Time for Vulture Investment ?….Generally Not Yet…but maybe in a few scrips
Equities are nearly dead…not dead yet….so all of us Vulture Investors can wait atop nearby trees or keep encircling above till we spot no sign of equity life….then dive in as scavengers picking up scrips when they fall to lifeless prices…Sesa Goa had fallen to a lifeless Rs 100 on Thursday,September 18,2008
Sensex had reacted with lightening speed from 12600 levels to cross 14000 in two days flat as the Fed led a Rescue package of US $ 700 billion to bail out the Financial System…the rally is deceiving even when top punting scrips like Indiabulls Financial Services,Reliance Capital,GHCL,Rolta have all recovered over 30% from lows on September 18,2008
However the recovery of Sesa Goa from Rs 100 to Rs 123 inside two days after an equally stunning collapse from Rs 175 is heartening…The scrip is poised to cross Rs 250 in the next six to twelve months.The Share Price Fall is providing a brilliant Investment Opportunity with the Valuation being very tempting…Margin of Safety gets more pronounced with Increasing Cash levels,low earning multiples,depreciating rupee and steady iron ore prices
The Bailout Package and the Ban on Short Sales of 33 Financial Companies in USA till October 2,2008 and in UK too has stemmed the tide for now….but such measures are a slap in the face for a free market and for those safe and conservative investors who pay their taxes…the bailout is from their taxes and it is seen to reward criminal investment behaviour of large financial powerhouses as they took on more risk and leverage than dictated by their own operating manuals….moreover they were “Mendacious” and “Bet the Farm all the Time”….For a sample,Lehman had declared in their Annual Report of a stagerring US $ 738 billion notional value of Derivative Contracts which had a fair Value of just US $ 36.8 billion…such excessive leverage surely was responsible in no small measure to their collapse when the volatility became unfavourable
All these financial collapses in USA are happening despite supposedly stringent regulations by SEC and the Sarbannes & Oxley Corporate Governance Act and strong regular Monetary reviews by the Fed ?
So what the hell is happening ? Does anybody really know! When it comes to Money there are no Experts!
Those Triple A ratings by agencies were bloody worthless….The so called Solid and Distinguished US Entities were hoodwinking investors and regulators alike,creating giant money making conspiracies and con tricks through complex finanical products and aggressively and criminally marketing them….not backed by solid and real finance…overleveraging to the hilt…How in Heavens Name could they throw caution to the winds and disregard even common sense Financial,Operating and Leverage Risks involved in their day to day Functioning !….I can’t fathom why such “Solid” Houses actually became “Gamblers”…unless they adopted desperate measures like those in “Blackjack” and “Roulette” where the Player keeps on increasing his risk and stake and scale of operations to recoup past loss and ends up bankrupt !…so was it the subprime loss that forced all these Respected Names to become “Gamblers”?
John McCain,the US Presidential Candidate describes this Financial Meltdown as a “casino”.His opponent Barack Obama talks of a “Flawed Economic Philosophy “ being revealed
And look at the Bailout Quantum…..nearly as much as India’s GDP !….would even cover the GDP of Qatar ten times over ! and Qatar has one of the highest per capita incomes in the world !
Nationalising AIG,Freddie Mac and Fannie Mae would mean now being responsible for trillions of dollars of assets and liabilities in their books….The US Government is now exposing the underbelly of the US GDP and Huge Deficits could just become the next Big Curse as the Financial System will now also begin to look for funding Health and Pension and Retirement Liabilities from 2011…a large part of which remains unfunded till date
The US is clearly in the Fangs of Financial Terrorism…the scale is terrifying
And if you think it is as easy as printing more currency !…just think that it was USA’s printing more notes to fund the recovery of UK after World War 1 that was the root cause of the Depression of 1929 !
Can’t help singing out loud,as it should be sung,the group ‘Europe’s’ 1986 Hit ” The Final Countdown”….could Citigroup be next ?
And one last thought….just saw Mukesh Ambani on the news channels welcoming the bailout package by the Fed…..why won’t he?…just rewind to the 1990s and you’ll unearth the innumerable times that his Reliance Group was bailed out by Indian Banks and Financial Institutions on directions from the Centre perhaps ?…the infamous and controversial UTI/LIC/GIC Investment in Reliance Shares of nearly Rs 1000 crs being just one case in Point
So await Lifeless Prices in Sound Fundamental Stocks to buy into sometime in the near future…Sesa Goa was at such a price at Rs 100 on Thursday,September 18,2008