Mumbai Face-Off –Emerging Market/Developed Market Implications

E&Y report on Risk in Emerging Markets (EMs) provides some insights as to how western corporations may think through the security/geo-political risks that has emerged post the Mumbai face-off.

According to this report while examining the reasons for doing business in EMs, the developed market (DM) corporates indicated that growth and the lower cost of doing business as two major reasons. But while the first reason will definitely hold in the medium/long term the second reason may not hold even in the short term. Risk of doing business is in EMs is certainly going up. Unfortunately risk of doing business at home/developed markets is also going up given the current economic environment and the risk averseness that has come about. One of the main reasons for US companies performing well in 2005-2007 was that emerging markets were doing exceptionally well and the slower/lower demand growth at home was more than offset by the demand growth in emerging markets.

The report also cites China, India and Russia as the major target markets for corporations from the developed world. Given the impact of the economic crises together with increase in the overall geopolitical risk that would be now priced-in, the cost of doing business in India and other EMs in general will not only increase but the return expectation will also be higher. The currency performance would then be a much more major factor for those companies which look at EMs for their future growth. The current situation indicates that for some length of time the EM currencies are going to be under pressure.

Surprisingly the report states that only 41% of the DM companies have a risk strategy for emerging markets and 56% say that no strategy in place! Add to it that only 25% of the North American companies have a risk management strategy that covers EMs!! Further in terms of most important risk ‘Security’ was third from the bottom – this perception is going to alter dramatically now.

While the future is going to thick with large regulatory and compliance risk (as new laws are enacted to control the behavior of banks… to rating agencies) given the above background the cost of managing ‘Security’ related risk – be it related to establishments or individuals - especially for companies with large EM presence is going to be high. The point that, weakening world financial health makes countries vulnerable to geo-political and security risk has been made before in my previous posts. So the so called ‘outlier’ events may not remain there and may become more frequent if we do not get ourselves out of this the economic muddle quickly – to me given the dynamics involved it looks unlikely.

Overall given the increasing cost of doing business, given the current risk aversion and increasing business, financial and security risk in EMs will call for new business models and much higher return expectations putting pressure on stock performance of these companies.

What I have said above is also in the context of some of the articles/opinions I have been reading of late...the bottoming kind of scenarios.

1.“In terms of valuation, since 1992 emerging market stocks have traded at an average trailing P/E multiple of around 15x. That ratio is now approaching 8x, a record low. For the sake of comparison, the ratio was around 12x during the emerging markets crisis following the Russian default in 1998, and the ratio was around 10x after the collapse of the Internet bubble a couple of years later.”

2.“If history is a guide, this re-rating represents an opportunity for long-term investors. Using data since 1992, the table below illustrates the potential for an upswing in the emerging markets when the valuation multiple falls 10 percent below the long-term mean (a trailing multiple of 13.5x or less). Against this background, the current valuation level is even more compelling.”

To me the fact that it has gone below the recent historical lows indicates that the underlying is changing and I would want to wait and watch. Basically it reflects the uncertainty that is prevailing over the result of various measures and packages that are being announced across all markets. The problem with these kind of individual measures being announced in such an interconnected world is that while it may seem right for individual situations (with uncertain results) but holistically how it will manifest (on a global basis) is even more difficult to predict.

One should remember while the risk that individual institutions carried may have appeared to be with in the norms of their risk appetite (as measured by VaR, MTM, asset cover etc.) but on a system wide basis, nobody had a clue of its effects. When a minor imbalance happened the whole system fell like a pack of cards and here we are. Systemic effects are difficult to asses.

3.“In addition, inflationary pressure will be a critical driver. Inflation has been a vulnerability of many emerging markets in the last two years. There's an inverse relationship between inflation (measured by CPI) and stock valuations, as shown in the chart below. Many economists believe that inflationary expectations have peaked, which if true should be positive for valuations.”

This would be a function of USD behaves in future as commodity related inflation has a direct bearing on inflation levels in EMs – specially the commodity consuming countries like India & China. Even if the relationship was correct if you believe that USD is near its peak, then the inflationary pressure is going to re-emerge.

I therefore think it would be premature to use past market behavior as an indicator to invest in EMs or EM dependent companies - from a medium to longer term point of view. Short term bets can be taken to take advantage of dead cat bounces. Time wise I believe we will have enough opportunity as the correction will last for a reasonably long time.

Bottom Line: Reward may not necessarily follow risk. Payoff depends up on the probability being on your side.

Disclosure : No stocks discussed – No positions.

Copyright © 2008 Tradesense

Breeze in a valley of pain – Is it a Technical trap?

Friday’s upward move and its likely continuation at least in the first 3 to 4 days of next week can at best be a breeze in the valley of pain. Nifty taking support at an intra-week support of about 2500 seems to have given confidence to a lot of players. Let us look at the situation a little more closely.

From September onwards every worthwhile technical level was broken with impunity and even long term supports as shown were given no regard what –so- ever. Major retracement supports have also been broken. This to me essentially means that the underlying forces that made this pattern is undergoing a structural shift and that a new set of forces are emerging which are going to determine the pattern in future. How this will shape can be speculated only when these new forces start manifesting itself in a clearer way.

From a fundamental perspective it means that the current meltdown is just not business cycle induced but there is probably a new landscape developing wherein future business will be conducted. This arises from the fact that the excesses on the upside were caused by risk taking levels that were unprecedented and as the risk is unwound the implications to the financial and real economy are much severe and greater than a normal business cycle related downturn will cause. This then calls for huge intervention by government and when it happens in a global scale where everyone is gasping for breath, there are no saviors. Everybody while trying to hold each others hand is also wary that the other person does not try to capitalize on the situation and weaken him.

These are once in a century kind of events. To understand this better let’s take the period post the great depression. When things started looking up finally, having been bruised badly, the conservative mindset was dominant. So at any slight sign of excess players would unwind and reduce the risk quickly. This helped in more sustainable move up with much lesser volatility and uncertainty. But as years passed and a new set of players came – those who had not seen or felt the pains of the past and were witness only to the better times had a different risk profile and were willing to take greater risks. However they had the advantage of hearing firsthand about the depression and its related consequences. So, while the scale of movement on the up and down increased, their minds were also tempered by what they had heard and read much more than would the next set of generations. With time as new generation of players came who were much more distanced from the past pains and their risk appetites kept increasing. It cumulated over time to reach a level that now can be considered as the tilting point. So here we are. We would now see a number of changes that in the opinion of the wise in the governments and the intellectuals they call upon, is a safer environment to conduct business. I have elaborated this theme in my previous posts and ‘am not elaborating it any further.

So where does India stand in this? India has integrated with world economy in the past five years so much more rapidly than it did the decade prior to it. The kind of move that the Indian stock market made on the up was due to cheap money that came from sources outside India. Hence any major shifts in the environment in those markets which originated this cheap money are going to impact the Indian markets as severely. However well Indian companies do there will be no bull market without money flow in volumes.

Let’s look at some of the fundamental pointers which tell us that India shall be shaping up in close correlation to how the new world economic order evolves. Keep in mind that India’s external trade already constitutes over 40% of its GDP. Net investments by FIIs (Foreign Institutional Investors) in Indian stock exchanges by January 2008 were USD65 billion. In the last four years India has received USD50 billion as FDI (Foreign Direct Investment).

1. Rupee has depreciated against dollar to its lowest ever in its history (more than INR50 to a USD – a 27% depreciation YTD). This is lower than in 1991-92 when India pledged gold with Bank of England for getting a foreign currency line to fund its imports – which to me is the low this country saw in its financial history.

2. The kind of action that RBI and finance ministry has taken to ease liquidity and interest rate in the past four weeks is unprecedented. About INR2trn. (USD40bn.) was released into the system in a period of 3 weeks. The RBI has even gone ahead and approved lower risk weight age and changed the delinquency or NPA recognition standards for sectors such as real estate and infrastructure thus aiding bank balance sheet manipulation. This shows desperation and one has to read in between to understand where we stand. Despite such huge moves the money flow is still stagnant and the markets are only seeing downward pressure. It would probably have worked if the issues were India specific which is not the case.

3. The corporate leverage is the highest ever. When you listen to bank chairman saying companies do not want to take further leverage on their books and are not drawing down funds you it becomes clear that the company’s major business risks ahead therefore do not want a double whammy of financial risk also to take them down.

4. And where the companies are willing to take debt banks seem to become risk averse and are not lending. Most small and medium enterprises, which comprise of more than 40% of production output, are a victim. Banks also fear a fairly large write-off in this segment and hence do not good money to become bad.

5. The real estate sector which was the leader in the last up move is in dire straits. Some of the highly leveraged high profile companies have put many of the large projects on the block as debt repayments are due in the next six months to one year and there is little hope of rollover. Most real estate companies did not participate in Friday’s up move reflecting this. This sector will have to change its business model and the land bank game is a goner. Don’t expect to see any major up move in land prices for some time as many of them move to the auction block.

6. Infrastructure companies also had leveraged themselves highly as the government moved to the BOOT and BOT models. Now with scarcity of capital and high cost most projects will have to be government annuity contracts for which the latter has to find funds. This is in the context of a major pay commission revision of salaries for the government sector, higher borrowings by the government to bridge the same, huge fertilizer and oil subsidy this year and the splurge that will happen in an election year as government machinery is fully used for this purpose (Indian general election is due in February/March 09 and many state elections are underway). Falling oil prices and commodity prices will help mitigate the deficit pressure.

The government has upped the cap on the amount foreign institutional investors can invest in treasury securities and the cash holding of the long only funds in India is finding its way to these as reflected by the constantly falling yields. Future flows are a function of how the global liquidity and risk appetite shapes up given the various uncertainties currently prevailing.

7. The export sector – IT, textiles, Diamonds Gems & Jewelery etc. have their fates tied to how the US and European economies and consumption shapes up. While rupee depreciation might appear favorable, cost pressures of importers and low demand will only put pressures on margin.

Some of the cash rich IT companies might provide deferred credit to their customers especially in most affected sectors with a view that when things settle down the relationship will be cemented further and provide much larger opportunities. While prima facie this is logical it does increase the risk profile of these companies substantially and if the expected stabilization does not happen in the time frame envisaged this could be good money after bad money.

8. Insurance companies that were supporting the market in a big way are finding that inflows have slowed substantially and there are policy lapses especially in the market linked policies called ULIP. The insurance industry is definitely in for a consolidation. In fact grape wine has that one of the major private sector insurers is showing huge losses in its portfolio and may require capital infusion shortly.

9. Job losses will be a reality given this scenario. Foreign companies have already started the process. Apart from this salary cuts have already been initiated. And those looking for jobs are going to find it hard to come by. While job loss estimates is politically sensitive and not published, real estate and textile – two of the major employers are indicating over one and a half million job cuts.

10. Hot money that normally moves the market in a significant way will be hard to come by. Apart from the various external reasons I have explained in my previous posts it reported that India specific hedge funds have done the worst. According to a report complied by Eurekahedge, a leading global hedge fund researcher, while the year-to-date losses of hedge funds across regions and strategies is only 12 per cent, India-specific funds have grossly underperformed, with a 53 per cent loss.

Eastern Europe and Russian funds, with 47 per cent loss, are the second worst performers. The performance of India-specific hedge funds compares poorly with other hedge funds in the Asian region too whose returns range between 13 and 25 per cent.

So investors with emerging markets as a destination through hedge fund vehicle (if it still does exist) will be hard to come by.

Add to this that the GDP growth estimate which in January was about 9% is now at 5 to 6%. Every analyst and economist has a figure to bandy and I’ am sure no body has an inkling of how they arrived at this figure except as a guesstimate. As I see it while Dalal Street has seen the pain the main streets are going to feel it only now. Given the Indian demography where nearly two- thirds of its population is below the age of 35, and nearly 50 % is below 25 and employable, while on the one side one can talk about a demographic dividend, any major fall in GDP and consequent job losses can be disastrous and will require out of the box approach to handle it.

Safety rule for now: Don’t be taken in by the breeze that may follow. You may want to enjoy it while it lasts but move out before the gale comes again. Err on the side of caution.

Disclosure: No stocks discussed - No stock position

Copyright © 2008 Tradesense

Crystal ball gazing – of course you can?

It was extremely coincidental! I was going through some of old notes and books searching for some information when I stumbled upon a copy of Anthony Sampson’s – The Midas Touch. Browsing I found a number of 1987-89 interviews he had used to make his points. And what do I find? Some these gentlemen interviewed had not only foreseen the current environment but warned against what was to come!! And there are great takeaways. Sample this:

1. “I always feel that the Gods in some sense are laughing at us up there: because we have become a captive of our own definitions of and our sort of processes…We define professionals as being those who produce statistically desirable results. We certainly don’t include in that definition a broader, more textured definition of results. We don’t have the long-term loyalty to problems and solutions that a less numerically oriented set of investors would have.
I often sit around with leaders of major corporate entities who tear their hair at the fact that they have to become very short term oriented in terms of their financial results, quarterly earnings and so forth because of the pressures on their stock…of course the pools of money that are making that concern are their own pension funds which insist on quarterly performance.”

---John Reed (then Citicorp) – 1989

(Soon to be called First Nationalized Citibank (group) – as mentioned in one of the columns I read recently)

The root of the problem I think is addressed. It is the dog eat dog competition & performance pressures that investors created (hefty bonuses as a by-product) that led to creation of esoteric instruments, high risk taking, overextended rewards & here we are. It has come back to the investors themselves. This is an area that needs to be addressed not only from the executive compensation point of view but the demand investors put on corporations.

2. “It’s a constant conflict between greed & fear. Sometimes the fear is greater and you don’t have financial excesses: I grew up in an atmosphere after the depression when in financial markets the fears engendered by depression had made everybody pretty conservative. Now, we’ve gone through about forty years of really unparallel growth and prosperity. People take a quite different view towards risk than they did in 1950, and it’s been a gradually cumulative process (emphasis added). Now the interesting question is whether we are not getting off on the deep end and borrowing & leveraging again, with very great difficulties as the excesses are corrected.”

---Paul Volcker (former Chairman Federal Reserve) – 1988

Well he seems to have hit the nail on the head back then itself. But the circus went on for another couple of decades plus before s*** hit the roof. The gradually cumulative process of risk taking hit the tilting point and so we are in for a conservative era where the excesses get corrected again. How long anybody’s guess as no one knows how much of excess risk remains and how much the risk appetite is likely to reduce.

3. “The whole turbulence of the inter-war period, with the enormous fluctuations in the exchange rates and the high unemployment and the protectionism, was due to the fact that the United Kingdom was no longer strong enough to be top nation, and the United States hadn’t realized that it had to be. And I think you see the same things since the beginning of the seventies, exactly parallel between the United States and now Japan – the same symptoms of fluctuation of exchange rates, high unemployment and protectionism.

The world was very deeply unbalanced, with this very large US deficit that would need to be financed mostly by the Japanese, week after week, month after month, and year after year. There was uncertainty as to how that would happen and weather the exchange rates or the interest rates would have to move. It looked as if the world’s leader s were not addressing the problem…”

---Sir Kit McMahon (former Deputy Governor Bank of England) - 1988

China and others joined-in in a big way and boy! did we have exchange & interest rates moving? This borrowing binge does appear coming to an end as US does a full circle. In fact the infrastructure funding needs of China, India and other emerging markets are so high that surpluses might be ploughed back. We are likely to see a much higher savings rate in the US in the coming decade which while reducing consumption and will help reduce this deficit. The sad part is that if the advice were heeded this could have been done without the hard landing.

According to the National Intelligence Council analysis 'Global Trends 2025- A Transformed World' China and India are likely to emerge atop a multipolar international system as the US economic and political clout declines over the next two decades, according to the US intelligence agencies projections. Not only will new players - Brazil, Russia, India and China - have a seat at the international high table, they will bring new stakes and rules of the game, according to it.

4. “There is a willingness to buy now and pay later, whether you are public or private…driven partly I think by the feeling the economy is going to grow, because it’s been growing so there’ll always be something out there in the future to pay with…

It’s not the government itself – by world standards – that is in such big deficit. It’s the combination of the deficit with a very low savings rate. We are at the bottom of the world league among industrialized countries and probably among almost any kind of country and our rate of savings has unfortunately been declining instead of increasing.”

---Paul Volcker (former Chairman Federal Reserve) – 1988

It is not just the government, the consumers who were led to believe in profligacy are also a part of the problem and was clearly identified. But unfortunately nobody did anything about it including the government. Now with their back to the walls remedies are being worked out which nobody knows will work or not. US citizens have to take the future into their hands and start saving. The middle class of course will bear the brunt as at the lower end and at the upper end (those who remain there) generally are immune.

5. “We have been consuming much more than we’ve been producing, we’ve been borrowing more than we’ve been saving and we’ve been brought up to believe in an ethic of entitlement rather than a work ethic. And the government has been a very willing co-conspirator in this concept through the pressures of certain specialist interest groups, who thought of our economy as a kind of vending machine that turns out goods. Who produces these goods, who creates the wealth, was somehow left to others? The result of it all is, I think, that we have been led into a wonderful land Oz in which all our dreams come true…to a large extent we were doing this on borrowed money fro foreign bankers and foreign lenders who were quite willing to lend us all kinds of money in record amounts.”

---Peter Peterson (former Secretary of Commerce) – 1988

While buttressing the point made above it also puts the onus on consumers now to change their behavior and expectations. It brings home the point that work ethics have to change and probably Saturday offs may be off!! The payoff will come when this saving goes to fund infrastructure and other projects in the emerging world, create new markets, bring back profits, help reduce deficit - both internal and external. This could be a painful and long drawn change but a necessary one I think, to restart the cycle.

6. “There is a correlation between personal debt and the national debt here in the US. The runaway inflation of the late seventies encouraged people to buy now and to repay with cheaper dollars…The mental set that permits the individual to spend excessively permits his or her government to spend excessively as well. We think there’s going to be a correction not only in the US but worldwide (emphasis added).”

---Peter Hart (former Chief Executive MasterCard) – 1989

A warning coming from the CEO of a credit card company putting his own interest in stake is something that should have been heeded to. Of course he must have foreseen credit card companies themselves getting into trouble with this trend continuing. May be cards of the future should come with a statutory warning a la cigarettes – ‘Overspending is injurious to your financial health.’

7. “Whether you talk of a family or a city or a state or a nation there are certain economic rules that govern all of us. None of us can live beyond our means for too long a period of time without getting into deep, deep trouble (emphasis added). This is what worries me about United States. We have lived beyond our means, we have run up an incredible debt now, of about 2.8 trillion dollars…the largest debt that’s ever been incurred by any nation on earth.

I think the future generations will feel that the 1980s was a time of easy living for the United States, that we lived beyond our means, we failed to live up to our responsibilities and we failed to be realistic in facing up to our economic problems…We complain about the third world countries and the amount of debt that they have; but in one decade United States of America went from the largest creditor nation to the largest debtor nation in the world. That’s an enormous swing, and I think it forebodes ill for us, and for the stability of the international monetary system (emphasis added), because the dollar is reserve currency of the world.”

---John Connally (former Secretary of Treasury and a personal bankrupt) – 1988

That was almost prophetic and came from his personal experience too. That future generations have been affected is no secret now. The question is once out of it, however long it takes can a new approach – a middle path be taken for long term stability of not only the US but the world at large or will it want to thrive in chaos?

I can calculate the motions of heavenly bodies, but not the madness of people – Sir Isaac Newton -1720.

Disclosure: No stocks discussed – No Positions.

Copyright © 2008 Tradesense

Halloween to last….

Last two weeks I did not post anything because frankly nothing seemed to have materially changed. Most of what has been said before in this blog is materializing in specific.

Announcements were made, leaders got together, talks were held and views were expressed and the dire consequences of not cooperating were articulated. But nobody seems to have clue as to how these expressions of world interest could actually/practically be implemented.

China appeared to make some moves (as its China's manufacturing contracted) by announcing major stimulus package which was the only surprise. Other developments were on the expected lines - Obama got elected, some country specific packages were announced and interest rates were cut by many central banks including US, Europe, Japan.

The lowering of interest rate does not address the leverage and credit issues in the banking system. It works against savers interest and adds to imbalance in finding funds through this source. Interest rates in the first place were not the cause for the problems that have arisen. At best these are like vitamins which may help the patient absorb the main medication better. But vitamins normally are required in small quantities and its excess has little advantage. And it is not actually lowering the cost of borrowing for the corporates.

The banks are using the borrowers’ credit default swap spreads to price credit lines. While this may reflect the borrower risk better the volatility can be high for corporates and in turn financial management that much more difficult.

While the medicines were administered the condition of the patient did not appear to improve and in fact was diagnosed for various not so comforting developments/observations (see below – listed point wise).

Let me explain this a little further.

Many of the moves made by various governments & central banks did make the bull bellow in the last two weeks and we heard many experts calling a turnaround. As I have said before calling the bottom is hazardous in any situation and more so in an environment that is currently evolving. Let me use this opportunity to tell you what I have learnt about Grizzlies. They never want the bulls to hide/die. They need to hear their bellow from time to time to know that their prey is alive and therefore they have their fodder available to them on an ongoing basis. So when in a bear market if the grizzly growl dins it means that it is relishing what it has preyed upon (profit taking). It also makes the bulls to venture out thinking that the grizzly has moved. To the bears this is the way to ensure availability of prey consistently (consistent profit opportunity can arise). In this sense any time the grizzly feels that the bulls may hide or be injured so severely that they may not come back, it realizes that its own opportunities to savor in future may be under threat.

So when bears tire knowing that the probability of getting easy prey is going to get more difficult because most bulls are hiding, it steps back and starts to enjoy what it has in its dish. The greater the destruction of bulls - the more difficult it is to make a come back. It also dwindles the profit opportunities of bears. When the bears find that no matter what they do the bulls are not coming out of their hiding is when they start becoming overconfident and complacent and believe that the battle is won. This laziness on the part of the bears starts giving bulls some breathing space to make an attempt to come together. This is why the market bottoms out well be for the bad news stops – the bears are lazy & the bulls are hiding. Bulls wound heal over time and they get some space to regroup.

The problem has always been to estimate how long the bulls may take to regroup. The circumstances of each bear assault are different and the extent of injury to bulls is also difficult to estimate. If it the regular seasonal changes (business cycle) that leads to it then there are reasonable experiences to fall back upon. But if the assault has been aided by say an earthquake/Tsunami/nuke-attack that hit the bull area and thus provided the grizzly an injured bull to maul. The consequences of this type of assault could be very different as not only the injury much more ghastly, structurally the environment has also been altered. Thus we now need the surviving bulls to get well, read and understand the structure of the new environment, understand how it is positioned therein, see how it can create favorable circumstances/structures/ammunitions to launch its own assault and then wait for the right time to launch it first to recover lost territory before gaining new areas. All this while one has to assume that the grizzly has had so much that it has gone to sleep.

While I have previously posted some of the general structural issues which are evolving that would change the landscape in which future investing is done, some of the specifics that I have gathered in the past two weeks are: (quoted verbatim from reports that I have read)

1. The biggest of all possible financial trends: the eventual bankruptcy of the United States government. Or is it the existing bankruptcy of the U.S. government? The United States government is facing an impending fiscal crisis. Former Comptroller General David Walker calls it a “cancer growing from within.”Even before the bailouts, the Office of Management and Budget (OMB) projected that the 2009 federal deficit would be nearly $482 billion. Since then however, the US government has jacked up spending by the trillions. Some experts even suggest the 2009 deficit could be as high as $2 trillion!
2. Richard Fisher is the CEO of the Dallas Federal Reserve Bank and a member of the Federal Open Market Committee (FOMC )in a speech in May of this year, he stated that the total U.S. debt – including Medicare and Social Security – is more than $99 TRILLION! Along the same lines, Laurence Kotlikoff, a Boston University economist, suggests that the “fiscal gap” – which is the difference between the number above and what we could reasonably expect to collect – is $66 trillion. That is the definition of bankruptcy. It is just a matter of time.Note that foreigners who were funding all this profligacy have started leaving the floor looking to invest the surpluses in their own countries – e.g. China.
3. G20 called for an innovative "college" of supervisors to oversee the biggest global banks. The concept is to have a place where regulators from many countries can gather to discuss a bank's operations. Accounting standards will also be put in place to take account for off-balance-sheet vehicles. It also called for better risk management practices at banks. Another problem was the conflict-of-interest discovered in credit rating agencies. The G20 called for global standards to cover these firms. On hedge funds, the G20 said that finance ministers to assess the adequacy hedge fund best practices. This could be the first step for direct regulation of the sector.
4. With dueling press briefings and statements through the weekend, it was clear that bridging ideological gaps among nations afflicted with different versions of the economic contagion would provide the new president and other world leaders with a daunting challenge.
There is also a more basic philosophical divide across the Atlantic: Europeans in general favor more state control over markets, even to the point of granting regulators cross-border authority, while the United States stresses the primacy of national regulators. President Nicolas Sarkozy of France, who called on Mr. Bush to organize the meeting, alluded to those differences, saying the negotiations, even on general principles, had been challenging.
5. In a surprise turnaround, Hank Paulson, US treasury secretary, said that the remaining funds in the government’s $700 billion Troubled Asset Relief Program would be best used to provide capital infusions to distressed companies and tackle consumer debt, rather than buy illiquid mortgage-related assets. The situation would be difficult to hazard as new jokers come into the pack after January20.
6. UBS clients have been receiving calls and letters telling them that their Swiss accounts will soon be liquidated. Those who have concealed funds from the IRS have two basic choices: They can take new and potentially difficult steps to hide the money, heightening their risk of being caught and punished severely, or they can come clean. The backdrop for UBS's action is that the U.S. government has been pressing UBS and the Swiss government to disclose the names of thousands of Americans with undeclared accounts, while the Swiss have vowed to uphold Swiss legal protections for bank clients. However, as a practical matter, whether or not the Swiss formally give up the names, UBS's decision to close the accounts undermines Switzerland's legendary code of bank secrecy. Swiss banking/Swiss type banking is to change drastically and have hot money flows under severe scrutiny.
7. Just when Wall Street’s leveraged loan headache had subsided to a manageable throb, more pain threatens. The amount of buyout debt stuck on bank balance sheets has dwindled. But loans repackaged for hedge funds are ending up back with banks as the schemes unwind. Worse, no one knows the extent of the potential exposure. At the crux of problem are total return swap (TRS) programs. These have been used to give hedge funds the returns and risks of bundles of junky loans without the need to actually hold them or finance their purchase. The trouble is, a TRS deal usually requires the hedge fund to pony up cash when the underlying portfolio’s value declines. If the fund fails to do so, the lender that financed the portfolio can seize it.
8. Manny Roman, the co-chief executive of GLG, Europe’s biggest hedge fund, warned that thousands of hedge funds are on the brink of failure. He predicted that between 25 and 30pc of the world’s 8,000 hedge funds would disappear “in a Darwinian process’’, either by going bust or deciding that meager returns are not worth their efforts.
9. The market downturn is ravaging public pension funds across the United States, with many state and local governments seeing more than 20 percent of their retirement pools swept away in the turmoil. Even before the financial crisis, many large pension funds already were considered to be inadequately funded, according to the Government Accountability Office. The losses could force some states and local governments to ask taxpayers to pay more into the funds or to demand more contributions from the police, teachers and other government employees whom the benefits cover.
Poverty, pension fears are driving Japan's elderly citizens to crime - just on the sideline of what can happen in other countries too.
10. The problem looming in many established blue-chip companies that pay dividends now and may not later. They have heavy pension obligations bearing down on them. These problems should be stated in financial reports. But sometimes they are hidden in plain sight. A bit of dubious padding in pension plan earnings projections can neatly camouflage millions in shortfall i.e. using dubious discount rates.
11. BoE (Bank of England) calculates that banks would have to shed one sixth of their assets just to get back to the 2003 level of bank leverage. That level is probably too high for the next, more cautious financial era. If banks work too fast to strengthen their balance sheets, loans would be called, asset prices would fall further, trade credit would be reduced and the already expected recession would be deeper. The BoE clearly prefers a slower adjustment with more government help, but in any case the “legacy of overextended balance sheets” is a painful one.
12. Intelligence officials are warning that the deepening global financial crisis could weaken fragile governments in the world's most dangerous areas and undermine the ability of the United States and its allies to respond to a new wave of security threats.
13. The World Bank said it would make an additional $100 billion available to developing countries over the next few years. Robert Zoellick, the bank’s president, said that “virtually no country has escaped” the financial and economic crisis, but that poorer country were particularly vulnerable to a slowdown in the global economy and decline in world trade.

The other developments that appear to be key and need to be tabbed are:

1. In the span of just a few weeks, orders for both business and consumer tech products have collapsed, and technology companies have begun laying off workers. The plunge is so severe that some executives are comparing it with the dot-com bust in 2000, when hundreds of companies disappeared and Silicon Valley lost nearly a fifth of its jobs.
2. The one prop to the U.S. economy, which has been exports, is about to get kicked out from underneath it as reports came in that export declined 6 percent decline in September.
3. The Circuit City bankruptcy and the lower outlook from J. C. Penney came as the Commerce Department reported that retail sales plummeted 2.8 percent in October, a record, and were down 4.1 percent from October 2007. Automobile sales are 23 percent below last year’s numbers. Spending at gasoline stations dropped sharply, by nearly 13 percent, as falling oil prices pushed down the price of gasoline. Consumers cut back their spending across nearly every sector, like furniture, electronics and clothing. The data portend a bleak Christmas shopping season that will force retailers to make deep discounts.
4. Citigroup, which a decade ago set out to rewrite the rules of American finance, is bracing for still more pain now that a recession is at hand. Loans that the financial giant made to consumers in good times are going bad in growing numbers. For the moment, profits seem as elusive as ever, analysts say. If you look at their loss rate, it is almost inevitable that Citi is going to be asking the government for more money next year.
5. The Federal Reserve gave American Express the go-ahead to turn itself into a bank. The decision gives America’s only remaining big independent credit-card company greater access to government funding.
6. The prospects of a government rescue for the foundering American automakers dwindled as Democratic Congressional leaders conceded that they would face potentially insurmountable Republican opposition during a lame-duck session next week. If a deal isn’t made and GM goes bankrupt, we’ll be in store for far more severe economic times than we’ve seen in a long, long time. After all, two and a half million people will lose their jobs in the next twelve months alone.
7. A new report showed that nearly one in five U.S. mortgage borrowers owe more to lenders than their homes are worth.
8. JPMorgan Chase & Co, the largest U.S. bank, said it would halt foreclosures for 90 days as it ramps up a program to make it easier for homeowners to modify their mortgages. Bank of America plans to soon start modifying an estimated 400,000 loans held by its newly acquired Countrywide Financial. Citigroup has started a USD 20bn mortgage modification program.
9. In an attempt to help struggling homeowners in America, the agency that oversees Fannie Mae and Freddie Mac outlined a plan to avoid “preventable” foreclosures. Households that have missed three or more mortgage payments may receive assistance through refinanced mortgages with lower interest rates and longer payment periods of up to 40 years.
10. Investors withdrew a record $70.7 billion from U.S. stock mutual funds in October, according to data compiled by TrimTabs Investment Research. Redemptions by individual investors and institutions jumped 26 percent from the previous high of $56 billion in September
11. The next critical deadline for hedge funds: Nov. 30, the final day of the year that many hedge fund investors can file to redeem their stakes. Unlike mutual funds, which trade daily, hedge fund customers can request their money only on certain dates, typically once a month or quarter.
12. Its (hedge funds) latest problems come amid mounting expectations that the hedge-fund community will be decimated by the global market meltdown. Banks have been calling in credit lines extended to a number of funds, which has forced them to sell shares to raise cash.
13. Nicolas Sarkozy is pushing the banks to lend more. The French president extracted promises from the country’s largest banks that lending growth next year would be in the 3-to-4% range. He has gone a step further, saying that government representatives will monitor banks’ behavior in every region.
14. Authorities in Italy, the UK and the US have urged banks not to be too harsh on troubled customers – whether small businesses in need of working capital or homeowners hoping for a break on their mortgages. Unless the credit market eases up substantially, the governments’ lists of worthy borrowers in need of protection is set to lengthen. (So much for health of banks if the governments have their way – a path to more troubled assets).
15. Germany became the latest country to fall into recession since the onset of the crisis. The World Bank and the Organization for Economic Cooperation and Development now predict that the developed world overall will contract next year; even in red-hot developing countries such as China and India, growth is projected to slow. Officials in the 15 Eurozone countries announced that the region had officially fallen into recession.
16. Some $2.1 trillion of European company and bank debt matures in the next three years, raising "substantial refinancing risk", according to Standard & Poor's.
17. Germany's Commerzbank is interested in a state capital injection, according to sources familiar with the situation.
18. Barclays is canvassing a variety of ways of changing its capital-raising plan after institutional shareholders objected to the terms offered to investors from Qatar and Abu Dhabi. One idea is to issue more capital to existing shareholders on the same terms that the Middle Eastern investors have received. Barclays' investors will vote on whether to support the current plan on November 24 unless it is changed before then.
19. Japan's two-largest banks, Mitsubishi UFJ Financial Group and Mizuho Financial Group, cut their earnings outlooks by more than half on Friday, hit by growing bad-loan costs and a plunging local stock market.
20. Of the $13.6 trillion of goods traded worldwide, 90 percent rely on letters of credit or related forms of financing and guarantees such as trade credit insurance, according to the Geneva-based World Trade Organization. . . . The cost of a letter of credit has tripled for buyers in China and Turkey and doubled for Pakistan, Argentina and Bangladesh.

Keep track of the turmoil timeline here.

To summarize your care for cash will take care of you!! If you trade be nimble and take your profits ASAP. For longer term investors you will get your opportunity so be patient.