Readings: RBI hike, Dr Doom, Hedge funds vs. Exchanges
- Business Standard: RBI`s double whammy makes India Inc see red
RBI raised the repo rate, or the rate at which it lends to banks, by 50 basis points to 8.50 per cent. The cash reserve ratio, or the proportion of deposits kept with the central bank, will be increased by 50 basis points to 8.75 per cent.
While the repo rate has been increased to 8.50 per cent with immediate effect, the CRR hike will be implemented in two phases: To 8.50 per cent from the fortnight starting July 5, and to 8.75 per cent from July 19.
. . . aggregate deposits rose 23.2 per cent year-on-year on June 6 against the indicative projection of 17 per cent for 2008-09. Similarly, non-food credit grew 26.2 per cent during the period, which was higher than RBI’s projection of 20 per cent.
Unfortunately, Faber spoilt the effect by going on to predict an apocalypse for the world economy, with hyperinflation, war and religious strife. His final prediction: “A deflationary stabilization crisis will follow in phase four of our road to financial fiasco. Large segments of the population will be totally impoverished. Smart hedge fund managers will all have sold their businesses to banks and will have left the US to live in the Caribbean, Brazil, Singapore, or Thailand, while…Ben Bernanke will flee the US in a hurry.”
Faber on CNBC & Mint - time to go long the Indian indices. A short term trade, mind you! 
Rubio’s Breakwater and funds like it rely on the Merc and CBOT for the rapid-fire, low-cost trades that are critical to their success.
Beneath the surface in the conflict between CME and ELX, a bigger battle is brewing. This one is for control of derivatives that aren’t traded on any exchange. The over-the-counter market, run by banks such as Goldman Sachs Group Inc. and JPMorgan, offers swaps and options based on interest rates, currencies and the creditworthiness of corporate borrowers.
The Chicago hedge funds backing ELX are closely associated with the city’s exchanges. The biggest by far is Citadel. Griffin has been featured this year in CME Group advertisements in financial magazines and newspapers, with a quote across the middle of the page that reads: “Risk is what you make of it.”
I imagine that for these huge hedge funds (or more appropriately - market makers), the brokerage costs make the difference between a profitable trading system and an unprofitable one.
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June 25th, 2008 at 9:38 am
I hope the rates will have to raise further than what was announced yesterday, considering the deficit & inflation.
If that was to happen Real Estate prices and companies which benefited from cheap money will suffer lot more than what market is pricing in. The prices of the Real Estate companies are already fallen more than 60%. I hope it is Just a matter of time before the price of land starts falling.
Just wondering what options are available to protect the value of the cash. Short term gilts, liquid fund, gold ETFs ? any stocks/sectors which will benefit from the inflation. I am mostly away from the floaters as many of them carry a huge securitized component.
-Nagarajan