Not a 'Prince'ly affair! - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Not a 'Prince'ly affair!

Nov 5, 2007

Citigroup, the largest financial institution in the world, has warned of another large subprime hit on its books, this time to the tune of US$ 11 bn (it earlier wrote-off US$ 3 bn in the first week of October 2007). And, as a consequence, its CEO, Charles Prince has announced his exit while taking complete responsibility for the said losses. Citigroup will take this write-off from its fourth quarter books. As a matter of fact, the total decline in the institution's subprime portfolio now stands at a huge US$ 55 bn (equals the 2006 GDP of Slovak Republic!). Prince's exit comes as a second for the Wall Street largest banks after the departure of Stanley O'Neal, the Chairman and CEO of Merrill Lynch.

So, is the worst behind us? Or even if it is ahead of us, rest assured that the US Federal Reserve would take care of that - by reducing interest rates further or by adding liquidity to the system! It did so on last Friday, when it injected US$ 41 bn to boost global liquidity and take some pressure off the credit markets.

The release of additional cash at specific rates to the banking system in not a new phenomenon and central banks resort to such tactics to deal with liquidity crises. However, what is really concerning is the way the contagion seems to be spreading across institutions and markets. The inflation in asset prices over the past 3-4 years has been largely a result of high levels of liquidity induced by cheap money globally. Now, with the leading central banks like the US Fed playing pied piper and infusing more of such cheap dollars into the system so as to maintain stability in the 'financial markets' is like adding fuel to fire. Investors need to understand that the sharp rise in stocks prices owing to an inflow of additional low cost global money shall further increase the levels of risks.

What do you do?
Mr. Bernanke might be thanking himself for the way he has sort of steered the global financial markets out of a probable recession by cutting the cost of short-term money. However, the fact that the markets now expect him to follow the last two cuts with a similar one in December shall make matters worse. It is these expectations that have led the rally in global stock markets over the past 2-3 months.

As for the Indian markets, with the passing of yet another round of strong quarterly results, participants shall be looking at the next trigger to take the markets further up from the current levels. While this might mean that stock prices might stay volatile, you, as a long-term investor, can take this market volatility as a way to build a long-term portfolio of solid companies with credible managements. It is imperative to make one's choice by way of doing own groundwork, following the same with conviction and discipline, and leaving aside greed and fear. That could be a good gift you can give yourself this Diwali. Happy investing!

Equitymaster requests your view! Post a comment on "Not a 'Prince'ly affair!". Click here!


More Views on News

Bond Yields Are Surging. What Should Be Your Debt Funds Strategy (Outside View)

Mar 2, 2021

Bond Yields are surging. PersonalFN explains the outlook for Debt Markets and what should be your debt funds strategy in a rising interest rate scenario.

Such China Challenger Stocks are STILL Ignored and Undervalued (Profit Hunter)

Mar 2, 2021

Don't mistake defence stocks to be the only China challengers.

Beware the Ides of March (Fast Profits Daily)

Mar 1, 2021

The month of March is usually difficult for traders. This time it will be even more so. Find out why in this video.

UTI Nifty200 Momentum 30 Index Fund: Aims to Benefit from Momentum Investing Strategy (Outside View)

Mar 1, 2021

PersonalFN analyses the features of UTI Nifty200 Momentum 30 Index Fund and explains the potential this fund has to offer to its investors.

How to Have a Perfectly Normal Day Even if Sensex Falls 2,000 Points (Profit Hunter)

Mar 1, 2021

How can someone witness a 2,000 point decline on the Sensex and still stay perfectly calm.

More Views on News

Most Popular

It's the Beginning of a New Bull Phase in Smallcaps (Profit Hunter)

Feb 24, 2021

Last time the smallcap index crossed 19k a big correction followed. Here's what makes it different this time.

Make Rs 5,000 Per Day Trading the Market (Fast Profits Daily)

Feb 25, 2021

In this video, I'll show you how to get started on the path to daily trading profits.

I Believe the Investment of the Year Will Be...

Feb 19, 2021

In this episode, ace trader Brijesh Bhatia talks to us about the best investments of 2021, his profitable trading system, and much more.

The Hidden Tesla in My Great Indian Wealth Project (Profit Hunter)

Feb 23, 2021

An Indian company founded three decades ago in a garage caught my attention...


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Mar 2, 2021 01:30 PM