Readings: Subprime mess, Fed rate cut & Impact on India

> Was JPM's takeover of BSMA @ USD 2 per share a bailout? - NOPE, says James Hamilton

> Is the US headed for Doomsday? - THINK NOT, says Dr. Ajay Shah.

> Will the 75 basis point cut help the US economy? MAYBE NOT, says the Economist.

> Treat the Federal Reserve as a Bank? And you want to Question their lending practices, says Hellasious

Readings: What does Goldman Sachs know, that we don't?

Michael Lewis of the Liar's Poker game wrote a nice article for Bloomberg. The article titled "What Does Goldman Know That We Don't?: Michael Lewis" can be read here.

A brief excerpt of the article is as follows:

Jan. 17 (Bloomberg) -- In retrospect, the most intriguing subplot in the collapse of the subprime mortgage market has been not the size of the losses but their distribution. Wall Street firms have a talent for getting themselves into trouble together. They all were long Internet stocks when Internet stocks collapsed and they'll all be long North Korean credit-default swaps whenever North Korea gets hot and then crashes.

What's odd about the subprime crash is Goldman Sachs Group Inc. A single firm took a position contrary to the rest of Wall Street. Giant Wall Street firms are designed for many things, but not, typically, to express highly idiosyncratic views in the market. Even more surprising is how little Wall Street seems to have dwelled on how and why Goldman Sachs made its killing.

----- link to the entire article.

Readings: Do Capital Controls Work? by ILa Patnaik

ILa Patnaik has an insightful article on Capital Flows in India. The article appeared in the Indian Express on 8th Jan, 2008.

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India has witnessed a capital surge in recent months. Even though there was a reversal of reforms on several fronts with the re-introduction of capital controls, there was a $17.4 billion increase in net capital flows in the Jul-Sep quarter when compared with the previous one. India is too integrated into the world economy, today, for capital controls to be brought back.

The latest quarterly balance of payment data released by the Reserve Bank of India shows that the country saw a surge in capital inflows in the period July to September 2007. Net capital flows in a single quarter of USD 34 blllion dollars has been unprecedented in the history of India. This figure was nearly 4 times that of the rather meek USD 8.7 billion that came into India in the same quarter last year. The flows in July-Sept 2007 were more than double the USD 16.5 billion the amount that came into India in the previous quarter, April- June 2007. What is equally striking is that this surge in capital was not caused by a sudden change in policy to open up to inflows. No, indeed, it was the opposite. It was witnessed when India had started moving towards restricting capital inflows such as the restrictions on ECB flows.

Read the entire article here.

IT Education Stocks - Update

Today's ET has two articles on the Education sector -

1). Education sector new learning curve for investors

In 2007, companies such as Educomp Solutions posted whoppping returns of 374%, while Everonn Systems, which got listed in August 2007, gave returns of 130% in five months in 2007. That’s a lot of money. Not far behind are the old horses such as Aptech and NIIT, which fetched returns of 162% and 124%, respectively, in 2007. Not to forget another emerging IT Education company - Core Projects & Technologies - that delivered over 250% returns during 2007.

2). Business of education catches on with India Inc.

It's boom time for the education sector in India as the concept of 'business of education' catches on with India Inc. Considered a 'social responsibility' all these years till now and plagued by insufficient infrastructure, the Indian education sector has huge room for improvement.

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Listed stocks in the IT Education space did well in 2007. Can they repeat their performance in 2008? My feeling is Yes, unless the bull run come to an end.

Link: Chicken-and-egg economics by Caroline Baum

Aug. 6 (Bloomberg) -- If companies keep hiring, the economy will hang in there just fine.

There's something counterintuitive about that proposition, and repeating it often enough (it's one of economists' favorite palliatives) doesn't make it true. I mean, businesses don't hire out of the goodness of their heart or to earn humanitarian awards. Quite simply, they hire people to produce the goods and services consumers want to buy, hopefully turning a profit in the process.

Companies would prefer to do it all with machines, which don't get paid holidays, a lunch hour or sick days (well, maybe some mechanical downtime now and then). Industrial equipment doesn't need health insurance, complain about the boss or file sexual harassment suits.

Most businesses, however, can't function without humans, at least not yet. So they hire the minimum number of workers they need to earn the maximum possible profit. It may be crass, but that's how it works.

So what to say when you read comments that distort the natural order of things?

For example, following news on July 27 that the U.S. economy expanded at a real 3.4 percent rate in the second quarter, up from 0.6 percent in the first, an economist told the Wall Street Journal that ``the real risk for consumer spending is if for some reason companies slam on the brakes and stop hiring.''

In other words, if businesses just keep adding to their payrolls, the consumer will keep on spending his wages. The catalyst in this model is business hiring.

Cluck, Cluck....
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Read the entire piece here. I simply love her style of writing, that too articles in Macro Economics. Highly Recommended.

Learn about Monetary Policy, India-specific and in-general....

Dr.Ajay Shah has been writing insightful articles on Monetary Policy, both specific to India and in general. The complete list of his articles can be read here. Highly recommended.

His recent opinion on the 'credit policy statement' by RBI Governor - Y.V.Reddy can be accessed here.

Links: US equities continue declining, Marc Faber....

> US Equities declined further on Friday, extending the week's losses to over 5%. Read a bloomberg article on this here.

> Marc Faber's view on the drop in equities in the US and on sub-prime woes.

> Asian markets feel the tremors of a decline in the US. Read here.

> Map detailing the break-up / flow of the residential mortgage market in the US.

> Turmoil in the markets by the Economist.