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.

Corn prices shoot up; Bullish on Monsanto India

Corn prices shoot through the roof

Bloomberg has an article on the recent spurt in the international prices of corn (commonly known as maize in India). A brief excerpt:

"Jan. 14 (Bloomberg) -- Corn rose to the highest ever in Chicago on speculation that global demand for feed and biofuel will exceed production for the seventh time in the past eight years.

World inventories of corn will fall to the lowest since 1984 on Sept. 30, the U.S. Department of Agriculture said Jan. 11. Inventories in the U.S., the world's largest producer and exporter, will be 20 percent smaller than forecast last month, the USDA said. Prices have jumped 49 percent in the past five months, even after last year's record harvest.

Corn futures for March delivery rose 17 cents, or 3.4 percent, to $5.12 a bushel on the Chicago Board of Trade. The price earlier jumped the exchange's 20-cent limit to $5.15, topping the record for a most-active contract of $5.135 reached in May 1996. The highest price for any contract was $5.545 for July futures in 1996.

Corn rallied 17 percent last year after surging a record 81 percent in 2006, on increased demand to produce ethanol and feed livestock and poultry."

What is driving up international corn prices?

The USDA estimated world corn output in the 2007-2008 season, which began Oct. 1, at 766.7 million metric tons, down from 769.3 million forecast in December. That compares with an estimated 703.9 million tons harvested last season. Global consumption will rise to 772.7 million tons, up from the 766.4 million forecast last month and 721.7 million consumed last year, the department said. This will turn things dramatically, i.e. from a surplus of around 48 million tonnes to a deficit of 6 million tonnes.

Factors driving up international corn prices are:

- Passage of the New Energy Bill that requires that around 25% of total energy consumption in the US be met through renewable sources, e.g. ethanol (from sugar or corn).

- higher demand from feed livestock & poultry

Impact on domestic corn prices?

As has been the case in most of the other commodities (agri or non-agri), a sharp increase in international prices have pushed up domestic prices too. Corn is no exception to this. Corn prices have moved up by over 50% in the past few months. They are currently quoting at around Rs.900 per quintal, compared to around Rs.500-600 per quintal a few months ago.

Higher domestic corn prices mean?

Higher corn prices have improved realizations dramatically for the farmers. As a result, more farmers are sowing corn today than at any point in the past. This has resulted in a substantial shift in the sowing pattern, from some of the other cash crops to corn. The area under cultivation this year amounted to a 74.6 lac hectares, compared to the normal area of 62.2 lac hectares. This is a substantial jump in the agriculture sector.

Those directly affected (i.e. the poultry sector which is the largest consumer of corn in India) have started voicing their concerns (link 1 & 2) about the incessant rise in corn prices.

What does this mean for Monsanto India?

Higher area under cultivation will result in a significant jump in demand for hybrid corn seeds, of which Monsanto is a clear leader. The company’s ‘Dekalb’ brand of corn seeds is a market leader and overall Monsanto has close to 30% share (which is expanding with every passing year). This should result in a healthy topline and an even better bottomline expansion.

Rally in corn prices augurs well for companies like Monsanto, which supply the seed for sowing. Monsanto is the largest supplier of corn seeds in the US (it is so in India too....with close to 30% share).

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Disclosure: I have an open position in Monsanto in the portfolios that I manage.

I’ve written about this stock a few times in the past. You can read about it – first, second and third.

Future Capital Holdings - New Issue

theIPOguru has a new issue analysis note on Future Capital Holdings. theIPOguru's recommendation is: "Discerning investors with patience and risk-appetite can consider an exposure in this IPO"

The full article can be accessed here.

Is Anant Raj Industries taking over Nicco Corporation??

Nicco Corporation is one of the companies in which I had invested a few months ago. My observations on the company can be read here and here.

However, recently, I came across some very interesting bits of information in the bulks deals data released by the stock exchanges. One of the large investors Niraj Realtors (stake: 14.75%) has been continuously selling in the open market and the buyer on the other side has been a rather unknown company by the name of Rapid Estates Private Ltd. Infact, the latter has now cornered more than 5% stake in Nicco Corporation.

While one might be wondering as to why is Niraj Realtors selling....I am more keen to know who is Rapid Estates Private Ltd.

Now, according to this link (dated: 4-Dec-06), Rapid Estates Private Ltd. is a subsidiary of Anant Raj Industries, one of the fastest growing companies on Dalal Street in recent years, from being a rather unknown tile company to becoming a full-fledged real estate company with a mcap of close to Rs.9,000 crore.

The question :

1). Are the two companies (i.e. the one that has acquired more than 5% stake in Nicco Corporation and the one that is Anant Raj Industries' subsidiary) same??

2). If yes, why is Anant Raj Industries cornering a stake in Nicco Corpn?

The answer could be this:

- Nicco Corporation hives off cable business to Prysmian Cables for Rs.130 crore

- It then hives / divests its engineering business into a separate company or to some other company

- what will be left is a holding company with plenty of cash and lot of land (at book value) in Kolkata

- Anant Raj Industries may possibly take a strategic stake in the company and form a JV to develop that real estate.

Counterpoints???

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.