Banks take the hit, say both Chidrambram and Bernanke

Ben Bernanke, the Fed Chairman, made a surprising statement the other day. It reads something like this -

"In my view, we could also reduce preventable foreclosures if investors acting in their own self interests were to permit servicers to write down the mortgage liabilities of borrowers by accepting a short payoff in appropriate circumstances . For example, servicers could accept a principal writedown by an amount at least sufficient to allow the borrower to refinance into a new loan from another source. A writedown that is sufficient to make borrowers eligible for a new loan would remove the downside risk to investors of additional writedowns or a re-default. This arrangement might include a feature that allows the original investors to share in any future appreciation, as recently suggested, for example, by the Office of Thrift Supervision. Servicers could also benefit from greater use of short payoffs, as this approach would simplify the calculation of expected losses and eliminate the future costs and risks of retaining the troubled mortgage in the pool."

Source: [http://bigpicture.typepad.com]
Link to the original article [click here]

This sounds so similar to what Mr.Chidambaram proposed in his Budget Speech for 2008-09. However, in this case, unlike the US, it is the taxpayers money that will be used to make good bank's losses.

The point really is - Are we setting poor precedents, when it comes to public borrowing?

While on this topic you may want to read two insightful articles by Dr.Ajay Shah [link] and Andy Mukherjee [link].

Warren Buffet's Letter to Shareholders (FY2007)

Warren Buffet's Letter to Shareholders for the year ended 2007 is now available. Click here to download. The Iconic investor had yet another year of outperformance. Gain is Berkshire Hathaway's book value amounted to 11.0% in 2007, outperforming the S&P 500 by 5.5%.

Nicco Corporation Scheme of Arrangement

Nicco Corporation released the following announcement to the BSE on 4th Feb.

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Nicco Corporation Ltd informed BSE that the Company has filed a Scheme of Arrangement with the Hon. High Court of Calcutta for transfer of its Cable business, to its wholly owned subsidiary Nicco Cables Ltd. This subsidiary will be convened to a Joint Venture with Prysmian (60% stake in the Joint Venture) a world leader in the energy and telecommunications cables industry with strong market position in higher-added value market segments.

Nicco will retain the remaining 40% in the Joint Venture and will receive a consideration price of Rs 133 crores (subject to adjustments) for the transfer of its cables division. The transaction will also result in, inter—alia, the debt relating to the cables business getting transferred from Nicco to the Joint Venture (subject to Hon. High Court, lenders and CDR approval).

Once the Scheme is implemented, Nicco Corporation Ltd will be a debt-free Company and will be able to employ the consideration from the transaction to aggressively grow its existing Project & Engineering Business in the Infrastructure, Petrochemical and Environmental areas. The current Order Book position of the Project Division is approximately Rs 300 crores and it has more orders in its pipeline, where it has emerged as the preferred L1 Bidder.
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Sounds like a good deal for the existing shareholders. Given that Nicco Corporation, post the Scheme of Arrangement, will have the following characteristics:

- Debt free status
- an EPC business with an order book of over Rs.300 crore
- Cash infusion of Rs.130 crore
- Plenty of 'developable' land in Kolkata, that too are prime locations

Given that most Engg. companies are currently quoting at a Mcap / Sales ratio of anywhere between 2-3 times. If Nicco Corporation were to be quoting at anywhere near that number, the company's mcap could be quoting in the north of Rs.300-350 crore (primarily based on its Engg. business, compared to the current mcap of around Rs.250 crore). In addition, some value will be ascribed to its 40% holding in Nicco Cables (which will be owned and run by Prysmian as per the JV signed between the two companies a few months ago. Personally, I think, the Company is also looking to develop some of the large land it owns in Kolkata. That should provide a further filip to the stock price in the future.

Ofcourse, my argument is based on the following hypothesis:

- the Engg. will be profitable
- the Company will develop its land
- Prysmian will turn around and make Nicco Cables a profitable company

I've written about this company in the past [Link1, Link2 and Link3] and I hold shares of Nicco Corporation, bought at Rs. 24 per share, compared to the CMP of Rs.29.

Indian Mutual Funds sitting on close to Rs.16,000 crore of cash !!

Indian equity mutual funds invested close to Rs.10,000 crore in the last three months ended February 2008 and in all have invested close to Rs.17,000 crore during the first eleven months of the current fiscal.

However, during the comparable period (i.e. Apr'07-Feb'08), they raised assets approximating Rs.33,000 crore.

Result - a net inflow of Rs.16,000 crore. This is a large number considering the fact that equity MFs poured in an equivalent sum over a 11 month period. This provides (hopefully, i.e.) for some sort of cushion to the market on the downside given that global markets (especially the US) are still looking extremely nervous.




Notably, while this figure includes MF's secondary market operations in Feb'08 but does not include funds raised during the month of Feb'08 (by way of NFOs or sale of existing schemes). Further, it also does not include redemption numbers for the month of Feb'08.

I don't the redemption numbers are likely to be significantly large even though NFO figures may surprise on the upside. The NFOs for which data is not yet available are: Lotus Agile Fund, AIG Infrastructure & Economic Reform Fund and Reliance Natural Resources Fund.

3 Dumb Reasons to Sell

Read a nice little article on fool.com on three dumb reasons based on which investors sell stocks:

1. I'm selling because the price is going down
Selling Morgan Stanley (NYSE: MS) or Bear Stearns (NYSE: BSC) because you think there will be more subprime pain to come -- pain not reflected in the current price -- is perfectly sensible. These companies created a mess for themselves, and their shareholders have been feeling the pain.

But selling a stock for no other reason than that the price is declining? That's plain dumb. If you hadn't factored into your valuation Bear's subprime exposure, then sure, sell it. Fast. But if you did, and are just fidgeting at the sight of red ink, you're forgetting that you're selling part of a living, breathing business -- not trading a slip of abstract paper.

2. I'm selling because someone told me the market is going lower
If you're selling off stocks because you read in a newspaper that a recession is now inevitable, or that the subprime crisis was only going to get worse, or that a multitude of "experts" predict that a bear market is nigh, then you're overlooking the trees for the forest.

See, as a retail investor, you have no control over the direction of the economy. Get used to it and deal with it. You do have control over the companies in your portfolio. If you've bought quality companies at reasonable prices, short-term economic movements should have little effect on the long-term returns of those businesses.

3. I'm selling and buying back in when the market bottoms
In the short term, no one knows which direction the stock market is going to move, or by how much. Trying to pick the bottom of the market is an utterly futile task. In a recent article, Foolish colleague Tim Hanson cited a study that illustrates exactly how futile market-timing is:

[IESE Business School professor Javier] Estrada studied 15 major global stock markets for periods ranging from 31 to 79 years, with the full data encompassing more than 160,000 trading days. What he found is "less than 0.1% of the days considered" actually matter to long-term returns, which means that "the odds against successful market timing are staggering."

The entire article can be read here.

BEEN THERE, DONE THAT......"whats worse".......sometimes still do it (but now only in case of instance 3).