(LiveMint.com)
The drop in the cost of travel has led to an increase in the traffic headed to the USPriyanka Mehra
With the rupee clocking a nine-year high against the US dollar, Indians will soon be skipping London, their favourite overseas travel destination, to visit the US.“With the steep appreciation in the rupee against the dollar, the US has become a prime tourist destination for Indians looking to travel West,” said Subhash Goyal, president of the Indian Association of Tour Operators (Iato) and chairman of Stic Travels Pvt. Ltd.
Interestingly, it is not only the discounted airfare that is likely to prompt people to choose the US. Cheaper board and lodging, along with bargains on apparel as well as high-end products such as luxury watches and cosmetics, could be other attractions.
Assessing parity : LVMH group president, South Asia and Middle East, Ravi Thakran.
“Prices of cosmetics and watches in the Louis Vuitton Moet Hennessy (LVMH) portfolio will be cheaper in the US than in India by about 10% (thanks to the rising rupee),” said Ravi Thakran, group president, South Asia and Middle East, LVMH—the French company that owns brands such as Christian Dior, Fendi, TAG Heuer and Dom Perignon. “The cost of handbags, however, is likely to be the same.”
There has been a decline of 20-30% in airfare to the US in the past two years. A return ticket to New York cost passengers Rs45,000 in 2005. Currently, it is ruling at around Rs35,000-38,000.
The drop in the cost of travel has led to an increase in the traffic headed to the US. According to Iato estimates, 263,000 Indians visited the US in 2005, the number rose to 350,000 in 2006, whereas some 400,000 had already hit the US shores till June this year. The association expects a further 10% increase in the number by the year-end.
According to Pawan Kumar, senior travel consultant, Uniglobe Air Travel Bureau Ltd, other factors such as more air carriers operating in India and availability of direct flights have also contributed to more people travelling to the US.“In the next few months we are expecting a 10% increase in passenger traffic to the US. Because of the rupee ruling high, a lot of people have already started booking tickets for their travel next summer, which is the peak travelling time for Indians,” added S. Venkat, executive director, Air India.Air India started non-stop flights to New York in August.Expecting a further boom in the business, some players are making hurried changes in their operations to cater to the anticipated demand.Makemytrip.com, a travel portal, for instance, is adding more goodies to the packages it was offering so far.
“In the first eight months of 2007, Makemytrip has seen a 100% increase in the number of passengers travelling to the US over the same period in 2006,” said Keyur Joshi, chief operating officer, Makemytrip.com Pvt. Ltd. “To make our packages more attractive, we are upgrading the stay options for our passengers. For instance, if a passenger had booked a three-star hotel, we are upgrading her to a five-star,” he added.
To cash in on the boom in the business, Cleartrip.com, an online travel portal that so far operated only domestically, now plans to go international. “With the rupee appreciating against dollar, we are looking at expanding our services, which include tickets and travel packages, to overseas destinations,” said Sandeep Murthy, chief executive, Cleartrip Travel Services Pvt. Ltd.And while travelling has gotten more affordable, so has the shopping and personal spends. Iato’s Goyal estimates travellers are expected to spend $400-500 (about Rs16,000-20,000) more in addition to their average budget of $3,000 for a 10-day visit.“The appreciation in rupee allows travellers a more flexible budget,” said Kumar.
Thursday, September 27, 2007
Indians flock to US... to buy Louis Vuitton handbags
Subprime tsunami hits Japan's shores: Banks tighten RE credit and foreigners sell
Subprime tsunami hits Japan's shores
YASUO OTA
Senior staff writerThe recent problems in the U.S. mortgage market have cast a pall over real estate investments in metropolitan business districts, with signs emerging that the uptrend in land prices in certain areas is beginning to slow.
In the wake of an overseas credit crunch, banks are increasingly wary about extending financing for commercial real estate deals. In fact, banks have turned down a string of development projects proposed by small and midsize real estate firms.
Down the road, this cautiousness will likely spread to nonrecourse loans, in which funds are repaid solely with the project's future cash flow. This type of financing is often used in real estate development deals.
To date, banks have extended funds at extremely low rates if they judge that developers can generate sufficient rental income. But if rental income slackens, interest rates on commercial development loans will rise.
Foreign investment in Japanese real estate is also contracting. Last year, overseas investors, including many from the U.S., spent as much as 1.5 trillion yen on Japanese real estate. But tumbling U.S. property prices have saddled investors there with massive paper losses, and there seems to be no end to their attempts to unload Japanese investments to lock in profits.
Real estate investment trusts, also popular among foreign investors, have seen their market capitalization fall to 5 trillion yen, down 30% from their peak.
Investors are growing increasingly selective about their targets. While Tokyo remains a top pick, investors have started to rethink their actions even in regions that have logged impressive price growth.
And adding to these pressures is an apparent oversupply of condominiums.
Tuesday, September 25, 2007
CDOs: The Emperor has no underwear on
Steven Schwarcz, a professor at Duke University and writer on securitisation, has come across contracts which are so convoluted that it would be impractical for investors to try to understand them: they would have to spend more money hiring experts to deconstruct them than they could ever hope to earn in extra returns.
In a recent paper* on credit derivatives, David Skeel and Frank Partnoy concluded that collateralised debt obligations (CDOs), one of the most common derivatives, are too clever by half. The transaction costs are high, the benefits questionable. They conclude that CDOs are being used to transform existing debt instruments that are accurately priced into new ones that are overvalued.
To recap:
1. CDOs are so complicated the cost of understanding them is greater than the benefit (er, what benefit?) and,
2. The purpose of CDOs is to take a bunch of bonds, mix them all up, dress them up in fancy clothes - and charge more for them.
Reminds me of an old joke about lawyers which can easily be refitted for present circumstances: what do you call 10 thousand investment bankers tied to the bottom of the ocean? A good start.
Indian BPO industry suffering from cost pressures
Rising costs, Re make IT chiefs nervous |
IT AT THE CROSSROADS |
Ishita Russell / New Delhi September 25, 2007 |
Raman Roy is the original poster boy of the Indian information technology industry. After working with GE Capital, he had set up Spectramind with help from private equity funds, and subsequently sold it to Wipro for over $90 million. |
With that money, he set up another BPO firm, Quattro. He has lived the great Indian IT dream to the fullest. |
Talk to Roy these days and the note of caution is unmistakable. “Yesterday’s newspaper is used to wrap fish. We can’t rest on past laurels,” he said. |
Not just Roy, a cross-section of Indian IT firms, exporters of software services as well as BPO outfits Business Standard spoke to were nervous about the future. |
Rising wage costs, competition from countries like China, the impending withdrawal of tax incentives under the STPI scheme, the slowdown in the US and the rising rupee have all punctured the optimism of the industry. |
With the dollar falling below Rs 40, the margins of IT companies have been cramped even more. Ashish Basil, a partner with professional services firm Ernst & Young, says the falling dollar has impacted the BPOs more than software services exporters because all their costs are borne in India. |
“Most software firms have a large number of employees abroad. A falling dollar reduces the salary burden of these employees to that extent,” he said, adding, “For a two per cent fall in the dollar, the margin of a software firm will go down by 0.6 per cent and of a BPO outfit by 1.5-1.6 per cent.” |
What worries IT firms more is that the STPI scheme, which exempts their export earnings from tax, will be withdrawn in 2009. The industry is lobbying hard with New Delhi and even BPO firms have raised the demand for similar benefits. So far, the finance ministry has given no indication of warming to the idea. |
On his part, finance minister P Chidambaram this year brought IT firms under the minimum alternative tax. He had earlier imposed the fringe benefit tax on all firms including IT exporters. |
”If India wants to continue being the prime destination for IT, provide employment to 10 million people by 2010 and if it needs to retain its market share in the outsourcing business, continuing the STPI scheme is a must,” says HCL Technologies President Vineet Nayar. |
Nor are people like Nayar enthused by the tax breaks offered in special economic zones. Since firms are not permitted to move existing resources into SEZs, they would have to set up these facilities from scratch. “It will be nothing less than setting up a new company,” said an industry expert. |
While there are few takers for SEZs amongst Indian firms, China is scaling up its IT infrastructure in a big way. Several Indian companies including HCL, Satyam, Wipro, TCS and Genpact too have set up shop there. |
According to Nasscom, there is no imminent danger to Indian software services firms from China. But China’s IT exports are growing rapidly. The value of IT software and services exported from China was estimated at $1.8 billion in 2006, a growth of 41 per cent over the previous year. |
In comparison, the Indian software and services exports were$31.4 billion in 2006-07 and are likely to reach $60 billion by 2010, registering an annual growth of 28 per cent. |
However, companies have started locating BPO units in countries like the Philippines. “India is not the only player in the market now. There are other options also available,” says Roy. |
However, some experts say India’s critical mass of IT professionals will hold it in good stead. “These countries are good for small centres of up to 500 seats. But if you are looking for a centre of 10,000, there is no place like India,” said Basil. |
But there are indications that the country might be losing this advantage too. IT salaries, on an average, have been rising 15 per cent per annum for the last few years, closing the gap in salaries between India and other emerging IT destinations. |
“Other markets that will eat up the India advantage if we do not manage the spiralling employee costs and the talent shortage issue better,” said Nayar. |
ING has 28.7 bln euros of Alt-A mortgage exposure: This is not over yet by a long shot
Monday, September 24, 2007
Beijing Releases Pigs From Central Reserves: Pigs ask for directions
China Moves To Head Off
Surge In Prices For Pork
From Central Reserves
As Inflation Worsens
September 24, 2007
URL for this article: http://online.wsj.com/article/SB119058187148536569.html | |
Hyperlinks in this Article: (1) mailto:jr.wu@dowjones.com |
Dollar Should Hold Its Own Against Yen: Miracles DO come true!
First, the long term view:
The dollar has fallen by almost 30% since the peak at the beginning of 2002.
Now, the short term view:
YTD the dollar has depreciated about 6%. Since beginning of July, less than 3% decline.
The Point is that the dollar has taken a sharp hit since the credit crisis (or whatever the nome de jure is for whatever it is that is going on) but seen in context it is just the continuation of a long slow decline. It is nonsense to view the dollar as being in a sort of free fall as many commentators would have us believe. And the idea that a 1/2 point cut in Fed Funds (and probably another 1 percent or more) is going to end the dollar's reign as the world's reserve currency is silly. The dollar is obviously not a robust currency at the moment - but a currency cannot be weak by itself, it has to be weak against something else. And there are simply no candidates with the necessary long term qualifications to take over as primary reserve currency. The Euro may appear to be a juggernaut right now but hang on, is continental Europe really responding so well to the challenges of globalization?
I am not a currency manager (thank God) but my humble opinion is that we may be at the beginning of the end of the dollar decline. Not necessarily at the beginning of dollar strength but just at the end of the long term dollar weakening trend. The dollar is hugely undervalued vs the Euro whilst the US current account deficit (the supposed cause of all this dollar weakness) looks set to fall significantly in the next 12-18 months. Interest rate differentials may drive the dollar over shorter periods but at some point this year a big rebound vs the Euro seems a good bet. The Yen and other Asian currencies are another story. I can't even guess about the Yen because one has to somehow imagine the Japanese economy growing steadily longer term and this is a hard leap of faith to make (what does Fukuda-san have up his sleeve? Not much I bet). Developing Asian currencies should strengthen versus the dollar IF their economies do in fact decouple from US weakness and continue to grow rapidly (which is likely but by no means a 'slam dunk'). Its a mixed bag, very complicated picture - except the end of the dollar is absolutely not going to happen and a bet against the Euro is starting to look very sensible to me.
Dollar Should Hold Its Own Against Yen
September 24, 2007; Page C4
The Federal Reserve's decision to cut interest rates will continue to weigh heavily on the dollar this week, but economic concerns hitting rival currencies will stave off deeper declines for the U.S. currency.
The euro is likely to maintain its gains against the dollar, after hitting a record high of $1.4121 last week. But the greenback may find sanctuary against the yen since the Bank of Japan voted to hold interest rates steady Wednesday, following the Fed's implicit confirmation of U.S. market weakness.
Less-than-optimistic economic data in Japan suggest that interest rates there will likely remain very low into the near future, encouraging investors to borrow the yen to finance the purchase of currencies with higher returns in a strategy dubbed the carry trade.
The euro is expected to trade between $1.41 and $1.42 this week. Against the yen, analysts see the dollar trading in its typical pattern of late, between 113 yen and 115 yen, possibly up past 116 yen.
Late Friday afternoon in New York, the euro was at $1.4090 from $1.4066 late Thursday, while the dollar was at 115.37 yen, from 114.32 yen. The euro was at 162.53 yen, from 160.92 yen. The pound was at $2.0203, from $2.0100. The dollar was quoted at 1.1721 Swiss francs from 1.1723 francs.
Eye on the Bankers
The Fed showed its concern about the U.S. economy's current credit crisis when it cut its target and discount rates by a half percentage point Tuesday. Comments from officials at the European Central Bank and the Bank of England suggest the same concern regarding their economies.
With the euro's break past $1.40 and the momentum the currency has gained, investors and analysts will be looking to possible responses this week by central bankers. The issue is whether the euro will advance again this week, and what levels would jolt the ECB into easing interest rates.
The euro is heading up into territories where it can start to affect the European economic forecast. There may be some responses coming from the ECB to slow euro appreciation slightly, said Robert Fullem, vice president of U.S. corporate currency sales in New York at Bank of Tokyo-Mitsubishi UFJ Ltd.
Economic reports coming out this week may temper the euro's rise versus the greenback. The European Union's autumn report on the euro- area economy on Wednesday includes forecasts and policy analysis.
Weight of Northern Rock
The United Kingdom's economy has paid a noticeable price recently amid the dire situation for mortgage lender Northern Rock PLC. The affair may affect the credibility of U.K. macroeconomic authorities, said Paul Robinson, currency analyst with Barclays Capital in London.
In foreign-exchange terms, it is likely to increase the return investors will demand in order to hold sterling -- the risk premium on sterling -- and be associated with sterling depreciation, he said. Mr. Robinson forecasts the pound to soon settle below $2.
Financial services are the pound's key industry, and its troubles will add to the sterling's weakness, BNP Paribas analysts added in a research note.
In the U.S., some of the data currency investors will look to this week include durable-good orders for August and the final revision of the second-quarter gross domestic product.
But more important are data for existing and new home sales, tomorrow and Thursday, respectively.
Also closely watched will be an inflation indicator that is the Fed's preferred measure for gauging price pressures. The core personal-consumption expenditures-price index, which excludes food and energy costs, will be released Friday.
Inflation has emerged as a major concern among analysts this week, as the dollar's weakness is compared with rising oil prices and lower interest rates.
Write to Riva Froymovich at riva.froymovich@dowjones.com1
Friday, September 21, 2007
Singapore Bank has $4 billion in sub-prime CDOs
Singapore's Banks Stage
Cautious Return to CDOsBy PATRICIA KOWSMANN
September 21, 2007; Page C2SINGAPORE -- With investors world-wide still recoiling from risk, Singapore's big banks are starting to sell it again.
DBS Group Holdings Ltd., Southeast Asia's largest banking group by market capitalization, and Oversea-Chinese Banking Corp., Singapore's third-biggest bank, are making new, if cautious, bets on collateralized debt obligations, as they sense opportunities in a tainted market.
DBS is selling new collateralized debt obligations to buyers with a renewed appetite for risk, and Oversea-Chinese Banking said its insurance unit has launched a fund investing in the financial derivatives.
CDOs are pools of debt instruments, such as bonds or loans, that are repackaged into different slices carrying various levels of risk, then sold to investors. The CDO market has been walloped by the U.S. subprime-mortgage troubles, since some of the instruments are underpinned by such mortgages, which are extended to borrowers with risky credit profiles.
But most of Singapore's well-capitalized banks, which are considered the CDO specialists of Asia, excluding Japan, seem to think now is the time to return to the market as issuers.
We are "conscious of the current uncertainties surrounding the CDO and subprime mortgage-securities markets, but [believe] that fundamentally, CDO remains a sound investment instrument if it is properly structured to achieve the desired returns and risk profile," Oversea-Chinese Banking's insurance unit, Great Eastern Holding Ltd., said about the new fund.
The fund won't have direct exposure to subprime-mortgage securities and "aims to take advantage of current market conditions to offer high credit ratings, reasonably attractive returns and good insurance cover to policyholders," Great Eastern said. The target fund size is about 100 million Singapore dollars, or about US$66 million.
Oversea-Chinese Banking shares have fallen more than 6% since mid-July, when the credit markets were rattled by the subprime problems. The bank has said it holds US$430 million of CDOs, including US$181 million in asset-backed securities with various degrees of subprime exposure. Its majority-owned Lion Capital Management Ltd. unit holds about S$5.7 billion in CDOs, including S$1.5 billion in assets linked to U.S. subprime mortgages.
"To be honest, I was surprised that Great Eastern was pursuing this fund" given the current market conditions, an analyst with a Wall Street investment bank said. "But this shows the company thinks there is a market out there."
--James Glynn contributed to this article.
Write to Patricia Kowsmann at patricia.kowsmann@dowjones.com1
Thursday, September 20, 2007
Tuesday, September 18, 2007
Managing decline? Japan under Yasuo Fukuda
The following are interesting commentaries about Japan under Abe and Fukuda:
Op-ed in NY Times by JOICHI ITO: In Japan, Stagnation Wins Again
Two entries from Observing Japan: Fukuda the Conciliator, and It's all about Koizumi
Thursday, September 13, 2007
Benefits of investing in timber: low returns and no inflation protection
The study says that timber is not yet a widely owned class – just 37% of state pension plans are invested in timber and half of those allocate less than 1% of assets towards that class. It says slightly more than half of all university endowments are invested in timber.
The study estimates that there is $35 to $40 billion currently invested in timber and says the $4 billion predicted to enter the market could be just half of the amount investors ultimately put towards the class. Surveyors polled 80 state pension plans representing total assets of $2 trillion and 45 U.S. university endowments representing total assets of $200 billion. The $4 billion estimated does not include the other 50% of plans not questioned, the survey says.
But the survey predicts hefty inflows as investors increasingly recognize timber’s main attributes: the ability to diversify a portfolio and protect against inflation with little correlation from other asset classes. The survey predicts that investors currently funneling money towards timber will increase allocations and that those not doing so will start.
Regarding the supposed benefits of timber investing, about the only thing I agree with is that it is a long duration asset. Regarding its inflation protection benefits, I think this is completely false. Regarding its low correlation to equities, I believe that this could be true during some periods but is likely not to be true when you really need it - during a period of falling stock prices and recession (which we seem to be entering). In short, timber has been great because everyone has piled into it (attempting to copy Harvard and others). It will be a mediocre performer as long as everyone continues to stay invested - and a terrible performer when anyone decides to sell.
Wednesday, September 12, 2007
Another housing problem contained: sub-prime mortgages cause muni bond downgrades
Tuesday, September 11, 2007
Global Recession: Japan is an anchor not a life preserver
Friday, September 7, 2007
More towels getting thrown: US Venture model is "broken" according to - well according to almost everyone it seems
Northwest Venture Associates will not raise another fund, according to the Seattle PI. NVA founder Tom Simpson channels Steve Dow, by saying that “the fund model is broken.”
Wednesday, September 5, 2007
Too good to be true: China says zero FX reserves invested in sub-prime
Its only a matter of time: Money center banks slowly reveal off-balance sheet liabilities
Tuesday, September 4, 2007
Bad news for China growth PE: Beijing focused on improving credit to SMEs
The following article from China Daily:
Regulator tackles small firm financing
By Zhan Lisheng (China Daily)
Updated: 2007-09-01 10:21
The China Banking Regulatory Commission (CBRC) said on Friday it is taking steps to give small business better access to loans.
"Small business is playing an increasingly important role in the nation's economic development," said Liao Min, deputy director of the CBRC's general office, at a press briefing in Guangzhou on Friday.
"But they are still in a weaker position in terms of access to bank loans compared with large and medium-sized enterprises, especially the State-owned ones," he said.
Liao said the CBRC has joined with the National Development and Reform Commission to abolish rules and remove obstacles restricting small businesses from applying to commercial banks for credit.
Related readings:
Draft law to help financing of SMEs
Margin financing, securities lending urged
'Micro-financing' for small shopsIt is also improving policies and regulations on loans to small businesses, and mapping out new policies that reward banks which give credit to small firms.
"Improving financial services to small businesses and offering more tailored financial products will be a win-win for both the small firms and the banks."
Small businesses contribute over one-third of China's gross domestic product annually and have created jobs for 75 percent of the urban population and been responsible for 90 percent of new vacancies since the beginning of the 1990s.
"Small firms generally do not meet credit standards set for large and medium-sized enterprises; however, randomly lowering credit standards creates risk for commercial banks," he said. "Banking institutions need to find a balance between risk and profit."
Sunday, September 2, 2007
Barclays Capital doubles down: injects $1.6 billion into SIV
- potential losses of $400 million related to investments made into the two failed Bear Stearns hedge funds
- borrowed 1.6 billion sterling from the Bank of England's standing lending facility - typically used only by banks that are having difficulty with funding. Barclay's said it was just a 'technical' issue
- Barclays' asset management group runs among the largest quant market neutral funds in the world. These funds were whipsawed by forced deleveraging among hedge funds invested in mortgage related toxic waste, and had to sell whatever they had. Many of these funds have recovered much of what they lost in August by the end of the month - but they may still lose assets from clients who saw volatility they never dreamed of.
- Last but not least, Barclays was evidently "the leader" in creating "SIV-lites" which are these bank affiliated off-balance sheet "conduits" which borrowed 10 or 20x their capital in the commercial paper market to buy longer duration, less liquid, zero transparency CDOs backed by mortgages (good, bad and damn ugly). SIV-lites are conduits on steroids. Sort of like if Dr. Frankenstein gave his monster a machine gun and a bag of hand grenades - just see what he could really get up to. The mad scientist who ran Barclays laboratory has left the building. Thirty-three year old (yes you heard right) Edward Cahill "resigned". "Going to spend more time with the fam eh Teddy? Will miss you old boy. By the by, don't forget to leave us your notes on those devilish Siv-thingys, will you?"
Let's see, have I missed anything - or rather, have they missed anything? What about hung LBO loans? Well, they have their very own hung deal. Barclays deal to buy ABN Amro for stock is looking quite doubtful to say the least. Well, maybe it's for the best. Might not be the ideal time to do an $80 billion universal bank acquisition.