Financial Wisdom – By Kalidas

Radical Solution for Credit Crisis from Kalidas

Defrosting the Liquidity Freeze

with 41 comments


Investors’ Appetite for Risk Related Return (RRR)


When one wants to make tons of money, he should be surrounded by thousands of fools
, says an old adage on the stock market. It reiterated itself when Warren Buffet announced investment of $ 5 billions in Goldman Sachs (GS) and $ 3 billions in General Electric (GE) fetching him 10% interest per annum in addition to free warrants convertible into shares for next 5 years at currently depressed prices.

 

It was considered by many as signs of confidence from one of the most revered and legendary investors of all time, Mr. Warren Buffet. No one bothered to ask the investee companies, why was he given the yield of 10% that was normally associated with the junk grade bonds or companies.  Have this bluest of blue chip companies degenerated into junk status? Are they next on line of “Olympic 2008 Parade of Bankrupt financiers?”

 

No one even noticed the rapid transformation of the legendary investor into usurious Money Lender at his advanced age of 78. No one even noticed that there was no real liquidity crisis, but the lenders like Mr. Buffet have lined up on the side line to seek the Risk Related Return (RRR) from the potential borrowers. “Greater the Risk, Higher you Pay” was the simple message displayed on the foreheads of every possible lender.

 

Otherwise, when the FED was willing to lend at meager 1.5%, why should the GS and GE pay up 10% to Mr. Buffet?   Within hours of receiving $ 3 billions from Mr. Buffet, GE rushed to the commercial paper market to raise further money for the payment of wages and salaries, and was glad to see the FED chief Mr. Bernanke dressed up in Santa Clause, disbursing billions more at just 2% (cut to 1.5% on following day). In short, $ 3 billions of Mr. Warren Buffet appear to have “gone with the wind “within hours.

 

What Mr. Warren Buffer announced was misunderstood and misinterpreted by almost everyone on Wall Street, Main Street, Capitol Hill, Fed, and entire community of journalists, analysts, commentators and interviewers. He meant, but did not say it, that the real market rates were extremely high, regardless of billions of dollars being printed in the backyard of Federal Reserve for free distribution later, and that no one was willing to lend unless he was rewarded with the return associated with the risk. (RRR)

 

Across the Atlantic, in London, relatively free market, the LIBOR rates rose to the highest, and yet no one was emerging as lender to lend to even commercial bank.

 

Why lenders look for higher return when the risk increases?

If the lender lends today $100 for just 3% (when the FED rates is only 1.5%), and that loan goes bad, he has to lend it 33 times (100/3) more just to recover the old loan, and that too, provided no new loans going bad.

 

If he had lent at say 24%, and if the loan goes bad, he has to lend only 4 times more to recover his old loans, presuming again all new loans remain good. This is why the local governments have to raise the funds at 20% or more in some cases. That is, there are lenders apart from Mr. Buffett.

 

When the risk profile of large banks have increased to the extent of bankruptcy running into hundreds of billions of dollars, the money market does become very tight, and the lenders withdraw into shelters when the market rates continue to be managed low by FED. The action of the FED to pump the markets with over $900 billions a day before and cutting the rate by 0.5% does not help. The money goes to bankrupt banks that merely set off the new funds against old losses. They do not lend more.

 

Mere injection of liquidity is not enough. The FED has to make it conditional, that if $50 billions are given to say, Citi group, it should deploy funds only for granting new loans or buying the new Commercial papers issued by various corporate business with suitable sub limit so that the money is distributed widely. Supposing, the sub limit is set to $ 500,000 for small businesses to $2 billions for large businesses like General Motors, they can carry on business by paying their employees the wages and salaries.

 

Float a New Bank or use smaller Regional Banks and fund them with $ 200 billions

Bush Administration may extend new loans through new bank or existing smaller banks to small businesses, large corporate entities, and consumers, subject to real tangible security with first lien. Limit the loans up to 25% of their annual sales, so that money rolls over every 3 months at least.  

 

Why avoid large existing banks?

All large banks are saddled with billions of dollars of old bad loans. Most of them are irrecoverable as they have no security backing. They are secondary papers with second lien. The primary security has been foreclosed, seized and sold by the primary lender, with nothing left for secondary holders. By funding these bankrupt banks is like adding fuel to fire. Good money would be thrown after bad money. When the money is scarce, the efforts should be to use the new supply as efficiently as possible.

 

The banks that are almost bankrupt may be asked to transfer deposit and loan accounts (including primary mortgaged loans with first lien (not the secondary derivative papers) to new banks, so that normal business continues.

 

Old banks with billions of dollars of bad loans without security may be merged with each other so that cross obligations are set off against each other. If after this adjustment, they are still unviable, let them die the natural death or hold the talks with debtors to accept only 20% of the outstanding debts repayable in next 5 years. Thus, the liability of the large banks will be reduced to 20% and liquidated @ 4% over next 5 years.

 

Higher Rates are biggest enemy to leveraged derivatives and swaps

We are in the midst of highly leveraged economy. It has to be deleveraged. These derivatives thrived in low interest rates environments where the cost of swap was very low. If the rates rise to reasonable level, even up to 9%, all leveraged transactions will be forced to reverse immediately. At the same time, the Bush Administration may fund the banks Mortgaged loans to consumers at special rate of say 3%, so that their interest cost does not rise. This kind of differential interest scheme may bring immediate stability in the market place.


Higher Rates also help Insurers

Ask AIG – why and where did it lose in billions of dollars, when there were not much claims due to natural calamities, fire, flooding, or death of individuals. They did not lose in their core business.

 

The insurance companies receive free premium income from the insured. They found difficult to invest in higher yield long term treasury or local government bonds or well rated corporate bonds.

 

Mr. Greenspan has effectively killed the market of long term treasury bonds (10 to 30 years) by artificially lowering interest rates or even cancelling 30 years bonds altogether for 4 years (2003 onwards) so that interest servicing cost for the treasury remain artificially low on its massive public debt.

 

When the insurance company found no alternative long term high yielding safe treasury investment they started looking for exotic derivatives that used to give them higher yields, without realizing what they were getting into. The companies like AIG finally started buying highly risk derivatives like CDO, (Collateralized Debt Obligations) CDS (Credit Default Swaps) and CLN (Credit Linked Notes) without realizing the financial risk and legal evaluation of the securities to backed.

 

If the insurance companies had option to invest into say, 6% 10 year bonds or 8% in 30 year bonds, they would not have invested into derivative papers with fake back up securities.

 

Money should have some cost

 

The Money has been printed so much that  the toy homes can be built by the American children with real US dollars. If Paulson and Bernanke prints $1 trillions now, they will have to print  100 Billion $10 Currency Notes with the logo of ex-Presidents. If they are spread on the 8 lane high way in United States,  it will cover 22,600 Miles

 

The economists like Greenspan and Treasury Secretaries like Rupert Rubin or Henry Paulson (from Goldman Sachs) made the money worthless the moment they were issued or created. Their money did not have any cost except 1% to 2% for most of the times. Their theory was that low interest will boost the stock market that will increase GDP (which will increase the value of their stocks held in Goldman Sachs) That low interest necessarily promote growth or GDP was a myth, in fact a blatant lie.

 

Low Rates do not increase GDP or lead to healthy growth

Example,

Look at Japan.. It has been following near Zero interest rate policy since 1994. 14 years have passed and its Nikkei has slumped from 38000 to 9000+ yesterday (lost 75%) with no perceptible growth in real terms. A retiring Japanese with 10 millions yen finds difficult to take care of himself in his last days because he does not earn anything on his life time savings. If he spends, he feels that his savings will be empty in a few years. If he was getting even 6% interest, he would have got interest income of 600,000 yen which he could spend without seeing his savings depleted.

 

Reasonable high Long term rates do encourage savings and increase GDP in real terms

Example,

In country like India, the growth is robust because long term interest rates for Provident fund etc are over 10%. This encourages savings from where the people spend without seeing their savings depleted. The PF amount is invested into long term high yielding Government bonds that assures steady decent income.

 

Look at what happened in USA

And look at what these Greenspan and company did for United States. Often he was applauded for his brilliant management of economy. His philosophy was that the consumers contribute to GDP. So to make them spend more and more, he lowered the interest rates at all the times. That made the consumers to contract more and more debts – credit card, car loans, educational loan, home loans, top up loans on home mortgages and host of other loan products that fatten the banks with usurious interest rates. The loser was American consumer all the time.

 

Look at the signs at large stores selling Car to furniture. No interest for 6 months, no payment for 12 months….etc. This is what happens when the money is free and does not have any cost. The people just become spendthrifts and go bankrupt. If they find difficult to pay – file for bankruptcy – that’s all. It is more like “Payable when able” not, payable on Demand in case of a promissory note.

 

Money, Treasury and Gold

If money does not have cost, they are more like Toilet paper. They can be printed overnight in Bernanke Press. Treasury bonds are also papers – can be printed at the sweet will of President Bush or Paulson or Bernanke.  Papers like Dollar and Treasury bonds can be printed and re-printed like books are reprinted with popular demand. Gold can not be produced artificially – it has to be dug from the ground

 

Why Interest rate will go to 24% to even 30%

If you can not control inflation, control inflation numbers, were the theory, belief and practice of Greenspan. He invented new theory of inflation – Core Inflation and Non –Core inflation which was excluding violent food and energy prices.

 

Goddamn idiot! Food and energy constitute over 40% of household budget. Every family has at least 2 or 3 children, one of two college going young adults, 2 to 4 cars depending on the number of adult members in the family. How could you exclude the cost of Energy (gas for 2 or 3 cars, heating oil, propane or cooking gas for stoves and oven, electricity for cooling or heating home,water and pool) and Food from inflation and adjust your interest rate policy accordingly? This was the disaster. Did Greenpan really know the basics of Economics?

 

When I left stock broking field, the CRB index was 191 – it rose to over 430 recently, that is gain of 240 pts in less than 7 years. This index covers over 17 elements of daily use – from Orange juice to Oil to dairy products and  commodities of daily use. In other words, the inflation rose by 31% per year (240 divide by 7). The United States was having “negative interest rates” by at least 25% for over 7 years in a row.

 

Those rates are now catching up and there is nothing the government can do. The creative management of inflationary numbers (called manipulations in layman’s terms) can not last for ever. You have to pay for it. The pay time has finally come in October 2008.

 

The interest rates in United States have to rise to 24% minimum to weed out all excesses in the system that was built under the lousy regime of Alan Greenspan. May be high interest rates may remain for only 6 months, but that will force everyone to start respecting their own dollar.. The lesson that United States will learn is that “Money is not Free” and do not take it for a free ride.

 

How to defrost the present liquidity freeze?

Stop cutting Interest rates – in fact raise interest rates up to 6% in 6 months in increments of 1% per move. Higher rates will bring out money lenders into the market that will force down the interest rates later with more participation. Currently, their participation in almost NIL

  1. Adopt “differential interest rate policy”.
    1. Fund the banks of their mortgage finance portfolio with cheaper funds @ 2.5% for the time being. (MFR = Mortgage Finance Rates)
    2. Fund the banks of their Credit card portfolio with cheaper funds @ 2.5 % over the 30 year MFR
    3. Other bank borrowings to businesses be permitted @ 3.0 % over 30 Year Mortgage Finance Rate (that is, if MFR is 2.5%, then other commercial borrowings to be 5.5%).
    4. Please note that charging of even 9.5 % interest rate (based on maximum MFR of 6.5%) from FED to banks on commercial borrowing is not excessive. This is the ruling Prime Rate in most of the Asian financial centers and emerging economies.
    5. Bank to customer interest rates may be restricted to 2% over the Fed funds rate for respective category.
    6. Example, if MFR funding is at 2.5%, then the customer lending rate may be 4.5% (2% over 2.5
    7. The idea of allowing only 2% above Fed funds rate is to ensure that the bank does pass on the benefit of the rate cuts in future to every section of the society. Currently, they may pay more but much less than the market rates.
  2. Merge 3 or 4 large banks that have inter-swap positions outstanding.
    This will cancel out cross obligations of each other.
  3. Then Consolidate the fund based external debt (not deposits).
    1. Call the creditors of bad loans to work out discounted solution, agreeing to pay not over 20% of debt outstanding (or more if there is real security,
    2. Extend Federal guarantee to such amount and charge the respective banks guarantee commission @ 2% per annum.
    3. Take some equity for such help or warrants convertible into shares at any time for next 10 years.
    4. The creditors will have no choice but to accept the compromise, otherwise they will lose everything.
      EXAMPLE: If the total bad debt outstanding is $ 50 billions, reach a compromise for $ 10 billions. Extend the Federal Guarantee to $10 Billions and charge the bank guarantee commission @ 2% of guaranteed amount ($200 Millions per year).
  4. After all these adjustments,. Ask the bank to come out with secondary public issue
    1. of which the State may take up 10% of public offer. This will infuse the confidence to investing public
  5. Extend the Tax Cuts as under:
    1. Corporate tax be cut by 5% now, followed by another 3% in second year, 2% in third. Total 10%
    2. The present corporate taxes of 35% is too high for anyone to invest in USA It will come down to 25% in 3 years. (In my proposal it is brought down to 18% in progressive manner)
    3. This will increase the real earnings of the company and boost its stock price, enable raising of new capital and also boost the stock market. There will be real strength in the economy, not paper trading or manipulations that both Paulson and Bernanke are indulging in.
  6. Personal Tax Cut may be extended by reducing the initial tax slabs substantially.
    The initial tax slab be drastically reduced so as to benefit the low wage and middle income wage earners.

  1. While Interest rate may have some negative effect on the market (in fact it will have none, because slightly more interest rate is more desirable than wholesale collapse of financial system),
  2. the lowering of Corporate Tax and Personal Tax will have significant positive effect on the entire range of capital markets throughout the United States.


My Letter to the President Bush was ignored and they blew up over $ 3.5 trillions in 15 days


In my book, I have designed full range of tables of Income Tax for the corporate sector and also Individuals. The plan is so comprehensive that it will be liked by Individuals and corporate alike. Not only that, I have given most valuable suggestions to increase the revenue from other sources, so what is lost in taxation, is more than compensated from the other revenue stream.

I only regret that the no one in the White House paid any attention to my 4 page letter which contained the summary of 18 chapters of blue print for the recovery of United States of America. I had also warned that if the immediate actions were not taken, worse consequences would follow. That was my letter recceived by White House on 25 Aug 2008 and the situation started worsening 15 days later. And you know what happened from second week of September. I had also sent a copy of that letter to the Consul General of Hong Kong for his information and also for proper identifcation purpose.


By not paying any attention to such important letter, at a time when the solution was eluding the nation, the Bush Administration blew up over $ 2.5 trillions in loss of market capitalization and also over $1 trillions in so called “bail out” plans.

 

I would release the letter shortly on this blog site within a few days.


Kalidas, Hong Kong
10-Oct-2008
Article Ref: 08-006

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41 Responses

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  1. Dear Kalidas sir, Nobody could have explained this complex theory in such a simple manner. only sad thing is people who ought to listen and act is not doing it. had they accepted your proposal who know you could have even given noble prize. This is from heart. Please continue your good work.
    Thanks and regards
    Ravi, Chennai

    Ravi

    October 10, 2008 at 6:14 pm

  2. Namaste Kalidasji,

    The above, can only be a work of a person who knows “Principles involved in Economics”.

    I feel that the so called “Experts” on TV are not even worth a cent, as compared to your work.

    Sir, just one humble request. If you could also share your thoughts on what likely indian scenario would be like in a few quarters down the line.

    Thank you and best wishes.
    Girish

    Girish

    October 10, 2008 at 6:30 pm

  3. Wow, super interesting. I’m an American, and I gotta say I like your ideas. I get the sense that in America those who are running the economy have no concept on how to fix it. It’s a real shame. Anyway I’ll be sharing this article if you don’t mind. Maybe somebody will take note, and hopefully use it to fix something.
    Cheers,
    Mat

    kalidas Replies You may use my Article with acknowledgement of its source. My particular request is that you send it over to your Senator and ask him to visit my blogsite and read all articles posted in it. As an American you owe to your countrymen to warn them that the country is heading towards most unstable period including receding into Civil War. I am not scaring you, but I have track record to judge the events months and years ahead. Please try to save your country because thousands of lives in other countries depend on the successful passage of your country through terrible crisis. I am not boasting, but I am the only person in the world today, who can provide the most durable and effective solution to the crisis within 2 months. I wrote the letter to the President Bush (received by his office on 25/Aug/2008, but it must have been overlooked by some bureaucratic staff. Cheers and thanks for your comments. Kalidas

    Mat

    October 10, 2008 at 6:50 pm

  4. Sir,

    You are almost like GOD. How could you explain these things in such simple terms? Thanks for everything.

    BTW, I am a Gujarati from Mumbai and I am in the Netherlands since last 3 years. I work in Software sector (Infosys).

    I wanted to share this incident.

    Last year I made 7 Lac Rs. This year it was not so bad, I had lost close to 1 lac. But, then 2 weeks back on a Thursday night I put the orders in ICICIdirect (The order were close to 10 Lac; I thought if the bailout works I will recover my earlier loss).

    But, next day morning I decided to cancel those orders before market opening. But, unfortunately I could not cancel the order as they were already in queued. From the moment the orders were executed I was in loss. Then I was waiting for the market to stabilize, but it never happened.

    So, finally based on your advice (on Money control to sell 30% on every 8% fall in bearish market) I decided to sell 50% of my holdings. If the market goes down further I will put the same money again to reduce my holding cost. If it goes up, I will recover my loss, as my average is not very high.

    Sir, can you please share your e-mail id?

    I would be honored to meet a person like you. I can come to Hong Kong (or Mumbai) wherever you say.

    Jai Shri Krishna,
    Dutchman

    Kalidas Reply
    I am also Gujarati from Ghatkopar Mumbai living in Hong kong for over 24 years. You can send me email to kalidasji@gmail.com

    Dutchman

    October 10, 2008 at 8:13 pm

  5. Hello Sir,
    Pictorial way is the best way to communicate, one picture can replace few words or sentences, your rarticles are more informative than mmb on this blog. Hope your voices are heard and proper action taken otherwise globally everyone has to suffer in one way or the other.
    Though India has lot of good system to show it to the world, we are not confident of ourselves and are forcing to follow western system. Our public sector banks are slowly going to be privatised and become like one among ICICI banks. The banks may become more efficient in day to day affairs but security on our hard earned money is not guaranteed. Are we doing right thing in adopting the privatization of banking in India?
    Eagerly awaiting your book to be published. Hope it happens at the earliest. I am more interested to read your special theory on numbers”Mystical Numbers”, when you are targetting to publish this book sir??

    shubguru(MMB)
    Kalidas replies
    Always worry about the matters under your control. Don’t bother about the one which you can not. It will take care of itself. In India, almost major banks are nationalized, so keep the account with them and some with HDFC and AXIS bank (formerly UTI Bank) which are very good ones. I don’t worry about Indian banks – I know them pretty too well after working for them for 19 years.

    shubguru(MMB)

    October 10, 2008 at 8:55 pm

  6. Dear Sir,
    Once you had told that you were going to make a thread about how to manage portfolio. I want to know about that because i invested just before 10 days and almost lose in 33%. I read your call on MMB about Your Super Bullishnes about Indian economy after few month’s downfall (Your target may be 8000). So What should i do? Hold for 1-2 years (I am now 24 years )or exit or Average ? (I dont have too much money to average also).
    Thank you sir.

    jayesh mange

    October 10, 2008 at 11:44 pm

  7. Dear Sir,

    Thanks for sharing such useful information in a simple way. I live in Delhi and eagerly waiting for your book to be publish.
    Please let me know how to get your book in India.

    Regards,
    Sandeep

    sandeep

    October 11, 2008 at 12:35 am

  8. dear kalidasji,
    wonderful,insightful and knowledgeable analysis indeed..all through..
    Yet,honestly,why are you waiting for someone ,even if it is the president of a nation, to reach out to you..
    If you want to make things happen and be a change agent,in current times of calamity,wouldnt it be right to publish your book in public domain..right away..and force-feed wisdom.

    The world out there,specially enough stake holders in USA, would surely join your mission in resurrecting the markets/economies,which would be a noble cause..
    Economy and markets of USA and world are anyday larger than president Bush and few other names you mention.
    Hope you recieve these comments in right spirit.
    cheers,
    Yours sincerely
    Pawan

    d.pawankumar

    October 11, 2008 at 1:46 am

  9. As alwyz a vry knowledgeable article.Its all because of u that we are saved and we are understanding the mkts and the global meltdown.

    Keep up the grt work u r doing and keep guiding the naive investors like us…

    All our blessing are with u…

    Thnx,
    Ojal Suthar

    Ojal Suthar

    October 11, 2008 at 2:20 am

  10. Simply Superb,

    I have been a silent follower&admireer of you on MMB, though these are sad moments for US, I am proud that an Indian can provide solution to this US & Global issue. Even without basic knowledge in economics, I could picturise, sometimes people forget how simple solutions can solve Complex problems.
    I have a question about your “buy gold advise”.
    If dollar goes further down, gold will go up, but what happens to person in India, if Indian rupee doesn’t loose/gain its’ value.
    For Example Today $1=$48 and 1Oz gold = $900
    That means 1Gm of Gold = Rs.1390
    If rupee is stable and dollar goes down,That means $1=Rs.24
    Then even if Gold goes up to $2000/oz, it makes no gains for Indian living in India, because his net value remained same. In such scenario is it good for him to stay in CASH or in Gold..?

    Thanks,
    Siva Kollipara
    New York / Hyderabad,AP

    Siva Kollipara

    October 11, 2008 at 3:44 am

  11. Also why don’t you write your next book,
    “Econimics/Investing Made Easy” So that we can keep it next to Bhagavdgeetha.

    I know you are super bullish on Indian growth, but when FIIs ditched out indian companies especially infrastructure and due to US collapse IT will suffer a lot, India has never invested a single paisa on Agri research, Auto is reaching saturation both Gloablly and locally, what is the next growth field that actually taking india to next level?
    Is Pharma returning to boom again..?
    Is Energy sector going to flourish..?

    I know you are not going to give stock specific advise, but there several followers of yours that are low on long term planning(like me) who needs little guidance to start with. Say invest in XXX stock for 1 to 2 years horizon and we will try to watch them then onwards.

    Thanks,
    Siva

    Siva Kollipara

    October 11, 2008 at 4:08 am

  12. Dear Mr. Kalidas, you have simplified a most complex subject, for us to understand with ease. Your knowledge and expertise is amazing.

    Regarding Investment in Gold, could you through some light on the following issues:

    Yesterday (10th Oct.2008), Gold has dropped from the peak of $930 to close at $850, caused by Selling of Gold by the large institutional investors to meet the Margin Calls due to rapid fall in stock markets. If this is going to continue, what will be impact on the gold prices.

    In Jan 2008, when the stock markets were at its peak, Gold traded around $900. Today, even after a drastic fall of nearly 50% fall in the stock markets, Gold is still hovering around $900 (in between touched a high of $1000 for a short while).

    It has been reported that Gold Production / Output of South Africa has also come down, compared to last year. In spite of supply constraints, Gold Prices have not gone up.

    Considering the above, can we still expect Gold Prices to go up substantially during the next 6 months to 1 year.

    Muthu, Chennai, 11-Oct-2008

    Muthu

    October 11, 2008 at 11:15 am

  13. Dear Sir,

    You should submit your blog to some blog rating sites. This will help in publicizing your blog.
    Also there should be a display option which counts how many RSS readers are subscribed to your blog. If there are sufficient number of subscriptions, your blog will get more popular. Your blog is best finance blog on the web which will soon be recognized by people all over the world.

    regards,
    v8r.

    v8r

    October 11, 2008 at 11:37 am

  14. Kalidasji
    I was a bit suprised by your latest article providing a resolution to the sub prime crisis, which you were holding close to your chest all this time. Does it mean that the US authorities are now doing what you had in mind and you want to be the first to say “I said so” ?.
    Also in you reply to Mat in the comments section you are urging him to save US – Why ? Why not come out with a solution that can put India forward? Why do we need to go to US to solve their problems so that they live in luxury ? Why is that we here have to pay 12 to 14% intrerest for our housing and they cannot afford to pay 6%. Why is that they always are meant to have a good life and also tell others how to live thiers. Why are they caling the G-7 and G-20 to Washington to solve their problems ? Would the US or UK heads have come to rescuse India or any other African nation if such a crisis were to befall them ?
    Your replies to the above are welcome.
    Kalidas replies
    When I started writing book, I did not anticipate the liquidity crisis of this magnitude so fast, though I did have idea that the money market would become tight. I did not cover this chapter in my book, because my solution was preventive (anticipatory) and not curative (post disease). If I had published the book earlier, it would have attracted the attention from select crowds, not that the disease has become wide spread, it may attract more. further, there were some sensitive matters in my original research that would have become the matter of national security of highest importance. This is why I did not hurry the publication process. Further, there is one chapter called “Where is McKenna’s gold?” which is highly sensitive. If it was disclosed then, and attracted attention, there would have been run on Gold and price would have shot up in matter of days to $2500/Oz. If this fact is known now, it would create another crisis. My intention was that let the problems be resolved calmly so that no one gets hurt. Meanwhile, I had to go to US for about 30 days to attend the wedding of my only Son and visit my daughter’s new home. This delayed the process. My book is still in final stage, as I had covered the latest developments. It will be released soon. If no one publishes, I will publish it myself – I have resources. I can handle the banking situation and crisis very well – I was a banker for 19 years.

    Xavier

    October 11, 2008 at 2:53 pm

  15. Sir,

    I am proud of the fact that an Indian may be the savior of the American Economy, which may usher in an era of economic stability and prosperity across the world.

    The way I see it, your valuable inputs have 2 ways to be actually followed-up in practice;

    1)The American governance responds to your letter and officially seeks advice (and pays you for it).

    2)You release your advice in the public domain, generate enough popularity for it to force its implementation by the American governance (and maybe get a Nobel prize posthumously for you life’s masterpiece).

    Somehow, I hope you don’t have to settle for the second course of action…..
    But then again, after almost a year of silently following your financial advice and trying to learn from it, I know that you are the Grandmaster of this game of economic chess and already know the countermoves…

    p.s. Your ‘Defrosting’ article implies that if the crisis worsens, gold and silver prices will go through the roof.

    Do you see a buying opportunity in gold (say 10-15% fall in prices) and silver (20-25%) fall in prices happening soon, or is the opportunity already gone?

    Regards;
    Ashish Dandekar, Qatar

    Ashish Dandekar

    October 11, 2008 at 2:54 pm

  16. Kalidasji
    Thanks for the response. However you have not touched on the other aspects of my querries – notably saving the Americans and letting them enjoy life.
    Also if I were to understand you rightly, it is more regarding your safety than really the others getting hurt.
    In view of all that has been written and understood, what is your advise for Indian investors for Monday and the next week in terms of what they should do (buy equities, bonds, gold, property or stay put)
    Kalidas Replies
    I would not reply to your other points, except how Indian investors should behave. India is still one of the strongest and safest market to be in. I think the stage has come when one should start investing in certain battered shares of sectors like entertainment and Airlines (and transportation). Auto stocks are not that cheap enough except TVS Motors which shows very strong signs. I have started investing very very selectively not for trading point of view. After a long time, I feel that preliminary stage for investment has opened, though the crisis is still deterioating day by day. If major riots flare up in USA, the stocks could sink as low as 5000 there. The level of 8000 is very important. It is my 21 years of experience that if the level 8000 (or multiple r division thereof by 10 lioke 8,80,800,8000, 80,000, 800,000, 8 trillions etc) is breached on the downside, the index or stock invariable go down to 5 or multiple there of like 50,500,5000, etc). 9 days of fall in Dow is still not getting buyers as 60% of Hedge Funds lost over 15% in one month alone. over 60% will be shutting their doors. The los will be collosal – 2 trillions at least.

    The market is generally promoted by Brokers or Investment banks like Bear Stearns, Morgan Stanley, Lehman Brothers, Merrill Lynch, UBS who run the proprietory books. They take their own position and then issue recommendations so that the investors do the follow up buying. Now, all these brokers are dead. There are no proprietory trade to start the fire – so the market will be sleeping for a long time. Unless some other brokers replace the old ones, and they will one day, the market outlook is very bad in USA. I am not worried by conditions in India except that the selling by FII will continue for another weel from Monday.

    Xavier

    October 11, 2008 at 3:26 pm

  17. Dear Kalidasji,
    I remember you once commented that the crisis in US could take an ugly turn & there could be a possibility of Civil clashes & recommended that all Guns with civilians be taken back. I had then thought that your comment was a bit brash.
    This morning I read in the HT that US Govt. could declare Martial Law & has called in troops in anticipation of the situation predicted by you.
    I salute your foresight.I had read/watched so many on the financial crisis but no one has turned out as accurate as you.

    Deekay

    October 11, 2008 at 5:03 pm

  18. I have also read in some blog that as US is busy with its own issues, China will take the role of economic engine for the next 12-18 months. And China will also try to flex its muscles and support Iran, who will create problems for the wider world in the near future. Cannot say how things will pan out but it does sound likely. If & when that happens that could lead to higher oil prices and a possibility of military action in the middle east. I remember you writing some time back that US may attack some country and that would be the end of the crisis. Also Hitler came to power after the world war when economic situation was very bad and people were open to try radical new ideas as things could not get worse.

    Kalidas Replies
    War is the ultimate pastime of the politicians. The only thing that keeps the US on top is its military power. However, with the kind of economic collapse we have seen, it will have more problems at home, like civic unrest, violence, even full scale Civil War. For the first time ever, there is real possibility that Americans will be killing each other in their own country, that will force imposition of national emergency. It may happen soon, and I will not be surprised if it happens before election.

    With liberal use of Guns licensing, the situation is more sporadic than ever. When during peacetime, the some lunatic go to the University or School campus and start mass killing, what happens when the riots break out? The situation is very scary. I hope that Americans keep calm and do not resort to street protests in the name of democracy which is at flashpoint.

    Attacking Iran is less probable now. Had Bush continued, and the crisis did not unfold as it has now, it would have been possible. McCain if elected may pursue the War strategy – he is replica of Bush in some respect. Obama may not do that quickly as per his public policy. However, even he is no basically different than McCain on this issue. Pentagon rules the Washington in many respect. These unelected officials have mega influence over politicians in the name of their expertise, national interest and military expediency.

    It is always easy to have solid growth in % terms when everything is destroyed. The base is very low then.

    Goel_uk

    October 11, 2008 at 11:37 pm

  19. Hello Kalidasji,

    I had a simple but serious question in my mind.

    GOLD hit an all time high of more than 1000 USD (early 2008), when CRUDE was at 140, DOW at 12000 and SENSEX at 17000 and the financial turmoil just started. Now DOW is at 8300, SENSEX at 10500, but GOLD is still at 880…

    Is that CRUDE is falling so GOLD is resisting to move upward?? I thought GOLD shud have shown strong upmove in these 20-25days, but its at same levels. Is that all because of manipulation??? Or now when the DOW starts moving upward, GOLD will fall like pack of cards???? Am afraid that once we see rise in DOW, GOLD doesn’t start to fall?? Am actually confused. Coz CRUDE is falling, GOLD is stable, USD is getting stronger.. All are behaving irrelevant…

    Plz advise…

    Thnx,
    Ojal Suthar

    Kalidas Replies
    There is nothing unusual for the time being. This scenario was predicted by me in late December 2007 or about that when the market crashes due to problems in US, the US fund managers will be forced to sell down the Indian equities they own to meet their margin call back home, that will result in wholesale selling of Rupees against dollar. The rupee will therefore depreciate against all expectations that it should rise, if there were problems in USA.

    Supposing, a Hedge Fund manager received redemption call, he has to sell say Rs 100 crores rupee and buy US$ equivalent. So the demand for rupee decreases and $ rises as result. Japan used to invest money only overseas, so when the markets crashed, and the Japanese wanted to return the money to home currency, it had to buy Yen and Sell all other foreign currencies. further at the moment no noticeable problems are seen for the Japanese banks which is baffling. This is the reason that Japanese Yen was rising. There was not much foreign investment in Japanese market by US, Europe and Britain except the borrowings in Yen and buying other currencies (Yen carry trades).

    If gold is not rising, it is neither falling as well when all other asset class are falling. The oil prices are depressed artificially as explained by me in the article “A Nation on the Grill”. They will spike up in November massively when the expiry nears. The Arabs are going to cause supply squeeze by cutting the oil production by at least 1 mpd or even 2 mpd (million barrels per day). You should not be surprised if the oil rises again by $25 to 50 in the month of November when the oil futures mature.

    Let me tell you one thing. Do not compare Gold with Paper. Today, almost every central bank is pumping the paper money into the market. They just print it. Gold can not be produced en masse. The gold will gain significantly near December expiry futures which is a major contract period for this metal. Also let me share, that there is not much gold left with the central banks – most of them is shorted to Hedge Fund managers 60% of whom are bankrupt losing over $ 2 trillions (Hedge Fund industry is 3.4 trillion large)

    The bank like JPMC owed almost 1000 tons of gold to presumably to US government. There is some more authentic information I have that will be disclosed later on because it constitute vital part of my book. If you are playing Gold short term, you ought to have world wide study in great depth. You have to understand not only the demand and supply, but talso he money flow – how the money will flow from one asset to another. This is beyond the knowledge or patience of the short term trader. Do not dabble into it, if you are not in for a long haul.

    Gold is God and God is Gold – that is the universal truth – that will be realized by others in less than 4 months from now.

    If some major bank fails in the meanwhile (considering huge pressure on stocks of Citi and UBS, it looks likely that one of them may fold up) that may cause havoc in the financial market, and spurt the gold with massive rise. Right now the people are keeping the money in US treasury which is one of the most unsafe investment for non US investors. For domestic US investors, they have no choice. Most of them do not even know how to trade non-US currencies. I was in US for 30 days in August/Sept. The business news channel occasionally flashed the news of foreign currencies, not like Hong Kong, where there is continuous line flashing currency rates for almost 24 hours.

    It is impossible to dwell at length such complex issues – if you know how to use Skype, use my ID anilselarka and come on line – I will talk to you and explain.

    This may be relevent – this is what I wrote on 3-Jan-2008 which is a fact today:
    Quote:
    In India, the banks may not suffer much because most of them are owned by Government of India. So the cash will flow back into them. Not so in other countries where banks are in private hands. There will be simply “chaos” in the world monetary market. We are entering into possible situation where there will be no more “foreign money or FII money” in any economy.

    Only local money will circulate within local economy, and that will not be enough to support DOW at 13200, FTSE over 6000, Nikkei 15800, SENSEX at 20000 and HANG SENG at 30000 level.

    Look down, not up in future.

    Kalidas, Hong Kong
    3/1/2008
    Unquote

    Ojal Suthar

    October 12, 2008 at 12:21 am

  20. Dear Sir,

    In the following is the interview with George Soros:

    http://www.pbs.org/moyers/journal/10102008/watch.html

    He also has a negative opinion of Paulson. He mentioned that instead of buying the bad assets
    goverment should replenish their capital. What is your opinion about that?

    regards,
    v8r.

    Kalidas Replies
    I do not know why an experienced Hedge Fund manager like Mr. Soro would say that. He should have known by now that all bad loans of the banks are result of secondary papers with second lien are being held by the bank that has market value ZERO. No sane person would invest to recapitalize these banks or brokers. The losses are not in few millions or billions, they run into hundreds of billins per bank/broker with the ovarall losses exceeding $ 8 trillions. There is no way any government in the world is in a position to recapitalize these bankrupt banks. it is better to use new money for other smaller banks to promote the liquidity, otherwise the government will run out of money again. Paulson’s plan is a Poison, and soon the new President will realize that.

    v8r

    October 12, 2008 at 5:39 am

  21. Guru,
    How to see this crisis as opportunity as India and an individual.
    Regards
    Venkat

    Kalidas Replies
    The opportunity is like God. It just presents itself, never announces that it has arrived, just as the God never makes announcement that he had arrived. Those who are conscious in their mind, alert and agile, realize that the opportunity has already come.

    The investment business is for risk takers. Not for the people are or awaiting retirement or widowers. This is like a pilot’s task – in an expensive plane always at the seat, always agile, never take a nap while on duty. Normally, the investment is best for the people for the age group 36 to 55 for risk takers, 55-70 for conservatives and 21-35 for high risk takers.

    No one asked me whether it is time to invest when the Sensex reached 20,000 and Dow at 13500+ and Hang Seng 30,000+. Now when the markets are down to <12000, they ask me often whether it is right time to invest. Of course, now the side door has just opened only in India (not overseas, where there is still huge downside).

    While people compare today’s situation to 1930 or even before, as worst in century. the Dow at 8451 (1Oct2008) is still up by massive 5855 pts or 225% (it was 2596 on 1 Sep 1987). It has not touched even 1987 level, why do they compare with 1930 – the great depression? Some people love to talk to TV, Press, Radio to make them important and go on churbing one trash after another.

    What you see today is the trouble in particular part of economy – Banking. The banking is a major thing, but not everything. If some banks fail, others remaining will become stronger automatically because extremely large business will pass over to them without any payment. In normal course, they would have paid several billions for acquisition. Right now, there is no merger or acquisition. They come with the scalp on the golden plate to be handed over to willing buyer for free – like Internet services (including this blog).

    Depending on your risk taking capacity, you may start investing in 3 to 4 lots. If do not have strong heart and are afraid of losing money, better remain in the profession or business you are, and make more efforts to make more money there.Right now, we are in financial war – you may kill some one or get killed or hurt.

    Venkat

    October 12, 2008 at 1:41 pm

  22. v8r … one thing i found very interesting in the George Soros is that the new engine of world growth can come from Green Business which i think is quite true. Global warming is for real and we are fastly running out of time to combat it.
    Vivek
    Kalidas Replies
    When the person becomes too old, he loses his rationale. It happened to Buffet when he invested $ 8 billions in Goldman and GE in riskist manner – there were alternatives by which he could have secured his shareholders’ interest, and at the same time, helped the companies with same benefit. For example, he should have opted for the non subordinated Convertible Bonds carrying 10% Coupon that would have had priority over Preference Shares. CB are extremely liquid compared to Preference shares. Mr. Buffet lost his cool mind after a long time due to tremendous amount of adulation that went into his head that “King Does No wrong”

    With Mr. Soros – he is past his prime days. He is out of touch. He does not offer any solution but goes about everywhere talking about idealistic GREEN when there is RED BLOOD everywhere. What is the priority – Green ,that is a scientific matter that he does not know ABC, OR RED blood on the street for which he does not make mention of single A, a subject he knows too well for too long for which he became famous and a legend. I therefore ignore him as too idealistic for today’s situation. He has misplaced priorities.

    Vivek

    October 12, 2008 at 6:51 pm

  23. Sir my email id is with you kindly inform me about the querries which i have asked on the MMB.
    Regards.
    amarawargaonkar

    Look, it is impossible for me to answer all individually. A couple of time, I did advise you but you were too scared to reenter the market. Of course, the market is bad or worse in decades – but not so in India. When I left stocks in 2003, the Indian market was as low as 2942 in April 2003 – the SENSEX today is still at over 10,000 or more than 3 times. The crash has still not arrived in India in real sense.

    MMB format has been changed recently, which is not so friendly. It is not as easy to find the posts as in the past. Even some of my posts a few days back appeared and then deleted by some one – regarding – Kalidas Rule 200:800 and 30: 70 for Indices and Stocks.

    I am buying Airline stocks like Spice Jet which has come down to less than Rs 14. I had sold this stock as high as Rs 92 – so How long should I wait. When the market recovers, the rally will be so swift that you will not see any sellers – there will be bids only. And you will find difficult to buy the shares having seen very low prices earlier. The market is good for really long term investors who have lots of cash and have patience to invest for at least 3 years.

    amarawargaonkar

    October 12, 2008 at 7:21 pm

  24. Vivek: I agree. Green business is the next big thing.
    I do not see any other problem which has greater importance than global warming.

    v8r.

    v8r

    October 12, 2008 at 7:21 pm

  25. Dear Sir,

    This is great. I guess we have here a much better platform to interact than MMB, where obnoxious people come up with their insecure, non-constructive opinions. Personally, I read the comments to see if you have written something or there is a message with facts and information from some body. I wonder if there can be such a feature which will highlight these type of messages.

    regards,
    v8r.

    v8r

    October 13, 2008 at 12:22 am

  26. for all Boarders

    Kindly leave your questions very concise, precise and to the point. Do not ask too general questions – many of my articles will cover those aspects. Further, I can not reply same questions to hundreds of boarders – i also have time limitation. This will help you as well as me to make this blog as much informative as possible. Kindly respect this space, your time and my time as well.

    anilselarka

    October 13, 2008 at 1:59 am

  27. Dear Kalidas sir, at this point of time do you still recommend to hold cash or start buying stocks. if stocks which sector in general and stocks in particular.
    Thanks and regards
    Ravi, Chennai
    Kalidas
    This is not lunch or dinner whether it is time to take the lunch or dinner. One is taking chances in stock market. Whether it is opportunity or not depends on each person’s outlook.

    To me, the door has slightly opened to make some investment of about 5% to 10% of money. I prefer Entertainment sector, non-export relted sector, Housing finance, 2 wheeler auto, gas, oil and cement. Indian entertainment industry has come of age. You may find mega hits in years to come, with Steven Spielberg joining Anil Ambani. With crisis back home, holly wood may turn to bolly wood. This is the strongest sector I will dabble in, but chose the company after lots of study.

    Ravi

    October 13, 2008 at 1:05 pm

  28. Dear Kalidas Sir,

    Plz answer my query:

    As of now it looks like US is in a bad recession. Earlier you said that there will be mass firing in softwrae industry in India, however later you said that India can benefit because of increased outsourcing.
    I think that S/W industry should be hit badly in India. The companies in US do not even have operating cash then how come they can afford and IT budget.

    Do you hold on to your previous view that s/w will have mass firings?

    Regards,
    YSB
    Kalidas
    I never said that there will be mass firing of IT software industry in India. Yes, I did reply to one quesion hat there will be increased needs for outsourcing that will keep India busy for long time.
    Except for banks all other idustries are relatively fine. All are sitting on huge hoards of cash. Look at IBM, Apple, Microsoft, Intel, and companies like Atria (parent of Philip Morris). They can manage even extra requirements. May be slightly on more favourable terms to investors. The industries are fine in USA – only financial services and banks are in deep trouble. The gangrene is only in one of the arm, not body.

    Only the banks are bankrupt. There are many things that Paulson did not disclose. He included JP Morgan Chase for the first time. There is always good press that JPMC was one of the most solid bank in the market place, unaffected by present mess. FED already gave them $59 billions ($30 Billions to JPMC and $29 billions to Bear Stearns) only a few months ago. In that case, why do they need bounty of billions again? Are there serious losses there contrary to market expectations? Many months ago, on MMB I wrote a piece reflecting my opinion that JPMC was technically ***rupt. This is coming true now.

    YSB

    October 13, 2008 at 5:35 pm

  29. Sir,

    Today fed has given blank cheque to banks to borrow as many dollars as required. This time, they have not put any limit on the amount of loan to be given to banks. Will this solve the credit crisis?

    laxminrv

    laxminrv

    October 13, 2008 at 6:22 pm

  30. KalidasJi,

    I find your choice of Indian Entertainment Industry very interesting. As of now, i think we have about to reach the tipping point in that sector. Would be very nice to know your pick when you found one.

    Vr8 … i completely aggre when you say this is much better way to interact than MMB. MMB new interface is not user friendly (they just went in by looks) and they now seems to much into deletion of posts. And lastly it will keep Sambala (i hope i spelled it right) and his likes away from here.
    BTW are you into Green Business in any way?

    Vivek

    October 13, 2008 at 9:13 pm

  31. Dear Kalidasji,

    Specific to airline industry, how well is spicejet geared up to face days to come?

    Also as OPEC plans to cut down on production, OIL prices will continue to trouble this industry for long term.

    Best Regards
    Girish (Pune)

    Girish

    October 13, 2008 at 10:41 pm

  32. Vivek: I am not into green business. Though, I am thinking about taking some position in green business companies. I had invested in Suzlon and got out with 50% profit booking when sensex was 17000 and rising.

    Kalidas sir, what is your opinion about Suzlon?

    Regards,
    v8r.

    v8r

    October 14, 2008 at 12:34 am

  33. Dear Sir,
    One of my colleague is traveling to Japan and US next week on business. He is planning to buy gold (for me too, say around 300gms or around 10 Ounces) We were told that in Tokyo Gold bars of 99.9 cost lesser than in US or India. Considering the exchange rates of currency and the commission jewelers in India charge m=,is it worth to buy outside India? We wanted to know where in Tokyo we should buy gold ?. Is it good to buy in Airport jewelry shops?. Do you find it advantages to buy in US? Is there any customs restriction while bringing that gold in to India . Should we declare at customs? Please give some light on this.

    Rgds
    Shiva
    Kalidas
    Any one can import gold in India – they have to pay 2% import duty at the Airport. I do not know whether Indian resident can import gold – we can as NRI. There are no quantitative restrictions. when you travel abroad, you have to be guided by import restrictions there. In USA, you have to declare currency in excess of $10,000. In Japan too similar rule may be there. This is common to almost all countries. Now, as soon as you get down, ask the Customs that whether you can buy the gold and carry it to India. To my knowledge there are no restrictions, but when you pass through screens, gold will scream. Just ask the authorities there at the Airport and go to the Enquiry counter who are better equipped to answer these questions. Instead of all these troubles, approach MMTC who also sell the gold to Indian investors at international prices. If you can buy from there, why take other troubles. Also, ask your friend to take proper receipt from the authorized shop and retain it.

    Shiva(shia)

    October 14, 2008 at 12:41 am

  34. Why are you asking irrelvant questions, about Customs and possibly about smuggling and breaking the law? It would be very good if you really stick to getting some valuable insight on world financial markets and basic economics in general.Something that everyone in this blog can benifit from.

    Kibhav

    October 14, 2008 at 1:54 am

  35. Dear Kalidasji,
    US & European Goverments have begun taking proactive steps to ease the heated financial markets & the banking sectors.
    Do you thing this will lead to a long sustaining solution to the problem or it will just push the problem to some months/or years ahead.

    Kalidas Replies
    No, they went on printing notes without knowing what the problem was. It is like firing the bullet in dark at random. It will fail miserably. On the contrary, the crisis will become very acute.

    To me, these are the last days of European Union – it may break apart under severe stress. It is a monetary union, not the political union like India, where all 28 different states with different language and culture, are using not only Rupee but also politically connected socially, economically, politically and militarily. Europe today is a union of different languages and cultures – there is no other unity except common currency. When Iceland fails and later when some other country fails, then many will think why should we import problems of other country to our country only because we have common currency. We were rather better off when we had our own currency.

    If USA does not become DSA (Divided States of America) the way USSR (United States of Soviet Russia) broke apart several years ago, then US$ will survive. Otherwise, only gold standard will return that will place severe squeeze on the ability of governments to create more and more money.

    Deekay

    October 14, 2008 at 12:31 pm

  36. Dear Kalidas,

    For every selling there is a buyer and similarly someone is in profit because others are in loss ( couldn’t sell in time ). In this context, all the banks are in loss, so who is at profit ? where does all the money went as you say property prises have depreciated only by 15 % in US.

    Regards, Sandeep
    Kalidas Replies
    Easy said dificult to follow. I have replied to this point on MMB in the past. You appear to be saying that if a person dies, another is borne; or similar to Einstein’s theory that “the energy is indestructible, it merely changes the form from one to another”

    What you are doing is comparing the principles of Nature’s justice (or God’s management) versus human behaviour and management. Life is not necessarily a double entry book system where if one loses, the other gains. I give you simple example:

    If there is a house for sale. There is a seller (owner of the house) and there will be several buyer of whom there will be one who buys. So for every seller there is a buyer. Now, supposing there is a fire, and the house is destroyed. The seller or owner loses all – does the buyer gain anything? The subject matter – House – is gone, destroyed, disappeared forever.

    Similarly, now, the money the subject matter -is destroyed and disappeared into a big black hole. This is why there is no money anywhere that causes credit crisis. There are buyers and sellers but no subject matter – Money. The banks did make money at the first stage when they created the derivatives. If they had stopped at that point, they would have retained the profit. However, they continued and started buying similar worthless derivatives from similar players in the market. So their plus was counterbalanced by the minuses of others. It is like you have made money in one or 10 stocks, did not stop in the quest of making more money. Then, boom – the markets crashes and all your past gains gone.

    sandeep

    October 14, 2008 at 4:54 pm

  37. Bank of England is lending money @12% (to RBS, HBOS &others) and Warren Buffet also lend money @10% to Goldman. But on the other hand BOE is cutting the base rate to 4.5%. Does that signify something, higher rates in the future …..
    It is a bit confusing.

    Goel

    October 14, 2008 at 8:08 pm

  38. Sir,

    Dont you think that when the Gold Prices shoot to twice of its current range, it will lead to demand destruction in India which is the largest buyer(Indian Lower and Middle Class) of Gold. Wont that keep the prices in check.

    Regards,
    Vivek

    Vivek

    October 14, 2008 at 10:39 pm

  39. Kalidasji,
    Would suggest you cover some of the points below in your next blog.

    1.Now that is is certain that US is going into recession for may years what do you forsee for a country like ours ,
    2.India growth story was connected to rising incomes & consumption . Would Real Estate & Retail not drop like hot cakes on the floor. And I mean not just their shareprices but their own financial positions
    and their hyped projects,
    3.Do you think countries like India & China could emerge as the darkhorses in the World economy or would US/Europe pull India dowm with them.

    Deekay

    October 15, 2008 at 6:45 pm

  40. Dear Deekay

    You have pointed about Recession in USA but what does it affect to Indian Real Estate??? I think Nothing. Real Estate sector will Pause only for Two years.Real estate sector Boomed when everything like Steel, Cement , Interest Started to Zoom. So people beilived that “Buy now or Never”. But now everything is cooling off. Thus the cost of Building a Flat will come also down…

    Btw Population in India has crossed magic figure at 113 Cr. Will not do they need first Homes, offices, Godowns etc etc ??? and if you can see present situation in india. people (mostly Youngs like Me) are becoming more Educated , Fashionable and Savy of luxurios lives . Will they live in Slum like the generation of 70-90 Spent all their lives ????? The big answer is NO NO NO…
    If we talk about the price of Real estate companies in Stock market they have corrected almost 80-90% from their previous highs. Like HDIL from 1100 to 90 , Sobha devloper 1100-100… I think we should buy this companies if they correct more 30-35 % in Crisis to get handsome profit in 2-3 years ..
    Thanks & regards
    Jayesh, Gharkopar , Mumbai

    Kalidas Replies (Although your reply is directed to Deekay, I just add my viewpoints)
    A flat in Ghatkopar cost anywhere from Rs 50 lakhs to 1.5 crores on 60′ Road or near Rajawadi or new developments near Vidya vihar. How many of middle class people have even Rs 1,00,000 in cash? How many poor people living in shanty chawl can afford a house of modest value Rs 5,00,000? Mere population does not translate into demand for expensive properties.

    Compared to quality of residential and commercial property that I have seen in Ghatkopar and around, and having also seen the quality of properties in California, USA which is in deep recession, I can tell you that I would buy the property there with highest quality. I was born in Ghatkopar, so I know this city simply too well.

    I do not trust developer’s stocks. Most of the profit goes into the promoters or Director’s pocket – they never share the prosperity of the company. Although a public limited company, they remove the word “public” from the name plate and behave accordingly. I never ever buy the developer’s stock – I would rather buy the property – because that will never become zero.

    If one is bullish about cement and steel, there are number of quality companies to chose from. Most of the developers’ stocks are “hyped” up and the stock like DLF was not even worth Rs 50 which went to the roof because of make up stories. When the troubles hit the property market, the first persons to flee are the developers who leave the half completed buildings behind in memory of their misdeeds.

    Further, the population of India is inflated to 113 crores. If you apply Arithmetic progression, taking a base of 30 crores in 1950, and having regard to death/birth rate, India’s population can never be beyond 70 crores – it is inflated to have bogus voters’ list. During 50s, each parent used to have 5 to 7 children – now only 1 or 2 – growth rate has slowed down by 60%. There is no way India can have population of 113 crores as projected. Geographically, the boundries are same, with family planning in full force – from where do the statisticians bring in such figures? Even China can not have 1.2 billion population. Normally, we accept what is given without verifying the source or the result. That is greatest mistake.

    jayesh

    October 17, 2008 at 12:19 pm

  41. Kalidasji,
    Is it not time for India & China to form some sort of Trade Alliance to combat the crisis of the western world .
    Considering that this combined 33% of the world still needs more Mobile Phone, Televisions, Cars , Homes as compared to the developed world.

    Deekay, Indore , 20th October 2008

    Deekay

    October 20, 2008 at 4:07 pm


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