Saturday, January 31, 2009


I recently came across a link on Bloomberg titled
‘Roubini Sees Global Gloom after Davos Vindication’

Let me say it again -


There have been many whose predictions and expectations have been way off!!!!! Downright misguiding & consistently wrong!!
There were those who said that there was no US Housing bubble in 2005-2006 and still others who had been recommending buying stock in AIG & Lehman Brothers until months before they finally went under.

Even as the ‘Bad Bank’ solution has already been discussed to death; it’s surprising that no one is opposing the fact that the same management teams will continue to lead the banks. These are the same guys who took ‘crazy risks’, earned ‘extraordinary bonuses’ and got us into this mess in the first place. They lost money once, and now thanks to the FED & Treasury, they are being invited to ‘Scam the Public’ Round 2!

A lot of what I have learned since I started following financial media, is that you have to track comments of the few that ‘know what they are talking about’ and just disregard the rest.
Look for consistency and a solid track record.
Do take a look at my blogroll and list of Links of websites I read.

Following the advice of ‘experts’ who have been wrong all along is injurious to your financial health.

Friday, January 30, 2009


A year ago, almost no one would expect Crude Oil to trade below $40 by Christmas 2008!!

The world was preoccupied with growing Indian and Chinese Oil consumption, Peak Oil and a never ending demand for refined petroleum products.
With drastically slowing GDP growth rates the world over, prospects for Crude Oil are not too bright.

Prices are expected to slide further as inventories build up.

Longer term I am an Bullish on Crude Oil, and would exercise caution while taking aggressive short positions in Crude Oil.
Analysing Fundamentals:
While cheap credit and availability of financing may have encouraged almost ''wasteful'' oil consumption recently; on the supply side - there has been no addition of ' Easy Oil' to exising oil fields. Moreover, recent discoveries like the Tupi oil field off the coast of Brazil are unviable at current prices.

As the world battles deflation (read: unemployment + bank failures + debt defaults + credit contraction), geopolitical tensions are likely to flare up.

The USD and other 'paper' currencies are battling a toxic cocktail of bailouts & stimulus packages. Currency Volatility and Currency Crisis could result in higher nominal Crude Oil prices.

I am keeping a close watch on Crude Oil prices and will put up some more analysis on the Gold-Oil Ratio soon.


Gold is at record levels in every currency except US Dollars & JPY!

Thursday, January 29, 2009

Reality check - Dating A Banker Anonymous !

Here's a link I came across at Naked Capitalism .
The Blog:

Just in case the FED didn't notice, this is one party that has indeed ended!!

Meanwhile, """The U.S. Treasury Secretary is considering a “range of options” for its financial rescue plan, with the goal of preserving the private banking system. """
Other headlines include this one on Bloomberg:
'''Obama Leaves `Sober' Meeting With CEOs Confident of an Economic Turnaround'''

The Financial Gurus at Davos are perplexed, and its gradually becoming clear that no one has a clue how to get us out of this financial mess.
As the experts debate inflation vs deflation, I think a bigger worry is going to be UNEMPLOYMENT!
As companies continue to cut jobs to bolster bottomlines, mortgage and credit card defaults are going to increase.
In the developing world this situation is going to be particularly difficult to tackle as factories shut down or run reduced shifts, and governments could be faced with breakdown of law and order.
An example: try explaining to factory workers in China or India, that the American Consumer is tapped out & no longer needs automobile components or textiles manufactured locally!!

While bankers may have to learn to live without their bonuses, for many people in the developing world, its going to be a struggle for survival as government stimulus packages struggle to work their way through the endless bureaucracy and red tape, to meet the needs of the poor in the rural areas of the developing world.

Monday, January 26, 2009


As gold creeps over $900, here is a chart I came across in the Jan 2009 Gold Investment Digest ( a quarterly report by the World Gold Council).

Saturday, January 24, 2009


Trader Dan Norcini at Jim Sinclair’s MineSet has an interesting take on Gold's latest move.
“The battle for Helms-Deep is over; the battle for Middle Earth has begun”!
So says Gandolph the Wizard in the second of Lord of the Rings trilogy, “The Two Towers”.
Gold has beaten back the Orcs and Uruk-Hai to regain the critical $880 level and must now deal with the Ringwraiths (the bullion banks) and Sauron (the monetary lords) as they attempt to defend Mordor (the unbacked paper money system – the root of all economic woes in the global universe). If Frodo can just make it to the fires of Mt. Doom and throw the golden ring of power into the volcanic flow (reintroduce gold into the monetary system), the system will topple freeing the masses from the tyranny of the money masters!
While the $880 level is technically important, its encouraging to see Gold rise even as the USD has continued to strengthen. Gold has been extremely volatile recently, but the worsening crisis gives support to prices everytime they threaten to break down.


A friend of mine sent me this link recently.
Even if the size of the circles is not accurate, the numbers don't lie.The colossal loss in Market Capitalization is stunning. Just take a look at Citigroup !!!
The regulators and Central Banks have no idea how to clean up this mess!
This reminds me of a quote I read on Jesse's Café Américain
'It isn’t that they can’t see the solution. It is that they can’t see the problem'
– G.K. Chesterton.

Wednesday, January 21, 2009


As I write this, the DJIA threatens to break 8,000 on the downside.
Gold Prices are trading at $852. Interestingly, both the USD and Gold are up today, as the GBP continues to get pounded!!
While it may not be fair to read too much into a single trading session, we are faced with turmoil in the financial sector and a total Crisis of Confidence.

Obama's speech was both uplifting and hopeful for a better tomorrow.
He is going to have to take some tough calls soon, as losses at the banks and a spiking unemployment rate may threaten his stimulus plans that may work only over the longer term.

While I wish him well as he starts firefighting, he has his work cut out for him.

Saturday, January 17, 2009


It’s been almost a month since my last post and we are already in the third week of January! So let’s get started.

Well it’s now quite obvious that things are going to get a lot worse before they get better. Question is, how bad is it going to get. While I was cautious while making forecasts for 2008, the extent of the meltdown has been much much worse than I expected.
The party has ended!
Governments and Central Banks are trying to reflate the ‘dying credit bubble’ party with a new round of credit!!!!!!! & bailouts and stimulus packages continue to get larger and larger with each passing day and yet there seems to be no solution in sight.

In my last few posts of 2008, I spoke of the possibility of intermittent bear market rallies, following the sharp selloff across asset classes globally.
However, it is important to analyze the difference between short term rebounds and a longer term fundamental analysis.

Here's what we are dealing with.

Easy financing post the dot com crash, led to a global boom in Real Estate & excessive manufacturing capacity worldwide; supported by consumers( especially in the western world) who don’t save and have until now continued to consume like there was no tomorrow.

‘Overleveraged firms and individuals will struggle to service their debt.’

As Banks refuse to refinance debt and sanction new loans, bankruptcy and unemployment rates will rise & confidence levels are going to take a beating. The battle of ‘the Survival of the fittest’ is going to result in a lot of inefficient firms going belly up! Banks with lax lending standards and firms with wafer thin profit margins are going to fail !
Stocks have crashed from recent highs, and as growth momentum slows, we will see losses emerge across sectors. Even firms with strong balance sheets are going to struggle, as demand continues to slow.

Individuals used to extremely high standards of living are going to have to adjust their lifestyles, as bonuses dry up and mortgage payment loom in the weakest job market in years.

Since I started following financial markets almost 8 years ago, the newsflow is the most pessimistic I’ve seen. Bad news is crowding any good news that comes up! Bad news has spread from financial markets onto Main Street, & has everyone talking of job cuts and savings. Firms are cutting back on spending and previously planned expansions are now being shelved.

A Crisis of Confidence
Valuations have corrected drastically from the 2007/early 2008 highs, and growth rates and profit margins are being revised downward globally. Even as experts begin to acknowledge that we are indeed in a bear market or global recession mode, some are calling for a bottom in markets, saying that the worst is now behind us.

Markets are now battling a crisis of confidence and I find it extremely unlikely that stock markets would bottom so early in the downturn. Also, markets never bottom out when most analysts and experts expect them to do so; especially since the correction has not played itself out time wise.

So I think that while it may be too late to sell (without taking losses….which may be massive in some cases), it’s just way too early to buy.


‘’’Get used to living within your means & learn to save! ’’’

Keep an eye out for extraordinary companies at beaten down stock values.

Focus on companies with reliable management teams that have a proven track record.
Scams like the ‘Satyam Computers’ saga in India and the “Madoff Ponzi Scam’’ in the US, are likely to occur with increasing frequency as the downturn continues.

Corporate Governance: The importance of ‘Quality of Management’ tends to take a back seat at the heights of a stock market boom. Even if a stock is a screaming buy on valuations, avoid it at all costs if management quality is lacking.

Remember that a stock is not a buy, just because it is down 70%+ from its all time highs. Is it really cheap in terms of value, or is it just cheap in terms of price?
Value investors should also realise that an undervalued stock could stay undervalued for quite a while; there’s no easy money here. The wait is going to try your patience, resulting in many value investors getting fed up and selling out at the lows!!!
I repeat again, that a lot a firms will fail, so place your bets accordingly.

‘Bubble in US Treasuries?’
Yields on US Treasury Bonds are near record lows as the flight to safety continues.
This has continued to provide strength to the USD, even as the economic newsflow continues to deteriorate.Unemployment and continuing failures in the Banking system will thwart any attempts of a recovery. Citibank and Bank of America are desperately seeking funding as their December Quarter results have been a disaster!!!!!

Crude Oil prices are way off their record highs and a slowing global economy will probably cap any attempts of a rally in oil prices in the near term.
It will be interesting to see the impact of a low crude oil price on the US treasury market; as the flow of Petrodollars starts to dry up.

As growth slows drastically in China, and China focuses its forex reserves on funding infrastructure projects at home, Chinese investments in US Treasuries will also slow down.

Can the world economy stage a recovery before Central banks and Middle East Petrodollars lose interest in investing in US Treasuries?
A case in point could be the recent auction of German Bunds that was not fully subscribed!! It’s clearly a race against the clock.

‘The Bullish Bear Blog has always been bullish on Gold.’

Traditionally viewed as an ‘Inflation Hedge’, Gold prices have come off the March 2008 highs and are currently trading at $842.40.
Gold has outperformed and survived the steep selloff in commodity markets over the last 6 months that has eroded gains accumulated in most commodities over the past 5 years.

The meltdown across asset classes has also raised fears of deflation.
Record high debt levels and the current unwillingness of the banks to lend, has resulted in a decline in consumption and investment. Job cuts will further dent consumer confidence, thus intensifying the slowdown.

Inflation is not dead: Ignoring the inflation tsunami that’s coming up.
While current conditions appear to reflect deflation fears, it’s important not to lose sight of the long term picture. Governments and Central Banks would rather deal with inflation than deflation. Given record low interest rates and unsustainably high debt levels in the global economy ( further compounded by massively leveraged CDO & CDS derivative positions), the Authorities have no option but to try & reflate their way out of this mess.

So expect massive stimulus packages and an endless string of bailouts in 2009. Extraordinary measures taken by global Central Banks led by the US FED will result in inflation further down the line.

Outlook for 2009.
‘It’s every man, company and government for itself!!!’

Casualties of 2008 included ‘giants of the global financial markets’---- Bear Stearns, AIG, Lehman Brothers, Merrill Lynch, Freddie Mac & Fannie Mae.
All forms of government intervention and stimulus packages have failed to revive demand and reinstill confidence so far.
LIQUIDITY – There is always money to be made in any crisis. As is usually the case, if you can step in and buy assets for ‘cents on the dollar’ when everyone else is strapped for cash, you could really make a killing!! I think there will be better opportunities towards the end of 2009, so make sure you conserve cash now!

I expect currencies to be extremely volatile in 2009.
Endless bailouts are going to put a lot of stress on major currencies especially as the appetite for US Treasury Bonds starts to diminish.
So far, the USD has held on to gains largely because there is no other currency that is ready to take up the role of the world’s reserve currency. Longer term the USD is headed into troubled waters, with a low domestic savings rate and an exploding Budget Deficit, so it is indeed ironic that it is still viewed as the safe haven over precious metals like gold. Gold, a true store of value will respond positively to any negative credit event or currency crisis.

For now, let’s hope for the best and prepare for the worst!