Debt crisis in Portugal

Portugal has reached closer to a humilating bailout from the E.C.B. and the I.M.F. as the Prime Minister Jose Socrates failed to complete the fourth round of financial measure.Like Greece and Spain,Portugal also became a victim of the Austerity measure.The country tapped very aggressively their domestic banking for massive debt,certainly a bad policy by the Central Banker's.Not only that,the country borrowed at a skyrocketing high rates from questionable lender to avoid any fiscal condition.The major chunk of Portugal's debt stock is held by prudent foreign lenders who are in position to exploit the situation.
So,how much do Portugal needs to borrow to refinance her country? Well,it could be in between 21 billion euro to 22 billion euro,I guess.But at any cost,the government must avoid the Austerity measure as the outgoing Prime Minister thought about raising the tax on the Pensioner.
In the coming days,Greece and Spain will go hat in hand to the I.M.F. as both of the countries financial health is in dire state.Britain and Italy may follow,but its too early to say.

Reverse stock split

Citigroup has announced that the bank will pay a dividend and subsequently go for reverse stock split.Reverse stock split will give an investor one new share to substitute 10 and raise the trading price of its share to double digit from $4.43 without increasing the stocks real value.At the same time,the Federal Reserve has been ordered by the U.S. Supreme Court to publish details about its emergency lending to financial Institution during the 2008 credit crisis.The so called 'discount window' will embarrass some of the largest banks,including Citibank.Bloomberg News requested the data in 2008.
So,will reverse stock split can make a difference to the Bank's balance sheet?No,it will have 'zero impact' to the Bank's financial health.No doubt,these measures are dēspērātus move to turnaround the shaky bank,but it will not work.Vikram S.Pandit,Citigroup's chief executive has had a few success to turnaround the Bank.But I agree,he is trying his best to save the bank from difficulties.In my view,he should go for a stock buy back ,which J.P.Morgan and Wells Fargo will do in the coming days.It will levier the earnings per share.But its very difficult to do at this moment,as the bank's financial health is too povre.

Inflation Hawk

Monetary policy makers in Washington are worried about rising consumer price index when the real threat is deflation or worst,stagflation.Despite Fed's Quantitative easing,the economy still looks gloomy.I agree that Quantitative easing can lift the economy from near recession,but the stimulas was so little that its not making any big impact on the economy. So,will Quantitative easing can help the economy in the long run? Yes,certainly.According to Prof.Christina Romer,QE2 may push down the long term interest rate which encourages spending.The real cost of borrowing will be much lower,making domestic assets less attractive,bypassing the dollars and lowering the currency's value in the foreign exchange market.As a result,there will be less imports and more exports,and most importantly,massive job creation.Yes,due to volatility in commodity prices,Inflation will pop up for a short period and that can be controlled through an effective monetary policy.

C.L.O.

Wall street is doing the same thing they did in 2007 by depending upon debt.There has been gold rush for companies to borrow as high yield debt interest rates are at knee down.And who are the beneficiary of this covenant-lite bank debt? none other than the Private Equity,which depends on high yield debt so they can borrow as much as they can. So far,$17 billion worth of covenant-lite debt has been issued ! Covenant-lite deals provide Private Equity firms to rescue a company from bank takeover, I agree.But they do more harm than good. This kind of debt has cheer those companies to restructure their debt very aggressively.Yes,the Banks can convert this debt into Collateralized loan obligation or C.D.O.But looking at the C.L.O market,which is in nocens state, I doubt that Bank could not convert those debt into C.D.O. So,what should be done to prevent another financial crisis? The regulator must force those Banks to hold more capital and be little cautious in terms of lending.The regulator must cap a leverage,so the Banks can't lend easily.

World Economic Forum-2011

Politician,Businessmen & academia from around the world will gather in Davos,Switzerland to discuss on Sovereign debt crisis,U.S.economy,climate change,political conflict and poverty.But it's all about talk,talk and talk,nothing will be solved in five days.So,in my view,its going to be another failure like last year when participant at the event missed the major crisis of 2010,Europe's Sovereign debt crisis.Thus,the event has become an utopia for Businessmen & corporate world of deal making and networking.Some of the head of the state,like Dimitry Medvedev of Russia,David Cameron of U.K and Ms Angela Merkel,the Super women & Chancellor of Germany will attend the Forum.From United States,U.S. Treasury Secretary Timothy Geithner will attend the forum.I am sure that the forum will bring no respite to the major crisis.The event is just a waste of time & money, nothing else.

European Debt Crisis

The European debt crisis has begun to spread from weaker countries to stronger ones and the borrowing cost across the Continent rose as investors are disappointed and confused.In next few weeks,the bond investor will leave the Europe's weakest economies-as a result, the soaring bond yields could lead the euro zone to implode.The last thing will happen as one country after another will default on Himalaya like debt. So,what are the solution to these problem ?In my view ,there should be a separate currency for Northern European Countries and Southern European Countries.Greece,Ireland and some countries with Himalaya like debt should leave the Euro.As a result,devaluation will lead people transfer deposits to other Euro-zone banks,leading to catastrophic bank runs.If Ireland,Greece and other debted countries stay with euro,bank runs and financial crisis will happen anyway.Another solution to these problem is a 'Brady plan'(after Nicholas F.Brady,who helped Mexico and other Latin American Countries to restructure debt.)But the problem with the so called 'Brady plan' is that the bond holder have to take 30-35 percent loss in exchange for new,longer dated debt.So,in my view,leaving the common currency is the only solution to these problem.

Currency War

The U.S. pressure on China to revalue its currency have repeatedly failed at doing anything positive about Chinese currency manipulation.The yuan has gained 0.8% in the last week,since a two- year peg ended in June to a little more than 1%,though not a sign of greater flexibility in its exchange rate.An undervalued yuan makes it difficult for shaky U.S. & European countries.If China revalue the yuan,it would be a catastrophe for its booming economy.The same thing happened in 1985,the Plaza Accord,where Japan agreed to let its yen currency appreciate against the dollar,which was a catastrophe for Japan.A bad decision for which Japan is still paying the price.The U.S. trade deficit with China reached $119 billion in the first half of the 2010,which is going to exceed last year's total $227 billion to $235 billion or even more than $235 billion. Meanwhile,Japan started to make situation more complex by sudden intervention of its currency.The Japanese Prime Minister Mr Naoto Kan ,in some extent,wants to spoil the U.S-China currency diplomacy.Now China ,certainly going to ask,why don't you ask Tokyo first? Of course,yen isn't representing global imbalances the way the yuan does.In next few months,policy makers from Seol,Taipei,Malaysia,Thailand may step into limit volatility in their currencies,thanks to Mr kan's short term thinking. So,what are the solution for this complex situation?In my opinion,the U.S. should impose a strict tariff that offset the subsidy.Of course,by doing so,china will retaliate by dumping the U.S. holding and will stop buying U.S. bonds anymore,as a result,the dollar would fall.But in long term,U.S. will benefit because this will make the export more competitive.