Economic Growth and Yield Spreads on Debt paper – Back to School

Recently sharing and discussing on the economic growth and the debt market yield spread impact recalled me some blogwork I did in the past and its worth sharing,

The abstract was based on the evidence that yield spread can serve as a leading indicator of economic activity.It’s important to understand few basic concepts before moving forward:

YIELD SPREAD: The difference between yield of long-term debt and short-term debt instrument is known as yield spread. Higher the difference between instruments greater will be the yield spread.

For example, if the 05-year Treasury bond is at 3% and the 20-year Treasury bond is at 4%, the yield spread between the two debt instruments is 1% (4% – 3%). Continue reading “Economic Growth and Yield Spreads on Debt paper – Back to School”

Welcome the Uncertainty

Prof Aswath damodaran is an authority on Corporate Finance, sharing his latest post where he defines why we should welcome the blogUncertainty. If you can value companies early in the life cycle, you cannot do so with any degree of confidence. I concede that point, but that is exactly why I would try to value them!

I know that statement makes little sense, but to solidify my argument, take a look at the following list of five assets/entities and rank them on the basis of the confidence you will feel in valuing each one.     Continue reading “Welcome the Uncertainty”

The RBI Move

I was on small vacation to my home town during the first half of the week and RBI made the big news by announcing several steps to imagesstop the slide in the Indian rupee on Monday, which hit a record low of 61.21 last week. RBI came under severe criticism let’s try to analyze in 10 points the action and effects:-

1)      RBI has increased the Marginal Standing Facility (rate at which banks borrow from the RBI using their statutory liquidity ratio securities as collateral) rate. So far, banks (bearish on the rupee) borrowed from call money markets and bought dollars in the forward markets expecting the dollar to rise. Since, borrowing short-term money will now be costlier; banks will most likely cut their forward positions and reduce speculative trading. This will reduce pressure on the rupee.  Continue reading “The RBI Move”

Is it the final Quantitative Easing

The Stock Twits did a great job on the never ending Quantitative Easing . As T.S. Eliot said The end is where we start from.A

Below are nine points  believe are the key going forward:

  1. The Fed is not uncomfortable yet with the level of market speculation, complacency and asset price reflation – but it is totally and completely aware of what we’re up to.
  2. The castigating rhetoric of hedge fund managers emanating from both Sohn and SALT, whose tongues loll out of their mouths from their break-neck pursuit of the runaway benchmark indexes, has not been lost on the FOMC. Voting members are not only aware of the effects their policies are having, they are aware of the perceptions surrounding them as well. Continue reading “Is it the final Quantitative Easing”

Trade Cycle: School-To-College

A1amuXHCMAAqdR6The trade cycle refers to the ups and downs in the level of economic activity which extends over a period of several years. This is also known as Business Cycle or Economic Cycle.

Definition: The term business cycle (or economic cycle) refers to economy-wide fluctuations in production, trade and economic activity in general over several months or years in an economy organized on free-enterprise principles. These fluctuations occur around a long-term growth trend, and typically involve shifts over time between periods of relatively rapid economic growth (an expansion or boom), and periods of relative stagnation or decline (a contraction or recession). Continue reading “Trade Cycle: School-To-College”