OIL Prices-What next???

It took only 5 months for the price of oil to plummet from $150 to under $40 in the second part of the year. Meanwhile oil consumption did not even decrease 10%, so what is the real cause of this collapse you may ask?Hedge funds. Let me explain.

During the first part of 2008, Western economies were already slowing down noticeably and hedge funds gradually pulled trillions of dollars out of the market and parked them in energy ETFs. At the time Chindia's insatiable thirst for oil and the "decoupling" of east/west economies had many believe commodities were a "sure thing", a sound enough tangible insurance to protect overinflated assets scavenged from made-up bubbles. On top of that, by using leverage, profits were multiplied as oil went up, not a bad deal in a recession.But when the banking industry collapsed, hedge funds had to raise cash by "deleveraging", liquidating their leveraged energy ETF positions sending the price of oil tumbling. Anecdotally shorting of banking ETFs was suspended by the US Securities Commission during that time but not shorting of energy prices, and the leverage mania soon found an escape route in utrashort oil ETFs, compounding the speed of this downward spiral. By December 2008 the oil price had collapsed 75% and frankly, who would complain about cheap gas these days?As we enter 2009 the oil landscape has reversed dramatically from a year ago. The price of oil is lower than production costs and new exploration projects are being cancelled. China flush with cash is currently buying all the oil it can get its hands on to pump into its strategic reserves. Once arrogant OPEC countries are willing to sell oil at any price to fund government programs and prevent political instability.One constant however is the depletion of major oil fields, worse than predicted at 9.1% year over year as we close 2008. It's a matter of when not if the economy recovers and when it does, expect a strong bounce back in the price of oil.

-by Steve Austin.

Whats there in store for us??

Avoid investing in stocks of Oil marketing companies.

Buy stocks like CAirn India-CMP of CAIRNINDIA is 190.4 at 13:11 pm friday,17th April 2009.

Options strategy - By my friend DHARMESH SHAH

THIS STRATEGY IS FOR THE MAY SERIES..

KINDLY CLICK ON THE PICTURE TO VIEW IT CLEARLY.

The strategy is to buy 1 DEEP ITM call and sell 2 ITM

Profit area is 3040-3760

Loss area is below 3040 and is limited to Rs.40

Lower BEP 3040

Higher BEP 3760

Margin Required is Rs-44000-48000

OIL or GOLD???

Investor Jim Rogers said he prefers oil over gold as he believes the International Monetary Fund will sell its reserves following the recent rally in the precious metal.


“The IMF is trying to sell its gold,” Rogers, chairman of Singapore-based Rogers Holdings, said in an interview.
“The IMF is one of the largest holders of gold so you’ve got this huge supply overhang. Whether they sell it or not, the world is expecting them to sell it.”

Reality Behind Real Estate Co's

“Unitech has large number of projects where work hasn’t even started and there is no talk of how they are going to build those things. So just saying I have arranged the money, and I am going to do a little QIP and I am going to borrow some money and do it, doesn’t call for restating. Effectively, if one looks at the balance sheet, companies like Unitech is bankrupt, in all financial terms the company is bankrupt and should have been wound up long back.”
“DLF is still little better because of its assets. It sold its assets to its group company at a profit, booked the profit, did the IPO - the group company cannot pay the money back, so what will one do? - just fold back the group company- could anyone give me basis of this accounting?- I Sold at Rs 5,000 crore the company cannot raise the money, bring it back at Rs 5,000 crore and I booked a profit at Rs 2,000 crore.”
“If we look at both these companies from a financial sense, there is no reason to invest in these companies; we don’t understand the turnaround story. It is true that things are little better in the market but are those companies solvent- I guess the answer to that is no.”

CONCLUSION: The Real estate sector is definitely not a buy and we are not sure where the rally is coming from.Look at the debt of these companies.We are ignoring the 100's of crores of money they have taken from people for the projects, for which the construction has not started yet.And these companies has to build the buildings for which they have been sold for.

EXIT FROM REAL ESTATE COUNTERS>>>

CMP Of DLF 225.75

CMP of UNITECH 41.4 at 12.47 pm 13th april 2009.

Profit booking at higher levels likely; support seen at 3300-3275

Given the exceptional gains in the past few weeks, Indian markets are currently trading in an overbought zone and are due for some Profit Booking.The first sign of profit booking was seen on last Thursday where stock futures shed nearly 1.02 crore shares in open interest. Nifty is likely to see strong support around 3200-3300 levels.
Marketmen are of the view that the quarterly earnings figures and the revenue guidance of IT bellwether Infosys would determine the direction of the market in the second half of this week, which has gained substantially in the past five weeks.
Volatility is likely to heighten, possibly triggering some panic among investors, who are in a dilemma whether to book profits now or hang on till any reversal.
And FInally-The bids received by the board for Satyam are likely to be between Rs 55-65 per share reports CNBC-TV18 quoting NW18 sources

CONCLUSION: Traders and investors can book profits at the current level and wait for 3200-3150 levels to enter into markets again.

Fourth Quarter Results fore-cast.

As the fourth quarter result season kicks off amid a Global Economic Recession let us focus on the 30 Sensex companies to sense what is there in store for us.
For the first time since 1998, when India Inc started declaring quarterly results, most of the sensex companies are poised to post a decline in sales as well as net profits in the fourth quarter.As many as 16 Sensex companies are expected to record a fall in their net profits in the fourth quarter, compared to 14 in the third quarter.The worst is likely to come from sector leaders like Ranbaxy and TATA STEEl.Ranbaxy likely to suffer MTM losses.Tata Steel expected to post a consolidated netloss of over 900 crores(This includes CORUS).

Among others, DLF, Grasim, Hindalco, ICICI Bank, Maruti Suzuki, Mahindra & Mahindra (M&M), Sterlite Industries and Tata Motors could see a significant decline in net profits, while the fall in net for Reliance Industries (RIL), Reliance Communications (RCom) and Wipro could be modest.
The Sensex companies had reported an 11 per cent drop in their net profits despite a single-digit revenue growth in the third quarter. However, in the first two quarters, these companies had recorded a significant growth in their revenues and had also reported growth in net profits.
Most corporate analysts expect ACC, Bharti Airtel, Bharat Heavy Electricals (BHEL), HDFC Bank, Hindustan Unilever, Infosys Technologies, NTPC, ONGC and Tata Power to show a strong net profit growth of over 20 per cent in the fourth quarter.A growth in net sales is expected to come from ACC, Bharti Airtel, Bhel, HDFC Bank, Infosys Technologies, Jaiprakash Associates, Larsen & Toubro (L&T), Maruti Suzuki, Reliance Infra, TCS and Wipro. These firms are likely to show a strong 20 per cent-plus growth.
But DLF, Hindalco, ICICI Bank, M&M, RIL, Sterlite Industries and Tata Motors are likely to show decline in sales.

Conclusion: Morethan half of them are going to report a decline in Net Profit.
Offload stocks like ICICI BANK,M&M ,STERLITE INDUSTRIES,TATA MOTORS,RANBAXY,TATA STEEL.,DLF,Grasim,Maruti Suzuki and Hindalco from your portfolio.

And you can hold stocks like ACC, Bharti Airtel, Bharat Heavy Electricals (BHEL), HDFC Bank, Hindustan Unilever, Infosys Technologies, NTPC, ONGC and Tata Power.Interstingly REliance infra is expected to show a growth in Net sales.


Trade cautiously.Trade with strict Stop Loss.

What GOVT. should do?

The no of suicide cases are more from the financial crisis arising out of stock market meltdown compared to farmers. Therefore the need of the hour is to restore confidence.

Ask FII's to reverse all their lending within 30 days. 30 days time frame is more sufficient to cover all lending in the light of the fact that FII's themselves agree that selling is more due to redemption pressure. This act will provide exit to all wanting to sell due to forced sell. It will act as balancer.

Reduce STT to pre budget level to bring back jobbers which used to provide handsome amount of liquidity. Govt can afford to forgo small amounts of tax worth Rs 300 to 1000 crs on capital gains and STT as they are now saving over Rs 1 lac crores in OIL.

Make short term capital gains tax zero as this will help only domestic investors and help divert savings. FII's are in any case using tax heavens to avoid tax in India.

Bank lending against shares to be raised from Rs 20 lacs to Rs 200 lacs and the margin should be only 30 pc instead of 50 pc to restored to 50 pc after market reached 10000 plus.

All M F investments should be made dividend tax free. All savings diverted to MF will get IT benefit upto Rs 5 lacs across the board from the existing Rs 1 lac selectively.

Cut the CRR rate repo rate and interest rate simultaneously to create across the board impact on liquidity and consumption.

Use the market stabilization funds by investing in the stock market which is being done by all Govt's world over.


What exchanges and market regulators can do…

Differentiate between long and short by imposing double margins on shorting. The margin on long had been increased to 25% in case of nifty recently which has also triggered in huge winding up of long due to margin as well as mark to mark. At the same time shorting has seen mark to mark credit giving upper hand to short sellers. Margins should be made 50 pc in case of shorting which could provide level plying. This will help short covering.

Increase the creeping acquisitions limits to 15% across the board so that all promoters wish to provide exit to investors mat use this opportunity to buyback their shares.

Introduce physical settlement immediately. JPC in 2003 has directed FNIMIN and market regulator to introduce the physical settlement which has till date not been implemented. This has been used to distort the share prices on the last day of the settlement. If this is not possible then the derivative market be renamed as speculative markets as the very purpose of hedge is missing.

There is mechanism to bring the price rigging to book where even Rs 50000 benefit has met with market regulators action in rising market but there is no mechanism in vertical fall in scrips. There is no instance where investigation has resulted in action in shorting.

All IPO should have a condition of market making for 12 months. The price band be fixed. This will allow Govt funds, PF, ESI, trusts and small savings to enter capital markets to make it healthy. This will also stop R Power and Resurger like episode in the market.

Bring all foreign broking houses under insider trading rules for making any comments in any share where they have executed buy or sell transactions on behalf of their foreign clients. Typically it is seen they execute huge buy and/or sell orders for weeks and months after the event is getting over they come out with reports and issue comments of weakness and firmness as the case may be. Recently it is seen in Tisco and RIL.