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Thought Behind big step

My recent oil painting on canvas size 40"x 32". this is reproduction painting with imaginary colors. the painting title is "Thought Behind big step" is inspired by my current mental status. this kind of thought which reflects some deep thoughts, some fears, worries & confidence to move on for success. the main character of this painting reflects from his body language that despite of everything is ready to move with drawn plan on paper in the background shown, he is in final course of mind thought.

Oil painting title "The Cleopatra"

This is final painting of "the Cleopatra" ... Cleopatra face has been replaced with fresh imagination. It's yet not signed. Painting is purely oil colored on canvas size 24"x30". As a disclaimer, any of the characters does not belongs to any living person or persons, if any one is similar to a living human as of today,  it is just a coincidence.

Re-painting a cheracter

In this painting I first paint this Cleopatra face according to my imagination... But very soon I realised that this face no longer suitable for such immortality nd  preservation so I'm going to replace Cleopatra's face according to my pure imagination. I'll post fresh painting with new face very soon....!

With love & regard.


In my blog, Global Stocks Rating page has not been updated, kindly do not refer to it. Inconvenience regretted.

What Do We Do About The Banks – A Risk Management Approach

By Guest Blogger 
Mark Garbin, CFA
Managing Principal
Coherent Capital Management LLC
Twitter: @coherentcapital

Much has been written recently about JP Morgan’s $3B CDS loss and Morgan Stanley’s Facebook IPO debacle. We also have many in Congress and other parts of the government again raising a stink about banks “there they go again”. Their answer: Rules, rules & more rules.

Let’s state the obvious: If, even after 5 years, the most sophisticated financial institutions on
the planet constantly adapt to new sets of rules and STILL make a mess, how in the world can
governments even THINK that any new set of rules can work? Albert Einstein said the definition
of insanity is doing the same thing over and over but expecting a different result.

So, in the face of all this, what do we do about the banks?

This is more than a discussion concerning derivatives. It is more straightforward than the 2300
page magnum opus that is Dodd Frank. (By contrast, Glass Steagall was only 37 pages) It goes to the core of what is needed for a 21st century financial system and establishes a framework for regulation:

Disclosure & Oversight and Segregated Capital

Disclosure & Oversight

The lack of transparency with respect to bank balance sheets compounded by lapses by the
accounting profession and rating agencies not only make it difficult for analysts and investors
to evaluate risks and rewards but it also makes it difficult for regulators to, ex-ante, evaluate
institutional and collective systemic risks.

Furthermore we live in a time where governance of financial institutions may be capable in the
main, but at multiple points in time and often in the most critical circumstances, each one of
these institutions failed to achieve their mandated roles. Why did they all fail and continue to
fail precisely at the moments when they are needed the most? The more critical and important
question is, how can we expect future financial stability in the face of repeated governance

A major part of the problem lies with the fact that sets of rules vary by country. Another part of
the challenge is inherent in the fact that there is no global standardized set of disclosures that each financial institution must report. With an asymmetry of data that are asymmetrically applied it’s no wonder we’re in the mess we’re in. It is in everyone’s best interest to have an optimally competitive banking industry. However, banks can take a page from the insurance industry: On a quarterly basis, in addition to voluntary segment and loan aggregate exposures, banks should electronically publish in pdf and xls form, a list of securities owned specifying the security identifier number, cost and value. Some banks already provide detailed disclosure in their 10Q filings but it is not standardized and there is often no aggregation of country exposures as well as no delineation of derivative exposures, notional and value at risk. The proposed asset list would be released 60 days after a quarter end (i.e. a 60 day lag) such that competitive advantages are maintained. Just ask leading mutual fund companies if their competitive advantage has materially suffered or pension funds if beneficiaries have been
harmed by such a disclosure lag.


Quarterly reports also need to be accompanied by basic risk disclosure: What is the impact to the bank if interest rates change, volatility changes, equity markets change, residential and commercial mortgage defaults change, etc. What this provides is three things specific to individual banks: Determination of potentially bogus asset valuations, identification of potential problems due to concentration of risk types and asset classes and makes banks officially declare what their levels of risk actually are. While it doesn’t prevent asset losses, a natural and expected consequence of the banking industry, it does allow a larger number of constituencies than currently exists to evaluate the quality of assets and the rigor of their valuation. Think of it as institutionally crowd sourced oversight where the larger the number of self interested evaluators, the fewer the opportunities for obfuscation and outright lies.

Additionally, the disclosure process allows regulators and congressional oversight an early
warning signal. It becomes easier to aggregate the totality of asset class risks and break them
down by bank and product type e.g. local vs global, mortgages vs corporates, equities vs fixed
income, equity derivatives vs swaps or CDS. It also allows non-politically driven groups to draw
attention to problems just in case regulators are asleep at the switch.

Standardized disclosure consistent with the highest standards of transparency thus allows for
rigorous oversight whereby each financial institution is evaluated and each group can make their own judgments. Here hedge funds and other institutional investors play an important additional oversight role. It is a far more effective and long lasting result if large investors can consider the implications of risk management in order to reign in abuse, however you define it. In the long run, if investors don’t like the way a bank is run, they can exit by, at the very least, selling their shares or if they want to be more activist, short the stock. Yes, shorting a stock allows investors to call supercilious management to task and challenge abusive corporate practices. Alternatively, they can amass stock positions and create a proxy fight as in the case of CP Rail. You may not like activist investors but if you don’t think these are effective practices take a look at the charts of Green Mountain Coffee Roasters, Herbalife or JP Morgan. This is made far more effective by quarterly asset holding and risk and valuation disclosure. Regulators should focus more energies on collective delineation of necessary components of standardized disclosure.

I am also proposing that the industry establish a global oversight valuation group that would
examine major components of assets within specific categories to determine whether additional capital needs to be allocated to such asset classes. The insurance industry in the USA has established such an oversight infrastructure called the Securities Valuation Office of the National Association of Insurance Commissioners. While its role is constantly being updated, it is an example of how, proactively, a uniform group of standards can be applied to an industry that is as diverse in size, competitiveness and quality as banks.

Segregated Capital

We now come to the heart of what to do about banks. While disclosure and increased oversight can be effective in their own right and implemented immediately, they are incomplete without a fresh look at capital allocation and segregation. A major issue today is that, from a regulatory point of view, banks use the same capital to cross support a multiplicity of businesses. In this regard, Commercial Banking, Asset Management, Investment Banking, Retail banking and


Treasury all benefit from the same capital base making it a very efficient use of capital.
Academically, capital market theory argues that this is beneficial because capital efficiency
reduces risk to the system. However, it has been proven over the past 5 years that when there
are systemic problems, capital efficiency morphs into capital insufficiency. Basel III only looks
at the level of capital inside a financial institution not how that capital is applied by business
segment. It does not consider the risk reality of a business segment’s assets, liabilities or cashflow against which capital must be allocated. For example, Basel III STILL does not require capital to be allocated against the holding of ANY sovereign bonds. There is a zero risk weighting and no capital allocation regardless of whether a bank invests in Greek vs US vs Eritrea bonds. Furthermore, it treats all derivatives as capital market instruments. It needs to recognize that a listed call option on a stock that settles and is margined by a Clearinghouse is hugely different than an over the counter Credit Default Swap which may be settled in the future by a Clearinghouse but is not purely a derivative but functions more like a reinsurance contract.

It is too easy to say: “Let’s go back to Glass Steagall”. Such a comment does not recognize
the necessary evolution of the modern financial institution and how we all (corporations and
individuals) have come to rely upon it. For example, for corporate loans, banks charge interest on a floating rate basis (usually LIBOR plus a spread). This is because it’s how the banks themselves are funded. But this often exposes the corporate borrower to often unwanted interest rate risk. It’s tough enough for a company to take the operating risks of building a plant, creating jobs and making a profit from the products they sell. They operate on budgets. The risk of rising interest rates can materially and negatively impact their ability to execute their business plans. Thus they must necessarily enter into an interest rate swap whereby they lock in a fixed rate. It presupposes that the financial institution with whom they execute the swap has the necessary capital to support it over a 5-10 year period of time. Another example is the home owner who desires a fixed rate 30 year mortgage. Whether they know it or not, they have entered into the same kind of swap that the corporation above has done. This implies that banks must link the credit decision of making a loan to the capital markets derivatives (swaps are derivatives) decisions desired by its clients. Simply put, going back to Glass Steagall means trying to put the genie back into the bottle i.e. not going to happen and more importantly counterproductive and potentially disruptive.

It is right to think that proprietary trading and derivatives can be dangerous. But again it’s
too simplistic to say “Let’s stop bank proprietary trading” i.e. implement the “Volker Rule”.
Nevermind that some of the smartest financial people on the planet, Mark Carney (Canada),
Stanley Fischer (Israel), Augustin Carstens (Mexico) and Kiyohiko Nishimura (Japan) have
pointed out how the Volker Rule can result in hamstringing the liquidity of the world financial
system at a time when its fragility is being supported by such liquidity. The Volker Rule by
definition would also reduce the amount of market making in bonds that banks can do. This is the lifeblood of the institutional fixed income investment world. It is not sexy and doesn’t provide the media talking heads with their headlines of fear and greed. It is, however, the necessary lubricant that supports investments by all the major pension funds for most every citizen in the developed world. Once you restrict such capabilities, costs go up and risks that regulators thought they were controlling actually go up. No wonder these leading global financial minds reject the notion of the Volker rule as it is currently constructed.

Bottom line, there is lots of risk in the capital markets. But so is making loans to people and
corporations who can’t afford them. So, how do you define danger? Is it that JP Morgan loses
$3B? Is it proprietary trading? Private equity? Not really. Danger is when collective activity


requires bailouts by taxpayers. So, what is to be done?

First as Basel III requires, Tier 1 capital needs to increase. That’s a start. However we must go
further than that. Banks should segregate their businesses not simply from a financial reporting
point of view but formally and from a segregated capital perspective as well. It is not enough
to “allocate” capital to a business segment. Most banks and the Fed already do that. It must
be both very specific AND walled off. The big change here is that there will be no more cross
support i.e. the capital used by the asset management segment for example will not be used
to support the investment bank. If it turns out that the investment bank needs more capital, it
will have to be provided either by the holding company or by its own means. This will require
that each segment be managed like the businesses they are. If the investment bank takes more risk, they need more explicit capital. Notice we are not going back to Glass Steagall but are recognizing that there was some wisdom in separating the functions at least from a capital
perspective. Additionally, since the investment bank has materially different risks than many other segments, I propose that there be created a separate board of directors where some of them are “outsiders” and some come from the bank holding company board and include both insiders and outsiders. There should also be a separate risk committee of the investment bank that presents its findings to the main holding company board on regular specified occasions. It is critical that these risk committees comprise people who are professionally familiar with risks.

Regulators must establish standards such that each of the investment bank, retail bank, asset
management, commercial bank and treasury departments need to have their own explicit and
segregated capital allocation. This may include triggers for additional capital, limitations on
dividends to the holding company, etc. The purpose is to reduce the chances that an impairment of one segment impinges on the others’ abilities to operate. It will allow regulators and investors to distinguish capital requirements in a way that allows for differentiated risks to be covered and fosters business segment diversification. Segregation and business segment reporting should also be specifically identified and discussed in Annual Reports and 10k filings as well as filings that potentially show material changes in business operations. Not every bank does this today.Imagine financial statements that treated each bank segment as a separate company. It would be a whole lot more straightforward to analyze. This fosters the culture of oversight described previously herein and allows anyone to review the required rate of return on capital for each of the business units. It also allows Boards of Directors and shareholders peer to peer transparent reviews that are consistent with standards in the market given the risk adjusted required return on capital. The implication of this means that with respect to JP Morgan, a further loss in Treasury need not impact the business of managing mutual funds or making loans to small businesses. Those in the Treasury segment will suffer for it and the requisite segment disclosure will allow for greater transparency in analyzing a bank and comparing it to its peers.

Capital segmentation should also be part of an expanded brief for the Basel process. This creates better standards that can be implemented world wide to prevent regulatory arbitrage. For example, fee based businesses such as custody, cash management and third party investment management should have a much lower capital threshold than the capital markets group. Additionally, expansion of holding company capital requirements is needed for those institutions that are judged systemically important i.e. “too big to fail” because too big to fail might also become too big to bail out.


These are initiatives that need to be taken, now. The message to the banking industry: Either
do this on your own or it will be superimposed on you by regulators who have limited practical
experience, no background in risk and may be politically motivated. The message to regulators: Beware the law of unintended consequences. Like it or not, there is much interconnectivity to the financial world. Mark Twain once said: “Every problem has a solution: Neat, Plausible and Wrong”. The role of regulators should be primarily to engage a financial system that supports the growth of an economy. Don’t just make more rules. The more rules you make, the more the banks will slip through your fingers (Apologies to Princess Leia). 
Be the moral compass, be the examiners, be the discoverers of trickery and financial baloney.
Watch the watchers, the rating agencies, the accounting firms and the third party valuation
companies. Superimpose a conduct of transparency. Let the world know exactly what each of the banks owns, what their risk exposures are and work to establish the new global valuation group. More importantly, and more immediately, make the banks segregate their businesses, publicly disclose their assets, establish additional governance requirements and help set rational standards of capital for each of the segments. Grill the banks as to the definition of “segment”. What Wells Fargo considers a “segment” is very different that Citibank’s view. Both are valid so don’t try the “one size fits all” approach. That is a very constructive (AND public) discussion. You might then ask what is a “rational” standard? As the late justice Potter Stewart once said “You’ll know it when you see it”. Take the lead, then make it global.

DISCLAIMER: Although the information contained herein has been obtained from sources Coherent Capital Management LLC and Miller Tabak + Co., LLC believe to be reliable, its accuracy and completeness cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. At various times we may have positions in and effect transactions in securities referred to herein. Any recommendation contained in this report may not be appropriate for all investors and investors trade at their own risk. Trading options is not suitable for all investors and may involve risk of loss. Coherent Capital Management LLC and Miller Tabak + Co., LLC shall not be responsible for any loss due to inaccuracies in the information provided. An options disclosure document may be obtained from Mr. Jay Stenberg CFO, Miller Tabak + Co., LLC, 331 Madison Avenue, New York, NY 10017. Additional information is available upon request. Miller Tabak LLC is a Member SIPC. Member NYSE, NASD, CBOE, PHLX, ISE, NFA.

Meltdown of a global rally, without enough liquidity, policies and sentiment

After a decent rally in USA & Europe, we are eventually heading towards preliminary stage of another bear market. Previously we discussed about the trend of GMMA on daily chart. It was impressive at that time, but a month past. Now, including USA, all major indices of Europe and Indian has significantly broken down in recent fifteen days. Sentiment, confidence, uncertainty and lack of confidence these elements create a good technical chart. And all these are bear bias. Europe crisis has hammered over sentiments of global investors, uncertainty continuing without any apparent consequence. One Greece has meltdown all over global equity markets; they had lost recent rally and turning down into bear market phase.
When Indian markets were about to enter into the bear market starting phase, the USA market has decently held its rally of 6 month. Even the Europe had started to lose ground before USA. After sustaining for two month of consolidation phase, the USA has slide equally to the rest of global markets. Now as of today, the indicators have started to prompt for a bear market; no matter it is a short term to medium term, but the globe is under pressure due to various reasons, but one major is Europe, Euro zone crisis!!
Here, we will discuss on technical about four major global indices i.e #SPX, #DOW, #FTSE and #NIFTY respectively USA, Europe and Indian.
1-      S#SPX –S&P-500 :-  after making the Double Top kind of pattern around 1415-20 level, this indices had Breakdown some significant support level. One amongst is 1340 level. Previously, in Aug 2011, there was a similar breakdown from this level and S&P had sink almost 19% within 15 trading days. In this month it has recently broken down with volume increasing on 15th may and retesting plus sustaining will affirm the next move and sentiment.  However, it still not fallen as much as in Aug 2011, but the fear remaining high. Remaining below 1340 for a week will create another selling leg all up to next support level of 1280. Before this, a technical bounce back is expected after retesting of 1290 as a support level, thus a resistance stands at 1340 and 1375 level.

2-      #DOW – Dow Jones :-It is a apparent instance of breaking down a Double Top pattern.  Around 13300 level, DOW had formed DT pattern in March & April 2012, and recently broken its DT support of 12700. The way S&P moves is similar to DOW, except indices value, thus a technical bounce back from current support of 12300 is very much on horizon, and 12700 & 13000 will be act as resistance for this bounce. The similar pattern had witnessed a down fall of almost 17% in later end of July 2011. Things are to be awaited whether history repeat itself.

3-      #FTSE – England :-‘scarce rally, drastic down’ is the perfect sentence for this indices. Since Oct 2011, this market remained cautious on up side move, and participated fully on down side with others global markets.  5630 was the strong support which had broken recently and running much lower from this level. Expected bounce back level after the recent fall was at 5365 level, but at of this time FTSE running slight below this level. Sustain and surpass this level can prevent further drastic fall in near term. There is nothing much to say about this indices, because it has no strong pattern on daily chart, plus it is following the Euro zonesummit and other local factor like election is on way. A very interesting point about FTSE is, that on longer term it is a consolidate market within range of 1200 point or 20% movement in whole.

4-      #NIFTY- CNX NIFTY-50 :- ‘Too many reasons always vulnerable’, GDP forecast is down, uncontrolled Inflation, weak currency, divergent RBI policies, lack of govt concern over some key decisions, these are the key factor with this Indian market is suffering. NIFTY is already running into short term bear market. After break down from Support level of 5150, it had fallen nearly 8%. More headwindsare expected if a retest of 4950-60 fails on bounce back. 4725-4700 is strong support for near term. On any bounce back or relief rally, 5040, 5170 & 5350 are the key resistance to attract fresh short. We does not see down side below 4540 under current scenario, but if something worst happens in Europe situation, and then it will be surely a 10% down circuit on NIFTY.
It is very clear as of now that world has lost its retail charm in this month. Unless and until Europe not come out of its self-destruction mode from financial system, it is not going to rally in near term, and India needs to stands clear about its prospectus policies, GDP and Inflation plus the major headwind for RBI policy is now going to be ‘weak Indian Currency’, for this RBI need to use foreign reserve to prevent further fall of INR as it has touched and trading above all time low of 56.15 per dollar. Previous quarter result was not adequate to lift market beyond any significant resistance. I see the volatility in coming month will be higher so investor or traders needs to adopt cautious step unless Europe not come out with strong solution and till next RBI policy that will clear at least its view and preliminary steps for economy. As recently, the fuel price was hiked unanticipated, this will impact of inflation and RBI will find sceptical itself to make some decision on key rate changing.  However, market always remains full of short term opportunities and even during downside there are lots of opportunities where one can accumulate profit by shorting stocks future, but without adequate advice and perfection it’s not advisable to take any risk beyond Money Management Rules.At another front of rating side, India’s GDP target has been recently downgraded to 6.3% for FY13, Fitch has also downgraded Germany. This will impact on medium term sentiment of investors. Overall, it’s globally bear market year so ‘perfection with expertise is advisable’.
Best regard
Cj Bhargav

Stability Depth of current Global equity markets rally

At glance, its looks stability and sustainability across all global equities market since start of year 2012. despite of Europe sovereign issue and Euro zone crisis, the major European markets has risen CAC 17%, DAX 20% & FTSE 10% from their Dec 2011 lows while USA markets DOW 10% & S&P-500 has moved nearly 14% from their DEC 2011 lows. Indian Sensex & Nifty gained almost 23%. After making High of 81.78, US Dollar index has corrected almost 4% with all currencies. Technically the global financial environment looks upward. At first sight its looks absolutely leverage and liquidity based rally which is inspired majorly by 'Time Factor'. as it is heritage proverb that "time heals everything", looks implied with majority strength in current global financial system. There is several reasons to criticize this rally, but still it looks more optimistic than previously. After several rounds of meetings on European sovereign issue and defaulting of Greek, it has indicated that European leaders are very seriously keen on finding a concrete solution. However the clear vision is still invisible, but the act says the Greek will sustain its Euro zone membership. Amid signs of improvement in the global economy, Focus has still on Greece as the threat of economic collapse and exit from the euro. Now we talk on absolutely technical.

S&P-500 - called the mother of all indices, has recently moved decently over 13% from its dec 2011 low & it has retested the previous significant peak level of 1360-70. on correction, its is on Buy on dip kind of indices on every resting of its uptrend line support, connected with lows of OCT & NOV 2011. The major global markets are running in cue with this indices movement. Correction is due, and it could be a smaller fall shall end around 1300-1285 level before it starts a fresh upward steamed journey.

NIFTY - India nifty was the outperforming market compared to USA & European markets. It has the more powerful & strong reason behind its current rally of 23% compared with other markets. Despite of deferment political environment and lack of strong visible economical decision, the current FII investment has increased drastically in first two month of this year. Technically, in the month of Feb, nifty passed and moved beyond breakout from the medium term down trend, connecting the tops of Nov 2010, Jan, Apr, Jul & Oct 2011's . If we includes the three lows of Feb, Aug & Dec 2012, it will be prompted as a downtrend channel breakout above 5225 level, recently. However, there are several resistance levels are intact after this breakout, but a decent correction along with a stable economical data and current RBI policies, keeping GDP target with 7%  along with sustaining currency rate are major key supporting indicator for upcoming movement. The correction might occur up to support level of 5300, 5180 and in case of drastic FII selling it could test 5000 level after budget session.

In conclusion, current rally is apparently liquidity driven. If global economical data and European Union comes with an impressive outcome, then achieving new high on nifty will be merely a formality on technical chart. In case of disappointing Indian budget presentation, the profit booking or panic selling shall occur & will set the nifty around or below 5000 level.

Cj Bhargava