Nomura buys Lehman's Europe investment bank arm

LONDON: Japan's Nomura Holdings Inc agreed to buy Lehman Brothers' equities and investment banking business in Europe and the Middle East, in its second swoop on the bankrupt U.S. bank's overseas assets in 24 hours.

Japan's biggest brokerage said it expects to retain "a significant proportion" of the 2,500 staff employed in the businesses.

It did not say how much it would pay but said it would not take on any trading assets or trading liabilities.

Lehman filed for bankruptcy protection last week. Britain's Barclays Plc bought its core U.S. broker-dealer business and Nomura bought its Asia-Pacific arm on Monday. The deals are expected to save most jobs in each region.

Nomura was the frontrunner to buy the European arm after entering exclusive talks with Lehman's administrators in Europe, PricewaterhouseCoopers (PwC), on Monday.

It adds to a run of big deals by major Japanese banks, who have been less hit by financial turmoil and asset writedowns in the past year than rivals, and are snapping up assets from or injecting capital at banks hit by the credit crunch.

Japan's biggest bank, Mitsubishi UFJ Financial, is planning to buy up to a fifth of Morgan Stanley for up to $8.5 billion.

Nomura, the first Japanese securities company to establish an overseas office 81 years ago, said it had struck "two transformational deals" in less than 24 hours.

Its immediate task is to get the Lehman businesses back operating under the Nomura name, it said.

"This transaction will significantly extend our European footprint and international reach, enabling us to realize our strategy of delivering Asia to the world," Nomura Chief Executive Kenichi Watanabe said in a statement.

Much of the business is based in London, where Nomura already has its European headquarters and has 1,500 staff. Before this week's deals, it had 18,000 staff in 30 countries.

PwC said the deal included investment banking and equities in Britain, the Netherlands, Spain, Italy, Germany, Sweden, Qatar, Dubai and Kuwait.

Barclays had also bid for some of Nomura's Asian and European assets, but it didn't want all of the businesses, people familiar with the matter said.

How the Market’s Most Misunderstood Number Could Destroy Your Saving

Dear Reader,

Hard to believe, but investors are still buying stock. In a down market, it gets harder. The rules change. The numbers mean different things. If you don’t adjust, your portfolio will sink, right along with the market.

I can’t go over everything, so I’m just going to focus on one major marker today - the PEG ratio. If you don’t know what it is, you should. For those of you who do know, have come to rely on it, and have gotten great results from using it, you need this heads-up more than anybody else.

PEG stands for price-to-earnings-to-growth. That’s a mouthful, so let’s break it down. It’s actually a ratio within a ratio. First, you need to figure out what the price-to-earnings (P/E) is. Once you have this number, you’re ready to calculate the overall ratio of P/E to “G.” “G” stands for annual growth.

We’ll look at P/E first. Then we’ll examine the “G” or growth part of the ratio.

P/E compares the price you pay for a stock of a company to its earnings. Value investors like to see P/Es of 10 or less. This means that it takes the company 10 years or less to earn the equivalent of what its stock is going for.

But it’s worth digging a little deeper to find out the P/E for the sector the company is in. For example, a company can have a P/E of 15 and be priced under the sector average. Or, a company could have a P/E of 9 and be priced over the sector average.

Sector average is important because it tells you what investors are typically willing to pay for companies in a particular sector.

The price investors attach to sectors varies for a number of reasons. For example, in cyclical sectors, investors aren’t willing to pay as much, so the average P/E will be on the low side. Why? Because these companies at some point are virtually guaranteed to drop. In other words, you pay not only for upside but for downside. That brings the price down.

Are you with me so far? Let’s move on.

As I said before, the “G” part of PEG is growth. It tells you how fast earnings are expected to grow over the next five years. If analysts expect earnings to grow an average of 10 percent, then “G” equals 10.

That’s simple enough, yes? Just one thing you need to keep in mind. For both (forward) P/E and the “G” part of the ratio, the earnings haven’t occurred yet. Forward P/E (there is also TTM – Trailing Twelve Months – P/E, so always know which P/E you are looking at) takes the average earnings of what analysts are projecting in the coming 12 months. “G,” or growth, comes from the annual average of what they are projecting for the next five years.

And as we all know, analysts aren’t always right.

Now let’s put it all together. If a company has a P/E of 10 and a projected growth of 10 percent a year, its PEG ratio is price-to-earnings (10) to growth (10). And 10/10 is one.

A PEG ratio of one is considered great. By comparison, let’s imagine a company with projected growth of five percent instead of 10. The PEG would be two (10/5). A PEG of two is okay at best. Why? You’re getting a decently valued company (with a P/E of 10), which is great. But you’re getting it with only mid-single digit growth, which is not so great.

Let’s look at another example of the PEG ratio equaling two. This time the P/E is 20 (which is expensive) and the projected growth is 10 percent a year. Now we’re in double-digit growth territory, but at the low end, and you’ve paid a lot for the stock. Again, not a great buy.

On the other hand, anything below a PEG ratio of 1 is fantastic. Take, for example, a company with a P/E of 10 (pretty cheap) and a projected growth of 20 percent. That’s fast growth and the price is cheap. A PEG of 0.5 would excite most investors, whether they’re into value or growth.

Except now things have changed. The old rules don’t apply. And it all has to do with how earnings are projected. We’re in a transition period. The economy has slowed dramatically. Companies can’t be expected to earn as much in a recession as they would if the economy was humming along.

Expectations for the economy are getting lower and lower with every passing week. So it should be no surprise that expectations for how much companies will earn are also sliding.

S&P 500 stocks are now expected to generate $98.25 in earnings per share this year, down from the $101.87 per share predicted at the end of last year, according to Reuters.

First-quarter earnings have been cut the most. Instead of rising at a 5.1-percent rate, they are expected to be basically flat.

Problem is, the third- and fourth-quarter earnings projections have been left more or less alone. They’re expected to be the bounce-back quarters. If the recession were to linger longer than expected, these numbers would have to be pared back just as much, if not more, as the first quarter’s numbers.

Knowing that, let’s revisit the company with the wondrous 0.5 PEG ratio (coming from a forward P/E of 10 and a projected growth of 20 percent a year). Because earnings for the next year could well end up below current projections, a P/E of 10 could easily turn into a P/E of 12. The math is straightforward. If shares cost $100 each and earnings were $10 per share, all it would take is for earnings to slip to $8.33.

And if the recession lasts into 2009 or, heaven forbid, 2010? The “G” part of the PEG ratio would have to ratchet down from 20 percent to maybe 10 percent or lower.

All of a sudden, instead of the exciting 0.5 PEG, we have a PEG of 12/10 or 1.2. Geesh. That puts a different spin on the company, doesn’t it?

Be careful. The projected stuff is all funny numbers now. I’m staying away from high growth numbers. Why pay for growth that isn’t real, even if you think you’re getting that growth for a reasonable price? It doesn’t make sense.

So, what to do?

You could lay low. Take a break from investing in individual companies until the numbers catch up to falling expectations.

Or you could do what I do. Run the company’s growth strategy through a recession scenario. And look for things that could offset falling domestic demand. Companies with strong exports, for example.

Other examples? Companies making mining or agricultural equipment might not feel the pinch of a recession, not with soft and hard commodities in the middle of a bull run. Or how about companies selling mostly to governments, like companies in the defense sector?

Their PEGs would be less suspect. But be careful. A company increasing exports by 10 percent and losing domestic customers at a 10-percent clip isn’t growing (unless its exports are bigger than its domestic business).

A recession is a tough environment. But investors who only like to invest long have options. Strong PEGs are now something of a trap. But if you follow my advice, you don’t have to get caught.

Is ELSS Better Option As A Tax Saving Investment ?

Is ELSS Better Option As A Tax Saving Investment ?

The crash of stock market in the month of March is good opportunity for investors to opt for Equity Linked Saving Scheme because unit price of those scheme shall also be lower on account of crash in stock market. That is not the only reason for recommending ELSS as an investments . The other reasons are

1. Claim Deduction upto Rs 1 lakh

Those readers who have still trying to search for an investment option for tax savings, can get deduction u/s 80C which by virtue of clause 2(xiii) gives deduction up to Rs 1 lakh .

2.Minimum lock in period.

The PPF or NSC gives you risk free returns but they have lock in period of six years, whereas ELSS has only 3 years of lock in period . SO , after three years only you can get your wealth back .

2. Tax free gains

While interest from PPF is tax free , interest from NSC is taxable. Whereas in case of ELSS, not only tax on the long term capital gains is tax free, even dividends you receive are tax free.

3. Chance of better returns

The prediction about Indian economy , makes a case for long term invst in equity. Therefore there is likelihood of getting much better return out of investment as the equity market is set to go up in near future again. The tax free gain will be more than the PPF or NSC. While the PPF or NSC gives you 8 % return , the return from ELSS on average annual return was more than 30% in last one year.

So what are those ELSS plans?

Given below is the list of ELSS which were ranked by ICRA for giving Award for performance of the fund . The rank was for performance by the ELSS funds for one year period ending 31/12/2007. Choose your own!

ELSS- One Year Performance

Rank For Year Ending 31/12/2007

1. PRINCIPAL tax savings Fund
2. Principal Personal Taxsaver
3. Birla SunLife Tax Relief 96
4. Kotak Taxsaver - Growth
5. DWS Tax Saving Fund - Growth
6. Sundaram BNP Paribas Taxsaver -
7. (Open Ended Fund) - Growth
8. Fidelity Tax Advantage Fund - Growth
9. SBI Magnum Tax Gain Scheme 93 - Growth
10. UTI Equity Tax Savings Plan - Growth
11. ABN AMRO Tax Advantage Plan - Growth
12. Birla Equity Plan - Growth
13. Franklin India Taxshield - Growth
14. Tata Tax Saving Fund
15. HDFC Taxsaver - Growth
16. Reliance Tax Saver Fund - Growth
17. HDFC Long Term Advantage Fund - Growth
18. ING Tax Saving Fund - Growth
19. ICICI Prudential Taxplan - Growth

[ Ranking Source :ICRA Mututal Fund Award ]

Great Tax Planning!

After three years sale those units , get tax free redemptions and invest in ELSS again to claim the tax deduction You will never be short of funds for tax saving purpose!

To Time or Not to Time?

By Chris Johnson

Dear Reader,

Mark Twain once said the return of his money is more important than the return on his money. Many investors get into this same mindset when they look at the market during volatile times like the current environment.

So why would I even begin to suggest that you try to time the market? It’s simple. That’s how you make money over time.

That indeed has been the question since the dawning ages of the market. Listen to the average financial advisor and they’ll tell you to put your money in the market and forget it. I was brought up in the industry with this exact viewpoint. But it’s one that I no longer subscribe to, obviously. The idea that the market gyrates up and down scares the heck out of many investors, so why do so many time the market? One word - opportunity.

Twenty years ago, the “average” investor didn’t know what the market did on a weekly, or even monthly, basis. This was the business of their broker. Now, due to an incredible combination of information, distrust, and a hands-on attitude, the “average” investor has been thrust into the market’s daily trading activity.

But is this for better or for worse?

Through my 20-plus years of experience in the field, I can say with certainty that the average investor is much better off, as long as they have the right tools in their toolbox.

Think about it, during the recent market decline, if you had dodged just three percent of the decline and then put your money back to work, you’d have increased your net return by that three percent. You’re now ahead of the “average” investor when the market finally comes around.

Now, stocks typically endure at least two to three pullbacks a year, even in a roaring bull market. Catch just two of these and you’re well ahead of the typical Wall Street portfolio manager who struggles to simply keep up with the S&P 500. Congratulations!

Go one step further and compound this return over a 20-year period and you’ll get the idea of how profitable a little work can be. Remember, I’m just talking about catching a small amount of a pullback here, not timing the exact top and bottom. Now we’re talking about a vacation home at retirement instead of a rental pop-up camper.

So how do you do this? By simply maintaining an awareness of your surroundings. The combination of watching the daily market activity and a few simple indicators will empower you to add these returns to your portfolio.

Why should you care what the market does on a daily basis? Movement equals opportunity. Those investors who choose to not actively manage their investments are doomed to ride what can be a jolting roller coaster ride without netting a single dollar’s return.

Maintaining an awareness of where a few of the market’s key technical levels are is almost all that you need to do to find these huge opportunities. A couple of these indicators are the S&P 500’s 50-day, 10-month, and 20-month moving averages. The market’s moves are typically exaggerated when it approaches and crosses these “lines.”

As for the simple indicators, the two most effective are the CBOE Volatility Index (VIX) and the CBOE equity put/call ratio. Monitoring these two indicators will always cue you in on whether money is flowing into or out of the market. Believe me, this is the highest impact influence on market direction.

Monitoring these indicators and trendlines is as easy as logging on to the Internet (thank you, Al Gore!). There are more than a few sites and commentators who will keep you apprised of the activity in these key market indicators.

So how about the concept of finding “value” stocks that are a good buy regardless of what the market is doing? Balderdash! Remember that 80-85 percent of all stocks follow what the market does. That means most stocks out there are going to go down when the market goes down. Investing in those “value” stocks is more difficult than figuring out when the market is going to put in a top. I’ll guarantee you that you’ll make more money over time swimming with the market’s tides versus trying to find the few opportunities that exist counter to that trend.

I hope that I’ve taken a little of the anxiety surrounding market “timing” out of the equation by pointing out that it’s not necessary to get out of the market at an exact top and back in at the exact bottom. By simply grabbing a few percentage points in either direction, your overall returns will grow exponentially over time. And it’s something that can be done easily with a little work and attention to the market’s ever-changing environment.

Have a great trading week.

Govt still takes Re1 out of every Rs4

Mumbai
March 3, 2008

Reason: You pay more taxes whenever you buy anything

The great Indian middle class is an abused lot, at least when it comes to paying income tax. The finance minister has been kinder this time around, and by increasing tax-paying slabs has helped decrease taxes and, hence, increase take home salaries.

But even after this a little more than one fourth of every rupee a person earns goes to Union finance minister P Chidambaram’s kitty, in the form of various taxes confirms a study carried out by ABC Consultants Private Limited and DNA.

This is true for a person earning a salary of Rs50,000 a month and supporting a family of four, and living in their own house. The rough tax outflow every month on this income works out to Rs13,096.6, of which income tax is around Rs5,750. The remaining taxes are part of whatever he or she spends. These can vary from indirect taxes (like excise duty ), which are built into the price of any product, to service tax, which needs to be paid on telephone bills, internet, direct to home television etc. Of these other levies, excise duty is the other major tax and amounts to around Rs2,200 a month.

Every spend these days has various taxes built into it. Take the case of FMCG and groceries, a major expense for a middle class family. An expense of Rs4,000 a month would include an excise duty of nearly Rs450, a central sales tax of around Rs60 and value added tax of around Rs390. Since these taxes are built into the price, the person spending is indirectly paying for it.

Also by decreasing taxes, the finance minister is hoping that people spend more and every extra rupee they spend will help the government earn more through the indirect tax route. Increased spending is also likely to benefit corporates in terms of higher revenues, which can mean higher corporate tax collections.

The devil they say always lies in the detail. When it comes to knowing your taxes, it is no different.

Decline in IIP in Apr-Jan 2007-08 a cause for concern: CII

Decline in IIP in Apr-Jan 2007-08 a cause for concern: CII


The further decline in Index of Industrial Production (IIP) for the month of January is a cause for concern, said Confederation of Indian Industry (CII). The IIP growth during April - January 2007-08 declined to 8.7% when compared to 11.2% IIP growth during 2006-7. Tight monetary policy resulting in high interest rates have been the major factor contributing to the decline in IIP growth, said CII. CII notes that the decline in capital goods production is also a cause for concern, which came down to 2.1% in January 2008 when compared to a growth of 16.3% in January 2007.

The decline in capital goods production could be attributed to decline in growth of IIP of key sectors such as electricity and manufacturing and decline in production of consumer durables sector since April 2007. The decline in growth of IIP particularly in manufacturing, electricity and consumer durables would have an impact on the investment decisions leading to decline in IIP growth of capital goods.

The further decline in consumer goods in the month of January 2008 to -3.1% and -1.7% for the period April - January 2007-08 is also a serious cause for concern. CII believes that consumer durables sector is highly sensitive to demand conditions, which are currently under stress due to high interest rates. The recent appreciation of the Rupee has also made imports cheaper and contributed to stock pileup for domestic producers thus leading to a lagged impact on production. Raw material price increase has also led to some price increase for the consumer, to which the consumers have not responded positively, as per CII.

The growth in non-food bank credit off take during the period April to February 2007-8 has consistently declined over these 11 months when compared to the corresponding period of last year. The decline in growth of non-bank credit ranges from 6% to 11.7% over the 11 months of 2007-08. Overall, during the period April-February 2008 the non-food bank credit has declined by Rs 187.60 billion, said CII.

CII strongly feels that with average Inflation at acceptable levels during the current fiscal, there is room to bring down interest rates to boost consumption demand as well as investment demand. CII submits that any further decline in the growth of IIP, especially that of capital goods, electricity and consumer durables need to be arrested. Further, CII also has called for the following measures that would boost the capital goods sector in the medium to long term and provide growth impetus for capital goods sector.

A minimum custom duty on the capital goods should be raised to 10% to have the level playing field with the imports from China. India currently has a 35% disadvantage when compared to China due to China`s controlled currency and subsidies.

The government should persuade western countries to lift restriction on export of CNC controls and machines now classified as `dual-use`.

A scheme similar to the TUF to be implemented for capital goods industry, specially focused on engaging the SME sector.

Introducing a scheme for modernization and technology upgradation.
Granting 150% deduction in terms of R&D to the capital goods sector.
Reducing, exempt excise duty from components of textile machinery where the finished machinery is exempted from excise duty.
Allocation for Parks dedicated for high technology capital goods.

Central banks step in to rescue credit market

Washington
March 12, 2008

The US Federal Reserve and other central banks on Tuesday teamed up to get hundreds of billions in fresh funds to cash-starved credit markets, allowing financial firms to use home mortgages as collateral. Stocks surged and bonds fell in reaction to the move, in a sign that the financial markets saw the plan as a viable remedy to ease a crisis that has threatened world economic growth. US stocks rallied the most in six weeks with the Dow Industrials Average jumping 250-points higher at the start of trading.

In the latest effort to ease a credit contraction that has disrupted finance and rescued the world economy from a credit contraction, the Fed, Bank of Canada, Bank of England, European Central Bank and Swiss National Bank announced a series of aggressive measures to boost liquidity. The Fed will for the first time lend treasuries in exchange for debt that includes mortgage-backed securities.

The Fed said in a statement in Washington it plans to make up to $200 billion available through weekly auctions, and officials told reporters the program may be increased as needed. “This is the most significant step the Fed has taken so far,” said David Resler, chief economist at Nomura Securities International Inc. in New York. “This relieves some of the pressure” in the credit markets, he said.

The Fed said it will lend Treasuries for 28-day periods in return for debt including AAA rated mortgage securities sold by Fannie Mae, Freddie Mac and by banks. Today’s steps indicate the Fed is increasingly concerned about the investor exodus from mortgage debt, which threatens to deepen the housing contraction and the economic slowdown. While they fall short of the calls by some analysts for the Fed to make outright purchases of mortgage debt, the central bank left the door open to expanding the effort.

The measures are the latest in chairman Ben S Bernanke’s effort to alleviate increasing strains in financial markets that are curtailing credit to homeowners and companies, even after the Fed lowered its main interest rate by 2.25 percentage points. Last week, the Fed said it would make up to $200 billion available to banks in a separate initiative to help boost liquidity.

The Fed set up a new tool, the Term Securities Lending Facility, to lend Treasuries to primary dealers for 28- day periods through weekly auctions. The Fed also said it’s increasing the amount of dollars available to European central banks through swap lines. The Federal Open Market Committee authorised increasing currency swap lines with the European Central Bank and Swiss National Bank to $30 billion and $6 billion, respectively, increasing the ECB’s line by $10 billion and the Swiss line by $2 billion.

The Fed extended the swaps through September 30. The ECB announced it will lend banks in Europe up to $15 billion for 28 days and the SNB announced a similar auction of up to $6 billion. The Bank of England will offer $20 billion of three-month loans on March 18 and hold another auction on April 15. The Bank of Canada announced plans to purchase $4 billion of securities for 28 days. Treasuries slid after the announcement, with yields on 10- year notes rising to 3.60% at 10:32 am in New York, from 3.46%.

Traders removed bets on the Fed to lower its benchmark rate by a full percentage point, to 2%, by the end of the next meeting on March 18, futures showed. The contracts indicate a 60% chance of a 0.75 percentage-point reduction. The Fed’s auctions of Treasuries, which will begin March 27, may be secured by collateral including agency and private residential mortgage-backed securities, the Fed said. The central bank “will consult with primary dealers on technical design features” of the new tool. Primary dealers are a group of 20 banks and securities firms that trade Treasuries directly with the Fed Bank of New York.

The Fed action received full backing from the White House. US president George W Bush has full confidence in Federal Reserve chairman Ben Bernanke and he backed the latest steps taken to boost liquidity in financial markets, White House spokeswoman Dana Perino said on Tuesday.

“The president welcomes the steps today by the Federal Reserve and he has full confidence in Ben Bernanke at the Fed,” said Perino as Bush travelled to Tennessee for a speech on the war in Iraq. “Beyond that, I cannot comment on specifics.” Asked if Bush was informed about the steps in advance, Perino said she did not know.

Despite the positive market reaction, some analysts questioned whether the latest round of central bank efforts would have much staying power. Earlier efforts by the Fed and its counterparts were successful in reviving markets for a short time, only to see them unravel again when the next bout of credit turmoil emerged.

“This Fed action is good for a day or two,” said Michael Cheah, senior portfolio manager at AIG SunAmerica Asset Management in Jersey City, New Jersey. “There are three problems in the market. One is the price of money, then liquidity and counterparty risk. The Fed can do all it can in the first two areas by trying to reduce Fed funds and the price of money. However, these moves are not going to mitigate the counterparty risk,” he said.

In essence, banks have lost faith in each other after seven months of market unrest, making them reluctant to lend money to one another and driving up borrowing costs for the consumers and companies that power the world economy. The US central bank said the purpose of its latest action was to “promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally.”

[Source: The Economic Times]

The Recession Protection Plan

By Charles Delvalle

Dear Reader,

On Thursday morning, I opened up MarketWatch and read…

U.S. stock futures wilted on Thursday after a fund managed by The Carlyle Group admitted it's close to collapse and statistics showed a decline in retail sales, dragging the dollar below a key level for the first time since 1995 and lifting oil and gold futures

It’s the perfect storm.

The credit crunch is causing all sorts of problems the Fed never anticipated. Had Bernanke known this would happen, I have a feeling he would’ve done something earlier than August.

But he didn’t know it would happen, so he didn’t act. And now we have a whole host of problems to deal with because of it.

So the question becomes, how do YOU make money in this market?

I’m going to be frank with you – it’s going to be tough. You should be willing to get into certain types of investments that you might not have ever tried before. But before we get into that, let’s talk about what we know.

How Recessions Affect the Market

As the economy contracts, earnings go down. And as earnings drop, so does the stock market. But this isn’t the only thing we’re looking at.

Typically when the economy contracts, the Fed hops in to lower interest rates. When they lower short-term rates, it usually pushes down long-term rates, too (20-30 year bonds). But right now, 30-year mortgages are rising even as short-term rates are dropping.

This ends up doing the opposite of what the Fed wants. It tightens long-term lending. And tightened lending is one of those things that helps SLOW the economy, not speed it.

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So it looks like the rate cuts aren’t helping the economy as much as they usually do. And that doesn’t even factor in the worst part - the credit crunch itself.

Leverage has Poisoned the System

You see, banks are highly leveraged (typically 10 to 1). So for every dollar a bank has in house, it has 10 deployed in leveraged investments.

Now what happens when a bank loses $20 billion? That bank has to shut down all leveraged investments tied to the money it lost. If they are leveraged 10 to 1, that means they have to shut down $200 billion in investments! This is HUGE.

You see, banks are expected to lose $400 billion. That means you can expect $4 TRILLION in leveraged investments to get shut down.

Just imagine it: $4 trillion evaporating from the markets. What do you think that would do to stocks, commodities, and financial markets? It’s not pretty.

And that’s why you need a way to really secure yourself from what’s possible.

The first thing you need to do is make shorting stocks your favorite pastime. The trend is down, so make that trend your home boy. In other words, start playing stocks down. In future issues, I’ll talk more about shorting.

If you don’t want to short stocks, you could always get into ETFs such as the Ultra Short QQQQ ETF (QID). This ETF moves up two percent every time the Nasdaq moves down one percent.

Another thing you could do is have a position in precious metals. As more uncertainty hits the financial markets, more and more investors will look for the security gold and silver will offer them. After all, if the entire financial system collapsed tomorrow, gold and silver would still be used as a store of value.

While I happen to think gold and silver are expensive right now, you could still get into small gold and silver explorers that will help you leverage the run metals are having. For more information on that, check out Russell McDougal’s Wednesday IDE articles. Small explorers are his specialty.

The third thing you should do is get into income-paying investments. I’m talking about safe and steady dividend-paying companies such as McDonalds (MCD). Not only do these companies fall less during recessions, but they’re also the first ones to shoot up during a recovery.

Let’s not forget the steady paychecks they provide that could help you offset any price drops you might see. For more information on that, check out Andrew Gordon’s Tuesday issues of IDE.

The last thing you need to do is get out of any investments that have already lost more than 20 percent of their value. This market could easily continue dropping for the next year, so you need to protect your downside.

If you can do all of the things I’ve outlined here, you’ll be able to protect yourself and even make money from this market crash.

To your success,

Charles

P.S. I just started up a new blog and would love for you to check it out. Just go to http://stockcharlie.blogspot.com/. I’ll be giving you my unrestricted opinion on economic developments and the effect politics can have on the markets. Make sure to comment and let me know what you think!

P.P.S. Just last week, readers of IDE’s Global Profits Hotline were able to capture 35 percent in just one day on a Toyota put. And that doesn’t include the other gains we’ve made this year of 98 percent and 88 percent. To find out how you can take part in these gains, click here ]

Market Watch

Ride or Slide: Fording Coal (FDG)

By Charles Delvalle

Bernhard H. wrote an e-mail asking me to take a look at Fording Coal (FDG). I have to admit, I simply had to cover this stock because I love, love, love the coal sector.

Why? Coal is undergoing a little renaissance of sorts. And now that clean coal technologies have become more widespread, electricity companies are embracing coal even more.

Of course, Fording isn’t primarily finding coal for utility companies. A big part of its sales are of coking coal that is used for steel processing. That means this company is vulnerable to a U.S. slowdown (as demand for steel drops).

And it’s already affecting this company. Last quarter, their revenue dropped by 24 percent and earnings dropped by 28 percent. And you can blame dropping coal prices.

What’s funny is that this future slowdown isn’t really reflected in their chart. Since January 22, the stock has jumped 61 percent. There’s a big disconnect here. The fundamentals of the company aren’t reflected in the chart, and that’s never a good thing. Eventually the fundamentals will catch up and this stock could drop.

While I’m bullish on coal in general, right now isn’t the time to jump into this company. So my suggestion is to sit back and watch Fording Coal (FDG) slide.

P.S. Want to see me cover a stock? Send an e-mail to feedback@investorsdailyedge.com

INTERNAL ENDORSEMENT

Stock Market Shocker: How a Bunch of

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Views on Industrial Training..!!!

Respected Sir,

I had cleared PE-II in Nov 2006, now i am doing my articleship with a ca firm. Sir my query is about the industrial tranning. When & how I can start the industrial tranning? Is there any eligblity for that? where it can be start? and finally how it will help my career?

Dear Sir

First of it is not necessary for a CA student to compulsorily undergo industrial training.

It is an opportunity during articles period to a student who has not obtained adequate practical knowledge about Industrial practices.

You can take it up at any time during your 2nd/3rd year of articleship after consulting with your Principal CA.

You (PE II Student - in 2nd year of articleship) is eligible for Indl Trng.

But please note that nowadays commercial companies offer industrial training to CA student with sole intention of getting their work quickly done by students like you doing over time.

In regular artilcleship you can get exposure of Income Tax/VAT/Co Act/Factories Act/Service Tax/Excise/FEMA/Customs/Fin Projections/Internal & Concurrent Audits/Bank & Insurance Audits/Stock Audits with legitimate time for your study, subject to some exceptions. But industrial training is to be in one industry, that too on one narrow area only. Please enquire in detail about your scope before joining with any industrial company for indl trng.

What is ur view on Industrial Training...??? Let me know..!!!

--
I believe in Sharing Knowledge & Wisdom and enhancing Creativity & Worthy Fellowship among the C.A.Professionals.

Customer charges for use of ATMs for cash withdrawal and balance enquiry - UCBs

RBI/2007-2008/263
UBD. CO. BPD. (PCB) No.36 /12.05.001/2007-08

March 12, 2008

CEOs of All
Primary (Urban) Co-operative Banks

Dear Sir,

Customer charges for use of ATMs for cash withdrawal and balance enquiry - UCBs

1. Automated Teller Machines (ATMs) have gained prominence as a delivery channel for banking transactions in India. Banks have been deploying ATMs to increase their reach. While ATMs facilitate a variety of banking transactions for customers, their main utility has been for cash withdrawal and balance enquiry. As at the end of December 2007, the number of ATMs deployed in India was 32,342. Commensurate with the branch network, larger banks have deployed more ATMs. Most banks prefer to deploy ATMs at locations where they have a large customer base or expect considerable use. To increase the usage of ATMs as a delivery channel, banks have also entered into bilateral or multilateral arrangements with other banks to have inter-bank ATM networks.

2. It is evident that the charges levied on the customers vary from bank to bank and also vary according to the ATM network that is used for the transaction. Consequently, a customer is not aware, before hand, of the charges that will be levied for a particular ATM transaction, while using an ATM of another bank. This generally discourages the customer from using the ATMs of other banks. It is, therefore, essential to ensure greater transparency.

3. International experience indicates that in countries such as UK, Germany and France, bank customers have access to all ATMs in the country, free of charge except when cash is withdrawn from white label ATMs or from ATMs managed by non-bank entities. There is also a move, internationally, to regulate the fee structure by the regulator from the public policy angle. The ideal situation is that a customer should be able to access any ATM installed in the country free of charge through an equitable cooperative initiative by banks.

4. In view of this, RBI had placed on its website an Approach Paper and sought public comments. The comments received have been analysed. Based on the feed back a framework of service charges would be implemented by all banks as under:

Sr No.	Service	Charges
1	For use of own ATMs for any purpose	Free (With immediate effect)
2	For the use of other bank ATMs for balance enquiries	Free (With immediate effect)
3	For use of other bank ATMs for cash with drawals	No bank shall increase the charges prevailing as on December 23, 2007 (i.e. the date of release of Approach Paper on RBI website) Banks which are charging more than Rs. 20 per transaction shall reduce the charges to a maximum of Rs. 20 per transaction by March 31, 2008 Free with effect from April 1, 2009

5. For the services at (1) and (2) above, the customer will not be levied any charge under any other head and the service will be totally free.

6. For the service number (3) the charge of Rs.20/- indicated will be all inclusive and no other charges will be levied to the customers under any other head irrespective of the amount of withdrawal.

7. The service charges for the following types of cash withdrawal transactions may be determined by the banks themselves:

(a) cash withdrawal with the use of credit cards.

(b) cash withdrawal in an ATM located abroad.

8. Please acknowledge the receipt of the circular to our Regional Office concerned.

Yours faithfully,

(A.K.Khound)
Chief General Manager

Airlines refuel in Andhra, Kerala to save tax

Airlines refuel in Andhra, Kerala to save tax

New Delhi
March 12, 2008

Cut in sales tax on aviation turbine fuel to 4% from 30% will reduce operating cost by 10%.

A reduction in sales tax on aviation turbine fuel (ATF) by the Kerala and Andhra Pradesh governments is encouraging several air carriers to refuel from airports located in the states.

Several carriers like Air India, Spice Jet, GoAir and IndiGo are now planning to refuel their aircraft at the Hyderabad and Kochi airports to get a benefit on lower ATF prices. Carriers say that they were expecting Karnataka and Tamil Nadu to follow suit — which could encourage carriers to make south India their fuelling hubs.

While Hyderabad airport will start levying the decreased surcharge from the first day of its operations (March 16), the reduced charges will be applicable to all airports at Kerala from April 1.

“By refuelling at the Hyderabad airport, we have calculated that we make savings of around Rs 30 lakh a month. So refuelling at such places where the sales tax is low would certainly make some difference,” said Siddhanta Sharma, CEO of Delhi-based budget carrier Spice Jet.

Spice Jet is planning to add 6 additional flights to Hyderabad to its already operating 13, and increase Kochi flights up to 2 from the current one weekly flight.

“The rationalisation of sales tax on ATF from around 30 per cent to 4 per cent would lead to a 10 per cent reduction in our overall operating costs which is pretty substantial. We hope that other state governments will follow Kerala and Andhra Pradesh’s example,” said GP Gupta, CFO of GoAir. ATF currently accounts for more than 47 per cent of an airline’s operating costs.

According to the airlines, the decrease in ATF rates would be very helpful for short-haul routes rather than long-haul ones. Also, fuel tankering or adding extra fuel does not work for all routes since the aircraft cannot be made fuel-heavy.

“We cannot make the aircraft too heavy with fuel for long-haul routes so fuel tankering is feasible mostly on the short haul routes. For instance, if we are flying from Hyderabad to Bangalore, which in effect is from a low tax to a high tax zone, we will try to fill up enough at Hyderabad so that it lasts us for a round trip to Bangalore and back,” said an Air India executive.

“However, this decrease in sales tax would not be a benefit for international flights at all because, the basic price of ATF in India is still 30 per cent costlier than international destinations like West Asia. So thinking that this would be used as an incentive on international operations also would be wrong,” he added.

Also in case of both Hyderabad and Kochi, the airline executives say that the high groundhandling and throughput charges would offset the fuel benefits to a large extent.

“Groundhandling charges per flight in Kochi costs Rs 40,000 whereas it costs us just Rs 6,000 when we do it on our own. Also, the fact that the Kochi airport is slated to temporarily close down for seven months starting November this year, might be a deterrent for some airlines from starting new flights to that airport or think of refuelling there,” said a Spice Jet executive.

Also, due to the open access system (access to both private and public oil companies to supply fuel), the Hyderabad airport developers will charge a throughput fee of Rs 2,170 per month for the maintenance of the fuel supply infrastructure, which will be passed on to the airlines.

Also, according to some airlines like Kingfisher, the decrease in sales tax will only help when it comes to major destinations like Delhi and Mumbai through which majority of their flights are still routed.

Has the Budget brought prices down?

Has the Budget brought prices down?

New Delhi
March 10, 2008

The Budget 2008-09 was, among other things, meant to be anti-inflation with sundry excise and customs duty reliefs. So far, however, there is no evidence of prices of major commodities coming down as a result of the Budget. On the contrary, steel companies last week hiked prices by Rs 1,500-3 ,000 a tonne or 4-8 %.

Reliance Industries , which accounts for 70% of the Indian polymer market, too, revised polymer prices upwards, post-Budget . Ratan Tata has said the announced price of “people’s car” Nano was already very liberal and so, the excise relief would remain with Tata Motors. Drug price regulator says it will force pharma companies to slash prices of medicines whose prices it controls but the companies haven’t yet said they would cut prices of control-free medicines (80% of retail market) voluntarily.

In the Budget speech, the finance minister made a special effort to apprise the Parliament and the nation of the increased externalities of the price situation. “World prices of crude oil, commodities and food grains have risen sharply in the period April 2007 to January 2008.... prices of iron ore, copper, lead, tin, urea etc. are elevated. The prices of wheat and rice have increased in the world market by 88% and 15%, respectively ,” he said.

Mr Chidambaram added that management of the supply side of food articles would be the crucial task in the ensuing year. In addition, he also seemed (to many) to be doing his bit to control inflation through fiscal means. But in reality, was the budgetary assault on inflation genie strong enough?

Apart from the cut in general Cenvat rate (excise) from 16% to 14% or the reduction in duties on auto and pharma companies, there was no major fiscal measure in the Budget to suppress prices. (Cenvat rate cut is not relevant to food articles). In fact, some measures like income tax relief intended to boost consumption would push inflation more strongly than the cuts in indirect taxes would pull it down.

Chemicals and Petrochemicals Manufacturers’ Association reportedly said the new 5% import duty on naphtha for polymers would mean extra $160 million burden for India’s polymer makers, which would be passed on to consumers. An increase in plastic prices (thanks to the Budget ) is decisively inflationary as higher steel prices (despite the Budget) are.

High input costs are the stated and largely valid reason for price hike of commodities which are industrial inputs . It is another matter that some primary steel producers in India use the global “elevation” of iron ore prices reflected in part in the domestic (NMDC) price as an alibi to hike prices although they have captive iron ore mines (SAIL and Tata Steel buy very little iron ore) and are, to that extent, insulated from input price spiral .

Not to forget, however, the rising prices of other inputs for steel industry like coke, pig iron and scrap (whose import is now tax-free ).

At a general level, what the post-Budget behaviour of India Inc has demonstrated is the limited ability of fiscal measures (especially of the kind in the recent Budget) to control inflation driven by the rapid and inexorable rise in (globalised) commodity prices.

One contention could be that a Customs duty reduction would have helped more than excise cut to contain inflation. But given that imports of major industrial inputs (metals , chemicals etc.) are already taxed at rates lower than the peak rate, this argument, too, sounds rather flimsy. More useful would have been imposition of/hike in export duties on basic industrial inputs that are domestically available— iron ore, bauxite etc. for example. (The FM did hike the export duty on chrome ore by 50% and discouraged naphtha exports ). But that also can have only a marginal impact.

Says Abheek Barua, chief economist , HDFC Bank, “With the kind of enormous traction one sees in commodity prices across the globe, neither fiscal nor monetary measures would suffice to break down inflation . My guess is that inflation is likely to go all the way up to 6% soon. We need to reconcile to a stronger rate of inflation at the current juncture .”

With margins under pressure due to rising input costs, it is irrational to expect companies to pass on the excise relief to consumers, Barua noted.

The fact is Budget 2008-09 appreciated this and therefore did not attempt much to control inflation at the cost of high growth. The Budget would give a stimulus to consumption (and eventually investment), rather than contain inflation.

Ajit Ranade, chief economist at Aditya Birla Group says, “At the first place, the Budget was fiscally expansionary. Then the global crude prices went up to sub- $100 level to $106 now. So have the met coal prices risen. Steel majors cannot be faulted for the price increase.”

The question is whether Indian ought to tread the path of Europe and America which unequivocally prefer growth to inflation control. Maintaining high growth appears to be the preferred goal of India’s policymakers now. Coupling this chief objective with the other aim of minimising the adverse effect of growth on inflation is a far more difficult (if not impossible) task than what the policymakers would like to profess.

Over the years, India should have done far more to reduce its vulnerability to global prices of commodities—agricultural and industrial . It would have then had the weaponry to fight inflation.

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