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Friday, October 31, 2008

Crisis watch, 31 October

TED spread 2.82
S&P 500 returns +2.5%
VIX 62.9
Nikkei 225 (11:09 AM IST) -0.97%
US Financials index +1.55%
ICICI Bank ADR +13.64%
Call rate (31st, 11 AM 18.53%
Currency futures (11:10 AM IST)49.68
  • This morning, Financial Express had an editorial which strongly criticises RBI's handling of the money market. Things have worsened sharply on the money market. See this article from Business Standard and Prabhakar Sinha in Times of India yesterday. This morning, CCIL shows a `high price' of as much as 21% on the call money market. We're back to very tight liquidity conditions. Infusing rupee liquidity is imperative.
  • Anto Antony has an article in Economic Times talking about a paper by Economists-Who-Must-Not-Be-Named.
  • Avinash Persaud in Financial Express.
  • Paul Kattuman writes in Financial Express about the importance, in a downturn, of having a financial system that is well functioning. Also see the APS 2008 paper on this.
  • A few weeks ago I had commented on the liquidity crunch that had afflicted Unitech. Yesterday, there is a report where Unitech has obtained Rs.6,120 crore by selling their ownership of Unitech Wireless. This emphasises the links between different aspects of economic reform. Addressing the liquidity crunch at Unitech critically required easing capital controls against foreigners buying shares of unlisted telecom companies.
  • Are we sure this will not work out as bad as the Great Depression? by Anders Aslund.
  • Percy Mistry on the Brown package.
  • The US Fed has extended lines of credit of dollar funds to Brazil, Mexico, Korea and Singapore.
  • Sri Lanka has run a pegged exchange rate (LKR 108 to the USD) from November 2007 onwards. Their reserves have dropped to $2.6 billion. They have budged and done a small depreciation. I don't see how a small depreciation solves the problem.


  1. Ajay, while your general point about Unitech is well-taken, the Telenor deal will not help Unitech itself.
    This deal is not a stake sale but fresh equity into Unitech Wireless. As such, it doesn't bring in any fresh cash into Unitech itself. Of course, from now on, Unitech does get a partner who will share the burden of carrying the telecom millstone around its neck till they finally give up.

  2. Oh! I did not know that. Thank you very much. Yes, that puts a very different perspective on this.


    The Black Swan fund generated 65% return last month and YTD is up more than 100%, the strategy is simple, earthquakes in the markets happen every 4/5 years unlike those predicted by statistics. So you invest the money in treasury bills and buy deep out of the money puts on indexes and wait for the earthquake to happen, the strategy will deliver sub-optimal returns(treasury yield -cost of puts -fees) for several years but when the earthquake happens the returns will be spectacular.

  4. Based on this article, RBI is paying around Rs.169 for every dollar. Can any one guess how long RBI is capable of doing this kind of buy ?

    The Article in Hindu Business Line

  5. There is always some investment strategy that produces spectacular returns in any environment. The trick is not to suggest which funds test well under the current stress, but to have foreseen it and piled in before the stress occurred.

    Someone always has a story about what a fortune they are making, the only difference is there are fewer people making those fortunes this year than there were last. Its harder.

    You look at Deutsche, they actually called the end of the US property bubble, and their CDS desks and MBS desks took speculative positions on indexes to reflect that belief, they didn't just hedge like Goldman did, they bet on it. The guys on those desks and the analyst that made the call took home obscene amounts of money during bonus time last year.

    Its seeing the future that makes the moolah, basing an investment strategy around black swans seems prescient now, but honestly, I prefer taking a punt on market direction myself.


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