• Big Picture: Bear Stearns Gets NY Fed, JP Morgan Bailout

10:53: Bear hits new low $26.85 at 10am (late prints everywhere) — BSC at $32
Markets recover somewhat — Dow off 130

10:49 Some of their directors have options to buy at $79.86

10:48: I’ve always really like the Bear logo:
Here’s the firm’s about page

10:46: Jim Rogers comments to Short all investment banks looks pretty spot on.

10:44: So much for the recovery — Dow off 200

10:42: For you numerologists: Bear at $28, down $28 — a two one for one split

Barry live blogs the BSC intraday waterfall.

• Bloomberg: Deutsche Cuts India’s Sensex Target by 22% to 18,000 by March

India’s Sensitive Index, Asia’s worst-performing benchmark, had its target price cut by 22 percent at Deutsche Bank AG on expectation company earnings will be crimped by a likely U.S. recession.

Deutsche lowered its March 2009 target for the Sensitive Index, or Sensex, to 18,000. The bank had earlier set a target for the index of 23,000 by Dec. 2008.

It recommends investors buy rate-sensitive sectors such as automobiles, private banks, capital goods, cement and media.

Where were they when the Sensex was at 21,200? Oh well . . . better late than never.

• Economic Times: Gold price crosses Rs 13K mark, may touch Rs 15K

The standard gold opened at Rs 13,035 in the Mumbai bullion market and Rs 13,160 in the Kolkata bullion markets. The yellow metal hit an all-time high of USD 1,000 an ounce in the US.

India imported around 10.2 tonnes of gold in February and only five tonnes in January as compared with 52 tonnes and 56 tonnes respectively, a year ago. India imports around 800 tonnes of gold, which account for 20% of the world’s gold consumption.

Note: Since January 2007, the S&P CNX Nifty-50 index has risen from 4000 to 4750 (+19%), while gold went from Rs 9000 per 10 gms to Rs 13000. (+44%). Now think about how much time-money-effort the financial media has spent on the equity markets vs. versus on gold. I would say that all the attention given just to the Reliance Power IPO exceeds that paid to gold!

• Bespoke: International Snapshot

• Wall Street Journal: Agriculture Stocks Belong In Long-Term Portfolios

What’s remarkable about soaring agriculture prices is that corn, oats, barley and wheat aren’t finite resources, like oil or copper . . . A more affluent world population is clamoring for better-quality foods, starting with wheat, a natural high-protein grain and the essential raw material in bread. The ethanol boom may have peaked, but the biofuel movement has further super-charged demand.

High grain prices, low stockpiles, and government encouragement of biofuel development have spurred investment in the tractors, combines and other heavy equipment that Deere makes.

• Portfolio.com: Inside Wall Street’s Black Hole

. . . on October 19, 1987, when the sweet logic of Black-Scholes was shown to be irrelevant in the real world of crashes and panics. Even the biggest portfolio insurance firm, Leland O’Brien Rubinstein Associates (co-founded and run by the same finance professors who invented portfolio insurance), tried to sell as the market crashed and couldn’t.

At the end of 2006, according to the Bank for International Settlements, there were $415 trillion in derivatives—that is, $415 trillion in securities for which there is no completely satisfactory pricing model. Added to this are trillions more in exchange-traded options, employee stock options, mortgage bonds, and God knows what else—most of which, presumably, are still priced using some version of Black-Scholes.

“This is what I’m saying to Merton and Scholes,” Taleb says. “You guys are just parasites. You’re not bringing anything useful to the market. You are lecturing birds on how to fly. You’re watching them fly. And then you’re taking credit for it.”

Love it!

Date	Sensex-30	Nifty-50	Gold (Rs, per 10 gms)
December 31, 2002	3,377	1,092	5,580
December 31, 2003	5,839	1,880	6,175
December 31, 2004	6,602	2,080	7,000
December 31, 2005	9,398	2,836	8,100
December 31, 2006	13,787	3,966	9,400
December 31, 2007	20,287	6,138	10,500
January 22, 2008	16,730	4,899	11,050

The point? Gold in Indian rupees doubled while the Sensex & Nifty indices went up 5-fold since 2002.

But - this period has been a strong, multi-year (once in a generation?) bull run in the Indian stock market. What happens to their relative performance if we now go through a 1-2 year bear market?

OK, I know this may come across as cruel - on multiple fronts. But perhaps this early January article is worth a look now: Sensex may cross 27,000 in first half of 2008

The weekly chart of the Sensex shows that after a huge consolidation period (1992-2003) we are in a big bull run for almost last five years now. This rally is a large X-wave, which I had mentioned in my earlier articles also. A zigzag (A) — (B) — (C) pattern is the first part of this up move followed by a connecting pattern (X-wave).

This connecting wave is in the form of a running triangle that began in May 2006 and ended in August 2007. The presence of such a running triangle indicates tremendous upside potential for the Sensex. The calculations based on Neowave theory (By Glenn Neely) suggest that the breakout from such a triangle should be at least 1.618 times the largest leg of the triangle.

This puts the Sensex target at around 27,000 mark. The breakout could be as big as 2.618 times the largest leg, leading to a mind boggling figure of 39,000. Even if we keep aside this over-optimistic view, the target of 27,000 could be achieved and that too most probably in the first half of 2008.

WTF?

Do not believe in any predictions - from me or anybody else. Only 3 things matter:

• Probabilities (Is it more likely to go up or down? If it goes down, is it likely to sink?)
• Money management (What % of my portfolio should be allocated to a single stock? How much leverage do i want exposure to?)
• Luck (Probably most important, but least acknowledged)

Zat’s it.

The major Indian market indices - BSE Sensex 30 & CNX Nifty 50 - dropped over 12% again earlier today. They are now down over 25% from the all-time highs set just two weeks ago! Not good. Gold is holding up very well at ~ Rs 11,000 per 10 gms. As is cash.

Should be fun to see what happens to the US markets today, given that they were closed on Monday, and that the Dow futures are down over 5%.

If you look at the carnage world-wide but feel like a contrarian, then the Vanguard Total International Stock Index Fund (VGTSX) is a good option.

Major crash in the Indian stock markets, with the BSE Sensex-30 index down 2000+ points, CNX Nifty-50 down 700+ points - that’s over 12 frikking percent. Anyhow, I just saw that the BSE has halted trading for a bit.

As for me, I bought a good amount of the Benchmark Nifty ETF (NIFTYBEES) - at 542, 527 & 518 (nope, order didn’t go through although the Nifty dropped enough for the ETF to go to 515) - trying to catch the falling knife, if you may.

Various mid-cap indices on the NSE are down 5% to 6%. And the latest on India from Bloomberg:

• Bloomberg: Indiabulls Targets Top 5 Slot Among India Funds With $6 Billion

Indiabulls Financial Services Ltd., backed by billionaire Lakshmi Mittal, predicts a planned fund management unit will rank among India’s top five by 2010, seeking to replicate successes from broking to real estate.

Banga, who models Indiabulls on Charles Schwab Corp., the biggest U.S. discount brokerage, and Costco Wholesale Corp., the largest U.S. chain of wholesale-warehouse stores, is taking a bet on an economy forecast by the government to expand 9% this year, …

Assets under management at mutual funds in India swelled more than fourfold to 5.4 trillion rupees in the five years to November.

• FT @ Yahoo Finance: Gold tops $880 as investors seek protection
  

Gold rose 2.4% to $880.20 a troy ounce in US trading helped by new investor inflows at the start of the year, rising oil prices and concerns over the outlook for the dollar.

In China, trading in gold futures is due to begin on the Shanghai Futures Exchange on Wednesday.

Investment demand for gold has been rising steadily with holdings in streetTRACKS, the largest gold exchange traded fund (GLD), increasing to a record high of 639.35 tonnes on Monday.

• Orpheus Capitals: India Outlook 2008
  

This year BSE Capital Goods sector should move its last leg up to complete the cycle trend the sector started in 2002. The index should complete the last leg up from current 20,000 levels to 25,000. This should be the first leading indicator after which identifying a Primary (multi year) top for Sensex should be easy.

So if Sensex has to form a primary top this year, Banking should lead. We are not looking above 15,000 on BSE BANK Index (up 25% from current levels). Bad timing as you may call it with Capital goods and Banking under pressure, Energy topping late 2008 or early 2009, we will be ready for the proverbial bust heading into 2010 and 2011 Benner cycle lows.

 

• DNA: Sensex fair value 16,500 for 2008

If you look at traditional valuation tools, the Indian market looks overstretched,” says Jasani. “It has the lowest dividend yield, it has a price-to-book multiple that is very high, . . . and it’s not going to be a season of standout earnings from here, when you compare it to the period from 2004 to 2006.”

Therefore, he finds it difficult to justify a Sensex fair value over 16,500 till the end of 2008.

On the other side, the big change in 2007 has been that equity market-driven foreign inflows have shot through the roof . . . $40 billion of asset market-driven flows have come into India so far in 2007. If you factor that in, the Sensex should tread closer to 24,000 by the end of 2008.

• Telegraph: Crisis may make 1929 look a ‘walk in the park’

Lenders are hoarding the cash, shunning peers as if all were sub-prime lepers. Spreads on three-month Euribor and Libor - the interbank rates used to price contracts and Club Med mortgages - are stuck at 80 basis points even after the latest blitz. The monetary screw has tightened by default.

“Things are very unstable and can move incredibly fast. I don’t think the central banks are going to make a major policy error, but if they do, this could make 1929 look like a walk in the park”.

The ECB’s little secret is that it must never allow a Northern Rock failure in the eurozone because this would expose the reality that there is no EU treasury and no EU lender of last resort behind the system. Would German taxpayers foot the bill for a Spanish bail-out in the way that Kentish men and maids must foot the bill for Newcastle’s Rock?

• Bloomberg: India May Cut Taxes, Raise Subsidies After Ruling Party’s Loss
  

India’s ruling Congress party’s loss in Gujarat state, its fourth regional defeat this year, may prompt the government to cut taxes and boost subsidies as it seeks to regain popularity before national elections.

India must cut “mounting” subsidies, Prime Minister Manmohan Singh said Nov. 8. Food, fertilizer and oil subsidies will reach 1 trillion rupees ($25 billion) this year . . .

India hasn’t raised fuel prices this year even as crude oil costs surged 53% because of concern it will stoke inflation and alienate voters. Keeping fuel prices at their current level will have cost the government an additional $12 billion in subsidies in the two years ending March 31, equal to almost a 10th of India’s annual budget.

 

• India Info: SBI MF chief sees Sensex at 40K

We already are the most retail-retail fund house. My transaction costs are the highest. If the leading fund houses get their million from 5 accounts, mine comes from a thousand different accounts,” he says, adding, “Over Rs 20,000 crore of my total assets (over Rs 27,000 crore) comes from equity funds. If you look at the industry profile, only 20% is from equity.”

“The Sensex will touch 40,000 in 5 years,” he forecasts, “A 20% growth is par for the course.”

But, isn’t the market running too fast? “Looking at the fundamentals, it may seem so,” but the fundamentals do not show a parallel economy in the works here, he argues.

• Orpheus Capitals: The Gold barrier

The year end perspective on Gold suggests an ongoing intermediate (multi week) bottoming action at current levels. We consider a sizeable breakout about $ 800 still a low probability scenario for 2007. As most momentum indicators on weekly time frame are still in the process of hitting base.

A break below $ 770 might just increase some supply pressure. We are no Gold bears and are looking up to $ 1000 soon and much beyond $ 1000 in years to come, but timing for us remains a more critical issue and understanding that bottoming like sideways action is never a few days affair.

• Economic Times: How splitting stocks helps shareholders

Companies often split their stock when they believe the price of their stock exceeds the amount smaller individual investors would be willing to pay for the stock. By reducing the price of the stock, companies try to make their stock more affordable to these investors.

The fact that a company has a record of multiple stock splits usually indicates that the company is among one of the faster growing firms, since their stock has been split numerous times.

A motivation for this could be a company’s defence to a potential hostile takeover.

As a stock price rises, some people will be psychologically unwilling to pay that ‘high price’ so a stock split brings the shares down to a more ‘attractive’ level.

Hogwash, I say.