Saturday, December 19, 2009
Below is a news clipping from the Economic Times newspaper - 18 Dec, 2009.
Retail Prices are in Rs/Kg. ( 1 USD = INR 47 approx)
Rising food prices are always a concern in a developing country where a large percentage of the population spends over 50% of their daily income on food.
Insufficient rainfall has also resulted in severe water cuts in the city of Mumbai this year. It's going to be a long wait till the monsoon returns by June 2010.
Thursday, December 17, 2009
Well I'm guessing you already know what I think, but here's a recap.
My December 15, 2009 post.
Bernanke: Why are we still listening to this guy?
My December 4, 2009 post
Sen. Bunning lashes out at Bernanke
Here are some more links
Calling The Time "Person Of The Year": Jackass
Bernanke Named Time's 'Person of the Year' The Big Picture
TIME’s Person of the Year 1927 – 2008 (George Bush Jr was on there twice!)
Well all is well in the world. Obama wins the Nobel Peace Prize and Bernanke is TIME Magazine's man of the year.
Just like Wall Street bankers in 2007, he's being 'congratulated' before actually getting the job done and well before we know what the consequences of his actions will be!!
Is his medicine going to be too toxic for the world's financial markets in the long run?
- Failing to control subprime lending in 2006-07 as also a massive bubble in the US Real Estate market. He may not have had jurisdiction over the investment banks when he took up the job, but he made no efforts to clamp down on reckless lending by US commercial banks to the real estate sector. Instead of slamming the brakes on an ''overheating'' property market, he just chose to clean up the mess once things fell apart!
- Then buying all kinds of ''toxic securities'' to support collapsing investment banks and AIG!
- Preaching a strong dollar policy, but doing everything to damage its long term fundamentals.
- Massive increases in money supply and government debt are going to be key threats to any sustainable recovery in the USA .
- Just like the Japanese post 1989, he has resorted to bailing out zombie banks and maintaining record low interest rates for 'extended' periods - Once again, that's not going to work!.
My main issue with Ben Bernanke at the FED, is that this guy never saw the crisis coming at all! That to me is just unacceptable!!!
For everyone's sake, let's hope he has better luck anticipating/ preventing/preparing for the next crisis!
Central Banks and finance ministers the world will be looking to Bernanke for leadership, market direction and advice in 2010 as they try to roll back subsidies and gradually reduce their supporting grip on the so called 'free markets'.
According to me, that's the biggest danger we face as world economies struggle to recover from a really toxic, exhausting and chaotic 2008 and 2009!
Wednesday, December 16, 2009
Creditworthy customers are hard to find and in an uncertain job market, US Commercial banks aren't taking any chances.
According to David Rosenberg, ''In the third quarter, it contracted at a record $1trillion at an annual rate (over 9% decline - also a record).''
Here's a link from the New York TimesLink: Poll Reveals Trauma of Joblessness in US
It's obvious why banks are just refusing to go all out issuing loans again - they don't want any more non performing loans. This downturn is far from over, and the banks know it.
Over the last couple of weeks, large U.S. Financials have been raising more capital via fresh equity issues.Yes, yes repaying the TARP! They want to get their 'equity dilution' done while the going is good.!
And yes, while they may be going slow on the lending front, they are 'confident enough' of the uncertain business environment ---- to go ahead with bonuses to bankers this Christmas.
But there again, if you had the U.S. Treasury and the FED to backstop your losses and bail you out of crazy leveraged transactions - you would be confident too!!
Tuesday, December 15, 2009
Just incredible how wrong an ''expert'' can be.
Be careful when you blindly follow expert advice!!!
While the crisis of 2008-2009 may have been the ''mother of all crises''; the very fact that the guys in the driving seat may have been 'making things up as we went along' is extremely disturbing.
After failing to forsee a crisis; to compound the fallout by resorting to short term fixes, instead of long term solutions is just tragic!
Friday, December 11, 2009
Issues like unemployment, real estate meltdowns and debt concerns continue to haunt the ''green shoot recovery'' in Europe's weaker economies
Coming to Greece, Fitch Rating cut Greece's rating to BBB+, on lingering worries of an ever expanding deficit of 12.7% of output --- that's way over the EU limit.
Greek Swelling Deficit a Concern for Euro Area, Almunia Says ...
FT.com / Brussels - Brussels to rebuke Greece over budget deficit
Concerns over Greece's $350Bn debt resulted in the Greek/German 10yr yield spread widening to over 200bps
Greek/German 10-yr yld spread widens above 200bps | Reuters
The equity markets in Greece have pulled back sharply as well.
Just goes to show you how quickly these fragile stock markets can give up recent gains!
Clearly, the the aftershocks of the 2008 meltdown and subsequent credit contraction and asset deflation, continues to spit in the face of Wall Street's 'green shoot recovery'.
Wednesday, December 9, 2009
Tuesday, December 8, 2009
Firstly, here's her post.
Copenhagen Incompetence: Hot Air For Global Cooling
........ and then the link from the Telegraph in the U.K.
Copenhagen climate summit: 1,200 limos, 140 private planes and caviar wedges – Telegraph
Yes, you read that right, these guys are going all out to save the planet.
If limos and private jets are what it takes, then so be it.
This brings me to the main point I want to discuss.
Politicians and government bureaucrats the world over are the same - always attempting to fool all of the people all of the time.
I'm not going to get personal here, but I despise them all equally.
They love summits, conferences & trade talks!
Breaking promises and commitments is just second nature to them, and as for change for the better or the first foot steps in the right direction, well they're just not up for it!
Their performance in the boom time that led to the crisis and the subsequent meltdown and now the ''magical recovery'' tells the whole story.
- Failing to curb, control or regulate a speculative boom in real estate, but instead proclaiming that the whole world had entered a new era of never ending growth. Continuing to lend to sub prime borrowers who would be prime default candidates if things took a turn for the worse. But then why would the government bother, when everyone was getting rich by speculating!
- Post the meltdown, refusing to set up any viable long term solution, but instead looking at short term fixes. Cash for clunkers being a case in point. Why not try setting up cross country railroads instead. Oh wait! I forgot about the automobile lobby!
- Continuing to encourage more borrowings at a time when individual debt levels are rather high. Then resorting to massive increases in money supply and government borrowing, as lenders of the last resort to everything and everyone in the ''free market'' economy.
- Always coming up with solutions that involve decisions that have to be taken immediately. Like the TARP ...........If we don't do it now it will be too late etc etc
- Nevermind that the lines between governments and banks in the west are blurred, but to tamper with accounting practices and then refuse to curb, regulate and control the ginormous derivatives market, well that's just suicidal.
- CHANGE- Well that often means 'more of the same', a plan that usually involves more borrowing and spending. ''Change'' is also used as a general diversionary & distraction tactic. Take Climate Change for example. I know it's a real concern and long term problem, but it's not an issue that came up yesterday. Sadly no long term fixes here, these guys are just using it to divert attention away from other pressing issues - unemployment, banker bonuses, massive massive government debts etc. And once again the public is going to fall for it!
Well that's the end of my rant!
We live in uncertain times, and anyone who advises you to take on more debt or more risk, obviously has pre - planned his own bailout package!
It's actually a time to pay down debt and avoid speculative investments.
Focus on capital preservation and conservative fixed income generating strategies that will stand you in good stead if things take a turn for the worse.
Friday, December 4, 2009
Wednesday, December 2, 2009
As David Rosenberg said in his update this Thanksgiving, FOMC estimates are quite wide. Take a look at his charts on this.
Friday, November 27, 2009
Dubai's debt funded real estate expansion, continues to haunt the U.A.E.
Palm islands, a world map and many other developments all funded by a mountain of debt.
An investor driven Dubai real estate market, has continued to struggle even as the world has announced that ''the recession'' is now behind us.
Actual users are outnumbered by speculators and house ''flippers''.
Everyone is in the market to 'make something for nothing'
The Dubai debt deferment announcement has taught us, that not much has changed since the dark days of the collapse of Lehman Brothers.
- Debt levels continue to stay alarmingly high.
- Real estate companies in the U.S.A are refusing to stall new projects even as the current ' property glut' continues to drag down prices. (yes they did stall projects after the March 2009 meltdown, but subsequently, companies are building inventory once again)
- Asset prices continue to be propped up by bailout packages and ''questionable'' accounting practices.
- It's quite obvious that unrealistically high property prices need to come down to more realistic levels. The longer that market forces are suppressed, the longer the eventual recovery will take.
- For the record, Dubai isn't bankrupt yet, but it is facing a ''liquidity crunch''. They must rollover their debt until they can bring their real estate inventory down to a more sustainable level....and avoid a property fire sale! That's going to be a mega task!
- The main problem they face, is that their ''frightened'' lenders must accept a delay and some uncertainty in the near term.
- Lastly, it's not just Dubai! Governments all over the world are pushing debt funded stimulus packages to boost or support real estate prices and keep consumer consumption from falling off the cliff! While these tactics may delay the eventual collapse of an unstable system, they are not a long term solution
Thursday, November 26, 2009
Take the Dubai property market for example - Skyscrapers and man-made islands:
way too many speculators, very few actual users, and all of it supported on a mountain of debt.
That's just asking for trouble.
Everyone has heard of China being the ''factory'' of the world, after all - everything seems to be ''Made in China''.
I've been scanning google links on the overcapacity in China's Industrial sector.
China Overcapacity Wreaks Global Harm, EU Group Says
Steel Guru : Strong demand leading to steel overcapacity in China
China's September data suggest that the long-term overcapacity ...
- 'savings led investment'
- adequate risk capital for lenders
- fair and non manipulative accounting practices
- a sound banking system.
Wednesday, November 25, 2009
Tuesday, November 24, 2009
Monday, November 23, 2009
Emerging markets have been a prominent beneficiary of all the global stimulus packages and Central Bank money printing and bailouts.
As most of you already know, I have not been very active in the equity markets recently.
Looking back, maybe I should have done a lot more buying in March! My current strategy is to continue to sell into the rally here in the Indian Markets. Aaaah the benefit of hindsight!
Stock specific opportunities may come along, but risks outweigh rewards at this stage of the game.
Going back to the MSCI Emerging Markets Index chart above, its quite clear that markets have had a fantastic run.
In the year 2007, when bubbles were everywhere, the above index scaled to just over 1250!
After the horrors of the last two years, investors seem to be getting urealistically optimistic and greedy at just the wrong time.
Here's a snapshot of whats going on:
- Soaring government debt is replacing sinking private sector debt.
- Real incomes continue to shrink, and debt levels are unsustainably high.
- Falling home prices and underwater mortgages are adding to the toxic waste in the books of Freddie Mac and Fannie Mae.
- Mark to market accounting has a whole new meaning these days!
- Investment Banks are all set for a round of mega bonuses, even as their shareholders, the government and regulators stand by in silence. Bailouts to Bonuses!
- Oil prices are near $80, despite an usually high inventory level. ( maybe the sliding USD has helped the upward surge in oil prices )
- Unemployment is rising, and further cost cutting by companies may result in further layoffs. Underemployment and youth unemployment are topics almost never covered by the media these days.
- Emerging market exporters are struggling to hedge their forex risks in a volatile currency market. Meanwhile, their customers in the developed world are stuggling to pay down debt and for the first time in years are looking to cut back on expensive purchases this Christmas.
- Commodity driven emerging markets like Brazil and Russia remain vulnerable to a collapse in the prices of industrial commodities if the ''recession worsens''
To sum it up, the risk reward ratio is not in your favour at this stage. A low base effect may help boost year on year results for the quarters of December 2009 and March 2010, but the rally is getting rather long in the tooth
Invest, trade and speculate at your own risk.
Sunday, November 22, 2009
Friday, November 20, 2009
Here is a chart by Clive Maund, from his Kitco update on Nov 16, 2009.
Monday, November 9, 2009
I'm doing 'God's work'. Meet Mr Goldman Sachs - Times Online
Goldman Sachs Head Says Banks Do 'God's Work'
While the Times enjoyed highlighting the sensational headline on Sunday , the article is worth a read.
It's incredible how these guys just don't seem to understand that systemically dangerous leveraged trading bets are exactly what caused this whole crisis in the first place.
Goldman almost went under last year, but because the government bailed them out last time; they're now back to their speculating best!
They refuse to acknowledge any wrongdoing and are convinced they are making the financial world a better place. Bonuses are their rightful reward!
GREED or ARROGANCE or SCAMMING THE SYSTEM, it's the kind of attitude that does more harm than good.
It's a party when all's going well, but it almost always ends in tears.
I don't think the guys at Goldman Sachs understand the anger of a hungry, unemployed & disgruntled blue collar worker who is struggling to make ends meet.
It's this 'in your face' insensitivity & 'let them eat cake' attitude that leads to molotov cocktails and angry mobs.
Watch this space!
Saturday, November 7, 2009
Friday, November 6, 2009
Lastly here's yesterday's post from The Automatic Earth Blog.
Here's an excerpt
Dylan Ratigan in conversation with William Black:
Ratigan: We have legalized the casino gambling with taxpayer money, literally. It is legal for proprietary trading, which is idle speculation, although perhaps well informed and profitable, with the use of taxpayer insured assets.
Black: We not only legalized it, we backstopped it. If you win, it all goes to you, if you lose, it all goes to the taxpayers, and the American people. That is insane. Everybody knows that’s insane."
Gold prices have continued to rise and are now nearing $1100.
I think that prices are overbought in the near term and that a pull back is coming.
In just 10 days, we are up over $60!
India's Central Bank - 'The Reserve Bank India' bought 200 Tons of Gold from the IMF this week. As usual, this news got hardly any coverage in the financial media.
I mean '''Goldman Sachs bonuses''' get more coverage than a $6.7Bn gold purchase transaction!!!
Last month, I posted an article detailing India's shrinking Gold imports this year.
It's good to see the RBI diversifying India's forex reserves at a time when gold imports by the Indian public are falling.
The USD may not collapse tomorrow, but monetary and fiscal policies being implemented in the USA are clearly unsustainable over the long run.
You simply cannot borrow your way to prosperity, and that's something that Bernanke and Geithner just don't seem to understand!
The USD meanwhile attempted a rebound from recent lows, but has failed to make a meaningful comeback so far.
It going to get 'choppy' out there, so expect more volatility in coming weeks.
Tuesday, November 3, 2009
Let's take another look at the Central Bank's comment:
"'prudent to lessen gradually the degree of monetary stimulus.'"
Are these guys worried about Inflation, Deflation, Stagflation, Asset bubbles or just ADDICTION to monetary stimulus ?
While I do think that rollback of stimulus packages is impossible ( imagine how the stock markets would react!), longer term this free lunch policy is going to cause more imbalances and instability.
Can the Central Banks really start hiking rates aggressively when the 'real economy' is still struggling? - NO
Can rates go up drastically when governments have so much more borrowing to do? -NO
As Marc Faber famously said -its time for Central Bankers to shut the 'Bar' down -its way past last orders anyway!
........only question is........just how are they going to do it??
Saturday, October 31, 2009
Poor economic data and then GDP data that beat estimates.
The Bearish News Blog has more analysis on Q3 GDP
Dissecting The “Rosy” Q3 GDP Data
The USD stages a comeback, and then loses ground, only to try to claw its way back yet again.
Friday, October 30, 2009
I've been posting quite a bit on currencies recently.
While everyone's been analysing EUR/USD, GBP/USD, USD/CHF etc etc....here's a fresh take on the continuing slide in the USD.
USD/BRL is currently around 1.7550BRL to 1USD. In December 2004, it was well over 2.4O BRL to 1USD.
Being one of the emerging BRIC nations, this 'commodity and natural resources driven economy' has attracted significant fund flows as money moved away from the USD.
A quick glance at the USD/BRL chart below shows that USD has lost over 37% vs the BRL over the past 5 years. It's important to remember that the BRL is a 'commodity currrency', ie. it closely tracks the movement in commodity prices.
(Falling commodity prices are positive for the USD and negative for the BRL)
This explains the collapse of the BRL when commodity prices collapsed in July 2008.
Let me also mention that Brazilian Interest rates are nowhere close to the 'almost zero' interest rates in the US. At their Oct. 21 meeting, the Brazilian Central Bank rate committee members voted to hold the country's Selic base interest rate unchanged at a record low 8.75% annually.
Brazil plans to impose a 2% tax on foreign capital inflows toward equities and fixed-income investments in an effort to slow the ongoing appreciation of the country’s currency.
And while we're at it, let's not forget to compare the performance of the Bovespa ( Brazilian Equity Index: ^BVSP) vs. the DJIA. (the Chart says it all!)
The chart of USD Gold vs BRL Gold is also interesting. Gold has been rallying in all currencies.
So what exactly does this blogger make of all this?
Firstly, I must confess to be no expert on the Brazilian economy or currency.
What I can tell you, is that we are witnessing a gradual empowering of countries in the developing world, primarily the BRIC nations.
These are countries with significantly higher savings rates, hard working populations, cheaper labor rates and significant natural resources in the case of Brazil and Russia.
Brazilian blue chip companies are well known the world over - Vale: the world's largest iron ore miner & the petroleum giant -Petróleo Brasileiro S.A, better known as Petrobras to name two!
As I watch the latest 'Mega' Bond auctions in the USD sail through smoothly for now, I wonder how long it will take for the emerging BRIC nations to gradually stake their claim as dominant and financially strong members of the world economy.
The members of the once dominant G5 : France, Germany, Japan, the United Kingdom, and the United States.
The BRIC nations are : Brazil, Russia, India & China.
It's not going to be smooth sailing all the way through, and the BRIC nations are not insulated or decoupled from the ongoing collapse of consumer consumption and the banking sector pandemonium in the developed world,.................................. but over the long term, I'm betting on the BRIC guys!
Thursday, October 29, 2009
Wednesday, October 28, 2009
After sliding against most currencies since the start of the year, there are now calls for a USD bottom. Over the last few weeks, I cautioned Gold bugs about taking fresh positions in Gold, given that the USD was considerably oversold at the time.
Reasons for the USD rebound?
The USD has been quite oversold for a while, as money was flowing out of the USD to riskier assets - and equity markets everywhere got their fair share of this fund flow. Is the party over and will we see fundflow reversing back to the USD?
US Consumer confidence continues to stumble: Clearly the guys on Main Street aren't having as good a time as the suits on Wall Street. Could it be that this recovery is built on a foundation of sand!
Sceptics, contrarians and some conspiracy theorists find the timing of the USD rally and bad economic data quite convenient, given the on going mega USD Bond auction.
Its great to have a USD rally when you're having a humongous debt sale!
USD Carry trade: It seems that the USD has recently become a favoured borrowing currency for carry trade. You can thank Bernanke for his almost zero interest rate policy!
It's always risky when the borrowed currency is oversold. (Look at the 3rd chart)
As the stock markets start to correct and carry trades are unwound, we could see the USD rally still further.
Lastly, could this all be a movie trailer of the 'strong USD ' policy of the USA, before the G 20 meets next month. I mean the Chinese and the Europeans aren't too happy with the performance of the 'strong USD' policy of the US Treasury so far.
It's too early to say if the USD has turned the corner for now.
For the record, I continue to be a long term USD Bear. Bear market rallies in the USD should not be confused with any significant improvements in the fundamentals of the USD!
Stock markets globally have been searching for reasons to continue their upward rise, and did look rather overbought! A USD rally has almost become a reason to sell stocks!
Unwinding carry trade is USD positive.
GOLD: It too was looking for a reason to correct. I think that any consolidation in the PM space is good. Its better to see a stable and sustainable rise rather than an unsustainable short term spike. A rallying USD could see gold drift downwards, as punters and traders close speculative positions in gold.
EDIT: US Dollar Future and a World Currency - by Chris Laird of 'The Prudent Squirrel Newsletter'. He's one of the 'experts' I pay close attention to
Friday, October 16, 2009
Besides, the 'buy and hold' investing approach got you nowhere at all !
While everyone seems to be talking about the recent slide in the USD, as the EUR/USD chart below shows, the USD has been weak since early 2002!
This brings me to a topic I will cover in my next post.
'Can the USA devalue its way to prosperity ? '
Thursday, October 15, 2009
Take a closer look at the red line representing USD gold.
As a result of the recent slide in the USD, gold priced in USD has risen to new highs!
Also note that the GBP is one of the weaker major currencies in this non USD currency rally.(which has resulted in the massive rally in gold priced in GBP)
Friday, October 9, 2009
Barry Ritholtz has more on this
On a really long term chart, the current rise isn't parabolic at all!! Its been a good ten years since prices bottomed out in 1999.
The rapid upmove in the precious metal, has given it front page coverage in the financial media.
The USD slipped below 76 on the USDX.
Ongoing momentum could depress it still further, despite the fact that it looks oversold
"""As David Rosenberg said - FEAR seems to be driving all asset classes these days.
Equity - Fear of missing the party
Bonds - Fears of deflation and Equity collapse
Gold - Fears of ''the end of the dominance'' of the USD, and general uncertainty. """
The biggest threat to the ongoing gold rush in my opinion would be a steep reversal in the fortunes of the equity markets ( that look overbought - ie: 60% rally despite rising unemployment) that would result in an equally sudden rebound in the currently oversold USD.
Ofcourse I could be wrong and gold prices could rocket still higher. ( I wouldn't mind it if they did!!!!!)
But I advise caution as far as fresh buying is concerned.
Buying anything near its all time highs( even if only in nominal term) always has its risks.
So place your bets accordingly!
Wednesday, October 7, 2009
DEUTSCHE BANK—Gold will move above $1,100 an ounce during 2010, and the dollar versus the euro will hit $1.60, a level last breached in July 2008.
RBS GLOBAL BANKING & MARKETS —Gold will average $950 an ounce in 2009, to rise to $1,000 in 2010.
STANDARD CHARTERED— Bullion will average $1,050 an ounce for the fourth quarter of 2009.
BANK OF AMERICA/MERRILL LYNCH— Gold prices will hit $1,500 an ounce in 2011 when oil prices move back above $100 a barrel as emerging market growth creates shortages."
EDIT: 7 October 2009 : The Culture of Life News blog has an interesting post on this:
Secret Meeting Discussing Dumping US Dollar As Oil Currency ...
EDIT: 9 October 2009 : Jesse's Cafe Americain has an excellent note on Gold
Tuesday, October 6, 2009
He's in the LINKS list just below the Blogroll.
Here is the link to the cartoon:
Sep 18, 2009 Cartoon
Monday, October 5, 2009
It's hard to believe how much the financial landscape has changed over the past 2 year ( Merrill, Bear Stearns etc).
At a time when caution is warranted, many are still leveraging up, expecting the party to resume. Over the last seven months equity markets have rallied from 'panic lows' to levels that are clearly not sustainable, with current unemployment and debt levels.
'End Cycle' valuations are here again it seems.
As they say in financial fine print - Caveat Emptor!
Friday, October 2, 2009
Container trade volumes and ocean freight rates have not mirrored the recovery in stock prices.
Here's more on the Baltic Dry Index.
Thursday, October 1, 2009
Since markets hit their panic lows in March this year (yes, we can say so now, with the benefit of hindsight!!!!), the rally has been spectacular.
The world economy may not have recovered, but markets have clearly run ahead of themselves.
Below is some P/E ratio data from a recent article in the Business Standard newspaper (Thurs 29, September 2009).
Source: Current market valuations leave little scope for profit-making
It's worth remembering that markets usually overshoot both on the upside and the downside.
A quick glance at some sector P/E Ratios, and you could well think that we are back to the days of an invincible bull market.
P/E Ratios in the 25-30 x range leave no scope for disappointment.
If you exclude commodity sectors like cement and non-ferrous metals, the average P/E is even more expensive.
Risks to the economy still remain:
The monsoons this year have been rather unsatisfactory.
As stimulus packages are gradually withdrawn, sectors like autos and textiles could face head winds.
A global rally built on foundations of '''ginormous''' government money printing, stimulus packages, bailout packages and debt -----> can last longer than some bears can stay solvent.
...and when bears start to reluctantly convert to the bullish camp, it's time to take a step back and analyse your investment profile.
While you don't want to miss out on the party, it's probably more advisable to sell into the strength than buy anything now.
The risk -reward ratio is clearly not in favour of the long only investor.
Tuesday, September 29, 2009
I've been reading the autobiography of J.Paul Getty - As I see it. It's an interesting read.
He begins with a quote from President Abraham Lincoln.
No one's focusing at the mega structural issues or excessive debt in the system!!!
While their premature self congratulation may be tested by market forces once stimulus packages are withdrawn, it's all good for now.
I remain concerned about stock valuations that leave no margin of safety. This could turn into a risky proposition if the world economy suffers a relapse.
The unwillingness of world leaders to find a sustainable long term solution and instead seek short term fixes ( cash for clunkers etc) is especially worrying. These guys should take note of President Lincoln's quote!
Gold prices struggled to stay above $1000, and are currently trading near $990. The USD has continued to stay weak on the back of increasing risk appetite. While the USD is looking oversold, its good to see gold prices continue their consolidation in the sub $1000 price band.
More updates soon.
Monday, September 7, 2009
The Bullish Bear is going on vacation !
Here's a round up before I go.
- Stock Markets everywhere continue to ignore the risk of a possible relapse.
- Valuations leave little or no margin of safety for any disappointment
- While companies are ''surpassing estimates'' when they report their quarterly results; dividends are being cut and a cash flow analysis shows that many companies are still having quite a tough time dealing with this 'turbulent economy.'
- The Indian Stock Market is brushing off news of a ''failed/deficient/sub par'' monsoon. The bulls seem to think that rural demand will not suffer because of the insufficient monsoon.
- Gold is once again knocking on the door of $1000. It's getting a little crowded here, so let's just wait and see how it goes. There's a lot of excitement that can quickly turn into disappointment if Gold fails to break the $1000 mark. For long term Gold holders , it's important to remember, that as Gold nears $1000 there are many speculative traders with stop-losses, punting on a clean break past $1000. So expect a choppy trading week in Gold!
- The strength in Gold, despite no 'breakdown in the USD' is strange. Gold Bugs taking fresh positions now, must be aware of the risk of a USD rebound in case the stock markets start to correct. (No signs of crashing markets just yet!)
- U.S. Unemployment numbers continue to be viewed as 'signs of an improving economy.' Don't ask me how or why!!!
- Everytime there's bad news on the economy, the financial media interprets it as ''the worst is now behind us''----complacency in the bull camp?
Overall. a good time to go on vacation I think.
A largely liquid portfolio continues to be the safest way to go for now. Also, hold onto your positions in Gold!
I will drop by with a post now and then, if I see anything interesting.
Thursday, September 3, 2009
Reasons for the continuing slide in prices:
- Supply far outstripping demand. Natural Gas is a classic example of the rules of commodity demand and supply. (Supply increases relative to demand, and prices drop.)
- Reduced demand of natural gas from the petrochemical, fertilizer and power generation sectors, given the weak economy!
- Oil prices are way off their 2008 highs. ( On a relative basis, Oil has outperformed Natural Gas through this period)
- Natural Gas producers are continuing to add to supplies even as prices are weak. (Some producers are hedged into contracts at higher prices, so they continue to perform steadily for now)
- Natural Gas production from Oil Shale has resulted in increased natural gas supply.
In the short to medium term, natural gas prices could continue to drift lower, or at least stay weak for a while. The rules of demand and supply, will extinguish any hopes of a quick turnaround.
However, it's worth noting that natural gas prices are at multi year lows. Profitable trades in the commodity market are usually made by buying low and selling high.
The risk - reward equation at this juncture is clearly in favour of the investor/speculator/trader who is '''long natural gas''', even though the supply side picture looks quite bleak at the moment.
Tuesday, September 1, 2009
Every successive Indian government claims to have made giant strides in India's infrastructure development. Here's some data on the Power sector and the Road Sector.
''Ageing thermal units that generate almost a fifth of India's power are slated for a revamp.
Old, inefficient and polluting coal fired power plants have been earmarked for the government's R&M/LE (renovation and modernisation/life extention ) programme. These mainly 210MW and some 110MW units built 20 to 30 years ago have a cumulative capacity of 27,000 MW, almost a fifth (18.21%) of India's installed power capacity.''
India's Road Sector:
''With 3.314 million km of roads, the country has the second largest such network in the world. But much of this is of abysmal and degraded quality and overburdened. This is especially true for highways - which are the lifeline of any modern economy anywhere in the world.
Highways account for some 65,000 km, or about 2%, of the total road network in the country. 90% of these highways are single - lane or two -lane affairs. Overall, roads support 80% of the passenger traffic and 65% of the freight traffic in the country. 40% of this overall traffic occurs on highways. They are overcrowded for the most part, which implies slow moving wheels of transport and of the economy, as well as poor upkeep.''
Source: September 6, 2009 Business India Magazine
Well, there's not much that I can add to the above statistics. What I can tell you, is that India is way behind schedule as far as infrastructure development goes!
Economic development and subsequent GDP growth over the past 5 years, has put further stress on an already 'stressed out' infrastructure system.
(Think of congested airports and seaports, crazy traffic jams in Mumbai, and the pending 'rail freight corridor' project)
I hope that the government realises that sustained GDP growth is impossible without improving infrastructure.
India has great potential to emerge as one of the world's largest - diversified economies.
Unlike some BRIC nations, GDP growth is well balanced, & not dependent solely on commodities. (Think Russia & Brazil)
The economy is not export dependent and domestic consumption continues to support industrial production through this economic downturn.
Before India can take its next leap forward, its infrastructure issues will have to be sorted out!
I will end with some links on the Indian Monsoon, by Business Standard columnist Shreekant Sambrani.
(While I'm not a weather/ monsoon expert, the temperatures in Mumbai this year in the months of July and August have been extremely warm, and the monsoons seem to have vanished!)
July 5, 2009 : Follies & IMD - Siamese twins
July 16, 2009 : Shreekant Sambrani: No doubt, it's a drought
August 8, 2009 :Shreekant Sambrani: Talking down the drought
August 29, 2009 :Shreekant Sambrani: Drought of agricultural policies
Never got round to doing it earlier, but luckily just saw a reminder note. So here it is at last!
''"In practical terms, the Riksbank's ( Sweden's Central Bank) (0.25)% deposit rate means that banks with accounts at the central bank are paying Riksbank 0.25% in interest to keep deposits at the institution.
The rationale for the policy is that the negative interest rate will create a disincentive to hoard money, which creates an additional layer of headwind for an economic recovery. In these precarious economic times, that's considered a risk worth avoiding.""
Source: Sweden Experiments with Negative Interest Rates -- Seeking Alpha
Central banks are clearly going all out to force an economic recovery!
New tactics to tackle old problems of ineffective regulation, excessive leverage and inadequate capitalisation at banks and Insurance companies!
The crucial questions we should be asking now is :
- Will more Central Banks start to adopt similar tactics if the banks refuse to step up lending activities?
- Could this action needed, if the world economy starts to slide into a ''Fall 2008 style'' relapse as the effect of the numerous stimulus packages starts to wear off ??
Monday, August 31, 2009
Here's a quick snapshot
- Bear market rally within an overall structural bear market.
- A new Bull market, now that the worst is behind us.
- Deleveraging still ongoing, and its about to get worse.
- Over-indebted world economy still drowning in debt.
- The Chinese Markets are about to lead a 'world wide stock market correction'
- Green Shoots everywhere, bull market around the corner.
- Company Results continue to exceed 'estimates'!
- Job losses are increasing at a 'decreasing rate'!!
- Don't listen to the bears who have been way off since March '09
- Don't listen to the bulls, who only resurface when markets are up 50%
- Get into the market now, or you could miss the bus!
Obviously no one has the answer here; but given all the conflicting 'expert advice', what's an investor to do?
Sadly, while focussing on everything that's happening around them, very few analysts ask their investors to analyse their risk profiles before they invest.
Irrespective of which direction the market is about to take; how much 'pain' and 'volatility' is an investor able to withstand before he throws in the towel ?
Markets have been rallying since their March 2009 lows. The stock market and Wall Street experts now see a recovery far far before anyone else on main street. Its important to remember that many of these 'experts' failed to see the dramatic market collapse that occured in the second half of 2008.
What worries me is that a large part of this market rebound has occured from oversold levels (yes, the benefits of hindsight kicking in!!), largely supported by a massive overdose of stimulus medication! This is clearly not sustainable in the long term.
Debt levels are high and many industries face surplus capacity and low pricing power. Job losses continue to demoralise consumers on main street.
Meanwhile, equity markets the world over have provided exciting trading opportunities to nimble traders. But remember; for the average investor, these 'paper profits' may not translate into 'bankable profits' in these chaotic markets.
So, its important to book profits on such investments now. Yes, there's always the risk of selling out early, but there again you just don't want to be the guy who's a day late!! These are cruel markets for a slow moving investor.
Focus on weeding out stocks with weak fundamentals from your portfolio. A rising tide lifts all boats as they say, so offload those positions that don't have the inherent strength to make it in this turbulent economy.
Overall, try and maintain adequate liquidity in your portfolio. In my opinion, the worst is not behind us just yet!
When too many 'experts' start to get bullish, its time to be cautiously realistic rather than recklessly optimistic !
Monday, August 24, 2009
Sunday, August 23, 2009
The Chinese stock markets and the Indian Monsoons continue to dictate market direction in the near term.
According to the MET Dept, the monsoons are staging a late comback. Given how wrong these guys have been so far, I'm still waiting for more clarity on their call for a 'late monsoon revival'.
As for the Chinese Markets; every time liquidity concerns arise - we see a sell off.
Week on week both markets appear relatively unchanged. Let's wait and see how Asian equities respond to the overnight rise in the US markets.
Thursday, August 20, 2009
World markets today are tracking the daily movement of the Shanghai Composite.
A 5% down move in China, results in a sell off across world markets.
Since China led the markets on the way up, could the Chinese markets be signalling the start of a new leg down?
As we head into 2010, governments across the world are crowding out private sector borrowing in the bond markets. Given that growth rates are still extremely anaemic (or non-existent), we are definitely going to need more stimulus packages in the near future.
China can never substitute American consumer consumption with local Chinese consumption in the near term. The domestic market in China has a long way to go before it rivals the '''credit loving - consumer driven - overspending habits'''' of the US consumer!
Markets meanwhile may have run up too far too fast; and are only beginning to realize that the worst may not necessarily be behind us.
'' The fact that the worst is behind us does not necessarily mean that the best is around the corner. That's something that all of us need to recognize.''
Monday, August 17, 2009
EDIT: 21August 2009: Here's a great link on the monsoons so far:
Shreekant Sambrani: Talking down the drought
Source: Indian Met Dept:Monsoon-2009: Current status
Friday, August 14, 2009
Sugar prices have been rallying!
Concerns of a rain affected crop and lower output from India are addig fuel to this sugar rally.
Sugar speculators would be well advised to take profit on investments in a phased manner. Low crop production and recent speculation may not be enough to support prices in the long run.
Always respect 'commodity cycles'. Enjoy the ride for now, but as with other investments, stick to the golden thumbrule
- BUY LOW & SELL HIGH!