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Links: Buffett, Spain, Indian Property Sales

Buffett is lobbying against regulation reform, says WSJ. What Buffett doesn’t like is the potential rule that says you have to put up collateral for all derivative contracts, including existing contracts. Buffett is short index puts, but doesn’t put up collateral – it’s bilaterally agreed between Buffett and his counterparties that he doesn’t need to, but the new rules will make him do so. Buffett has $63 billion in his derivatives portfolio, says WSJ, and posting collateral to cover against potential losses is likely to be an issue because then the cash can’t be “used” in a meaningful fashion like acquiring companies. And that is how Berkshire has managed it’s “float” and become a giant.

Amazingly, the senator who asks for the relaxation, Ben Nelson, owns an estimated $6 million of stock in Berkshire. (Might want to stifle that outrage – compare that to India where we don’t even know how much of each IPL team is owned by which politician.)

S&P has downgraded Spain to AA, bringing more short term terror to the markets. Spain is the world’s 9th largest economy, and is facing 12% deficits and 20% unemployment. And most of the employment was in housing, a bubble that has popped. One of the reasons Germany insists on more austerity before Greece is bailed out with a piddly 60 billion euro is that if there are no hard measures, then Spain, Italy, Ireland and Portugal, the “PIIGS”, can demand similar bailouts without committing to hard cuts. But if Spain topples – and I cannot say it looks good – it will be an event that

Meanwhile Greek 2-year bonds went to 38% briefly before settling down. The euro is under pressure – they can’t afford a Greek default, and it increasingly looks like they can’t afford a rescue either. The euro going down is actually good news since most of these countries are exporters; but some of them will have to renegotiate debt in order to return to normalcy soon. That is a no-no in credit and currency markets, so bailouts are the need of the hour. More moral hazard though; if you bail him out you gotta bail me out, regardless of what I do.

Indian 10-years stay slightly weak at 8.09% and there’s an auction tomorrow.

Moneylife reports that property sales in India are down 25% in six cities – Mumbai, Pune, Hyderabad, Delhi/NCR, Bengaluru and Chennai. Mumbai. They say inventories are rising, and prices are going up, but transaction numbers are coming down.

Indian markets fell 1.75% but there wasn’t too much FII selling – just 131 crores, while DIIs bought 324 crores. This is probably just Greek fear, and it’s likely to be over once they do the bailout. The VIX went to 22.13% – a small jump that raised option prices across the board.

In other news, if you try to download the movie Housefull you will find one of 35 call center agents finding out what your IP is and immediately will sell you ULIPs. The director has used anti-piracy software to prevent illegal downloading from the internet, it seems. This, from a top director in a country that’s supposed to be the world’s IT hub; I’d like to believe it, but hahahahaha.

  • Soham Das says:

    >Though, I am tempted to comment about the entire post, but surely one piece takes away the cake.

    To install antipiracy software for illegal downloading of Housefull, insults our intelligence. Surely we are not as idiot to believe that, nor as idiot to get tortured with slapstick comedy.

    But who know, I might take a small risk, given the three bombshells…

  • anurag says:

    >Hi Deepak,

    Again an excellent post from you,But your comment on movie 'Houseful'made my day:))

    Good Morning!

    Regards
    Anurag

  • Tushar says:

    >In the event of a sovereign default what would be implication for Indian stocks ? Would there be a post-Lehman like flight to safety of capital into US treasury bonds and gold ? Would FIIs continue to invest / stay invested in India ? Should risk averse investors exit Indian stocks now ?