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Bad News For the Week


A lot of consolidation from Twitter but here goes. Let’s just look at the bad news of this week.

US News

US Unemployment initial claims at 667K, up 36K week-on-week, and a 39 year high. 5.11 million on the continued claims list, again an all time high. But since the number of people in the US have increased, this is not quite up there as the highest unemployment rate. Still, little satisfaction.

Existing home sales are at 4.9m seasonally adjusted, down 8.6% year-on-year. This is about 9.6 months of supply at current offtake levels. New home sales at 309K adjusted, lowest since 1963. That’s nearly 24 months of supply at current rates – and “normal” should be around 6-8 months. So if there is no fresh inventory coming in, we’ll be back to life in 1.5 years.

High hopes – unless transactions increase, this data is not going to help – need to see more houses selling, at lower prices, for a recovery to begin.

And this inventory does not include foreclosed home that may have been held back as the banks can’t afford to flood the market – not that this is happening, but it seems people are referring to it.

US GDP shrunk 6.2% in Oct-Dec 2008, much worse than expected. The US is taking a huge stake in Citibank, probably upto 75% – I’m still not clear about the exact figure – to ensure it stays alive.

India News

GDP grew “only” 5.3% in Q3, a far cry from the sizzling 8.9% a year back. On a nine month basis, our GDP grew 6.9% versus 9% a year back. Not bad at all, but the growth has come tremendously from Construction, Trade, Finance/Real Estate (Agriculture and Manufacturing are in fact contracting). How much of that do you see GROWING this year?

Bond yields contracted to around 6.34%. It’s likely that falling inflation and a slowing economy will let the RBI bring rates down.

The US dollar/rupee rate went to 50.69, a high, and then slid back down to under 50. People say that rates cannot be decreased because the rupee is sliding – but look at the system; Foreign entities have literally maxed their limits of g-sec buying (corp bond buying has been upped too) so they seem to be happy to invest and we should open that window further. RBI can sell our dollars heavily, use the money to buy bonds in the market to cut yields further, so issuances will not be a big problem. Recently an auction of g-secs failed and dealers had to pick it up – it didn’t fail for any good reason, as the cutoff yield was 6.98%, and the bonds never even went there; as I said, I believe the market is manipulated by the few people that are allowed to participate.

Note here that our stock markets have been wonky throughout last week, but have been showing some strength in the later parts of the day. But volumes, my goodness, volumes. We see less than 7000 cr. a day – except expiry day on Feb 26 when we saw 9000 cr. – that’s so low! We used to do 20K cr. in the cash market! Now we’re back to 2006 levels. And before it gets better, I believe it will become worse.

That’s for a cheerful friday. Now let’s watch the US markets react to the Citi and GDP news. Over and out.


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