>India readies big bailout measures

NEW DELHI: With liquidity becoming the immediate priority of the government, it is looking at a slew of measures to make more funds available to t
he credit market and there are strong indications that banks may be nudged to lend to companies with a good credit rating.

Official sources told TOI that a further cut in the cash reserve ratio (CRR), a reduction in interest rates and a 'ban' on reverse repo are some of the options being looked at to augment liquidity, while a ban on short selling is also being considered as a way of curbing the markets' bearish sentiments.

A proposal to dilute mark-to-market norms for banks is also being considered. Such a step, which has already been taken in the US, essentially allows banks to pretend that their assets have the same value at which they were bought rather than the current market value. Thus, they are able to avoid providing for any losses that would accrue if they valued them at current levels.

In addition to these measures, banks might be informally told that they should lend to companies with AAA ratings. This, because it would serve little purpose to restore liquidity to banks if they continued to remain wary of lending.

In the aftermath of the global financial meltdown, banks and financial institutions have turned ultra-conservative in lending. "What purpose would it serve if the banks remain tight-fisted," said a bank functionary monitoring the tight credit situation.

The cut in CRR would effectively mean that banks need to maintain a smaller proportion of their reserves with the RBI, thus releasing more funds to lend. Similarly, the central bank foregoing the option of reverse repo would mean that it would not soak up money from the banks, thereby leaving them more funds to loan.

While the two measures are aimed at boosting liquidity, the proposal to cut interest rates is aimed at making credit available to companies at reasonable rates. As inflation rose, the RBI had successively hiked interest rates and though price rise remains an important concern for a government faced with looming elections, the government now strongly favours restoring liquidity.

Some companies have been apprehensive about CRR cuts easing the liquidity situation but inadequate to fund expansion plans. They argued that this would curb the momentum of growth.

While liquidity remains the prime concern, the government clearly feels the need to address market volatility as well. Hence the idea of banning short selling. Short selling means an investors sells of shares he does not possess. It has already been banned in the US, Italy and China in an attempt to check market downslide.

Experts are divided on whether it is an effective measure. Those against it point out that the month-long ban in the US, which has just ended, failed to achieve anything. In fact, they argue, the stocks protected by the ban only become more volatile and some of their prices dropped more sharply than others.

>Will the G-7 Save the World?

Here is what the G-7 will try to do this weekend:

* Take decisive action and use all available tools to prevent "important" institutions from failing.

* Take steps to unfreeze credit and money markets and ensure that banks and other institutions have broad access to liquidity and funding.

* Ensure that banks and other major financial intermediaries can raise enough capital from public and private sources to re-establish confidence and kick start lending to individuals and businesses.

* Ensure that each country's deposit insurance programs are strong and consistent to assure depositors their money is safe.

* Take action to restart the secondary markets for mortgages and other securitized assets.

If they can do the above things, the crisis should start to end. How quickly it will end and what will be the lingering effects are any one's guess.

Regards
Rish

>American Bankers wealth erosion

>Surviving BEAR!!!

A bear market refers to a decline in stock prices of at least 15-20%, coupled with pessimistic sentiment underlying the market. Clearly no stock investor looks forward to these periods. Don't despair, there is hope! In this article we will walk you through some of the most important investment strategies and mindsets that one can use to limit losses - or even make gains - while the stock market is performing in such a manner.

Be Realistic!
First off, having a realistic mindset is one the most important things to do during an economic slowdown. Remember that it's normal for the stock market to have negative years - it's all part of the business cycle.

After a raging bull market, it's easy to forget the bad times. To expect the market to grow at a 20%+ rate forever goes against everything we can learn from history. Occasional slowdowns are inevitable.

Where to Invest in Bear Country
There are a number of things you can do to protect yourself from bears - and maybe even eke out some gains. Let's take a look:

1. Play Dead - Stay on the Sidelines
During a bear market, the bears rule and bulls don't stand a chance. There's an old saying that the best thing to do during a bear market is to play dead - it's the same protocol as if you meet a real grizzly in the woods. Fighting back would be very dangerous. By staying calm and not making any sudden moves, you'll save yourself from becoming a bear's lunch.

Playing dead in financial terms means putting a larger portion of your portfolio on the sidelines in the form of money market securities. In a bull market, it is detrimental to have uninvested cash around because it isn't working to get the best potential return. This isn't true in a bear market because cash will hold its value (and earn at least some interest) when stocks head south. When the right buying opportunity comes along, you'll have the flexibility to go for it. Of course, this means you have to be timing the market to some extent, a task that is tough, if not impossible, to do precisely. However, the point is that during a bear market, even if you take some cash out of the market later rather than sooner, this may still prove to be a good decision if the bears rule for a sustained period.

2. Value Stocks
Bear markets can provide great opportunities for investors. The trick is to know what you are looking for. Beaten up, battered, underpriced: these are all descriptions of stocks during a bear market. Value investors often view a bear market as a buying opportunity because the valuations of good companies get hammered down along with the poor companies and sit at very attractive valuations. However, value investing is an art; not every stock in a bear market is a bargain, but this is a time when some real bargains can definitely arise. Take Warren Buffett, for example. He often builds up his position in some of his favorite stocks during less than cheery times in the market because he knows that the market's manic-depressive nature can punish even good companies more than warranted.



3. Short Selling
Another approach to a bear market is to adopt a more aggressive strategy. A short position allows an investor to profit as the stock heads downward. Keep in mind that the ability to profit on the other side of a stock is accompanied by substantial risks.
4. Bonds and Asset Allocation
Asset allocation proves itself during times of stock market underperformance. During economic boom times, investors are kicking themselves for not being all in equities. The exact opposite is true during times of economic hardship and stock market downturns. Having a percentage of your portfolio spread among stocks, bonds, cash and alternative assets is the core of diversification. How you slice up your portfolio depends on your risk tolerance, time horizon, goals, etc. Every investor's situation is different.

5. Defensive Industries
There are equity securities that generally perform better than the overall market during bad times. These industries have become known as defensive industries, or non-cyclical industries, because they refer to the defense they provide your portfolio in times when the stock market plummets. Here we are talking about the companies that reside within the industries that provide goods and services that consumers, governments and the economy as a whole will need come rain or shine.

A simple example would be household non-durables (things that get used up quickly) like toothpaste, shampoo, shaving cream, etc. Regardless of whether the economy is booming, people will still need to brush their teeth, wash their hair and shave. Despite this, there is still an element of stock selection within historically defensive industries.


Conclusion
As all these tips suggest, caution is the name of the game. By having your money on the sidelines or invested in bond funds, value stocks, defensive industries and, under certain circumstances, on the short side of a stock you'll be well-positioned to endure a bear market much more gracefully.Staying realistic and avoiding panic will also help you keep your assets out of harm's way.