Monday, March 31, 2008

Where is the hot money heading towards?

China is building its reserves at a scorching pace. Latest estimates quote that the reserves touched $1.7 trillion last month, which really made the financial gurus mad. Pettis, Peking university finance professor was wondering wherefrom the $30 billion out of $57 billion increase came? It is not definitely hot money but the money flow is steadily accelerating. Interest rate cut resulting in more liquidity in US and this cash finds its flow towards China. Collapse of the Bear Stearns added to the woes in money rush towards a safe haven.

As US became a non viable option for the investment because of the continuous interest rate cut by the federal reserves, Asia seems a better option. Incidentally the inflation rate in china had zoomed to 8.7 per cent in February. This is attributed to the rapid money flow rather an increase in the commodity prices. Too much money supply than what is required will add to the inflation woes. Pettis seems to have worried about containing the inflation.

The race to accumulate reserves highlights an unsustainable global monetary system. It is claimed that growth of reserves in China and Saudi Arabia would equal the monthly current account deficit of US for the month of February. China and US are mutually beneficial in that in that China needs US demand for its goods to thrive and the US needs Chinese money to finance its demand.

Chinese premier Wen Jiabao has pledged to take forceful steps to control inflation which is at 11 year high. The higher interest rate prevailing in China would only invite a rush of hot money which in turn would kick the inflation up. Let us wait and watch how China reins the inflation.

Saturday, March 29, 2008

Time to invest in gold and silver?

With markets taking a breather from the downfall, investors have started wondering whether it is time to invest in precious metals like gold and silver. In fact, the on line trading in these precious metals has become so vigorous that one of the biggest US net based metal exchange had to temporarily shut its activities because of the surge in orders.
The president and CEO of the American Precious Metal Exchange, Mr. Scott Thomas was quoted saying that the traffic for the past few weeks was very good and it increased four fold and this resulted in the system getting slower.
Is it worth to have your fortunes invested in precious metals?
At last, people have started telling “Lemme (Let me) get some gold and silver”. Nearly one third of the online users are first time buyers indulging in precious metals, Mr. Scott quipped. Higher the prices of the precious metals increased the volatility of the market.
Investment in gold can be considered as the worthy option since it is trading at $ 1500 / oz this year. Many factors may influence the price of gold including the forthcoming US elections, resolution of the sub prime loan problem and the credit crunch in the second and the third quarter.

It is believed that the price of silver may go up to $ 30 or $ 35 this year. As the gold trades at $ 950 / oz and silver at $ 18 / oz, is it time to accumulate the precious metals now?

Non business tip of the day

Today is Earth Hour
Twenty six major cities around the globe are expected to turn off their lights on the major landmark buildings, possibly plunging millions of people into darkness – just to create awareness among the public about the dreaded “global warming”. The founder of the Earth Hour Mr. Andy Ridley quoted that the black out will last for 60 minutes in cities including Chicago, San Francisco, Dublin, Manila and Bangkok.
Last year, the Earth Hour began in Sydney. Environmentalists are of the opinion that the one hour black out may not create a big impact on the global warming but helps to create an awareness among the responsible citizens.

Tuesday, March 25, 2008

The reason and the aftermath of sub-prime crisis

The sub-prime crisis which started in July 2007 has taken a heavy casualty of the credit markets and spreading its tentacles. Because of this, the credit markets across the globe have literally come to standstill and the stock markets are frequently checking their bottom range.

This sub-prime crisis contributed a lot to the unprecedented volatility on the movement of stocks. The fall of the mighty Bear Stearns was attributed to this crisis.

The move by the US government to reduce the interest rate 0.75 percentage points literally brought the bench mark interest rate to 2.25 per cent. The reduction is sixth since the year 2007, September.

It is known to every one that the Federal Reserve played a major role in the takeover of Bear Stearns by the JP Morgan Chase by favoring the underwriting of transaction. Another example that caused havoc in UK due to sub-prime crisis is the fall of Northern Rock and has since been nationalized.

What is the reason for the sub-prime crisis?

1. The American banks and other financial institutions adopted some highly questionable practices while advancing loans.

2. Borrowers with poor track record were in fact awarded the loans or so to say, were forced to take loans.

The policy adopted by these institutions were called innovations that time when the picture was rosy. Many of the leading banks fail to assess the risks in the products they sold. There was a difference in the interest rates for those who had a poor track record. When the problem with the defaulters became unmanageable, the risk was manifested and it affected not only the gUS companies but hugged the global markets including the stocks.

Latest News :

There have been reports that the Asian markets have bounced back and it was a magnificent start for the Indian stock markets on the Monday and exemplary on Tuesday, 25th March, 08, i.e. today. However, one has to wait and watch about how far the bulls can run and when the bears will interfere.

Sunday, March 23, 2008

The lessons to be learnt from the collapse of Bear Stearns

Investment in stocks is not a child’s play as it was once thought and this point was driven home when the stock market shivered in the aftermath of the collapse of the giant Bear Stearns, the notorious US securities firm. Though the damage control was initiated by the US government to prevent its ramifications in the Asian markets, especially the Chinese and the Indian stocks, the damage had been already done.

Not long ago, the Bear Stearns acted as a foreign institutional investor in the Indian market and had started offloading the shares just a week prior to its collapse. What is the effect of fall of the Bear Stearns and its possible chain reactions on the large investors in US? Finally it found the solace in the JP Morgan Chase which will more probably remain invested in the stocks that Bear Stearns holds.

What if you are the share holder in this Bear Stearns?
It is better to sell them at the first opportunity and if you think otherwise, then it shows you have a wealthy family to tide over the present crisis or your risk taking ability is too phenomenal.

Not alone!

Bear Stearns is not feeling lonely at the top of the financial crisis. There are other companies such as Credit Suisse, Lehman Brothers, Citigroup etc. in deep trouble in the credit market crisis.

Non financial tidbits
Angelina Jolie and Brad Pitt, the celebrity Hollywood couple donated more than eight million dollars for the charity (medicines sans frontiers and global AIDS alliance) way back in 2006 as per the latest tax reports released.

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Saturday, March 22, 2008

Are the late entrants safe?

There was a time when people wanted to sell everything including the pants and shirts they were wearing to invest in stocks in order to get the quick and massive returns it offered. This story held good till the late November or December 2007. Then came the downturn.

Prospective investors started investing in the stocks following the mantra “INVEST AT EVERY DIP”. What happened after that? They are yet to see the real bottom of the market. More and more innocent investors still buy stocks, albeit in small quantities, hoping that they would get a decent return once the market recovers. Yesterday’s rich man became today’s poor man because of the sudden and continuous downtrend in the market.

The dawn of the New Year 2008 was not good particularly for the stock traders. Almost all the wealth created during the last quarter of the past year (2007) was wiped out because of the recent downturn in the stock market. The erosion in the wealth was not confined to any single stock. It was fairly uniform covering all the fundamentally good stocks and fly by night bad and artificially boosted stocks.

The moral : Are the late entrants in the stock safe? No way, until you know when the market stops moving southwards and consolidates. Till such time, you will continue to lose your wealth. So do not make fresh exposure.

Can I off load all the stocks now I have?
That’s not advisable at this stage because once you sell it, you will be in a piquant situation when the market recovers. Wait and watch…

Friday, March 21, 2008

Make Money From Stock Market

Every one of us is interested in making money. The entire world is running after money, so to say. Of course, there are different methods of making money, both legal and illegal.

We will confine ourselves to discussing the legal ways of making money, that too from the stock market. Stock market is a place where money is made or lost everyday and it is your ability that determines how far you are efficient to rake in the dollar or what ever currency you want.

The earning people are attracted towards the stock market as an easy way of making quick money. If it is so, then all will invest their fortunes in the stock and stay happy. Is it so? The answer is a firm "No!". Just like you earn quick bucks from the stocks when the market ascends, so are the chances to loose your fortunes when the market plummets.

How to safeguard or cushion yourself from the market shocks?

Be prudent in your investments and take the correct decision at the right time. So this blog tells you what to do and when to do. Hope you will make a lot of money if have the patience to follow the tips and advices. Happy earning all the way!