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Gold back to $500 an ounce and Oil back to $70 per barrel

Unless commodities don’t reverse their trend, inflation may go sky high threatening demand for the same and causing major food crisis. There are no clear winners in this inflation saga, not even the OPEC countries who depend on food imports. These OPEC countries not only have to contend with rising food prices but also drop in oil demand.

There is a major lesson in this crisis for all of us to learn. Live and let live.


Filed under: Uncategorized, , ,

Why should Gold go up in times of uncertainities?

Let me rephrase, Why only Gold should go up in times of uncertainities? There are analysts who are constantly talking about Gold going back to Roman empire and Forward to centuries to come. They are indirectly asking people to stack up Gold purchases as if there is no tomorrow. When people are going to chase limited supply of Gold on the surface of earth, prices naturally rise.

Analysts who are pumping Gold are looking at history, but what they may be ignoring is evolving finacial systems. Century ago our financial system didn’t evolve or was at its infancy state. At that time, paper currency was pegged with Gold. Quiet naturally empires went bankrupt when they ran out of Gold to back up their currencies in market with enough Gold pruchases or mining.

In modern days like today, we should think differently and may be central banks around the world are already on that path. Instead of pegging the free float of respective currencies in the economy with Gold, we should back it with basket of natural resources, basket of services that can be exported.

China is not investing all of its Dollars in Gold but in basket of natural resources around the world.

With this model, Africa should be considered the richest continent with vast natural resources.
Oil producing countries should also be considered richest countries in the world.
China and India with thier vast young population who are expoirting their services coupled with economic activity that can be geberated should also be considered as emerging nations.

However, political uncertainities, terrorism can add a negative bias which can affect their national wealth (in whatever you measure) and undermine their currencies.

So, Gold should not be the only metal that should steel the show in times of uncertainities.
Market is already acting smart with rising prices of all commodities but analysts are still continuing to speak about Gold.

Filed under: Finance India, India blogs,

Free market and Liberalization too risky without regulating body

Letting the economy run on its own under the theory of Free market and deregulation is proving disastrous for everybody.
To make it simple producers, Customers and traders all are stakeholders in an economy. If one looses everybody looses. In this era of globalization there are many other stakeholders in between and all of them need to be responsible enough to make this free market work wonders for all of us.
If one wants to make money at the expense of others, we all loose and it won’t be to long when we realize how irresponsible we were in handling this economy.
Corporate greed to reap more profits is pushing the limits to do more. These lofty goals and huge incentives are forcing employees to come up with innovative schemes (unsustanable in long term) to consume more and spend more than what people can afford. We are getting closer to saturation limit at a faster pace at the expense of few irresponsible actors in this economy.

If that was not enough investment banks sort of created their own betting markets which is a state in itself without any regulatory body overlooking it. This is $500 trillion market and mostly deal with derivatives and greater percentage of it is non-tradable.
ICICI bank has exactly got into this black market and is exposed to the tune of $2.2 billion according to ICICI bank officials. They so far got away by reporting Mark to Market losses which are very less compared to the actual loss they may have to face going farward as maturity date approaches. What the investors don’t know is, how much is ICICI liable in an hypothetical case when there are massive amounts of defaults by any counterparty in this betting game.
Is this $2.,2 billion or much more than this?

Deregulation opens up huge oppurtunities but with risk attached and huge responsibility to act sensibly.

We all got to remember one phrase
“You loose, we loose. We loose, you loose”.

Filed under: Finance India, India blogs, Indian Bloggers, , , , , , ,

India Inc’s excessive exposure to derivatives a media hype – says Kalpana Morparia

Kalpana Morparia says that India Inc’s exposure to derivatives is next to nothing in comparison to foreign corporations. What she coveniently doesn’t say in the same context is market cap of foreign corporations in comparison to India inc’s market cap.
If you look at market cap of Citibank, UBS, Lehman which are foreign investment banks their market cap is huge compared to India inc’s market cap. Their losses in derivatives itself surpass the market cap of ICICI bank.
How can she underscore/hide our exposure by comapring apples to oranges is beyond me.

What i as an investor would seek from Kalpana Morparia is, how mcuh exposure your bank has got to these difficult to understand derivatives? We will do the rest of the job of analysing the risk in investing in your bank.
We want to know how much you are exposed to these derivatives. Don’t tell us the Mak to market or Mark to model loses which i don’t trust. These models are flawed and they don’t really estimate the underlying risk in derivatives you are exposed to.

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Filed under: Finance India, India blogs, Indian Bloggers, , , , , , , , ,

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April 2008
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