Old Boy Alan Talks Up Recession

---------- Forwarded message ----------
From: Tips4 Trade <tips4trade@gmail.com>
Date: Thu, Feb 28, 2008 at 11:11 AM
Subject: Old Boy Alan Talks Up Recession
To: Tips4Trade <Tips4Trade@googlegroups.com>


The former chairman of the US central bank Alan Greenspan has warned that US economic growth has stalled and a quick recovery is not likely.

"As of right now US economic growth is at zero," he said, adding the longer it stayed this way the greater the risk of a deep recession.

Wall Street giants Goldman Sachs and Merrill Lynch have both forecast that the US economy will contract in 2008. The US Federal Reserve has said 2008 growth will be between 1.3% and 2%.

The forecast, made last week, was half a percent lower than the Fed's previous estimation.

The gloomy outlook was blamed on falling house prices, reduced bank lending, turmoil in the financial markets and higher oil prices.

More gloom?

Mr Greenspan also predicted that booming oil prices, which reached a record of more than $101 last week would keep rising and that the US housing market would see more misery before the tide turned.

On Monday, figures from the National Association of Realtors showed US house prices fell 4.6% to $201,100 (£106,691), while inventories rose.

This adds to the drumbeat of bad news for consumers, including higher unemployment, more expensive fuel costs and higher credit card repayment costs and raises worries about their ability to spend and prop up the world's largest economy.

Increased globalisation of trade could offset a sharp downturn in consumer spending and "facilitate the absorption of shocks in the US," Mr Greenspan said.

Foreign investors

In a separate speech at an investment conference in the Gulf state of Abu Dhabi, he said US resistance to Gulf or Asian government-backed investors would be "counter-productive" and will result in all parties being "losers".

Lehman Brothers has predicted that these funds have assets of about $3 trillion at the moment, including large stakes in many banks, which have turned to them for capital after sustaining heavy losses on investments centred on soured US sub-prime debt.

Often secretive, they have come under fire for their investment motives, which some interpret to be political rather than commercial.

"The negative response is protectionism and that is counter-productive," Mr Greenspan said.

"The US has gained much in post-World War II globalisation and for us to be pulling back makes me sad and is not in the best interest of the US," he added.

Mr Greenspan left the Federal Reserve in 2006 after 20 years at the helm.

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

Nothing in this article is, or should be construed as, investment advice.

Thanks

Tips4Trade

www.tips4trade.com

Reliance Power bonus issues?

http://economictimes.indiatimes.com/R-Power_plans_bonus_to_win_back_investors/articleshow/2790920.cms

The financial acumen of ADAG is truly brilliant. They have carefully crafted a way to increase the valuation of the REPL by offering the bonus. The scrip has already risen some 10% after the news of a possible bonus issue.

Looking at the numbers, the existing shareholding report on the REPL website mentions a promoter share of 89.92% while institutional and retail investors have 10.08%

At 1:1 bonus issue, the share of the external investors will be 10.08 x2 / (10.08 + 100) = 18.31%, or a rise of 8.23%

At 1:2 bonus, it will be 10.08 x 1.5 / (5.04 + 100) = 14.39%, or a rise of 4.31%.

This implies that even in the bearish market, REPL has found more takers than the numbers suggest. A rise in price directly translates into higher networth of the promoters, who are laughing all the way to the stock exchange :D

Is it the end of the telecom era?

Today I read an article on business standard, which reported Indian Telecom minister A Raja mentioning that local call rates may drop to something like 10p / min. I was wondering if it would do me any good. That’s because I enjoy free local calls to airtel already; to other operators its about 40p, and 1 Re to landlines (which I call rarely). If it were a few years ago, I probably would have been delighted by this news. But not today. My line of thought has moved to a different direction. While in italy, local calls costed me some 35 cents (Rs 20) on my Vodafone prepaid; and I couldn’t imagine using my mobile to make a call back home (2 Euros or Rs 114 / min).

I remember reading a report mentioning that local call rates are the lowest in India. That was some years back, when local calls were charged at Rs 2.40 or more. With increased penetration, it is evident that costs would reduce, adding to the revenues and falling ARPUs.

Bharti Airtel has an ARPU of Rs 359, and RCOM is close on its heels with Rs 339. These figures coupled with a national average hovering around Rs 300, the figures amongst the lowest in the world.

The industry has grown at 30-40% CAGR over the last 5 years; and investing in telecom companies was a sureshot win.

But it may not be so for long. With a wave new licences being issued to newer (and little known) operators, the market will only get more competitive. In my recent visits to some of the rural areas of West Bengal, I was amazed to find the Airtel signal strength at the remotest of the regions, though getting through was difficult during the evening (peak) hours. These new players can be expected to target such far flung areas, but this may not justify the massive investments required.

The value added services do not find so many takers as the voice services do. It is a niche segment, and applications on GPRS are only being explored by the early adopters. These services are expensive, and contribute significantly to the revenues. With competition coming, the operational margin may only demonstrate commoditization.

In spite of the growing concerns of commoditization; the vastness of the country can only serve as an opportunity. The teledensity in India stands only at 18%, as opposed to much higher numbers for some of the developed economies.

India still has a lot of catching up to do. Yet the astonishing numbers and jumping scrips may be a thing of the past, as Sunil Bharti Mittal mentioned.

IPOs losing their sheen?

A few months ago, any investor worth his name would jump at the mention of an IPO, in order to pocket, if nothing else, the listing gains. Even non sophisticated investors, sans any working knowledge of the capital markets, knew that IPOs guaranteed gains, even though they did not assure allotment.

This was the scene at the time of high demand and low supply of shares. IPOs have always been over hyped for their listing gains, even though not for investment. It allowed companies to conveniently price their issues high, making good money in the market. And everybody was happy.

But the party did not last long. With the exodus of FIIs it appears that capital markets are not that interesting any more. Caution is the name of the game. Everyone is trying to sell or is stuck because they had bought at higher levels.

Who would believe that an infra IPO could not get fully subscribed? But it has happened to Emaar MGF, they have resorted to private placement for funding. At least this capital budgeting technique does not work on volatile sentiments, but on fundamentals.

http://economictimes.indiatimes.com/Emaar_MGF_withdraws_IPO/articleshow/2767016.cms

The biggest IPO (already devoted two articles in my blog) does not seem to find many takers. Banks are already bombed with stop payment orders. The IPOs suddenly appear overpriced.

How to expect next? The IPOs listed in this bear market will surely have a hard time. And listing gains may be a thing of the past.

I am not technical analyst, but I believe in the India story. Over the long term, the fundamentals look intact. Hence I will take every opportunity to buy…the FIIs wont knock before joining the party!!!

The jumbo offer

Last Friday’s big news was the offer of Microsoft to buy out Yahoo Inc for $ 44.6 bn; I heard somebody shouting it out in my office. I had no idea whats and whys of the breaking news, but it was big nevertheless.

So I decided to do some investigation. The news was probably big because of the amount involved..it was probably larger than the valuations the current price levels reflected. And yes, I was right! The scrip rose from $19.15 to $ 28.38 on Friday, giving it a jump of a whopping 48%!. In the volatile and sentiment stricken economy like ours, a 20% would have touched the upper circuit. But at 48%, it had to be something!!

The valuation at the end of Thursday was $26.45 bn, while it rose to $ 39.58 by the end of the week, still lower thMicrosoft’s valuations. Whats there in yahoo that Microsoft is after?

One of the apparent objectives appears to be to take on google, the fastest growing name in the industry. With its unique offerings and revenue models, google is leading the way; and is strongly challenging Microsoft’s dominance in the desktop market. With concepts of SaaS getting more prevalence, buying getting-obsolete-soon software may not find many takers, if google comes up with their offerings in a big way. This would seriously affect Microsoft that has held the PC market with its software for decades now.

Some changes are happing in the Microsoft’s front as well. Applications like CRM are finding their way on the Microsoft network on the web. Windows live is an initiative in that front. An interesting article on this move can be found here

The dealbook on New York Times gives an interesting perspective of what the deal can be. It can be read here

Interestingly, google founders Larry Page and Sergey Brin had offered Yahoo to buy it out, while the former was a startup, it was refused. The cyber world today would have been so different, had the deal got through. This is a juncture where the history of the Internet will be rewritten, and whatever happens, the Internet will not be the same again.