{"id":16995,"date":"2024-12-10T20:46:25","date_gmt":"2024-12-10T20:46:25","guid":{"rendered":"https:\/\/gryoungscholarsmagazine.org\/?p=276"},"modified":"2024-12-10T20:46:25","modified_gmt":"2024-12-10T20:46:25","slug":"dawn-to-dusk-us-market-an-overview","status":"publish","type":"post","link":"https:\/\/civilityculturecompass.com\/?p=16995","title":{"rendered":"Dawn to Dusk….. US Market an Overview"},"content":{"rendered":"

Dawn to Dusk….. US Market an Overview<\/strong><\/p>\n

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Hot topic under discussion for the past few months is US recession. Debt market along with sub prime crisis collapsed US market in which its heat spread globally.\u00a0 Billions of dollars in the investors wealth has lost, banking system crippled and plugged millions of people jobs.\u00a0 To face the turmoil US government bailout $700 billion.<\/p>\n

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SLIP IN A WAY MAKE I-BANKS TURN DOWN:<\/p>\n

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The same type of financial crisis occurred in US in 1929.\u00a0 Till 1929 commercial banks injected money in share market by means of SLR.\u00a0 Then after government made some regulations and informed the commercial banks not to involve in trading of shares or investing in equity market and the activity was stopped.\u00a0 After 1930 Investment banks (I-Bank) become familiar among public.\u00a0 They traded the investors wealth in the market based on some commission.\u00a0 I-Banks earned more profit by getting commission itself.<\/p>\n

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On seeing the fruitful profit in share market, I-Banks started proprietor trading (Investing their own money in the share market) I-Banks earned huge profit in proprietor trading. After 1990, Federal Reserve Bank relaxed some norms for I-Banks.\u00a0 Earlier the borrowing limit was ceiled only to 12 times the asset value what I-Bank have.\u00a0 But later the ceiling was removed.\u00a0 With this advantage in hand I-Banks borrowed more amounts beyond their limit.\u00a0 Lehman brothers borrowed 30 times their asset value from outsiders.<\/p>\n

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After 1999 subprime loan prevailed in market.\u00a0 This is the loan given by the commercial banks to NO INCOME NO JOB AND ASSET (NINJA) group.\u00a0 These loans were issued to customers through special purpose vehicle.\u00a0 Lehman brothers borrowed the home loans already issued to the customers and converted into collateralized debt obligations(CDO’s) i.e. cutting the home loans into smaller pieces, packaging the pieces based on return, value, tenure and selling them to investors across the world after giving a nice name “High Grade Structured Credit Enhanced Leverage Fund”.<\/p>\n

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In US, government bond is considered as a safety and secured bond but Federal Reserve Bank reduced the interest rate to 1 percent.\u00a0 So investors started to search alternate investment.\u00a0 At this juncture CDO’s were considered as secured investment because Lehman brothers backed up the CDO’s by insuring with AIG Insurer to meet the default if any.\u00a0 So people hoped that their money won’t get ruined off.\u00a0 So they started investing in these CDO’s.\u00a0 As more CDO’s are wanted by investors the investment firm gave pressure to banks to issue more home loans.\u00a0 This made the banks to issue more loans to NINJA groups.<\/p>\n

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Investment banks invested lot their money in these CDO’s.\u00a0 Then arises the problem.\u00a0 The economic condition of US started tighten, which made the interest rate to rise.\u00a0 Most of the home loan borrowers were NINJA category they were not able to repay the loan with high interest.\u00a0 Many loan takers defaulted and more houses came to sale in the market.\u00a0 The demand for the houses also reduced drastically and the chain of mechanism among commercial bank, Investment bank, Investors and Insurance company (AIG) blocked.\u00a0 Companies globally which invested in Lehman brothers also suffered lot.\u00a0 So most of the share price of the companies turn down and reaches yearly low.<\/p>\n

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WHOM TO BLAME?<\/p>\n

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With this scenario in hand whom should we blame?\u00a0 Is the commercial banks who released home loans to customers whose credit worthiness is questionable? Is the I-Banks who made attractive funds from home loans? Is the investors who foolishly invested in CDO’s without making any value analysis? Is the insurance companies who backed up the I-Banks?<\/p>\n

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If we analyze this it is clear that all the above people contributed their part well for this financial crisis.\u00a0 This mechanism looks more like “Pull System”. The diagrammatic representation is shown below.<\/p>\n

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But there are some value investors like Warren Buffet never invested in CDO’s where these people account to small number.\u00a0 This clearly reveals that market is full of greedy and emotion rather than rational.\u00a0 All investors cannot be rational people.\u00a0 At the same time the market should have some proportion among rational and emotional.\u00a0 If any one these proportion increases beyond a level problem will peep in.<\/p>\n

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FUTURE US MARKET:<\/p>\n

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The dilemma in US market is only temporary.\u00a0 The correction in market will come but it take some time to have it.\u00a0 Fundamentally companies (manufacturing and other industries) are still strong and their businesses are going well.\u00a0 When people are greedy and fearless it’s not a time to invest.\u00a0 When people are fearful that’s the right time to invest.\u00a0 Now it is the right time to invest in the equity market by having our risk profile under view point.<\/p>\n

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CONCLUSION:<\/p>\n

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Dawn to Dusk is a continuous process.\u00a0 Currently US and other world markets may in dusk but soon they rise and add value to investors.\u00a0 Till that time investors should wait patiently and look ahead the future with optimistic view.<\/p>\n

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K.S. Nirmal Maharaja<\/p>\n

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Dawn to Dusk….. US Market an Overview   Hot topic under discussion for the past few months is<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[90],"tags":[],"class_list":["post-16995","post","type-post","status-publish","format-standard","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/civilityculturecompass.com\/index.php?rest_route=\/wp\/v2\/posts\/16995","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/civilityculturecompass.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/civilityculturecompass.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/civilityculturecompass.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/civilityculturecompass.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=16995"}],"version-history":[{"count":0,"href":"https:\/\/civilityculturecompass.com\/index.php?rest_route=\/wp\/v2\/posts\/16995\/revisions"}],"wp:attachment":[{"href":"https:\/\/civilityculturecompass.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=16995"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/civilityculturecompass.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=16995"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/civilityculturecompass.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=16995"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}