The Death of the Dollar

Another rate cut and the fate of the dollar will be sealed.World may see the end of the dollar era. Will it will mark the end of dollar hegemony as some experts are
believing?Although nobody can quantify the havoc an incessantly weakening dollar may wreck on the global economy,experts unanimously believe that it will be immense.Already FED Chairman Ben Bernanke has signalled another rate cut which has sparked a rally in bullion, crude oil,metal and commodity prices.Gold is touching new highs due to heavy buying by the funds as an hedge against inflation or a “political and economic uncertainty”. Gold rose to a record $976.32 in London while crude oil has risen to a record $103.05 a barrel. It seems the market is already factoring in another rate cut. Bernanke also said a housing slump may cause smaller U.S. banks to fail and unemployment to increase, fueling speculation Fed policy makers will increase the pace of interest-rate cuts.Market expects a 50-75bps rate cut in March’08.
The wide spread pessimism regarding dollar doesn’t stand on weak grounds but is backed by firm evidences. The dollar fell to the lowest in almost three years versus the yen and a record against the euro on growing signs of U.S. economy slipping into a recession. The dollar traded below 105 yen for the first time since May 2005 after Federal Reserve Chairman Ben S. Bernanke said the weaker currency is helping reduce the trade deficit. Euro is trading at an all time high of $1.52 since its launch in 1999. Since the euro's introduction, the dollar has declined 23 percent against the single currency, and 46 percent from a record high of 1.2089 euros in October 2000. Merrill Lynch & Co. analysts led by Daniel Tenengauzer forecast the euro to ``peak'' at $1.57 around the end of March. The dollar is headed for its biggest monthly fall of over 2.3%against the euro since September before a government report likely to show consumer spending stagnated in January, giving the Fed more reason to cut interest rates.The U.S. Dollar Index, which tracks the currency against six major counterparts, yesterday declined to 73.63, the lowest since its start in 1973.
The Fed has also lowered its 2008 growth forecast to 1.3 % - 2 %, from a forecast of 1.8 % - 2.5 % in November. Meanwhile, the US Trade Deficit narrowed in 2007, for the first time in six years, to 711.6 billion dollars from 758.5 billion in 2006, according to the Commerce Department. U.S. exports in 2007 rose to a record $1.62 trillion, lifted by an 18 percent jump in goods sold to China, an 8 percent increase in shipments to Canada and 5 percent more sales to Japan. The export boom for American businesses comes at the expense of some international rivals, and the euro's strength is becoming an irritant to some finance ministers in the EU. Treasury Secretary Henry Paulson said he favors a ``strong'' U.S. dollar that reflects the competitiveness of the world's largest economy in the long term.
Moreover there is no end to the bad news which are continuously flowing into the market,confirming the fears. According to the U.S. data, consumer sentiment hit a five-year low and consumer expectations slumped to the worst in 17 years, supporting the view that economy may be in a recession. Ben Bernanke has already confirmed what his various Fed colleagues had been saying: that they are more worried about growth than inflation, tacitly promising more rate cuts.So in near term the decline of dollar is likely to continue uncontested.Latest German economic data hints that European Central Bank may not cut interest rates as of now, thus keeping the Euro strong.Looking at US history government may not intervene as of now. U.S. government hasn't intervened in markets to bolster the dollar since August 1995. The last time a U.S. Treasury chief directed the Fed to buy or sell currencies was in September 2000, when it sold dollars for $1.33 billion in euros.Another bad news appears on the inflation front.Rises in the oil price have correlated with gains in euro against the dollar. A higher oil price does greater damage to the US than other big economies because of the US’s well-known oil addiction. It also shows that inflation pressures, whatever the Fed says, have not gone away.
So Ben seems to be in a catch-22 situation.Cutting interest rates is imperative to stimulate growth & tackle sub-prime mortgage writedowns which have already crossed $100bn and are feared to rise upto $300bn.So infusing liquidity is important.On the other hand weak dollar is pushing up commodity prices causing inflation above comfort zone.But for now Ben seems to be ignoring inflation fears and may go ahead with a rate cut. Soon global financial system may see itself coming to terms with the death of the dollar and the turmoil thereafter.

Buy Noida Toll Bridge for high return..

NOIDA TOLL BRIDGE has huge land bank to the tune of 200acres in Delhi and 30 acres in Noida.Value may unlock once the company gets a development rights from government.Land bank is valued at 1500crores which is impressive angainst the backdrop of 1433crore worth of market-cap.It has repaid its heavy loans and traffic too has risen impressively on DND flyover in last year.Traffic is expected to double in next 1.5 years.Trafffic is likely to surge in FY’09 with opening of Mayur Vihar Link road.Its sales numbers have risen impressively from 22.34cr to 31.56 crore in six months ended September 2007.PAT for the same period has quadrupled from 3.81cr. to 14.74cr.So for the year ending March 2008 PAT can be expected to stand at Rs30 crore level.The EPS works out to around 1.60 level.The company is promoted byIL&FS which provides it a strong backing.The counter can see 135-140 level by 2008 end itself. So traders with an year long perspective can expose their portfolio to the following scrip.

What ails the commodity markets????

What ails the commodity markets?
MMTC and India Bulls Financial Services are jointly planning the fourth national commodity exchange. MMTC had sought Commerce Ministry’s approval to hold a minority stake of 26 per cent in the special purpose vehicle to be floated for the new commodity exchange. They have applied to the regulatory body. Forward Markets Commission (FMC) for the same. However with three nationwide exchanges already operational in the country the FMC Chairman, Mr. B.C. Khatua, expressed reservation on allowing a broking firm to promote an exchange. Many might believe that competition among could benefit commodity trading. However this view is grossly misplaced.
The commodity trading in the country has stagnated around 15,000 crores much below the equity segment volumes of over 100,000cr. Globally volumes in equity segment pale in front of commodity volumes. This is anomaly in Indian markets can largely be attributed to excessive intervention from the government and rollback on reforms by the government. It’s a pity that options are yet to be introduced in commodity trading which leaves little room for hedging ones position. Barring a few metals and agricultural commodities most of the contracts have little liquidity. Although contracts covering over 80 commodities have been launched in various exchanges only a handful of commodities attract large volumes. Institutional players FIIs and Mutual funds don’t participate in the market, restricting liquidity to few traded commodities. This leaves them vulnerable to cartelisation and price manipulation making a mockery of the principle of price discovery.
On the other hand government and its netas love to blame the commodity futures market for inflation in food grains. The so-called ‘aam-admi’ government finds an easy scapegoat in commodity futures trading with little acknowledgement of its own policy failure. Poor agricultural infrastructure and lack of investment has taken sheen off food grains cultivation. Minimum Support Price (MSP) declared is very low and private players like ITC are discouraged to buy directly from the farmers, with government fearing a price rise. This Soviet-style curb on prices doesn’t incentivise agriculture and inhibits growth. This is reflected in poor agricultural growth registered in last few years which has dipped below pre-1990 levels. The agricultural growth in FY2006-07 was a meagre 2.7% and pales in front of the 11% growth registered in manufacturing for the same period. The government investment in agriculture fell from 1.8 percent in 1993 to 1.3 percent in 2003. Agriculture’s share of India’s GDP has fallen from 45 percent in 1972-1973 to 21 percent in 2004-2005. However almost 60 percent of India’s 1.1 billion people depend on agriculture for their livelihood.
What is the reason for critical state of agriculture? The answer is regulation , or to be precise ,its over-regulation.Agriculture needs investment and sadly government is not doing so.So why not let the corporate money flow into agriculture.Investment at individual level too can be made if the producers get proper prices which they are denied as layers of middlemen are involved in procurement & distribution process.Sadly that too is discouraged when organised retailers are made to shut shops by the state, pandering to the demands of guilded middlemen. If farmers receive good prices for produces then they are likely to invest in agriculture and will look to improve yields. However this has not happened,making small scale cultivation unsustainable. This also explains the sharp decline in wheat production last year and heavy migration from rural to urban areas in last few years. So the ultimate loser is the largest chunk of the ‘aam-admi’ electorate, the farmer itself. The urban ‘aam-admi’ pays extra for the same commodity for which the rural ‘aam-admi’ has received little and middlemen pocket the lion’s share of the profit. If that was not enough our government loves to import wheat for the countrymen at exorbitant rates. The Government first rejected the tender which offered wheat at $263 per MT in June citing steep price. After 10 days, it changed its mind and ordered import of 5.7 lakh tonnes of wheat at $325 per MT. Indian farmers are paid only Rs 850 per quintal, but through imports, foreign farmers are paid Rs 1,600 per quintal. Similar rates to Indian farmers would have huge impetus to domestic production. To be true the role of the state has remained restricted to free power, subsidized fertilizer and tax-free agricultural income.
All the above-mentioned shortcomings point into one direction; that the government is directionless when it comes to tackling rise in prices of commodities. It protects the middlemen and blames futures trading for price rise. Infact it’s the wrong policies of the government itself which are to be blamed. But then our netas are very apt at blame game and the best way for them to tackle inflation was banning future trading in key four commodities like wheat and pulses in March’07. That argument was more politics and less economics.
This was clear from a study by IIM Bangalore professor Gopal Naik which forms the key input for a panel set up by the Government under Planning Commission member Abhijit Sen to examine the effects of futures trading in agricultural commodities on their consumer prices. Naik’s study establishes that there is no evidence to show that futures trading had any significant influence on their spot market rates. In fact, a comparison of data on futures trading between wheat and Chana suggests that a more reformed agricultural commodities market is likely to be more beneficial to farmers.
The study looked at price volatility in a 30-month period before and after the introduction of futures trading in agriculture commodities. For wheat, price volatility increased from 7.09% between January 2002 and June 2004 — before trading was allowed — to 13.63% between July 2004 and December 2006 after introduction of the exchange markets. This jump is attributed to of lower production, lower stocks, and soaring international prices of wheat by Naik. “The year 2005-06 turned awful for wheat production,” says the report, “the actual production (68.6 million tonnes) turned out 5 % less than forecast which led to prices soar up by 8%.” Also, this year, international production dipped and global prices rose by almost 20 per cent to $158 per tonne. In the case of Chana, price volatility, in fact, marginally decreased from 6.4% between April 2002 and March 2004 before future trading was allowed to 6.16% between April 2004 and March 2006 after introduction of the exchange markets. However, there was high volatility during April 2006-March 2007, which the report says, was the result of “panic” over lower Chana production due to “weather aberration.”
However ignoring all these facts government took the regressive step of banning commodity futures in four commodities and that too at a time when we are projecting Mumbai as an International Financial Centre. This has brought trading volumes in commodities down to a trickle. This sends a wrong signal to domestic as well as overseas investors who want to invest in Indian market as a whole. Already institutional investors are barred from commodity trading. Even the largest stockholder of wheat in the country, the government-owned FCI, doesn’t enter the futures market. “Selective participation of FCI in the futures market would be a welcome step,” said Naik. “It will only deepen the market.”
Madan Sabnavis, Chief Economist at NCDEX Limited, feels that one of the main motivations for reviving these markets was to provide a hedge for farmers, and today, agri-trading volumes have diminished to less than 20 per cent of total traded volumes. This happened just at the time when liquidity was building up and prices were mirroring quite accurately the supply-demand conditions. Instead, it is the non-agri commodities which dominate the trading terminals, even though this is also stagnant at a higher level. However, it must be remembered that price discovery here is strictly not determined in the domestic market as they are images of international contracts and developments. The domestic price of gold or copper or crude is an image of that on, say, the NYMEX or LME. So could this mean that the core business faces the threat of stagnation, if not gradual disappearance?

An issue, which has been raised amid all the controversy, is whether farmers are participating in the market. Sabnavis fells that the answer is an honest ‘no’, because there are several hindrances in terms of accessibility and minimum lot size as farmers may not be in a position to bring an economic size lot to the exchange for delivery. Farmers can trade if there are convenient lot sizes and they cannot be offered unless there is enough liquidity — the classic chicken and egg problem. While the exchanges can offer 1 tonne contracts and 10 tonne contracts, from a buyer’s perspective, the 1 tonne contract is not economical as it would entail higher costs. So, the willing seller may not find a buyer. Therefore, liquidity would be missing and the price discovery process would be retarded.
Sabnavis feels that there is need for two entities to step in quickly. The first is the consolidator who can represent the farmers on the exchanges who consolidates the produce of, say, 10 farmers and puts in the contract. The other is to have market makers who would actually offer buy and sell quotes so that liquidity is generated and the two processes buttress one another. The regulatory processes need to be addressed with urgency to put the market back on track. He feels that institutional players like mutual funds and FIIs must be allowed to participate with well defined frontiers to add liquidity. Awareness amongst end users such as corporates must run alongside to add weight to these efforts. Or else, interest would dwindle further given that the capital market is spiralling upwards quite relentlessly.

He also demands suitable amendments in regulatory structures in four areas. Firstly, FCRA (Foreign Contribution Regulation Act, 1976) needs to be amended to bring in options. Secondly, the concept of consolidator needs to be implemented so as to bring in the farmers.
More autonomy should be granted to FMC. With a surge in trading volumes, the responsibilities of the regulator will considerably increase(in case they rise). In addition to appropriate financial and operational freedom has become absolutely necessary. FMC should be given more teeth so that it is able to take independent decisions for benefit of investors. It should not remain a mere reflection of the fancies political masters, who sadly are driven more by short-term political gains rather than long-term economic benefits.

Strike it Rich with the right stocks...

Very soon we may see FED Chairman,Ben Bernanke, slash interest rates by another quarter percent to bring them down to 4.5%. It seems he wants the ordinary house owner to celebrate his Christmas amid cheers rather than sulking over asset's depriciating value.But the poor man too has run out of options.To draft American monetary policy during such troubled times is no easy task either. On one hand oil is trading around $93 per barrel and commodity prices are shooting over the roof.But increasing interest rates could destroy the residential real estate which has an aggregate value of about $21 trillion, and is the single biggest source of US household wealth. If home prices fall 15%, it could wipe out $3 trillion of household wealth, and could give a huge blow to consumer spending.About 7.6 million Americans workers are employed by construction companies, so a 15% decline would translate into the loss of 1 million jobs . So the guy has little choice but to go ahead with a rate cut of a minimum 25bps.

So what does this rate-cut has in place for an Indian investor.Well we could see the dollar slumping to Rs38.Crude may test $100 per barrel and commodity prices could sky rocket.Gold is all set to test $850/oz in coming weeks and commodity bulls are all set to rake in the moolah.Weak dollar will further weaken the dollar internationally.So large hedge funds and FIIs will increase their investments in emerging markets including India.So all the investors can expect the NIFTY to test 6300 level in coming days.Similarly Sensex could test 21500 level.FII money usually chases fundamentally sound counters. So blue chips will become a lot dearer in coming days.Traders and investors can remain long. So if you want make money look out for the following counters.
1)Rel.Petro TGT 280
2)Voltas TGT 250
3)PFC TGT 270
4)PowerGrid 180