Financial Wisdom – By Kalidas

Radical Solution for Credit Crisis from Kalidas

NASA – News Analysis Strategy Actions – updated 07 Nov 08

with 9 comments

Here are the latest news events and their potential effects on the entirer range of financial world. You may make comments but they will not be answered. Thanks for your attention 

News

 

Date of News or Event: 2008/11/07 – UK Interest Rate cut 1.5% – 55 years low

Bank of England pressed panic button yesterday. Mr. King reduced interest rates by massive 1.5% in one go, lowering rates to 55 years low. Another coinciding report was Home prices in UK dropped by 15% to reach 2005 level. It is now expected European central Bank might reduce interest rate by substantial 0.5%

Analysis

All American problems were transferred to UK and Europe. US brokers sold all toxic derivatives to UK and European investors. The low interest rate was the main cause for proliferation of derivatives. BOE, FED and ECB are making same mistakes again and again. While home prices have slipped to 2005 level from year high, which is not major correction, the interest rates were pushed down to 55 years! GBP will falter, so also Euro, $ may strengthen by default. GBP will lose 30% in just 6 months. TISCO may benefit if its obligations for Corus are in GBP and not dollars. RBI usually imitates UK, and if it makes same mistake as UK, by lowering interest rate by 1% gain, Rupee may fall. Otherwise, Rupee will strengthen. The bond investors in UK will have golden gains due to 1.5% cut. The UK bond prices may gain over 20% to 30% in few days

Strategy

1.      Sell GBP and Euro and go long on dollar or rupee. Rupee will strengthen against pounds and Euro. Indian exports to UK Europe to suffer. Software least affected.

2.      I take the view that GBP and Euro may recede to parity in 6 to 9 months.’

3.      Buy UK property or pound assets when GBP near 1.08 to 1.20. Avoid Euro

4.      If one holds NRI deposits in GBP or Euro, just withdraw  and convert to Rupee

5.      Rupee may gain if RBI does not play Monkey with UK.

Actions

1.      Go long Rupee (Domestic) not NRE, selling GBP/Euro/Dollar due to huge interest differential (over 5.5% in favor of depositor)

2.      Apply rupee on high dividend yield paying stocks. 

3.      The event is really positive for Rupee unless RBI reacts badly. Watch RBI.

4.      Sell UK stocks, bonds and property. Even if you make in assets, you will lose on currency. Right now, high yielding currencies such as South African Rand, Indian Rupee, and Brazil real will be better protection to your wealth.

News

 

Date of News or Event: 2008/11/05Reliance Industries Limited (RIL)

RIL stocks slipped from 1505 day high to Rs 1246 (down Rs 259 from day high) on heavy volume of over 11 Millions shares only on NSE. The rumor suggested that 5 plants at Patalganga were closed down. Mukesh Ambani suggested that the plants were closed for routine maintenance and will restart this month. However, he confirmed that 400 employees opted for VRS and 800 more might opt soon. He denied that the plants were sought to be shifted soon to some other locations.

Analysis

The stock has been having roller coaster ride of late. Some brokerage also downgraded stock with 38% lower price target. To me, there is serious crisis brewing at RIL. Handing over pink slip, sugar coated with VRS, is the first ever retrenchment exercise. Troubles at retail stores, closing down of all petrol pumps nationwide, closing of Patalganga plants in the name of maintenance (no one closes all plants at same time) suggest some serious troubles waiting to come out. They must have lost really big amount somewhere. Forex losses or sub-prime related losses? We do not know yet, but I would not wait. There will be fire if there were smokes. SELL now and ask the questions later. In any case, the stock was expensive and I projected as low as Rs 900 in Dec 2007/Jan 2008. Now I think it may go drastically lower.

Strategy

 Swap into some other stock in same sector. Oil and Gas is still the best sector to be in, especially Gas sector. The strategy is:

SELL  One RIL  share @ 1246 = BUY 1 HPCL (Rs 200) + 1 BPCL (Rs 320) + 3 shares of Essar Oil (@Rs 83) + 3 shares of GSPL @ 28.50) + 1 shr of GE Shipping + 5 shares of Essar Shipping @40 (Total funds applied Rs 1266 Amt Raised Rs 1246)

Actions

Sell 1 RIL @ 1246 and realized Rs 1246 (the stock is in serious danger)

HPCL 1×200 = Rs 200            GE Shipping 1 x 210 = Rs 210

BPCL 1x 320= Rs 320            GSPL            5 x 28  = Rs  140

E. Oil  3 x 83 = Rs 249           Amount Applied = Rs 1239

E Shp 3 x 40 = Rs 120           Amount Raised  = Rs 1246

News

 

Date of News or Event: 2008/11/05Victory for  Obama – What Next?

Barrack Obama became 44th President of United States of America. He will assume charge in or about beginning of January. Mr. Bush will continue as caretaker. Democrats also won the control in Senate and House of Representative. It was a clean sweep.

Analysis

The uncertainty is over. What next? The economic scenario does not change. While Bernanke will continue as FED chief, the hunt for treasury Secretary will be on. Either Rupert Rubin, former Treasury Secretary under Clinton administration or Paul Walker, also a former Treasury Secretary are speculated. Rubin will be the most dangerous choice who may destroy world economies.

Strategy

 Do not speculate. Lighten up in rally and buy in deeper dips selectively. Do not commit for more than 25% of investible resources. Rest in cash. Oil prices will begin to go higher from now on to November 20 when the December contracts are due for physical settlement. About 282000 contracts are outstanding (= 282 million barrels of oils). A day before only 28000 contracts were bought back and oil rose by 10%. Imagine what will happen if 10 times more contracts are sought to be unwound. Oil may rise to $100.

Actions

  1. Buy Oil producers on dips. Avoid refineries, Airlines, and Auto now. Buy after 24/Nov.
  2. Gold and Silver may rise depending on how much oil rises. Rise could be +5% to 15%
  3. $ may weaken between 20 Nov to 24 Nov. Euro will rise, so also Aussie, Can$, Rand
  4. Metals may rise. Aluminum, Zinc, Copper, Steel, and Nickel may show strong rise. Buy commodities stocks in base metals, steel and cement.  Be quick to take profits as the rally may not be sustainable in either direction.

News

 

Date of News or Event: 2008/11/01 – RBI’s On & Off policy again – Interest Rates. RBI unexpectedly reduced interest rates (Repurchase Rate) to 7.5% (-0.5%), Statutory Liquidity Ratio to 5.5% (-1% after 11 years), Govt. Bonds Ratio to 24% (-1%). It will infuse Rs 400 Bln (40,000 crores) into the system. FII withdrew $ 11.7 billions (about Rs 60,000 crores)

Analysis

Neutral event. Monetary stimulus is okay, but real fiscal stimulus is required. Infusing liquidity does not help as banks are not lending. Rupee may fall due to lower interest rates. Rates should not have been touched at all.  What is required is reduction in tax rate by 3% to corporate and 5% to individuals for this financial year (until present Government’s term is over), not the lowering of interest rates.

Strategy

There could be a rally. Rate sensitive sectors to rise. Housing, Capital goods to gain.

Sell High PE stocks, banking stocks in rally. SBI, BOI, BOB, HDFC Bank expensive

Switch to Gas, Oil, metal (not ore or coal) LIC HF, GIC HF

US market may rally ahead of election on Tuesday, as uncertainty will be over. We have to wait for post election announcement of the Presidential candidate.

Interest rates in India have peaked.

Actions

Good for real estate shares. Selling pressure may reduce. Still no good time to buy.

Buy oil producers, sell Refiners in rally, Buy beaten down steel, auto, shares

Reduce refiners. But pick up Essar Oil in correction only

Reduce bank stocks progressively.

Raise some cash during this rally and await the victory speech of President elect.

 

News

 

Date of News or Event: 2008/10/29 – Oil prices rose, dollar fell, Euro, Aussie rose That’s right. Oil rose, $ fell, Gold, Silver, Euro, Commodity currencies rose, Metals rose. LME copper rose 12.66%; Nickel 14.7%, and Zinc 10%. US$ index fell. FED cut interest rate by 0.5%. Currencies of commodity countries rose sharply.

Analysis

Two distinct trades are taking place in the market – Paper futures and Physical Spot trades. Both show great divergence. Spot market is dictating future markets. On NYMEX, the Open Interest for Oil CL for Dec 2008 (expiring Nov 20 on physical delivery basis) fell to 325,109 contracts (325 Million Barrels equiv). Reduction of 7000 contracts resulted in sharp rise in oil and fall in dollar. 98% contracts still remain outstanding. Massive rise in oil expected before 20 Nov 2008

Strategy

To buy commodity stocks especially base metals such as copper, Aluminum, Zinc. Currencies like Aussie $, Can$, Euro and even GBP. Since the markets are very volatile, swinging 10% to 12% in single day, an investor may stay on sideline and step in to buy when there is sharp correction on the downside due to paper trading. The mill producers may buy the deliverable futures (not cash settlers) relating to their metal. Buy Oil producers and sell Refiners due to higher oil prices

Actions

1.      Buy Metal Stocks on any sharp correction.

2.      Buy Oil Producers and avoid Refinery stocks

3.      Avoid Airline stocks. Reduce now, Buy back in Mid November before Nov 14

4.      Avoid Auto stocks due to projected rise in metal and oil prices.

5.      Buy Gas related stocks of Producers, distributors – Less Price Control

NTT DoCoMo deal

Written by anilselarka

October 30, 2008 at 7:58 pm

9 Responses

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  1. Great idea, I like the concise format which leads to logical analysis, strategy and finally action that can be taken based on the news. This service will help us analyse the latest happenings in a way that is of practical value to us.

    Goel, London, UK

    Goel

    October 30, 2008 at 10:58 pm

  2. Hello Kalidas,

    1) Metal Stocks: Have Sesa Goa, any other suggestion?
    2) Oil Producers: Plan for Essar Oil after reading this blog.
    3) Refinery stocks: Have MRPL, waiting for some more correction to buy HPCL/BPCL.
    4) Airline: Will buy Jet/KF
    5) Auto: Have Ashok Ley any other suggestion?

    5. Buy Gas related stocks of Producers, distributors – Less Price Control

    Nitin Pillai - Mumbai - India

    October 31, 2008 at 10:43 am

  3. Just yesterday night, i was thinking about requesting same idea to you … like you give an analysis of events per day (or as and when it happens) and its possible impact. But you came up with even better solution … NASA is simply too good.

    Keep up the good work Sir.

    Vivek, Gurgaon, India

    Vivek Dhariwal

    October 31, 2008 at 3:55 pm

  4. Dear Kalidas

    Great idea and great service to people like me.

    Mohan

    Mohan

    November 1, 2008 at 1:24 pm

  5. Sir, NASA is a very good idea and, I hope, visitors read NASA first and then your replies to the various articles.

    sekar

    November 3, 2008 at 8:34 pm

  6. Hi Kalidasji
    Before I was waiting for your replies for questions, now for NASA too. NASA can give a great idea about latest happenings.

    Regards
    Renukswami
    Congo
    West Africa

    renukswami

    November 7, 2008 at 8:30 pm

  7. Dear Sir,

    NASA is saved lot me. NASA is like a Life Jacket, its saved the person from sinking the turbulent time, whoever reading this blog are great fortunate, they never fail their investment life and whoever reading more deeply you they succeed every aspects of life. Great wisdom Sir. Thank you very much sharing with us

    Rajmohan babu, Pointe-Noire, Congo

    Rajmohan babu

    November 8, 2008 at 12:27 am

  8. I saw some news on change in bailout plan by US.
    Please try to throw some light on it, if you find anything interesting.

    Best regards,
    Prashant, Chennai, India.
    Read the follwing replies to others

    Prashant

    November 13, 2008 at 12:52 pm

  9. Sir,
    With Obama appointing new Economic team and giving some +ve promises, like improving basic infra,schools,green tech in US would there be an update in your NASA discussion page.
    Thanks

    Deepak,Bengalooru,IN

    0811-109 Kalidas Replies to Deepak (Monday, November 24, 2008)
    Obama promised CHANGE. However, he is appointing yesterday’s members of Clinton administration the way Bush appointed his father’s team. His utterances also reveal that his advisers do not have idea of real economic problems.

    Any body can spend any amount. The question is, do they have or will they have money to fund those expenses? I take the view now that Obama knows nothing. Do not expect anything in that case.

    deepaks_univ

    November 23, 2008 at 10:49 pm


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