Bernie Madoff Scandal explained! Hilarious!!

Next horror story - Worldwide Inflation

US is heading for a more horrible scenario soon. The amount of money the Fed is printing will have huge impact on inflation all around the world which will also start from US. This is the most terrible credit crunch in history and hence, the inflation will start around 6 months from now as an effect of governments printing gigantic amount of currency for bailouts.

Here is an interview of legendary Jim Roggers on why bailouts are faulty strategies and whats is coming...

MACD Explained - Most Powerful Analysis Tool

Please go through the below videos to understand how MACD works. MACD tool is the most important tool of all which can predict the price, momentum and trend.

Part 1



Part 2



Part 3

New blog for Trade Recommendations

Hi Friends,

 

Due to huge demand for recommendations on Futures and Commodities trading sent by readers through e-mails, I have started a new blog.

 

In this blog, I will share recommendation of trading in futures and commodities on a daily basis. It must be understood that tracking hundreds of stocks and commodities is not possible by a single person, so I will be sticking to mostly Nifty stocks and some other which are my favorites.

 

This blog can be accessed through the link "Trade Recommendations" in red color on top of this page. Also, the direct link is: http://futuresandcommodities.blogspot.com/

 

Hope you guys find these recommendations useful and I wish you good luck for making money through trading.

 

Cheers!

Raunaq

Sub Prime Crisis - An Understanding

Typically, loan (or mortgage) are divided into two classes named Prime and Sub-Prime (actually there is a third class which is in between prime and sub-prime. but lets not consider that for the sake of simplicity.) Now, Prime borrowers are those who have good credit history and Sub-prime borrowers are those who have bad credit history. By good credit history, we mean that people or institutions who pay their dues back. And bad credit history means that the loans taken were not paid either on time or not at all or more importantly they don't have an underlying asset to back up their loans or mortgages. Be it credit card payments, mortgages on houses, personal loans or money borrowed by the institutes or companies.


Now the actual sub-prime crisis started 5 years ago with the housing loans. When in US house/real estate prices were rising everyday and people thought that owning a house or property was the best investment. So people wanted to borrow money to invest in property. Now Banks knew that its risky to lend money to sub-prime borrowers, so they invented a new strategy to still lend money to these people which is very ticky.

They lended money to sub prime borrowers anyway, with little interest rates and advertisements like, less paper work or loans approved in 24 hrs, no down payment, no proof etc. Then they combined hundreds of these mortgages into a single financial instrument called CDO (Collateralized Debt Obligation). Then they divided these CDO into different classes of investments. Think of them as bonds with different credit ratings ranging from AAA to BBB. Then finally they sold these investments to other financial institutes and hedge funds for money with a promise that they will buy these investments back. Its just like Mutual Funds, you buy units of a MF and when it appreciates, you sell it back. Till you hold it, all the risk and reward will be yours.

Now since these hedge funds saw a AAA rating on these CDOs, they started to pour in money and bought heavily. They bought the risk too. This was not a bad strategy after all.

What went wrong is that the interest rates started climbing. Fed started increasing rates from 1% to 5.25%. Now the original borrowers couldn't pay back the loans as their EMIs increased by 30-60%. They raised their hands. The banks seized their houses. The CDOs took a hit, and ultimately those hedge funds suffered the losses. Just like you bought a MF unit at Rs 100 and now its value is just Rs. 20.

After Math of Crisis and Effect on Economy:

There is a huge supply of houses and no demand, realty sector took a hit. People who bought the houses at high value, now have homes at 30% less valuation. They feel poorer. They don't have the capacity or don't want to spend more because of this feeling. There is less spending power by people and institutes. So it gives rise to recession. On the other side, those hedge funds either became bankrupt or they started to sell off their investments to raise money for survival. These investments were in Stock markets all over the world. So Global markets took a hit. The sub prime write offs are estimated to be of the order of 500 billion dollars!!!

Some facts about the losses:

HSBC - $10.6 billion (as of February 2007)
Merrill Lynch - $7.9 billion
Citigroup - $3.2 billion
JPMorgan - $1.7 billion
Goldman Sachs - $1.5 billion
Bank of America - $1.4 billion
Wachovia - $1.3 billion
Morgan Stanley - $940 million
Lehman - $700 million
Bear Sterns - $700 million

Lesson:

Don't borrow money just because someone promises its easy. Don't borrow money if you cant repay it back. Don't borrow money if you don't have assets to back it up.

Hope you understood the whole mess. Send me your doubts at raunaqjainblog@gmail.com

Cheers!
Raunaq

The Objective

In my so many years of experience in financial markets in India, I have seen that most of the investors are not intelligent enough. This may include retail investors as well as some of the big shot HNIs and funds. Go to any broker's office and just observe any retail investor, you will know what I mean. Reliance is increasing, buy 100 shares (bigger fools are the ones who buy futures contracts). ICICI bank is falling, sell my 50 shares. Sometimes, they blindly follow their broker's suggestions as what to buy or sell. Point is, investing and especially trading without basic knowledge of the underlying asset, is a SIN.

Most people doesn't even know, what a PE ratio is! The objective of this blog is not to give tips or advices as what to buy or sell. The objective is to provide the basic knowledge to understand the financial markets. There are no good resources, either online or offline, which help people with such basic information. And even if its there, it is too scattered. This blog is intended to provide step by step building of fundamental knowledge.

Though I do not want to restrict myself to this, otherwise what's the point of a blog? I would rather write a book! My intention is to start with basics, move to more advanced concepts. Provide research from time to time, talk about latest developments in the financial sector, world economy and how India gets affected etc etc. Also, this blog will accept requests from readers and try to prioritize, answer and explain.

You people ask me, what are my Credentials? I will say none. I am not an analyst and certainly don't have a degree in finance. Its plain old experience. I have made huge money and also lost huge money over time. But one thing for sure, the information or the knowledge provided in this blog will be one of the best you can find anywhere, that's a promise. Moreover, I have access to help from a couple of highly qualified finance experts. So I intend to consult them before every post. Summary: I have a cumulative experience of more than 100 years in finance!

Hope the expectations are clear to you all. I will welcome any comments, any more expectations that you may have.

Someone once said - "The heroes of finance are like beads on a string when one slips off, all the rest follow". Lets not do that! Lets apply our own brain!

Lets Manage Knowledge!

Cheers!
Raunaq

The Inauguration

Hello World!

I am a software engineer. In software engineering, the first piece of code a pursuer ever writes is a "Hello World" program. This is a way to introduce the programming language to a programmer. Same is with Blogging. A blogger writes a simple post with lots of mistakes and gradually with time he adopts and evolves to more complex skills of the subject and writing. Here I am introducing myself to the world using this "Hello World" blog.

I hope that the world would appreciate this effort and would benefit from my knowledge and experience. As I think, there is no more effective media to reach the common man then writing blogs.

I want to keep this post small. In my next post, I will write about the objectives of this blog, why it is created, what are my inspirations, expectations and what The World has to gain from this.

Cheers!