No Such Thing As Free Advice?

I posted How Rigged Is The Indian Stock Market? back in June.  Relatedly, though not on insider trading/front-running as that post was, is this bit of advice from the Ministry of Corporate Affairs: 'Beware of investment advice on TV'.  An excerpt:

"Beware of the media, especially the stock-specific advice on electronic media. Too many saints in the capital market offering free advice!.. In reality, many of these advisors have vested interests," the guide said....

Do not blindly take decisions based on accounts just because these are audited, the guide cautions, "high incidence of fraudulent accounts and mis-advertising of financial results. Satyam case is a wake-up call."

Not giving too much of credence to 'free' advice is ok, even though that is what our 'business' channels are filled with the entire day.  But we can't even trust the company accounts?!  On what basis does one actually make investment decisions?  Is this one more way to drive money to mutual funds etc?

On the same day comes this from Business Line: Media toys around with markets.

“They” provide us a running commentary from morning till late evening. “The morning session is crucial,” they say. And if you thought that was a cricket commentator talking about the first hour of play, you are mistaken.

These are market commentators. “The middle session is crucial” and subsequently “the final hour of trade is crucial.” Repeated use of the word “crucial” is aimed at turning on the viewer and making him believe that something big is happening.

This live relay is further followed by expert analysis till late into the night. If you thought “they” were merely commentators, you are possibly wrong. “They” have a deeper and a far more complex agenda — of influencing the minds of the viewers.

Talking up share prices or talking them down is part of the strategy of these “anchor investors”. Thanks to the silence of the market regulator, SEBI, all these have now come to be characterised as acceptable.

Systemic Banking Crisis In The US?

(via CalculatedRisk): All claws, teeth, and fur (head out to the last paragraph of the PDF)

What will be the consequence of losses of over $1 trillion and, possibly, as high as $2 trillion? That would wipe out most of the capital of most of the US banking system and lead most of US banks and mortgage lenders – that are massively exposed to real estate – to go belly up. You would then have a systemic banking crisis of proportions that would be several orders of magnitude larger than the S&L crisis, a crisis that ended up with a fiscal bailout cost of over $120 billion dollars. And the worrisome part of this scenario is that – with home prices likely to fall by 20% or more – this scenario of systemic banking crisis is becoming increasingly likely.

What impact would that have on Udayan's long bull run?

Gloom & Doom

Aplenty (registration required):

The US has already entered into a recession and this recession will be much uglier than the mild recessions of 1990-91 and 2001 as a shopped out, saving less and debt burdened consumer is on the ropes and faltering.

The world will not decouple from the US hard landing; there will be significant recoupling and a sharp global economic slowdown. When the US sneezes the rest of the world catches the cold; and today the US will not experience just a simple common cold but rather a protracted and severe case of pneumonia; thus, the real and financial contagion to other economies will be severe.

Whatever the Fed does now is too little too late; the Fed had a wrong diagnosis of the economy and was behind the curve for over a year. The Fed claimed that the housing slump would bottom out a year ago; instead we have the worst housing recession in US history still getting much worse now. The Fed claimed that the subprime would be a niche and contained problem; instead we have had massive contagion to the entire financial system as a credit bubble and excessive debt and leverage occurred throughout the economy and the financial system. The Fed claimed that the housing problems would not spread to the rest of the economy; instead we had had real and financial spillovers and now a fall of most components of aggregate demand: housing, capex spending, commerical real estate investment and now, ominously, private consumption that represents 70% of demand.

The US stock market is now entering in a seriously bearish territory and will fall much more sharply throughout the year as earnings sharply drop in the recession; the Bernanke put and the aggressive Fed easing will not rescue the stock market or the financial markets as a severe recession is unavoidable regardless of what the Fed does. Fed easing cannot resolve severe insolvency problems among consumers, mortgage lenders, home builders, highly leveraged financial institutions and, soon, enough among over indebted corporate firms.

Equity markets around the world are now plunging and will plunge much more as investors are realizing that a severe US recession will lead to a sharp global economic slowdown and a significant fall in profits across the world. In an integrated global economy both economic growth rates and markets are highly correlated.

Many risky assets will face downward pressure in 2008, not just US and global equities: junk bond yield spreads will widen as bankruptcies spread; corporations will default in great number; housing bubbles will pop in many countries and lead to falls in home prices; securitized products - in housing, real estate and otherwise, will experience further massive losses.

Losses in the financial system will be greater than $1 trillion; thus there is a serious risk of a systemic banking and financial crisis. The credit crunch will become much more severe as capital of financial institutions is eroded and reintermediation of financial flows into the banking system occurs.

Udayan Mukherjee a few days ago:

These may be tough days but it may well turn out to be the best buying opportunity of 2008. Do not panic, accumulate slowly, there is still a long bull market ahead of us. Maybe not in the US but in India for sure.

The Chicks

Have come home to roost (via Atrios):

I don't think it's an exaggeration. It's an understatement. You've heard me say here I think we are facing the worst financial crunch and crisis since the Great Depression. You have the entire banking system now that is virtually frozen and there are not just the sub-prime mortgage thing. There are other things called credit default swaps where they're going to lose as much money, 250 billion dollars on. The banks are frozen. They're not making loans because they have such huge debts that they have to take onto their balance sheets and nobody knows how to deal with that because you had a dramatic...you had two bubbles that have burst at the same time. The housing bubble which has collapsed in this country. The first time since the Great Depression that housing values have gone down for a year since the depression and it's going to go down even more next year. The credit crunch, you've just exploded the whole credit system in this country. We were way over leveraged. The banking system was over-leveraged. People didn't even know about it. The bankers didn't know about it. They didn't access the risk. Now that risk is piling in and every body's going to pay the price. Uh it's going to stimulate nothing other, I mean it's going to destimulate the economy. Nobody has money to lend. They're saving all their money to pay off their debts. They're borrowing money or looking at uh the rest of the world to enhance their capital and it's still not going to solve their problems.

This too!

Update: And it's all related:

Citigroup and Morgan Stanley, hit by mortgage-related losses in the US, were aggressive sellers during the day.

I bet these sellers are not selling at a loss. A note to the India Rising folks: the foreign money pours in, and pours out, India Rising or not.