices) but the major rate – Brent Crude which supplies crude to almost 2.5 billion people, was stable to rising. The parity between US Crude (WTI Texas) and Brent Crude is rising to almost 22 points. There was a time when US oil was quoting higher than Brent Crude by 4 points. Now, same WTI Texas is quoting 22 points lower, just another example of manipulation in future markets.
  2. Gold was dubbed low but there was some interest in Silver. It may be noted that Spot markets are different than future markets.

Indian Stocks: Our Observations and Comments

  1. Telenor, leading Norway based Telco companies, who suffered massive losses through its joint venture partner – Unitech Ltd. – has finally decided to exist from India and is in talks to sell its 26% stake in the joint venture. It is a sign of no confidence in Indian market. Surprisingly, the possible buyer could be Sun Pharma, the leading and aggressive pharmaceutical company which is rolling in cash. From Drugs to telephone (mobile phones) transition is going to be difficult. By partnering with Unitech, a questionable partner, Sun Pharma will lose not only shirt but also underwear.
  2. Kingfisher Airline resumed its upward climb after agreeing to pay 4 months pending salary (out of 7 months due). Poor Mallya – he is still pumping in the money which goes to waste. He has lost vision and rationality. The stock may not go too high.
  3. 17 stocks in NIFTY are within the reach of 52 weeks high, suggesting that the market is overpriced.

Special Situation:

  1. None today

OVER


 

Stock Observatory India

Ref: ISO/12/92 of 2012-10-25, Thursday, India Time 11.30 am)

Overnight Events and Effects:

  1. Again another day of active manipulation especially in Crude Oil as traded in US and Gold prices, both of whom are inflation indicator, which are sought to be controlled to manipulate the core inflation numbers. The earnings were another let down today, with Ford and Dow Chemicals reporting increased firing amid sluggish sales.
  2. Bernanke was also downbeat about job market, and reiterated his comments to continue to buy back bonds @$40 billion per month until 2015, that is, at annul rate of $480 billion per year for another two years. The budget deficit will go higher by $1 Trillion in two years only account of this factor.
  3. New York, a barometer of intense economic activity, reported yesterday thus “The New York metropolitan area had the biggest jump in foreclosure filings among top U.S. markets in the third quarter as lenders began to work through a backlog in a region where seizing properties takes the longest.
    • The 69 percent gain in default, auction and repossession filings was the steepest among the 20 largest metro areas, according to RealtyTrac Inc. The region’s increase, propelled by a ninefold rise in Queens County, New York, and a more than tripling in Sussex County
    • This, the recovery is failing and it is a matter of only hopes rather than reality.
  4. Everything is quiet in Euro zone. Nothing much is happening in Equity and bond market, except on Interest Rate front in US where the rates after little bit of correction are raising again. Look at under Interest Rates.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,077

13,102

-25

NASDAQ

2,982

2,991

-9

S&P 500

1,409

1,413

-4

NIKKEI – Japan

8,977

8,954

 23

Hang Sang -HK

21,760

21,763

-3

SENSEX – India

18,726

18,710

16

* = live intra-day.

No significant movement in the Indices.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.929

79.886

0.0430

Euro/US$

1.2979

1.2990

-0.0011

Rs/US$

53.70

53.925

-0.2250

Observation (Currency):

While Dow fell and $ rose, the vital commodities such as Oil and Gold fell. Not much change in Euro. Indian Rupee gained a bit amid speculation that India’s RBI (Central Bank) may cut the rates by 0.25% (a small minority expect reduction by 0.5% which is also our expectation)

Interest Rates (US$)

LIBOR 1M 0.21 0.00 LIBOR 3M 0.31 0.00 LIBOR 6M 0.55 0.00 LIBOR 1Y 0.88 -0.01
T 1M T 3M 0.11 +0.01 T 1Y 0.18 0.00 T 2Y 0.29 0.00
FED Target 0.25 T 5Y 0.79 +0.03 T 10Y 1.80 +0.03 T 30Y 2.96 +0.04

While FED has been buying treasury bonds to keep the rates down, there is more selling of T Bonds from the funds. The yield fell (that is interest rate rose) on short end such as 3 months , mid term rates rose for 2Y, 5Y and 10Y T Bonds. A bad omen for gold /silver commodities.

 

Commodities

Item

Latest

PREV.

Change

Open Int.

Today Vol.

Prev Open Interest

Prev Vol

Change Open Int

Change Volume

Oil (WTI)

85.86

86.67

-0.81

403,204

309,492

404,269

275,720

-1,065

33,772

Oil (Brent)

108.99

108.25

0.74

8,365

602

8,403

586

-38

16

Gold

1,701.6

1,709

-7.40

318,712

153,971

324,100

108,139

-5,388

45,832

Silver

31.82

31.79

0.03

81,328

39,330

82,443

30,194

-1,115

-43,113

Palladium

592.75

594

-1.25

18,496

8,596

18,560

3,832

-64

-9,964

Platinum

1,562.7

1,576

-13.30

58,715

11,770

59,689

8,983

-974

2,787

Observation (Commodities)

  1. Again active selling in Oil and Gold was the highlight of commodity trading. While US oil fell by 1%, the Brent crude rose by 1% almost. It is clear that the FED as been suppressing
  2. Gold came down to $1,700 almost, and one more spike on the downside may force Gold to test the support at $1,685 but we will not wait. It is time to buy Gold, Silver and Palladium at current prices. Do not think too much
  3. Corn and Soybean are rising of late after few days of selling.

 

Indian Stocks: Our Observations and Comments

  1. It is almost certain that RBI may lower rates between 0.25% to 0.50%. This factor alone may drive up the Index by 400 points, although the risk factor in overseas center has risen.
  2. Kingfisher Air has stopped going down and in stead is having only buyers in large quantity with 5% circuit up. More than 28 Millions shares have traded with no sellers at last watch. The employees rejected 3 months salary offer and demanding 4 months of pay. However, Diwali being very close, the KFA employees have no alternative but to accept the Management proposal. This could be reason for sudden interest in the counter. A good report suggest that nearly 40% employees have left the company so far during last few months. Thus, the future cost of hiring could be significantly at lower rate bringing cost under control. In short, higher rupee, lower oil prices, lower interest rate prospects, and lower labor costs are going to be major driving force for this company. The worst appear to be over, but keep a tag for few days more. At the moment of this writing, there were more than 2 millions buyers with no offers.
  3. Sterlite Industries reported good numbers with 79% rise in Profits. The stock was up 2% and it is likely that the stock will gain upper bound momentum soon. This is the good time to pick up and build the position in this counter. Both Sterlite and Hindalco are at buyng point.
  4. FII are still loading up on FMCG sector. Expect gains in ITC and Hindustan Lever.
  5. Essar Shipping is showing strong volume on upside. BSE volume alone was over 1.7 Millions, nearly 10 times normal volume. The stock is on way up now with earning releases coming nearer. Hold on to this stock, the gains will be seen soon.
  6. Essar Oil is also inching up strongly, with good volume. It is at Rs 64.65 or about, so it is breaking out of jinx. The stock may soon go to Rs 69 and possibly Rs 73.50 before profit taking place. We strongly believe that the earning picture may be very bright. The momentum players may add more positions and do not sell hurriedly so soon.
  7. If the rates go down by 0.5%, expect more gains in Housing Finance stocks, some banks, Steel, metal stocks and Airline stocks.

Special Situation:

  1. None today

OVER

 


 

 


Stock Observatory India

Ref: ISO/12/91 of 2012-10-24, Wednesday, India Time 12.00 pm)

Overnight Events and Effects:

    1. It was the day of extravagant manipulation. The earning reports were much below expectations that drove the Dow lose 244 points. It should have caused the dollar to go weaker, but the commodities collapsed, WTI Oil collapsed by over 4% in single day, whereas the Brent Crude, more realistic measure of oil as traded in Europe and Asia, rosé 4%, which means that previous day close was hand managed.
    2. Nowadays, the trading pattern is that when the Dow collapses, the money gets into Treasury where the 2Y, 5Y, 10Y and 30Y yield was rising for almost entire last week. There was no incentive to buy treasury because the monetary policy of Bernanke (FED) is hyper inflationary. In that case, where is inflation? Well, the explanation is the inflationary indicators elements were heavily shorted third day in a row, gold losing almost $76 in last 5 sessions, dropping all the way from $1,785 to $1,709 for absolutely no reason, because dollar index almost remain at same level. The future market is being operated by CGE group on ICE and Comex, Nymex etc with passive participation of Chicago Futures Trade Commission has become a giant casino, where the rules are flouted on minute to minute basis. The interests of almost all genuine future players is heavily compromised by allowing few major banks and CGE group to short the markets with gay abandon without any control.
    3. You may ask why the Oil dropped by over $7 when it remained almost stable in London? You may also ask why Gold dropped almost 4% in last 5 sessions (by massive $76 per ounce) when dollar index was stable, demand was stable, supply was scarce and Euro zone was also stable. The reasons are forgotten because only player’s actions to short the gold massively to control the fear of inflation.
    4. While Oil prices in US dropped by 6% in last 3 sessions, in Aliso Viejo, California where I live, saw the petrol pump price putting up 8% from low of $ 4.17 to high of $4.85 to current $4.75, or net gain of $0.68 or about 15%. Can anyone explain why the Petrol Pump rosé 15% when market price of Texas WTI crude fell 7%, widening the credibility gap by massive 22%!
    5. The paper manipulation has become so intense that I fear that something under current is getting so restive that there could be major failure at the exchange, either major player is going to fold up or serious default on the scale of Enron (or even much larger) that may play havoc in the market, which may see Dow collapsing 1500 points in a day even after circuit breaker stops.
    6. When the earnings are going down, the companies are still laying off the employees almost every day (Dow Chemical announced today employee head cutting by 2500 and closing down almost 20 plants), housing is still in pretty bad shape, the retail sales are only moderate, then why the Dow jones should go higher by 10% in last few months?
    7. I am sure that we are heading into massive crash which may be very imminent, may be 10 days, 20 days or 30 days maximum. We are closer to death than any time before.

 

 

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,102

13,346

-244.00

NASDAQ

2,991

3,017

-26.00

S&P 500

1,413

1,434

-21.00

NIKKEI – Japan

8,964

9,015

-51.00

Hang Sang -HK

21,661

21,698

-37.00

SENSEX – India

CLOSED

18,710

NA

* = live intra-day.

Dow dropped like a hot potato, S&P also lost heavily, Nasdaq was moderate only because of Apple and Microsoft, and other world indices were not worth not mentioning.

 

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.886

79.909

-0.0230

Euro/US$

1.2990

1.2986

0.0004

Rs/US$

53.925

53.550

0.3750

Observation (Currency):

Dollar Index is nearly at same level, but Euro weakened, why when Euro weightage is almost 57% in the index. Yes, Japanese Yen weakened a lot at the instance of Bank of Japan with blessings of Ministry of Finance

 

Interest Rates (US$)

LIBOR 1M 0.21 0.00 LIBOR 3M 0.32 0.00 LIBOR 6M 0.55 -0.01 LIBOR 1Y 0.89 0.00
T 1M T 3M 0.10 0.00 T 1Y 0.18 0.00 T 2Y 0.29 -0.01
FED Target 0.25 T 5Y 0.76 -0.02 T 10Y 1.77 -0.03 T 30Y 2.92 -0.04

While the money flowed from equity to bonds, the yield fell marginally, suggesting that FED was busy buying bonds. We may not know the “real time exercise by FED” who is behind actions to weaken the yield. FED is so much worried of the 2 Year yield inching up that it immediately swings into actions to buy the short end bonds to pump in more money, so that Refinancing game is sustained at consumer level. Interest rate, the biggest enemy of the stock market, has started inching up which is the real cause for Dow’s 244 points collapse in equity. LIBOR rates are stable, because they do not count any more, they are no longer independent and the fact is that “major players have lost belief in LIBOR Interest Rate game”

 

Commodities

Item

Latest

PREV.

Change

Open Int.

Today Vol.

Prev Open Interest

Prev Vol

Change Open Int

Change Volume

Oil (WTI)

86.67

89.08

-2.41

404,269

275,720

388,468

2,888

15,801

272,832

Oil (Brent)

108.25

103.40

4.85

8,403

586

NA

NA

8,403

586

Gold

1,709

1,727

-18.00

324,100

108,139

327,931

158,721

-3,831

-50,582

Silver

31.79

32.25

-0.46

82,443

30,194

83,002

1,262

-559

28,932

Palladium

594

623

-29.00

18,560

3,832

18,387

3,756

173

76

Platinum

1,576

1,612

-36.00

59,689

8,983

59,717

677

-28

8,306

Observation (Commodities)

  1. We feel that the Gold, Silver, Palladim, Platinum and Oil prices were severely shorted near the day close. Look at the above table and note the following remarks:
    • GOLD: it fell by massive $18 or nearly 1.1% when the future volume fell, and open interest came down by 3831 contracts, When the open interest comes down, the price usually go higher, not lower. But in case of gold, reverse logic is in the play.
    • Look at the oil and Brent together. While Brent rosé by $4 the local WTI Texas fell by $6 in last 5 sessions. No reason of over supply or lack of demand. It is just Futures market which is suppressing the prices by any means.
    • Look at Silver, where the volume rosé but the open interest came down, and price also dropped as surprise. When the open interest come down, the prices tend to go higher, not lower.
    • There was no reason for Palladium to drop by massive 5% in single day, after dropping over $50 or 8% in last 10 days. There are no news of oversupply or lack of demand. The Open Interest rosé only 173 contracts, which means that most volume was used to short the this metal before the end of the day.
    • Gold also saw Open Interest coming down by 3,831 contracts, that is, the speculators bought back the short contracts. If they did, the price should have gone up, not down, but down went the gold to the chagrin of others

 

Indian Stocks: Our Observations and Comments

  1. The market may be closed today due to Dussera or Vijaya Dashmi” which is heavily celebrated everywhere with much more emphasis in Kolkata.
  2. An interesting yet vocal piece was published in the Economic Times, which credits the Chanda Kochar, MD of ICICI, how she orchestrated to save ICICI from complete precipise. So finally, the cat is out – ICICI was in real trouble, and we for one do not think that it has recovered from bad bruise in financial collapse globally. It has successfuly concealed the losses in unknown subsidiary in North America. You can not recover thousands of crores overnight, especially in banking where interest spread is 2% and Net Spread is hardly 0.25% after expenses. So how iCICI got the income – it can be two ways – by concealing the losses, or inflating the income. I still do not trust ICICI Bank, but the customers do not have to worry – we have big father behind them to support if need be.
  3. Kingfisher Airlines: The article Banks staring at Rs 6000-crore writeoff on loans to debt-ridden Kingfisher Airlines It proves how stupid was DGCA and Ajit Singh when they tried to squeeze the noze of Mallya (Kingfisher Airline) by forcing it to pay about Rs 70 crores un in unpaid wages, showing enormous sympathy to the Pilots and Engineers, and caring least of mostly nationalized banks whose massive exposure of over Rs 7000 crores is at risk. What is more important – Rs 7000 crores lent by the banks or 70 crores of unpaid salaries? Do they believe that “last two zeroes” have no values. (70 crores to 7000 crores). How dare they cancel the license, exposing PSU banks to enormous risk of write off of as much as Rs 7000 crores? Whether they cancel the license or not, KFA was not flying anyway, so why precipitate the crisis and scaring away any new potential investor in KFA? What did they achieve with their idiotic approach? And what the hell the Chidambaram and Prime Minister Manmohan Singh doing in this case? Are they watching this “tamasha” as if nothing had happened?
  4. CAIRNS India is sitting on huge cash pile which is said to be Rs 65 per share against current market price of Rs 320 or about, that is, nearly 25% of what you invest in Cairns is protected by just Cash, forget other assets. It may declare heavy dividend, says the gossipers. To us, Cairns India is a good buy at current market prices.
  5. United Phosphorus appear to be doing well reporting almost 100% increase in its Net Profit after Taxes (PAT). Its sales is improving, and it is getting higher and higher presence in United States. Place it on your radar – we will cover this stock soon.
  6. All eyes are on RBI Governor, Subba Rao, whether he will cut REPO or just neutral CRR? Top banks say that he will cut CRR and not REPO or Reverse REPO. Will Chidambaram tolerate this non sense? May be he will. No one is decisive in India.
  7. ET News headlines thus…”P Chidambaram asks banks, financial institutions not to hesitate in giving loans to poor” What Chidambaram appear to convey is that ” It does not matter if those poor people do not pay back but we will not lend a cent to KFA even if the company default Rs 7000 crores and banks loses fortune!
  8. We are heading into Diwali festival season. Whether Subba Rao makes out Diwali better or worse, we will know only in first week of November

Special Situation:

  1. None today

OVER


Stock Observatory India

Ref: ISO/12/90 of 2012-10-23, Tuesday, India Time 10.30 am)

Overnight Events and Effects:

  1. US market was subdued. The earnings are bad so far, except for Banking sector. Texas Instrument was also downbeat, so also Caterpillar who expects revenue to decline by 5%. On positive side, all eyes are focused on two technological giants – Apple who is likely to release its revolutionary mini Ipad to compete head on to Kindle (Amazon) and Microsoft who might be releasing its revolutionary Windows Operating System – Windows 8 which can be used on PC, Table and also on Smart phone system.
  2. On negative side, the pressure appear to be building on Interest rate, which after one day correction, began to move up for 2Y, 5Y, 10Y and 30Y (See the table later).
  3. Bank of Japan continued its push to bring Yen down to above 80. It worked for a day, but no longer will it work. Yen after so much of consolidation is likely to break out on upside this time – just watch and see.
  4. Europe is quiet.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,346

13,343

3

NASDAQ

3,017

3,006

11

S&P 500

1,434

1433

1

NIKKEI – Japan

9,024*

9,010

14

Hang Sang -HK

21,698

21,552

146

SENSEX – India

18,793

-18,793

* = live intra-day.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.54

-79.5400

Euro/US$

1.3041

-1.3041

Rs/US$

53.83

-53.8300

Observation (Currency):

None today. 

Interest Rates (US$)

LIBOR 1M 0.21 0.00 LIBOR 3M 0.32 0.00 LIBOR 6M 0.56 0.00 LIBOR 1Y 0.89 0.00
T 1M T 3M 0.10 +0.01 T 1Y 0.18 0.00 T 2Y 0.31 +0.01
FED Target 0.25 T 5Y 0.78 +0.02 T 10Y 1.80 +0.02 T 30Y 2.96 +0.01


Commodities

Item

Latest

PREV.

Change

Open Int.

Today Vol.

Prev Open Interest

Prev Vol

Change Open Int

Change Volume

Oil (WTI)

89.08

90.67

-1.59

388,468

2,888

393,872

329,814

-5,404

-326,926

Oil (Brent)

103.40

110.46

-7.06

8,421

624

-8,421

-624

Gold

1,727

1,725

2.00

327,931

158,721

331,699

14,927

-3,768

143,794

Silver

32.25

32.10

0.15

83,002

1,262

84,377

47,774

-1,375

-46512

Palladium

623

623

0.00

18,387

3,756

18,437

3,756

-50

-14,681

Platinum

1,612

1,616

-4.00

59,717

677

60,014

9,362

-297

-8,685

Observation (Commodities)

  1.  None today.

 

Indian Stocks: Our Observations and Comments

  1. RBI under Focus: Come October 30 and RBI may announce its policy on interest rate. Since the inflation is said to be 7.8% which is relatively high, it is reported by HSBC that the instead of direct cut in Repo rates, RBI may cut CRR rate. It does not help businesses but it does help Banks to lend more funds to the borrowers who do not have incentive to borrow due to same interest costs. Real Estate firms may benefit due to higher liquidity.
  2. Kingfisher Airlines: It offered 3 months back pay to its employees but they are stubborn to get more due to oncoming diwali season. Mallya is making adjustment personally to make some payment, and it is unlikely that DGCA might revoke cancellation soon. DGCA acts like a labor department who want all employees to receive their salaries, whereas it does not care for Rs 7000 crores of loans outstanding and owed to the banks. The creditors are also raising their head. CDR or Corporate Debt Structuring does not help the borrowers in difficult time. Indian Bankruptcy Law is not helpful to the indebted person. India really needs badly, very badly, CHAPTER 11 like provisions so that debt can be recast, the creditors are prevented from reasserting (like GMR did by getting arrest warrants on the KFA directors), so that viable plan could be worked out. Even employees are not spared, and they are forced to make concessions under Chapter 11 in USA. Growth means more money, and more money means more troubles, so Chapter 11 is a necessity in India, and it should be the top most priority for the legislators this year and beyond. Sooner they do it, better it is.
    • KFA is down by 5% and it has no buyers, that is, it is trading at lower circuit. It is too low – and it may take about 10 more days to find proper level to enter the stock.
  3. India Hotels: Some peoples are upbeat of the company’s take over of luxury hotel chain from Bermuda. However, we have to see how the price tag of $1.6 billions is justified. Keep this stock under watch, and may be in next 3 or 4 months, proper buy opportunity may emerge.
  4. JET AIRWAYS : Reduced its London fare to less than Rs 10,000, all time low, to compete with Virgin Atlantic who may start its operations soon. Airline is a highly capital intensive asset, and it does need strong variable cost margin. If they reduce the margin, they are likely to lose out.
  5. DII vs FII: Mark Mobius of Templeton (FII) is more bullish on India whereas Domestic Institutions are more pessimistic.
  6. Consensus is building slowly but surely that the global markets are near peak, and some like Mark Faber is expecting equity meltdown by 20%. Unless RBI comes out with very aggressive policy on interest rates by cutting REPO by 1% point, India will be thrown back to the wolves. If RBI misses this opportunity, it will regret later.
  7. Inflation Picture: After poor show of Soybean and Corn crops in USA, Australia, second largest producer of Wheat, came out with almost 30% lower production target of wheat due to very dry and sunny weather. If these commodities go higher, we will have higher inflation in India. Let us hope that Rupee continue to go higher, failing which higher Rupee prices of soft commodities in India due to higher dollar prices will perk up the inflation picture and higher interest rates regime to continue.

Special Situation:

  1. None today. Watch out Kingfisher Airlines for next 10 days. When the lower circuits end, then only move in.

OVER


 

Stock Observatory India

Ref: ISO/12/89 of 2012-10-22, Monday, India Time 9.30 am)

Overnight Events and Effects:

  1. Dow closed at this time, but on Friday it stumbled due to weak earning from Microsoft, IBM, McDonald. Google’s loss on previous day also hanged over stocks today.
  2. Japan announced that it will boost liquidity, as if there was no liquidity at near Zero % interest. Japanese stocks were gaining during last week, but further rally is ruled out.
  3. Many are finding uncomfortable in rise in Dow, especially the 2Y, 10Y and 30Y yield rose (that is interest rates rose) after whacked down on Thursday/Friday. It shows that long term rates are gaining which may signal troubles for the bank who have been borrowing short term and lending on long term basis. It may be too early, but it does not take for interest rates to jump up suddenly if the momentum players join in.
  4. Japanese exports tumbled 10% which prompted some to request BOJ (Bank of Japan) to boost the liquidity. The main villain is stronger Yen which helps main competitor South Korea to sell its wares to US and rest of the world at cheaper prices. On electronic side, Samsung and LG are hurting Panasonic, Sony, Fujitsu, Hitachi, Sharp and NEC and on Auto side, KIA, Hyundai are doing extremely well against Japanese counterparts.
  5. Bernanke is said to be “thinking to buy $40 Billions of Bonds to ease pressure on economy. He had hinted to keep the interest rates near zero until 2015, 2 years beyond earlier commitment. This is taken as bad oman by the Bond Traders who are reducing treasury and buying some foreign bonds. This is why Medium Term rates (2Y, 10Y and 30Y are moving up). The most important yield is 2Y T Bonds which were trading at 0.25% yield are now trading at 0.30%, beyond the FED target rates.

 

US & Asian Markets today

INDEX

CURRENT

22/10/12

CHANGE

COMMENTS
Dow Jones USA

13,343

13,549

-206

NASDAQ

3,006

3,073

-67

NIKKEI – Japan

8,930*

9,003

 -73

Hang Sang -HK

21,580*

21,552

 28

SENSEX – India

18,612

18,682

 -70

* = live intra-day.

Japan saw tumbling of exports by 10% which weakened the Yen. Japan’s policy of inactivity and lower rates for 16 years in a row is simply not working. Hang Seng is dependent on China which reported weak quarters only yesterday.

 

India is see sawing. On one hand there are positive initiative on policy front, on other RBI is not seen to lower the interest rates. If we go by recent actions of banks to lower the mortgage rates, we can say that RBI will be lowering rates by at least 0.50% in Reverse REPO (similar to Bond Buying in USA). It is time that RBI throws all cautions to the wind and make drastic reduction of rates by full 1% at least to give the market clear signal that the rates are on the mend, Rupee is on upward path, so that Growth could possibly resume.

Everything is quiet on Euro front where the Spanish yields are moderating, suggesting that Moody’s may not lower rating of the country. I do not trust Moodys and S&P because they always have hidden agenda.

 

Currency:

Pair/Index

LATEST

22/10/12

CHANGE

Comments

US$ Index

79.54

79.63

-0.0900

Euro/US$

1.3041

1.3023

0.0018

Rs/US$

53.83

54.02

-0.1900

Observation (Currency):

Euro stable to mildly firm due to stable Spain. Yen weakened, New Zealand currency is gaining, so also rumors that Aussie dollar may also gain. Rupee is on lower side, which is very surprising. The only reason could be some untold intervention by RBI to lower the strength of rupee, but it is not believable because Chidambaram was very firm in his commitment to the Rupee. NRI may send in the remittance on this weakness. We do not think that Rupee may weaken further.

Interest Rates (US$)

LIBOR 1M 0.21 0.00 LIBOR 3M 0.32 0.00 LIBOR 6M 0.56 0.00 LIBOR 1Y 0.90 0.00
T 1M T 3M 0.09 0.00 T 1Y 0.18 +0.01 T 2Y 0.30 +0.01
FED Target 0.25 T 5Y 0.76 +0.01 T 10Y 1.78 +0.02 T 30Y 2.95 +0.02

 

While FED appear to have attacked very low end rates (3 Months to 12 months), the mid term rates and long rates are firming up after being shorted down near the close on Thursday and Friday.

 

If the rise in interest rates become a trend, be prepared for major sell off in US market, which may be the first indicator that the overvalued markets may collapse soon. Keep a close watch on 2Y, 10Y and 30Y interest rates movement. From my recent experience in USA, most people are refinancing mortgages on 15Y to 30Y basis.

 

Some hedge funds are taking long position on Hong Kong dollar vs US dollar. While Chinese currency gained by 0.05 pts to 6.25 (from 6.30 a few months ago), the speculation is gaining ground that HK$ may finally appreciate. HKMA (Hong Kong Monetary Authority) bought over $625 Millions of US Dollar to weaken the HK Dollar. It is surprising that China is allowing Hong Kong to keep its currency weak while allowing its own currency to get stronger. China’s position is not clearly understood by this Author.

Latest reports suggest that “carry trades” are increasingly becoming “non profitable”. The $4 trillion currency market volume was down 40% in September that is, the volume is down by over $1.6 trillions. It shows that the traders have lost interest in the currency trading. The higher 2Y treasury also plays important role to force traders to re-think the currency strategy game plan. In short, the currency market is becoming restive again after long time.

Commodities

Item

Latest

PREV.

Change

Open Int.

Today Vol.

Prev Open Interest

Prev Vol

Change Open Int

Change Volume

Oil (WTI)

90.67

90.44

0.23

393,872

329,814

355,274

315,188

38,598

14,626

Oil (Brent)

110.46

110.14

0.32

8,421

624

8,770

602

-349

22

Gold

1,725

1,721

4.00

331,699

14,927

332,574

143,664

-875

-128,737

Silver

32.10

32.09

0.01

84,377

47,774

84,145

42,379

232

5395

Palladium

623

647

-24.00

18,437

3,756

18,508

2,333

-71

1423

Platinum

1,616

1,644

-28.00

60,014

9,362

60,926

9,889

-912

-527

Observation (Commodities)

  1. In spite of weaker dollar, and bit stronger by Euro, the Gold is weak below $1,735 which is a critical level to rebound. Almost all commodities were sold off near the close previous day to depress the prices.
  2. It is time to buy Gold, Silver and Palladium. Next 3 months may show impressive gains.

 

Indian Stocks: Our Observations and Comments

  1. Kingfisher Airline lost its license to fly. The stock should trade at lower circuit today and for next 2 days. Stupid DGCA and Minister Ajit Singh who is adopting “Hands Off” approach which may prove suicidal for Air India and entire aviation industry. It may be noted that Virgin Atlantic has finally decided to resume flight from London to Mumbai after about 2 years of withdrawal. Should you buy Kingfisher now? No, wait for 2 more days of lower circuit trading and then buy some. It is speculative stock now.
  2. Indian market may also react to Asian and US cues. It may go down a bit.
  3. TATA Group has reached a milestone to hit magic $100 Billions in revenue. It is the first Indian company to reach this milestone. Main reason for reaching $100 billion league is inclusion of loss making Corus (Steel) and Jaguar/Land Rover(Auto) in UK. Its profits were however down to $5 billions.

Special Situation:

  1. None today

OVER


 

Stock Observatory India

Ref: ISO/12/88 of 2012-10-20, Friday, India Time 9.30 am)

Overnight Events and Effects:

  1. Is it the economic recovery? Is the housing rebounding? Then, why did the Dow fell by over 200 points? When everyone is touting on economic recovery, the stocks like IBM, HP, Mcdonald, Microsoft, Google etc all reported below expectation result. Even McDonald, the recession proof stock can not make more money during economic recovery?
  2. The actions were centered on Interest Rates that were rising, and also Gold, Oil, Silver, Palladium and Platinum all of which dropped like a stone within just 10 minutes during closing time. The strategy and concern of the authorities was that higher gold, silver and oil prices were indicators of inflation which was raising interest rates. So, if the rates were to be controlled in justifiable manner, those commodities must be sold off in minutes. The Treasury were also bought to raise its price (so that yield falls) which was done. Read our previous sessions report. Still, the fact of the matter is that “Interest rates are looking up” and government actions were directed at 2Y, 10Y and 30Y bonds which were rising fast and causing almost all mortgage financiers serious concern as their higher cost of funding can not permit them to raise the consumer mortgage rates that will force the recession quickly. Please note that there is no real increase in housing finance, but just old mortgages were paid off, and new mortgages were taken at refinancing rates to lower the cost of interest. The granting of new mortgage is taken as sign of economic recovery which is false notion.
  3. Even Microsoft could not make more money, so did McDonald who was otherwise doing well during past quarters. In short, the consumers have become very choosy.
  4. No other major news from US, Europe and UK otherwise, except, the world’s biggest funds PIMCO declared that it was taking more exposures to Australia and New Zealand where the rates might fall later. So expect these currencies to perform better in future. This is what we have been saying to most people. Other currency getting stronger is Singapore dollar.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,343

13,549

-206

NASDAQ

3,006

3,073

-67

NIKKEI – Japan

9,002*

8,982

 20

Hang Sang -HK

21,552*

21,519

 33

SENSEX – India

18,682*

18,791

 -109

* = live intra-day.

Japan is getting stronger on weaker yen, almost 10 year old practice to buy more Japan equity if Yen gets weaker. The fact of the matter is most Japanese are bringing back Yen to Japan by selling dollars, and that too applies to China whose Yuan is also rising due to home coming of Renminbi. Indian market is pretty quiet with no major news, Read related section

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.63

79.38

0.2500

Euro/US$

1.3023

1.3067

-0.0044

Rs/US$

54.02

53.69

0.3300

Observation (Currency):

USD gained in spite of Dow fall by 200 points, but the 2Y, 10Y and 30Y treasury were bid up to lower the rates. This was the reason for rise in USD. Further, Gold, metal and Oil prices could be driven down only by allowing USD to get stronger. So paper derivatives were used to bid up the USD

 

Indian Rupee was surprisingly weak in spite of rise in FII inflow. It does appear that NDF or Non Delivery Forwards contracts are being used to depress the Rupee. The ultimate purpose of doing so is not yet understood by this author. More comments later next week.

Interest Rates (US$)

LIBOR 1M 0.21 0.00 LIBOR 3M 0.32 0.00 LIBOR 6M 0.56 -0.01 LIBOR 1Y 0.90 -0.01
T 1M T 3M 0.09 -0.01 T 1Y 0.17 -0.01 T 2Y 0.29 0.01
FED Target 0.25 T 5Y 0.75 -0.04 T 10Y 1.76 -0.07 T 30Y 2.93 -0.08

 

Finally, the FED and Treasury were concerned at spike in short term interest rates which rosé most of the week. They were hacked down in matter of minutes in fast and furious short selling operation which tool place near the close of the day. Look at the Chart from INO.Com and see how steep was sell off during closing time (in matter of minutes)

Commodities

Item

Latest

PREV.

Change

Open Int.

Today Vol.

Prev Open Interest

Prev Vol

Change Open Int

Change Volume

Oil (WTI)

90.44

92.42

-1.98

355,274

315,188

344,529

2,501

10,745

312,687

Oil (Brent)

110.14

112.42

-2.28

8,770

602

8,863

454

-93

148

Gold

1,721

1,745

-24.00

332,574

143,664

333,482

9,392

-908

134,272

Silver

32.09

32.87

-0.78

84,145

42,379

84,965

26,210

-820

16169

Palladium

623

642.7

-19.70

18,508

2,333

18,656

2,562

-148

-229

Platinum

1,643.7

-1,643.70

60,926

9,889

62,063

7,146

-1,137

2,743

Observation (Commodities)

  1. Most of commodities were depressed in fast and furious short selling during closing time. It did not take more than 10 minutes to bring down the prices by more than 1.5% in most of the oil, gold, Silver and Palladium. Obviously, other metals also suffered.
  2. Gold dropped below $1,735 for second time. We have to see whether it becomes a trend or there is rebound. We do not see more downside than $ 20 at the most. It should rebound soon because delivery based trades will dictate the price in future.

Indian Stocks: Our Observations and Comments

  1. TCS reported excellent numbers with growth in earnings by 44%. Of all TATA companies, this TCS is a jewel of the crown. We always advised readers to buy this stock and hold it and it has paid off. In fact, it would be a good trade to sell Infosys and BUY TCS and HCL and also Mahindra Satyam. It diversifies the portfolio in same industry into three big growing companies.
  2. Deccan Chronical is heading towards bankruptcy. ICICI, the lead banker with over Rs 500 crores exposure decided to back out of CDR (Corporate Debt Restructuring similar to but diluted version of Chapter 11 in USA). Axis Bank is also having exposure of Rs 400 crores. The interesting thing is why did this company buy back its own shares when it was in severe financial crisis. The reply is – the company promoters could not sell the stock in the market, so they passed resolution to buy back the shares at heavy premium so that the promoters could get their money released at highly inflated price. This is the right time and right stock to launch CBI and RBI investigation into massive manipulation of cash resources and duping banks like ICICI and Axis Bank.
  3. Kingfisher Airlines is likely to face the eventuality – DGCA states the cancellation of license is almost “imminent” as reply posted by the company was not convincing. DGCA was still harping on “non payment of Salaries” to employees, which is generally not a criteria to issue or deny a license. It is a indirect labour problem, not direct “aviation” problem. By canceling the license, almost all banks will have no option but to write off the massive Rs 7000 crores before the end of this financial year. We commented earlier that “Ajit Singh, the Aviation Minister” is precipitating the problem instead of solving it. The money can be recovered if there is selling activity, but when the DGCA is going to ask KFA not to book any ticket and close down the ticket counter, where from this company will bring in the money? When this news hit the market (about actual cessation of license), the stock may drop to Rs 6 or even lower, when some adventurous persons can buy the stock by investing about Rs 30,000 to Rs 50,000 at the most with prospect of losing 50% or doubling or trebling the money later in next 12 months. It is an opportunity for brave ( or stupid as you may call it) and it is also possible other private airlines may gain on higher market shares. They already got it, so I do not think that it will change their fortune at all.
  4. ITC is making waves again. I think this stock deserves more attention in future.
  5. Essar Oil is getting stronger on rising volume. So also Essar Shipping. If Essar Oil has capacity increase by 50%, it will need Essar Shipping to transport the higher cargo, so Essar Shipping may also gain as result. Essar Shipping has bottomed out at Rs 28, so do not sell this counter until the stock reaches to Rs 38.50 to Rs 41 at least. It is still a buy below Rs 30 but the position limit should not be more than 6000 shares for higher up investors.
  6. Dish TV is making some notable lines of late. This stock appears to be rising on higher volume. Watch it for a while. Since we used to buy this stock at Rs 14 or about, we are not much inclined to buy at current level but it may help some momentum players.
  7. IFCI is in accumulation stage. The stock is refusing to go down more and is also found to be having rising volume, which is a good sign of a rising stock. It is still safe stock relatively, and one may take position up to Rs 3 Lakhs (10,000 shares) on 9 months basis to earn about 30% by next June 2013

Special Situation:

  1. None today

OVER



Stock Observatory India

Ref: ISO/12/87 of 2012-10-19, Friday, India Time 10.30 am)

Overnight Events and Effects:

  1. Earning season has started badly for non banking stocks, first Intel, IBM, HP and then today Google and Microsoft who reported weak sales. Still, the market was having no effect at all. Google stock was down almost 9% in single session. When such giants have trouble on revenue front, how come the banks are reporting over 22% increase in revenue and now the economy is supposed to be doing so much better, only they know. The fact remains that there is no economic recovery. Higher and higher stock prices against all fundamentals, increases the market risk. The short end interest rates are also rising which is also a bad sign for the market.
  2. They say that Consumer Confidence Index rosé to highest in last 6 months, rising from -0.385 to -0.384, that is, it is still very negative. How few points down from high negative number point to Housing Recovery is any body’s guess.
  3. Some stability appear to have returned in Euro Zone, especially in Spain where the Debt yield has fallen by 0.12% to post at 5.34% which is still very high. Lower treasury yield means more demand for the Spanish bonds. It was expected after Rating affirmation by M oodys.

 

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,549

13,557

-8

NASDAQ

3,073

3,104

-31

NIKKEI – Japan

8,970

8,983

 -13

Hang Sang -HK

21,545

21,487*

 58

SENSEX – India

18,791

 -18791

* = live intra-day.

Nothing significant to comment.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.38

79.34

0.0400

Euro/US$

1.3067

1.3087

-0.0020

Rs/US$

53.69

52.75

0.9400

Observation (Currency):

No more changes in currency trading yesterday. All are trading within tight range. The drop of Rupee by almost 1.5% was a big surprise to us. We thought that 53.35 will be difficult level to break. FII inflow is robust, USD is weak to most world currencies, so in that case, why should Rupee trade lower? It appears that the drop in rupee is more due to short selling in derivative markets, and engineered in Tax Haven countries like Bermuda and Cayman Island where some French banks are more active in Rupee derivative trading.

 

 

Interest Rates (US$)

LIBOR 1M 0.211 0.00 LIBOR 3M 0.319 -0.01 LIBOR 6M 0.566 -0.00 LIBOR 1Y 0.901 -0.004
T 1M T 3M 0.10 -0.01 T 1Y 0.18 0.00 T 2Y 0.30 +0.01
FED Target 0.25 T 5Y 0.77 0.00 T 10Y 1.82 +0.01 T 30Y 3.00 +0.01

 

While very short end interest rates, up to 3M eased, the mid term and longer end continue to rise, especially 2Y, 10Y and 30Y which suggest that the real troubles are brewing on Interest Rate front. The SWAP market must be suffering due to roll over activities. In short, we are keeping close watch on this issue.

 

Commodities

Item

Latest

PREV.

Change

Open Int.

Today Vol.

Prev Open Interest

Prev Vol

Change Open Int

Change Volume

Oil (WTI)

92.42

92.56

-0.14

344,529

2,501

327,483

143,614

17,046

-141,113

Oil (Brent)

112.42

113.26

-0.84

8,863

454

9,089

-226

454

Gold

1,745

1,753

-8.00

333,482

9,392

334,594

105,627

-1,112

-96,235

Silver

32.87

33.23

-0.36

84,965

26,210

85,739

29,109

-774

-59,529

Palladium

642.7

653.40

-10.70

18,656

2,562

18,315

1,949

341

-15,753

Platinum

1,643.7

1,670.5

-26.80

62,063

7,146

61,310

5,804

753

1,342

Observation (Commodities)

  1. Gold, Silver and other precious metals dropped after some recovery. The gold is testing support level of $1,735 and we have a feeling that attempts are made to lower this level. It may be noted that Gold based currencies, esp. South African Rand is under pressure or shorted so that the Gold prices in terms of dollar come down. The Rand has dropped by almost 7% in last few days.
  2. Oil is stable. Platinum follows the general trend in precious metals, esp Gold and Silver.
  3. The soft commodites such as Corn, Soybean and Wheat which have been severely beaten down recently, over 15%, have begun to firm up on physical demand. We mentioned earlier that the US crop of Corn and Soybean have been estimated less by almost 12% 14%, so in that case, why should the price drop by 17% from recent high? It is just paper trading that is still playing havoc in the commodities market.

 

 

Indian Stocks: Our Observations and Comments

  1. Has Tata group gone mad? When most economies are in decline, and hotel industry return is very poor in India and abroad, What prompted India Hotel Group to buy 21 hotels owned by Orient Express in USA paying 40% premium to stock prices, and that too, to acquire 93% balance interest it does not own, that is they own only 7% right now. The transaction values the Hotel Chain by $1.6 Billions, and 40% premium works out to $640 billions or over Rs 3300 crores. The share prices of India Hotel group is very depressed and this transaction will make it worse. Higher Interest rates in India, poor hotel industry which has made almost all hotels to trade near the bottom, make this transaction very vulnerable. We would be careful to buy Indian Hotel shares due to above.
  2. Tata Global Beverage Ltd., and Starbuck India. Read this Bloomberg Link which has produced an analysis by Saloni Nangia of Gurgaon based consultancy Technopak Advisors Pvt. Ltd. Please read this report. The entire analysis is flawed. It says that Cofee Cafee day sells the coffee at Rs 61 ($1.20) and Barista Café sells at Rs 69 ($1.35), so how Starbuck India will be able to sell its coffee at $2.50 equivalent (Rs 127 per cup) when Starbuck sells in US over $3.00 to $3.50 per cup.
    • I live in USA and Starbuck sells the coffee in California at $1.85 (Cheapest one is $1.50) and not $3.00 to $3.50 as claimed.
    • Further, the price comparison is not enough – what about the quantity per cup? In India, the cups as sold by Caffee day abnd Barista are very small, and in USA the size of the cup is almost twice that of India. As such, the Starbuck will be in position to sell its coffee very well in India and at almost same price or at about Rs 80 or about which may still generate the profit. Further, the cost of coffee (sold by Tata Coffee) is much less than the international prices. So the cost of coffee as sold by Starbuck joint venture will be much less than in USA.
    • Who buys such report and how these kind of consultants are hired by some one is beyond the wisdom of Kalidas.
  3. LIC Housing Finance Ltd. : At Rs 253, the stock is relatively weak of late. It will announce its Q2 Sep report on 31/10/2012. We do not know the real reasons for weakness in this stock. The stock is otherwise healthy but what prevents further rally is not known to us. We would still be buyer of this stock, but will consider higher position after Oct 31. Since the interest rates are likely to be lowered, the biggest beneficiaries will be “Housing finance Sector” where HDFC and LIC Housing finance are major participant. LICHF will benefit most from lower rates.
  4. Essar Shipping Ltd: has gained over 10% today in relatively stronger volume. We will post report on this company, as against today as promised because we were engaged in family dinner on our (my and my wife’s birthday). We will post positively tomorrow. Needless to say that ESL is stil our strongest pick.
  5. ITC Investment to rise $2 billions or Rs 10,000 crores in Hotels: Itc, India’s most valuable company and SENSEX leader, announced its plan to increase its holding into Hotel Sector by Rs 10,000 crores by expanding all across India, Sri Lanka and other nearly centers. Compared to this announcement, the action under para (1) above by Tata Group, reveal the different pattern and approach of companies in same sector. We believe that Tata Group will suffer heavily in take over of Orient Express Chains in USA. We would buy ITC instead.

Special Situation:

  1. None today. Essar Shipping Ltd. Will be covered tomorrow.

OVER


 

Stock Observatory India

Ref: ISO/12/86 of 2012-10-18, Thursday, India Time 10.00 am)

Overnight Events and Effects:

  1. The report says that Housing Start in US rose 15% in September, giving high hopes for recovery. However, more reasons were strength in Euro on the back of reports that Spain may get the large infusion of funds, and that Moody kept its Spain rating at same level, 2 notches above junk grade. The feelers were that Euro may be stabilizing. The fact is nothing has stabilized, and the data one day show recovery, and depressive data on other day. The market is therefore in see-saw mode, and only high hopes are pushing the market higher, not the actual data or conditions.
  2. Obama did relatively well in second debate. His rating rebounded. It is most watched show with over 65 million views on single day.
  3. Earnings were not so promising, with AMEX reporting flat numbers. The card spending has slowed, it is said. If that was so, the consumers are not buying, so other data should show contrary picture, but we are fed only with optimistic numbers.
  4. Rajat Gupta of Goldman Sach may be sentenced on Oct 22, and his Lawyer is recommending Probation and active social service in Rwanda for atonement. However, it seems that he might be sentenced not less than 10 years for insider trading. A promising light may be extinguished. He has good lobby behind him, counting leaders like Bill Gates (Microsoft), Mukesh Ambani (Reliance Industries India) and many other leading figures. They are all talking about humble nature of Rajat Gupta and vouchsafe his character. The court judge may be relying on the evidence and give proper punishment.
  5. While others, mainly banks are cutting rates, the largest institution HDFC plan to hold rates for simple reason that their cost of funding is high (they borrow on long term basis, whereas banks get cheaper funds in the form of non interest bearing Current Account and low interest bearing Savings account.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,557

13,551

6

Nothing much to comment on
NASDAQ

3,104

3,101

3

As above
NIKKEI – Japan

8,920

8,807

 113

Getting stronger on US numbers. Japanese data does not matter. Begani shadi mein Abdullah diwana
Hang Sang -HK

21,487*

21,417

 70

Getting stronger modestly, mainly on Chinese Premier’s positive comments on China’s growth.
SENSEX – India             18,617

18,633

 -16

Consolidating and reacting more to Asian and Euro Zone news. Rate cut has become a hot topic for discussion.

* = live intra-day.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.114

79.078

0.0360

Why did it rise, no one knows. Euro, the major USD curreny rose passing critical 1.31 level.
Euro/US$

1.3106

1.3105

0.0001

As above
Rs/US$

52.75

52.77

-0.0200

Not much change, but bias is towards stronger rupee. Good for inflation control. It should go below 49.85 to consider it as trend.

Observation (Currency):

Nothing much to comment on except the comments in the margin column. Moody’s decision to keep the Spain rating unchanged gave support to Euro – that is it was anti-dollar stance.

Interest Rates (US$)

LIBOR 1M 0.212 -0.001 LIBOR 3M 0.321 -0.002 LIBOR 6M 0.570 -0.008 LIBOR 1Y 0.905 -0.018
T 1M T 3M 0.11 +0.01 T 1Y 0.18 0.00 T 2Y 0.29 +0.02
FED Target 0.25 T 5Y 0.77 +0.07 T 10Y 1.81 +0.08 T 30Y 2.99 +0.07

WATCH this section from here now. Third day in row, the short term interest rose, so also long end bonds 10Y and 30Y also rose If it becomes a trend, expect major sell off in the bonds market. In last 3 years, the banks were borrowing at short end (up to 2 years at or below 0.18 to 0.25%, below Federal Funds Target. However, with rates rising at short end, the profit margin for banks might contract, which may force it to raise long term rates, very damaging to so called recovering housing market. This is single most important factor that every investor should watch.

 

Of late some reputed analysts have started posting message that “Dow might suddenly collapse by 20% in single day, in spite of Circuit breaker in place, that is the Dow Jones could drop by 3000 points in a day. Even the major bond traders and investors like PIMCO from New Port Beach, US is voicing concern at the Treasury melt down. If the treasury melts, that is the bond yield goes higher at 15 to 30 years, where most Americans are refinancing mortgages at about 3% to 4%, the financing banks will lend themselves in acute financial crisis. This is the most sensitive area in the market. This is the corner from where the collapse may ensue.

 

The rising rates for 3 days in a row is a small red flag. Yes, it is possible FED may intervene and buy bonds to lower the rates. But the interesting part is, when US is facing huge budget deficit, it floats bonds to finance it, and when those very bonds are going down in value, it buys back those bonds, that is printing more money against same asset. It is clear case of double financing – once at to finance the budget deficit by floating bonds, and another buying back same bonds (paying USD cash to investors). That is they release money at the time of deficit financing and release money again when those very bonds are bought back.

 

Commodities

Item

Latest

PREV.

Change

Open Int.

Today Vol.

Prev Open Interest

Prev Vol

Change Open Int

Change Volume

Oil (WTI)

92.56

92.88

-0.32

327,483

143,614

311,879

144,320

15,604

-706

Oil (Brent)

113.26

113.22

0.04

9,089

9,143

1,021

-54

-1,021

Gold

1,753

1,747

6.00

334,594

105,627

335,736

172,769

-1,142

-67,142

Silver

33.23

32.96

0.27

85,739

29,109

87,143

41,790

-1,404

-58,034

Palladium

653.40

638.95

14.45

18,315

1,949

18,233

3,759

82

-16,284

Platinum

1,670.5

1,645.2

25.30

61,310

5,804

61,379

10,626

-69

-4,822

Observation (Commodities)

  1. Oil is still depressed by opening more and more open position to control inflation. The parity between WTI Taxas (USA) and Brent Crude is enlarging and remain at the historically high level of 21 points or about 24%
  2. Gold is coming back and Silver is more stronger than Gold. Platinum rose smartly.

 

Indian Stocks: Our Observations and Comments

  1. KingFisher Airlines – Mallya paid Rs 10 crores in arrears to GMR operated Airport to vacate the arrest warrant. He may also raise the cash by selling 20% stake in United Brewery to Diaggeo, the maker of Johnny Whisky Brand. He is of course doing everything to pump in more money, but the Aviation Minister is stupid who is threatening that “license may be canceled”. What is he trying to achieve? By making KFA bankrupt, he is merely compounding problems for the financing banks who are owed more than Rs 7000 Cr. He is insisting that “unpaid salary must be paid first” before renewing the license. What “unpaid salary has to do with the renewal of license”? The Pilots and Engineers are Salary Moguls who are paid very high salary, often in 6 figures per month. They must have large savings to fall back on. They are not the man in the street. Finally, these employees though distressed, are not extremely vulnerable segment of labor staff. They are not government employees. They are in private company and the problems facing the company are well known. Very stupid move on the part of the Aviation Minister who is acting as Labor Minister. It is possible that if Mallya is in position to sell his stake in UB, he will have some more cash to wield at KFA. In another words, after pumping in more than $1.1 billions, he is still willing to input more, so his intention is not bad or harmful. He also has the limit to invest. The government has to show benevolent attitude to KFA by giving him helping hand rather than threatening to beat him with the stick. This is not school master game.
    • If the license is canceled for any reason, the stock may come down sharply, and even NSE/BSE/SEBI might want to take “delisting” action if they are stupid.
    • Wait for such development to take place and buy the stock below Rs 8 slowly, spreading buying in two or three stages.
  2. Essar Oil is making waves, and crossed critical 63.50 barrier, which means that the stock may rise to 70s. If the stock corrects below 63 to say 61 for one day, buy it on trading basis. The stock is trading in heavy volume, so the relative risk is less than before.
  3. ITC overtook Reliance Industries as top weightage company in SENSEX. When the stock was near Rs 200, we suggested buying and it is up by 40%. Cash is king in current scenario, so ITC is the beneficiary. Of course, we would not dare to compare with Reliance which is simply the most outstanding company in India with over Rs 20,000 crores profit annually. In spite of slightly lower earnings, we believe that the fundamental for oil stocks have changed for better, so Reliance is on our buy list when it is under correction.
  4. Gold and Silver are in Buying stage now. Since most equity markets are rising without any change in fundamentals, taking refuge in Gold and Silver is sign of wisdom. Of course, the rising rupee may limit the appreciation in India, but the rupee may not rise or overtake in speed the rise in Gold and Silver value in next 3 months. Current prices are good enough to buy them in India and also overseas where the chances of appreciation are more due to absence of exchange risk.
  5. Bank stocks may return to favor soon. If rates are cut, which we expect at least 1%, the banks may benefit most, so also stocks in Finance sector. Housing Finance stocks may also perform better. We still favor LIC Housing Finance, GIC Housing Finance (last choice), HDFC and HDFC Bank. Bank of India, Yes Bank, IndusInd Bank may also attract buyers. Avoid second tier banks or banks which are more regionally focused.

Special Situation:

  1. None today. We will cover Essar Shipping tomorrow under this section.

OVER


 

 

Stock Observatory India

Ref: ISO/12/85 of 2012-10-17, Wednesday, India Time 9.30 am)

 

Overnight Events and Effects:

Vikram Pandit’s sudden Departure and Citigroup Saga – Major Banking Event.

  1. World’s second largest bank, Citi group which was nearly bankrupt with over $500 billion losses in 2008, stunned the market with the sudden departure of its CEO, Mr. Vikram Pandit, who left the bank within hours of announcing what they call robust earning report for the September Quarter. The Board immediately accepted his resignation, as if it was the resignation of an Office Boy and not a Chief Executive Officer. A new CEO was not even searched as done in case of appointment of Mr. Vikram Pandit 5 years ago. He was appointed immediately, almost at the same time. All was preplanned and executed at the speed of light.

 

  • What is missing our eye? At the height of financial crisis, Citi Group was finding difficult to find any executive worth his name to assume leadership at the bankrupt bank.
  • The board was therefore searching for a sacrificial “Goat” who could take the blame and remain unscathed like teflon coated chinese pot. Mr. Pandit, at that time a senior Analyst/VP at Morgan Stanley, who had amassed huge losses in Hedge Fund called ” Old Lane Partners” amounting to US$ 800 millions – Pandit was the main person behind the fund.
  • Pandit saw the opportunity to drive hard bargain, and asked Citi Group as precondition to acquire the fund at highly overvalued price so that his and his clients money were recovered instantly. He retrieved over $162 Millions of his personal investment and then offered to work for the bank for just $1 as salary until the bank recovered from worst financial position.
  • Citigroup acquired this Hedge Fund and within 11 or 12 months, entire amount was written off and the fund was reportedly closed down.
  • Meanwhile, Citigroup went on with its survival program as desired by the Board with name of Pandit used as front. During his time, many of the irregularities were suspected to be covered up, and all traces of wrongdoings were erased.
  • Now that most of the desired objectives have been achieved, Mr. Pandit is no longer required. He is now removed like a “disposable tissue” who outlived his utility.
  • Only last month, Citigroup sold its losing brokerage business – Smith Barney – to none other than Mr. Pandit’s former employer – Morgan Stanley for over $ 2 billions, booking a charge of several million dollar in Citi’s books as Asset Write Down.
  • It is therefore likely that Vikram Pandit will return to Morgan Stanley for allowing them to buy the Smith Barney at bargain prices while Pandit was at its helm of affairs at Citi Group.
  • Same Pandit was awarded Padma Vibhusahan by Government of India in recognition of Pandit’s contribution, which was untold before but laid down above.
  • In our book – Sub Prime Resolved – published in June 2009, we brought this up in our Chapter 7 – Fixing Troubled Banks and Brokers – esp. Page 95 with a passage titled – “Investigate Vikram Pandit’s Terms of Joining Citigroup” which contained the passage “verbatim” as under:

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,551

13,424

127

NASDAQ

3,101

3,064

37

NIKKEI – Japan

8,822

8,702

 120

Hang Sang -HK

21,411

21,207

 204

SENSEX – India

18,633

18,576

 57

* = live intra-day.

Dow rose smartly by 127 points, a major gain in recent weeks. Main driver was the banking stocks which rose on the basis of trio – JP Morgan, Wells Fargo and Citigroup. The market rose due to better than expected Industrial Production and stability in Euro on reports that Germany might help Spain with more aids to save it from crisis. These are daily affairs – one day they say that Euro crisis is worsening, and on other that it is near resolution. The Asian markets are responding to these seemingly positive news. SENSEX also opened higher by 57 points on positive Asian cues and positive feelers from Euro Zone.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.155

79.732

-0.5770

Euro/US$

1.3098

1.2962

0.0136

Rs/US$

52.77

53.02

-0.2500

Observation (Currency):

Surprisingly, the USD Index fell, Euro got stronger by almost 1%, and Rupee firmed up by 0.5%. It appears to us that bottom for rupee is 53.35 and upper range target is close to 49.85, that is, Rupee may appreciate by 8% to 9% in next 3 months, and its rise may be expedited if RBI does cut the rates. CRR cut will be a neutral event.

Interest Rates (US$)

LIBOR 1M 0.214 LIBOR 3M 0.325 LIBOR 6M 0.578 LIBOR 1Y 0.918
T 1M T 3M 0.10 -0.01 T 1Y 0.18 +0.01 T 2Y 0.27 +0.02
FED Target 0.25 T 5Y 0.70 +0.04 T 10Y 1.73 +0.06 T 30Y 2.92 +0.05

Pay more attention to Interest rates. This is why we introduced this column when we sensed that probable crash will give indication when the interest rates begin to rise. The short term rates are spiking, and yesterday even long term rates rose by 3%. In last two days, 30Y T Bonds yield rose by massive 0.10%. Even 2Y rates, which we consider as most important indicator, rose by 0.02 % , closing 2 basis points over Target FED rates of 0.25%. LIBOR rates are still not stable, as many fraudulent transactions are being investigated. The British banks involved were RBS or Royal Bank of Scotland, Barclays (who agreed to pay penalty of $450 Millions) and some other leading banks in London. In short, the entire financial system are being manipulated by Governments using banks, brokers and mutual funds as instrument.

We are inching towards very risky situation. If current trend continues, 30 days down the road, the economic picture will be doomed one.

Commodities

Item

Latest

PREV.

Change

Open Int.

Today Vol.

Prev Open Interest

Prev Vol

Change Open Int

Change Volume

Oil (WTI)

92.88

92.32

0.56

311,879

144,320

NA

NA

311,879

144,320

Oil (Brent)

114.00

115.59

-1.59

9,143

1,021

NA

NA

9,143

1,021

Gold

1,747

1,737

10.00

335,736

172,769

348,354

130,391

-12,618

42,378

Silver

32.96

32.74

0.22

87,143

41,790

87,938

38,299

-795

-46,148

Palladium

638.95

632.60

6.35

18,233

3,759

18,569

4,081

-336

-14,810

Platinum

1,645.2

1,632.3

12.90

61,379

10,626

62,139

9,397

-760

1,229

Observation (Commodities)

  1. Gold and Silver are rebounding from lows, the support level of $1,735. The current gold price is over $1,753 and with the strength in Euro continuing, above 1.31 level, Gold may stop temporarily at $1,765 and then at $1,785 level. If this levels are breached, there ischance that the Gold may be entering “bullish phase” after long months of consolidation. The fundamentals in favor of gold are so good, that Gold may see the level close to $1,985 level within next 2 months or so. Silver will also give good company. Not sure about Platinum but Palladium may rise too.
  2. Base metals stocks may also show some strength but not too much. While $ prices may gain, the Rupee strength may dilute the rise in India.
  3. Iron Ore prices are plunging. The companies like Adani, Tata Steel who bought mining companies in Indonesia, South Africa, and Australia will be suffering a lot.

 

Indian Stocks: Our Observations and Comments

  1. Stable to weaker bias. Essar Oil is shifting its attention after RIL report that GRM has risen to over $9/brl against $4.5 a year before. Essar is producing about 150,000 to 200,000 of crude oil from within India, that is, its profits could be higher (minus expenses) by $1 Million per day or Rs 5.3 crores per day. For 90 days of an quarter, its gross increase could be about Rs 450 crores or Rs 2 per share considering old equity of 137 crores + new equity on conversion of FCCB.

 

Special Situation: Stock Report

Essar Oil Ltd. : We do not know what could be the reason for huge rally in stock price and volume. . However, the stock as up strongly in heavy volume, nearly 4 times the normal one, which means that some players are building new positions.

It is my experience that when the stock moves strongly on heavy volume after consolidating at lower level, it usually doubles in few months following. In present case, the stock consolidated for long at around Rs 50 which means that it may have selling points at Rs 70, Rs 83.50 and then at about Rs 100 (with minor selling point at about Rs 92).If we use the number of Rs 60, then the selling point will be higher by 20% from above level.

There must be news in store, and this being the earning season, we strongly believe that Essar Oil may report much higher earnings than anticipated, especially after RIL reported strong GRM (Gross Refining Margin) at $ 9.2 (or about) which is almost 50% higher than last year. It is possible that Essar Oil may not take into account higher depreciation and interest charges after commissioning of enlarged capacity just to boost the price, and the Auditors may co-operate with them for current and Dec Quarter (reportable in January end). They may make full provision though in March 2013 because the Auditors are required by law to make all provisions before publishing final audited result.

Ride the rally for the time being, and be prepared to sell some (20%) at Rs 71~73 in first stage of selling. If the Quarterly numbers are published by then, not much suspense may hold later, so be prepared to sell more (+ 30%) and if the rally continues, follow the above level and sell another 10% at Rs 92, 20% at Rs 103 and hold the rest for a longer time because it will represent mostly floating profit (your capital would have been recovered)

OVER

 


 

 

 


Stock Observatory India

Ref: ISO/12/84 of 2012-10-15, Tuesday, India Time 9.45 am)

Overnight Events and Effects:

  1. Dow rose on the back of reportedly encouraging Quarter from Citibank. NASDAQ rose less. Japan reacted to Citi numbers, and Hang Sang too reacted accordingly. Almost 3 major banks such JP Morgan, Wells Fargo and Citi group reported rising mortgage related revenue. These numbers are shown by many analysts as encouraging signs of improving economy. While Home Sales are down and median home prices are shrinking, how these banks are able to raise their mortgage business by 22% or more. It can not be, but the reason is that many home borrowers are refinancing their past mortgages. So they liquidate the old mortgage and take on new mortgage at lower rates. Such new business is really not new, but old wine and new bottle. Who cares for real numbers? Most people have no time to read between the lines, and they are mostly “headline traders” jumping in on the face of such encouraging but wrong numbers.
  2. Retail sales was also shown to be another sign of economic recovery, but the fact is that September figures were skewed by Apple Computer’s latest hit of IPAD and Iphone5. If one eliminates the one company number, the rest of the numbers are pathetic. However, the government sponsored media such as CNBC go on reporting erroneous recovery reports that has effect of boosting the market. Nevertheless, the retail participation in the market is still shrinking. They know what is happening in job market.
  3. Most commodities, including Oil, Gold and Silver, with soft commodities such as Corn and Soybean were sold off aggressively in derivative market. When Corn and Soybean production estimate are likely to be lower by more than 12%, how come their price swing down the drain? Further, Gold and Silver were shorted heavily near the end of the session and pre-opening trades in Asia. Most derivatives are now heavily manipulated by few players (mainly some money center banks acting under the behest of FED and US treasury to keep the inflationary numbers in control). Most derivative trades are being deferred to future dates in active roll over. The future delivery years are also increasingly getting extended over time to help the losing players to defer their losses to some future dates.
  4. The premium on Brent Crude ($115) to WTI Texas US ($91) expanded to $24. How could this happen. Are we to believe that the cost of transportation of crude from US to London could be as high as $24 so that arbitrage could not possibly work? This is outrageous. The shipping industry is in deep recession, and with Indian Iron Ore exports declining so much, the ships may be available for easy transportation at much cheaper rates. Something is wrong in the derivative markets operating on NYMEX and ICE London (managed by CME group of USA). One day, this gap is going to burst which may cause some leading companies (similar to Enron) to collapse. Dead people do not talk, says a wisdom, so most bad trades will be concentrated in this company before it collapses. It happened in case of Enron and also Lehman Brothers. India buys bulk of its oil based on Brent Crude prices. Why does it not buy from USA when the price difference is over 27% – it does not make any sense.

 

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,424

13,326

98

NASDAQ

3,064

3,046

18

NIKKEI – Japan

8,647

8,588

 59

Hang Sang -HK

21,148

21,147

 1

SENSEX – India

18,784*

18,714

 70

* = live intra-day.

Already commented under Overnight events above. Nikkei and Hang Seng rose in response to Citi result and rally in bank stocks in USA. No adverse news from Euro zone. Spain does have trouble but Greece is easing with its bond yields falling (meaning that bond prices are rising on rising demand of its debt).

Indian market is responding to weaker sentiments caused by stubborn inflation which rose to 7.8% against 7.6% expected but it is more due to snap rise in diesel prices. Higher inflation rates give power to RBI to maintain its high rate policy. However, Finance Minister is nudging RBI to act quickly and lower the rates to boost the economic growth. RBI seems to be saying, Growth is none of its business, but inflation is. While Chidambaram was polite, his firm tone seems to tell Subba Rao that either lower the rates or get out. There is no point to be a goody goody when it comes to business. Growth is lesser evil than inflation.

In any case, responding to Asian cues, the SENSEX opened with 70 points gain.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.732

79.760

-0.0280

Euro/US$

1.2962

1.2956

0.0006

Rs/US$

53.02

52.875

0.1450

Observation (Currency):

Rupee was lowered, why we do not know. How come FII inflow of over Rs 10,000 crores do not engineer much steeper rise in rupee rate. It does appear that there may be indirect intervention by RBI to keep the rupee lower, in spite of Finance Ministry gesture that it does favor the stronger rupee. Another reason could be “Non Delivery Forward” operation conducted by some French banks in centers like Bermuda where they depress the Rupee rate artificially. The finance ministry should make such Non delivery forward to be “illegal” instrument and announce such act as a “crime against the state, punishable with the death sentence” Then only we may see the real value of Rupee emerging.

Not much action on Euro front. USD index was not in focus today, as most focus was on commodities trades.

Interest Rates (US$)

LIBOR 1M 0.214 LIBOR 3M 0.330 LIBOR 6M 0.589 LIBOR 1Y 0.929
T 1M T 3M 0.11 +0.01 T 1Y 0.17 0.00 T 2Y 0.25 -0.01
FED Target 0.25 T 5Y 0.66 0.00 T 10Y 1.67 +0.02 T 30Y 2.87 +0.05

The interest rates for 3M, 10Y and 30Y are rising. The fact is that the rates are showing their heads up.

Commodities

Item

Latest

PREV.

Change

Open Int.

Today Vol.

Prev Open Interest

Prev Vol

Change Open Int

Change Volume

Oil (WTI)

92.32

91.69

0.63

300,638

81,777

-300,638

-81,777

Oil (Brent)

115.59

113.61

1.98

0

0

Gold

1,737

1,759

-22.00

348,354

130,391

351,638

130,391

-3,284

0

Silver

32.74

33.67

-0.93

87,938

38,299

89,159

38,299

-1,221

-50,860

Palladium

632.60

639

-6.40

18,569

4,081

18,615

4,081

-46

-14,534

Platinum

1,632.3

1,659

-26.70

62,139

9,397

62,309

9,397

-170

0

Observation (Commodities)

  1. Short sellers began to cover their Gold and Silver shorts when Gold hit the level of $1,735 (which we mentioned as buying opportunity and Silver too at that level of gold). Look at the open interest which declined suggesting that the short sellers were buying back contracts to close the open position.

 

Indian Stocks: Our Observations and Comments

  1. Reliance reported 5.7% lower profit but still very healthy performance getting into $1 Billion earning league. It also became the largest company in Asia overtaking even Sinopec in China. The lower profit was ascribed to lower gas production in Kg6 basin
  2. RIL also informed the government that it would not start production in Godavri basin if the natural gas prices are not raised from $4.2 mmbtu fixed several years ago. Since then the cost of operation and finance has gone up steeply, so it is no longer affordable to raise the production. Oil Ministry is not pleased but it can not do anything if someone on opposite side is not willing to listen. RIL seems to be telling Government that it is a private company, not a PSU who has to toe the line of the government.
  3. RIL shares may not perform well, but any weakness in the share price due to market slide or company specific news, it will be a great buy. Why should not buy into this extremely profitable company with tons of cash sitting in its kitty? Those who say, do not buy, must get their head examined.
  4. Kingfisher Airline is no where near resolution. Heavy volume is seen in this scrip. At the time of writing this report, the stock was at Rs 11.45 – down just 0.87% suggesting that the pressure is no longer intensifying. Still any cancellation of license move may cause sudden plunge in the stock price which may be a good time to take “really speculative position” No one should buy this stock, if he does not want to take at least 40% downside risk with 100% upward potential.

Special Situation:

  1. None today

OVER


 

 

Stock Observatory India

Ref: ISO/12/83 of 2012-10-14, Monday, India Time 10.30 am)

 

Overnight Events and Effects:

  1. While there were not much actions in the Stocks or Bonds, there was heavy attack on most commodities to bring down the inflation, lower the oil prices, precious metals, and metals to bring comfort that all is well. Just ahead of opening of Asian markets today, major operators used very thin volume to attack practically every commodity item with thumping force. This is second time in our memory that such attacks took place where large banks as operators were actively assisted by CME Group (who controls ICE or International Commodity Exchange). Just scroll down and see the open interest, volume and our comments.
  2. There were no news except on Presidential Election front, where all of sudden, Mitt Romney is gaining upper hand in debates with President Obama, who was once assured of easy victory over the Republicans, and now find under sudden pressure. If more debates work in favor of Romney, the election which was once considered one sided, will be evenly balanced. Last 10 days ahead of election are going to be decisive and vote swinging days. Anything may happen now.
  3. If Romney is elected, the days of Bernanke will be numbered, as President Contestant avowed during election speech to remove him once he is elected. Easy said difficult to follow, even Obama was in same position as Romney is now. Even then, Obama had no alternative but to continue with Bernanke team. The economy is so messed up, no one has any clue how to solve the puzzle.
  4. US reported $ 1 Trillion budget deficit 4th year in a row, still nothing is happening to dollar which defies all prediction of substantial weakness. The reason is “Derivative” where the major banks under the direction from the top are resorting to heavily geared derivative operations to support dollar and weaken the global currencies and oil, gold, metals and other soft commodity prices. Otherwise, when the economy is not showing any sign of recovery, and when even JP Morgan lost billions in few trades earlier, how come that bank report massive profit rise in latest quarterly profit numbers?
  5. The strength of US is that it is master of mathematical operations in derivative markets, and other regions like Euro, UK, Japan and other emerging markets are at its feet. Their weakness is US strength. How long will it last – not for ever. When such things burst, they cause wholesale destructions everywhere.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,326

13,328

-2

NASDAQ

3,046

3,042

4

NIKKEI – Japan

8,534

8,547

 -13

Hang Sang -HK

21,136

20,999

 137

SENSEX – India

18,675

18,545

 130

* = live intra-day.

At the time of writing this, Asian markets have not yet opened. Due to collapse of Gold, Silver, Commodities and other metals, these stocks will suffer more. It may please be noted that the “collapse was caused in future market just a few hours of opening of Asian markets in Japan, Australia and Hong Kong, so that “margin calls are initiated in very first few minutes triggering even larger collapse and instill too much fear. Take the advantage of this correction and do not hesitate to buy Gold (which may test the level of $1,735 in the morning) and Silver may drop by nearly 3% fall. In India, the prices may be buffeted by the fall in the value of Rupee if it does become weaker due to weaker Asian cues.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.710

79.682

0.0280

Euro/US$

1.2942

1.2953

-0.0011

Rs/US$

52.875

52.735

0.1400

Observation (Currency):

USD was pushed up in derivative trades, by depressing the commodity prices which were rising of late. If Rupee does become cheaper, do not hesitate to send the remittance to India in small installments and place the amount in long term deposits (3,5 and 7 years). If we take the Chidambaram seriously, there will be double gain, one from rising rupee and other was declining rates.

Interest Rates (US$)

LIBOR 1M 0.22 LIBOR 3M 0.35 LIBOR 6M 0.62 LIBOR 1Y 0.95
T 1M T 3M 0.10 +0.01 T 1Y 0.17 +0.01 T 2Y 0.26 0.0
FED Target 0.25 T 5Y 0.66 0.00 T 10Y 1.65 -0.01 T 30Y 2.82 +0.03

There was some spike in very short term rates, which means that funds borrowed from FED on `1 to 3 months basis were used to attack the gold, silver, commodities and other soft agro products like Soybean, Corn etc who lost value in spite of lower food production by over 12%. The derivatives are really playing havoc in the financial system. LIBOR rates are not real since they were heavily manipulated by Royal Bank of Scotland, and other US, European and British Banks who are heavily exposed to short term and long term swap contracts.

Commodities

Item

Latest

PREV.

Change

Open Int.

Today Vol.

Prev Open Interest

Prev Vol

Change Open Int

Change Volume

Oil (WTI)

91.69

92.38

-0.69

300,638

81,777

248,520

156,251

52,118

-74,474

Oil (Brent)

113.61

114.68

-1.07

0

0

Gold

1,747

1,759

-12.00

351,638

130,391

117,573

351,638

12,818

Silver

33.67

34.08

-0.41

89,159

38,299

87,243

33,580

1,916

-48,944

Palladium

639

651

-12.00

18,615

4,081

19,328

3,316

-713

765

Platinum

1,659

1,690

-31.00

62,309

9,397

61,424

7,130

885

2,267

Observation (Commodities)

    1. Ahead of opening of Asian markets, commodities were sold off heavily in derivative markets. Look at the above “Change in Open Interest and Volume” which column we have included from today. Oil was attacked by “shorting over 52000 contracts near day close (= 52 Million barrels of oil) and just 1091 contract in the morning in pre-Asian trades to depress the oil price by over 0.76%. Brent Crude has not opened but opens only in Afternoon in London, yet it was down in small volume on ICE. The fact of the matter is that ICE managed by CME group appears to be actively corroborating with major US banks to avoid delivery default and causing wild swings in thin volume.
    2. Otherwise there are no reasons for heavy sell off in commodites such as Oil, Gold (which lost $50 in 2 days) and Silver (which lost over $2.50 in just under 2 days. What these guys do is to take the advantage of holiday weekend, and then cause steep drop in prices in very few trades in matter of minutes. This kind of 24 hours trade is playing havoc in the financial system, because they cause the damage in the exchange which are beyond the jurisdiction of CFTC. It is like killing someone in neighboring city where the local police does not have jurisdiction.
    3. I am absolutely certain that “next major collapse will come from NYMEX, COMEX and CBOT” and some major banks will shut down, you know which one. Those banks are hiding heavy losses by reporting billions of quarterly profits now. These banks show that they make more than 3 times money from such derivatives than Apple computer who makes real money from hot selling Ipad. Steve Jobs may be wondering in heaven why the hell he did not become financial derivative player in stead of tech savvy.

Indian Stocks: Our Observations and Comments

  1. India finally got the real “Finance Minister” in the form of Chidambaram. Near the weekend, he finally gave the message to the market that “appreciating Rupee is more desirable” by saying in Tokyo that “I think the rupee must appreciate a little more,” Chidambaram said in a Bloomberg Television interview in Tokyo on Oct. 12. “It has appreciated about 5 or 6 percent in the last few weeks, but I think the rupee must find a reasonable level, its true level.” He also wants RBI to reduce the interest rate to revive the growth. This is what Kalidas has been advocating for over 2 years, when he penned an article “Allow to Rupee to Rise” published here and sent to Prime Minister, Economic and Planing Commission, Finance Minister and also to Mr. Chidambaram when he was in Home Ministry. In other words, some one has read our article very seriously and find it the only solution for India’s problems. We may not get the credit, but all of you know what we said there. The voluntary and self inflicted risk to the rupee is reduced and NRI can afford to send in the remittances without undue worry. This is why when the rupee was near Rs 57 we exhorted many NRIs to send the remittance and take the advantage of higher interest. Now the Rupee has appreciated by 5%, and the interest rates are likely to be lower by 0.5% to 1.0%, that is almost double benefit is gone. Most of the times, the people worry too much and analyze so much that the real opportunity is lost.
  2. India’s RBI is pre-occupied with inflation and budget deficit of 5.2% to GDP which is preventing it from reducing rates. Compare to United States, which only yesterday released over $ 1trillion budget deficit in 4th year in a row, and this deficit now amount to 7% of GDP there. So if United States can afford 7% deficit to its humungous economy and keep interest rates very low near zero, what is preventing RBI to take some actions to reduce rates from near 8% to 3% if not zero? In United States, the inflationary indicators are being managed so that inflation look very low whereas in India weaker rupee was raising the inflation.
  3. All in all, it is now a clear signal to especially NRI that neither RBI or Ministry of Finance may attempt to weaken the rupee deliberately by resorting to so called “sterilization operation”. If Subba Rao does not receive this message, his days as Governor are over.
  4. ICICI lowered Home Mortgage rates by steep 1% to encourage loan growth. When that bank is borrowing from public at 9.6% in the form of deposits, how could it be making money by lending at lesser rates? Does not make any sense.
  5. Kingfisher Airline is again in news. GMR operated Airport in Hyderabad got Non Bailable Warrant against top executives including Vijay Mallya for dishonoured cheques towards Airport charges. Such cheques are never signed by the Vijay Mallya directly, so how could he be served with “Non Bailable Warrants”? His presence in the corporate headquarters is absolutely necessary at the time of this crisis, so why put him in Jail and cause total collapse of Kingfisher Airlines? Just for the sake of Rs 10 crores, when over Rs 7000 crores are at stake for various banks? Courts in India are totally “subjective” and play to the gallery, without realizing that they are “causing enormous damage to the Indian Economy” without even realizing it. KFA has also extended lock out until Oct 20. This stock and company’s problems are extremely mismanaged by the Government of India and also financing banks. Most lenders are reacting to adverse publicity of the company’s problems which are compounded by anti recovery actions by the lenders. Only they have to lose most. We would enter carefully only when it drops below Rs 8 level and also slowly.
  6. We are taking a view that “interest rates will be lowered by RBI even if under pressure from Finance Ministry. The pressure is too much to bear for Subba Rao. As result, the finace stocks, real estate stocks may benefit. We do not favor any real estate stocks except dependable like Godrej Properties ( is it a listed company?). We would prefer the Housing Finance stocks like LICHF, GICHF and others.
  7. Among banks, the progressive banks like HDFC Banks, IndusInd banks, Yes Bank may benefit from lower rates. We still believe that IFCI and Bank of India are still at buy level.
  8. Please note that we are all heading into highly leveraged markets throughout the world. One may not be able to take long term view, and if some one makes 20% or more, he should cash it. If one is a long term investor, better stick to leading names, and do not attempt to veer into second and third liner stocks.
  9. Tata Global and ITC are our picks and while further rally may be a selling point to book quick profit. Tata Global has all over written that it will be a “major growth stock of the future”
  10. We now suggest buying Gold (when it is around $1,735 or about) and Silver (no precise level can be given, but find the price when the gold is at $1,735 level).

 

Special Situation:

  1. None today

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1. Rupee must appreciate further – said the Chidambaram.
  2. Interest Rates must come down – said the Chidambaram, Subba Rao is not listening but he may see the door. Even his friend Rangarajan may not be able to help him out.
  3. Policy actions and follow ups are good but the momentum is lacking. One has to act fast and not react slowly to the market demands
  4. Kingfisher Airlines must be saved, this issue has highlighted the fact that “India does not have economic and financial redressal mechanism, similar to statutory protection given under Chapter 11 in USA. India must take immediate action in this regard, before it is too late.
  5. Many PSU banks are still bleeding for the simple reason that large borrowers are being accommodated by Consortium of Banks which is “outdated concept” of yester years. There should be “no more group finance”

OVER


 

Stock Observatory India

Ref: ISO/12/83 of 2012-10-12, Friday, India Time 10.30 am)

 

Overnight Events and Effects:

  1. Dow was off 18 pts. Dollar also slid. Japan continue to be weak. Joblessness claim reportedly fell but had no effect on the stocks.
  2. Oil prices rosé again today, putting pressure on pump prices esp. California. Apple shares were weak today on account of earning picture.
  3. Cantor, biggest bond trader, plans to add 800 people to Muni Bonds. That is, Muni Bond commands greater respect today.
  4. Hang Sang and Indian SENSEX rosé smartly after few days of fall. ICICI reportedly cut Home Loan lending rate by full 1% point, creating rally. Other banks may also follow suit. They say Indian market has already seen the worst, so the market should rebound for a few sessions.

 

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,326

13,344

-18

NASDAQ

3,050

3,051

-1

NIKKEI – Japan

8,544*

8,546

 -2

Hang Sang -HK

21,101*

21,000

 101

SENSEX – India

18,805*

18,631

 174

* = live intra-day.

Nothing significant except India where the slump stopped and gains resulted strongly.

 

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.79

80.07

-0.2800

Euro/US$

1.2923

1.2850

0.0073

Rs/US$

52.76

53.06

-0.3000

Observation (Currency):

USD surprisingly fell, after last 3 days of rise. It is trading in a very small trading range of late. Euro was slightly firm, and India was up smartly.

 

Interest Rates (US$)

LIBOR 1M LIBOR 3M LIBOR 6M LIBOR 1Y
T 1M T 3M 0.10 0.00 T 1Y 0.17 0.00 T 2Y 0.26 0.00
FED Target 0.25 T 5Y 0.66 +0.01 T 10Y 1.68 +0.02 T 30Y 2.86 +0.02

Not much change. 1oY and 30Y rates were slightly firm. No Change in short term rates. The market is quite on interest rate issue.

Commodities

Item

Latest

PREV.

Change

Open Int.

Today Vol.

Prev Open Interest

Prev Vol

Change Open Int

Change Volume

Oil (WTI)

92.20

91.60

0.60

267,864

131,742

248,520

NA

NA

Oil (Brent)

0.00

NA

NA

Gold

1,771

1,762

9.00

347,041

7,891

NA

NA

NA

Silver

34.09

34.10

-0.01

87,831

37,533

87,243

NA

NA

Palladium

651

650

1.00

19,157

2,740

19,328

NA

NA

Platinum

1,690

1,678

12.00

61,638

8,714

61,424

NA

NA

Observation (Commodities)

  1. Gold came back from two times low beyond $1,765 level. Silver was also firm. Oil rosé by nearly 0.6%. We have a feeling that Gold is given lot of attention by major players. Silver is also getting stronger.

 

Indian Stocks: Our Observations and Comments

  1. KFA is in news again. Reports say that Lockout may continue. Some say some Airline may bid for KFA. No one has idea who willbuy when! Buy this stock when it is around $8 to 9.
  2. Infosys fell 7% due to poor revenue projection. Although current quarter was good. Rise in Rupee was also given as main reason for poor earnings guidance.
  3. Sterlite is showing signs of going up after long hiatus. It is still on our Buy list.

Special Situation:

  1. None today

OVER


 

Stock Observatory India

Ref: ISO/12/82 of 2012-10-11, Thursday, India Time 11.30 am)

Overnight Events and Effects:

  1. US stocks dropped due to weaker earning picture of Alcoa (Aluminum company of America) and Chevron, the oil producer. It was not the existing earnings, but the future pictures that caused the drop in enthusiasm. The earning session has just started, so like Kabhi Khushi Kabhi Gum , the stocks may move up or down.
  2. JP Morgan Chief said that they did FED a big favor by taking over Bears Stearns acceding to the FED request. It says that the take over cost them over $8 billion of losses, forgetting that most funds (almost $60 billions in all) lent by FED were interest free for over 15 to 30 years. When you want to get money, say all positives, and when you got the money, then say all negatives. Same old and dirty game.
  3. Japan is showing massive weakness. Its three most venerable names, Panasonic, Sony and Sharp Electronics have lost massive amount in last 7 years, that caused their market value to shrink by over 70%. The major SHARP is having acute problems, and finds difficult to sell its TV in good volume. How could they, when they try to sell their TV range in our place at US$ 1500 to $2100 when SAMSUNG and LG sell similar machines for $500 to $900 only. It looks like that Japan is going to face massive liquidity problems when both Sharp and Sony will get into Chapter…11 they say in USA
  4. Koreans, the micky mouse players after Japanese control of Korean peninsula during World War II, have thrown out even the originators. Ulhasnagar Sindhi Association ( Indian made USA) started off as “duplicator” but now has emerged as one of the most enterprising Sindhi community in India.
  5. Credit Suisse has given very interesting research report that by 2017, the total wealth of the World Population will rise 50% to $330 trillions or $330,000 Billions or $330,000,000 Millions. Considering the total World Population of just 6 billions, every person on this planet, including new borne child and beggar in the street, will have Net Wealth of $55,000($330 Trillion divided by 6 Billion) or in Indian Rupee, every one will have wealth of Rs 29 lakhs approximately. So whether a person is wearing “banian” or “underware” with lot of holes in it, he will still have wealth of Rs 29 lakhs. Hats off to all economists of Credit Suisse. What to say when they claim that Global Growth will come down by 50% to less than 2% and Global Wealth will rise by 50%. Even God will say that these “Humans must be crazy when they defamed me by making a movie God Must be Crazy” in Hollywood.
  6. Spain’s credit rating has been downgraded by one notch to stand just above “junk grade”. Span was having “A” rating in the past, but who cares? They downgrade every other country but not United States who is the biggest debtor of the world. US is just printing more and more money under code name QE#1, QE#2, Operation Twist and now QE#3 with excellent prospect for QE#4 anytime soon.
  7. India is also threatened with downgrade by S&P who says that India is having 1 out of 3 chances to get downgrade in next 24 months. Oh 24 months! They have so much of vision that they could not anticipate worst scenario in US only 6 months in advance.
  8. Almost all stock markets are weak on the back of IMF reports that Global Growth will shrink in next two years at least. No one heard of IMF for over 6 months, except for that SEX SCANDAL by IMF chief. When IMF begins to appear in print, then be careful.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,344

13,474

-130

NASDAQ

3,051

3,066

-15

NIKKEI – Japan

8,596

8,604

 -8

Hang Sang -HK

20,919

20,936

 -17

SENSEX – India

18,631

18,793

 -162

* = live intra-day.

US stocks dropped, Japan is very weak, India is also weak on reportedly global cues but we feel that the weakness in Indian market is more due to freak trades by Emkay Global who must be trying to sort out the settlement mess caused by freak trades. What happens to those who shorted NIFTY and found to their glee that NIFTY dropped 900 points and they cashed the profits? What happens to their profits? Will it go away? Was it their fault? If not, who would suffer the losses? Many brokers who may have squared their NIFTY position must have been suffering from acute depression of having lost huge money or huge profits because none of their trades could be possibly reversed. However, we do have SEBI who like king does no wrong. Let us see what happens. All NIFTY related matters are still under the carpet and may not see the light of the day.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

80.07

80.09

-0.0200

Euro/US$

1.2850

1.2861

-0.0011

Rs/US$

53.06

52.54

0.5200

Observation (Currency):

If I want to become stronger than you, I have two options – either I regain my strength or deplete your strength (to make you weaker). That is, your weakness is my strength. This is what is happening in case of USD. It does not have strength of its own, so it makes the other currencies weaker so that it looks strong. Like Moon shining on borrowing Sun’s shine.

However, USD Index gained to cross 80 after about a month or so. All currencies weakened, stocks weakened, gold, silver and platinum weakened, all metals weakened. They say that world is suffering from acute financial stress when almost all markets in the world are heading towards last 3 years height.

Indian Rupee also turned weak, so in spite of Gold/Silver falling in international market, Rupee equivalent prices may remain stable or even rise in India. We are really sitting on “tipping scale”. If one end goes up, other down, and vice versa. Honestly, it is most difficult to make money in currency market nowadays. You simply do not know who will say what and when. Like in Cricket where we have 11 players but only one wicket keeper, in global economic arena, we have Bernanke, Geithner, European Central Bank, Greece, Portugal, Italy, Spain, Bank of England, Japan and China as leading players with only one wicket keeper – United States.

 

Interest Rates (US$)

LIBOR 1M LIBOR 3M LIBOR 6M LIBOR 1Y
T 1M T 3M 0.10 T 1Y 0.17 T 2Y 0.26
FED Target 0.25 T 5Y 0.65 T 10Y 1.68 T 30Y 2.88

Long term rates were brought down by buying their bonds of course. Short term rates especially 1 year and 2 years were marginally higher. That is, short term money was used to buy bonds in long term market to bring their yield down (when the price rise, the yield fall in bond market)

Commodities

Item

Latest

PREVIOUS

Change

Current OI

10 Oct 12 OI

Change

Oil (WTI- USA)

91.60

91.91

-0.31

248,520

248520

Oil (Brent) …

0.00

0

Gold …

1,762

1,766

-4.00

352,014

-352014

Silver …

34.10

33.99

0.11

87,243

87,360

-117

Palladium …

650

658

-8.00

19,328

19,289

39

Platinum …

1,678

1,695

-17.00

61,424

61,755

-331

Observation (Commodities)

  1. Strong dollar weighed on the commodities. Gold was pushed down again below $1765 but remained strong. Many funds are taking position in gold on any weakness. Silver was stronger than Gold. Platinum was also down in spite of short covering of position as seen from reduction of open interest. It looks like last few trades were done at lower level to close down near the closing time. We are approaching a stage when the disconnect between dollar and gold may happen soon. If that happens, there could be very strong recovery of gold prices on account of covering of open interest position. In any case, we are approaching important month December when lot of delivery based trades will take place.

Indian Stocks: Our Observations and Comments

  1. The pace of going down is slowing down which is a good sign. We still believe that “freak trades” related settlement is affecting lot of brokers which is single most reason for the market to go down against positive policy actions of the government.
  2. Indusind Bank is showing lot of strength. Watch this stock. This bank is one of very few who is focusing only on regular trade related loans and normal deposits – the main bread and butter business of any bank. It is well managed bank with lot of growth. However, the stock is fully priced, so watch it for a buy below Rs 300 as good entry point (Rs 287 or about is preferred entry price). Those holding the stock may sell it now to book the profit.
  3. Suzlon stock is a trouble spot for many banks. It is in serious financial trouble. Unless it finds “strategic investor” it is heading towards CDR (= Chapter 11 in India).; Suzlone Bond holders have rejected the extension of time for repayment of the bonds on maturity date.
  4. World Bank has lowered the GDP growth for 2013 to just 6%. We think actual will be lower by at least 1.5% unless the interest rates are lowered by cut in REPO rate. Even Induind bank MD said that CRR cut is of no use to the end consumers. It may help the banks to tide over the liquidity situation but it is not a substitute for direct action. This is what we have been advocating it for quite some time.
  5. Auto Sales are going down but Mahindra and Mahindra and Maruti are beating the market. M&M is very dynamic force for now, and this may sustain for at least next two years. So when the stock or market goes down sharply, make it a point to buy this stock.
  6. Oil India Ltd. , as suggested by one of the reader today in CMCA column, is prima facie found to be one of the valuable stocks with excellent dividend yield. We would not wait for its correction and buy some now to start with. More will be mentioned tomorrow in SO column.
  7. We believe that pumping of more and more money in to the market by FED, ECB and Japan is extremely inflationary, which may eventually inflate the price of metals – steel, copper and Aluminum. Dollar strength may not be sustainable. Even the biggest fund manager in US, Bill Gross of PIMCO, has advised avoiding of US treasury bonds.
  8. Unitech finally reached the settlement with its JV partner in Norway. This could be stock positive but the Real Estate sector generally may perform better only on lower rates. RBI is under server pressure from Chidambaram who has been quick to blame RBI for India’s slow growth. RBI is pre-occupied with inflation whereas Finance Ministry is aggressive on reviving GDP growth by any means. It is a tug of war which is likely to be won by the FM. Satisfactory monsoon may cause inflationary forces to lose strength.
  9. Gold and Silver prices in India are on upward trend mainly due to weaker rupee in spite of lower gold and silver prices world wide in last 3 days. The benefits of lower global prices are set off by weaker rupee. In any case, the busy Diwali and marriage season will keep the physical demand very active that may support the gold prices. We expect the Gold prices to reach Rs 33,500 per 10 grams and Silver prices Rs 65,000 before December closes down. Gold may perform better in India than Silver mainly due to marriage related demand. Silver is having only Investment demand.
  10. We have to watch the Solar power sector in future. Recently, US imposed 12% to 240% penalty for Solar panel import from China as they are found to be selling below cost. US is increasingly focusing on Solar power and many homes are being converted to solar power. US also offers good level of subsidy for transition from normal electricity to solar power. If Chinese are losing Solar business due to US action, India may benefit if it has significant Solar power panel exporter as replacement seller. However, Chinese have edge on the technology and mass production capacity which India lacks. We do not have any suggestion on any stock in this sector right now, but will come back later after some study.

Special Situation:

  1. Oil India Ltd. – Buy opportunity. This is first stage of entry. Only for Long term investors, not traders who have to wait until the market drops on “shock actions”
  2. Suzlon may get sold off, but we are not hopeful on this counter even in correction. The company may go CDR way.
  3. Hindalco, Sterlite offer better scope at current level if you believe in recovery of metal prices in India and abroad due to QE#4 actions.
  4. Rupee may not go to Rs 57 level again so soon. We think Rs 53.50 could be bottom and good remittance point of dollar into NRE deposits. Since Rupee is likely to rule firm and interest rates likely to go down in next 6 months, NRI could benefit more than domestic investors.

OVER


 

 

Stock Observatory India

Ref: ISO/12/81 of 2012-10-10, Tuesday, India Time 10.30 am)

Overnight Events and Effects:

  1. US market opened with full force after Columbus Day holiday on Monday, when the markets were open but the banks closed. US Growth rate was cut to 1.8%. Greece witnessed some high profile protests ahead of German Chancellor’s visit there. In fact, there were no stock boosting factors present, so actions were centered on Currency, esp. Dollar.
  2. US stocks were down due to weaker economic reports. While Treasury Secretary Geithner gave moral boosting assurance that US economic activity was returning close to normal, his views were ignored by the market as humbug. When pre-financial growth rate was above 4%, how could it be said as “returning close to normal” when the expected rate is just 1.8%?
  3. Most markets were down due to weaker economic reports everywhere. Japan was sliding, Hang Seng was down due to weaker China base, and Indian markets were down due to non economic factor such as problems related to post NIFTY crash due to freak trades of Emkay Global which caused massive slide of 900 points in matter of minutes.
  4. When clear market direction is not available, they play with the currencies. Whenever dollar index dips to less than 0.79, actions are taken by FED and its cohorts to boost it to bring back above 0.80. The precious metals who have direct connect with the dollar prices, also react down due to stronger dollar. Why dollar should be strong if the economic forecasts were noticeably weak, no one knows. It is just a major traders market who act to keep the dollar strong at the behest of FED and Treasury.
  5. Oil prices surged to close near to $92. In California, where we live, the petrol pump prices rosé from 4.37 to 4.97 or about 15% in matter of 15 days despite international prices fell during same period. They say that there was oil supply problem due to closure of Cheveron operated refinery, but it is not acceptable. It looks like something is happening in derivative markets where delivery based trades appear to jack up the price of oil.
  6. LIBOR related news were in the print. It was reported that almost $9 billion were lost due to rate rigging in LIBOR market. The UK government is also seized of the matter to ensure that LIBOR credibility is restored as soon as possible so that the status of London as leading financial center is not jeoparadized.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,474

13,584

-110

NASDAQ

3,066

3,112

-46

NIKKEI – Japan

8,604

8,819

 -215

Hang Sang -HK

20,867

21,054

 -187

SENSEX – India

18,678

18,859

 -181

* = live intra-day.

Nothing much to comment except that almost all markets were down due to weaker economic forecasts. Euro zone crisis is worsening, Japan is almost non existent, US growth is anemic, UK also weak and India is reeling under brokers related settlement problems.

Currency

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

80.09

79.52

0.5700

Euro/US$

1.2861

1.2984

-0.0123

Rs/US$

52.54

52.28

0.2600

Observation (Currency):

Dollar was pushed up to weaken the Euro even when the growth forecast for US was cut down. After the holiday on Monday (Columbus Day), banks returned to market with more buy orders to cause rally in dollar which rosé by almost 0.6%

Interest Rates (US$)

LIBOR 1M LIBOR 3M LIBOR 6M LIBOR 1Y
T 1M T 3M 0.10 T 1Y 0.16 T 2Y 0.26
FED Target 0.25 T 5Y 0.66 T 10Y 1.71 T 30Y 2.93

Commodities

Item

Latest

PREVIOUS

Change

Current OI

9 Oct 2012 OI

Change

Oil (WTI- USA)

91.91

90.23

1.68

0

Oil (Brent) …

0.00

0

Gold …

1,766

1,781

-15.00

352,014

354,377

-2363

Silver …

33.99

34.26

-0.27

87,360

87,527

-167

Palladium …

658

665

-7.00

19,289

19,560

-271

Platinum …

1,695

1,698

-3.00

61,755

NA

NA

Observation (Commodities)

  1. Gold tested the support level of $1,765 as we predicted two days ago. It will rebound to over $1,785 soon. Silver is also trading sideways. In India both gold and silver prices rosé more due to Rupee weakness in last 3 days.
  2. Oil is firm to strong. If it crosses $92 and holds till weekend, prices will shoot up higher.

Indian Stocks: Our Observations and Comments

  1. “Pranab litters, Chidu cleans up” is the order of the day in India. Shome Penal recommended to abolish the “retro tax” on take over companies. Vodafone will be greatly relieved. Business confidence may return after formal acceptance of Shome Panel reports. It was also a “slap on the face of Pranab Mukherji” by Chidambaram. The finance minister is on “undo” mode, meaning whatever wrongs committed by Pranab Mukherji are being undone or reversed on fast track basis.
  2. After agreeing to pay Rs 65 crores to Kingfisher Airlines to help them pay wages, latest news suggest that DGCA (Director General of Civil Aviation) has told KFA not to issue tickets before returning to normalcy. How could a company shut down ticket windows (losing revenue) and still continue to survive? Money is created by sales, and if the sale windows are closed down, how could business survive? Looks like DGCA and the Aviation Minister are have run out of ideas, and follow beaten track.
  3. Some auto stocks are becoming attractive, one of them is TVS Motors which operate globally.
  4. Government has allowed “upstream discount” by both ONGC and Oil India to $56 per barrel, same as before. The losses suffered by OMC will now amount to over Rs 167,000 crores – huge by any standard. Both ONGC and OIL are acting as if they are independent
  5. Tata Global continue to be our favorite stock. Recent pull back due to NIFTY crash should provide golden opportunity to accumulate this progressive counter.
  6. Banking stocks are now due for a rally. When the bank stocks recover, It tend to point “peak of the market”. While markets may fall, the stocks recommended

Special Situation:

  1. None today

OVER


Stock Observatory India

Ref: ISO/12/80 of 2012-10-09, Monday, India Time 9.30 am)

Overnight Events and Effects:

World Wide:

  1. Dow fell modestly. The fall is not indicative because the banks were closed due to holiday. The activity was modest and not so indicative. We will see major trend setting perhaps tomorrow. We are entering into earning season now. Most S&P stocks may not show much improvement in earnings, except in Banking sector which may witness higher earnings due to less provisioning. The expected rally in banking stocks, though short liver, may also trigger rally in banking stocks all across the globe including India. This is why we were suggesting some positions in non controversial banks in India.
  2. While stocks are rising around the globe and nearing peak except in Japan and Hong Kong in the hope of economic recovery, the facts are simply otherwise. Even IMF came out with lowering of Global Growth Forecast from 3.5% to revised down to 3.3%. China is shown to be suffering more in Asia, and repeated pointers to other countries are a ploy to divert attention from core problems in US. The fact of the matter is that there is absolutely no recovery anywhere in the world.
  3. This time around when the stocks are likely to hit all time high ahead of election next month, Hedge funds appear to be retreating from the playing field. Many leading funds are on the verge of losing out the race, and some may wind up activities soon. Hedge Funds are major players in derivatives, which is so artificially manipulated that even the cleverest Hedge Fund manager can not manage profitable trades all the time.

India specific:

  1. Chidambaram finally realized the real value of rising or appreciating Indian Rupee when he ”…underlined the need for containing inflation and said that appreciating value of the rupee would help in brining down the cost of imported crude, petroleum products and fertilizers. The value of Rupee is an important factor that effects the value of imports. A depreciating rupee will also impact trade and investment. Hence, the need to stabilize the exchange rate. I believe that we have met with moderate success,” the Minister said.
    • We said that almost 3 years ago in our article “Allow Rupee to Rise”. It took him more than 3 years to understand the basics of economics when time needed was just 10 minutes. At least someone in Finance Ministry might have shown him the full article.
  2. Chidambaram no longer likes RBI, that is, Mr. Subba Rao if his latest statement is an indication. He blamed saying …”Reserve Bank’s tight money policy dampened growth and investments”. It is possible that either RBI changes its policy of higher rates or replace its chief Subba Rao soon. His message to Subba Rao is “Do it or get out”
    • It is a welcome indicator that the finance minister finally understands “what needs to be done”. He may not approve “sterilization” program of RBI in future. The Rupee may not see the sliding trend in future. A positive for the stock market and also for NRI . The risk of losing money on exchange will be less in future – when we see the real actions in that regard. Right now, awareness has come, so let us wait for real actions.
    • Good that Pranab Mukherji is no longer around. Let him sign the legislations on dotted line – he will be good at it. Duffer.
  3. Open offers worth Rs 2,460 cr: says Sebi…….Open offers worth Rs 2,460 crore were made to buy shares from public shareholders in the first five months of the current fiscal. Between April-August, shareholders have received a total of 33 open offers worth Rs 2,460 crore, Sebi has said in its latest monthly bulletin.
    • According to Sebi regulations, pursuant to substantial acquisition of shares or change in control in a listed firm,an acquirer has to make an offer to the public shareholders.
    • Hey SEBI, if that is the case, why did you act just opposite in case of IFCI, where the acquirer,Govt. Of India was exempted from making mandatory offer, and you gave “clean exemption”. Are you not following the “double standard” and materially damage the “interests of minority shareholders of IFCI?” Who will bell this unruly cat?

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,584

13,610

-26

NASDAQ

3,112

3,136

-24

NIKKEI – Japan

8,819

8,863

 -44

Hang Sang -HK

21,054

20,866

 188

SENSEX – India

18,859

18,709

 150

* = live intra-day.

Dow was subdued due to banking holiday (markets were open on subdued activity). NIKKEI is still under performing. It appears that some real troubles are brewing in Japan which are not yet noticed by major investors. Undercurrent is very weak in Japan. Hong Kong is see-sawing. Indian market is in consolidation mode. The statements of Finance Minister is market friendly at least on currency front. Indian market had slumped yesterday heavily. It appears that the Emkay Global’s freak trades which caused heaviest loss in single day in decades appear to have hurt other broker firms materially. Looks like major losses and list of troubled brokers may come out soon that is depressing the market sentiment. This event has nothing to do with fundamentals – it is just non economic but stock exchange related event having wider repercussion.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.52

79.51

0.0100

Euro/US$

1.2984

1.2983

0.0001

Rs/US$

52.28

52.13

0.1500

Observation (Currency):

Not much actions are seen on currency front due to bank holiday in US. Rupee has been trading in narrow range with upward bias, but the major profits are made in recent run. Some may get out of Rupee and wait for another time to re-enter.

Interest Rates (US$)

LIBOR 1M 0.22 LIBOR 3M 0.35 LIBOR 6M 0.63 LIBOR 1Y 0.97
T 1M T 3M 0.10 T 1Y 0.16 T 2Y 0.25
FED Target 0.25 T 5Y 0.64 T 10Y 1.70 T 30Y 2.94

Due to bank holiday, interest rates are not really indicative. The banks are major player in interest rates related business and derivatives. LIBOR rates are suffering from credibility. Recent scandals in interest rate management (or manipulations) are hurting the major benchmark.

Commodities

Item

Latest

PREVIOUS

Change

Current OI

8 Oct 2012 OI

Change

Oil (WTI- USA)

90.23

89.46

0.77

272,776

-272776

Oil (Brent) …

0.00

0

Gold …

1,781

1,772

9.00

354,377

358,612*

-4235

Silver …

34.26

34.05

0.21

87,527

89,453

-1926

Palladium …

665

663

2.00

19,560

19,582

-22

Platinum …

1,698

1,707

-9.00

61,994

-61994

Observation (Commodities)

  1. Gold rose above critical 1,785 level once and then backed off but still registered some gains. The market is not so indicative due to banks being closed. Nevertheless, the gold is still on firm footing, and this last quarter may be more beneficial than in the past. Once the gold passes the benchmark of $1,835, we may see solid trades and short covering at that time. Silver follows suit. We have to see whether Silver crosses $36.50 level easily or not. Nevertheless, on next 3 months basis, it is likely that Silver may touch $41 level once at least. December contracts are generally trend setter but we have to see also the effect of election result in United States. If Obama wins, then continuity of mediocre policy may continue but stability will be ensured. If Romney wins, then the days of Bernanke will be numbered. We are still bullish on gold for next 3 months due to physical demand and psychological effect of so called Q.E 4 promoted by Bernanke

Indian Stocks: Our Observations and Comments

  1. Pharma stocks are doing very well of late. Dr Reddy and Sun Pharma are leading the sector. While firm Rupee is not favored by pharma sector, it appears that major value players are focusing on this defensive sector.
  2. It would be worthwhile to buy stocks of non ferrous sector such as Aluminum and copper. Hindalco and Sterlite may do well in this quarter. Steel sector is still weak due to weaker infrastructure. We may wait for a while for making entry into steel stocks.
  3. Chidambaram is over optimistic for growth target of 8% to 9% which is next to impossible. The growth of 5.3% is more realistic with negative bias. IMF pegs the growth to 4.9% against 4.5% predicted by us last October when everyone was bullish on 9% growth. Higher rates can not boost growth on consistent basis. Unless the rates come down by at least 2.5%, the real growth in India may not resume soon.
  4. Essar Oil appear to be clearing Rs 60 barrier soon. It rosé to over Rs 63 which is a good sign for upward trend. We still do not know the reasons behind recent bullish activity> it is just absence of negative news that is catching up with the market. The stocks may be sold first time on small scale at Rs 63.50 and more if it shows further gains without any major news.
  5. We see more values in Hotel stocks which have been dragged down by almost 30%. We will cover this sector tomorrow.

Special Situation:

  1. None today

OVER


 

Stock Observatory India

Ref: ISO/12/79 of 2012-10-08, Monday, India Time 10.30 am)

Overnight Events and Effects:

  1. The markets were closed due to Twin week end holidays. No comments therefore. Asian markets are in early stage, so not indicative of trend.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

Closed

13,610

-13610

NASDAQ

Closed

3,136

-3136

NIKKEI – Japan

8,863

8,863

 0

Hang Sang -HK

20,866

21,012

 -146

SENSEX – India

18,967

18,939

 28

* = live intra-day.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.51

79.34

0.1700

Euro/US$

1.2983

1.3057

-0.0074

Rs/US$

52.13

52.03

0.1000

Observation (Currency):

Dollar gained modestly with Euro obvious victim. Not much significant movement. Rupee was also down on profit taking. May not go below Rs 53.50 and may not go higher above 49.85 level. The up trend in Rupee and SENSEX is likely to continue with modest pace, as key momentum is lost. Only RBI action to lower CRR further or cut in REPO rate may boost the SENSEX and Rupee.

Interest Rates (US$)

LIBOR 1M 0.22 LIBOR 3M 0.35 LIBOR 6M 0.63 LIBOR 1Y 0.97
T 1M T 3M 0.10 T 1Y 0.16 T 2Y 0.26
FED Target 0.25 T 5Y 0.67 T 10Y 1.74 T 30Y 2.97

The market was closed in US and UK at the time of this writing. We will know more tomorrow.

Commodities

Item

Latest

PREVIOUS

Change

Current OI

6 Oct 2012 OI

Change

Oil (WTI- USA)

89.46

89.86

-0.40

272,776

272,776

0

Oil (Brent) …

0.00

0

Gold …

1,772

1,783

-11.00

358,612*

357,677

935

Silver …

34.05

34.57

-0.52

89,453

88,232

1221

Palladium …

663

663

0.00

19,582

19,695

-113

Platinum …

1,707

1,707

0.00

61,994

61,073

921

Observation (Commodities)

  1. Only Asian market open right now. It was second day in row that Gold and Silver fell. As we stated earlier, Gold was supposed to come down below Rs 1,785 and may not go down lower than 1,765 level from where it may rebound. Most of the strength was based on stronger dollar caused by uproar in Job Numbers and Unemployment figures below 8% to 7.8% to be exact. It is election time in USA so for next 30 days, the Obama Administration will do everything to tilt the election in their favor.
  2. The opening prices in Asia were forced down as seen from higher Open Interest. It is too early market in Asia. Platinum is stronger than other metals.

Stocks: Our Observations and Comments

  1. Deccan Media Group: On Bank losing side, the reports suggest that PSU banks may have to write off 3000 crores of loans to Deccan Media group based in Bangalore. When the banks finance paper assets like IPL franchise, such things were bound to happen. Many banks might lose on telecom who also lost thousands of crores in cancellation of licenses. The whole financial crisis in West was caused by multiple financing of paper assets.
  2. KFA finally got Rs 65 crores from banks to pay the salary. The sting is out, so let us see whether the Airline may remain earthbound or begin to fly. Be a small buyer of the stock on small scale if it falls below Rs 8. While Deccan group was chasing IPL (Cricket), Mallya of KFA was chasing Formula One (Car racing). He now has only “Formula NONE”. One bad news which may come out of KFA is from DGCA who might announce cancellation of license. This is the time when KFA might go down to lowest level. Buy some then. This situation is only for risk takers only.
  3. Emkay Global who was involved in “freak trades” causing NIFTY crash of 900 points in matter of seconds, reportedly lost Rs 65 crores, so either it will go bust which may cause SENSEX to go down. Whenever a broker gets into trouble, the Stock indices SENSEX and NIFTY may suffer on downside. When one broker fails, he takes with him 4 or 5 more brokers, because the brokers act in cartel most of the times.
  4. Tech Mahindra is surging to Rs 965 which when divided by 8.5 gives the value of Rs 112 for Mahindra Satyam. It looks like the stock may continue to rise by another 15%, giving Mahindra Satyam push to Rs 130 level where one may take comfortable profit. Do not get out completely.
  5. Mahindra group, Sun Pharma, Godrej Properties (Construction?) are some of the golden boys of the stock market. They appear to be doing right on all fronts.
  6. Tata Global continue to surge and does not back down. This stock is a good long term bet. It will be mostly news driven stock in near future.
  7. Mahindra Resort is one of the stock which if bought below Rs 260 or even Rs 230 may give good return. Current price is not good nor too bad. But we would wait patiently
  8. Bank of India is entering our buying range. Buy 10% quantity now, 40% more at Rs261 or below, and 50% when below Rs 230 (if it falls to that level at all)

Special Situation:

  1. None today

OVER


 

Stock Observatory India

Ref: ISO/12/78 of 2012-10-06, Saturday, India Time 9.30 am)

 

Overnight Events and Effects:

  1. When we reported “Unemployment Rates at 8.20 yesterday” we had read the headlines on bloomberg. After some time, the figures were revised down to 7.80, to give “good feel” relief to President Obama who lost his first round of debate to Mitt Romney. I always carry a feeling that many economic numbers in United States are “doctored” or “manipulated” and in fact in my book I gave lot of evidences. I was not alone in assertion this time
    • Jack Welch, one of the most prominent and high profile Business Executive from General Electric for number of years, reacted to the unemployment numbers thus ” that Obama’s team lowered the country’s unemployment rate to 7.8 percent to give the president a boost. “Unbelievable jobs numbers. . . these Chicago guys will do anything. . . can’t debate so change numbers,” he wrote.
    • Although United States is widely acclaimed democracy, it is ruled powerfully by coterie of few people – the President, Treasury Secretary (Timothy Geithner), FED (Bernanke, FED Chief), CFTC (Commodity Futures and Trading Commission), CBOT (Chicago Board of Trade to control Grain prices), NYMEX (To maniopulate Oil prices), COMEX (to manipulate Gold, Silver and precious metal prices), with ultimate aim to lower down the inflation so that interest rates do not rise. Their single minded focus is to keep the rates low at 0.25% as long as they can, and go on extending bond buying programs from 2012, to 2013, to 2014 and now 2015. There is Q.E. 1, 2, 3 and now 4 like Hollywood blockbusters like Godfather 1,2,3, EXORCIST 1,2,3 and Rocky 1,2,3,4 and 5. Hollywood Circus is deftly played out in the White House and in the headquarters of FED and US Treasury.
    • But the market moves up or down on official numbers, so we can not ignore this fact, however, we have to react in such a way that our actions benefit us and also warn us that something terrible may happen suddenly which most players will be caught unaware.
    • In any case, Dow rose by 34 points to reach new high of 13,610 and while so called “good news” on unemployment should have created more demand for bonds and dollar, the result was just opposite. Treasury fell and dollar too gave it a company by falling. Gold and Silver also dropped, so the trades were to take profit on commodities and buying of foreign currencies.
    • The market interest rates on other side rose sharply second day in a row (just scroll down the numbers under Interest Rates) with 2 year Yield rising for the first time above 0.25% to close at 0.26%. The LIBOR rates did not react because they are heavily manipulated in UK by banks like Royal Bank of Scotland who sought billion dollars of bail out money from British Government. Normally, LIBOR rates are considered independent (this is why we included these numbers in our present column) but they too are not so reliable. In short, almost every Western Government (US, UK and Europe) are heavily geared to manipulate the numbers to suite their convenience. How long will this last, we do not know, but one thing is certain “The market is a vicious beast. When no one listens to its dictates, it reacts violently to cause a “crash”. We are waiting for accident to happen.
  2. Indian market has slowed down a bit in its rise, and Rupee to fell by nearly 1% in profit taking. The breadth is still wide and strong. May we in next week, we may see good demand for stocks and in all probability, RBI may come up with surprise rate cut, either CRR cut or REPO cut. The banks are longing for CRR cut so that they do not have to lower the lending rates to keep the profitability higher. Every one has its own agenda.
  3. Trouble spots in India is another political scandal, this time involving DLF, Sonia Gandhi and her daughter Priyanka Gandhi and her husband who got Rs 65 crores of interest free loans to buy the property now worth Rs 500 crores as alleged. India is a country of “crooks, criminals, and conmen” where everything moves with corruption at high, middle and small places. Let us accept it as dictate of the fate, and buy or sell the stocks based on such news and rumors.
  4. In India too the “freak trades” caused crash of NIFTY by 15% in matter or minutes in what it turned out to be “error trades”. However, loss of NIFTY was engineered by heavy derivative players who instantly booked profit on “NIFTY Futures” . Now, whatever SEBI investigates, who will compensate the losses to traders who were long on NIFTY and had to cut down their positions only because of sudden plunge in Index? This will never see the light of the day. In English, there is a very good word “Sorry” which pacifies every one in every thing.

 

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,610

13,575

35

NASDAQ

3,136

3,149

-13

NIKKEI – Japan

8,863

8,861

 2

Hang Sang -HK

21,012

20,995

 17

SENSEX – India

Closed

18,938

 NA

* = live intra-day.

Japan is still stumbling. Hang Seng rose finally above psychological barrier – 21000 – which number SENSEX is aiming to achieve in 2 or 3 months. Sudden spike in Dow may engineer or trigger rally in SENSEX strongly. Nowadays, the shadow market is not Nikkei or Hang Seng but it is all the way “SENSEX”

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.34

79.34

0.0000

Euro/US$

1.3057

1.3011

0.0046

Rs/US$

52.03

51.53

0.5000

Observation (Currency):

Irani Rial was under pressure due to huge short positions taken by US based players in non deliverable contracts, mainly booked through Bermuda and Cayman Island. US is trying to bring monetary pressure by causing its currency fall apart so that unrest in Iran spreads. It is a currency war between Iran and United States. Rupee may trade between 51 to 53.50 with upward bias.

Interest Rates (US$)

LIBOR 1M 0.22 LIBOR 3M 0.35 LIBOR 6M 0.63 LIBOR 1Y 0.97
T 1M T 3M 0.10 (0.0) T 1Y 0.16 +0.01 T 2Y 0.26 +0.01
FED Target 0.25 T 5Y 0.67 T 10Y 1.74 +0.09 T 30Y 2.97 +0.09

The interest rates rose for second day in a row, and the rise was more than 4% for 10Y Bonds. If it is just beginning, then it may be sign of impending trouble in months ahead. Higher short term rates will force many banks to reverse their short term interest rates position or suffer heavy cash losses. For the last 4 years, banks have been mismatching their securities, by borrowing on short term (where interest rates are abysmally low at 0.08 to 0.14% and lending long (on 15Y to 30Y mortgage loan on fixed rates basis. Their short term borrowings are floating type. Please read our article in the past titled “Maturity Mismatch – Another Banking Crisis in offing” published on 20 Jan, 2010. Read this again, we will be proved right again after about 2 Years and 9 months, probably in 3 years allowing another 3 months to pass by.

Commodities

Item

Latest

PREVIOUS

Change

Current OI

5 Oct 2012 OI

Change

Oil (WTI- USA)

89.86

91.49

-1.63

272,776

NA

NA

Oil (Brent) …

0.00

0

Gold …

1,783

1,796

-13.00

357,677

350,000

7677

Silver …

34.57

35.11

-0.54

88,232

87,407

825

Palladium …

663

675

-12.00

19,695

19,741

-46

Platinum …

1,707

1,725

-18.00

61,073

58,597

2476

Observation (Commodities)

  1. Oil prices in US dropped. They were rising due to troubles in one of the refineries in California where the production was severely affected. It is possibly restored.
  2. All precious metals from Gold to Platinum as above dropped even when the US dollar faltered. It was more of a technical selling. We did mention yesterday that Gold has to maintain the level above $1,785 level which you can see it could not, and it dropped just below $1,785 to close at $1,783. Even the Platinum which was strongest of all metals of late, dropped by more than 1% in profit taking.
  3. The upward trend in commodities is however intact – we will know more within next 7 days – the super easy money to be generated out of Q.E 4 is going to make many investors, especially large ones, very uncomfortable and may force them to get out of equities into these precious metals and also in other ferrous or non ferrous metals like Nickel, Aluminum and Copper which are slated to rise. This is why the stocks in India in this sector – like Hindalco, Sterlite, Hindustan Copper, Tata and Jindal Steel might perform better. It is also a bad news for Infrastructure stocks because the cost of input will now rise – they are the heaviest user of steel, copper, aluminum and Nickel (used mainly in Stainless Steel)
  4. The gold and silver may rise again and then fall below $1,785 and $34.35 level one more time. But then onwards, they will just move up by another 3% to 5% at least. In India, the Gold and Silver may under perform due to rising rupee. It is better to buy these metals in overseas centers.

 

Stocks: Our Observations and Comments

  1. Rotational buying may kick in due to good market conditions and more FII money coming in. Rise in Rupee is also attracting FII – however, a stage may set soon when they will book profit and wait for correction to step in back.
  2. The sectors going to benefit in rotational switch will be banking, finance, metals, auto and other rate sensitive sectors. Among banks, those banks not much involved in financing Kingfisher Airline and Air India may perform better. Large banks like SBI, ICICI, Axis Bank and other PSU banks may suffer if bad news hit the market from aviation sector. Go for banks in private sector like HDFC Bank (for trading purposes only because the stock is otherwise quite expensive)
  3. Essar Oil surged on heavy volume (not so heavy but moderately heavy) to gain over 15% in just one session. The spike in the EOL was more during last one hour, after 2:30 PM till 3:30 PM (Closing time). Something must have happened around 2:00 PM, may be lunch hour talks have percolated in afternoon session. Judging from the volume, it looks like only parties closely aligned with the management pushed up the price. There could be some news from courtroom or otherwise, which will be known in next 4 or 5 days. The management is trying to take advantage of bull market, rising rupee and other factors, to buy low so that placement could be done at higher price. We do not see any other reason. Since the spike is without any consolidation, be prepared to sell first before buying again. It is still a weak stock.
  4. Kingfisher Airline is still a risky stock, because of “Do Nothing” approach of the government. The ministers are simply blasting Mallya to pay the salaries before license could be renewed. India does not have protection like “Chapter 11 in United States” which could otherwise save KFA. The government should take actions to keep the flights running and extending short term loans through banks, because dead rats can not attract investors. The Government is required to take “proactive approach in the case of Kingfisher Airline” The stock is moderate sell at the moment with a view to buying back only when it drops below Rs 10 especially Rs 8 level. The company will not go bankrupt – the banks have to lose most which they can not afford at the moment.
  5. One may take profit in Spicejet if the rally continues. KFA loss is Spicejet/Jet Airways/Indigo’s gain.
  6. IFCI is near accumulation level. When the government is converting debt into equity, it is not going to sell in the market. The public float will remain same in terms of number of shares outstanding.
  7. More specifics tomorrow.

Special Situation:

  1. None today

OVER


 

 

Stock Observatory India

Ref: ISO/12/77 of 2012-10-05, Friiday, India Time 9.30 am)

Overnight Events and Effects:

  1. Good News with bad news and discerning disturbing trend. Leaving India aside, which is in relatively strong market, the US markets while rising heftily by 86 points was showing some really troubled signs. They were –
    • Interest rates rose for the first time across the board by almost 8% to 10% over previous close. The key 2Y rates closed gaps with FED target rate of 0.25% for the first time.
    • Oil prices spiked by 4%, after hitting low by 4% on previous day. Where I live, the pump prices rose from $4.47 to $4.67 or by 0.20 or nearly 4.5%.
    • USD Index fell, though not much, but Euro entering 1.30 level after a long time.
    • Unemployment rate rose to 8.20 with job growth less than expected, that too, ahead of busy holiday season when seasonal employment picks up.
    • A popular company’s IPO was withdrawn on the ground of poor market conditions when Dow is rising to nearly all time high. Rise in Dow by 16.73% (Now 13,575 compared to 12 months back at 11,499 or gain of 2,026 points) is not considered good market ! (Wow, if it is not, then what it is)
    • More talks are in the air that Bernanke might resort to Q.E. 4 after very recent actions dubbed as Q.E. 3, that is, this operation has also failed.
    • Most energy, metal and currency futures rose in unison for the first time. Gold surpassed vital resistance point of $1,785 (mentioned only a few days ago – scroll down this report for previous days) and may test $1,835. In short, most of the future players appear to be giving up in trying to suppress the gold and silver prices.
    • Almost all commodities are rising again. At the same time, Morgan Stanley – a major commodity player, decided to sell its commodity division. Why? When the market is improving – they must be losing a lot on proprietary trades.
    • No clear signs are emerging from Europe and Japan is still behaving as if it is living in post earthquake zone. Nikkei is still trading lower by 10% compared to rise in Dow by 16.73%, that is, the parity between Nikkei and Dow enlarging by 27%
    • Dollar market, that is, Hong Kong is still trading at lower level compared to Dow.
    • Only Indian market is showing strength, all of its own – not a borrowed strength after a long time – due to policy overhaul.
  2. In short, today was the first day of reversal of fortune. Whether it becomes a trend or not, we will see by next week.
    • Please therefore be agile and watch all events closely before taking lenient view of domestic market which has no doubt geared up due to rise in rupee and change in FDI policy. There may be many unknown in FDI policy when the details are known.
    • Rupee is rising very fast which helped it to reduce the local gold and silver prices in spite of hefty gain in dollar terms abroad. Only one bad news will knock it off from the road.
  3. President Obama fared poorly in first of three national preelection debate with almost 67% saying that Mitt Romney fared better. However, we do believe that it will be only him who might be re-elected. However, this is daily fluctuating fortune.
  4. The markets do look healthy but inside the strength is hollow. In any case, expect hefty rise in Gold and Silver prices in near future. Gold may see some technical selling at around $1,835 and Silver at $36.50 but the news like Q.E. 4 is spreading like wildfire. Most people are convinced that there is no real recovery from financial crisis. Latest consumer confidence report indicate same thing – Americans are not believing in their leaders or their statistics.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,575

13,495

80

NASDAQ

3,149

3,135

14

NIKKEI – Japan

8,861

8,849

 12

Hang Sang -HK

20,995

20,930

 65

SENSEX – India

19,058

 -19058

* = live intra-day.

Indian market passed the 52W High number of 18,969 and stayed above 19,000. With Rupee rising, it means that active FII Momentum Players have jumped in to trade actively with upside move. Laggard sectors like Banking, Infra Structures and Power sector may show some gains. It is just catching up effects. This is why we suggested buying Bank of India and some other banking stocks.

 

On negative side, Carlyle Group from USA exited by selling nearly Rs 4000 crores worth of HDFC (not bank), meaning they are taking negative views of Real Estate sector.

 

The market will gain good boost, if RBI instead of staying on sideline as bench watcher, decide to lower interest rates ahead of regular meeting by at least 0.5% which will lend excellent boost to currency, market sentiments and other infra stocks.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.34

79.86

-0.5200

Euro/US$

1.3011

1.2926

0.0085

Rising a bit, but over 1.30 level
Rs/US$

51.53

51.89

-0.3600

Strong gain. Shows the stocks might go higher too.

Observation (Currency):

While world currencies (non dollar) rose, the biggest and healthiest rise was shown by Indian Rupee who batted for the first time like Virendra Sehwag, hitting 4’s and 6’s for every ball thrown at him. Let us hope that RBI does not decide to intervene until Rupee goes back to below Rs 40/$ as seen last during BJP days.

Before it is too late, it is good to open long term (5,7,10 years) Recurring Deposit account to lock in higher rates at low investment. The Age group 28 to 45 may decide to open such accounts in their own name or in their Children’s name.

Interest Rates (US$)

LIBOR 1M 0.23 LIBOR 3M 0.41 LIBOR 6M LIBOR 1Y
T 1M T 3M 0.10 T 1Y 0.14 T 2Y 0.25
FED Target 0.25 T 5Y 0.63 T 10Y 1.67 T 30Y 2.88

Look at the above rates and compare to previous days. Sudden pressure on Interest rates to move up is a very unnerving indicator. Of course, one day movement is not enough, but we did mention in previous reports (last 5 days) that it is imporant to watch the Interest rates for 2 years and above. Any major spike will play havoc in Mortgage lending market. The housing prices may fall again in response to higher rates in real terms.

 

In short, the speculative position is beginning to unwind. There could be major and sudden point on the downside. We have to monitor for next 7 to 15 days very closely.

Commodities

Item

Latest

PREVIOUS

Change

Current OI

4 Oct 2012 OI

Change

Oil (WTI- USA)

91.49

88.27

3.22

294,282

-294282

Oil (Brent) …

0.00

0

Gold …

1,796

1,780

16.00

350,000

348,559

1441

Silver …

35.11

34.69

0.42

87,407

87,317

90

Palladium …

675

658

17.00

19,741

19,528

213

Platinum …

1,725

1,698

27.00

58,597

58,152

445

Observation (Commodities)

  1. Gold, Silver, Palladium and Platinum rose smartly -with Gold and Platinum shining up in broad day light. Silver is also coming back, its level at $36.50 is more important, but it will be passed based on fundamentals. Q-E 4 is going to help precious metals to fly. Gold and Silver are in distinct up trend, with some profit taking recommended at $1,835 for Gold and $36.25 for Silver.

 

Stocks: Our Observations and Comments

  1. There could be general rally in every sector. Rates sensitive stocks may perform better. They are mainly in Real Estate, Metals, Airline, Shipping may perform better. Buy the stocks of your choice, we are not suggesting any specifics. When the market moves beyond critical point, every stock will rise, making you above average smart.
  2. Ride the rally for the time being. We do love defensive stocks like ITC (Rs 275), Godrej Cons and some metal stocks like Hindalco, Sterlite, which may begin to pefrom well within next 15 days.

Special Situation:

  1. None today

OVER


 

Stock Observatory India

Ref: ISO/12/76 of 2012-10-04, Monday, India Time 10.30 am)

Overnight Events and Effects:

  1. Nothing significant in US market, which is waiting for the outcome of the first of three preelection debate between President Obama and Mitt Romney, the Republican nominee and President Contestant. All eyes are on them for their views on Taxes and they want to go about it. Another major issue for them is the health care
  2. In Asia, Nikkei went up by 100 points after prolonged slump in previous days. The confidence survey in Japan is very disappointing. The rise in Dow by almost 10% is not felt or having similar effect on Japan and also dollar related market Hong Kong which is still below 21,000 level. Hong Kong also did not rise by 10% as did its major lead market US.
  3. India is the only market, after US and Germany which has been doing well. The rise in Rupee is still continuing, and the current level is below Rs 52. It shows that lot of FII money has arrived which will find its way into the stocks and bonds. Ride the rally for a day or two but try to sell some on Friday to book profits.
  4. SENSEX having passed 52 Week high as we predicted yesterday, will invite major momentum players (traders and big brokers) to participate in this rally and push it further by another 400 points to 19,400 level or so. It is likely that there could be triple digit rise due to upward momentum. FII are also sensing interest rate cut which will help them to book major gains in the Government of India’s Treasury market.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,495

13,482

13

NASDAQ

3,135

3,120

15

NIKKEI – Japan

8,849

8,795

 54

Hang Sang -HK

20,930

20,948

 -18

SENSEX – India

19,066*

18,791

 275

* = live intra-day.

No further comments.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.86

79.83

0.0300

Euro/US$

1.2926

1.2901

0.0025

Rs/US$

51.89

52.40

-0.5100

Observation (Currency):

Rupee is the darling of the emerging market currency. When the Rupee was trading at Rs 57 or about, we replied to many readers in CMCA Column to remit the funds since they were having advantage of higher Rupee amount with almost 10% interest rate. Many were skeptical but you can see the result now. We do not think that the strength in Rupee is going to stay for long, and it is almost reaching temporary peak. There could be lot of consolidation if it does breach the magic 50 level. We have always maintained that real value of Rupee should be anywhere between Rs 26 at the extreme end and Rs 31/33 on the other extreme end. Higher rupee alone reduces the inflation risk, especially in energy market such as Oil, Diesel, Gas and Electricity. Please re-read our old article on Rupee which appeared almost a year ago. ALLOW RUPEE TO RISE dated 1st August, 2010 (two years ago). The present finance minister P Chidambaram should read it thoroughly to put India back on growth. It also shows that we were almost 2 years ahead of the solution. The government has to declare that “rising rupee is in the interest of the nation” and RBI should never intervene in rising rupee market or indulge in “sterilization” operation which is extremely hazardous. India has lost almost Rs 200,000 crores due to such misadventures on the part of RBI and Government of India. Good that Pranab Mukherji is consigned to Presidential palace. Such people should not be allowed in the Government at all – they will destroy the nation.

Interest Rates (US$)

LIBOR 1M LIBOR 3M LIBOR 6M LIBOR 1Y
T 1M T 3M 0.08 T 1Y 0.15 T 2Y 0.23
FED Target 0.25 T 5Y 0.60 T 10Y 1.63 T 30Y 2.83

Not much change in the interest rate scenario. Unless the market forces the rates to go higher, defeating the currency printing shameless move, the rates may hover lower. It is not true that the lower rates engineer growth – look at India where the higher rates still yield the growth, and look at Japan which is still not seeing any growth even after 16 years of keeping the rates to low for too long. This is what we highlighted in our book Sub prime Resolved in the chapter on Interest rate

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

88.27

91.62

-3.35

294,282

294282

Oil (Brent) …

0.00

0

Gold …

1,780

1,774

6.00

348,559

351,295

-2736

Silver …

34.69

34.63

0.06

87,317

58,158

29159

Palladium …

658

654

4.00

19,528

19,616

-88

Platinum …

1,698

1,687

11.00

58,152

58,458

-306

Observation (Commodities)

  1. Oil was pushed down by almost 4% within a day, just a day ahead of first of three debate between the President Obama and Mitt Romney. It is clear that Obama wanted to blunt the attack of Romney on higher oil prices, so it was pushed down in future market. There is no other reasons, including dollar strength (in fact it has weakened) which would otherwise warrant lower oil prices by 4%. Lower oil prices are good for India at least where Oil in Rupee terms would have come down by massive 14% due to real fall in oil prices in dollar terms and rise in rupee against dollar by almost 10%. Such imbalance is only transient, and we do not think the Brent Crude price would be affected much due to sudden drop in Oil prices in US commodity market which is more or less a political event engineered by the backers of Obama.

Stocks: Our Observations and Comments

  1. Oil refinery stocks may perform better, so also Airline stocks which would benefit by massive 14% in saving of fuel costs.
  2. Steel and Cement stocks may benefit due to lower oil prices which is vital cost input. Other metal stocks like Aluminum and Copper may also get lift. In fact that sector was already battered, and it is due to strong rise due to very strong domestic SENSEX market.
  3. Banking stocks are still under performing. The prospect of Kingfisher going bankrupt may cause many banks to write off major amount, which cumulatively amount to Rs 8000 crores. However, prospect of lower rates may herald some demand in banking stocks.
  4. Kingfisher Airlines – is a classic case of government antipathy. The Civil Aviation minister and also FM and PM’s indirect support to him to “DO NOTHING” is not going to work. When the Airline is not having money, pressurizing it “to make the payment of salary or else we cancel the license” is a very negative tactics of the government. On the contrary, Government has to allow its PSU banks to extend support to make the payment of wages for at least 12 months so that it can have not only breather but also find some financing partner to recapitalize the airline substantially. By not allowing about Rs 200 crores of lifeline support to KFA for 12 months to help it make the payment wages, the Government is risking banking sector’s advance of almost Rs 8000 crores. Government wants to earn the good will of the KFA employees at the huge cost of hurting the banks. Further, these very banks converted almost Rs 600 crores of stocks into equity at the rate of Rs 64 when the ruling price was Rs 40, so what prevents them to swap almost Rs 2000 crores of debts into equity at par (Rs 10) or below to average down its own investments? Such conversion will help KFA to reduce the debt and enhance its capital. At the moment, the KFA is having more downside risk in spite of improving fundamentals for the Airline industry where the major cost of ATF is sliding down rapidly. This is the right time for Government to force its lender banks to swap debt into equity and lend helping land to the KFA management. Do not think them as villain – they pumped in thousands of crores by pledging the shares of its major associate parents, United Brewery group.

Special Situation:

  1. None today

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1. Rising rupee at last is a positive sign. Let us hope Subba Rao does not become a haunting ghost during ensuing Halloween days.

 

SWAPS:(All in Rupees)

Following swaps are suggested to maximize gains on the capital. The idea is to get out of stagnating or weakening sectors into growth or strengthening sectors

SECTOR SWAP

From

 

To

 

Reason

Auto sector Banking, Metal and Oil Sector Taking profit and moving on to other laggards. It is a bull market.

 

STOCK SWAP

Following situations are suggested. The idea is to sell the overpriced stocks and switch the proceeds to underpriced stocks or those stocks which gained or regained favors of the investors. These are not necessarily long term recommendations. Read the comments with the following tables to make sure that you understand what you are going to do.

SELL

@< or >

BUY

@< or >

Reasons

None

OVER

Stock Observatory India

Ref: ISO/12/75 of 2012-10-03, Wednesday, India Time 9.30 am)

Overnight Events and Effects:

  1. Nothing significant. No comments are necessary at this time.

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,482

13,515

-33

NASDAQ

3,120

3,114

6

NIKKEI – Japan

8,795

8,786

 9

Hang Sang -HK

20,948

20,840

 108

SENSEX – India

18,791

18,823

 -32

* = live intra-day.

Dow retreated mildly. The best market to be in is SENSEX which is reaching zenith at the moment. There has been double gain for FII – in stocks and also in currency which appreciated over 8%. However, domestic investors may focus only on local stocks, and not currency factor as it is neutral event for them.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

79.83

79.75

0.0800

Euro/US$

1.2901

1.292

-0.0019

Rs/US$

52.40

52.505

-0.1050

Observation (Currency):

No significant movement. Possible downgrades of Spanish banks by Moody might weaken the Euro against US dollar. Indian Rupee is healthily showing firm uptrend. Its rebound from yesterday also shows that more dollar remittances are coming in. FII are buying rupee to buy the stocks later within 2 or 3 days. Further, SENSEX is close to reaching 52 Week high of 18,869. Once this resistance is passed, the market may gain another 300 points in few sessions. The market is otherwise overbought and needs some correction to consolidate at higher level.

Interest Rates (US$)

LIBOR 1M LIBOR 3M LIBOR 6M LIBOR 1Y
T 1M T 3M 0.08 T 1Y 0.16 T 2Y 0.23
FED Target 0.25 T 5Y 0.60 T 10Y 1.60 T 30Y 2.80

3 month bond yield dropped by 0.01 signifying higher demand for this category of bonds. It is just Q.E. 3 which is trying to drop the short term rates so that housing market does not falter. The key rate to watch is 2year T bonds which at 0.23 is very close to FED’s avowed rate of 0.25%. Once the 2Y T Bonds Yield rises above 0.25, especially when it reaches 0.28, the trouble for the market may start. Watch this indicator.

Commodities

Item

Latest

PREVIOUS

Change

Current OI

2 Apr 2012 OI

Change

Oil (WTI- USA)

91.62

91.84

-0.22

313,142

-313142

Oil (Brent) …

0.00

0

Gold …

1,774

1,776

-2.00

351,295

353,430

-2135

Silver …

34.63

34.67

-0.04

58,158

87,608

-29450

Palladium …

654

653

1.00

19,616

18,923

693

Platinum …

1,687

1,686

1.00

58,458

56,618

1840

Observation (Commodities)

  1. The Gold is in good demand, with volume rising over 150,000 contracts in a day = 15 Million Troy Ounces. However, the key resistance is 1,785 followed by 1,835 which when exceeded will herald re-emergence of bull gold market. The December contract is also closing in, just 3 months away.
  2. Silver is again under attack by large operators to restrict its gains, having been forced down 3% on previous day. The physical demand is rising due to greater currency of Solar power panels which uses Silver in its photovoltic cells. Almost all governments are promoting Solar Power by announcing various subsidies. Since the Commodity Exchange bourses are permitting manipulation by closing their eyes, we have to be at mercy of such tactics.
  3. Platinum is gaining more of late. Palladium is also gaining. Both metals are being used in Auto industries as catalyst. Since auto industry is quite healthy at the moment, the demand for both P metals will keep them in demand. Not much overshot actions are expected. Gold is due to major rise during this quarter culminating in December.
  4. While Oil prices have moderated, the Pump prices are surprisingly rising in USA. We should have expected nearly 10% lower level at the pump prices, but the facts are just otherwise. Something is wrong somewhere.

Stocks: Our Observations and Comments

  1. SENSEX may remain healthy. It may rise over 300 points in next few sessions unless some international events put it back. We have to wait for SENSEX to rise to 18,869 and remain there for at least 2 days. When 52W high is exceeded, the momentum traders may jump in.
  2. In India, Auto stocks may do well except Tata Motors which showed slide on its September sales. Mahindra and Mahindra is one of the very healthy auto stocks apart from Maruti. It is not known why Bajaj Auto reported sharp slump in its September sales.
  3. We can expect interest rates to go down which may bring in more FII funds into active bond market. Higher bond market may also induce buying in stocks.
  4. We do not see much bargain in established stocks. Banking stocks are remarkably cheap. They will lead the rally once the SENSEX breaches 52W high at18,869. Stay with finance stocks, and one may buy popular stocks like Bank of India which is relatively cheaper, and other private banks like HDFC Bank, ICICI Bank. Since HSBC is getting out of Axis Bank, we do not suggest taking more positions at current time.
  5. We have to wait for freight rates to rise, which may hurt Cement and Steel stocks, though not much. It may increase the cost of input for Cement and Steel which may help Real Estate sector to remain at elevated level without much transactions.
  6. We are entering fetival seasons in India which may benefit some sectors, esp. Food sector. Shraddha month is out of way, which may instil hopes in real estate sector. Still major player like DLF are reeling under lot of pressure. We are still negative on real estate sector. The correction is delayed, not denied. The weaker banking sector suggests that most banks are having problems with Real Estate sector.
  7. Kingfisher Airline has finally stopped operating. The Government is asking for payment of salaries before allowing it to fly. Very strange. The biggest loses, Air India, can continue to make payment of salary due to unlimited financial support from Government and its PSU banks. KFA does not have that luxury. Mallya is cornered. It is likely that KFA will ultimately enter into CDR or Corporate Debt Restructuring Process, which may hurt many banks. This is the only route left for KFA. No foreign airline is still coming in to pay. No one wants to buy into stationery planes when its real place is in sky. While cut in AIR Turbine Fuel prices by 4% may help the sector, it does not matter for KFA which does not have cash to pay for Airport charges, lease rent and also salaries to its employees, including Pilot and ground engineers. If it is trading at Rs 16 or about, reduce the position by 25% at least, or even 40%
  8. Food retailers are showing strength. We can expect more actions in this sector. We still favor Tata Global which is really entering growth phase. Although it had advanced by over 40% in recent past (we originally recommended near 108 level and buying more at less than 100), the growth for this company is likely to be far more faster than other players. Coffee is slowly taking over from Tea at least in urban elites.

Special Situation:

  1. None today

OVER

 

Stock Observatory India

Ref: ISO/12/74 of 2012-10-01, Monday, India Time 9.30 am)

 

Overnight Events and Effects:

  1. US market closed at the time of this writing. Hong Kong will be closed for two days – Monday and Tuesday. The volume will be thin. Like on previous occasions, when Silver was smashed down during first 15 minutes of Asian trading, we may see the repeat action this time. This is our strong suspecion. During market closure, the stocks do not trade, but commodities do trade from one border to another as its trading is almost 24 hours a day except on Saturday and Sunday when the banks are also closed. We may see sudden rise in USD index which may push down Gold, Silver and Oil prices across the board. If you wish to buy Gold or Silver, better do it on Tuesday.
  2. While Dow is nearing all time high, the news report says that New York Plaza District, one of the most sought building on Wall Street during boom times, finds vacancies rising with more and more banks moving out of this location. That is, banks do not have money, the consumers do not have money, only FED is having money because it has freedom to print it at will, so the economic crisis instead of resolving is worsening day by day. Do not be fooled by Index numbers or markets rising on hopes after hopes, but look at the realities. The market strength is not backed by fundamentals. The political news and Central Banks’ move to impart liquidity move the markets up and down.
  3. Japan is also decelerating. Tankan Index for large manufacturers in Japan fell -3 against -1 in the previous quarter. This is forth time that the Index fell. The Japanese manufacturers are also pessimistic about the growth.
  4. In India, the hopes are rising. However, the inflation picture may worsen that may cause hopes for rate cuts to water down. The report suggests that the government (Indian Railways) may raise the freight rates for Cement, Steel and other commodities by 5% very soon. The steel and cement may therefore become dearer that may support the property prices due to rise in replacement costs.
  5. When the sentiments are positive, the Government instead of acting fast, is slowing down in decision making. This was the most opportune time to reduce interest rates by at least 1% full point to convey the message that the “rates are on way down”. This would have buoyed the infra structure and the property sector which is consolidating at the moment. Yes, rise in freight prices may not contribute to inflation index as much as the oil prices, but they will have more lasting effect from January, 2013 onwards. RBI may cust the CRR but may not reduce the Repo rates which have more effect on the rate structures.
  6. We are entering critical election month in USA. November election will dictate the future course of actions. In all probabilty, Obama will have much larger lead over his counter part who lacks the convictions and actions.

 

US & Asian Markets today

INDEX

CURRENT

PREVIOUS

CHANGE

COMMENTS
Dow Jones USA

13,437

13,437

0

NASDAQ

3,115

3,115

0

NIKKEI – Japan

8,851

8,870

 -19

Hang Sang -HK

20,840

20,840

 0

Markets closed on Mon and Tuesday
SENSEX – India

18,763

18,763

 0

Market not open.

* = live intra-day.

Currency:

Pair/Index

LATEST

PREVIOUS

CHANGE

Comments

US$ Index

80.080

79.894

0.1860

May rise for two days.
Euro/US$

1.2815

1.2859

-0.0044

May weaken for two days
Rs/US$

52.96

52.88

0.0800

May weaken slightly to 53.35 in thin market

Observation (Currency):

USD index may be manipulated in Asian trading when the major players are absent due to holidays in Hong Kong (Monday and Tuesday) and Korea on Monday. Sudden gain in USD in very thin volume may cause Gold and Silver prices to weaken in next two days.

Interest Rates (US$)

LIBOR 1M LIBOR 3M LIBOR 6M LIBOR 1Y
T 1M T 3M 0.09 T 1Y 0.15 T 2Y 0.23
FED Target 0.25 T 5Y 0.62 T 10Y 1.62 T 30Y 2.81

Commodities

Item

Latest

PREVIOUS

Change

Current OI

Previous OI

Change

Oil (WTI- USA)

91.46

92.19

-0.73

313,142

320,432

-7290

Oil (Brent) …

0.00

0

Gold …

1,766

1,773

-7.00

353,430

353,966

-536

Silver …

34.28

34.57

-0.29

87,608

86,972

636

Palladium …

640.8

640.8

0.00

18,923

18,832

91

Platinum …

1,669

1,668

1.00

56,618

55,496

1122

Observation (Commodities)

  1. The active traders have raised the Open Interest position ahead of Asian holidays. It lends belief that the prices may swing in commodity market in next two days on the downside. All metals, precious metals, non dollar currencies may decline, including Indian Rupee.

Stocks: Our Observations and Comments

  1. The markets are closed, so no more comments. Hong Kong and Korea are closed today. US is already closed due to Sunday and may open tomorrow. ADR market may guide the Indian market later.
  2. Kingfisher is again in news, negative of course, by cancelling several flights on Mondy due to labour unrest. The pilots and other employees are not paid salaries since March, that is over 6 months now. Its financial situation is worsening day by day because it is unable to find the real investor with deep pocket. Only Arabs may be in position to save KFA. Other foreign airlines may not show any interest at all in spite of rise in FDA ratio to 49%. Jet Airways and Spice Jet may benefit.
  3. Cement and Steel stocks may soften due to possible rise in freight rates by 5%
  4. Food stocks, and other retail stocks may gain moderately. We still believe that ITC and Hindustan Lever in spite of being pricey of late, may still rise further. ITC is strong in Agriculture, apart from Hotels, and may venture into retailing later. It is also a cash rich copany at a time when the money is very expensive due to higher rates.
  5. More and more people are recommending Tata Global who partnered with Starbucks. It has synergy since Tata Coffee is also a major player and producer in Coffee market. It can sell more to Starbuck not only in India but also overseas. There is no doubt that Tata Global may turn out to be a good growth stocks. Watch it carefully and make a point to buy during any sharp correction due to international or domestic events.
  6. RIL wants to raise the Gas prices 3 times (200% rise from current level) from April 2014 which is far far away. But will government allow it so easily? While the natural gas prices are falling internationally, they are rising in India due to possible subsidy withdrawal in phased manner. If RIL ask for 200% rise, the government may allow 35% rise which is still good for the company. Ask for 200% rise, and then agree to whatever is offered, is the strategy of RIL. In any case, RIL may make more from bank interest due to large cash holding than from regular business operation. It is still a buy.

 

Special Situation:

  1. None today

Something Right, Something Wrong….

Everyday is dynamic. Some events, news or policies are right having beneficial effects on the stock, sector or economy and some are wrong hurting the same categories. These are explained briefly. For detailed view, refer to other appropriate sections for which reference is made here with a link, if possible.

  1.  None today

SWAPS:(All in Rupees)

Following swaps are suggested to maximize gains on the capital. The idea is to get out of stagnating or weakening sectors into growth or strengthening sectors

SECTOR SWAP

From

 

To

 

Reason

No swaps for now Market too high to make swaps

 

STOCK SWAP

Following situations are suggested. The idea is to sell the overpriced stocks and switch the proceeds to underpriced stocks or those stocks which gained or regained favors of the investors. These are not necessarily long term recommendations. Read the comments with the following tables to make sure that you understand what you are going to do.

SELL

@< or >

BUY

@< or >

Reasons

No swaps now Market too high to make swaps

Kalidas One Liner

  • None today

OVER

 


 


 

 Posted by at 9:56 am

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