Wrap Up - Scams, Markets, Bonds, Currencies

I was on a 4-day vacation, so could not post anything, but managed to keep in touch with the latest happenings. So much has happened that I think I'll have to skip a few topics - mostly related to Scams...but a quick word on those nevertheless:

Medianama has given some really interesting links (HT: Deepak Shenoy - Capital Mind) to audio files and transcripts of conversations between Niira Radia and several prominent personalities like Ratan Tata, Ambanis, A Raja, Barkha Dutt, Vir Sanghvi, etc. Fairly interesting read / listen, depending on how much you like to hear the now famous "All India Radia" ;)

And now, back to the markets - Ireland has finally accepted the $ 113 bn EU bailout package with severe austerity measures, which is obviously not going down well with the civilian rights groups...markets are not impressed, the Dow is down over 1% at the time of writing, and the focus has now shifted to Spain and Portugal (yes, already !) The Spanish 10-year bond yields rose 0.14% to 5.35% and that of Portugal rose 0.09% to 7.23%. Bond yields increasing means bond prices are going down - markets, expecting higher risk of default, are willing to pay lesser for a "secure" government bond. This will typically hit the Mark to Market (M2M) of treasuries of banks and central banks who are large holders of these bonds - for them, the value of a prime part of their portfolio just went down...who may then be needed to set aside some more capital to make up for the losses...for which they sell some other country's bonds...and so goes the contagion.

As an aside, the yields on 10-year US Treasuries is approx. 2.83% and that of India's is around 8.03%...so technically, India is far more likely to default than Spain / Portugal...but unlike these countries, India still has the power to print its own currency (INR) and pay back the debt in the worst case scenario (although that would trigger hyperinflation here, but thats a separate story altogether).

Meanwhile, after a brief respite during the Ireland bailout talks, Euro continues to slide against the dollar. Here is a quick recap of the last 1 month's euro-usd movement:

(Chart: Courtesy Yahoo! Finance - Click for a larger image)

It reinforces the fact that market players are not yet completely done with Europe with Ireland bailout news...they would like to get a sense of where it all is going before coming back into the markets - in the meanwhile, they'll keep selling stocks and taking money out of European markets...leading to slide in both - European markets and euros.

Similarly, INR has also weakened against the dollar considerably over the last few days...a glance here as well:

A similar logic here as well, though default is not the top-of-the-mind topics for India, one scam after the other is rocking the markets, resulting in a few exits as well. Both euro and rupee have hit a 2-month low...can't really say how much lower they can go from here.

But to me, overall markets look good to go up from here...am still going with what I've said in my earlier posts...but beware of Bank Nifty, banking stocks, and of course, realty...