Tuesday, September 29, 2009

Back to Blogging !

It's been just over a week that I got back. Work has been hectic, but it's back to regular posting now.

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.

"""You cannot bring about prosperity by discouraging thrift. You cannot help the wage - earner by pulling down the wage - payer. You cannot further the Brotherhood of Man by encouraging class hatred. You cannot help the poor by destroying the rich. You cannot keep out of trouble by spending more than you earn. You cannot build character and courage by taking away a man's initiative. You cannot help men permanently by doing for them what they could and should do for themselves."""

Over the past fortnight, world markets have continued to rally on and world leaders continue to pat themselves on the back for their successful efforts at reviving a 'collapsing' world economy.
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While their premature self congratulation may be tested by market forces once stimulus packages are withdrawn, it's all good for now.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

GOLD : What's going on?

Gold prices are trending upwards again. That's a mega three day move.

Gold Bugs are abuzz with rumours of a gold short squeeze & the transfer of gold from London vaults to Hong Kong and so on!
While its just to early to say if this is a just a coincidence; a new precious metals storage facility has just opened in Hong Kong.
Nothing has changed since my last write up on gold :
GOLD : LONG TERM CHART ANALYSIS on the 21st of July 2009.
This is quite a sudden break to the upside, so let's wait and see how GOLD ends this week!

NATURAL GAS : How much lower can it go ?

Looking at the chart below, it's clear that Natural Gas prices are sliding to multi year lows.

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

Improving Indian Infrastructure: A long long way to go!

Here are some interesting (or shocking) statistics that I came across, while reading the Sept 6, 2009 issue of the 'Business India' Magazine.

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.

Indian Power 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


I've been meaning to post some links on this since I first saw it in early July.
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 ??

More Links
Sweden: negative interest rates and quantitative easing
Mish's Global Economic Trend Analysis: Sweden Cuts Deposit Rate to ...
Sweden Experiments with Negative Interest Rates -- Seeking Alpha

Bankers watch as Swedish interest rates goes subzero