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February 22, 2010

Can appreciate why RBI raised the CRR rate…but why did the Fed do so ,their discount rate !?

When RBI raised the CRR recently,I had blogged on January 29,2010 ,that I was increasingly getting impressed with our RBI Governor,Dr Subba Rao.

RBI announces a CRR hike by 0.75% to 5.75% to tackle Record Food Inflation at 17.40%…Interest rates must rise soon !…Equities will React

But why did the Federal Reserve Board raise the Discount rate by 0.25% to 0.75%…the first rise since 2006 ? 

For the record the Fed stated

The move will encourage financial institutions to rely more on money markets rather than the central bank for short-term liquidity needs…..These changes are intended as a further normalization of the Federal Reserve’s lending facilities.The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy.

But just think……

  • US Economic and Housing Recovery is years away
  • Unemployment Rate is yet over 10% 
  • Record Deficits (US $ 1.6 Trillion this year) and Debt (US $ 15.6 Trillion and counting)  will continue for Years
  • US $ 4.8 Trillion Foreign Debt
  • The US Mint will be running at overcapacity for years to come ! 

Rising Interest rates would spell disaster for the recovery process

So they why did the Fed raise the Discount rate ?…the rate at which it lends to banks

The simple answer is that It simply had no choice !

The Treasury Auctions were showing signs of not just Investor weariness,but also the bids had become more demanding for better yields

In the days preceding the announcement of the Fed Discount rate hike,the US Treasury attempted to auction US $ 25 Billion worth 10 year Notes and US $ 16 Billion worth 30 year Bonds…Bidders,that included Foreign Governments and other International Ivestors bought 35% less of these long term securities than they did at earlier auctions

Indirect Bidders that include Foreign Central Banks,bought just 33.2% of the 10 year notes sold…down from the 39.3% ten auctions average…shows overseas investors not as aggressive as before…Yeilds were 3.692% ,up from the expected 3.68%

for the 30 year bonds the yeilds were higher at 4.72% than from the 4.687% expected with Indirect Bidders taking just 28.5% of the Bonds,down from the Ten auction average of 43.2

…..and China for the first time since 2000,sold a net US $ 34.2 Billion of US Treasuries and now holds US $ 755.4 Billion in it’s FX Reserves….Both,India and China have been buying more Gold to increase it’s weightage in their FX Reserves   

Clearly Strong Overseas Lenders are forcing US to raise Interest rates….so if US officially does nothing to increase the Interest rate overseas lenders sink US Bond Prices by selling off Bonds or not buying them !…. to increase the Yeild !….They’re bluntly warning USA that if you don’t act,we will !…and a desperately indebted (over 60% of total Treasury Debt is owed to foreign lenders) USA has to meekly toe the line !  read more

Don’t believe everything you read or hear !….Even legendary Investment Icons seem to deliberately preach one thing and practice quite another !

It’s not some startling truth that I’m revealing to you…..but deliberate misguidance has been a major weapon in the armoury of Investment Icons….I daresay when they play ‘Scale’ they will make monies only when you lose !….in that they influence and guide you to take contrary positions to what they actually do !…It’s a common occurrence in India Too…so when you Hear the experts on the stock channels,do play devils advocate and be skeptic…it could save you a lot of Money !

Last few days ,I have come across some very astute observations,which have gone largely unreported in the Press…deliberately so…you’ll understand why as you read this Blog

Our Vice President,Mr Hamid Ansari, gave a speech in January which highlighted the dangers of this fast growing practice of ‘Paid News’ in leading Newspapers with a National Footprint….he spoke of the potential danger of destabilising the Polity and Economy of India through this practice of  ‘Buying Newspaper and Television Space’ to promote Interests by spreading what one wants to deliberately disseminate

The way I look at this is that this ‘Paid News’ is a way of legitimising an age old practice of wooing top Journalists and editors to plant headline stories !….I know of one leading ex-editor of a top Pink Paper who unabashedly indulged in this practice and was rewarded handsomely and regularly,obviously not on records!, by a top Industrial House….he also shamefully,in the 1980s,as if it was his right, ordered promoters of New Companies to allot shares to him from their quotas before the IPOs…made a killing from such cornered and preferred Investments !…SEBI and Demat came later in the 1990s…In return the Company’s IPO was reported favourably with high ratings…guaranteeing oversubscription and a high price on listing !

M V Kamath reported in his column in Mumbai’s daily tabloid that the Vice Prersident’s speech was covered only by ‘Hindu’….the others,deliberately did not cover it as they were the ‘ire’ of the Speech for resorting to ‘Paid News’…Money Matters,not Content !   

So don’t believe everything you read ! 

But more Interesting to me,is the accusations being levelled at two of our biggest Investment Icons in the World….Warren Buffett and George Soros

Both have been “talking their book”….giving opinions contrary to what they actually are implementing in their investment strategies  read more

What a lovely Novena sermon by Father George Athaide,last Wednesday at St Michaels Church,Mahim,Mumbai

I’m not a Christian by faith but My wife and I attend the Wednesday Novena at St Michaels Church,Mahim,Mumbai for the first nine Wednesdays of each Year where we offer our Prayers to Our Mother of Perpetual Succour and Lord Jesus….we catch the last service at 9.30 pm…the new Bandra Worli Sea Link thankfully knocking off nearly twenty minutes of our travel time

The Seventh one was last Wednesday and it began the season of ‘Lent’

Over 500 people congregate for each of the sixteen Novena Services that are held in several languages (Eleven in English,Two in Marathi and One each in Konkani,Tamil and Hindi) right thorugh every Wednesday at prescribed timings.The first begins at 6 am and the last begins at 9.30 pm.Each Novena last under half an hour…with Prayers taking up 20 minutes and the Sermon around Ten minutes

Normally the Sermon is a trifle boring and predictable…but last Wednesday we had Father George Athaide with a resonant voice,preach a very clear and concise message which connected well 

I even complimented him later on and he gave me a reassuring fatherly pat

The pace of the Novena Services,often tends to compete vigorously with the pace and rush of the Noisy Traffic Outside….However,He thankfully did not rush through the Prayers and Sermon !

He spoke of three dimensions of Prayer,Penance and Alms Giving

Prayer is the Vertical Dimension that connects you with God…It can be through Community (like the Novena Services),Family (The Family that Prays together Stay together ) or even Individual Prayer

Penance is the process of self purification…need not be contained to just ‘Fasting’ by refraining from eating and drinking…it could involve refraining from doing a lot of other addictive things like Internet etc…each religion has it’s special season for ‘fasting’…Muslims have ‘Ramzan’…Hindus have ‘Sravan’ and Christians have ‘Lent’

Last,he spoke of the Horizontal Dimension of Sharing and Alms Giving….two strong messages connected here….You do not have to be rich to be generous…..and give what hurts to give to!….normally we have a tendency to give away torn clothes and things that need repairs or mending….give,what others can use well immediately just as you could too

And when you do all three,the Father concluded,you complete the ‘Cross’…the Vertical Dimension and the Horizontal Dimension !…that’s beautifully put !  read more

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