Managing the Financial Dirt- Time to Rewrite Policies

Going Forward - Time to Rewrite Policies not for return but for Future Generations

Countries which have been able to understand the ripple impact of credit and trust crisis, were able to place liquidity and monitoring systems to avoid such a cascading affect. For incidence, apart from US and Europe supporting and re capitalising the banking sector, India took measures sharply and loans were re structured in real estate and manufacturing and infrastructure sector. Time limit for re structuring was extended twice in 2009. A study of overall restructured loans in India has seen a great jump in last 8 months. There is still fear in the market that the norms of asset and income recognition might have to change by the RBI even after having such a huge liquidity.

Dubai World credit crisis is nothing new but a group run like a country turned into a financial and leisure hot spot which kept the owners enjoying and by the time they could get up see out of thri windows, accountants were running as the bankers were chasing them. Bells rang!!

The true picture will emerge only after a year of operations by the companies as the restructuring has been postponed by a year. The companies mid size and small ones have not been able to sell under construction space, loan funds have been blocked in advances and land. Fresh investment has not happened and banks have been rolling over/giving fresh loans only to the big ones who have been able to get money from international and domestic market with some sales happening.

Fx World
Though the USD is bound to depreciate further, we should not underestimate the potential credit crisis in Asian markets. India may see sporadic bad news but Chinese economy can give surprises as they badly want yuan to depreciate on account of exports.
JPY Japanese too are trying to depreciate but the dollar is so weak that every time efforts are done by BOJ , with a jerk it bounces back.

Dubai world is still having future receivables of energy and china sitting on more than 2trillion dollars of reserves with hong kong in its fold. Other Asian, West Russian and Latin American and European countries re still finding difficult to show dependable signs of recovery.

USD may take 10 years to come back but, by thn other currencies and Chinese economy will absorb and will have its market. For sure, Yuan will not become an international currency owing to its political compulsions.

Gold, as a safe bet is back as an asset class. Commodities and necessary food items world over have shown higher than expected inflation. The precautionary demand is still high and people are not ready to spend as the loan growth in corporate sector has not happened.

Considering the positive signs from June 09 onwards, as was writ en in Jan 09, the cue based on numbers are not very clear as people expected that the things are over now. Though , couple of banks have reported significantly better results, the repayment of tarp loans has started happening, this to fructify, governments world over will have to spend and generate avenues and assurance that the support will to the common public at large through banks which have been created to channelise the money on the contrary the purpose has become commercial.

As the dilemma continues and the investors are searching for the abnormal returns, markets and policy makers are finding hard to put a mechanism in place wherein volatility is reduced and equilibrium is achieved fast. The situation is Any Money is NO Money' because the benchmarks have to be build all over again.

In the interest of the sustainable development and equitable distribution of wealth, learned people , economists, central banks and governments should sit (reiterating again after 1997 May/June), that the efforts started have been stopped midway and have become biased due to individual concerns of nations.

Options and futures as instruments are no longer used as future price discovery. The mechanism itself needs to be linked to demand supply rather than speculation to arrive at the notional pricing which is eventually driving the real trade.

There is an urgent need to revisit books,classrooms,policies, practices and thought processes.It is the return which is guiding rather than the demand.Monopolistic characteristic , cartelisation has come in most of the industries world over against which , the world has worked to reach perfect competition levels. Conceptually, a monopolistic industry cannot be subjected to Price discovery over exchanges for its shares and products.

And here lies the solution- For Futures and options to be operational, the data on demand supply etc be compiled, The industry structure and WPI/CPI weight age needs to be seen.

The instances of sugar prices soaring in the hands of 4/5 large traders when the world knows the shortage in India and crop failing in other parts of the world is a mockery. Flight of capital and capitalism is getting legalised by virtue of exchanges and instruments like futures and options. The public at large is paying the price , taxes and eventually left with the nothing as they are ...........

Let stand , join hands , open eyes and start a waive of getting the learned learn to work in the interest of humanity and future generations!

Happy Investing in people for future!!