When Us Markets Go Bust

Why Lehman and Merrill fell The full story. Deepa Venkatraghvan | Wednesday, September 17, 2008 GOOD! Rate this kit

IT all began with the sub-prime crisis. If you lost your money in the market crash of January 2008, here's the route to your loss, in chronological order. 2001-2005: House prices in the US begin to rise rapidly. Banks lend aggressively and create a sub prime industry. Sub-prime lending refers to lending (at slightly higher interest rates) to people who may not be eligible for a loan under normal circumstances. Maybe they don’t have a regular job or income, or have defaulted in the past. Banks traditionally did not lend to such people due to high risk of default. But since these loans were mortgaged against property and property prices were rising continuously, banks started doing so. If customers defaulted, they could sell the mortgaged property. 2005: The booming housing market halted abruptly in many parts of the US.

2006: Prices are flat, home sales fall. February 2007: Sub-prime industry collapses in the US; more than 25 sub-prime lenders declare bankruptcy, announce significant losses, or put themselves up for sale. While they were lending, banks did not factor in the possibility of a fall in property prices. When the Federal Bank (the US equivalent of RBI) started increasing interest rates, the sub-prime borrowers started defaulting and banks started selling off the mortgaged properties. As more and more properties came into the market for selling, the property prices fell. August 2007: Many leading mortgage lenders in the US filed for bankruptcy March 2008: Bear Sterns falls. September 2008: Lehman Brothers file for bankruptcy. Merrill Lynch sells off to Bank of America. Between 2001 and 2006, the US financial markets had developed a new product – a bond securitised against the mortgages. In simple terms it means that the mortgage banks borrowed money against the mortgages on the condition that they would repay to lenders as soon as they recovered their mortgages. The lenders in this case were financial institutions (like Bear Sterns, Lehman and Merril Lynch) who in turn sold retail bonds to individuals. Sadly, the repayment never happened. And institutions like Bear Sterns, Lehman, Merrill Lynch and AIG were the casualties. Since the mortgages were not honoured, the banks could not repay these financial institutions who in turn could not repay retail investors. (With inputs from our expert, Sanjay Matai )

When US markets go bust, refer to these 5 basics Sandeep Shanbhag September 22, 2008 Email Print bookmark del.icio.us reddit digg bio ads by google Want to Invest Smartly? Understand Secrets to the Powerful Management of Money. Register! CFP Best CFP Study Material 100% Placement Assistance

LEHMAN Brothers has filed for bankruptcy. Merrill Lynch was bought by Bank of America. And America's largest insurer AIG is in need of funds. This is a result of what has come to be known as the sub-prime crisis. Sub-prime lending refers to lending (at slightly higher interest rates) to people who may not be eligible for a loan under normal circumstances. Maybe they don’t have a regular job or income, or have defaulted in the past. When the Federal Bank (the US equivalent of RBI) started increasing interest rates, the sub-prime borrowers started defaulting and banks

started selling off the mortgaged properties. As more and more properties came into the market for selling, the property prices fell. a In the meantime, the mortgage banks had borrowed money against the mortgages on the condition that they would repay to lenders as soon as they recovered their mortgages. The lenders in this case were financial institutions (like Bear Sterns, Lehman and Merril Lynch) who in turn sold retail bonds to individuals. Sadly, the repayment never happened. And institutions like Bear Sterns, Lehman, Merrill Lynch and AIG were the casualties. So, where does this leave you (the investor) and your money? Well, the good news is that if America has caught a severe infection, we have got away with barely a sneeze. There is only indirect collateral damage such as: Foreign Institutional Investors (FIIs) pulling out (which will leave the Sensex volatile for now), employees working in the India offices of these three organisations facing a job loss, and credit cards and loans costing more. So for most part you are safe, if you have stuck to the investing basics. wealth revisits the basics and gives you five tips on what you should be doing to insulate yourself from this financial meltdown. 1. Invest 10-15 per cent of your portfolio in gold; it's an effective hedge during uncertain times. And, do not buy physical gold. Instead Exchange Traded Funds (ETFs). 2. Allocate 15 per cent to relatively safe gilt funds. 3. Cash can command around 10 per cent. 4. Invest the remaining 60 per cent in equity, but not as a lump sum. But as Systematic Investment Plans (SIPs). 5. Hold fast, hold tight and hold out. If you are a long term investor, don't scramble to exit investments. Just stick to these basics and the storm shall pass.

3 ratios that tell if your bank is safe Suraj Anand October 20, 2008 Email Print ads by google Looking for Personal Loan Salary Above 3.6 Lakhs? Get 4 Banks EMIs Offers in 24Hrs. Apply Now! Monthly Saving Advice Take Part in Finance Workshop & Grow your Savings Faster!

STOCKS are battered down, food prices have shot up and loans have got pricey. And if all this isn't enough for the common man to fret, there is the all important concern – if the money in his bank is safe or not! Recently, we carried a story on how Indian banks are safe. However, most bank customers are still anxious about the safety of their banks. wealth addresses your grievances and offers a solution.

Grievance 1: I have no inkling about the bank's fate, until it has collapsed. And then, it may get too late. Solution: Do some number crunching Look at the banks' key ratios and parameters (such as net worth and profits). This will tell you about its financial health. According to Himendra Hazari of Karvy Consultancy, you can look at the following ratios: -- Capital Adequacy Ratio: Commercial banks need to maintain a minimum capital to risk-weighted assets ratio (CRAR) of 9 per cent. In simple terms this means that if the bank has given out Rs 100, it should have at least Rs 9 with it as capital. Here's a brief snapshot of the CAR of some banks: Private sector banks* ICICI Bank HDFC Bank Axis Bank Public sector banks* State Bank of India (SBI) Bank of India Punjab National Bank

CAR (In per cent) 13.97 13.60 13.73 CAR (In per cent) 13.53 13.01 13.10

Foreign banks* CAR (in per cent) Citibank 12 Standard Chartered 10.59 HSBC 10.59 *Top three banks by market capitalization in that category. Source: A Profile of Banks - Reserve Bank of India

Ten tips to cope with the pink slip Suraj Anand October 21, 2008 Email Print ads by google CSR Salary Survey Download the RESULTS of the first ever study of CSR executive pay Part Time Online Job Earn Upto Rs. 40,000/- A Month. Work From Home. Great Opportunity!

EIGHT months ago Sangita Chawla* weighed about 85 kgs. Despite this she had a dream of making it big as an airhostess. So this 24 year old Mumbai girl went on a rigorous diet and exercise regime to cut out all the flab. Within six months, Sangita weighed just 50 kilograms and was all set for her dream job. She was hired by a leading aviation company, since she met all their requirements now. Unfortunate for her Sangita's job was one of the many jobs her company decided to take away, but later give it back. "I'm thrilled to get my job back, but of course uncertainty still looms," confesses Sangita. She is not the only one. Across sectors there are fears of

cost cutting and consolidation. "Most people never predict a job loss," continues Aruna Sampat of HR consultancy firm Career Catalysts, "and are caught off guard when they get laid off." Sampat cuts the bull and tells you what you should do if you lose your job. 1. Don't panic A job loss has nothing to do with performance, or your ability. It’s more about redundancy of your role in the company. Once this understanding seeps in, you will you be able to concentrate on finding a new job. 2. Make a list Update your resume and follow a daily schedule. Now that you have time on hand, set aside at least five to six hours a day on job hunting – including research, calls, interviews etc. Make a list of the people and companies which can help you. Be specific on how they can help you. 3. Get aggressive Make sure that you have your detailed resume up on every job portal there is. Some portals you can put your resume are jobstreet.com, monster.com, naukri.com, yellowjobs.com, timesjobs.com, shine.com etc. 4. Talk to other pros Focus on what kind of job you want. Assess market situation and make your plan. If a role is interesting but the company is not so much a brand name, are you willing for a lateral move, or would you like to take a cut in salary for a brand? Think through. Talking to senior professionals may help to give you a perspective

5. Freelance Do not hesitate to take up freelance assignments. Look at it this way.

You will keep your skills up to date and it will bring home a few bucks. In the meanwhile keep hunting for a job.

6. Be transparent Most people don't want to mention they have been laid off. “But hiding it will only complicate things," continues Sampat, "being laid off is not a taboo anymore amongst companies. They will hire you for your skills." So be transparent in your next job interview and tell them why you were laid off. 7. No blame-game Blaming the company or your luck during an interview is a strict nono. Companies like hiring people with a positive outlook. After all, this can happen to any company. 8. Reference friendly Make sure that you have all your references ready when you go for interviews and do not hesitate to give them if asked. Inform your reference in advance so that they are not caught unaware and will able to contribute in getting you a job. 9. Network You have the time to go out, so make use of it. Network like crazy. Nothing has more impact than a meeting. Also make sure you follow up with your contacts so that they think of you the first time an opportunity springs up. 10. Stay healthy Last but not the least you have to stay fit and keep healthy. Only this will keep you motivated and mentally fit. "Getting a new job can take time – from a week to several months," continues Sampat, "but the real test is to stay put in these times and focus on sailing through this crisis." Marcel R Parker, Chairman, IKYA Human Solutions Pvt Ltd , has some tips on how you can safeguard your current job.

--Under promise and over deliver Walk that extra mile for the organisation with a smile as though your life depended on it. You are bound to get noticed for your attitude. Stick to your targets and deadlines consistently. --Get proactive Volunteer for new tasks/responsibilities, no matter how mundane or onerous they may be. Look at it this way- Can I add value to myself and my organisation by doing these tasks? --Get Stingy Try and find ways to save and reduce wasteful expenditure no matter how silly they may appear-this demonstrates concern for the organisation in hard times. For example, conserving energy, printing only what is essential, recycling water etc may seem petty but these costs if well managed can have huge saving potential. See: Simple tips to battle a layoff Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.

Market crash: Tips to cut losses Team Wealth October 27, 2008 Email Print ads by google Warren Buffett System Download the step-by-step guide to investing just like Warren Buffett.

ETF Investor Newsletter Monthly buy and sell recommendation on Exchange Traded Funds (ETF's)

THE market's blows are only getting harder. The bad news is that the worst may not be over yet. Amidst all this turbulence, only one thing can save you: The right advice. Here’s how you can limit the damage, straight from wealth's experts. Scenario 1: I invested in the markets for the short term; what should I do now? Right now, the markets are driven by global sentiment. And, financial planner Arvind Rao reckons that it may take up to the fourth quarter of 2009 for the global market to pull up. On the domestic front too, things may look brighter only in the third or fourth quarter of 2009. "This is mainly because of the huge input costs and high interest rates as of now, " he says. In such a scenario, you have 2 options: Option 1: If you are hard pressed for money, you have no choice but to withdraw. PV Subramanyam, financial domain trainer, says, “If you need money soon, say in a year or two, it is better to sell now even if that means booking losses. There’s no way of predicting how the markets would behave.”

Option 2: Sandeep Shanbhag, investment expert and Director, Wonderland Consultants, says, “If you initially invested for the short term but can weather the storm, then wait, provided you have fundamentally good stocks. However, if you need funds, then exit as early as possible and treat this as a mistake not to be repeated.” Caution: Do not play the markets on a short term basis simply because of the looming uncertainty.

Scenario 2: I am a long term investor: What to do now? To begin with, relax. If you have invested, you should continue doing so. India has a number of things going in its favour: -- Among all emerging economies, our export to GDP ratio is the lowest. Consequently, even a full blown US recession will shave only around 40 to 60 basis points off our GDP growth rate, which was a healthy 7.9 per cent for the first quarter. Our economy is fundamentally strong; the situation right now is nothing but a slowdown and it will recover soon. -- Commodity prices have started to decline, with oil last being traded at USD 90 per barrel. So, going forward, inflation will not be a big threat. -- Our regulators, SEBI and RBI are proactively taking measures to control the situation and ease capital flows into India. Sanjay Matai, financial advisor, says, “Long term investors need not worry. In fact, it’s a good time to invest since stocks, expensive at one time, are now available at huge discounts.” Strategy: You can file away a proportion of your money for the longterm through SIPs. If you are single and salaried, put 70 per cent of your money in large cap stocks and the remaining 30 per cent in mid cap stocks. Shabhag suggests that this is an ideal time to average out and make piecemeal investments on every fall. "You can invest around 20 per cent of investible funds into equity / equity MFs. Another 20 to 25 per

cent of your surplus can be invested in gold through gold exchange traded funds (ETFs)." There’s a simple theory behind investing: You invest your way up, and you invest your way down. What NOT to do -- Don't enter the market for a quick buck. -- Don't look at borrowings for a while, since interest rates are quite high. Especially stay away from borrowing to invest in volatile assets like equities or even property. -- Avoid investing in Unit Linked Insurance Plans (ULIPs) if you do not understand the scheme in detail. -- Don't invest in lump sum. -- Don't stop your systematic investment plans (SIPs), because market fluctuations can average out your losses with SIPs. Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content. 1|2|3|

Financial crisis FAQ centre PV Subramanyam October 16, 2008 Email Print bookmark del.icio.us reddit digg bio ads by google Stocks Ready To Soar Hot News Alert, Huge Profits 1000%+ Stock Near Explosive Breakout Point ETF Investor Newsletter Monthly buy and sell recommendation on Exchange Traded Funds (ETF's)

BUY, hold or sell? When will the markets recover? Shall I stick to fixed deposits or invest in stocks? Financial advisor, PV Subramanyam, answered these and many more reader queries on stocks, mutual funds, insurance and deposits, in a live chat on IBNLive.com. wealth brings you excerpts from the chat. On stocks and funds:

Anita: I had invested Rs 15 lakh in equity funds in 2006. Now, the NAV has come down by almost 50 per cent. How long will it take to recover at least my capital and get returns? PV Subramanyam: In case you have monies to invest, you should continue your SIPs. Your question regarding timing is difficult to answer! Anita: Is it safe to invest in a debt fund right now? Should I stop investing in funds altogether and only put my money in FDs? PV Subramanyam: It depends on your tax slab. You can invest in floater, liquid schemes and good quality FMPs. Income funds are ok if you think that interest rates have peaked. As for investing only in FDs, it’s a difficult view to take. Hansa: Is the right time to enter the share market for novices? PV Subramanyam: Anytime is a good time if you know what you are doing. Start a SIP in a good fund, have a five-seven year view and pray to God! Siva Perumal: I have invested around Rs 90,000 in stocks of a premier construction company. In a month’s time, my portfolio now stands with an unrealized loss of 54 per cent. I am trying to average the price by buying more shares when the price goes down. Is it right to do so or shall I exit, with a huge loss? PV Subramanyam: Just stay with your losses. If it is a good company, prices will recover; if it is a bad company, it will just disappear. So, selling might make sense. Always stick to a mutual fund -- the spread of risk will benefit you. Preetam: I have just begun my career. Should I invest in shares now or go for bank FDs? PV Subramanyam: You should invest in shares through exchangetraded funds. Choose large cap funds for 70-75 per cent of your portfolio. Bhaskar: Is it true that a depressive cycle in the market like this one lasts about 16 months? Is that a statistic? PV Subramanyam: Your guess, my guess, my daughter's guess will all be guesses. No, any statistic is history, and may not repeat. So, it is, at best, a useless number.

Nihar: I wish to invest in blue-chip stocks. Should I go ahead now OR wait a little longer for the market to settle? PV Subramanyam: Do a SIP in an exchange traded fund. You can consider Benchmark’s ETF.