Biggest fraud in history of mankind

Oct 30, 2010

In this issue:
» US running a giant Ponzi scheme
» Rise in investments through PNs alarming
» Currency options off to a fine start
» Food security bill could strain budget
» ...and more!!

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Quantitative Easing I has been done and dusted. And is well known, it managed to have a negligible impact on the US economy. However, the US Fed is still far from giving up. Infact, there are strong chances that the second round of easing, quite predictably called the Quantitative Easing II (QEII) could be unveiled by the Fed as early as next week.

Will it work this time around? Certainly not, believe most financial gurus. They argue that this would just be another in the long list of wrong actions that the US Central Bank has taken so far to come out of the crisis. And perhaps the most trenchant critic so far has turned out to be Bill Gross, the MD of world's largest bond house PIMCO.

Writing in his most recent monthly investment outlook, Gross observes that the outcome of QEII is by no means certain. He argues that even if the size of QEII runs into trillions of dollars, it may not stimulate borrowing or lending because consumer demand is just not there. Thus, QEII as per Gross, would amount to nothing but a giant Ponzi scheme and of the size that has never seen before.

Even we tend to agree with Mr Gross. We are of the opinion that the problem of excess debt cannot be solved with more debt. Instead, what is needed is long period of deleveraging where the excess debt is paid off and the economy grows at a far lower rate than before. Any attempts at injecting more money, like the US Fed is trying to do, will only prolong the problem and set itself up for an even bigger crisis in the future. In other words, the US Fed is doing nothing but perpetrating perhaps the biggest fraud in the history of mankind.

Do you think QEII will work? Let us know or share your views on our Facebook page.

 Chart of the day
India is indeed climbing on the economic growth charts and it is a trend that is certainly desirable. But what is not desirable is India's ascendancy on the corruption chart. As today's chart of the day shows, India ranks a lowly 87 out of a total of 178 countries in the corruption perception index. Important to add that Transparency International, the organisation that carries out the study had ranked India three places higher at 84 in the same study last year. So, what has led to our slipping off the charts? As you would have guessed it, the allegations surrounding the CWG games in Delhi. It is time our babus and politicians get their act together on this one as it presents a serious threat to the India growth story.

Source: LiveMint

Obama is not the first incumbent US President to visit India. And quite certainly he may not be the last one. But this trip of his is indeed unique in more ways than one. None more so than the fact that Obama will perhaps be the first US President to spend more time in Mumbai than in Delhi. Yes, that's right. Mr Obama will be spending almost two days in India's financial capital as against spending just a day in Delhi. This gives enough hints that his main talking point is going to be economics and not politics. A point of view that perhaps even the US would endorse whole heartedly.

Indeed, creating more jobs or sustaining current ones is the top most priority for the world's most powerful nation. And it is hoping that India would make some contribution towards the same. Deals close to US$ 10 bn are lined up and if at all they come to fruition, around one lakh US jobs would be created or saved. India too would be hoping that it does not end up being a one way street. And it will certainly bargain hard. We may have to wait to see how much of a two way street this entire affair turns out to be.

Business Standard reports that currency options, which made their debut on Indian exchanges yesterday, were off to a good start on the NSE as the turnover touched Rs 14 bn. Indeed, currency volatility has jumped manifold in recent times, especially after the US financial crisis. Hence, dabbling in currency options could be another good avenue for investors wanting to diversify out of stocks and commodities. However, investors are advised to go overboard with it at their own peril. Kindly ensure that the exposure that one takes does not form a very large part of one's investable surplus.

Participatory notes (PNs) have always been treading in murky waters. FIIs, wanting to skirt SEBI rules, have more often than not used this as a route of putting money in Indian stock markets. And in the month of October, investments through PNs seem to have gone up so strongly that alarm bells have started ringing. Consider some numbers. PNs had been hovering at around 14% of the assets under management of foreign institutional investors for the last few months. In October, this number is expected to see a sharp spike. And the culprit for the same is none other than the huge Coal India IPO.

Nearly Rs 720 bn, or 40% of the total applications for the qualified institutional buyers' (QIB) quota in the issue, have come through the PN route. What makes PNs attractive to foreign investors is that their identity is protected. Many take the PN route when they are otherwise disqualified by the SEBI for not being compliant with the relevant norms. SEBI in recent times has pretty much been proactive in upping the transparency of the stockmarkets and protecting the rights of minority shareholders. Whether it can introduce some reforms when it comes to PNs remains to be seen though.

Food security is of paramount concern for the government. If a nation wants to progress, then it needs to ensure security of food for its population. This is the main agenda for the government's proposed National Food Security Bill. The Bill promises food security to two-thirds of the nation's population. However, this guarantee is going to cost the Government Rs 720 bn which is equivalent to over 1% of the country's GDP.

This will considerably strain the fiscal condition if the spending is not matched with adequate earnings. The Government has proposed a change in tax structure to increase the revenues from taxation. However, it is not likely to come online this year. We hope that the Government comes up with a plan soon else it may have to defer the food security plan, which will be a loss. On the other hand, if it does go ahead with the plan and strains the fiscal position, that would be bad too.

Meanwhile, Indian stock markets across the world were under pressure this week with Asia leading the pack of losers. Concerns in Asia were over the earnings growth slowing down as well as the US central bank's decision on its quantitative easing strategy early next month. Japan and Hong Kong were amongst the top underperformers this week, with their benchmark indices down by 2% each. The Singapore and Indian markets followed suit with their respective markets down by about 1% each. Stocks in Europe and the US ended lower this week as well, with UK, France and US down by about 1.2%, 0.9% and 0.1% respectively. Gold once again did well, edging 2% higher during the course of the week.

Source: CNN, Kitco, Yahoo finance

 Weekend investing mantra
"Never adopt permanently any type of asset or any selection method. Try to stay flexible, open-minded, and sceptical." - John Templeton

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11 Responses to "Biggest fraud in history of mankind"


Nov 1, 2010

Dear sir, your note on corruption index. Bharat(India) has a long hsitory and reputation of an nation of Ram, Buddha, Vivekananda, Subhash Candra bose, Ravindra nath Tagore, Mahatma Gandhi, Panditji, Sardar patel and many such eminent pesonalities who stood steadfastly by their value system which they upheld through their life unto death. Many unkown children of the Bharath Matha sacrificed their life for getting freedom to the future generation, with out seeking any thing in return! Alas, the present breed of leaders have blown those values to the winds and their only Goal is to amass wealth by any means with utmost contempt for the sacrifice our fore fathers have made for buiding a free india, a "ramarajya", where all will live happily irrespective of religion, cast, creed and coplour! Today it is alround corruption and nepotism of a very high order. Infact the stage has come that a person who is not materially wealthy and rich with black money and who is not invoved in a scam or the other or atleast a few ccriminal cases aginst him/her in cluding a few murder cases can not be considered eligble to be a candidate for conesting elections at all levels!, by the present political out fits irrespective of the affiliation. What else can the ordinary people expect but greed and anarchy from this class. How can this country ever dream of bettering the index in the corruption list. The so called naxals are only reacting to this malfide system in their own way. Who knows many such groups may come up in future to give vent to the suppressed, burning discontentment. Is a volcano (mass movement) in the wating to be erupted! We cannot afford such a mass eruption which will burn and destroy every thing that comes its way. let us put our heads together and and get constructive suggestions to change the present system and to restructure a new corruption and scam free system which will bring justice to one and all, before it is tool late!



Oct 31, 2010

1st Nov 10
What the Yanks need is lessons in frugality, instead of cranking up consumer demand. Their conspicuous consumption already borders on the vulgar. But the vested interests will never let the obvious take place.



Oct 31, 2010

Your observation is more of theory rather than practical thoughts into it. If Dollar would have not been a reserve currency, what you have written is true. But here Dollar is a reserve currency and no other country is ready to strenghten the currency. Dollar is at a same level against rupee for the last 10 years, though our economy had grown 8 - 9% per annum for the last 10 years. The amount of wealth we had lost because of keeping the currency at an artificial low is unimaginable.



Oct 31, 2010

We will continue to slip in the International corruption index. The Indian psyche is such and due to various skewed cultural practices this menace will only keep increasing. While the Chinese on the one hand sweet talk, on the other they have with clear focus started ring fencing us with all-weather transportation in treacherous terrain in Tibet etc for strategic military movement when required; strategic nuclear arrangements with Kashmir; in fact I wouldn't be surprised China has a hidden hand in Kashmir of late which, may be a journalist will mention in his book when written 20yrs later ! Our chaps are busy involved only in ONE activity- convert to cash ONLY for PERSONAL AND FAMILY benefits any opportunity that presents itself to LOOT from PUBLIC domain. - be it land , games , mines etc etc.Threats to the country can lie where they are - our job is only to keep looting in broad daylight. Dictionaries be it electronic or otherwise should remove the word SHAME from the Indian edition. Who said India is Democracy to be proud of ? We are the shaming soulless ANARCHICAL DEMOCRACY moving on its own momentum without any leader/ statesman worth the salt. It is the poor corporate sloggers who have set the pace enjoyed by the wily politician, bureaucrat and the ilk. Amply aired by Mani Shankar Aiyar recently that the Indian middle class has been 'tricked' in to this 'growth story'.


Zephyrine Goveas

Oct 31, 2010

Why we should comment on Quantitative easing II in US? In the same page India is lowly 87th the corruption perception index. We should be concerned more about this rather than quantitative easing! When the corruption starts from the top - the latest example being the Adarsh Society scam in Coloba, Mumbai we feel frustrated and helpless. Will Sonia Gandhi have courage to sack all the ministers to send a message to the people that she and Congress party are concerned about the damage these corrupt politicians are doing to the country? What if she loses the next election in Maharashtra in the process, the party can do a lot of good even in the opposition.


sunilkumar tejwani

Oct 30, 2010

yes indeed the Fed is running a ponzi like scheme, & in the long run it may prove a costly affair. Good money chasing bad is not a right option for stimulating economic growth. In fact, the Fed should start contracting money supply & raise interest rates from near zero to about 3% to 5%, so as to make cost of money dearer. This can only inculcate discipline among the users of money (borrowers) to understand the costs & use the money wisely for productive purpose.
Reducing money supply will also cool down the rampant speculation in commdity prices, both agri & industrail as well as precious metals.
Indian markets have been gungho not because of its economic strength but due to Fed's & ECB's continuous money supply, which if finding its way into emrerging markets & commdity markets. Once this tap dries up, our market can also react downwards (withdrawl of liquidity)
therefore better to be prepared rather than be sorry afterwards.


Praveen Bhargava

Oct 30, 2010

US Economy is a spending economy and The US citizens belive in "EAT,Drink and be Happy".Nothing can change the sentiments of Great Americans.They are living and enjoying their life without any worry what so ever for the last 200 years or so.
As against these views of a common US citizen, The US economy faced the acute Depression in 2008 just similar to great depression of 1930,s due to the sub prime crisis which was the reverse effect of the common sentiments of US citizens of"EAT,DRINK and be Happy".
In the depression period from 2008 to 2009 in USA so many big companies become bankrupt and lakhs of US Citizens become unemployed.The US economy grow back word and also put the whole world to feel the bad economic effects during this recession period. The whole world is still struggling to come out of recession.
The Quatitative easing 1 used by the US FED BANK in 2008 by pouring Billions of Dollors in US economy had a temporary effect by halting the unemployment growth as well as stoping the companies to become bankrupt.But it could not change the real cause of the common US citizen to save Dollors and put it in productive channels to stimulate the US economy to grow.This US FED stimulus Package some how become ineffective in not solving the problem of excess debts of US citizens as a whole.
US FED is now once again planning to give another Quantitative Easing 11 to stimulate the US economy by pouring another trillions of Dollors which will not be effective in solving the excess debt problem of the US citizens as a whole.It will be even a bigger economic crisis in the near future to come.



Oct 30, 2010

I am reminded of what my grandfather used to say .
" Aamdani atthani kharcha rupaia.
nateeja than than gopal. "
Its high time that the world realises that you should not and you can not spend on luxuries by borrowing. Its time we Indians learn from US crisis and revert to our time tested principles laid down by our forefathers.


Kirtan B Raut

Oct 30, 2010

Intervention by government has never worked in history and will not work in future also.It will certainly alter the time but will definitely increase the intensity of force in future.



Oct 30, 2010

I think it will not work. What can be done is that instead of bailing out the companies/banking institutions, we can look at the people. In the U.S they have quite a strong database of all the people who are maybe defaulting on mortgages, credit cards etc, we can bail them out, give that money to the banks and relieve them from the debt. That money goes into the banks and starts the cycle again. Maybe not completely partial payment of their debt and this will help to resolve the issues and create employment. Also the U.S needs to innovate and bring new products solutions which help mankind. Once this bailout is done for the American people, they need to strive and work hard so that they reduce debt for the nation by educating themselves and doing nature of jobs which are of much superiority which would increase value for the nation and the american people.

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