Tuesday, October 29, 2013

How The Economic Machine Works by Ray Dalio

The Bullish Bear is a long time fan of Ray Dalio.!

Friday, August 23, 2013


A Long and Dark Journey

Our country’s economy is being run aground, and there’s little serious effort to revive it

Here's an excerpt from his article

Let’s use a medical analogy for what is happening to our country’s economy. The global financial crisis of 2008 was like an infectious disease that spread rapidly. India was hit too, but we probably had better immunity than many others. On the other hand, India’s current economic crisis is like a cancer. Treatment is possible but it’s difficult and expensive and has a lot of harmful side effects. But the biggest problem is the doctor himself seems disinterested in the cancer. Instead, he and his assistants seem intent on fighting other incidental symptoms with treatments that will actually make the cancer worse.

However, the decline of the rupee is merely one symptom of the underlying disease. The core problems are that on one hand, the government’s expenditure is out of control and on the other, we are less and less competitive in the world. There’s a cascade of causes and effects that are interconnected in a web in which we are trapped. Excess government expenditure means huge borrowings. Government borrowing crowds out industry. Massive consumption expenditure by the government drives up inflation. Poor infrastructure and labour quality constraint supply and therefore make inflation out of control. High domestic inflation means that to remain competitive, the rupee must fall.

The relaxation of FDI limits is based on the notion that low limits are what is holding back investors. This is a fantasy. Poor infrastructure, corruption, red tape and a hostile regulatory and tax environment are the actual problems. If ownership limits were the issue then we wouldn’t have seen so many Indian business houses so interested in investing abroad.
I’m sorry for taking such a pessimistic view, but there are only a few silver linings and things will get worse before they get better.

Tuesday, August 20, 2013


US TREASURY BOND YIELDS - Where are they headed if the FED begins to taper??

As the market waits for the US FED to reduce its purchase of US government bonds, it's worth noting the steady upward climb in US Treasury Bond yields.

Here is more from  Michael Snyder of The Economic Collapse blog, and he addresses the all important question;

What Is Going To Happen If Interest Rates Continue To Rise Rapidly?

Guest Post: What Is Going To Happen If Interest Rates Continue To ...


The Indian Rupee  has continued it slide versus the USD.
The INR is down almost 19% vs the USD since the beginning of May 2013!

Inaction and lack of reforms by the government have continued to compound problems of food inflation and currency depreciation.

At the present time, local investors are faced with volatile and mostly negative returns in both the equity markets and also the Indian Debt market, which has been severely rattled by sharply rising Government bond yields.

The only asset class that has managed to outperform and provide a hedge to local investors is GOLD.(thanks to a currency depreciation)


Indian Rupee Collapses - Worst Day In 20 Years | Zero Hedge

The Indian Govenment has been steadily raising import duty on gold, in its continuing effort to rein in the current account deficit.

Watch this space. 
As valuations in the Indian Equity markets start to look attractive, remember that the country now faces a rather tricky situation of slowing growth, steady/persistant inflation, and a weak currency.

GDP growth rates of under 5% are now a distinct possibility.

While a sub 5% growth rate may appear robust to readers in the developed world----in emerging markets like India, it is extremely worrying.

Unemployment and non performing bank loans will be  serious problems over the next few years, if we are unable to get the economy back on track.

The inability of the RBI to cut interest rates (due to a rapidly depreciating currency and a rising current account deficit) will add to the woes of a struggling manufacturing sector. Stock prices of companies in the engineering / capital goods space are now trading at 8 year lows, and hopes of a recovery look bleak at the moment.

The Banking sector too has faced a drastic sell off in stock prices since May 2013. Public Sector banks will face considerable stress and even at todays discounted valuations, they still remain a high risk buy- meant only for those who are ready to weather more turmoil in the sector.

Perhaps, private sector bank stocks need to correct too, as expectations of growth are adjusted downward. Many private sector banks trade at expensive price/book ratios even after the initial sell off

Lastly, FMCG (Consumer staples), Pharmacaeuticals, and Information Technology (IT Services) remain the last pillars of strength.
Buying in these sectors should be done with extreme caution, as valuations may not leave an adequate margin of safety for the investor. 

These sectors will continue to relatively outperform the benchmark indices, as they function with nominal government price controls (FMCG) and in the case of export oriented Pharmacaeuticals and IT companies - are beneficiaries of currency depreciation.

Saturday, June 29, 2013


Gold continued to sell off this week, and as the weak 'long' hands finally throw in the towel, gold sliced downwards through multiple support levels.

Where will it end? 
More on this below.

The Feds own balance sheet has expanded drastically over the last 6 years even as quarterly GDP growth rates hover at just under 2%

Bernanke has suggested that the Fed would gradually reduce its bond -buying, and cease it altogether by mid 2014. 
This has resulted in  a sell off in the US bond market. 
The US 10 Year Bond yield spiked upwards to just under 2.6% (from just under 1.6%)
Bernanke will have to keep an eye on the rising cost of borrowings, lest it derail the ongoing housing market recovery and destroy the ''wealth effect' he has tried so hard to create by boosting asset prices, i.e. US Equities and Housing.

With Federal Government debt at record highs, the last thing the FED needs is a rising cost of government borrowing.

The FED may have to keep its bond buying program going, just to keep the cost of borrowing low, and also to pacify the panicky bond market bulls who are currently weary that the long bull run in bonds is drawing to a close.

Coming to precious metals, The Bullish Bear continues to be a long term gold bull and views the current ''crash'' as  a cyclical correction (albeit a severe one) in  a secular gold bull run.

As Jim Sinclair once said " The price of gold is going much higher. The problems that give gold its reason to go higher are growing, not waning." 

After a one way bull run over the last decade, this correction will really stress test the weak hands that bought into gold over the last two years at prices of $1300-$1700.

As the momentum has shifted to the downside, pinpointing a bottom at this stage is impossible. 
However the drastic the sell off can result in a rebound from these oversold levels. 

Gold and Gold stocks are deeply oversold at the moment.

The Commitments of Traders Report (CoT) provides an important insight:-


In Gold We Trust 2013; Long Term Gold Price Target $2,230   June 27th, 2013

(An extremely detailed and well written report)

 The commitments of traders report (CoT)1currently shows – from a contrarian perspective – a clearly positive situation. It confirms that a great deal of speculation has been wrung out of the sector in the first half of this year. Many trend-following speculators in COMEX gold futures have apparently not only thrown in their bullish towels, but have embraced the downward momentum for gold by selling futures short. On the other hand, large commercial interests, the natural hedgers, considered by many as the “smart money” in gold futures, have very strongly reduced their net short positions. 
From October of 2012 to June, 2013, the commercial hedgers reduced their net hedges (net short futures positions) by 84%. They currently hold the smallest net short position since February, 2005. This means that the largest, most deep-pocketed and best informed traders have positioned themselves for higher gold prices.
Compared to October of last year, large and small speculators have decreased their net long positions by 91% and 99% respectively. 

For the same period the large speculators have increased their gross short positions seven-fold to record high bets the price of gold will fall further. Because they tend to trade with the current trend and momentum, generally more short-term oriented speculators reach their highest gross short positions at or near important long-term low turning points for the price of gold. Conversely, the commercials seek to hedge longer-term price risk. Commercial hedgers tend to reach their least net short positions at or near important gold price lows.

The commercial hedgers have not been net long gold since 2001 with gold then near $270, but following the 30-plus percent correction for gold since September, 2011, the industry hedgers and bullion banks are now the closest to becoming net long in 12 years. Indeed, on June 4, 2013 U.S. bullion-trading banks reported a 29,622-contract net long position for the first time since July of 2008 during the financial crisis with gold then USD $939. In our opinion this signals an attractive counter-cyclical entry point. The current positioning data in the futures market are what we would only expect in a mature downtrend and are a recipe for a pronounced rally.

For now, the Bullish Bear is cautiously monitoring the precious metals sell off.
Fresh buying can be avoided for now, until the dust settles.

Aggressive buyers could start accumulating on declines via staggered purchases. (start with allocating 5-10% of your total precious metals outlay on declines). While its too early to call a bottom, the substantial correction has provided a decent margin of safety.

I would recommend that investors 50-60% book profits on short positions in precious metals. 
A near term low may be in, and a short covering pull back could occur.

Watch this space!


Physical Gold Market In Disconnect As Premiums Hit Record    June 26, 2013

Citi: Are Gold And Silver Finding A Bottom?

Submitted by Tyler Durden on 06/27/2013 22:30 -0400

The Golden (Sentiment) Rule: If It Isn’t Off The Chart Now, It Soon Will Be

Submitted by Tyler Durden on 06/28/2013 19:49 -0400

Gold and Gold Stocks –Signs of Life – Pater Tenebrarum  June 28,2013
So what can we conclude? For one thing we can certainly conclude that there has already been an 'overshoot' in the gold stocks. As we have pointed out with respect to 'long term oversold' signals, once gold stocks become as oversold as they have recently been, the historical record suggests that a rally of between 55% to 550% can be expected to start from the eventual bottom.Moreover, we know for a fact that gold stocks most of the time tend to lead gold. This is very likely simply a result of the fact that the people who buy gold futures in many cases are also trading gold stocks. It would make sense for them to load up on gold stocks before they move into gold futures in size. Therefore, every serious divergence that appears could be a sign of an impending trend change. Whether this will be just a short term trend change, a medium term one or a long term one remains to be seen. Certainly the technical damage to date suggests that it will take some doing and a lot of  back and forth before the sector truly gets back on its feet.However, what we cannot firmly conclude yet is that the cyclical bear market is over. The evidence is just too flimsy to come to that kind of conclusion at this point. There are many alternative possibilities worth considering:  the gold stocks may simply be subject to some short covering. There may be some shenanigans going on related to end-of-quarter window dressing. It may simply be a pause, relieving oversold conditions before the long term downtrend resumes.It is therefore simply not possible to sound the 'all clear'. However, as we have emphasized previously, anyone buying at these levels with a very long term time horizon probably won't make a mistake. The major fundamental trends that have supported the gold bull market have not changed – although there have certainly been a number of medium term gold-bearish fluctuations in the support previously provided by negative real interest rates, credit spreads and forever rising US budget deficits. However, these fluctuations have in our opinion not truly altered the long term outlook. The painful measures that would be required for long term solutions of the problems besetting the global economy have not been taken and are unlikely to be taken in the foreseeable future. It seems far more likely that what government will resort to will be measures that are inherently gold-bullish.With regard to the recent 'signs of life', let us watch and see what develops. It certainly could be that we have just seen a major trend change, even though we have to reserve judgment on that for the moment. Nevertheless, the divergence we have just observed is no doubt quite noteworthy. It is precisely the type of divergence we would expect to see once the medium to long term trend does in fact change.””””””””

Monday, February 18, 2013


As Gold prices have corrected over the last week, I think its time to once again take a look at a long term gold chart.

Mr P. Radomski of SUNSHINE PROFITS has an excellent long term gold chart

Perhaps the sell off can push gold down towards $1550.
Long term gold bulls must remain focussed on the long term trend.

As Jim Sinclair said on 14/5/2012 -

The price of gold is going much higher. the problems that give gold its reason to go higher are growing not waning.

Wednesday, February 13, 2013


Graham Summers of Gains, Pains and Capital in a recent write up on Feb 4, 2013, very aptly sums up the actions of the US Fed

Here's a recap of some of the larger Fed moves during the Crisis:
  • Cutting interest rates from 5.25-0.25% (Sept '07-today).
  • The Bear Stearns deal/ taking on $30 billion in junk mortgages (Mar '08).
  • Opening various lending windows to investment banks (Mar '08).
  • Hank Paulson spends $400 billion on Fannie/ Freddie (Sept '08).
  • The Fed takes over insurance company AIG for $85 billion (Sept '08).
  • The Fed doles out $25 billion for the automakers (Sept '08)
  • The Fed kicks off the $700 billion TARP program (Oct '08)
  • The Fed buys commercial paper from non-financial firms (Oct '08)
  • The Fed offers $540 billion to backstop money market funds (Oct '08)
  • The Fed agrees to back up to $280 billion of Citigroup's liabilities (Oct '08).
  • $40 billion more to AIG (Nov '08)
  • The Fed backstops $140 billion of Bank of America's liabilities (Jan '09)
  • Obama's $787 Billion Stimulus (Jan '09)
  • QE 1 buys $1.25 trillion in Treasuries and mortgage debt (March '09)
  • QE lite buys $200-300 billion of Treasuries and mortgage debt (Aug '10)
  • QE 2 buys $600 billion in Treasuries (Nov '10)
  • Operation Twist reshuffles $400 billion of the Fed's portfolio (Oct '11)
  • QE 3 buys $40 billion of Mortgage Backed Securities monthly (Sept '12)
  • QE 4 buys $45 billion worth of Treasuries monthly (Dec '12)

The Fed is not the only one. Collectively, the world's Central Banks have pumped over $10 trillion into the financial system since 2007. This money printing has resulted in a massive expansion of Central Bank balance sheets, spread inflation into the system, and done nothing to address the key solvency issues that lead up to the great crisis."""""""""

Monday, February 4, 2013


Record high government debt that has so far been domestically funded, record low interest rates (positive real rates  & until recently an appreciating Japanese Yen)  and a current account surplus has enabled the Japan to continue to muddle its way through just over two decades of deflation.

As the current administration promises to weaken the Japanese Yen and attempts to inflate its way out of debt, the stage may be set for a tragic end.

According to Martin Feldstein -Even without the prospect of faster inflation and a declining yen, fundamental conditions in Japan point to higher interest rates. The Japanese government has been able to sell its bonds to domestic buyers because of the high rate of domestic saving. The excess of saving over investment has given Japan a current account surplus, allowing the country to finance all of the government borrowing domestically, with enough left over to invest in dollar-denominated bonds and other foreign securities. But that is coming to an end.
The household saving rate has collapsed in recent years, falling to less than two per cent. The combination of high corporate saving and low business investment has sustained the current account surplus, allowing Japan to fund its budget deficit domestically. But the surplus has fallen sharply in the past five years, from roughly six per cent of GDP in 2007 to only one per cent now. With a falling rate of household saving and the prospect of new fiscal deficits, the current account will soon be negative, forcing Japan to sell its debt to foreign buyers.

As Satyajit Das says in his article -Japans toxic combination of weak economic performance,large budget deficits,high and increasing levels of government debt,declining household savings and looming current account deficits is unsustainable."


Monday, January 14, 2013


Once again Ruchir Sharma comes up with an original insight for the market outlook in 2013.

Below are excerpts from the ECONOMIC TIMES NEWSPAPER IN MUMBAI on Monday 14th January 2013.

Surprises might deflate the bubbly confidence in emerging markets ...

Even as investors continue to remain bearish about developed markets in the USA and the Eurozone, they remain oddly complacent about the prospects of emerging markets in Asia.

As he says at the end of his article, "" If you're looking for negative surprises, don't look in US or Europe, the starting point of the last two global shocks and where the risks are well-telegraphed. Crises occur when the consensus is too confident, spending and debt too loose, and right now, the early warning signs are gathering in the emerging world.""

Here is a more detailed excerpt

So what surprises might deflate the bubbly confidence in emerging markets? The first candidate is China, where the consensus forecast is still for GDP growth of 8% this year despite the fact that growth slipped below that level in 2012 and the strong case that China is just too big and middle-income a country to continue growing so fast. A major growth shock in China could rattle the commodity markets and the indebted emerging market countries, as 60% of the countries in the global emerging market bond indices are heavily dependent on exports of commodities. 

Even perma-bulls on China are beginning to worry about two factors: incoming leader Xi Jinping has warned that rising corruption could lead to "the collapse of the party and the country", as he senses the popular resentment that has built up following the sharp rise in cases of bribery, graft and ostentatious spending by government officials in recent years. Second, liquidity outside the traditional banking sector is growing much too rapidly and this striking rise in liquidity is finding its way into all kinds of murky debt products. 

The main issue is that this proliferation of alternative and local sources of credit is very difficult to track, so no one can fully quantify the risks. One investment bank calls wealth management products (WMPs) the CDOs of China — a reference to collateralised debt obligations, the exotic US debt instruments that triggered the global crisis of 2008. That's extreme, but systemic risk to the financial network in China is growing. 

Another potential surprise from the emerging market world could come from a nation most likely to disrupt the spectacular boom in the global bond market. The reality is that macro stability, which so many emerging nations laboured to build in the last decade, is starting to erode in a few important markets, including some that have sizeable deficits in both the overall current account balance and the government's deficit. The twin deficits in South Africa and India are particularly worrying, in part because no one has seen a crisis in a major emerging market in 15 years, and because most investors expect 2013 to be much like 2012. If an unexpected shock comes in one of these big countries, it could prove highly contagious. 

Given the political winds in South Africa, it looks like the bigger risk. President Jacob Zuma has reversed the one major achievement of his African National Congress successors: macro stability. Government spending is rising fast, fuelling a rise in real wages that is driving up consumption, and both the government deficit and the current account deficit are now around 5% of GDP.
Currently, South Africa's financial system is ranked as one of the best in the world. But with weak foreign reserves and a very heavy foreign presence in its stock and bond markets, South Africa is highly vulnerable to capital flight. Social tensions are also on the rise as the country has one of the lowest employment rates in the world and the economy is expanding at too slow a pace to create new jobs. So, if South Africa begins to totter, its size and reputation could produce a contagion effect. 

Let us hope history and the consensus hold, and year five of the market recovery proves uneventful, and profitable. If you're looking for negative surprises, don't look in US or Europe, the starting point of the last two global shocks and where the risks are well-telegraphed. Crises occur when the consensus is too confident, spending and debt too loose, and right now, the early warning signs are gathering in the emerging world.

Sunday, January 6, 2013


As the FED threatened to end its policy of limitless QE, Gold sold off rapidly.

From levels of just under $1690, Gold went all the way down to under $1630.

I would like to advise readers to take another look at Clive Maund's chart from my post on 31.12.2012.

Corrections down to the $1500-$1550, will complete the ongoing consolidation in gold bullion and will provide good buying opportunities.

Brace yourselves for volatility, and don't take your eye off the big picture.

As US Federal debt levels continue to rise, even as unemployment numbers stay stubbornly high; the US Fed will face it's toughest test yet.

The last thing that US homeowners need is a rising mortgage rate, so I remain skeptical of Bernanke's comments last week!