Housing bubble in US Many economists feel that the current financial crisis started with the housing bubble in the US. Price of houses in the US increased without the right fundamentals. When price of an asset increases without right fundamentals it is bound to fall. This is what happened to the housing market in US. Housing prices increased by more than 100% in the period between 1997 and 2006. With housing prices so high, it became an asset which earned more than 100% return. US investors looked at housing as an investment which guaranteed a high rate of return. But from where did they get money to finance. With easy credit conditions banks were more than ready to provide loans. The model in the mind of investor was simple. Take a loan and buy a house. After some time with the prices increasing sell the house at a premium. With money received pay off the loan and the remaining amount is  [...]

On Monday dollar declined on the back of St. Louis Fed president James Bullard’s comment that strengthened the expectation that US interest rate are likely to remain low for some time in future. James Bullard commented that the Fed should continue with its mortgage-related assets purchase program to stimulate the economy which investors took as an cue that the easy monetary policy will continue. Low US interest rates reduces returns on U.S. investments prompting investors to branch out of the dollar and hold other riskier currencies and assets with higher yields. Also gains in stock market and increase in gold and oil prices also undermined the position of dollar. With investors looking for an alternative investment to a declining dollar, gold prices increased to a record high of $1,174 an ounce. Gold is considered to be a hedge against the dollar because of its property of being a stable  [...]

The week started on a positive note with Dow reaching its highest level in more than a year. The markets were helped by a strong housing report and increase in commodity prices. The Dow Jones industrial average increased by a huge 133 points( 1.2%) to end at 10,450.95 points. This is Dow’s highest level since October 2, 2008. In early trading Dow increased by 177 points to reach 10,495.61 which is the highest trading level since Oct. 3, 2008. Other indices also showed an increase.  The Nasdaq increased by 30 points (1.4%) to close at 2,176.01.The S&P 500 increased by 15 points(1.4%) to close at 1,106.24. Since reaching its 12 year low on March 9 the Dow has increased by approximately 60% while Nasdaq and S&P have increased by 69% and 64% respectively. Sector wise all sectors registered gain on Monday with Telecom, Technology and Energy gaining the most of 1.6%. Other sectors  [...]

On Friday dollar again increased as investors showed preference for dollar against riskier assets like  stocks. The dollar index which measures dollar against a basket of currencies increased by 0.6% on Friday to 75.720. The euro declined by 0.5% to $1.4838 after reaching a two-week low of $1.4800. Against the yen the dollar was unchanged at ¥89.08. The sterling declined by 1% to $1.6483 and the Australian dollar declined by 0.9% to $0.9111. Against the Swiss franc dollar increased to 1.0182 Swiss francs from 1.0133 francs and against the Canadian dollar increased to 1.0714 Canadian dollars from 1.0626. The dollar has been helped in the entire week by weak economic data. Last week government released data showing that the jobless claims continues to be high and foreclosures are increasing. Weak economic data helped dollar as investors reduced their holdings of risky assets like stocks  [...]

With stocks falling on Friday the week ended on a low note with markets down for the most of week. The mood was clearly negative with investors not confident about the economy and the technology sector. On Friday the Dow Jones industrial average declined by fell 14 points(0.1%) to end at 10,318.16 points. The S&P 500 declined by 0.3% to close at 1091.38 points. Nasdaq composite declined by 0.5% to close at 2146.04 points. In spite of Friday’s decline Dow closed with a 0.5% gain for the week. Other indices S&P and Nasdaq declined by 0.2% and 1% for the week. Sector wise on Friday healthcare sector registered a growth of 0.6% mainly due to gain in pharmaceutical stocks by 1.2%. The other sectors that finished with gains were Utilities (gain of 0.2%) and consumer staples (gain of 0.1%). Like on Thursday energy stocks lost the most on Friday closing with a decline of 0.9% due  [...]

I don’t think there is anyone who has not heard or felt the impact of current financial crisis. In some way or other it has impacted all of us. Some have lost job and some had a pay cut or bonus cut. But how many of us really understand as to what happened and what went wrong. Yes we have all read in the newspapers about the causes of the financial crisis. For most of us it would have been financial jargon that just went over the head. We in simple terms are trying to put entire chronology of events that triggered the crisis. The current financial crisis has been labelled by many as the worst crisis since the Great depression of 1930’s with far reaching implications. It caused many of the big companies which otherwise looked invincible to break like a pack of cards, eroded consumer wealth to the tune of trillions of US dollar, saw contraction in GDP across the countries and broke the  [...]

On Thursday the markets again declined due to renewed concerns about economic recovery, strengthening of dollar and bleak outlook of the technology sector. The Dow Jones industrial average declined by 94 points(0.9%) to close at 10,332.4 points. The S&P 500 declined by 1.3% to close just below the all important  1,100 point level. The Nasdaq composite  which is heavily technology shares driven lost heavily by 36 points (1.6%) to close at 2,156.82. Technology shares on Monday took a beating after Bank of America Merrill Lynch downgraded the  semiconductor industry. The semiconductor industry was downgraded after two key software companies issued not so positive profit outlooks for the fourth quarter. Stocks of chip makers Intel and AMD declined the most by more than 3% Also after the trading day ended Dell Inc came up with its third quarter results which was short of analyst expectation.  [...]

Two factors bought the stock market down on Wednesday. Firstly the unexpected drop in new home construction which shook investor confidence and then not so great profit outlooks in technology sector. The Dow Jones industrial average declined by 11 points (0.1%) to end at 10,426.3 points. The S&P 500 (SPX) declined by less than one point to close at 1,109.8 points. The Nasdaq composite which is mainly technology shares driven declined by 10 point (0.5%) to end at 2,193.1 points . Sector wise technology and utility stocks registered the maximum decline of 0.5% each. Other sectors which declined included Industrials (decline of 0.4%), Energy (decline of 0.3%), Consumer Discretionary (decline of 0.3%) and Materials (decline of 0.1%). Sectors that gained included financials (gain of 0.9%), health care (gain of 0.4%) and Telecom (gain of 0.2%). Consumer staples closed the day at the same  [...]

The interest rates have reached rock bottom levels and probably everyone you know is taking a loan. The fed has also made it clear that the interest rates will continue to be at such low levels for some time in future. Hence you are all tempted to take a loan to buy that dream house or car. At the outset yes it does look like the perfect time to take a loan but we would still advice you to ask yourself few questions before taking the plunge. First of all ask yourself why you need the loan and whether you really need to take a loan. What is the purpose behind taking the loan. Is it to buy that dream house that you always wanted or that dream car.  If yes should I take a loan or I can finance with my savings which given the current low interest rate regime is anyways not earning much. We suggest that you clearly demarcate between necessity and luxury. If you want to take a loan for something  [...]

Maybe just a small blip in dollar’s downward slide but definitely worth noticing. The dollar on Tuesday  rebounded from its 15 month low on Monday. Looks like Federal Reserve Chairman Ben Bernanke comment in favour of strong dollar helped the currency as traders trimmed longer-term bets against the currency. On Monday Bernanke commented that the Fed is very much looking into the implications of changes in the value of dollar as US interest rates reach rock bottom levels. This was interpreted by traders as an indication that the Fed is worried about the current depreciation which can increase inflation in the economy. European Central Bank President Jean-Claude also came in support of the dollar. He clearly mentioned that a strong dollar is in the U.S. interest and that there are no plans for euro to act as a reserve currency in the near future. The impact of this interpretation was  [...]