The Bullish Bear

GOLD - CHART OF THE DAY

2012-01-17T14:13:00.001+05:30

INDIAN EQUITIES -DEBT WORRIES SURFACE AS THE ECONOMY SLOWS

2012-01-07T18:32:00.001+05:30

As the Indian Economy slows, a number of Indian Corporates may find that they over-stretched themselves while the going was good, and are now saddled with heavy debts to repay.

It's not that borrowing for business expansion is a bad thing in itself, it's just that some over-leveraged Corporates will struggle with debt servicing in 2012.

Some sectors that come to mind are the Airlines, Oil services, Ship- building and infrastructure.

Investors must keep in mind that although many stocks in these sectors trade at record low valuations, the Risk -Reward ratio may still not favour investors at this stage.

Remember some stocks have been beaten down for well deserved reasons, and investors must analyse their own risk return profiles before jumping in now.

In my view, many companies will need some debt restructuring before they can trurn things around.
This could mean that the banking sector too could take a while to recover, at least until interest rate cuts expected in the near future ease the liquidity concern of some cash strapped corporates.

Invest wisely!

Indian Equities - Looking Back at 2011 - PART 2

2012-01-07T18:15:00.004+05:30

Here are a couple more articles to round up our look back at 2011!

INDIAN EQUITIES - LOOKING BACK AT 2011

2012-01-02T00:13:00.000+05:30

Here are some articles from last year that I think are worth a read.

Indian Equities have been faced with a toxic combination of Policy inaction, high interest rates, a very weak Indian Rupee and waves of instability from western markets, primarily the EU.

The articles below provide some interesting views on the Outlook for 2011. Mukul Pal's contrarian outlook, highlights the point that beaten down sectors that have been written off by Mr. Market could surprise us in 2012!

IS PLATINUM CHEAP RELATIVE TO GOLD ?

2011-12-08T02:54:00.001+05:30

Here's a great article from Willem Weytjens of www.profitimes.com on the ongoing discount of Platinum vs Gold.

As the author mentions in the article, platinum may not be cheap at the moment but it certainly appears to be undervalued vs Gold

http://profitimes.blogspot.com/2011/11/platinum-cheapest-precious-metal.html
Here's an excerpt from his article.

"""These days, gold is trading near all-time highs, while platinum is trading about $700 below its all-time high reached in 2008.
Since 1972, Platinum traded at about 1.35 times the price of Gold on average. Right now, Platinum is even cheaper than gold, trading at only 0.92 times the price of Gold. As we can see in the chart below, this is a rather “rare” situation. It only happened in the early 80′s and for a short time in 1974. In 1972, 2000 and 2008, it even traded as much as 2.30 times the price of Gold (monthly basis).

Based on this ratio over the last 40 years, we can say that Platinum is “cheap” relative to Gold.""""

Watch this space!

INDIAN RUPEE : FOREX FLUCTUATION & INDIAN POLICY REFORMS

2011-11-26T11:59:00.001+05:30

Here is a good article from today's Business Standard Newspaper in Mumbai.
Rupee fall pares India Inc's profit by a fourth in Q2

If the weakness in the INR continues, upcoming FCCB redemptions, USD denominated foreign Currency borrowings and the rising cost of imported raw materials will continue to add to the woes of Indian Corporates in the results of the third quarter.

Many blame the INR weakness on FII selling in the Indian Equity markets.
While FII selling has played its part, I feel the ongoing Government policy malaise and concerns over the Government's Fiscal Deficit continue to weigh down the INR.
Currency downgrades by the Rating Agencies will add to the downward pressure on the INR.

Also, it's about time that the Indian Government gets down to implementing many long delayed reforms.

Some sectors in dire need of reforms
POWER SECTOR - Poor financial health of State Electricity Boards (SEBs) is forcing them to resort to load shedding of power even as Power producers are left with surplus power that they are unable to sell. These SEB's must move towards a market determined pricing of power sold by them to distribution companies.
Merchant Power sales and Power trading are also facing many unresolved policy issues.
Under construction Ultra Mega Power Projects also face uncertainities due to fuel linkages (read: Coal allocation issues and royalty issues on Coal imported from Indonesia).
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MINING SECTOR - Confusion over a proposed Mining Tax, profit sharing with locals displaced by Mining projects, Land acquisition delays and mining scams and corruption have delayed many Mining & Smelter projects.
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FERTILIZER SECTOR - Partial implementation of the Nutrient Based Subsidy Scheme (NBS) and the delays in decontrol of Urea pricing have compounded the problems of the sector. Heavily subsidised Urea fertilizer has resulted in farmers opting to use Urea over DAP fertilizer. Excessive use of Urea has upset the balance of soil nutrients and has thus resulted in lower crop yields.
Any further delay in decontrolling Urea fertilizer pricing will add to government subsidies as the government continues to import Urea shortfall from overseas. A weak INR will add to the cost of imported Urea fertilizer.
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TELECOM SECTOR - The ongoing 2G scandal and corruption cases continue to dominate news in the telecom sector. What the government must take a look at is reforming regulations that will promote consolidation in the Telecom sector. Recent issues of 3G roaming should also be clarified by the TRAI and the government, to avoid any further uncertainty in this sector.
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AVIATION SECTOR - A combination of ''below cost '' fares by Air India, record high ATF prices, ultra competitive air ticket prices, and record high debt of the airlines themselves has resulted in some serious structural problems in the Indian Aviation sector. FDI limits in Indian Aviation will have to be liberalised and a more viable tax structure on ATF will have to be worked out, if the existing carriers are to survive as going concerns. Perhaps the government will have to look at the development of "Low cost airports'' from which the Low Cost Carriers can operate, given the expensive Landing and Parking Costs at the country's main airports.
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OIL SECTOR - Massive delays in implementation of a clear and viable Gas Pricing policy is delaying further development of Oil and Gas Blocks in the KG Basin. Until this vital issue is resolved, Fuel Linkage issues of Power & Fertilizer Plants will not be resolved. The longer it takes for this Gas to reach the market, the more will be the delays of construction of new Power and Fertilizer Plants.
Also the" retail fuel pricing - under recovery problem" of the Oil Marketing companies (OMCs) remains unresolved. Massive subsidies on retail fuels sold by the OMCs have weakened their finances over the last decade.
A weak INR+ high Crude Oil price is adding to the under recovery burden of the OMCs.
If the government fails to move to a market determined pricing mechanism for Retail fuels soon, these OMCs will soon need to be bailed out by the government.
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All in all, it's about time that the government takes a step forward, and gets downto resolving these 'bottle neck' issues that are plaguing the Indian Economy at the moment.

If some of the supply side issues are worked upon, then perhaps the subsequent drop in inflation and an improvement in the government's fiscal deficit targets, will help the INR to regain some lost ground.

THE INDIAN RUPEE - WEAKNESS CONTINUES.....

2011-11-22T23:30:00.001+05:30

The continuing weakness of the INR vs the USD is starting to worry both investors and regulators alike. Negative FII fundflows in the Equity markets is adding to the weakness of the INR.

At a time when inflation continues to be persistantly high, a weak INR will add to India's already increasing Crude Oil import costs.

The Equity Markets in India are preparing themselves for forex loss announcements from companies that import their raw materials and those that have large Foreign Currency borrowings.

We are now surpassing levels last reached during the heights of the financial crisis in the first quarter of CY 2009, just after the Lehman Crisis!

Energy and commodity prices were far lower in March 2009 than they are right now; so the Government and especially the Central Bank (R.B.I) will have to come up with some strategy to stabilize if not support the INR at current levels.

WATCH THIS SPACE!

PIIGS 10 YEAR GOVERNMENT BOND SPREAD vs BUND

2011-11-14T17:08:00.001+05:30

The Crisis in the Eurozone continues with the markets rallying and then selling off to the twists and turns of ''political'' newsflow.

Its too early to know what the final writedowns will be or who will be the ultimate counterparty that must bear the losses of an era of ''imprudent'' lending.

Its going to take a whole lot of political will and large writedowns + bailouts in the financial srctor before we are back to any kind of 'normal' again.

In the meantime rallies in the markets should be rented, not owned!

ps: I will get back to regular posting soon.

INDIAN RUPEE - WEAK ASIAN CURRENCY

2011-10-04T17:47:00.002+05:30

The Indian Rupee has joined its Asian peers and has weakened against the USD over the last few months.

A weak Indian Rupee will make India's Crude Oil imports more expensive and thus add to inflationary pressures.
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A weak Indian Rupee will also hurt the profitability of Indian Corporates with large USD denominated borrowings.
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On the other hand, a weak Indian Rupee will boost the profitability of Indian IT exporters and export oriented Crude Oil Refineries

Watch this space!!

EURO : UNDER PRESSURE

2011-10-04T02:53:00.002+05:30

COPPER - --CORRECTION

2011-09-29T21:04:00.003+05:30

Copper prices have sold off in recent weeks.

A slowdown in the developed world is resulting in slowing chinese demand.

The recent rebound in the oversold USD has been accompanied with a sell off across asset classes, and Copper has been no exception.

Question is, are we headed into a global recession and is Copper just flashing a warning sign?

GOLD : VOLATILITY AND HOW!

2011-09-26T18:15:00.000+05:30

As expected, Gold prices finally corrected from recent highs.

Many Gold bugs are panicking and as prices plunge, & investors are wondering if Gold's mega rally has finally run out of steam.

Firstly, I continue to believe that Gold's long term fundamental story is still intact.
The current state of govenment finances combined with the ongoing post bubble debt deleveraging will mean that Gold will continue to retain its safe haven status.
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Secondly, Gold has not suffered any serious technical damage on its long term chart.
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Thirdly, a pullback in prices was long overdue after gold's monster rally from a sub $1500 price level.

Below is a link with some interesting charts.
Bull and Bear case for Gold, Silver and Stocks -- Looking at the chart below, gold prices have pulled back after testing the upper price band (Red line) of the chart.

Could we see a pullback to the green trendline like the 2008 correction?
As someone rightly said--Never say never!

Lastly, I would advise Goldbugs not to panic, but to just hold on patiently for now.
The troubles of the US Housing & Financial sector of 2008 have now morphed into stressed government finances and Sovereign debt crises of 2011.

In 2008 many corporates (especially in the financial sector) were downgraded by the rating agencies.
In 2011 several governments have had their Sovereign Credit ratings downgraded.
Once again the Credit rating agencies are raising red flags rather late in the day!!!!
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As David Rosenberg recently pointed out, the aftermath of a post bubble debt deleveraging saga is no 'garden variety' recession.

Gold is still the last refuge in this storm, but investors will have to learn to ride out some mega volatility and corrections along the way.

GOLD : TIME TO TAKE A STEP BACK NOW

2011-09-08T01:58:00.000+05:30

Gold continues it's fantastic run.

Just a word of caution to the permabull gold bugs.

The 50 day ma is at $1675.80 & the 200 day ma is at $1495.30.

After rallying by almost 47% over the last year, we could see a sizeable pullback without doing any technical damage on the charts.

In the meantime, continuing concerns of the sovereign debt of Club Med , Central bank interventions in the currency markets (like the SNB yesterday)and debt and deficit worries in the U.S.A. will continue to support gold prices. Expect more volatility ahead of President Obama's Speech on ''job creation'' and Ben Bernanke's speech this week!

GOLD - LONG TERM CHART

2011-08-28T18:42:00.003+05:30

GOLD : Overextended after a massive run : more volatility to come

2011-08-24T19:56:00.008+05:30

After testing $1900, gold prices have corrected sharply. In the near term prices continue to remain overextended, well above supporting trendlines at $1640.

I continue to remain a long term bull, but would once again remind readers that in the short term, gold prices will continue to be volatile and reacting to options expiration and the FED's Jackson Hole meeting at the weekend.

Here is a fantastic chart from Jesse's Café Américain - a super site for all gold related news and excellent unbiased market analysis.

Thomas Friedman - on a Theory of Everything (sort of)

2011-08-16T23:08:00.006+05:30

A precise article by Thomas Friedman about the current state of unemployment, credit and strained government finances.

A Theory of Everything (Sort Of) - NYTimes.com

You +1'd this publicly. Undo

MARKET UPDATE: THESE ARE CRAZY DAYS

2011-08-10T02:27:00.009+05:30

Just a quick post today before I put up some detailed analysis soon.

There's so much happening in markets these days - Debt Ceiling, US AAA downgrade, Equity Market crashes, a really manic VIX (Volatility S&P500 ^VIX), UK Riots and all the ongoing discussion of the ''fragile'' global economic recovery!!

Below is a snapshot of todays wildly gyrating markets! For the ''goldbugs'' out there, Gold has been riding high, driven upwards by all the uncertainty & it is overbought in the near term!

The FED has signalled that it wishes to keep rates at record lows well into 2013!----the recovery must be more fragile than they first thought.

Overall, I would refrain from any risk taking at the moment and would look to hedge gold positions. In the medium term, I expect gold to continue to be volatile in a price range of $1550 to $1780(New all time high as of today).

Will come back with some market specific ideas soon.

THE ONGOING RECOVERY - NOT!

2011-07-28T16:05:00.005+05:30

As the US Government is negotiating to raise the US Debt Ceiling, Central Bank Governors around the world are struggling to keep the fragile economic recovery intact while tackling inflation concerns at the same time.

Below are some magazine covers, that you would not expect to see at this stage of a economic recovery!

US ADJUSTED MONETARY BASE - Chart from St Louis FED

2011-07-19T19:28:00.007+05:30

Clearly there's more stimulus to come, as the never ending recovery from those dark days in 2008 continues. The FED really has a tough job on its hands.
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Talks of a possible QE3 could add more fuel to rising commodity prices, while a cancellation of a proposed plan for QE3, will not go down well in these jittery markets!

Below are two Charts of the Adjusted US Monetary Base. (5year + Long Term)
2011 has seen the graph spike sharply updards, a trend that is clearly not sustainale !

Meanwhile the Precious Metals sector has had quite a rally over the past week, with Gold prices topping $1600, and Silver just about getting over the $40 level. Perhaps, the Gold market is pricing in a possible QE3 further down the line.
I continue to be cautiously optimistic on the precious metals sector over the next month and a half; i.e. until the end of August 2011. These summer months have traditionally been seasonally weak for the PM sector.

INDIAN EQUITIES - AN UPDATE

2011-07-15T01:05:00.003+05:30

Here's an article titled - 'A Two - Tier Market' by Akash Prakash from the Business Standard Newspaper dated 8th of July 2011 - Mumbai edition..

He addresses the issue overvaluation of the consumer-staples sector and highlights the difficulties of buying high-quality companies at a reasonable price in the Indian Stock Market.

Currently, many consumer staple stock trade with PE ratios of 30-35!

On the other hand, investors continue to shy away from industries that are in need of capital, mainly due to concerns of poor earning visibility. Many infrastructure companies are facing great difficulty in raising capital.

The article is a fantastic read.

INDIAN PETROLEUM SECTOR SUBSIDY CONUNDRUM

2011-06-28T20:13:00.006+05:30

The Government of india finally implemented a long overdue price hike in diesel, LPG & Kerosene.

Even as inflation statistics continue to remain uncomfortably high, the government had to finally bite the bullet!
The government must come up with a long term viable pricing policy for petroleum products.
The Oil Marketing companies like BPCL, HPCL & Indian Oil cannot afford to keep subsidizing retail fuel prices. Currently their profitability is dependent on Oil bonds - a government handout!
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Upstream marketing companies like ONGC & GAIL are helping the government to bear the losses from under recoveries, and this is preventing them from investing in Oil Assets and building Oil & Gas infrastructure like gas pipelines etc
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The government will also have to step up investment in public transport infrastructure like metro rail projects & urban bus transport networks. Perhaps such a move will help reduce traffic congestion and in the long run reduce our heavy dependence on petrol and diesel.
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Lastly I would like to point out that a large chunk of the levied retail fuel price on fuels like petrol and diesel, consists of govenment taxes that does not go to the oil companies, but is a major source of government revenue!
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It's time that a truly sustainable long term fuel pricing policy is formulated.
With Crude Oil prices that continue to trade around $100/barrel, the government must come up with such a policy as soon as possible.
Below is an announcement by the Govt of India in the Economic Times on the 27th of June 2011.

GOLD CHART UPDATE

2011-06-15T22:10:00.008+05:30

The months of June to early September have traditionally been months when Gold has witnessed sell offs.

Below is an excellent chart prepared by Mr P. Radomski of Sunshine Profits.
Do stop by his Sunshine profits site for some really insightful analysis on precious metals.
LINK:Sunshine Profits Tools for Effective GOLD & SILVER INVESTMENTS ...

Gold is testing the upper resistance line in the chart below.

I would avoid buying in at the current juncture but would instead await better opportunities over the coming months. An equity market sell off is likely to trigger a big correction in precious metals.

DJIA - THE RALLY GOES ON

2011-05-27T16:56:00.005+05:30

As the rally in the US equity market continues, even the most ardent ''bear'' is probably just about ready to throw in the towel.

Can this rally be explained in light of deteriorating fundamental news such as rising unemployment and government debt levels ?

Perhaps now is the time for the prudent investor to re-assess his risk reward matrix.
Does waiting for a possible upside from current levels justify the risk at this stage?
Some analysts are saying that the current rally since 2009 has started to form a bearish ascending wedge formation on the charts, and that it's time to book profits.

The Bullish Bear Blog's view:

The risk reward ratio is clearly not in favour of the long only investor.

After a monster rally from the lows back in March 2009, potential downside risk clearly outweighs any possible upside.

The mega rally has exhausted a large percentage of short positions in the market. This in turn means that the market has much less support on the downside if a correction ensues.

Meanwhile the market continues to ignore serious issues like the Club med debt crisis, unemployment issues in the US & steadily rising government debt levels in the developed world.

RISING GASOLINE PRICES

2011-05-02T13:22:00.003+05:30

A chart from http://www.chartoftheday.com/.

A weak USD and high Crude Oil prices has resulted in rapidly rising gasoline prices.

USD - WHERE TO NEXT ?

2011-04-27T11:51:00.005+05:30

Here is a USD update from Graham Summers of Gains Pains & Capital.com

April 25, 2011: Graham Summers’ Free Weekly Market Forecast (China Dumping Dollars edition)

His analysis is always insightful and he is always willing to tell it like it is.

The USD has clearly been under pressure recently. It is oversold at the moment and even though the Bullish Bear has a long term bearish view on the USD, I continue to believe that the current rally in the EURO and the GBP will soon see a reversal.

The Euro and the GBP have their own issues as well! ...facts that the market is currently ignoring!

Will the USD take out the 2008 lows? Watch this space!

Gold and Silver have had a fantastic run, although Silver prices pulled back quite sharply this week after almost reaching $50.

As you can see from the third chart, Silver had a lot of catching up to do, and since mid 2010, it has caught up with Gold quite swiftly.

I continue to advise caution on Silver prices, as prices have already risen significantly and a further pullback over the near term can be expected.

SILVER - SOARING PRICE & RISK !

2011-04-23T16:30:00.006+05:30

Here is a fantastic Silver chart from Carl Swenlin of Decision point.com.

Here is the link:Silver Still Soaring

Clearly, silver has had a fantastic rally, and could possibly rise still further as speculators rush in. The Bullish Bear Blog has been bullish on Silver ever since the inception of the blog.

However, the almost vertical rise prices makes me wary of a sudden selloff ! Buying in at this stage is ''HIGHLY RISKY''.

For those already long the white metal, I think it's time to start booking profit in stages and sticking to stop losses, to lock in profits.

Wait for a pull back to invest, and yes it's time to take some chips off the table for now.

ROBERT PRECHTER : 6 TRENDS ABOUT TO REVERSE

2011-04-13T17:51:00.013+05:30

Here's an article I came across in 'The Business Insider' > Robert Prechter: These 6 Trends Are About To Reverse‎

Prechter argues there are several themes out there right now that investors, economists, and markets all believe to be true just like they did with interest rates in the 1980s.

The dollar - everyone is bearish.

Interest rates - everyone thinks they're going to rise.

The stock market - everyone is bullish but corporate insiders.

Inflation expectations - everyone thinks it is going to go higher.

Economy - everyone is confident in 2011.

Oil - everyone thinks it is heading higher.

He makes some really valid points. Ignore the principles of 'Madness of crowds' and 'mean reversion' at your own risk.

GOLD : RALLYING IN ALL CURRENCIES

2011-04-11T11:33:00.003+05:30

EURO RALLY - SUSTAINABLE....NOT

2011-04-09T13:18:00.013+05:30

A positive rate outlook for the Euro and the continuing downtrend in the USD has resulted in quite a sustained uptrend in the EUR USD exchange rate. As the Club Med nations come to the table asking for handouts, the ECB has gone ahead with the first of many proposed rate hikes. Rising inflationary pressures as a result of booming commodity prices led by Crude Oil could have forced the ECB's hand at this point.

But is this rally in the EURO justified?

Is the USD in much worse shape than the Euro?

Here's my analysis:

The Euro has considerable exposure to Club Med and is by no means out of the woods.

The USD too has many structural weaknesses - rapidly expanding Federal debt levels, terrible finances at the state and municipal government level, a slumping housing market and uncomfortably high unemployment.

But the fact remains that the USD is oversold at the moment.

The CBOE VIX is currently trading well under 20, at 18 currently. A warning sign for perma bulls.

Equity markets are far too complacent at the moment, totally ignoring the headwinds of $113 Crude Oil and all the negative geo -political newsflow. The risk reward ratio is clearly against the prudent investor. .

Just like 2008, an equity market sell off will once again be accompanied by risk aversion and a rebound in the USD as investors shun other risky asset classes ( emerging market equities and hot commodities) for the relative safety of the USD and the US Bond Market. The USD always benefits from the flight to safety during market panics.

Sadly,most fiat currencies are seriously flawed as governments continue to ignore structural problems of their economies, preferring to ''kick the can further down the road''.

This is reflected in the fact that Gold and Silver continue to rally in most currencies.

Commodity currencies like the CAD, Swedish Krona & the Australian Dollar remain vulnerable to a sell off in the commodity markets. The Swiss Franc and the Japanese Yen have also shown sustained strength vs the USD.

To conclude, I expect the USD to recover when the stock market starts to sell off & I expect further negative newsflow from Club Med in coming months to weaken the ''overbought'' EURO.

SILVER FEVER !!

2011-04-09T12:47:00.005+05:30

Most fans of the precious metals sector will obviously be over the moon after the monstrous rally in Silver in 2011 so far.

The USD continues its sell off, while the Euro rally continues despite all the trouble with Club Med.

With all the momentum in Siver bullion, prices could rise still further.

Personally, I would advise against any opportunistic buying at the moment, as the risk reward ratio is clearly against the long only trader for now.

For those investors with access to hedging strategies, perhaps they can use put options to protect long positions, given the overbought position in Silver.

Mr P. Radomski of Sunshine Profits has some excellent analysis in his latest free update.

VIX & COMPLACENCY & the UNPREDICTABILITY of MARKETS

2011-04-07T15:00:00.003+05:30

Despite all the news on Libya, Japan, the EU Debt crisis and the discussions of raising the US Federal debt ceiling, global stock markets continue to trend upwards.

Are we overdue for a spike in the VIX ?

THE FED & the US ADJUSTED MONETARY BASE

2011-03-28T12:14:00.013+05:30

Here is a follow up post to my March 15, 2011 post on the correlation of the S&P 500 with the size of the FED Balance Sheet.

Graham Summers of ''Gains Pains Capital'' has also put up a detailed note on the US Monetary Base.

LINK:

http://www.gainspainscapital.com/index.php?option=com_content&view=article&id=244:graham-summers-free-weekly-market-forecast-the-fed-is-terrified-edition&catid=39:stocks&Itemid=58

Below is a chart from the above mentioned article.

EVENT RISK FOR MARKETS - CAVEAT EMPTOR

2011-03-25T18:18:00.006+05:30

Global equity markets these days seem to be totally unaffected by all the geopolitical turmoil and natural disasters of the last few months.

Once again the ever cautious David Rosenberg chips in with words of wisdom, alerting investors to the many risks that the market is currently ignoring. (Note to readers - David Rosenberg's Newsletter ends its free trial period this month, so this will be the last of his charts on this blog)

S&P 500 vs The FED's BALANCE SHEET

2011-03-15T17:06:00.007+05:30

Investment Guru David Rosenberg in recent writings has commented on the positive correlation of the rally in the US Equity Markets and the size of the Balance Sheet of the US FED.

Here is yet another article from Jim Sinclair's Mineset website that supports Rosenberg's view.
This is some excellent research by Trader Dan Norcini and is worth a read.

S&P 500 Versus The Fed’s Balance Sheet

(LINK FOR CHART FROM JIM SINCLAIRS WEBSITE)

GEOPOLITICAL NEWS IMPACTING MARKETS

2011-03-12T12:28:00.005+05:30

The last couple of months have really been a roller coaster ride for the world economy.

Whether its the unrest in the Middle East leading to surging Crude Oil prices, or rising food prices or EU Sovereign debt troubles, or the recent Japanese Quake and resulting Tsunamis...... a lot has been going on.
The incredible damage to property and the loss of innocent lives in case of the Japanese quake is really tragic.

There was another important bit of news that went by unnoticed.
"" Wisconsin Gov. Scott Walker on Friday signed into law the controversial bill that eliminates most union rights for public employees""
Wisconsin governor signs anti-union rights bill World DAWN.COM
Wisconsin governor signs into law union curbs Reuters
Clearly the crisis on Main Street is not over yet. As David Rosenberg recently said, the impact of cost cutting and downsizing at the state and local government level will really undermine the '''ongoing consumer recovery'''
So I think that it's time that the guys on Wall Street sit up and take notice.
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The Dow Jones may continue to brush off the impact of rising gasoline & food prices and the discontent on Main Street for now, but the prudent investor must realise that its now too late to join the equity market bandwagon. The risk reward ratio is not in favour of the ''long only'' investor and his margin of safety is far too inadequate at the current time.

IS THE USD OVERSOLD ?

2011-03-07T16:36:00.009+05:30

Even as the EURO continues to rally, the USD is breaking down through some critical levels.

While regular readers know my long term view on the USD, let's not forget that the USD appears to be oversold at the moment.

Below is a screenshot of the CNBC website-7th March 2011 - A classic contrarian indicator! As traders get caught up in the surge in Silver prices, everyone is bearish on the USD all of a sudden.

Turmoil in the middle east and North Africa continues to dominate news headlines, easily crowding out news of dissatisfied government workers' unions and the ongoing austerity measures being implemented by state and local governments in the USA.

Discerning readers will realise that the troubles with Club Med and the 'PIIGS' are far from over.

Meanwhile the price of Crude Oil continue to trend upwards, and with the US unemployment rate near 10%; this will add further stress to the recovery on main street.

The stock markets may continue their upward rally for now, but a toxic combination of high unemployment and rising food & energy prices may be just as detrimental to the US Equity market rally as they proved to be for the ''dictators'' of North Africa.

A sell off in the overbought equity markets could trigger a counter trend rally in the oversold USD.

US HOUSING MARKET & the 30 YEAR FIXED RATE MORTGAGE

2011-02-28T18:57:00.004+05:30

Home prices in the U.S. will continue to face headwinds as the 30 year fixed rate mortgage rate continues to climb despite the FED's best efforts in QE2.

A combination of declining home prices, rising food and energy prices and persistantly high levels of unemployment will continue to weigh down on the economic recovery.

THE SOFT COMMODITY BOOM CONTINUES

2011-02-26T14:55:00.007+05:30

Some call it the Bernanke effect, some blame the BRIC nations, while others blame rising soft commodity prices on the weakening USD.

JIM ROGERS clearly has been spot on as far as the boom in soft commodities goes. Food inflation is making headlines again!

Clearly some of the commodities may be rather overpriced at the moment. Meanwhile speculators and commodity hedge funds continue to build positions in this rather overbought sector. Caveat emptor - Watch this space!

Source : Commodity Prices / Quotes & Commodity Charts - Free - A fantastic site for commodity charts.

IT'S NOT OVER YET !

2011-02-24T18:44:00.004+05:30

Here's David Rosenberg with more words of caution.

It's not over yet!

Kick the can down the road, as far as it will go, buy as much time as possible!

2011-02-16T22:15:00.008+05:30

As the ongoing bull run in the equity markets continues, I thought that it was appropriate to post some charts from Breakfast with Dave - 18th Jan, 2011.

Complacency and exuberance and ''bullishness'' is blinding speculators and investors to the many structural problems of today's global economy.

Job creation and food security ( in both the developed world and emerging markets) are going to be crucial issues going forward, and unfortunately the ongoing policies of governments worldwide are continuing to fuel asset price inflation and stock market rallies rather than addressing the real problems we have at hand.

C.R.B. vs. B.D.I.

2011-01-29T14:05:00.011+05:30

Below is a rather curious chart of the CRB Commodity Index vs the Baltic Dry Index.

It's interesting to note, that as commodity prices continued to trend upwards in recent weeks, the Baltic Dry Index has continued to drift downwards.

The ongoing activities of global Central bankers are once again boosting asset prices, including prices of USD denominated commodities. As speculators and hedge funds latch on to rising prices, it's quite possible that prices could rise still further.

Longer term however, this diversion in the CRB & the BDI will have to correct itself.

Given that the rise in the CRB is not purely end user driven, CRB prices could see a sell off if the global economy faces a double dip.

As Central Banks in Asia continue to raise interest rates to combat food & energy inflation, Asian economic growth could slowdown in the second half of 2011.

Also, let's not forget the troubles with Club Med, unemployment issues in the developed world, the troubles with state/municipal finances in the USA and the Debt and Fiscal issues of the US government.

If the world economy slows, the CRB Index is going to turn downwards.

Investors and speculators in the commodity markets must realise that at current prices, most commodities are trading in 'overbought' territory and leave the investor with little or no margin of safety at all

Caveat Emptor!

PRECIOUS METALS - CONSOLIDATION OR FURTHER CORRECTION ?

2011-01-29T13:37:00.008+05:30

Over the past fortnight, the ongoing correction in the precious metals sector has caused quite a bit of heartburn for the 'goldbug' community.

While the recent troubles in Egypt have provided support to PM prices, the ongoing equity market correction could drag prices down further.

Take a look at Silver prices over the last month! That's quite a sell-off.

Mr Radomski of Sunshine Profits has an excellent chart on Gold.

I'm not buying anything yet, and will wait and watch to see how the markets open next week. Meanwhile, the USD & the Swiss Franc continued to benefit from increased market volatility.

INVESTING WITH THE HERD

2011-01-28T00:33:00.006+05:30

I came across this article via David Rosenberg's article on the 24th of Jan 2011.
Here is the permalink to the NY Times article.
http://bucks.blogs.nytimes.com/2011/01/17/investing-with-the-herd/
It's an excellent article for investors to read right now, given the complacency that has crept into stock market valuations.

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog, and other drawings are available on his personal Web site, BehaviorGap.com.
Since March 2009, we’ve watched the market rebound by 80 percent. Whether you’ve sat it out on the sidelines or think you can predict what comes next, I recommend you take a step back and remember a few things.
You are not as smart as you think. Overconfidence is a huge behavior
problem for investors. Overconfidence is what happens precisely because we think we know a lot about the subject, but overconfidence can lead us to make mistakes that in hindsight will be glaringly obvious (but the tricky part is that we didn’t know it at the time).
Following the herd doesn’t make it safe. I know it’s exciting and fun to be an investor in Apple or Google right now. Then there’s the talk about getting access to the private initial public offering of Facebook through Goldman Sachs. Buying because everyone else is buying is not an investment strategy. These companies may be great investments, but not just because everyone else is buying their stock.
We’re social animals who feel safer in numbers, but so do sheep. We take comfort in doing what everyone else is doing, and in the back of our minds we know that even if we’re wrong, at least we’ll be wrong with a bunch of other people. But it was the same line of thinking that led us to do very stupid things in high school just because “everyone else was doing it.”
Investing is about behavior, not skill. Maybe you’ll accuse me of beating a dead horse, but successful investing is about how you behave. Buying high and selling low is dumb, but it’s worth repeating given what I’m seeing in the market today. It’s important to remember that you could own a “mediocre” mutual fund, and if you behave correctly you can outperform 99 percent of your neighbors. On the other hand, if you spend your whole life searching for the “best” investment, you’ll ruin your entire lifetime return in one single behavioral mistake.
I know that what I’ve outlined sounds obvious and easy to scoff at, but the fact that it’s obvious didn’t keep investors from loading up on tech stocks in the late 1990s, bonds in 2002, and real estate in 2006. As we enter 2011, and the excitement of our financial New Year’s resolution starts to wear off, please remember that it’s worth taking the time to stop and think before you invest.

DAVID ROSENBERG on US UNEMPLOYMENT

2011-01-11T02:05:00.004+05:30

The graphs below come from 'Lunch with Dave' - January 7, 2011.

SILVER - OFF TO THE RACES !

2011-01-08T16:57:00.005+05:30

Silver has been a star performer over the last year.

While prices have corrected slightly from a level of just over $31/oz, the overbought condition in silver means that there could be further downside in the near term if lasts week's weakness in the commodity markets persists.

Below is a chart from some excellent analysis from Adam Hamilton of www.ZealLLC.com

EURO - OUTLOOK 2011

2010-12-31T13:54:00.004+05:30

The Euro currency faced a turbulent 2010.

As concerns continue to mount over the finances of the '''PIIGS''', 2011 could mean even more volatility.

Will the easy money/quantitative easing policy of the USA or the austerity measures of the Eurozone be successful?

Here is a chart and an article by Graham Summers of Gains Pains & Capital on the EURO crisis.

Link: End Game: The Euro As a Concept Is Finished

JEREMY GRANTHAM of GMO - CNBC Interview

2010-12-30T18:05:00.001+05:30

INDIAN EQUITIES : FII & Domestic Institutional Fundflows

2010-12-19T23:24:00.005+05:30

2010 has been a good year for Indian Equities. The FMCG (Consumer staples ) sector, Auto sector & Banking sector have performed well this year. Valuations are no longer cheap, and the margin of safety for investors has narrowed substantially.

Link - Domestic institutions turn cautious, go on selling spree ...
As usual, FII fundflows continue to dictate market direction, but as the above article points out, Domestic Institutional investors - Mutual Funds are booking profits.

UPDATE : 30 YEAR US TREASURY BOND

2010-12-18T11:17:00.004+05:30

The recent sell off in US Treasuries comes at a time when the FED continues onward with its QE2 programme.

The USD too has weakened somewhat over the last few months, even against the troubled EURO.

Could this Bond market sell off further complicate the attempts of the FED to revive the ''global'' economy? Falling Bond prices means that yields will rise, a fact that will not go down well in a market where credit growth is actually contracting. If mortgage rates start to rise, the US housing market will face further headwinds.

WATCH THIS SPACE!

A TALE OF TWO INDIAS !

2010-12-17T20:40:00.012+05:30

The Economist magazine recently published an article regarding India on 25.11.2010 titled

Graft in India - Rotten to the Core? Coping with the aftermath of a massive scam !!!
And who's to say that they are off the mark as far as the story goes.

We have been on a never ending roller coaster of scams.

IPL - Cricket scam -issues regarding benami -ownership structures of teams
Commonwealth games scam.
Adarsh Building scam in Mumbai - Illegal Building on Army land
Telecom 2G scam - That's a mega one!
Public Sector bank officials involved in a loans for bribes scam.
Stock price rigging scam being investigated by SEBI.
Nira Radia tapes - involving journalists, industrialists etc!

So we have massive wealth disparity, income inequality, corruption, rural poverty, poor infrastructure and then we have on the other hand an ecomnomy that's doing fantastically well, while the world economy is still reeling under the strain of slowing consumer consumption and record debt levels.

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While its going to be a never ending discussion about the politicians, industrialists and other individuals involved in these scams, there are some facts and lessons that an investor in Indian markets can take away from this mess.

While the Indian Economy does present a fantastic investment opportunity to both Indian and overseas investors, it can be bumpy ride at times.

While the Indian government continues to move slowly on / ignore vital issues like wealth disparity, rural poverty, overburdened infrastructure and the poor state of primary education and healthcare facilities across India, they must realise that this economic boom cannot continue unless they start to tackle the above mentioned critical problems and target "inclusive growth".

Remember to curtail investments to firms where the management has a credible track record and takes care of the interests of all stakeholders concerned - & not just themselves! You may come acoss an interesting investment opportunity, but if the management has a dodgy track record, just stay out!

If SEBI fails to rein in the Equity market scamsters, it will result in a massive blow to SME (Small and medium enterprises) businesses in India. The SMEs are the ones most affected by these stock rigging scams because a tightening of bank credit across the SME sector will deny working capital loans to many deserving and good quality small cap companies in India

The incredible progress that has been made by Corporate India has been made inspite of our politicians and not because of them!

While I'm not condoning the massive, almost blatant and shameless corruption here in India; we live in a world where politicians in most countries are no better than the ones we have here. It may be less blatant but sadly,corruption goes on!

There is incredible corruption,short termism and lack of leadership in global politics today.As someone rightly said, " The people who want to be in politics are not the people whom you want to be in politics". No politician is willing to fix a problem that he can kick further down the road, an example being the *crazy debt crisis* facing the western world today! Imagine asking consumers who have no savings to start overspending and re- leveraging again - Thats both WRONG & insane!

Lastly, remember that the prudent investor does not chase an over extended stock market rally. Remember to wait for pull backs and always look to invest in good quality stocks, with managements that have an established track record!

TELECOM SECTOR INDIA : CONSOLIDATION TIME

2010-12-17T20:18:00.006+05:30

Below is an article from the Economic Times - 4 December 2010.
Link:
All new telcos have less than 50% active users, finds Trai - The ...

The Pre-paid/ Pay as you go segment dominates the mobile phone telecom sector in India.

With record-low tariffs and cut throat competition, telecom companies are hoping to regain earnings traction via 3G services!

Furthermore, we may be headed for a 3G price war as well.
The percentage of active subscribers is far too low in the case of many of the new entrants. Some of the new players will gradually find the current tariffs unviable for their business models, and a consolidation is likely.

This is clearly an overcrowded market. In the meantime, expect the established incumbents to aggressively defend their market share. This will result in reduced profitability in the near term, until an inevitable consolidation occurs/ some players exit the market altogether.

GOLD - TOO FAR TOO FAST?

2010-11-27T13:53:00.012+05:30

Here's an update from Przemyslaw Radomski of Sunshine Profits. He says that Gold is near a critical resistance and consolidation is likely.

Graham Summers of Gains Pains & Capital warns of the possibility of a correction in gold prices, given the herd like negative sentiment towards the USD at the moment. Notice the '''negative rising wedge''' in the chart below.

Personally, the awesome relative strength in precious metals (especially Silver) in recent months has surpassed my rather conservative estimates.

QE2 has come and gone and there's no solution to the ongoing ''recession'' as yet. Commodity prices are just about the only thing that have responded positively to the FED's QE2!!!

Meanwhile, Club Med in Europe is showing no signs of turning around, and this has taken the edge off the recent Euro rally. The USD Index has recently crawled back above the 80 mark.

Below is a long term USDX chart by Graham Summers.

Remember, just because the USD is headed downward over the long term, doesn't mean that it can't stage a counter trend rally in the near term.

Equity markets, especially emerging markets are refusing to factor in the possibility of a relapse in the global economy.

A cautious wait and watch approach may be the best way forward for now.

Traders may consider hedging some long gold positions.

Short term corrections aside, I remain a long term Gold Bull!

GOLD

2010-11-24T17:09:00.003+05:30

BANANA REPUBLICS ...FINANCIAL CRISES & MEGA BAILOUT PACKAGES

2010-11-15T12:27:00.010+05:30

Sorry for the infrequent posting of late.
The USD seems to be trying to stabilise, even as gold prices cool off after striking new highs.

Here is a fantastic article that addresses the topic of Banana Republics!
Currency wars / manipulation continue and as bailout packages are announced, many are still asking questions as to who the final beneficiaries of these handouts will be ??

Here's an excerpt from the NY Times article of Nicholas Kristof -

The richest 1 percent of Americans now take home almost 24 percent of income, up from almost 9 percent in 1976. As Timothy Noah of Slate noted in an excellent series on inequality, the United States now arguably has a more unequal distribution of wealth than traditional banana republics like Nicaragua, Venezuela and Guyana.

C.E.O.’s of the largest American companies earned an average of 42 times as much as the average worker in 1980, but 531 times as much in 2001. Perhaps the most astounding statistic is this: From 1980 to 2005, more than four-fifths of the total increase in American incomes went to the richest 1 percent.

That’s the backdrop for one of the first big postelection fights in Washington — how far to extend the Bush tax cuts to the most affluent 2 percent of Americans. Both parties agree on extending tax cuts on the first $250,000 of incomes, even for billionaires. Republicans would also cut taxes above that.

The richest 0.1 percent of taxpayers would get a tax cut of $61,000 from President Obama. They would get $370,000 from Republicans, according to the nonpartisan Tax Policy Center. And that provides only a modest economic stimulus, because the rich are less likely to spend their tax savings.

At a time of 9.6 percent unemployment, wouldn’t it make more sense to finance a jobs program? For example, the money could be used to avoid laying off teachers and undermining American schools.

Likewise, an obvious priority in the worst economic downturn in 70 years should be to extend unemployment insurance benefits, some of which will be curtailed soon unless Congress renews them. Or there’s the Trade Adjustment Assistance program, which helps train and support workers who have lost their jobs because of foreign trade. It will no longer apply to service workers after Jan. 1, unless Congress intervenes.

So we face a choice. Is our economic priority the jobless, or is it zillionaires?

PERMALINK:
http://www.nytimes.com/2010/11/07/opinion/07kristof.html

CURRENCY VOLATILITY

2010-10-20T01:20:00.014+05:30

Well, after trending downwards for weeks, the USD seems to have stabilized for now, and a counter trend rally in the USD is underway.

Here are some charts that tell the whole story. No one seems to want a strong currency!

The rally in the EUR, JPY and CHF will hurt exporters in Europe, Japan and Switzerland.

A weak USD meanwhile, will boost US exports.

The Chinese have thus far resisted any significant appreciation in the Chinese Yuan.

USD CHF : The CHF broke down below parity in its recent rally vs the USD

USD CAD : It came ever so close to testing parity vs the USD

USD JPY : Despite the efforts of the Bank of Japan to weaken the JPY, the JPY continues its relentless upward march.

EUR USD : A weak EUR helped boost Germany's GDP numbers last quarter. the recent rebound in the EUR will surely make life difficult for the Club Med nations

Conclusion:

The USD appears to be oversold in the near term and a counter trend rally is underway. The market is betting on some mega fire power solution from the US Fed at its meeting in November. If QE2 disappoints and the equity markets sell off, the USD could stage a much stronger rally!

The Equity markets have been getting far too complacent about the weak and worrying news data and unemployment numbers in the US.

Fund flows to emerging markets have boosted stock prices across the board and a correction is well overdue. These markets are ''not decoupled from the actions of the US Fed'' and when the tide starts to turn we can expect large fund outflows to have a drastically negative impact on stock prices in emerging economies

Lastly, the rally in Gold prices also appears ripe for correction and consolidation. Silver prices too, are clearly overstretched in the near term. expect lower prices if the USD stages a comback rally. It's not time to be buying the precious metals sector just yet!

Watch this space!

LENGTH OF U.S. RECESSIONS

2010-09-30T12:59:00.003+05:30

Here are a couple of charts on the ''now ended'' Great Recession.

GOLD & SILVER - NOT PARABOLIC YET ??

2010-09-20T16:22:00.010+05:30

I recently came across some gold charts while reading a link I found at kitco.com

Below is an article by Dudley Pierce Baker. He discusses the parabolic moves in precious metals during 1979-1980.

Link: What Happened and Will Happen Again

He does make a valid point. Take a closer look at the above two charts.

Now those were parabolic moves!!

Could gold and silver have a repeat performance of those parabolic moves?

Well all I can say is who knows! Gold has been the top performing asset class of the last decade. The Every bull market has corrections along the way and the precious metals sector is no exception. So expect corrections and panic selling as part of the ongoing gold bullion bull market. The fundamentals are rock solid and long term buy and hold strategy is advised.

Once again I would like to warn investors not to try to time the precious metals market or indulge in leveraged trades when gold prices are rising. Instead look to buy in only after sell offs and corrections rather than chasing rising prices.

The Monetization Equation

2010-09-20T11:32:00.004+05:30

Taipan Daily's Justice Litle & John Williams of Shadowstats.com have the following view on the monetization equation and the rally in Gold prices.

This could help explain the rally in gold prices despite the ongoing deflationary environment.

As David Rosenberg has been pointing out in recent times, the ''bond market rally'' has resulted in mortgage rates remaining near record lows. As a result, the bond market has helped to cushion the slump in the housing market.

This will make it even more difficult for the fed to raise interest rates in the near future.

All in all the aftermath of a bust of a bubble created by cheap credit takes time to sort out and the adjustment can be painful.

There is no quick fix, as consumers return to living within their means and go back to age old practices of saving and taking on less debt!

GOLD - IT'S RALLYING AGAIN !

2010-09-17T00:48:00.010+05:30

Just about everyone seems to be bullish on gold at the moment.

As bullish momentum takes over, we could be in for higher prices in the days ahead.

Over the last month, silver has soared from levels of $18 -$18.50 to almost $20.80 currently.

Below is a chart by Chris Vermeulen, who acknowledges the currrent bullishness, but wisely takes a step back to take a look at the ''big picture''

Here is Chris Vermeulen's article on kitco.com

Gold Forms Overbought Rising Wedge at Resistance

While I remain both a gold bug & bull, it's worth noting that the equity markets may be overly optimistic about earnings estimates for the second half of 2010.

The USD has been beaten down by the recent lack of risk aversion.

If market tremors re emerge, gold could sell off. Just to put things in perspective, a 20% sell off from the current level of $1273 will still mean that gold will continue to trade over $1000.

All that I'm saying is that fresh buying may be postponed for the time being, and that its advisable for long only, long term investors to wait for a pull back before jumping in at current prices!

Where are we headed to now ?

2010-09-15T16:21:00.012+05:30

Well it's been a while since my last post.

Markets have been bullish across asset classes. Equities, Bonds and precious metals, all rallying at the same time!!
U.S. unemployment numbers as well as the continuing slump in the US housing market continue to be worrying reminders that all may not be well with the global economy.

David Rosenberg recently reminded us that the U.S economic recovery has been largely dependent on government support (think mega bank bailouts, cash for clunkers, food stamps, infrastructure funding packages etc). By this stage of the game and given the extraordinary stimulus packages of the last two years, the economy should have been growing strongly.

Instead it looks like the U.S. economy is unable to survive on its own, given its slumping home prices, high unemployment numbers and high consumer debt levels.
Even Ben Bernanke is looking to cut growth forecasts while remaining silent about the eventual withdrawal of 'fed support' for the economy.

The FED & GSE's continue to support the housing market, even as home prices continue to remain weak.
No government in the western world can risk withdrawing its support for the ongoing ''fragile'' economic recovery. In fact, many are contemplating another round of stimulus packages to head off a slowdown in the second half of 2010.

Here's a quick roundup -

Gold and Silver are on a surge yet again, after trading confidently throughout this summer. They appear to be overbought in the near term, especially silver which has had an almost vertical rise over the last fortnight.

US Equity funds continue to see outflows, while US debt funds continue to see further inflows.

US Equities have been rangebound in the 1030-1130 range on the S&P 500.There have been multiple corrections and rallies and despite regular tremors about the Club Med economies, the Euro and the state of finances of the states like California in the U.S.A --markets have chosen to ignore any worrying news.

Emerging market equities are rallying again and decoupling theorists are back to claiming that the BRIC economies can thrive and grow despite global headwinds.

The Indian equity market has been an outperformer in 2010 YTD. The rally is spreading to the mid caps and small caps. Overall the markets appear to be factoring in growth rates that may prove to be a tad unrealistic, especially if we see any turmoil in the ever slowing western economies

Overall, I continue to be wary of the ongoing rally in equity markets that seem to refuse to acknowledge poor economic data as well as the total lack of confidence on main street (especially in the developed world).

Are equity markets adequately factoring in a possible slow down in the second half of 2010? - I think not

Remember, it's better to be realistic that hopelessly optimistic.

I am still bullish on precious metals. We are also entering a 'seasonally strong' period for precious metals. Caveat Emptor - A sell off in equity markets will trigger a sell off in precious metals.

Expect upcoming posts on Gold, Silver and Indian Equities in coming weeks.

US MEDIAN DURATION OF UNEMPLOYMENT

2010-08-10T22:32:00.008+05:30

As the market eagerly awaits some FED news flow, here is a chart that deserves a closer look.

While the unemployment rate has continued to remain under 10%, the chart below shows that this is still one '''tough''' job market.

If the recovery is to be led by consumer consumption, then this chart must begin trending downwards!

Continuing stress in the housing and job market coupled with an increase in the savings rate and lacklustre credit offtake further reinforces David Rosenberg's stand that ''frugality is here to stay''

David Rosenberg - on reasons to be worried about the investing environment

2010-08-02T21:17:00.006+05:30

Many analysts and economists ''label'' David Rosenberg a perma bear!

Below is his answer to a question during a recent interview.

Ignore David Rosenberg's sound advice and cautious outlook at your own risk!

Economic news flow continues to be dismal. Far too many structural problems remain unresolved for analysts to extrapolate earnings based on the ongoing rebound in equity markets.

Three Gorges Dam - Raging Flood Waters

2010-07-22T01:20:00.005+05:30

This is off topic, but bears a mention nonetheless.
The Three Gorges Dam is located on the Yangtze river in Hubei province China
more details on the Three Gorges Dam (For anyone who didn't know about it yet, this is one MEGA hydro electricity + flood control project in China)

Torrential rain, flooding and rising water levels resulted in the authorities needing to release water and monitor water levels closely.
Just goes to remind us of the humongous power of nature and her ability to test and sometimes defeat mankinds' ever improving technological and construction engineering skills.
So far, the Dam has survived its massive stress test.

Let's hope the raging waters subside & everything ends peacefully and that loss of life stays at a minimum.

BALTIC DRY INDEX

2010-07-20T01:03:00.004+05:30

Well this chart is not as positive about the outlook of the world economy, as the guys on Wall Street are!

David Rosenberg refers to the slide in shipping rates since May 2010 as a ''deflationary stand - alone event''

Some may choose not to admit it, but the ''recovery'' is slowing. Lingering debt worries (both sovereign and private), continue to remind us that all is not well, and that it's time to cut back and take some chips off the table.

SHANGHAI COMPOSITE IND. vs. DJIA

2010-07-16T10:22:00.007+05:30

The Shanghai Composite is clearly not mirroring the move in the DJIA. Chinese stock markets are testing new lows for the year as concerns of a stumbling recovery in the developed markets continue.

Will we see a revaluation in the Chinese Yuan? Currency markets have been all over the place. The Euro has rebounded of recent panic lows even as sovereign debt troubles in the 'PIIGS' nations remain unresolved.
The USD has given back some of its recent gains, mainly due to an improving risk appetite and the subsequent rebound in global equities.

But as David Rosenberg recently said, are the Chinese Equity markets and the Baltic Dry Index warning investors that we could be in for a difficult second half in FY10?
Perhaps it's now time to be cutting back on risky assets and looking at minimizing portfolio volatility.

DAVID ROSENBERG ON VOLATILITY

2010-07-15T22:59:00.006+05:30

Here are some charts from David Rosenberg.

It's been one hell of a roller coaster and frankly, many investors are now sea sick!!

David Rosenberg has also been alerting our attention to the slumping Chinese equity markets and the Baltic Dry Index, which have had hardly any coverage in the financial news.

These are no ordinary times....

S&P 500 : Where to next??

2010-07-09T12:25:00.006+05:30

Global Equity markets are as volatile as ever.

Should you double up on stocks or expect a double dip around the corner instead?
The news flow is almost manic.
Confusing and contradicting data and news flow have made the last few months a rally testing time for investors.

Some pundits are calling for the resumption of a bull market, while others like David Rosenberg and Robert Prechter are expecting the markets to head back down again.

Data from the US Housing market and US unemployment numbers continue to be weak.
Sovereign debt worries have not yet been resolved.

Graham Summers over at ''Gains Pains & Capital'' put up some interesting charts.
(http://www.gainspainscapital.com/)
Perhaps now is not the best time to be doubling up on risk.

Meanwhile as Mr Summers rightly points out, the Bond market is continuing on its upward trend. David Rosenberg is another ''bond'' fan who seeks 'safety and income' at a reasonable price in these volatile markets.

JON STEWART : An Energy Independent Future!

2010-07-03T16:01:00.005+05:30

The Daily Show With Jon Stewart

Mon - Thurs 11p / 10c

An Energy-Independent Future

http://www.thedailyshow.com/

Daily Show Full Episodes

Political Humor

Tea Party

Just remember, it's not just the U.S.A!!!!!

For the forseeable future, Crude Oil will remain the main fuel source driving the world's ''oil hungry'' economies.

As car sales zoom in China & India, consumption of refined petrochemical products will rise.

This means that the world's oil companies will have to continue to drill for crude oil in deep offshore blocks. Increasing fuel efficiency and enforcing ''clean fuel '' norms can only take us so far. It's time to prepare disaster managment plans for deep off shore drilling.

Accidents may occur, but it will be a whole lot better if the drillers and regulators have disaster management plans and solutions in place before such unfortunate accidents occur again, instead of continuing a never ending blame game!

GOLD : The Bull Market continues

2010-06-18T17:04:00.005+05:30

Gold has continued to ''shine'' as a store of value and an excellent portfolio hedge in a volatile and uncertain global economy.

Sovereign debt worries and an ever increasing supply of paper currencies continue to provide fuel for the ongoing gold bull market.

At this stage it's worth pointing out, that gold could correct substantially (yes even to $1000) without breaching any crucial long term support (green line in chart).

In the second half of 2010, I expect a correction in the equity markets.
Markets have been far too optimistic of earnings estimates and are thus likely to be disappointed with earnings numbers when they come out.

As David Rosenberg says, the aftermath of a credit bubble collapse is '' no garden variety recession.''

At that point in time, gold may correct along with the markets, thus providing an excellent buying opportunity.

It's so surprising how experts and brokers continue to push stocks, while totally ignoring Gold - the best performing asset class of the last decade.

VOLATILIE EQUITY MARKETS

2010-06-13T16:24:00.004+05:30

Equity markets have been crazily volatile recently. Volatile intraday swings have been a daily occurance!

Here's David Rosenberg on market volatility

U.S. Federal Government Debt - Total Public Debt

2010-06-04T16:35:00.007+05:30

Take a look at the graph below.

Up until the year 2000, the total public debt was less than $6Trillion (yes that's TRILLION!!!).

Look at the rate at which it accelerates from the year 2000. The year 2005 onwards and subsequently post the Lehman crisis, the graph just spiked upwards.

In 10 years time, the total public debt has doubled to just over $12 Trillion.

As the world rushes into the safety of the USD, and everyone is busy criticizing the 'PIIGS' nations and the EURO as a flawed currency, it's time that we take a closer look at the debt situation in the US.

With interest rates at record lows, the U.S. continues to add onto its debt burden.

The GSEs are still bleeding, and the FED continues to add more MBS to its Balance Sheet.

Accumulating and refinancing debt may not be an issue in the short run, but over the longer run debt servicing issues are going to resurface and the market will demand a higher rate of interest on US Government debt.

Watch this space!

China leads global equity market downward - AGAIN !!!

2010-06-03T23:48:00.008+05:30

Once again, the Chinese Equity market seems to be leading the ongoing correction in global equity markets.

The Chinese Equity market topped out in July 2009.
The S&P 500 hit its 'bear market' rally / recovery highs in April 2010 !

Markets have been as volatile as ever, and fundamentals have shown no significant improvement.
We are moving from an individual & corporate debt crisis to a sovereign debt crisis.
The so called '' sub prime '' sovereign debt of countries like the PIIGS is already starting to stress out global bond markets.

How will the already weakened PIIG nations cope with the austerity measures, and still continue to support the global economic recovery?

Meanwhile, the Chinese government has been tightening liquidity as it tries to cool down a bubbling real estate market in urban China.This could mean tougher business conditions in the industrial metals and ores sector if the Chinese economy starts to slow down.

The rally is clearly getting rather long in the tooth, and may be running out of fuel!!!!

FLIGHT TO SAFETY - GOLD & USD.

2010-05-26T17:36:00.004+05:30

In 2010, the rally in the USD has coincided with a rally in the Gold.
The USD & Gold, normally share an inverse relationship. Gold has also managed to detach itself from the correction in the CRB commodity Index.

Currency instability, market volatility and concerns over mounting government debt have been considerable tailwinds supporting this rally in Gold.

Year to date, Gold has also outperformed the S&P 500 by a wide margin.

MICROMAX MOBILES INDIA - Challenging the giants!

2010-05-22T12:52:00.005+05:30

The unfolding mobile phone revolution in India has created numerous opportunities and markets for companies operating in the Telecom space.

Even as the Apple iPad & iPhone & BlackBerry smart phones continue to dominate news as far as mobile technology goes - here is a story of an Indian company that has dared to challenge MNC giants in the mobile phone handset business.

The entry level mobile handset is tough ->first time buyers, cut throat competition, wafer thin margins and every changing technology.

Take a look -

U.S. HOME PRICES – THE LONG, LONG TERM VIEW

2010-05-12T20:54:00.008+05:30

Here's David Rosenberg again, this time with a chart from Prof. Robert Shiller's data.

Mean reversion is one sticky concept, that a debt addicted economy is going to have to come to terms with.

As the inventory of unsold homes and the shadow inventory of foreclosed homes continues to build, the downward pressure on home prices in the U.S.A. looks all set to continue.

Lastly, here is a link from Main Street that the guys on Wall Street should take a look at.

Food-stamp tally nears 40 million, sets record Reuters

""""""""Food stamps are the primary federal anti-hunger program, helping poor people buy food. Enrollment is highest during times of economic distress. The jobless rate was 9.9 percent, the government said on Friday.

The Agriculture Department said 39.68 million people, or 1 in 8 Americans, were enrolled for food stamps during February, an increase of 260,000 from January. USDA updated its figures on Wednesday.""""""""""""

$962 Billion : Bailout of Club Med or the BANKS !!!

2010-05-11T15:51:00.006+05:30

The markets certainly loved the mega ECB show of force.

Equity markets in Spain, Portugal and Greece soared, but did anyone notice how the financial stocks in France and Germany reacted yesterday!

AXA +21.87 %

BNP Paribas +20.90 %

Société Générale +23.89 %

Commerzbank + 8.97 %

Deutsche Bank +12.62 %

Here's an interesting take from Socio - Economics History Blog

Europe's Exposure To 'PIGS' Problem! « Socio-Economics History Blog

MANIC MARKETS - 6 May, 2010 !

2010-05-07T02:32:00.004+05:30

Well, here we go again.

I don't know what happened, or why, or who, or whom!!

Let' s wait for more clarifications...

Nice move in Gold...........over $1,200 again!

As I said recently, this is just not the time to be taking on any undue risks.

INSURANCE COMPANIES IN INDIA

2010-05-05T13:57:00.009+05:30

Below is a chart of the financial performance of Insurance companies in India.

Public sector behemoths like L.I.C. & New India Assurance have continued to maintain their stranglehold over the Indian Insurance sector.

ICICI Prudential, HDFC Standard Life & Bajaj Allianz have continued to gain market share, but have yet to make profits.

Equity market analysts are always trying to value the above above three insurance companies - to calculate the sum of parts valuation of their listed parent companies.

At this stage it's worth pointing out, that it may take a while for these guys to be profitable.
Cut throat competition and well established incumbents are delaying their break even dates.

Warren Buffett is rumored to be interested in the Indian Insurance sector.
In the long run, this sunrise industry is set for many decades of exponential growth, given the low penetration of insurance products in the Indian economy.

In the near term, we may be headed for a shake out or consolidation, as weak hands throw in the towel or sell out to larger players.

Watch this space.

......AND THE 'VIX' SOARS

2010-05-05T12:13:00.005+05:30

Over the last couple of years, I've grown wary, well almost fearful when anyone says that any financial mess or crisis is '''contained'''.

Now, whenever I hear that the damage has been contained, I have come to expect the eventual cost of the crisis to be a whole lot more than initially estimated.

Some say that the crisis in Club Med is contained and that there is no risk of contagion.
Still others say that the finances of some states in the U.S.A., are not as terrible as pessimists may fear.

The prudent reader must read between the lines and ignore the noise in financial news as he makes his/her investment decisions.

The US is not immune to the current crisis in the Eurozone. A weak Euro will hurt US exports to Europe and subsidize European exports to the U.S.A.

Emerging market exporters are not immune to a slowdown in developed markets in the west.

As I've said in recent posts, it's not a time to be taking unnecessary risks.
Gold prices in the meantime have held up really well, despite a rally in the USD and a sudden sell off in global equity markets.

INDIAN EQUITIES INDICES : % Weights by Sector.

2010-04-29T15:20:00.007+05:30

Take a look at the newspaper clipping below.

The Indian Equity market provides international investors with an exposure to a well diversified emerging economy, that is not overly dependent on exports or raw materials and has a large domestic market.

BRIC nations like Brazil and Russia are more heavily concentrated on the commodity sector (basic raw materials).

China is an export oriented BRIC country.

However as the article says, the Agriculture and Trade sector are both absent from the NIFTY & BSE SENSEX.

Another point worth noting is the gradual rise in the % weight of the Banking and Financial services sector.
Internationally, both the FTSE (U.K) and the Hang Seng (Hong Kong) have considerable exposure to banking and financial services.

A Benchmark index must be truly representative of the underlying economy, and currently I feel that the Banking and Financial services' % weight in the index is too high.

In the long run, I would hope that sectors like Pharmaceuticals, Telecom, and Cement are given a greater share of the index.

The Automobile and FMCG sectors are also vital components when it comes to gauging consumer consumption demand.

INDIAN MONSOONS 2010

2010-04-29T12:39:00.007+05:30

The monsoon rainfall last year was well below average.
As India waits for the arrival of the south west monsoon, everyone's hoping for a normal monsoon this year.

Insufficient rainfall resulted in rising food prices, as the prices of vegetables and food grains soared.

Last year, consumer demand in rural areas held up pretty well despite a poor monsoon. Continuing inflation, especially ''food price'' inflation will have a dampening effect on consumer consumption in the auto, FMCG & durable goods sectors.

Thus, a back to back season of insufficient rainfall will have serious repercussions for the Indian economy.

In the meantime, the India Meteorological Department (IMD) has forecast a normal monsoon across the country this year.

'''Lending a quantitative perspective to the available indications, IMD said the total rainfall during the June-September monsoon season would be 98 per cent of the long period average. This assessment is subject to a model error of ± 5 per cent.'''

Lastly, just a warning for those who may blindly follow the forecasts of the IMD!!

''''Last year too IMD had predicted a near-normal rainfall of 96 per cent. Two months later, in June, it issued an update scaling down its assessment to 93 per cent of normal. Both these predictions went awry. IMD then revised its forecast for a third time in August, this time predicting 87 per cent of normal rains.

These predictions, however, turned out wrong and the country received only 77 per cent of normal rainfall. This led to a drought in large parts of the country.'''''

Links:

TAKE A LOOK-India forecasts normal monsoon rainfall‎

Monsoon to dispel clouds over sugar, grain‎

MD predicts normal monsoon‎

GOLD - THE LAST 10 YEARS

2010-04-08T14:59:00.001+05:30

THE MGM STUDIO DEBT DEBACLE

2010-04-01T17:16:00.007+05:30

Here's another failed deal from the 'LBO bubble' days of 2005.

Cheap money lead to excessive valuations for buyouts.

As I read the article below in the Economic times newspaper last week, I was reminded once again of how experts, analysts and investment bankers continued to justify deals that were irrationally dangerous and value destructive!

The only guys who benefited from these deals, were the investment bank advisers who earned massive fees on these now failing LBO deals.

Lastly, I leave you with an interview of the ever consistent, rational and down to earth - David Rosenberg.

He continues to be the lone voice advising caution and recommending measures to minimize portfolio volatility!

Link:
The bear: Dead or just sleeping? - The Globe and Mail

David Rosenberg - More downside to U.S. Home prices ?

2010-04-01T02:50:00.003+05:30

The recovery in the U.S. housing market is taking longer than expected.

The crash in home prices has really eroded the networth of homeowners and rattled the U.S.consumer.

David Rosenberg recently highlighted the differences between Investor expectations and Consumer expectations (Wall St. vs Main St.).

In the chart below he raises a valid point of 'mean reversion' as the the shadow inventory of foreclosed homes and continuing foreclosures, continues to stress out the US Residential property market.

Diminishing Marginal Productivity of Debt - Nathan's Economic Edge

2010-03-29T18:03:00.009+05:30

Here is the link to my last post on the Marginal Productivity of Debt, where I quoted Prof. Antal E. Fekete.

LINK : THE MARGINAL PRODUCTIVITY OF DEBT.

Here is an a recent post from Nathan's Economic Edge - a blog that I have added to my blog list. It' an excellent blog that is definitely worth a read.
The Diminishing Marginal Productivity of debt :THE Most Important Chart of the CENTURY

Here is Nathan's explanation for the the above chart.

'''''''''''''''''''''''' This is a very simple chart. It takes the change in GDP and divides it by the change in Debt. What it shows is how much productivity is gained by infusing $1 of debt into our debt backed money system.

Back in the early 1960s a dollar of new debt added almost a dollar to the nation’s output of goods and services. As more debt enters the system the productivity gained by new debt diminishes. This produced a path that was following a diminishing line targeting ZERO in the year 2015. This meant that we could expect that each new dollar of debt added in the year 2015 would add NOTHING to our productivity.

Then a funny thing happened along the way. Macroeconomic DEBT SATURATION occurred causing a phase transition with our debt relationship. This is because total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!

This is mathematical PROOF that debt saturation has occurred. Continuing to add debt into a saturated system, where all money is debt, leads only to future defaults and to higher unemployment.

This is the dilemma created by our top down debt backed money structure. Because all money is backed by a liability, and carries interest, it guarantees mathematically that there will be losers and that the system will eventually reach the natural limits, the ability of incomes to service debt. '''''''''''''''

Clearly, Prof. Fekete and Nathan are trying to highlight the 'fatal danger' we face due to the diminishing marginal productivity of debt.

Sadly, most economists and finance ministers around the world, see further debt accumulation of debt as a solution to the current crisis, rather than the root cause of the chaos we face in financial markets today.

Clive Maund on Gold

2010-03-23T12:55:00.005+05:30

Clive Maund has a new gold update at Kitco, 22 March 2010.
http://www.kitco.com/ind/maund/mar222010.html

I have not added to gold positions recently, and remain slightly wary of a ''summer sell off'' in equity markets that may trigger a sell off in the precious metal markets.

The USD has been trending upwards, aided by the turmoil in the Eurozone; that has kept the EURO in check.

But I must say that inspite of the strength in the USD, gold prices have continued to consolidate.

David Rosenberg on S&P 500 returns

2010-03-21T20:04:00.003+05:30

GREECE & the EUROZONE

2010-03-19T17:36:00.005+05:30

Here's a fantastic cartoon by John Trever from the Albuquerque Journal.
SOURCE: Image dated : 03/11/10
http://www.cagle.com/working/100311/trever.jpg

HATCHBACK CARS IN INDIA

2010-03-19T14:08:00.008+05:30

The hatchback car market in India looks all set for a fresh round of cut - throat competition.
Below is a clipping from last week's TIMES zigwheels. www.zigwheels.com

Ford India has launched the Ford Figo at a super competitive price of Rs. 3.49 lakhs (approx USD 7755, at 1USD = INR 45) for the base model.

The Indian government is also rolling back excise duty benefits on the sale of small cars and the Reserve Bank of India is also hinting at a tighter monetary policy going forward.

The Indian hatchback market is dominated by Maruti Suzuki & Hyundai Motors.

Maruti Suzuki is the dominant player and is the manufacturer of the legendary Maruti 800, the Suzuki Wagon R ( since relaunched as the Suzuki Ritz) and the Suzuki A star ( formerly the Suzuki Alto).

Hyundai India also makes the popular Hyundai Santro and the Hyundai i 10.

Tata Motors makes the Tata Indica & the Tata Nano!

Volkswagen, Ford, Fiat and GM are new entrants in the hatchback space.
In the past Fiat and GM have tried to enter this space, and were not very successful.

The hatchback segment is getting rather crowded in my opinion.

While this is great news for the customer, it means that the car makers will face margin pressures going forward.

Car makers will also have to compete with a growing second hand car market and second hand cars that are refurbished by the car companies themselves.

Consequently, investors in auto companies like Maruti Suzuki need to take note of the changing dynamics of the low margin high volume hatchback car market.

Investors in auto ancillary companies will also have to deal with shrinking profit margins. Raw material prices (steel, glass, rubber etc) are rising and car companies will look to cut costs to boost their own profitability.

A price war is great for the customer, but drastically reduces the profitability of the car makers.

REAL ECONOMY vs PAPER ECONOMY

2010-03-18T17:00:00.004+05:30

Came across 'Planet Real vs Planet Paper' in the Taipan Daily, 24th February, 2010.

At a time when Wall Street seems to be totally ignoring Main Street, it's always worthwhile to take a step back and analyse the 'real' vs 'paper' economy.

Indian Government Bonds : 10 year benchmark yield crosses 8 percent

2010-03-17T01:44:00.003+05:30

Growing government borrowing requirements and a tighter monetary policy will be factors driving the Indian Government Bond Market this year.

Rising yields will expose public sector banks to losses on the 'Available for sale' part of their government bond portfolios.

The strong Indian Rupee may begin to pressure exporters as well.

Interest rate sensitives will feel the pinch of the rising cost of credit, and credit offtake may slow still further

The public sector Oil companies are still awaiting a government decision on subsidy sharing. A strong Rupee somewhat cushions their under recovery on sale of retail fuels.

FINANCIAL CHAOS - Sir John Templeton, June 15, 2005.

2010-03-11T00:00:00.005+05:30

Just came across this via an update from equitymaster.com.
Written in June 2005, by the the late Sir John Templeton, he makes a really accurate forecast!

Source Link: Sir John Templeton's Last Testament: Financial Chaos

LOW VIX SUGGESTS COMPLACENCY !

2010-03-07T22:23:00.012+05:30

As the rally in global equities continues, investors seem to be ever ready to take on more risk!

Nevermind the chaos in the job market or the troubles in the Eurozone, or the rickety finances of states like California & Illinois in the U.S.A.

The VIX is trending to new lows for 2010. I think it's high time that investors hedge their portfolios or just take some chips off the table.

These are uncertain times, and there's a lot of ''not so normal'' stuff going on!

FEDERAL SPENDING AS A PERCENT OF GDP

UNEMPLOYMENT

INDIA's PETROLEUM SUBSIDY CONUNDRUM & the Kirit Parikh Committee Report

2010-03-02T17:15:00.015+05:30

The Kirit Parikh Committee Report on subsidies in the Petroleum Retailing sector has made quite a few headlines in local news.
Link: http://petroleum.nic.in/reportprice.pdf

Recommendations include -

Free market pricing of Petrol and Diesel. The Kirit Parikh report suggests an additional levy of Rs. 80,000 on a diesel vehicle, citing that the higher excise must offset benefits vis-a-vis petrol vehicles. The report submits there is no need to subsidise users of diesel cars and SUVs, vehicles which are used for personal purposes.

Allowing periodic price increases for cooking gas (LPG) and Kerosene, based on performance of the agricultural sector and the rate of expansion of rural electrification. This will help rural India gradually adjust to the price hikes. Kerosene is used for lighting purposes in rural areas, so expanding rural electrification will reduce dependence on kerosene for lighting purposes

Excluding GAIL - the gas transmission behemoth from the under recovery subsidy burden.

All in all, the ever expanding petroleum sector subsidies are proving to be a real drain on the finances of the Indian government.
Oil subsidies are currently treated as an ''off balance sheet item''.
Implementation of these recommendations will thus present a ''truer'' picture of India's fiscal deficit.
To give you an idea of just how large the oil subsidy has been: -
From 2003-04 to 2008-09 total under recoveries amounted to Rs. 2,99,222 crores.

The market capitalization of India's largest private sector Giant - Reliance Industries is Rs. 3,23,235 crores!!!

The market capitalisation of the Benchmark BSE SENSEX index is Rs. 24,81,009 crores!

Question is : Does the Government have the political will to work past all the implementation issues and carry out these recommendations in the current inflationary environment?

Everyone knows that something need to be done.
The current pricing mechanism is just not sustainable with Crude Oil prices trading at $80!

Oil subsidies are the single biggest ''stimulus'' package that the government has provided to the economy.

But there is no free lunch!!

The balance sheets of government run oil sector companies are in bad shape.
The government too is struggling with 'oil bond' issues.

So can or will the government bite the bullet or continue to avoid tackling the issue head on, just as the Finance Minister chose to avoid discussing any specifics on implementing the Kirit Parikh report in the current Union Budget.

DAVID ROSENBERG : On the FED's non traditional programs and exit strategy!

2010-03-01T22:29:00.003+05:30

David Rosenberg explains why the FED's exit strategy is going to be quite complicated!

Just take a closer look at the FED's asset purchases highlighted below.

After all that, things aren't back to normal!!!

Makes Dubai's $85 billion debt troubles look like a drop in the ocean!

TRENDING SIDEWAYS : Where are the markets headed?

2010-03-01T17:38:00.008+05:30

Since mid October 2009, the markets seem to have got caught in trading range. No new highs!!

I selected the 19th of October 2009, simply to emphasise my point. All of the above indices are stagnating.

( S&P 500 in blue, Bovespa in red, BSE Sensex in green, FTSE 100 in orange, Shanghai Composite in brown and CAC 40 in green)

Perhaps, the ''sugar high'' of multiple stimulus packages is starting to wear off, and issues like sovereign solvency and corcerns over ever expanding government debt have resurfaced.

To be fair, markets have had a fantastic run from their March 2009 lows.
As thing currently stand, stock market valuations seem to have factored in a total recovery, while ignoring many troubled components of the global economy!

Markets face a strong headwind in 2010, and the risk reward ratio clearly does not favour the long only investor.

BUDGET DAY 2010

2010-02-26T00:36:00.005+05:30

The Indian stock market has had a very quiet build up to Budget day 2010.
As the graph below shows: after a massive recovery from the March 2009 lows, Indian equities have been trending sideways since July 2009.

Market watchers will be looking for more sops to the agriculture sector and the infrastructure sector, and a possible gradual roll back of excise duty cuts and the stimulus package. A hike in service tax is also widely expected.

So far we are yet to hear anything on reforms towards market pricing in the Petroleum sector.
With Oil prices trading just under $80, maybe we will hear more on the governments subsidy sharing plan.

Let's see how it goes.

EURO / USD : STRESS TESTING !!

2010-02-22T01:32:00.004+05:30

Till only recently, the EURO was being considered a viable alternate World reserve currency, when the USD looked like it was on its last legs ! Now the USD is once again being viewed as the last ''safe'' reserve currency option!

Turmoil in ''Club Med'' has resulted in considerable stress for the single currency.

Bailouts are going to prove costly and stressful for Germany and France, who are barely just ''out'' of recession themselves, if you count quarterly GDP growth rates of under 1% as ''non recessionary''!

A weaking EURO will also stress out the US Fed. US exports will suffer, while European exports to the U.S.A will get a boost. To put it another way EADS (Airbus) looks all set to use the new found currency advantage against Boeing! The weak USD has undoubtedly boosted Boeing's profitability over the last 8 years!

Meanwhile, Gold prices in Euros are at new highs.

THE FED OWNS $1 TRILLION OF HOUSING LOANS

2010-02-16T22:40:00.008+05:30

Just another sign that all is well with the global economy.

Bailout the weak nations of Europe, support the US housing market, maybe even support weaker states within the US.......................miles to go before we sleep.

This is a ginormous figure!

Below is David Rosenberg's chart of the Fed's Holding of MBS!!

So are we witnessing a market driven recovery in the US housing market or simply one that has been supported by the US FED buying $1 Trillion worth of MBS ?

Are they AAA rated MBS ? ? ?

Wonder how the finances of Freddie Mac and Fannie Mae are doing ??

GOLD : CONSOLIDATION or FURTHER CORRECTION

2010-02-15T12:15:00.005+05:30

I have been reading up a lot on gold recently, from technical charts to fundamental analysis; everyone's got a different take on the sector.

Here's a chart from Chart of the day.

It's clear that gold prices have corrected from the ''red'' resistance line.

Are we headed for a sideways correction like the mid 2006- September 2007 correction ?

OR

Will prices test the lower green support line if Wall Street has another 'mega' correction ?

The fact that stock market earnings estimates for 2010 & 2011 are far too optimistic, not to mention that most of the appreciation is already factored into stock prices makes me more concerned that we could see a correction in stock prices that forces gold prices back to the ''green '' line this summer.

This would mean a pull back to levels around $950. That's only $140 below current prices.
Short term pain in a long term gold market !!

Panic selling affects all markets equally, so I don't think gold will be spared if there is a broad market sell off, although I do expect gold to outperform other commodity markets.

Lastly, I would like to remind readers who are looking to buy 'silver', that it is more volatile than gold, so it will correct more than gold!