Sunday, February 27, 2011

Thursday, February 17, 2011

Does the exchange business stink??

Jeff Carter speaks about why valuations are cheap in the case of few exchanges when compared to their other counterparts? He says the exchange regulations influences their valuation! [Link]

Tuesday, February 15, 2011

Meaningless 'Hatred' towards China!!

I blame electronic and print media at the first place and our irrational political leaders (here 'our' i mean all leaders except from China) at the second for cultivating 'hatred' towards China and its Success stories. There are thousands of columns on print media and millions of articles on electronic media, that casts doubts over the sustainability of Chinese growth momentum. Innumerable of them held high India's growth story higher than Chinese, though India don't match China on any parameter. China sustainably managing its double digit growth and highest position on global trade. Now, China is successfully (so far) pursuing to achieve the world 'reserve currency' status to its own. Here are the views of Indian notable economist (a great Philosopher too) Amartya Sen. [Link]

Monday, February 14, 2011

Yuan as potential 'global currency'

It is a dream, Chinese leadership wants to make it true! China is known for rigorous in pursuing the set objectives. It has almost achieved the objective of having 50% external transactions to be invoiced in Yuan. As it is a major player in global trade, Yuan already found its visibility. Moreover, its steadiness and constant fluctuations are making it to be pursued as the global reserve currency. Here is a nice write up from business standard. [Link

Friday, February 11, 2011

Deals and Deals, Exchanges are getting integrated!! How about us??

As Prof. Verma said (in his blog), it looks like mighty Atlantic Ocean no longer exists. Most of the Europe had already aligned with North America through NYSE Euronext (through a deal that struck during early 2000s), now everything goes as expected (LSE acquiring TMX, NYSE Euronext - Deutsche Boerse AG deal) in another one year or two the initial statement will be true. On the other side, Indian Ocean is also expected to lose its existence soon with the SGX-ASX deal, though currently deal is facing few legal and regulatory hurdles. If i understand correctly, down the line around 5 years into the future, there will be 4 or 5 exchanges (borrowed idea from Jeff Carter) world over and their branches in all the countries. That will be a true heaven for an investor who can buy or sell any international equity security without much hurdle.

As the world is moving very fast, though we have world class exchange and depository infrastructure, we are virtually split and pondering on who has to own exchanges? Whether to allow them to list or not? Our policy is lagging behind and now struck at a road block!

My vote is for allowing the exchanges to list and increase the competition by providing level playing field for all the exchanges and allow them to merge with international exchanges...............SEBI should regulate them and direct them to provide best services to small investors........ let allow and give free hand to market to get best services!!

Thursday, February 10, 2011

Corruption drags down the VALUE OF FIRM!

So far 'level of corruption' in a country has not been considered exclusively in valuing a firm, rather it has been viewed as part of the country risk. Even, so far 'corruption' has been viewed as ethical issue and has been treated only on moral grounds. Its exclusive impact has never been factored in the valuation as we have not concretely realized its economic consequences. However, the corruption within the firm has been the prominent issue in terms of its implications to 'corporate governance'.

Recently in a study by Prof. Lee from Standford Graduate School of Business, provided the evidence that level of corruption in a country significantly influences the firms' valuation within that economy. Firms in the countries with high level of corruption tend to be valued at low when compared to their counterparts in other countries where the level of corruption is low. I feel it is a serious issue for the investing community to factor in 'level of corruption' or assign more weight to it in the variable which measures country level risk. As market expected to value low, entrepreneurs need to reconsider their plans to start their businesses in the corruption ridden countries.

Though further research is required to consider the gravity of issue, it seems the countries and even the citizens have plain incentives to fight for corruption free world!

Here is the link to the original paper. [Link]

Macro economics as kitchen sink!!

I always find confusing (rather gets confused by self-proclaimed economists..............i believe every rational human being is an economist) to distinguish the schools of thought especially in macro economics. This is particularly so in the case of Neo-Keynesian and New Keynesian thoughts. Karl Smith (Professor, University of North Carolina) made a nice attempt and drew a flow chart. [LINK]

Wednesday, February 9, 2011

Covered call strategy explained!

It is a derivative trading strategy. It essentially means that you own a stock and sell call on the stock you owned and collect the premium. This strategy make sense if one wants to keep hold on the stock and thinks that in the short run its price will be either stable or slightly goes down........... but sure that its long term prospects are good. The strategy has been nicely explained by a finance professor. Here is the [link]!!

Tuesday, February 8, 2011

Research In Indian B-Schools

Link As clearly discussed in the article, Research in B-School should focus on case development. Ideally, case development should have the priority over the academic research and practitioner oriented research, especially in B-Schools. Unfortunately, in practice focus is being given to academic research which always lacks the practical applicability, it is mostly true in Indian B-schools. The prominent reason i can think of for such a phenomenon is lack of profession experience to the faculty. Being a professional course, MBA is expected to give practical orientation to the students, for that the faculty should have the practical work experience in the concerned field they teach in the class room. The severe shortage of faculty in the country, the B-Schools are being forced to recruit the candidates who just passed out from universities with their doctorates. These fresh doctorates neither have exposure to practical world nor practical work experience. The shortage of management faculty has arosen with innumerable B-schools without adequate faculty and infrastructure.          

Lack of proper planning for the future educational needs is the core issues that had never been the subject of concern for the policy makers.!!  As long as it is not served............problem keeps aggravating!

Monday, February 7, 2011

Islamic finance and its foot prints in India

[Link] It is nicely and briefly written piece. The piece favors rather argues for the separate legislation to promote the Islamic finance, the form of finance recognized under the principles of Sharia law. As we are enjoying the well regulated services from the financial system, do we really need a separate stream of finance. Can we really tap additional funds which we couldn't through current system, through Islamic financial system? Does it really worth to embark on additional system as it expected to cause further regulatory confusion?  Doesn't it further deepen and broaden the religious differences?

My main question is that does our formal (current) system really has gaps? Is it really leaving behind any potential resources (funds)?        Probably i need to further probe the issue!!

An elegant discussion on Sampling!

Aswath Damodaran has an interesting piece [Link] general sampling issues and he elegantly explains the potential issues with the contextual example of US unemployment figures. By the way he explains how the unemployment figures are computed (focus on US).

Why economists failed in predicting the crisis?? .... Cont'd!

Ajay Shah in his blog discussed at length on the same issues and on Prof. Rajan's argument [Link]. I remind you that i did blog yesterday on the same.

Sunday, February 6, 2011

Why economists failed in predicting the crisis??

This questions has been popular, after it has been coined by the Queen of England, when it has been posed at a conference at London school of economics. There have been a several explanation why the economists failed to spot the group argues the we simply don't have models, another argues that the economists blindly believed the free market and irrationally assumed that the market participants are rational........ there were also argument that attributed the reason to 'sponsored research'............most of the research is sponsored which is tend to be biased towards the sponsoring party (mostly financial market participants)....................Prof. Rajan in his official blog Fault Lines argues that since most of the research is carried out through sponsorship from the industry................and realistically there expected to be reasonable amount of bias...............there should be disclosure about the 'sponsorship'............ so that the market interprets accordingly and take into account the potential bias in the findings...........................Possibly such known information about the bias  before the research, the researcher (economist) tend to be more accurate and essentially eliminates any such bias!!

Find the Prof. Rajan's take on the issue on his blog! [Link]

Saturday, February 5, 2011

Growth through austerity!??

Is the growth possible through austerity? Post-crisis the word 'austerity' has become popular. But the question of whether it helps the countries to come out of recession? Does it help to reduce fiscal deficit? It certainly seems rational that fiscal deficit can potentially be reduced if the democratic government keeps a check on wasteful expenses. But reducing consumption will not contribute to the growth of economies..... moreover it leads to contraction. Here i mean consumption not just by government but also the citizens. It will potentially reduce the aggregate demand causing further deceleration! UK's case is the ready example. UK embraced the austerity drive to stimulate the growth process and reduce the fiscal deficit............. it scored very poorly in the growth front which is crucial. Though it brought down the fiscal deficit holistically............ but it really caused the further contraction!!

The economist carries an interesting piece. [Link

Lottaries are demistified!!

Are the lotteries as tax on dumb people? Here is a great story (Which Ajay Shah also shared) who a statistician unfolded the math behind these lotteries. [Link]

Note: This link might have filtered as it has word 'lottery' which comes under the 'gambling' ....... u see most of the web filtering guards are hypocractic!!

Friday, February 4, 2011

Market indices explained!!

Why market indices are important? We all know that market index is some sort of average of its constituents and it reflects the overall market movement. And they are generally used to gauge the direction of economy, overall economic activity, they are also used to measure the performance of various mutual fund schemes as the benchmark performance. These market indices may be classified into price weighted, value/market weighted and equal weighted indices. The following video link explains how they are constructed? how the return on such indices are calculated? and what happens when there is change in the magnitude of the constituents? [LINK]

Readers who undergone the 'Investments' course, may use this talk as refreshing......otherwise it is very educating!! 

Interesting Links-20 (04/02/2011)

New SEBI initiatives:
a) Planning to introduce call auctions in the proposed SME Bourse.[Link] The idea of setting up of separate bourse for the SME (less than Rs 25 crore) has been coined by SEBI in the mid of 2009. It will soon be implemented. As we all know, that these SME stocks trade very infrequently on the bourses. To correct it and encourage more trade to happen SEBI is mulling over to implement continuous call auctions (each running for 15 minutes) all along the trading hours. 
b) 'Ring Fence' to prevent flash crashes [Link]. It is still in our memory, during the last may (2010) Dow dropped by 700 points without any major news purely due to some technical snag at the HFT desk of a prominent investment bank. At that time, (not on same day) some miss trading caused the plunge in RIL scrip on Indian bourses. These flash crashes generally occurs when the large market order interacts with a thin order book. These large market order influence the price, the effect of which will be multi-fold as it feeds into automated trading systems (HFT).

Macro Economy
An interesting piece on the impact of monetary policy in Business line. [Link]

Thursday, February 3, 2011

Interesting Links-19 (03/02/2011)

Corporate Finance:
Corporate governance mechanism's objectives are being redefined. As per the Anglo Saxon method of corporations, the shareholders are the key stakeholders and the managers who look after the firm should work for the maximization of shareholders' wealth. And managers contracts and their incentive mechanisms are designed such that their welfare is aligned with that of the shareholders. The benefits of other stakeholders are limited to the transactions they are involved in. The recent crisis brought in the government in particular and society in general on to the board as the prominent stakeholder in corporations. Now the definition of corporate governance is undergoing rapid changes in terms of its objectives.......... time has come it has to look beyond the welfare of shareholders. Here is a nice write up. [Link]

World economy:

Jonathan Parker, Kellog school of Management reports the initial reactions on the report of global financial crisis. (U might remember, i posted a link to it under the title of Official book on finance crisis) [Link]

Wednesday, February 2, 2011

Yield curve shape as the macro economic indicator!!

What do we know about the yield curve? what does it shape mean to the investors and to general economy. Here is a nice post from a finance professor. [Link]

Can the Yield curve predict the future economic scenario? Does the economy tank following the inverted yield curve? What is that evidence speaking? This post is very interesting. [Link]

Fifteen Facts about 'India'!!

25% of the world new workforce will be Indians (by 2014) and average Indian age seems to be 20 years less than that of Japanese (26 Vs 25) (sadly i am already older than average Indian :( :( ). These stats seems to be good facts, but the worst is that 42% of the world poor lives in India!! Click on this link for the remaining facts!! [Link]

Market over reaction or under reaction!!

It is widely reported and seems to be true that the positive news benefit 'worst' stocks (with low PE and reported earnings below the expectations) significantly far better than 'best' stocks!! Forbes India carries a nice illustration [Link]

Interesting Links-18 (02/02/2011)

Focus on grass roots:
Take of practitioners on Malegam Committee report on Microfinance Sector reforms in India, and a response from one of its member. [Link]. ET also carries another report on the recommendations of MC. [Link]. Kshama Fernandes (IFMR Capital) has a piece on the similar issue in Business line. [Link]

Corporate finance:
Stock Buyback: Implications to different classes of investors.......... what is it for dividend players, cash players and growth players. Prof. Damodaran has nice illustration [Link]. This has straight implications to the investors participating in Indian markets. The steep fall in the prices based on global cues and dried up volumes due to choppy market situations.......... triggering many firms to go for buybacks........there is a mad rush among India Inc. ET has a ready example for the same. [Link]

Tuesday, February 1, 2011

An Official Book on Financial Crisis!!

This is an exhaustive report with the illustration of various events at FED and US treasury desks in mid of crisis. It carries the testimonies of various officials who bailed out Freddie Mae, Fenne Mac, Goldman Sachs, AIG and How Lehman went under..................incident and closed door discussions with various authorities.........including the FED Chief Ben Bernanke. Happy reading! [Link]

Interesting Links-17 (01/02/2011)

Green World:
1. 'People develop, develop, develop and nobody thinks of what it is going to be like at the end of the this century. Thinking ahead and planning is the responsibility of governments, corporations and communities' - George Schaller (a biologist, environmental politician)... An interesting and thought provoking conversation.
Courtesy: Today's Business Line. [Link]

Fund management:
2. Why does market so obsessed with macro economic dynamics? Why do investors need to track the macro economic indicators?  Today's ET carries and interesting (rather exhaustive) piece. [Link]
3. Increase innovation causes the increase in economic growth thereby median level of income. Its vice versa is currently in operation. The slow down in innovations causing the decline in economic growth and resultant decline in median level of income.............the great interesting review and comment of a book. [Link]