Impact of OBAMA & Democrats - Analysis & Remedy

In the light of Econimic Scenario - Financial Crisis, Sub Prime, Bankruptcy, Hardening of MS and Softening of MS, Softening of Rates, Hardening of rates and Softening rates, FED's failed policy of impacting GDP with frequent rate changes-Conventionally bonds duration have been beaten by these changes and reason for the changes in the yields giving rise to speculative opportunities since 2000 onwards! Crudonomics, war, inflation of last 8 years, consolidation, growth of chinese economy, bailout packages, nationalisation of banks, insurance companies,Currency losses and supernatural profits, gains out of industry and stocks. Present Indian Inflation is at 3.96%, reserves are at 250bUSD, Sensex is at 9000 level with USD at 50 levels.

OBAMA's policy of revival is like root cause analysis and and the impact is felt throughout the world. Currency movements are reflecting the immediate psyche and exclamation. In the immediate term
1.IT companies will find it difficult to hold on projects and get new business
2.As the skill set cannot be developed overnight- skilled labours will be required in US and more of work will get shifted in US.
3.MNC's will have subsidiaries and get the work done
4.Cost of the average payout /hour will get reduced
5.On account of tax cuts and boost to the banks and corporates, public spending etc there will be an impact only if supported at the retail level by the banks. Banks are not ready for the same for want of policy and distorted vision
6.People at large are not convinced of the future and assurance of success in near future so that they can start spending- SO THERE IS SUPPLY SIDE AND DEMAND SIDE HURDLES FOR THE MONEY SUPPLY AS COMMODITY.THE PRECAUTIONARY NEED OF MONEY IS THE HIGHEST AS OF NOW.

Against all Odds , the gold has beaten the markets because of buying by central banks, HNI's, banks as safe heaven. India's gold cult is undoubtedly not less than 300-400bUSD considering average imports of 300mt, @100USD, USD/INR @30 over last 30 years.

Democrats has always given a better financial position to US and the same is getting repeated. This is certainly an alarming situation for the currencies dependent on US economy and have been depreciating over the years like INR. Today USD/INR moved to a level of 50.45 (We may see spikes) and the way EUR/USD is moving, Japanese economic numbers are getting worst and as there is going to be lead time for the recapitalisation, re framing of loan policy, tax cuts and new rules of bonus and transparency is outlined, there is going to be very safe lending and this may even become political lending due to the involvement of state. Recent deal in India of ONGC Videsh of USD1b by Citibank is a testimony of this thought.

As the cost of borrowing has increased by 3% in last 8 months, there is certainly the requirement for new rules. Merely BASEL, 9% CAR and CAMELS rating are not enough for the markets.

There has to be a range bound price movement across all trades all economies. the system cannot be perfect but margin trading is not helping in the price discovery rather this has become a tool of distorting the markets. Futures and options are no longer instruments of hedging for which they were discovered. They are means to beat the fundamental players. The article written earlier on in Early 2007 have highlighted these issues. The impact of the same is now evident-The Financial Crisis.

Last couple of years , however have changed the dynamics and third world currencies have appreciated but not for long and due to lack of padding which has been written in the very early articles / views(refer articles of May, 2008).

Isolation is not the solution but better systems and vigil on capital terrorism is what is required. To fight the loopholes is a challenge and a mechanism of checking the latest transaction and moves are important for the monitoring agencies to tackle the dynamics. If the transactions meant for terrorism and anti money laundering laws and software systems are there, diversion transactions unethiconomics like crudonomics can also be handled to a great extent. Democratic capitalism will always beat the law and as all accept that no system can be bug free.

Happy Investing,