Euro
January 26, 2012
Quick quiz. What is common to Suzlon, Moser Baer, Indo Solar, Websol Energy systems and Orient Green Power? All these stocks had successful runs on the stock market and hyped as the next game changers in wind energy, semi conductors, solar power and hydel/geo thermal power. Valuations were more on growth stories than through an hard nosed DCF spreadsheet. But now, they trade at record lows(like other stocks but what is different is the pressing fundamental concerns in each case). Is this a bubble finally bursting, or are investors panicking?
January 14, 2012
China has reported the first decrease in its forex reserves in a qtr since the 1998 crisis. The Chinese Foreign Exchange Reserves which are humongous at over $4 trillion has shown a $100 billion decrease in Nov and Dec 2012 .While the sharp decrease in the Euro may account for some change , there is also anecdotal evidence that the hot money is flowing out of China . Note earlier Hot Money was pouring into China given the potential of yuan appreciation but with the potential of a Chinese Hard Landing ,the opposite may be happening . China has a distorted economy heavily dependent on exports and investment for growth . However changed macro economic conditions make this model unsustainable . How China manages to transition out of this investment export fueled condition is an open question . That they must is in no doubt nor the fact that China's 10% GDP growth days are definitely over.
January 2, 2012
China faces multiple challenges
1) Slowdown in Europe and USA means that their exports are sputtering and manufacturing has already started contracting
2) Protests in cities and villages grows against rampant corruption and land grabbing by Communist officies.Lack of democracy means violent protests at times.
3) Debt is becoming a huge problem with local government vehicles facing trouble as they can no longer raise money from real estate sales which has fallen by 20-25%
4) Massive industrial overcapacity is being exported outside.This has made the other trading nations put duties and curbs.A big trade war with USA cannot be ruled out.Chinese solar and wind products faced countervailing duties and dumping charges.China has already imposed high duties on US car imports.
July 6, 2011
Greece Referendum is set to become the hottest media topic related to the European Debt Crisis in the coming months.In a totally surprising move Greek Prime Minister George Papandreou called a referendum and a parliamentary confidence vote on 31st October just a week after the European leaders had agreed on a package to .Papandreou’s personal and government popularity have plunged amid fresh austerity measures that sparked a wave of social unrest.The PM is calling this vote probably to bolster his government as it loses support of the masses
July 5, 2011
According to reports coming from Europe where the summit of major European leaders took place to resolve the growing debt crisis,a deal has been reached on Greek debt.The Euro 350 billion debt which dwarfs the size of the negatively growing Greek economy has been a major source of instability in the last 2 years.The private holders of the Greek government bonds have agreed to take a 50% writeoff on their holdings.This means that if they hold Euro 100 of bonds they have become Euro 50 now as the rest has been written off as bad debt.Not that it was not apparent as Greek CDS and Greek bonds were touching all times lows in the secondary market.In fact the only buyers of Greece bonds were the European Central Bank and the Greek banks.The capital markets had been going up in the last month in the hope of some sort of resolution.The deal does not look like a win win as there will be some big losers in this deal (though they were already losing for some time).Nicolas Sarkozy announced the deal which would be voluntary in nature so that the CDS would not be invoked.Here are the winners and losers from this deal
April 15, 2011
Spain has started cracking down on Solar Power Plants which are making huge profits through illegal Feed in Tariffs which they should not get.Note Spain had seen a massive boom in solar installations in 2008 due to unusually large ROI driven by high Feed in Tariffs.FIT are electricity rates which are higher than wholesale electricity rates paid to renewable energy power plants in order to make them competitive with cheaper fossil fuel power plants.Seeing a huge increase in the subsidy burden Spain has pretty much killed the solar market in 2009,however the problems of Fiscal Deficit has made Spain reconsider the tariffs being given to even older solar power plants.After a lot of controversy,Spain changed the FIT rules in the middle of the game through a retroactive FIT Law drawing howls of protest from solar investors like pension funds which have sued the government
April 2, 2011
India has become the latest country to join in the bashing of Renminbi undervaluation saying it leads to a massive advantage for Chinese exporters.A research paper from India's Central Bank says that its artificially boosts China giving it a competitive advantage over Indian exports.Note Brazil another one of the famed BRIC quartet has too been complaining about Chinese imports swamping its industry.Note Brazil has seen massive currency appreciation in recent years due to a combination of high interest rates and strong economic fundamentals.
February 28, 2011
The Reserve Bank of India has clarified that Indian individuals cannot trade in the forex markets under FEMA rules.Note a number of Indian brokers and forex companies were advertising heavily promising big returns to retail investors.Note forex markets are extremely tough to trade even for professional traders for institutions.For retail investors they are a sure shot way to lose money in large amounts.Note forex markets offer much higher leverage than normal Futures Equity markets.Being an effectively zero sum game and requiring high amounts of knowledge ,forex markets are just too sophisticated for retail investors in my view.But they are quite lucrative for forex trading portals and companies whose main target semgent are retail investors.
February 7, 2011
Italian Electricity Regulator really shook the global solar market saying that approximately 6 GW of Solar Installations were done in the country in 2010 up almost 500% from 2010.While 2 GW were installed and connected in 2010,4 GW worth of application were submitted by 50,000 installations which were installed but not connected.This means that that Italy's target of 8 GW in 2020 was almost fully met in 2010 itself.I had written that Italian Solar Feed in Tariff Subsidy Cuts for 2011 will fail to stop the Boom in Solar Demand and the 2020 target would be met much earlier.But 2010 was not in my wildest projection.The combination of high sunlight,high electricity rates,falling solar module prices and attractive feed in tariff by the government has made investing in solar in Italy a hugely profitable venture.So 6 GW is not totally impossible given the massive supply growth seen in solar panels.Every solar company in the world had been shipping to capacity making it a mystery as to what was the source of such demand.Italy might prove to be the answer.
December 21, 2010
The Dollar is being relentlessly attacked by Bears due to massive QE program unleashed by the US Fed.However the US Dollar continues to be a safe refuge in many parts of the world.For countries affected by major politicial and economic problems,dollar is looked upon a safe haven for capital preservation.Many of these places have a history of high inflation and major political upheavals.In these places,Gold and Dollar are looked upon as equals for preserving wealth during times of chaos.Vietnam serves as a reminder where even citizens of relatively fast growing stable economies look upon as Dollar as a rock of stability.The South East Asian country has seen high inflation in recent times and numerous devaluations of its currency.The Communist led country has tried to replicate China in many of its policies some of which have backfired.The recent scandal and debt default of a major government owned company has shaken the confidence of investors.With high inflation and depleting foreign reserves
November 20, 2010
Deflating Developed Countries are fueling Inflation in Developing Ones with ultra low interest rates.QE2 has been heavily criticized around the world due to the dangers of it creating asset bubbles in emerging markets as yield hungry investors look for growth at any price.With hundred of billions flooding emerging debt and equity markets,the situation has become volatile for a lot of countries.Brazil has already seen its currency skyrocket in the last 2-3 years due to the huge spread between its bond yields and the US interest rates.With carry investors able to make around 10%,Brazil remains a favorite market for the inflow of dollars.Other countries like Thailand,Malaysia,Indonesia have seen their stock markets rallying to all time highs as well.Many of these countries have already imposed capital controls earlier.Now they are increasing further,as monetary authorities rush to close the gates.
September 27, 2010
Brazil,Peru,Colombia and now South Korea have all joined the "Buy Dollar and Sell Local Currency" Club.The Brazilian Real has appreciated by 34% in the last 2 years while similar stories lie behind Peru and Colombian interventions as well.With yields at near zero,Developed World Investors are pouring money into debt,equity and commodities fueling some of the Emerging Markets to all time highs.Some of the valuations like the Indian market are already stretched with local investors shunning the bubble markets.Countries with large Export Sectors like South Korea are particularly sensitive to currency appreciation and are joining in the chaos that the currency markets have become.The $4 Trillion Currency Markets are too big for a single country to take on as the Swiss found out losing Billions of Dollars in the process.The Currency Chaos is set to persist as the Financial System has become Unstable with Huge Debts,Moral Hazard and Central Bank Meddling.Gold has touched an all time high of $1300 with Silver following closely.With such volatility in Currencies,Business has become quite difficult with faith in currencies eroding at a fast pace.
September 15, 2010
With Every Country wanting to Use Exports to get out of their Tough Fiscal Situations,it does seem that Currency Manipulation will become a mainstream activity.Gold and Silver are already touching new highs and with countries hell bent on competitively devaluing their currencies,expect the precious metals to go even higher.
September 14, 2010
Global Imbalances back to pre-Lehman Days Global Imbalances are growing deeper by the day as the world returns to its unsustainable pre-Lehman days of Unbalanced Trade.Trade […]
September 9, 2010
One of the factors behind the Yen Rise is the Chinese record buying of Japanese Government Bonds (JGBs).The Japanese Finance Minister has become concerned as the Japanese cant reciprocally buy Chinese Government Bonds which are not freely traded.Note Japan has a huge government debt load of around 200% of Japans GDP which is mainly financed by domestic investors.China with its humongous Foreign Reserves is the biggest player in the Foreign Exchange Markets Today.
August 17, 2010
The stock might offer some short term profits for high risk traders on a dead cat bounce,but it is definitely not a fundamental pick.Unless the company really makes significant progress on the revenue and orders front,it is not a buy in my book.
August 16, 2010
This almost 30% decline in US yield is due to a combination of factors like expectations of more monetary easing by Fed,deflation worries and disappointing US economic data.In lockstep with the the US Treasury yields,the German bunds have also been rising.The rise in German Bunds is despite very strong German economic data.The German economy expanded at the fastest pace in 23 years on Rising Exports.So the fall in Bund yield is confusing when seen in terms of the US Treasury and Economy relationship
August 13, 2010
Germany which was a Reluctant Rescuer of Spain and Greece during the Greek Contagion has emerged as the surprise beneficiary of the crisis.The country’s economists and […]
July 19, 2010
The recent recovery in Euro from 1.2 to 1.3 USD and the strength of the stock markets would make you think that the Greek Contagion is […]
July 15, 2010
The Spanish Financial sector is still in a precarious condition which is underscored by the record European Central Bank (ECB) borrowing . The indications of weaknesses […]
July 14, 2010
.The almost 20% peak to trough fall has led to Germany's already strong exporting machine to generate even greater exports.While the rest of the European countries like Spain,Greece and Portugal don't really have the industry to benefit from Euro weakness,Germany has a massive industries to do so.
July 13, 2010
There has been reports of massive debt distress in Eastern European countries following the Global Financial Crisis.One of the major factors leading to this is the […]
June 22, 2010
The European Crisis which had been put into the backburner over the past week has resumed after the Much Ado about Nothing – Yuan Appreciation games.The […]
June 22, 2010
China’s Central Bank Statement which signaled more flexibility in yuan’s fixed exchange rate to the dollar led to a major market rally in commodities ,emerging markets […]
June 20, 2010
China’s Central Bank had released a statement on Yuan Reform seeking to defuse international pressure.The statement which rambled about recovery,BOP,world macro situation,yuan history had a brief […]
June 20, 2010
Indian exporters are overwhelmingly in favor of a fixed currency exchange rate as recent currency gyrations due to the Greek Contagion has made their lives very […]
June 19, 2010
China and US Tensions increasing on Currency Valuation The US Senate and President Obama have been increasing pressure on the Chinese Government to revalue the yuan […]
June 17, 2010
According to the Spanish Solar Power Lobby ASIF,the Spanish government (under Pressure with Spanish Banks facing Funding Problems and Spanish Bond Yields Rising) is proposing a […]
June 16, 2010
Spain,European Union and IMF all denied that a Spanish Bailout of Euro 250 Billion was being formulated by the international agencies.There are some people who think […]
June 11, 2010
Caja Madrid which was looking for a Bailout from the Spanish Central Bank is merging with another large Caja Bancaja.The Central Bank is pressurizing the Cajas(Socially […]