Toggle Note --An Innovative way to keep defaulters low !!.!!

A PIK Loan is a type of loan which typically does not provide for any cash flows from borrower to lender between the drawdown date and the maturity or refinancing date, not even interest thus making it an expensive, high-risk financing instrument. PIK (payment in kind) is to be interpreted as interest accruing until maturity or refinancing. Toggle note is such a payment-in-kind bond, where the issuer has the option to defer an interest payment by agreeing to pay an increased coupon in the future. With toggle notes, all deferred payments must be settled by the bond's maturity.

Payment-in-kind Toggle notes is becoming an increasingly important part of the arsenal of private-equity firms as they pile debt on their corporate trophies. These "PIK toggle" securities allow borrowers to make a choice. They can keep paying interest on a bond, or they can defer paying interest until the bond matures, and in the process agree to pay an interest rate that is effectively higher. These Toggle notes provide firms with a way to raise debt while staying afloat during times of strained cash flow. When cash is at a minimum, the firm can use the toggle to defer an interest payment.

While this seems like an attractive option for the firm, it does come at a cost. The increased interest rate provides ample incentive to not miss an interest payment. But such new features are definitely in the interest of investors, because they help companies avoid default and complex bankruptcy proceedings.

Money and Brain..!!

A study has found that like the dollar signs in the eyes of cartoon characters, thoughts of money light up visual areas of the brain. An international team, led by California University, has found that thoughts of money light up visual areas of the brain, including a part of visual cortex known as “V1” which represents basic features such as edge orientation and color.

Researchers have based their findings on an analysis of brain scans of a group of volunteers as they chose between red and green targets that varied in value at different times. Selecting a target might yield ten cents or nothing. But those who made the right choices could earn up to $10. The findings revealed that rewards altered brain activation in many areas of the human visual system.

Activation was also seen in the frontal and parietal regions of the brain which have previously been implicated in anticipating and tracking rewards. Researcher John Serences said: “When a target has been valuable in the past — if selecting it had paid off with money — the visual system represented it more strongly. Rewards affected information processing, not just at a high level of cognitive function but right from the get-go. “It raises the intriguing possibility that we see things we value more clearly — much like the way the brain responds to a bright object versus a dimly-lit one.”

Plenty of factors go into decisions about things that we think are rewarding and the instant judgments of our brains may play just one part in a wider picture. For example, Serences said, our choices about eating ice cream or vegetables may depend on things like whether we’re on a diet.

Source:ET

Interesting--Salaried crorepatis double in 2 years !!

When on one hand the world’s hit with the global recession and where every now and then exists a fear of another bank being getting collapsed, on the other hand the number of taxpayers earning more than Rs 1 crore annually has doubled in just two years. And, for this increment the credit truly goes to the buoyant economic growth. Corporate sales and profits have risen by more than 30% in the last few years. That has encouraged companies to pay record salaries to their top managers, say tax experts.

According to data compiled by income-tax department, the number of salaried taxpayers earning more than Rs 1 crore (Rs 10 million) crossed 5,000 in fiscal 2008 from 2,200 in fiscal 2006. The total number of millionaires is much higher as it includes non-salaried taxpayers. The data on millionaires, gathered from employee tax deducted at source (TDS), shows the number of people earning between Rs 50 lakh and Rs 1 crore per annum has also more than doubled. It has increased from 4,400 persons in fiscal 2006 to 10,500 in fiscal 2008. The number of those earning more than Rs 10 lakh also increased to 2.24 lakh in FY08 from 87,000 in FY06.

Talking about the millionaires in India, the majority earns between Rs 10 lakh and Rs 20 lakh. In 2007-08, more than 1.5 lakh employees were earning in this income bracket. That is a 250% jump over 2005-06 .While TDS from those earning more than Rs 1 crore was Rs 4,415 crore, and those between Rs 10 lakh and Rs 20 lakh was Rs 5,770 crore. The number of taxpayers earning between Rs 5 lakh and Rs 10 lakh has also doubled in the last two years.(Source:ET)

But this pace may slow down in 2009-10. India’s GDP grew by 7.8% in the first six months of fiscal 2008 from over 9% in the previous year, and corporate bottom lines have also seen a similar dip.So,that will put pressure on salaries.

3-6-3 Rule - An unofficial banking rule !!

3-6-3 is an "unofficial rule" under which the banking industry once operated and which alludes to it being noncompetitive and simplistic. The banking industry of the 1950s, 1960s, and 1970s is often described as operating according to a 3-6-3 rule .The rule basically explains how bankers would give 3% interest on depositors' accounts, lend the depositors money at 6% interest and then be playing golf at 3pm. This alludes to how a bank's only form of business is lending out money at a higher rate than what it is paying out to its depositors.

In the past when the government implemented tighter banking regulations, the growth of the banking industry became stagnant as the regulations controlled tightly the rates at which banks can lend & borrow money. The regulations also included limits on the formation of new banks and their location However, these regulations loosened in 1980s and the widespread adoption of information technology such as the internet, banks now operate in a much more competitive and complex manner. The world of banking is never the same again! The banks are now providing insurance, brokerage and other forms of financial services.

S0, we can conclude this as :
3-6-3: The ‘unofficial’ banking rule - take deposits at 3%, lend at 6%, go play golf by 3 O’ clock; NINJA : No Income No Job Assets.

Twas the night before Christmas--from investopedia

Here's an interesting poem for the investors and people who are politically involved.I liked it and thought of sharing as it suits perfectly on this festive season..!!

'Twas the night before Christmas, and all through the house

Not a broker was churning, as they were home with a spouse;

The stocks had been researched and purchased with care,

In hopes that high returns soon would be there.

Investors were nestled all snug in their beds,

While visions of ten baggers danced in their heads.

The Investopedia Staff had done their week-long preach,

But they hadn't yet run out of things to teach.

When on CNBC there arose such a clatter,

Investors sprang from their chairs to see what was the matter.

Up to the TV they flew like a flash,

To hear the latest rumors and political trash.

The analyst picks - a normal part of the show;

But smart investors knew it was all so much blow.

When, what to their wondering eyes should appear,

But Warren Buffett, with something for investors to hear.

Click to continue reading further.... "Read more"...........

Wish you all a Merry Christmas-- A day of sharing,giving and rejoicing..!!!!!

Macaroni defense--

If I speak of Macaroni, my taste buds starts demanding it. but in business if you hear about Macaroni beware its not an invitaion for lunch or dinner. Rather it is a defensive tactic used by a corporation trying to defeat a takeover attempt by a raider or unfriendly bidder. The target corporation will issue a massive amount of bonds that must be redeemed at a mandatory higher redemption value if the company is taken over. The redemption value of these bonds therefore expands when the company is threatened-like macaroni when it is cooked-making the takeover prohibitively expensive to complete.

It is a type of shark repellent.Typically established in company bylaws by a Board of Directors, the strategy issues a large quantity of bonds that are redeemable above their face value in the event a company undergoes a merger. As a result, the acquisition price becomes prohibitively expensive and may seem economically unattractive.

To sum up, Macaroni Defense is an approach taken by a company that does not want to be taken over.This is a highly useful tactic, but the target company must be careful it doesn't issue so much debt that it cannot make the interest payments.

About Widow- And- Orphan Stocks --

Widow-and-orphan stock is relatively low-risk stock from well-known firms that pay high dividends. Widow-and-Orphan stocks are generally chosen during bear markets and ignored during bull markets. This is because these companies are perceived to be able to maintain their dividend payment schedule through difficult financial times. A widow-and-orphan stock is a conservative investment with limited possibility for large gains or losses. In brief it is a stock characterized by smaller than average price movements, a relatively high dividend, and little likelihood of dividend reduction or serious financial problems.

In the past, Widow-and-orphan stocks were considered to be among the most desirable of stockoptions . Some widow and orphan offerings were associated with companies that held a monopoly in a given industry. Utilities were/are often referred to as widow-and-orphan stocks because of their monopoly and dividend yield.

A Widow-and-orphan-stock was the blue chip stock of its day. Banks were excluded from this class as the result of their involvement in the bubble and crash of 1929. It was not until several years after the government-instituted regulations like the Glass-Steagall Act, which separated investment banking and "regular" commercial banking, that "widows and orphans" was again applied to commercial banks.

The term is noteworthy because it was generally used during market bottoms, but today it means something different.Stocks that were once viewed as a safe haven for very risk-averse investors changed .The reason may be because of the change in company's business strategy or the change in the market trends.

It is time to redefine the terms "widows" and "orphans"in this regards. Individual investors have been "widowed" by Wall Street, which, by following only big-cap, highly liquid stocks, has shifted its focus to serving the needs of institutional investors. "Orphan" stocks now are small-cap stocks (under $500 million in market capitalization) that have been abandoned by Wall Street. These widowed investors and orphaned stocks can be reunited, but it will require new ways of thinking by both the parties. Investors must realize that they need to take more responsibility in doing their own before taking investment decisions. In addition, the executives of orphaned stocks must take the initiative to get their information to the market of widows.