YEN-The killer currency

Would you buy my argument if i told you that YEN is the reason for financial unrest in the world???
Let me walk you through a term known as Yen Carry Trade.

Yen Carry trade:BOJ(Bank of Japan) till recently had negative interest rates!! can u beat that..what it actually means is that you have to pay intrest to the bank for keeping money!!So how is it so fascinating..BOJ gives loans at every low interest rates.So what traders(Foreign Instituional investors(FIIs) and Hedge Funds) do is that they take borrow money from BOJ at a lower interest rate and invest it in emerging markets lik India,Russia and China.The returns that they get by investing this money in emerging markets/US treasury bonds/bills is huge.Its not fair but its an handsome ROI(return on invesment).

Now Now..there is a catch here..all is fine till the interest rates of BOJ and YEN remains steady(historically it has been thats y lot of big firms take loans from BOJ..tata-corus deal is an yen deal for eg)What if BOJ raises interrest rates..or what if YEN appreciates to the dollar..what will happen in such an scenario..money will start flowing out of emerging markets where FIIs/Hedge Funds have invested in.If you closely follow the INR-YEN-USD equation..you wil realise it holds a secret on how markets will perform in short term.


Bad Economics:
Rarely does it happens in fianancial markets that equity and commodity markets follow a parellel path.
Both move in diametrically opposite paths.Recently what we are seeing is commodity prices increasing and equity prices shooting up.
a week before equities were moving down and so was crude..its a bit wierd.Whats even interesting is that dollar has appreciated against the rupee..moreover when there is financial turmoil as in US. Ideally speaking dollar should have plunged.There is some rigging happening USD.Either it is US or some economies which have vested intrest in Dollar being steady supporting the Dollar..but trust me its not goin to last for long...you can support for sometime..you can come up with stop gap solutions..but if fundamental problems are not being addressed things r goin to come haunting back..with even more ugly faces.

In months to come dollar will plunge.Mark my words.Be long on gold..in tough times lik this you bet on something which has intrinsic value.If US congress approves their plan bail out the so called Toxic or Bad-Debts using american tax payers money...god save america.
Normally when u print currencies you keep some securities against it.Gold is the best bet.Clandestine sources confirm that US is printing dollars with minimum security in times of crisis.Pound has corrected..Dollar will go down..Yen will appreciate spelling doom..beware YEN is coming!!

Stock markets are like..

women:   you have to be patient,understand the moods,be ready for wild swings..stand by it..in long term it will worth the effort.

weather: wether you lik or not..you have to bear with it.

Cairn India

Why now:

The  stock price in September 2008 (20%); the stock now offers 23% potential upside

to our 12-month DCF-based target price of Rs245.When recommended pirce was 199 its 220 now.Those who bought must have benifited from this rise. nearly 10% in 2 days.

Company fundamentals:

 (1) strong resource base in Rajasthan

with recoverable reserves at 1.1 bn bbls (including 300 mn bbls of EOR), 

(2) potential

of new discoveries in its 12 exploration blocks and 

(3) strong execution capabilities.

Key downside risks stems from further decline in crude prices—may result in correction

in Cairn's stock price.

Reward-risk balance more favorable after recent steep correction. 

4) strong backing for its UK parent company.

Cairn's stock price has high positive correlation with crude oil prices although the

valuation for Cairn does not vary significantly with higher crude oil prices. Thus, we

would be aggressive in buying the stock when the stock is discounting a 'low' crude oil

price in perpetuity. We believe this is the case currently. Our normalized long-term

crude price is US$75/bbl based on the economics of a Canadian oil sands producer,

which we treat as a marginal-cost producer.

Snap shot cmp: Rs199

Rating

Sector coverage view

Target Price (Rs) 245

52W High -Low (Rs) 343 - 125

Market Cap (Rs bn) 371.0

Financials

December y/e 2007 2008E 2009E

Sales (Rs bn) 16.6 35.7 71.3

Net Profit (Rs bn) 1.9 7.3 38.4

EPS (Rs) (0.1) 3.9 20.3

EPS gth (108.2) - 430.2

P/E (x) ( 1,666) 5 0.6 9 .8

EV/EBITDA (x) 4 6.4 20.6 6 .8

Shareholding, June 2008

% of Over/(under)

Pattern Portfolio weight

Promoters 6 4.8 - -

FIIs 10.5 0.8 ( 0.7)

MFs 1.7 0.7 ( 0.8)

UTI - - ( 1.5)

LIC 2.0 0.7 ( 0.8)

Catch is the share holding pattern.Companies which are over owned(RPL/Reliance for eg) do not move much coz there are many hands to mess up the movement.This is one company which has minimum retail holding.Which works in favour of the company.

Shorterm target: 245-250,Stock technically has good momentum over 230.1 yr target 300+

come see the indian markets through my eyes...

come see the indian markets through my eyes...

First of all this is not an investors market its a traders delight.Indian market has a whole is stuck in this trading range of 3800-4500.

If your investment in this range,somewhere buying around 4000 levels n selling around 4500 you wil get 10-15% returns of a particular stock.Are you prepared to do this..buy-sell stuff on a weekly basis??

Why is this market a traders delight:

Take for example nifty, it was 3800 on thrusday(lows) and its 4245(highs) on friday.Thats 445 pts of nifty, close to 10% movment in 2 days!!

Its staggering and can be used to mint money..something which traders love.

Eg: One lot of nifty is 50.so if someone bought one lot of nity at lows of 3800 and sold it on friday closing,hes entitled for a profit of 50*400(lot size* nifty movement) ie 20,000 on jus one lot!!.Trick is easy short at 4500 buy at 3800!!.you would probably make that much by investing in a stock for a year or more or may be not.and this is sure short profit coz ur booking it in a day or two.!!

Lets come to the fundamentals of indian markets:

1) High PE valuations compared to other emerging economies such as China,Brazil and Russia.

2) We do not have the infrastructure to fuel a growth rate of 12% or more, we are dependent of crude from international market to fuel our economy so if crude goes up we are fucked.Yes we have nuclear deal but its goin to take a good 5-8 years till that happens and we dont know what the world is goin to be at that time.

3) Dependence on US economy interms of rupee-dollar correlation.IT companies have 20-30% of their profits come for US clients.Most of these are major banks which are giving huge write downs.If thes banks are screwed so is IT.

4) Indian marets are used by FIIs to park their money for shorterm gains rather then investments.what was so different with the indian economy when nifty was at lifetime high of 6200+ and sensex 21000?? were markets rising coz india was shining?? no they were jus rising coz there were foreign funds pumping in money to ride the wave.what has fundamentally changed now and when were were flying high in terms of fundamentals..nothing...fundamentals r te same.but does the market reflect tat? no.

5) Execution risks for indian companies.We dont have stable interest rates, we lack political stability something that markets hates.Every time Left sneezes govermetn catches cold..markets bleed..is this how financial markes are suppose to function??..modi is elected in gujrat you will see modi stocks jumping else the same stocks would crash.Mayawati is elected in UP you wil see sugar stocks rising..amar singh lends support to UPA you will see RCOM rising.

6) India lacks the domestic liquidity to sustain its markets during turbulent times.Everytime US markets falls you hav had fed cutting rates n uncle sam doing something to bail out investors.Tell me one investor friend policy chidambaram has dishedout for the markets.last time around he increased STT(securites transaction tax) in his budget.Friday china did jus the reverse n the chinese market roared 10%.

7) Is related to 6th.FIIs manipluate our markets like hell obviously coz tey provide liquidity to this market.in a nutshell market does what they want.

8) Fed keeps cutting rate which it has been doing for a year or so, dollar is goin to get fucked sometime or later.If dollar is fucked yen wil rise.this will lead to yen unwinding of yen carry trade(will write something on yen carry trade latter..its stunning actually tat the root cause of financial turmoil is related to YEN ).What that means is in long term it will suck out liquidity out of global markets.

9)Every panwala in india knows tat US financials are doing absysmal.stop gap solutions like injecting liquidity,banning short selling is not going to help.It does nothing to change the fundamentals.Till when will fed keep bailing...whose money is being used for bailout tax payers money..ur putting the average amercian at risk...wats worse its the tax payers money being used to bail out an insurer of tax payers viz AIG. why was lehman left for the vultures and AIG being prefered as a bail out.For fed to rescue you hav to screw up big time.Bear stearns n AIG walked into that mould.Had AIG collapsed republicans wudnt hav had a ray of hope in the comming elections.

10) These financial write downs are goin to have a rippling impact on global economy.why? take for eg Lehman,lot of japanse banks which were creditors to lehman, tey lost half of their market capitalisation coz lehman sunk..these banks lost money for no fault of theirs!!imagine people wo hav invested in these banks..they lose money...poor mans life in japan is screwed coz someone screwed up big time in some NY office.

11)Some indian banks hav exposure to subprime.They are not coming out in open coz its unrealised loss.

These bail out will show colors in time to come.Ask Buffet why he is short on the dollar that tells a story.Ask Allan GreenSpan and he will tell you tat worse is about to come.

In my view if ur an investor stay out of indian markets or invest slowly in good companies for a long term view.If ur a shorterm investor n looking for rises ,play swings,follow market closely..walk in and take a table.If ur a trader..indian market is ur heaven.

India growth story is alive..but patience will be the key.

Having said that there are pockets of opportunity everywhere.Depends on what u pick and when.

Those were my 2 cents.