For Obama Lincoln was model President

For Obama, Lincoln was model president
http://www.cnn.com/2009/POLITICS/01/17/lincoln.obsession/index.html

2009 Economic Trends: US Economy to hit bottom in Jan end and rebound starting March

Even though economic data do not support rebound of economy as early as march begining. Based on my own analysis

• I strongly believe that economy will hit bottom by January end or Feb mid. And will start recovery begining as early as march.
• oil will hit bottom of $30 around Jan end and starting march will stabilize between $50 to $60.
• Dow will cross 10K.
• And most of all capital flow in the economy will increase.
• I trust infrastructure to be the fastest growing sector in North America in next 3-4 years.

Analysis:

US is consumer economy.

1. Analyzing the root causes of this economic crises. The root cause is housing market or in other words inability of people/buyers to pay mortgage.

going back 5 years with onset of outsourcing and globalization. Companies started laying of employees and exporting jobs. Loss of job means less spending, less spending means less revenues for the companies (including one which laid of people), less revenue means more layoff and hence creating downward spiral.

Now the people who lost jobs, decided to enter real estate business to make money, as banks and mortgage companies were aggressively developing new products allowing people to leverage more than capacity. And this whole thing started when buyer's limit got saturated resulting in sharp decline in demand. Decline in demand troubled short-term investors as they were not able to sell.

There is four dimensional anlaysis for my projection:

1. Now, looking forward, small businesses in US economy accounts for 40% of employment. Small business were down 80% in 2008. As per estimate 50% of these businesses will close in next 6 months if economy does not improve. Government is bailing out large institutions but there is no capital infusion in small businesses leaving them no option other than closing. Now, with President Obama who is focused not only on large corporation but also on small businesses, sentiments among Small Business owners and employees which is 40% of US work force will improve, resulting in increase in consumer spending. Which will stop downward spiral and support rebound.

2. If one closely analyze President Obama's last 10 years strategy and actions, you can easily see the influence of President Lincoln. Infrastructure industry grew significantly in Lincoln's tenure creating thousands of low and middle class jobs boosting economy. As per my analysis infrastructure industry will again flourish in Obama's tenure creating thousands of low and middle class jobs. In other words putting back those people back to work whose job loss initiated the problem.

Once President Obama will take office, I am confident he will declare policies supporting not only large and small business, but also about creating employment, which will immediately boost consumer confidence and hence possibly increase consumer spending. In my opinion, the cause of economic crises is lack of consumer confidence and consumer spending, and revival of consumer confidence will be the revival of US economy.

The analysis is supported by bottom up quantitative analysis industry by industry and then aggregate the results. Did some regression analysis to determine the coorelations between some of the qualitative factors I mentioned above combined with major (42) macro economic factors against industry, consumer spending, and GDP growth.

Should you have any further question, I would be happy to discuss.

Palak
pjain@cleartrade.net

Recent Trends in Power & Infrastructure Sector in Emerging Markets

Recent Trends in Power & Infrastructure Sector in Emerging Markets are:
Positive Trends:

• Due to recent focus on clean tech, I anticipate the carbon emission rating prices to increase significantly in future. And it is carbon credits which make renewable energy projects most attractive returing superior risk adjusted returns.
• Cash flow crush has made equity quite cheap offering attractive valuation to smart and long-term investors.

Negative Trends:

• Initiation of new projects or expansion of existing capacity is declining due to recent economic slow down
• Capital inflow in non-operating infrastructure projects has dried up due to higher macro economic risk in future
• Almost 50% of power generation projects currently under development in India has halted due to lack of capital
• The waiting for Power Generation Equipment got reduced from 5 years to 3 months at some companies
• As per number the GDP growth rate is expected to be between 5 to 7%. But the real industry growth rate in terms of new projects, new investments is less than 2 - 3%.

More tomorrow. Should you have questions feel free to email me at pjain07632@yahoo.com

Risks Embedded in Energy & Infrastructure Sector

Major Investment Risks in Energy - Power Generation Sector

• Coal blocks for thermal power plants. High grade coal is in shortage in emerging markets. Getting coal blocks for nearest coal mine is of essence to the succcess of power plant. Recently many companies have started importing coals from other countries but the transportation cost increases the cost per unit trememdously significantly reducing the ROI.
• Land allocation is another major risk faced by developers. As it require clearances from residents, avaition, forest and several other departments before land could be allocated for commissioning of power plant.
• Timely competion of power plant and within budget is major risk. Based on historic data 70% of energy & infrastructure projects overrun cost by almost 100%.
• Macro enonomic risks. As it take 5-7 years for commissioning of power generation projects. And there after the payback period is usually about 10 years. even though power generation companies are more resistant to economic cycles, but if the split between residential and commercial demand is skwed more towards commercial and industrial sector, the risks decline in demand increases with decline in GDP growth.
• Political Risks. In emerging markets government plays very crucial role in the success of infrastructure projects. For example in power sector in India, there is only one Power Transmission Company which is quasi government body. Hence every power generation plant needs to work with Power Transmission Company to transmit power from plant to consumers. Secondly in emerging markets majority of public utility companies are owned by government, hence state or central government is the largest buyer of power. Therefore any change in power at the center or state level combined with change in leadership at the PSUs can signigicantly impact the profitability of power plant negatively or positively.
• Several other risks include cultural risk, social risk, management risk, corporate risk.

Rest to come tomorrow .... keep tuned to this blog

Emerging Markets - Benefits of Investing in Power & Infrastructure Sector

Power & Infrastructure Sector in emerging markets is still somewhat immune to recent financial meltdown as evident by some of the recent deals in the sector and closing of new private equity funds.

Some of the most important benefits of investing in Power and Infrastructure Sector are:

• Significant underlying asset base, whether through ownership of, or contractual or concession based rights to the economic benefits of, the asset base;
• Relatively low volatility return, given that, in general, the main risks to cash flows can be quantified and mitigated through contractual agreements and other means;
• Primary value creation through optimization of capital structure with less of a focus on planned transformational and operational change than would typically be seen with a private equity asset;
• Low correlation of returns to macro-economic cycles, given the essential nature of assets and services provided by the businesses, which leads to high barriers to entry and relative price inelasticity;
• Partial correlation of returns to inflation; and
• Potential for material capital growth including gains from refinancing.

Blog on Risks of Investing in Power & Infrastructure Sector will posted tomorrow.

Palak (Jane)