Monday, August 31, 2009


Anyone tuning in to the financial media is bound to be confused by the things he/she hears !!

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 !

Sunday, August 23, 2009


Last week's trading at the BSE Sensex (India) would surely test the nerves of expert traders. Take a closer look at the chart below.

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


The Chinese stock markets are finally correcting. And how!!

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.

Here's a quote from Abheek Barua (chief economist, HDFC Bank).
'' 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


With each passing week, the number of drought affected districts goes up.
July and August are 'crucial' months as far as the 'southwest monsoons' are concerned.
There's going to be a lot of drought relief work needed in the rural areas and water cuts in cities, if the monsoons fail to return.
Food crop failures will mean rising food prices and the need for 'loan waivers' in rural India.
The governments deficit is growing, and the stress of a 'failing' monsoon will add to the governments' burden.
As the map below shows; highly populated states like Uttar Pradesh and Bihar have been badly affected. This not only means a food shortage (as these are agricultural regions), but it also means that many many families (especially farmers) will be badly affected.
With many state level elections coming up, local governmnets will face an uphill struggle, as the 'opposition' seeks to highlight the governments' inadequate response to the failing monsoon!
Yes unfortunately; its election politics again!!!!!

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

Monday, August 10, 2009


The newspaper clipping below is from the
Business Standard newspaper, Mumbai,
6th August 2009.
I saw this a few days ago, but got down to writing about it only this evening.

Source :Overpriced FMCG stocks leave fund managers a worried lot
The recent rally in FMCG (Fast Moving Consumer Goods – toothpaste, detergents, tobacco products, bathing soap etc) and Auto stocks has continued on, despite concerns of a deficient monsoon.

Over the last couple of sessions, the Auto and FMCG sectors have sold off rapidly on concerns of a sub – par monsoon season. Valuations in both these sectors had run up a lot and were factoring in a far more ‘rosy situation’ than the one we are faced with.

The government has not declared a major failure of the monsoons just yet. So far we’ve only had ‘concerned’ statements from various government authorities that the monsoons are sub par this year.

We may only know the exact outcome in a few weeks time.

Here’s what I think -

  • Rural consumption demand in India is still largely monsoon dependent, and irratic and untimely rainfall, will definitely impact this predominantly agrarian section of the economy.

  • FMCG stocks are companies that sell products for every day use, and consumption usually remains steady even during downturns. Thus the sector is considered 'defensive'. However, investors must remember, that you never make money by buying into an investment at expensive valuations.

  • FMCG goods and car / motorbike sales this festive season (Diwali), will be negatively impacted if the monsoons do not improve soon enough. Valuations in these sectors do not leave an investor with an adequate margin of safety if he has bought into these sectors recently.

  • I would advise investors not to ‘chase performance’; and buy into rising stocks just because they feel left out. Investors’ who says ‘that fundamentals don’t matter’ are just ‘momentum’ chasers, and are probably going to lose a lot of money in the long run!

Saturday, August 8, 2009

S&P500 vs GOLD

The equity markets have staged a remarkable recovery from their March 2009 lows.

Markets may be running ahead of themselves.
This looks more like a technical bounce from oversold levels, rather than the base formation of a longer term recovery supported by fundamentals.

I continue to maintain a view that we could be in for a relapse sometime in the next 6-9 months.
Festering issues like unemployment and wage deflation continue to threaten any sustainable recovery in a 'consumer' driven US economy.

Gold has been relatively stable. It's been a hedge against market instability and currency volatility so far, and will eventually be a hedge against inflation when it finally shows up.

Wednesday, August 5, 2009

Dubai Financial Support Fund : DUBAI RECOVERY ?

Launched in July 2009, the Support Fund “ is being established with the specific purpose of providing financial support and liquidity to Government and Government-Related Entities (GREs) undertaking projects of strategic importance within Dubai that contribute towards the overall economic development of the Emirate.”

“The Dubai Financial Support Fund will be responsible for managing the proceeds of the Dubai government's $20 billion bond programme and will provide loans on a commercial basis to Government and Government-Related Entities engaged in projects deemed to be of strategic and developmental importance to the Emirate of Dubai. Each application for support will be assessed against predetermined criteria to ensure the funds are allocated efficiently and in accordance with Dubai's long-term growth strategy.”

The emirate of Dubai has been hit hard by the financial downturn. The global downturn has slammed construction projects, with many under construction projects being cancelled or postponed, as cash strapped developers struggled to raise money in a frozen credit market.

Forays into Shipping & Ports and international investments by the emirate’s sovereign wealth funds also ran into rough waters as world stock markets started to slide, and GDP growth rates tanked.

The oil price crash last year also scared foreign investors away from Dubai debt (raising concerns of solvency at $35 Crude Oil), as it’s a well known fact that the emirate of Abu Dhabi holds the majority of the UAE’s oil reserves.


The U.A.E's Central bank took up the first tranche of a $20 billion bond issue in February this year. The emirate of Abu Dhabi could step in again if funding falls short! Let’s wait and see if investor sentiment has improved, as Dubai readies a second tranche bond issue.

Even as the level of risk aversion is receding (blame that on the green shoots!), investors are still concerned about new corporate and government debt issues.

Some cite issues regarding transparency. Which entities get the money? How does it get deployed? Is it going to be backed by the U.A.E. Government?

Still others remain wary of emerging market debt in general, especially from countries with high exposure to ‘bubble’ sectors like Real Estate (Dubai being a case in point).

Sky high valuations and excessive debt, raise concerns about the debt servicing ability of the borrower.

Another worrying factor is the overwhelmingly large percentage of investors (rather than genuine homeowners) in the Dubai Property market. We all know what happens when everyone tries to exit a market at the same time!

Lastly, if the global economic recovery is slower than expected or we were to have another down leg in the equity markets, how would Oil prices react?

How would the Dubai debt markets react to $35 Oil?

I end this post by highlighting a few points

  • I respect the view of the Dubai government, as it tried to diversify away from Crude Oil, given that its Crude Oil reserves are not the largest out there. This reflects realistic forward thinking and planning. Efforts to make Dubai a financial & trading hub could prove a masterstroke, given their strategic location between Asian and European time zones!
  • Long Term Investments require a long term investment horizon.I’m disappointed that many acquisitions have been debt funded and that too sometimes at high prices. Servicing this debt during the downturn can prove to be very stressful.
  • Real Estate Risk : Massive 'debt funded' construction projects could be saddled with large inventories if the recovery takes longer than expected, an outcome that is quite probable in an ‘investor’ driven property market.

Source Links:

U.A.E. Central Bank Steps In to Support Dubai Debt (Update1 ...

Sheikh Mohammed launches Dubai Financial Support Fund to sustain ...

ANALYSIS - Dubai's opaque $10 bln bond plan leaves investors wary ...

Saudi Gazette - Dubai launches Financial Support Fund to bolster ...

Full Coverage: IFB:- Dubai to borrow second $10bln

Istithmar World Capital »Istithmar World

Dubai World

Nakheel may Revise Terms of $750m Sukuk

Dubai housing prices plunge by half from peak - BusinessWeek

Tuesday, August 4, 2009


Aarati Krishnan of The Hindu Business Line newspaper has an interesting take on the Q1 results.


June numbers: Neither good nor bad

Talkin' 'bout a Revolution

Here are the lyrics from an old Tracy Chapman song called 'Talkin' 'bout a Revolution'.
Tracy Chapman is a multi-platinum and four- time Grammy Award-winning singer-songwriter.
Check it on youtube, the song is worth a listen!

Don't you know you're talking about a revolution
It sounds like a whisper
Don't you know they're talking about a revolution
It sounds like a whisper

While they're standing in the welfare lines
Crying at the doorsteps of those armies of salvation
Wasting time in unemployment lines
Sitting around waiting for a promotion

Don't you know you're talking about a revolution
It sounds like a whisper

Poor people are gonna rise up
And get their share
Poor people are gonna rise up
And take what's theirs

Don't you know you better run, run, run, run, run, run, run, run, run, run, run, run, run
Oh I said you better run, run, run, run, run, run, run, run, run, run, run, run, run

Finally the tables are starting to turn
Talking about a revolution

Finally the tables are starting to turn
Talking about a revolution oh no
Talking about a revolution oh no

Don't know if the guys at Goldman Sachs have noticed this yet, but discontent, despair and confusion and anger at the establishment is growing.
People the world over are all at sea --- trying to comprehend the chaotic economy, their job security, pensions and futures.

Saturday, August 1, 2009


With world equity markets rallying, the 'decoupling theorists' are back again.

Here is an interesting perspective from Ruchir Sharma -Head of emerging markets at Morgan Stanley Investment Management. I follow his market commentary, and I have always found his views to be rational, well thought out and consistent.
He is one of the experts whose views I follow!

Source: US revival key to emerging market recovery: Morgan Stanley ...

Below are some of the very valid points that he makes in his article.

  • Given the trade and capital flow linkages, developing countries cannot pull away from the developed world too far, too quickly.
  • China's policymakers have already succeeded in stimulating their economy but beyond a point, it too needs the largest buyer of its goods - the US consumer - to start spending again. If that doesn't happen soon enough, then the global economy faces the prospect of a relapse.
  • It's then all down to the US Consumer to determine whether a global economic recovery gains traction by moving beyond the inventory rebuilding stage.

That pretty much sums it up. There is a lot of manufacturing capacity out there. A recovery can be sustainable, only if genuine consumption resumes.
Given the weak financial position of the US Consumer, any sustainable recovery in the medium term looks doubtful, and equity market investors/speculators that fail to understand this point are likely to be disappointed.