India lost $128 billion in illicit outflows

India with USD 128 billion capital flowing out illegally was the 15th largest victim of illicit financial outflows that cost developing countries a whopping USD 903 billion in 2009, according to a new study.

While USD 903 billion marks a drop from the USD 1.55 trillion that illicitly flowed out of the developing world in 2008, the study finds the decrease is almost entirely attributable to the global financial crisis rather than any governance improvements or economic reforms.

"This is a breathtakingly large sum at a time when developing and developed countries alike are struggling to make ends meet," said GFI Director Raymond Baker. "This report should be a wake-up call to world leaders that more must be done to address these harmful outflows."

Entitled "Illicit Financial Flows from Developing Countries over the Decade Ending 2009," the report by Global Financial Integrity (GFI), a Washington-based research and advocacy organization, tracks the amount of illegal capital flowing out of 157 different developing countries from 2000 through 2009.

According to the report, the 20 biggest victims of illicit financial flows over the decade are: China USD 2.74 trillion, Mexico USD 504 billion, Russia USD 501 billion, Saudi Arabia USD 380 billion, Malaysia USD 350 billion, United Arab Emirates USD 296 billion, Kuwait USD 271 billion, Nigeria USD 182 billion, Venezuela USD 179 billion, Qatar USD 175 billion, Poland USD 162 billion, Indonesia USD 145 billion, Philippines USD 142 billion, Kazakhstan USD 131 billion, India USD 128 billion, Chile USD 97.5 billion, Ukraine USD 95.8 billion, Argentina USD 95.8 billion, South Africa USD 85.5 billion and Turkey USD 79.1 billion.

Investors Beware: Gold ready for Capitulation!

If the charts are good indicator of price movements then gold as precious commodity has already topped out at $ 1900 in August. Last month the surprise rally in US Dollar has unsettled the gold rally. The parabolic' trend in gold has been broken. Currently gold is trading around USD 1650 and it has already formed another double at 1650 levels.

Gold's breakout above $1,000 fuelled the rally in 2009  and ever since it has been moving higher and higher. After two years of stupendous rally gold is showing shown of exhaustion and also giving signs of a breakdown

Money Minister believes the time has come when all asset classes specially commodities need to cool off. Equities have shown enough weakness to break the commodities but the excess money supply has saved the commodities from a sharp fall. No bull market can begin with commodities going back to depressed levels.

Investors should focus on good quality stocks which would bring them good returns in the long run. For short term there are signs of a slow-down which the Indian stock market has not reflected in prices yet.

Unless there is a sharp sell-off in Indian stocks it is futile to put your money to work in Indian equities. When the whole world is available at a discount it doesn’t make sense to FIIs to invest in Indian stocks. They have not sold their stakes in Indian equities and already suffering severe losses in India. 

Indian Tech Start Ups @ Near Bubble Stage: Intel Capital

Intel Capital, the investment arm of Intel Corp, the world's biggest chipmaker, believes valuations of early-stage technology companies in India have reached a "near-bubble" stage, as too much capital chases too few quality opportunities.

"It's crazy. I am not drawing parallels, but it feels like '99 in the US," said Suresh Kumar Kuppam, managing director for Asia Pacific at Intel Capital. "This is not a good sign. Most of the time, we evaluate companies and we have to leave it at that stage as we feel valuations were too high," Kuppam told Reuters during a visit to India's financial capital.

Big valuation expectations in the global tech sector are being driven in part by much-anticipated initial public offerings planned by US firms such as Groupon and Zynga, although market weakness in recent months has cooled that excitement.

US-based Intel Capital normally picks up stakes of less than 20 per cent in early stage companies, with an average deal size of $5 million. Its $250 million India fund has made about $40 million in investments so far this year, including $20 million for stakes in six small firms announced on Friday.

While corporate culture in India is historically family driven, with company owners reluctant to bring in private equity investors, the software and technology start-ups that are mushrooming in the country tend to be more willing to sell stakes to outsiders.

"We are seeing plenty of entrepreneurs taking the step, seeing the opportunity and past successes," Kuppam said, referring to companies bringing in venture capital. "You can see every Silicon Valley VC (venture capital) fund has an office in India," he said.

Private equity investments in India rose 21.6 per cent percent in the first half of this year to $3.3 billion, according to Thomson Reuters data.

Intel's investments announced on Friday include stakes in Saankhya Labs, a fabless semiconductor company; Testing Czars, which makes mobile applications; FINO, a business and banking technology platform provider; solar power products maker Duron Energy; enStage, which is in electronic payments; and What's on India, an electronic TV programme guide.

Investors are cutting the US dollar to size: By George Albert

The relevance of the US dollar is being questioned as it stayed range-bound despite an equity market selloff, a bond market rally, a commodity price deflation and gold touching all-time highs.

Some of the traditional inter-market connections have broken down recently, making it imperative to take a fresh look at the price action in various asset classes. Usually, when the equity markets fall, the dollar rallies. But this has not happened this time.

In fact, despite the fall in the global equity markets, the dollar has failed to break above its June highs.   The equity markets, on the other hand, have fallen far below their June lows. The recent price action in the equity markets and the dollar clearly show that their inverse relationship has been broken.

The other inverse relationship is between gold and the US dollar. Gold has been making new highs, but the dollar index has not made a new low. For instance, the June low on the dollar index  was 73.50, which has still not been broken. This shows that the inverse relationship between the greenback and gold is not working. In fact, most commodities, such as copper and oil, sold off in the recent fall, but they did not have an impact on the dollar.

US treasuries too rallied in the past few weeks. This, traditionally, results in a rally of the dollar, as investors seek a safe haven. However, the dollar remained stuck in its range, and this positive correlation, too, did not work.

View Chart

The price action over the past few days calls into question the relevance of the dollar, which has been at the centre of global asset markets. Price movements over the past few weeks are not enough to write off the dollar. But, after a historic downgrade, snowballing debt, and no serious plan to freeze US government spending, it is not wrong to presume that the past few weeks may be a snapshot of the future.

We feel that gold is bullish, but overbought, and faces the risk of a selloff. AFP

The chart of the US dollar shows that the greenback is at a level (between 73.50 to 74) where demand exceeds supply. This has resulted in a few rallies in the past. Now that prices have come back to this level multiple times, most of the demand may have been absorbed. The next level of demand is between 72.60 and 73 and prices may head down to that level soon.

Given the break in the inverse relationship between the dollar and equity markets View Chart, we may not see a rally in stocks on the greenback’s breakdown. We may see both assets fall. However, a fall in the dollar may push gold up further, as it is emerging as the safe haven of choice among investors.

However, most crucially, the price action over the next few months will tell us if the dollar is still relevant to asset pricing. From what we see, gold has been a better indicator of equity and commodity market direction. The precious metal is clearly inversely related to equities and commodities for now.

Whenever gold has rallied 20 percent above its 30-week moving average, prices have fallen.

Gold and silver: We anticipated a selloff in gold last week given its massive run-up. Whenever gold has rallied 20 percent above its 30-week moving average, prices have fallen. The first time gold rallied more than 20 percent above the average was in March 2008. It sold off to fall by  34 percent over the next few months.

The second time gold did it again was in December 2009, which led to a correction of 15 percent. Last week, gold again rallied 24 percent higher than the average. However, the selloff has not happened. We feel that gold is bullish, but overbought, and faces the risk of a selloff.

Silver, on the other hand, has resumed its uptrend after falling and consolidating. Silver too had rallied far away from its 30-week moving average by nearly 55 percent before it was pulled down from an overbought situation to neutral. Now, with the excess buyers out of silver, its rising again and may be a safer bet than gold in the short-term. Remember, buyers are future sellers and excess buyers result in excess sellers  which is what causes a drop in price.

TEXT: S&P downgrades US long term rating to 'AA+'

The following is the text of Standard & Poor’s downgrade of the United States:

Overview

-- We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.

-- We have also removed both the short- and long-term ratings from CreditWatch negative.

-- The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.

-- More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

-- Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.

-- The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case. Rating Action

On Aug. 5, 2011, Standard & Poor's Ratings Services lowered its long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA'.

The outlook on the long-term rating is negative. At the same time, Standard & Poor's affirmed its 'A-1+' short-term rating on the U.S. In addition, Standard & Poor's removed both ratings from CreditWatch, where they were placed on July 14, 2011, with negative implications.

The transfer and convertibility (T&C) assessment of the U.S. -- our assessment of the likelihood of official interference in the ability of U.S.-based public- and private-sector issuers to secure foreign exchange for debt service -- remains 'AAA'.

Rationale

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria (see "Sovereign Government Rating Methodology and Assumptions," June 30, 2011, especially Paragraphs 36-41). Nevertheless, we view the U.S. federal government's other economic, external, and monetary credit attributes, which form the basis for the sovereign rating, as broadly unchanged.

We have taken the ratings off CreditWatch because the Aug. 2 passage of the Budget Control Act Amendment of 2011 has removed any perceived immediate threat of payment default posed by delays to raising the government's debt ceiling. In addition, we believe that the act provides sufficient clarity to allow us to evaluate the likely course of U.S. fiscal policy for the next few years.

The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.

Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a 'AAA' rating and with 'AAA' rated sovereign peers (see Sovereign Government Rating Methodology and Assumptions," June 30, 2011, especially Paragraphs 36-41). In our view, the difficulty in framing a consensus on fiscal policy weakens the government's ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging (ibid). A new political consensus might (or might not) emerge after the 2012 elections, but we believe that by then, the government debt burden will likely be higher, the needed medium-term fiscal adjustment potentially greater, and the inflection point on the U.S. population's demographics and other age-related spending drivers closer at hand (see "Global Aging 2011: In The U.S., Going Gray Will Likely Cost Even More Green, Now," June 21, 2011).

Standard & Poor's takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.'s finances on a sustainable footing.

The act calls for as much as $2.4 trillion of reductions in expenditure growth over the 10 years through 2021. These cuts will be implemented in two steps: the $917 billion agreed to initially, followed by an additional $1.5 trillion that the newly formed Congressional Joint Select Committee on Deficit Reduction is supposed to recommend by November 2011. The act contains no measures to raise taxes or otherwise enhance revenues, though the committee could recommend them.

The act further provides that if Congress does not enact the committee's recommendations, cuts of $1.2 trillion will be implemented over the same time period. The reductions would mainly affect outlays for civilian discretionary spending, defense, and Medicare. We understand that this fall-back mechanism is designed to encourage Congress to embrace a more balanced mix of expenditure savings, as the committee might recommend.

We note that in a letter to Congress on Aug. 1, 2011, the Congressional Budget Office (CBO) estimated total budgetary savings under the act to be at least $2.1 trillion over the next 10 years relative to its baseline assumptions. In updating our own fiscal projections, with certain modifications outlined below, we have relied on the CBO's latest "Alternate Fiscal Scenario" of June 2011, updated to include the CBO assumptions contained in its Aug. 1 letter to Congress. In general, the CBO's "Alternate Fiscal Scenario" assumes a continuation of recent Congressional action overriding existing law.

We view the act's measures as a step toward fiscal consolidation. However, this is within the framework of a legislative mechanism that leaves open the details of what is finally agreed to until the end of 2011, and Congress and the Administration could modify any agreement in the future. Even assuming that at least $2.1 trillion of the spending reductions the act envisages are implemented, we maintain our view that the U.S. net general government debt burden (all levels of government combined, excluding liquid financial assets) will likely continue to grow. Under our revised base case fiscal scenario--which we consider to be consistent with a 'AA+' long-term rating and a negative outlook--we now project that net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 79% in 2015 and 85% by 2021. Even the projected 2015 ratio of sovereign indebtedness is high in relation to those of peer credits and, as noted, would continue to rise under the act's revised policy settings.

Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. Key macroeconomic assumptions in the base case scenario include trend real GDP growth of 3% and consumer price inflation near 2% annually over the decade.

Our revised upside scenario--which, other things being equal, we view as consistent with the outlook on the 'AA+' long-term rating being revised to stable--retains these same macroeconomic assumptions. In addition, it incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating. In this scenario, we project that the net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 77% in 2015 and to 78% by 2021.

Our revised downside scenario--which, other things being equal, we view as being consistent with a possible further downgrade to a 'AA' long-term rating--features less-favorable macroeconomic assumptions, as outlined below and also assumes that the second round of spending cuts (at least $1.2 trillion) that the act calls for does not occur. This scenario also assumes somewhat higher nominal interest rates for U.S. Treasuries. We still believe that the role of the U.S. dollar as the key reserve currency confers a government funding advantage, one that could change only slowly over time, and that Fed policy might lean toward continued loose monetary policy at a time of fiscal tightening. Nonetheless, it is possible that interest rates could rise if investors re-price relative risks. As a result, our alternate scenario factors in a 50 basis point (bp)-75 bp rise in 10-year bond yields relative to the base and upside cases from 2013 onwards. In this scenario, we project the net public debt burden would rise from 74% of GDP in 2011 to 90% in 2015 and to 101% by 2021.

Our revised scenarios also take into account the significant negative revisions to historical GDP data that the Bureau of Economic Analysis announced on July 29. From our perspective, the effect of these revisions underscores two related points when evaluating the likely debt trajectory of the U.S. government. First, the revisions show that the recent recession was deeper than previously assumed, so the GDP this year is lower than previously thought in both nominal and real terms. Consequently, the debt burden is slightly higher. Second, the revised data highlight the sub-par path of the current economic recovery when compared with rebounds following previous post-war recessions. We believe the sluggish pace of the current economic recovery could be consistent with the experiences of countries that have had financial crises in which the slow process of debt deleveraging in the private sector leads to a persistent drag on demand. As a result, our downside case scenario assumes relatively modest real trend GDP growth of 2.5% and inflation of near 1.5% annually going forward.

When comparing the U.S. to sovereigns with 'AAA' long-term ratings that we view as relevant peers--Canada, France, Germany, and the U.K.--we also observe, based on our base case scenarios for each, that the trajectory of the U.S.'s net public debt is diverging from the others. Including the U.S., we estimate that these five sovereigns will have net general government debt to GDP ratios this year ranging from 34% (Canada) to 80% (the U.K.), with the U.S. debt burden at 74%. By 2015, we project that their net public debt to GDP ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the U.S. debt burden at 79%. However, in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015.

Standard & Poor's transfer T&C assessment of the U.S. remains 'AAA'. Our T&C assessment reflects our view of the likelihood of the sovereign restricting other public and private issuers' access to foreign exchange needed to meet debt service. Although in our view the credit standing of the U.S. government has deteriorated modestly, we see little indication that official interference of this kind is entering onto the policy agenda of either Congress or the Administration. Consequently, we continue to view this risk as being highly remote.

Outlook

The outlook on the long-term rating is negative. As our downside alternate fiscal scenario illustrates, a higher public debt trajectory than we currently assume could lead us to lower the long-term rating again. On the other hand, as our upside scenario highlights, if the recommendations of the Congressional Joint Select Committee on Deficit Reduction--independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high earners--lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government's debt dynamics, the long-term rating could stabilize at 'AA+'.

On Monday, we will issue separate releases concerning affected ratings in the funds, government-related entities, financial institutions, insurance, public finance, and structured finance sectors.

Apple has more cash than the US Government

While the world's most powerful government has just USD 73.76 billion in its reserves, the world's top technology company has a neat cash pile of USD 75.87 billion on Thursday.

The US Treasury Department Thursday warned that it has now only this much operating budget as Republicans and Democrats fight over raising the nation's debt ceiling. With only that much reserve at its disposal, the Obama White House has warned the Republicans that the US government won't be able to meet its obligations as of Aug 2.

Facing a government default, Obama can definitely turn to Steve Jobs to give him a very brief breathing space.

The failure by the Republicans and Democrats to come to a compromise to raise the current USD 14.3 trillion debt ceiling by Aug 2 could lead to a hike in interest rates. The already battered dollar may also plunge further.

With its market capitalisation of USD 363.25 billion, Apple is the second largest company on the planet after American oil giant Exxon Mobil. The Cupertino-based Apple started rising suddenly in 2007 when it entered the smart phone market with the launch of its first version of the iPhone.

Within three years, Apple went on to overhaul BlackBerry company Research In Motion (RIM) which invented the smart phone and dominated the market.

But its fortunes skyrocketed last year with the launch of the iPad tablet which has sold in millions. In fact, the iPhone and the iPad have made Apple the czar of mobile computing technology as rivals play up catch-up.

The stock of the company, which doesn't pay dividends, has now touched USD 400.

After Apple, another non-financial company sitting on a huge cash reserve is Microsoft whose own pile is about USD 40 billion.

Daily Market Report: May 20, 2011

Equities in India pulled the shutter for the week with stellar gains, soothing investors' nerves ahead of May F&O expiry on Thursday. The Sensex closed at 18326.09, up 184.69 points or 1.02% and the Nifty ended at 5484.25, up 56.15 points or 1.03%.

So, has investor sentiment livened up, finally? The market rallied on the back of the forward looking guidance given by Larsen and Toubro on Thursday. In fact, the recent rally could be attributed as a technical bounce, short covering, or just bottom fishing.

Going forward, the market is expected to remain range-bound. The longer it trades below its 200-DMA (day moving average), the likelihood of a negative trend is high. The Nifty and the Sensex have found support around 5,400 and 18,000 levels, respectively. However, the 50-scrip broadbased index will witness strong resistance around 5,700 levels.

The market these days lacks positive triggers. Domestically, they are looking up to positive global cues, followed by clear confusion as they are unable to find any. It is stuck in a narrow range of 5,300 on the downside and 5,550 on the upside. For the next few sessions, sentiments are expected to heat up ahead of May expiry.

Daily Market Report: May 19, 2011

The Indian stock market has managed to end the three-session losing streak today as frontline indices gained marginally in a lackluster session. The Nifty ended flat at 5,430, while the Sensex closed at 18,140, up just over 50 points.

The current situation looks grim as there is very little movement on the bourses. We are slowly drifting towards 5250 on NIFTY and many of our heavyweights have taken a pummelling. Midcaps too are showing no signs of recovery.  So overall we need some trigger to boost an otherwise gloomy session; something like the L&T move today.

Technically we are still in a downtrend, though it appears limited. I am not sure if there is too much of a downside below 5,300. I think maybe the next three or four trading sessions we will see some stability coming in. Once that happens, I will probably stick my neck out and say we are due for 250-300 points on the Nifty because we are deeply oversold.

There are some people who see the crystal ball in a different way. Mr Abhay Aima of HDFC Securities sees the Sensex hitting 24,000 by the end of this fiscal. "If there is a hypothetical industrial growth of 12%, the earnings index would grow 15-18%. Discounting FY13 earnings, gives you an index of around 23,000-24,000 by March’12. So you are looking at a 20-25% return from here. I don’t know many markets in the world which are looking at this kind of growth."

And what might lead the index to 24,000? Banks, says Aima. "They, even at the current level, have the pricing power. So contrary to what most analysts feel, well managed banks will maintain their margins and surprise people," he states. Infrastructure too needs to perform in order to life the Sensex to those levels. "They have a lot of impending projects," he reasons.

Senior stock analyst Mr Nakul Malhotra of ‘Money Matters’ strikes a different note as he believes that market could head towards a big correction. “There is a complete lack of interest in buying equities and if foreign funds do not support then we are heading towards 4800 on Nifty, ” he said.