Venturing a new idea in tough economic times

We have been discussing stock market movements over past couple of months. But for the last couple of weeks the results have been much pleasing than the older. Yet the times are still tough. Consumer's sendings has find it yet difficult to rise to its previous levels which is a key for a new venture.

The saying goes, if you can pull it off in tough times like this, you will shine forever. If you generates a great idea and a business based on it, and some how put the cogs together to pull out a great revenue, that business would be highly regarded. And would be easily pushed to the top of the list.

But the idea, the striking idea is what the main problem seemed to be in this tough times. Almost the industries are effected as they all at the end of the value chain struggle to sell the products and services.

The IT industry though was one of which yet to be harmed heavily, thus giving some potential for new ideas. If the economy continues to rise as it has been for past couple of weeks, it will definitely be something to look forward for not only Americans but the world!

Financial Crisis USA 0.3 Crude Oil & OPEC

The biggest decline in Crude oil prices from its height we saw in July.
So why did the oil price start falling like this after it was peaking to record high?

With the bad economy consumer spending started going down. With that demand for gas in developed countries start decline for the first time. With the bad demand, the expected decline in prices is what we are seeing now.

This week OPEC CEO Chakib Khalil had discussions about reducing the crude oil production to stop the fall of prices. With a low demand cut in quantity will help stop falling crude oil prices. But the question is, "is it going to help the global economy which is in the thin ice of a recession"

If as a result of this reduction of production of Oil, prices start going up, it will not necessarily help to boost the bed rock of economy; consumer spending.

If you have any comments about whats happening today with the crude oil prices and how it will effect your life, dont forget to leave a note here.

Financial Crisis USA; 0.2 Gold Price Collapses

Date: Oct 22, 2008

More and more interesting things starting to happen as we see US economy stumbling. Latest of all from businessweek is the plunged Gold price per ounce.

In this post I am going to relate the effect of market condition to my close venture, FAARO Jewelry.

The news was Gold price went down to $735/oz 13 month low (Businessweek.)Caused by stronger dollar created with high demand for dollar and the fear of global recession. As global recession fears have create huge fear in investors mind to cause another big loss for DOW Jones Index average.

Lets talk about the effect of this to our venture, FAARO Jewelry. Direct effect we experienced at FAARO inc. is where we use gold at first, which is FAARO manufacturing facility in Sri Lanka. Although this facility is located in Sri Lanka changes in Gold price at NY stock exchange are very well reflected in SL gold market. But FAARO buy gold at whole sale price from trusted suppliers, who would take several days to reflect this change in gold prices in their actual gold wholesale price. If we assume the wholeseller also reduce the Gold price to reflect the drop to $735/oz., at FAARO facility we can purchase Gold at lower cost with these conditions. With FAARO's FIFO inventory valuation method these changes will be very well reflect in Cost of Goods sold.

From managerial standpoint of FAARO, the drop in Gold cost will give us as option to cut back on our production cost of Jewelry (Gold jewelry, in particular.) With metal cost representing 43% of the cost of goods sold, this drop will make a big difference.

Overall, change in gold prices are not only helping FAARO jewelry buy gold at lower cost but it also create an opportunity for FAARO with the option of reducing production costs and cutting back on prices to better suit for slow economy.

I would really like to hear your comments about the today's topic; Gold and its implication to FAARO Jewelry. Please dont forget to leave your thoughts.

Financial Crisis USA part 1

So it would be shame to not mention anything about the financial crisis going on in the USA at the moment. As I have been following closely to the rollercoaster rides of the DOW Jones index, I have found some great sources of intellect.

So where did all this begin? the US war with Iraq?

Will this become a great depression like in 1930s? No, but the future generation will definitely call this "Great repudiation"
The root cause of this crisis lies on the foreign debt that US holds. There is a $3trillion debt hold by US over past few years. These were borrowed from countries like China, Germany, Japan, and Saudi Arabia. And US financial institutes used this borrowed money for mortgage loans. As we have been hearing all the time from SEC chairman Henry Paulson, and Ben Bernke, the loans offered to people who didnt have sources to pay them back are causing much of this lag in the money for financial institutions in US.

Any how, the $700 billion dollar plan to buy back troubled (above mentioned) institutions who got them selves screwed over by giving mortgages and lending money to people who didnt have a way of paying back, has increased the burden that US tax payer had. Which was about $30k per person.

Much of the plan to buy back stakes of US banks with that money, as we saw caused the highest gain in DOW. But declining again...
It might still not be the time to invest in the market to bag up the gains when DOW shoot up.

Economy: A bigger-than-expected drop in existing home sales and Ford's worst earnings report ever weighed on the market

Having passed a House vote, the housing bill -- revised with provisions for more explicit government guarantees of the mortgage agency portfolios -- is now headed for a Senate vote, which could come as early as Thursday.

Bill Gross, managing director of bond house Pimco, weighed in on the housing bill currently before Congress, calling the legislation that is designed to lower the cost of mortgage credit "the best way to begin the long journey back to normalcy" in the housing market.

New York Fed President Timothy Geithner, speaking before the House Financial Services Committee, warned that strong financial supervision will be needed to reduce the moral hazard of recent Fed and government backstops such as the Bear Stearns bailout and expanded capabilities of the Treasury and Fed to support the government-sponsored agencies.

Oil prices rebounded from their lows despite ongoing concerns about demand destruction as government data showed higher refined product supplies on Wednesday. August WTI crude oil futures settled $1.05 cents higher at $125.49 a barrel on Thursday.

Source: David Bogoslaw
Full Article: http://www.businessweek.com/investor/content/jul2008

Business USA: The Housing Abyss

The housing crisis is entering a new and frightening stage. On June 24, Standard & Poor's announced that the S&P/Case-Shiller 20-City Home Price Index had fallen more than 15% in April from a year earlier. Adjusted for inflation, the decline is the biggest since 1940-42, according to data collected by Yale University economist Robert Shiller.

The risk for the financial system and the economy is that the price drop, already horrifying, will start feeding on itself. When home values fall low enough, hard-pressed homeowners become less able or less willing to keep paying their mortgages. That forces lenders to repossess homes and then dump them back on the market at fire-sale prices, which depresses prices further and leads to even more foreclosures.

That process has already started in parts of Arizona, California, Florida, and Nevada. The drop in those markets "is being fueled with jet fuel," says James L. Smith, executive vice-president for portfolio services at Fiserv (FISY), a Brookfield (Wis.) company. His unit works with borrowers to restructure delinquent mortgage loans. Smith worries that instead of settling at a reasonable price level, "we're going to blow past [it] without even looking back."

Efforts by the private sector and government to stop the slide before it gets out of control haven't done the job. Poorly designed mortgage securities rife with conflicts of interest, as well as legal disputes over priority between creditors, are forcing many homes into foreclosure needlessly, accelerating the market decline.

Sure, Congress is expected soon to pass a huge legislative package aimed at preventing needless foreclosures and stimulating first-time home purchases. But many analysts and advocates are already warning that more dramatic measures will ultimately be required. "The depth of pain is not being registered in D.C.," says Mike Shea, executive director of nonprofit advocacy group ACORN Housing in Chicago.

That's not everyone's assessment, of course. Some economists and politicians say that policymakers need to focus on keeping inflation under control in the face of soaring food and fuel prices. They say that the effects of the housing bust will be modest and that low prices will attract new buyers. "We're seeing people go into the market that weren't there before," says Alfred A. DelliBovi, president of the Federal Home Loan Bank of New York. The Federal Reserve, which has already cut the federal funds rate to 2% without managing to save the housing market, hinted on June 25 that no further rate cuts are in store, warning that inflation risks have risen while the risk of slower growth has "diminished somewhat."

by Peter Coy and Mara Der Hovanesian
Full Story: http://www.businessweek.com/print/magazine/content/08_27/b4091032364818.htm