I recently came across a link on Bloomberg titled
‘Roubini Sees Global Gloom after Davos Vindication’
http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=a6A9lCHrtAqk
Let me say it again -
STOP LISTENING TO PEOPLE WHO HAVE BEEN WRONG ALL ALONG!
There have been many whose predictions and expectations have been way off!!!!! Downright misguiding & consistently wrong!!
There were those who said that there was no US Housing bubble in 2005-2006 and still others who had been recommending buying stock in AIG & Lehman Brothers until months before they finally went under.
CHANGE OR MORE OF THE SAME
Even as the ‘Bad Bank’ solution has already been discussed to death; it’s surprising that no one is opposing the fact that the same management teams will continue to lead the banks. These are the same guys who took ‘crazy risks’, earned ‘extraordinary bonuses’ and got us into this mess in the first place. They lost money once, and now thanks to the FED & Treasury, they are being invited to ‘Scam the Public’ Round 2!
A lot of what I have learned since I started following financial media, is that you have to track comments of the few that ‘know what they are talking about’ and just disregard the rest.
Look for consistency and a solid track record.
Do take a look at my blogroll and list of Links of websites I read.
Following the advice of ‘experts’ who have been wrong all along is injurious to your financial health.
Showing posts with label STICKY TOPIC. Show all posts
Showing posts with label STICKY TOPIC. Show all posts
Saturday, January 31, 2009
Saturday, January 17, 2009
2009: IT AIN’T OVER YET !
It’s been almost a month since my last post and we are already in the third week of January! So let’s get started.
Well it’s now quite obvious that things are going to get a lot worse before they get better. Question is, how bad is it going to get. While I was cautious while making forecasts for 2008, the extent of the meltdown has been much much worse than I expected.
The party has ended!
Governments and Central Banks are trying to reflate the ‘dying credit bubble’ party with a new round of credit!!!!!!! & bailouts and stimulus packages continue to get larger and larger with each passing day and yet there seems to be no solution in sight.
In my last few posts of 2008, I spoke of the possibility of intermittent bear market rallies, following the sharp selloff across asset classes globally.
However, it is important to analyze the difference between short term rebounds and a longer term fundamental analysis.
Here's what we are dealing with.
Easy financing post the dot com crash, led to a global boom in Real Estate & excessive manufacturing capacity worldwide; supported by consumers( especially in the western world) who don’t save and have until now continued to consume like there was no tomorrow.
THEN CAME THE CRASH
‘Overleveraged firms and individuals will struggle to service their debt.’
As Banks refuse to refinance debt and sanction new loans, bankruptcy and unemployment rates will rise & confidence levels are going to take a beating. The battle of ‘the Survival of the fittest’ is going to result in a lot of inefficient firms going belly up! Banks with lax lending standards and firms with wafer thin profit margins are going to fail !
Stocks have crashed from recent highs, and as growth momentum slows, we will see losses emerge across sectors. Even firms with strong balance sheets are going to struggle, as demand continues to slow.
Individuals used to extremely high standards of living are going to have to adjust their lifestyles, as bonuses dry up and mortgage payment loom in the weakest job market in years.
Since I started following financial markets almost 8 years ago, the newsflow is the most pessimistic I’ve seen. Bad news is crowding any good news that comes up! Bad news has spread from financial markets onto Main Street, & has everyone talking of job cuts and savings. Firms are cutting back on spending and previously planned expansions are now being shelved.
A Crisis of Confidence
Valuations have corrected drastically from the 2007/early 2008 highs, and growth rates and profit margins are being revised downward globally. Even as experts begin to acknowledge that we are indeed in a bear market or global recession mode, some are calling for a bottom in markets, saying that the worst is now behind us.
Markets are now battling a crisis of confidence and I find it extremely unlikely that stock markets would bottom so early in the downturn. Also, markets never bottom out when most analysts and experts expect them to do so; especially since the correction has not played itself out time wise.
So I think that while it may be too late to sell (without taking losses….which may be massive in some cases), it’s just way too early to buy.
CHANGING WITH THE TIMES
‘’’Get used to living within your means & learn to save! ’’’
Keep an eye out for extraordinary companies at beaten down stock values.
Focus on companies with reliable management teams that have a proven track record.
Scams like the ‘Satyam Computers’ saga in India and the “Madoff Ponzi Scam’’ in the US, are likely to occur with increasing frequency as the downturn continues.
Corporate Governance: The importance of ‘Quality of Management’ tends to take a back seat at the heights of a stock market boom. Even if a stock is a screaming buy on valuations, avoid it at all costs if management quality is lacking.
PATIENCE IS KEY
Remember that a stock is not a buy, just because it is down 70%+ from its all time highs. Is it really cheap in terms of value, or is it just cheap in terms of price?
Value investors should also realise that an undervalued stock could stay undervalued for quite a while; there’s no easy money here. The wait is going to try your patience, resulting in many value investors getting fed up and selling out at the lows!!!
I repeat again, that a lot a firms will fail, so place your bets accordingly.
THE US BOND MARKETS & THE USD & CRUDE OIL
‘Bubble in US Treasuries?’
Yields on US Treasury Bonds are near record lows as the flight to safety continues.
This has continued to provide strength to the USD, even as the economic newsflow continues to deteriorate.Unemployment and continuing failures in the Banking system will thwart any attempts of a recovery. Citibank and Bank of America are desperately seeking funding as their December Quarter results have been a disaster!!!!!
Crude Oil prices are way off their record highs and a slowing global economy will probably cap any attempts of a rally in oil prices in the near term.
It will be interesting to see the impact of a low crude oil price on the US treasury market; as the flow of Petrodollars starts to dry up.
As growth slows drastically in China, and China focuses its forex reserves on funding infrastructure projects at home, Chinese investments in US Treasuries will also slow down.
Can the world economy stage a recovery before Central banks and Middle East Petrodollars lose interest in investing in US Treasuries?
A case in point could be the recent auction of German Bunds that was not fully subscribed!! It’s clearly a race against the clock.
GOLD
‘The Bullish Bear Blog has always been bullish on Gold.’
Traditionally viewed as an ‘Inflation Hedge’, Gold prices have come off the March 2008 highs and are currently trading at $842.40.
Gold has outperformed and survived the steep selloff in commodity markets over the last 6 months that has eroded gains accumulated in most commodities over the past 5 years.
The meltdown across asset classes has also raised fears of deflation.
Record high debt levels and the current unwillingness of the banks to lend, has resulted in a decline in consumption and investment. Job cuts will further dent consumer confidence, thus intensifying the slowdown.
Inflation is not dead: Ignoring the inflation tsunami that’s coming up.
While current conditions appear to reflect deflation fears, it’s important not to lose sight of the long term picture. Governments and Central Banks would rather deal with inflation than deflation. Given record low interest rates and unsustainably high debt levels in the global economy ( further compounded by massively leveraged CDO & CDS derivative positions), the Authorities have no option but to try & reflate their way out of this mess.
So expect massive stimulus packages and an endless string of bailouts in 2009. Extraordinary measures taken by global Central Banks led by the US FED will result in inflation further down the line.
Outlook for 2009.
‘It’s every man, company and government for itself!!!’
Casualties of 2008 included ‘giants of the global financial markets’---- Bear Stearns, AIG, Lehman Brothers, Merrill Lynch, Freddie Mac & Fannie Mae.
All forms of government intervention and stimulus packages have failed to revive demand and reinstill confidence so far.
LIQUIDITY – There is always money to be made in any crisis. As is usually the case, if you can step in and buy assets for ‘cents on the dollar’ when everyone else is strapped for cash, you could really make a killing!! I think there will be better opportunities towards the end of 2009, so make sure you conserve cash now!
I expect currencies to be extremely volatile in 2009.
Endless bailouts are going to put a lot of stress on major currencies especially as the appetite for US Treasury Bonds starts to diminish.
So far, the USD has held on to gains largely because there is no other currency that is ready to take up the role of the world’s reserve currency. Longer term the USD is headed into troubled waters, with a low domestic savings rate and an exploding Budget Deficit, so it is indeed ironic that it is still viewed as the safe haven over precious metals like gold. Gold, a true store of value will respond positively to any negative credit event or currency crisis.
For now, let’s hope for the best and prepare for the worst!
Well it’s now quite obvious that things are going to get a lot worse before they get better. Question is, how bad is it going to get. While I was cautious while making forecasts for 2008, the extent of the meltdown has been much much worse than I expected.
The party has ended!
Governments and Central Banks are trying to reflate the ‘dying credit bubble’ party with a new round of credit!!!!!!! & bailouts and stimulus packages continue to get larger and larger with each passing day and yet there seems to be no solution in sight.
In my last few posts of 2008, I spoke of the possibility of intermittent bear market rallies, following the sharp selloff across asset classes globally.
However, it is important to analyze the difference between short term rebounds and a longer term fundamental analysis.
Here's what we are dealing with.
Easy financing post the dot com crash, led to a global boom in Real Estate & excessive manufacturing capacity worldwide; supported by consumers( especially in the western world) who don’t save and have until now continued to consume like there was no tomorrow.
THEN CAME THE CRASH
‘Overleveraged firms and individuals will struggle to service their debt.’
As Banks refuse to refinance debt and sanction new loans, bankruptcy and unemployment rates will rise & confidence levels are going to take a beating. The battle of ‘the Survival of the fittest’ is going to result in a lot of inefficient firms going belly up! Banks with lax lending standards and firms with wafer thin profit margins are going to fail !
Stocks have crashed from recent highs, and as growth momentum slows, we will see losses emerge across sectors. Even firms with strong balance sheets are going to struggle, as demand continues to slow.
Individuals used to extremely high standards of living are going to have to adjust their lifestyles, as bonuses dry up and mortgage payment loom in the weakest job market in years.
Since I started following financial markets almost 8 years ago, the newsflow is the most pessimistic I’ve seen. Bad news is crowding any good news that comes up! Bad news has spread from financial markets onto Main Street, & has everyone talking of job cuts and savings. Firms are cutting back on spending and previously planned expansions are now being shelved.
A Crisis of Confidence
Valuations have corrected drastically from the 2007/early 2008 highs, and growth rates and profit margins are being revised downward globally. Even as experts begin to acknowledge that we are indeed in a bear market or global recession mode, some are calling for a bottom in markets, saying that the worst is now behind us.
Markets are now battling a crisis of confidence and I find it extremely unlikely that stock markets would bottom so early in the downturn. Also, markets never bottom out when most analysts and experts expect them to do so; especially since the correction has not played itself out time wise.
So I think that while it may be too late to sell (without taking losses….which may be massive in some cases), it’s just way too early to buy.
CHANGING WITH THE TIMES
‘’’Get used to living within your means & learn to save! ’’’
Keep an eye out for extraordinary companies at beaten down stock values.
Focus on companies with reliable management teams that have a proven track record.
Scams like the ‘Satyam Computers’ saga in India and the “Madoff Ponzi Scam’’ in the US, are likely to occur with increasing frequency as the downturn continues.
Corporate Governance: The importance of ‘Quality of Management’ tends to take a back seat at the heights of a stock market boom. Even if a stock is a screaming buy on valuations, avoid it at all costs if management quality is lacking.
PATIENCE IS KEY
Remember that a stock is not a buy, just because it is down 70%+ from its all time highs. Is it really cheap in terms of value, or is it just cheap in terms of price?
Value investors should also realise that an undervalued stock could stay undervalued for quite a while; there’s no easy money here. The wait is going to try your patience, resulting in many value investors getting fed up and selling out at the lows!!!
I repeat again, that a lot a firms will fail, so place your bets accordingly.
THE US BOND MARKETS & THE USD & CRUDE OIL
‘Bubble in US Treasuries?’
Yields on US Treasury Bonds are near record lows as the flight to safety continues.
This has continued to provide strength to the USD, even as the economic newsflow continues to deteriorate.Unemployment and continuing failures in the Banking system will thwart any attempts of a recovery. Citibank and Bank of America are desperately seeking funding as their December Quarter results have been a disaster!!!!!
Crude Oil prices are way off their record highs and a slowing global economy will probably cap any attempts of a rally in oil prices in the near term.
It will be interesting to see the impact of a low crude oil price on the US treasury market; as the flow of Petrodollars starts to dry up.
As growth slows drastically in China, and China focuses its forex reserves on funding infrastructure projects at home, Chinese investments in US Treasuries will also slow down.
Can the world economy stage a recovery before Central banks and Middle East Petrodollars lose interest in investing in US Treasuries?
A case in point could be the recent auction of German Bunds that was not fully subscribed!! It’s clearly a race against the clock.
GOLD
‘The Bullish Bear Blog has always been bullish on Gold.’
Traditionally viewed as an ‘Inflation Hedge’, Gold prices have come off the March 2008 highs and are currently trading at $842.40.
Gold has outperformed and survived the steep selloff in commodity markets over the last 6 months that has eroded gains accumulated in most commodities over the past 5 years.
The meltdown across asset classes has also raised fears of deflation.
Record high debt levels and the current unwillingness of the banks to lend, has resulted in a decline in consumption and investment. Job cuts will further dent consumer confidence, thus intensifying the slowdown.
Inflation is not dead: Ignoring the inflation tsunami that’s coming up.
While current conditions appear to reflect deflation fears, it’s important not to lose sight of the long term picture. Governments and Central Banks would rather deal with inflation than deflation. Given record low interest rates and unsustainably high debt levels in the global economy ( further compounded by massively leveraged CDO & CDS derivative positions), the Authorities have no option but to try & reflate their way out of this mess.
So expect massive stimulus packages and an endless string of bailouts in 2009. Extraordinary measures taken by global Central Banks led by the US FED will result in inflation further down the line.
Outlook for 2009.
‘It’s every man, company and government for itself!!!’
Casualties of 2008 included ‘giants of the global financial markets’---- Bear Stearns, AIG, Lehman Brothers, Merrill Lynch, Freddie Mac & Fannie Mae.
All forms of government intervention and stimulus packages have failed to revive demand and reinstill confidence so far.
LIQUIDITY – There is always money to be made in any crisis. As is usually the case, if you can step in and buy assets for ‘cents on the dollar’ when everyone else is strapped for cash, you could really make a killing!! I think there will be better opportunities towards the end of 2009, so make sure you conserve cash now!
I expect currencies to be extremely volatile in 2009.
Endless bailouts are going to put a lot of stress on major currencies especially as the appetite for US Treasury Bonds starts to diminish.
So far, the USD has held on to gains largely because there is no other currency that is ready to take up the role of the world’s reserve currency. Longer term the USD is headed into troubled waters, with a low domestic savings rate and an exploding Budget Deficit, so it is indeed ironic that it is still viewed as the safe haven over precious metals like gold. Gold, a true store of value will respond positively to any negative credit event or currency crisis.
For now, let’s hope for the best and prepare for the worst!
Tuesday, November 18, 2008
OTC DERIVATIVES & COUNTERPARTY RISK
Sorry for not posting regularly this month! I'm back now and there’s a lot to catch up on.
http://www.bis.org/statistics/otcder/dt1920a.pdf
Now this is something that caught my attention!!!!!
What the heck is going on!!
The whole world is falling apart and the OTC Derivative time-bomb continues to grow.
It going to turn nasty, that’s for sure. Amidst talks of Clearing Houses for derivatives, Fed & Treasury Bailouts for anyone who may be too big to fail ( or possibly too big to save), it seems that the authorities are just keen to buy time and hope this whole mess just goes away.
Counterparty defaults and Bankruptcies are going to add fuel to this OTC derivative bonfire.
Monday, October 6, 2008
HAPPY BIRTHDAY !
THE BULLISH BEAR BLOG - Is now a year old.
And what a year it has been.
Since the Credit Crisis intensified in July-August 2007, the 'experts' have been reassuring us that things were under control, and that everything was going to be fine!!
While I was bearish on the prospects of the US Economy even a year ago, I underestimated the ferocity of the downturn. May be the delaying tactics of those in charge are no longer working.
The process of deleveraging in an interconnected financial web has been a DISASTER.
Regulators supervising undercapitalised institutions that underestimated risk, encouraged by the Monolines and Credit Rating Agencies ---> All estimating that home prices would rise forever.
Meanwhile, the currency markets are chaotic, as everyone scrambles for US Dollars! A safe currency they say! Well at the rate the bailout fiasco is going (with Bailouts III & IV to come I guess), things don't look all that good.
GOLD - SHELTER FROM THE STORM
While the recent volatility in Gold prices has been startling, the long term story is intact. As I have said before, when all is said and done, GOLD will be the one true store of value. So if there is one permanent holding in anyone's portfolio this has to be it. Use the volatility to buy on declines.
BOTTOM FISHING IN INDIAN EQUITIES
Equity Markets in India, like the rest of the emerging markets have seen continued selling.
Large capitalisation stock are down over 50% in some cases, and the once 'Long Term India Investors' have vanished.
While I am still holding on to my core holdings, paper profits are evaporating.
At the same time its important to remember that India is not an export oriented economy, like some markets in the Asian region, so its worthwhile keeping an eye out for attractive buying opportunities in companies with strong fundamentals.
Its going to be a real test of conviction especially for those that were buyers in Indian Equities recently. For long term investors who are ready to sit out the storm, there will be plenty of buying opportunities.
A year ago, it was difficult to find value in Indian Equities. Today there is panic and that value has re emerged.
Tread lightly for now - and be selective while making a list of stocks you want to buy. Not every stock that has fallen is worth looking at. Midcaps and Small Caps may provide higher returns from current prices, but are going to find the going a lot harder in tighter credit markets.
Also consider the fact that the recovery when it comes, is going to be slow and hesitant, so theres going to be no easy money now.
Interest rate sensitives in the Financial, Real Estate and Auto sectors have had a really hard time as have the Metal stocks - as Metal prices have corrected globally.
Lastly, know your own risk appetite - Investment time horizon - and the extent of volatility that you can tolerate for your portfolio
& BEFORE I FORGET = IGNORE THOSE EXPERTS!
Monday, September 22, 2008
Monday, January 14, 2008
The Bullish Bear on REUTERS ! !
Posts from this blog made it to REUTERS :
Here are the Links :
http://www.reuters.com/article/blogBurst/investing?type=hotStocksNews&w1=B7ovpm21IaDoL40ZFnNfGe&w2=B7pJeHult9GszE37UXlSpmUm&src=blogBurst_investingNews&bbPostId=Cz6oZBKat1SiPCzCCiaoTiqh6vBB9orR4tFaYuB51ZqKndcCXt&bbParentWidgetId=B7gSUbux1hpbz8uOa7TWsLnV
http://www.reuters.com/article/blogBurst/investing?bbPostId=Cz6oZBKat1SiPCzCCiaoTiqh6vBD6J6UuNbgMUCz9LhOt7RnVMC
http://www.reuters.com/article/blogBurst/investing?bbPostId=Cz6oZBKat1SiPCzCCiaoTiqh6vCzBI1xV3Pgj1MBEAYpBRABEO8
http://www.reuters.com/article/blogBurst/investing?bbPostId=Cz6oZBKat1SiPCzCCiaoTiqh6vCzEeSknsLIbVKCz8d7NOQ0SuGJ
Here are the Links :
http://www.reuters.com/article/blogBurst/investing?type=hotStocksNews&w1=B7ovpm21IaDoL40ZFnNfGe&w2=B7pJeHult9GszE37UXlSpmUm&src=blogBurst_investingNews&bbPostId=Cz6oZBKat1SiPCzCCiaoTiqh6vBB9orR4tFaYuB51ZqKndcCXt&bbParentWidgetId=B7gSUbux1hpbz8uOa7TWsLnV
http://www.reuters.com/article/blogBurst/investing?bbPostId=Cz6oZBKat1SiPCzCCiaoTiqh6vBD6J6UuNbgMUCz9LhOt7RnVMC
http://www.reuters.com/article/blogBurst/investing?bbPostId=Cz6oZBKat1SiPCzCCiaoTiqh6vCzBI1xV3Pgj1MBEAYpBRABEO8
http://www.reuters.com/article/blogBurst/investing?bbPostId=Cz6oZBKat1SiPCzCCiaoTiqh6vCzEeSknsLIbVKCz8d7NOQ0SuGJ
Monday, December 31, 2007
SMOKE & MIRRORS 2008 ! !
2008 can be best described as the year of Smoke & Mirrors.
Reassuring comments and massive liquidity infusions from central bankers, never-ending losses at investment banks, rising inflation and slowing global growth: 2008 will keep you guessing. It will be an ongoing game of hide and seek, cover ups, assurances, lies and blame games, in the US election year
“Smoke and mirrors is a metaphor for a deceptive, fraudulent or insubstantial explanation or description. The source of the name is based on magicians' illusions, where magicians use smoke and mirrors to accomplish illusions such as making objects disappear, when they really don't disappear at all. The expression may have a connotation of virtuosity or cleverness in carrying out such a deception.” (Source: wikipedia)
AVOIDING A US RECESSION IN 2008
A cautious approach to investing in 2008 is best advised. The world’s equity markets are near their recent highs, despite turmoil in the credit markets, record high oil prices and food prices, large write downs in the US financial sector, and a rapidly slowing US economy.
In a bid to build confidence in the system, Central Banks around the world have continued to pump liquidity into the markets, in an attempt to revive a frozen credit market and illiquid derivative market. Banks are refusing to lend against asset backed securities including mortgage backed securities as confidence is low, and no one is sure of the asset quality on the counterparty’s books; with banks still unwilling to disclose the full extent of their losses.
The credit crisis of July and August this year has still not abated and continues to haunt world markets. 2008 will see more write-offs, bailouts, fund infusions and maybe takeovers of large US and European financial companies, by investors from the Middle East and Asia.
Outrageous bonuses paid to investment bankers and CEOs at financial institutions are going to be questioned. Their short term oriented decisions and dangerous underestimation of risk have resulted in large losses that have eroded the capital of such banks.
US ECONOMY 2008
- Crisis in the housing market: An inventory glut, rising mortgage payments and increasing defaults
- Cutbacks in US Consumer spending & Falling consumer confidence: Layoffs in the manufacturing sector as well as high profile jobs in the financial sector will affect both consumer consumption and the housing market.
As a result of heavy discounting at US retailers November sales were better than expected. 2008 will be a difficult year for US retailers. - Credit crunch arising from the sub prime crisis & risks of increasing defaults in 2008.
Wall Street is demanding FED rate cuts. The Fed is caught between a rock and a hard place, with rising inflation, slowing growth and a declining US Dollar. - Resetting of mortgages poses another risk to the default rate, even as the US government is coming up with all kinds of schemes to freeze mortgage resetting, ahead of an election year.
- The ill-conceived SIV Bailout conduit appears to be a non starter, with many banks moving SIVs back onto their own balance sheets.
- Write downs and write offs in the US financial sector, are spreading to financial Institutions around the world. European & Japanese banks and large Insurance companies may be holding a lot of junk paper.
- Large Bond Insurers in the US, face losing their AAA ratings, due to potential subprime and CDO losses. Bond Insurers have ventured beyond the usual municipal securities into structured finance such as collateralized debt obligations, guaranteeing about $1.2 trillion of structured finance debt. Caught up in the subprime mess, they will need to raise additional capital to meet regulatory capital adequacy requirements.
Bankruptcies and loss of AAA ratings at Large bond insurers will affect the credibility of the bond market as a whole, something the market is refusing to acknowledge at the moment.
Avoiding a global slowdown
Net US exports have grown due to a strong global economy. In the event of a US slowdown/ recession, the world market will struggle to decouple from the US.
Any slowdown / cutback in US consumer spending will hurt Asian economies that are large exporters to the US. As a result, Asian demand for exports from the US will fall sharply.
These Asian exporters in turn have been importers of industrial commodities and raw materials from South America, Australia and Africa, and Crude oil mainly from the Middle East.
The Decoupling theory will not work, if the US goes into recession.
OUTLOOK 2008
The best strategy for 2008 is to maintain liquidity in ones portfolio. Fresh buying in equities may be delayed, but booking profit in overvalued sectors would be advisable.
GOLD
I expect GOLD to outperform. Gold can be bought on declines, which will occur when Equity markets correct, as gold is liquidated to meet margin calls. Rising inflation and a falling USD are very gold positive. December 2007 marks the first time that gold has made a monthly and annual closing above $ 800.
CURRENCIES
The US Dollar will face strong headwinds, and this should be positive for Non- USD currencies. The USD may strengthen in the short term, when world equity markets correct, as investors exit foreign currencies and return to the USD. Longer term the USD will continue to decline.
I continue to be cautious on the Euro and the GBP. Though they will continue to strengthen, a strong Euro is hurting European exporters (e.g.: Airbus, B.M.W) while the recent slowdown in UK growth rates, high debt levels & a weakening housing market may force rate cuts in the UK. Political intervention cannot be ruled out.
Carry trade currencies such as the Swiss Franc and the Japanese Yen will strengthen if the markets crash/correct sharply.
‘Commodity’ currencies such as the Brazilian Real, South African Rand, Canadian Dollar and Australian Dollar, will react negatively to news of slowdown in consumption of Industrial Commodities and Oil.
The Oil producing nations of the Middle East may be forced to unpeg their currencies from the US Dollar if local inflation rates rise further, and the USD continues to decline.
Other currencies that should do well against the USD will be the Singapore Dollar and the Swedish Kroner.
OIL
Oil prices will be very volatile. A weakening USD is oil positive, but a slowing world economy will reduce oil consumption. The US is the world’s largest oil consumer. A US slowdown would be oil negative.
EQUITY MARKETS
Markets around the world appear to be ignoring all of the above mentioned risks and concerns. I am bearish on the US Stock markets. Valuations are not cheap and expectations are far too optimistic given the problems the US is currently facing.
Tightening of global liquidity and lack of depth in Asian and emerging stock markets can result in sharp corrections in these markets, which have seen a phenomenal run up over the last five years.
While I am buying select Indian Equities, I continue to book profit in many long term holdings. If you are entering into a new position today, make sure that valuations are reasonable and that you are ready to adopt a long term buy on declines and hold strategy. Avoid buying into popular sectors that are overvalued and leave you with no margin of safety as an investor.
I will put up a detailed note on Indian Equities soon.
Invest wisely and safely in 2008. Heres wishing everyone a very Happy New Year!
Thursday, November 22, 2007
FANNIE MAE, FREDDIE MAC & the US Mortgage Crisis
The US Housing market continues to deteriorate.
Government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac have been hit by mounting losses as the mortgage crisis continues to intensify.
As mortgages reset & foreclosures continue to rise, the GSEs will see further write downs in the mortgages on their books, and will possibly require fresh capital infusions to meet government mandated Capital requirement levels.
The GSEs have been a key source of funding for banks & mortgage lenders by purchasing their mortgages and then packaging them for sale to investors.
Mortgage Lenders such as Countrywide Financial, will face a real crisis, if the GSEs slow down their mortgage purchases.
Heres a closer look at the two GSEs.
Fannie Mae (Federal National Mortgage Association (FNMA)
"A government-sponsored enterprise (GSE) that was created in 1938 to expand the flow of mortgage money by creating a secondary mortgage market. Fannie Mae is a publicly traded company which operates under a congressional charter that directs Fannie Mae to channel its efforts into increasing the availability and affordability of homeownership for low-, moderate-, and middle-income Americans.
Fannie Mae purchases and guarantees mortgages that meet its funding criteria. Through this process it secures mortgages to form mortgage-backed securities (MBS). The market for Fannie Mae's MBS is extremely large and liquid. Pension funds, insurance companies and foreign governments are among the investors in Fannie Mae's MBS. In order to promote homeownership, Fannie Mae also holds a large portfolio of its own and other institution's MBSs, known as its retained portfolio. To fund this portfolio, Fannie Mae issues debt known in the market place as agency debt.
Fannie Mae's "little brother" is Freddie Mac. Together, Fannie Mae and Freddie Mac purchase or guarantee between 40% to 60% of all mortgages originated annually in the United States, depending upon market conditions and consumer trends. "
Freddie Mac (Federal Home Loan Mortgage Corp (FHLMC)
"A stockholder-owned government-sponsored enterprise (GSE) chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing for middle income Americans. The FHLMC purchases, guarantees and securitizes mortgages to form mortgage-backed securities. The mortgage-backed securities that it issues tend to be very liquid and carry a credit rating close to that of U.S. Treasuries. Also known as "Freddie Mac".
Freddie Mac has come under criticism because its ties to the U.S. government allows it to borrow money at interest rates lower than those available to other financial institutions. With this funding advantage it issues large amounts of debt (known in the market place as agency debt or agencies), and in turn purchases and holds a huge portfolio of mortgages known as its retained portfolio. Many people believe that the size of the retained portfolio poses a great deal of systematic risk to the entire U.S. "
So what is a Government-Sponsored Enterprise (GSE) ?
"They are Privately held corporations with public purposes created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy. Members of these sectors include students, farmers and homeowners.
GSEs carry the implicit backing of the U.S. Government, but they are not direct obligations of the U.S. Government. For this reason, these securities will offer a yield premium over Treasuries. Some consider GSEs to be stealth recipients of corporate welfare. Examples of GSEs include: Federal Home Loan Bank, Federal Home Loan Mortgage Corporation (Freddie Mac), Federal Farm Credit Bank and the Resolution Funding Corporation."
SOURCE: www.investopedia.com
Government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac have been hit by mounting losses as the mortgage crisis continues to intensify.
As mortgages reset & foreclosures continue to rise, the GSEs will see further write downs in the mortgages on their books, and will possibly require fresh capital infusions to meet government mandated Capital requirement levels.
The GSEs have been a key source of funding for banks & mortgage lenders by purchasing their mortgages and then packaging them for sale to investors.
Mortgage Lenders such as Countrywide Financial, will face a real crisis, if the GSEs slow down their mortgage purchases.
Heres a closer look at the two GSEs.
Fannie Mae (Federal National Mortgage Association (FNMA)
"A government-sponsored enterprise (GSE) that was created in 1938 to expand the flow of mortgage money by creating a secondary mortgage market. Fannie Mae is a publicly traded company which operates under a congressional charter that directs Fannie Mae to channel its efforts into increasing the availability and affordability of homeownership for low-, moderate-, and middle-income Americans.
Fannie Mae purchases and guarantees mortgages that meet its funding criteria. Through this process it secures mortgages to form mortgage-backed securities (MBS). The market for Fannie Mae's MBS is extremely large and liquid. Pension funds, insurance companies and foreign governments are among the investors in Fannie Mae's MBS. In order to promote homeownership, Fannie Mae also holds a large portfolio of its own and other institution's MBSs, known as its retained portfolio. To fund this portfolio, Fannie Mae issues debt known in the market place as agency debt.
Fannie Mae's "little brother" is Freddie Mac. Together, Fannie Mae and Freddie Mac purchase or guarantee between 40% to 60% of all mortgages originated annually in the United States, depending upon market conditions and consumer trends. "
Freddie Mac (Federal Home Loan Mortgage Corp (FHLMC)
"A stockholder-owned government-sponsored enterprise (GSE) chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing for middle income Americans. The FHLMC purchases, guarantees and securitizes mortgages to form mortgage-backed securities. The mortgage-backed securities that it issues tend to be very liquid and carry a credit rating close to that of U.S. Treasuries. Also known as "Freddie Mac".
Freddie Mac has come under criticism because its ties to the U.S. government allows it to borrow money at interest rates lower than those available to other financial institutions. With this funding advantage it issues large amounts of debt (known in the market place as agency debt or agencies), and in turn purchases and holds a huge portfolio of mortgages known as its retained portfolio. Many people believe that the size of the retained portfolio poses a great deal of systematic risk to the entire U.S. "
So what is a Government-Sponsored Enterprise (GSE) ?
"They are Privately held corporations with public purposes created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy. Members of these sectors include students, farmers and homeowners.
GSEs carry the implicit backing of the U.S. Government, but they are not direct obligations of the U.S. Government. For this reason, these securities will offer a yield premium over Treasuries. Some consider GSEs to be stealth recipients of corporate welfare. Examples of GSEs include: Federal Home Loan Bank, Federal Home Loan Mortgage Corporation (Freddie Mac), Federal Farm Credit Bank and the Resolution Funding Corporation."
SOURCE: www.investopedia.com
Saturday, November 17, 2007
INVESTING IN GOLD
Gold is MONEY, and not just an investment or an asset. Invest in gold to preserve the purchasing power of your money. As I said in recent posts, Gold has been rising in all currencies.
REASONS TO BE POSITIVE ON GOLD:
Rising inflation: Inflation is always higher than government published estimates. Inflation can also be defined as "too much money chasing too few goods". Gold is a classic inflation hedge.
A Falling US DOLLAR: This is the most important factor responsible for the current rally in GOLD. A USDX index that is below the ‘80’ level is extremely positive for gold.
The first net capital outflow for 9 yrs, in the month of August 2007:
US Treasury data showed a net long-term capital outflow of US$69.3bn for August while there was a total outflow of US$163bn(now revised to $150bn). Central Banks selling US Treasury Bonds is extremely USD negative.
Financial Market turmoil or crises: Valuations across asset classes are no longer cheap, but remain fairly valued or expensive. While economic growth has been strong in developing and emerging economies, developed economies (especially the USA), have witnessed growing debt levels and slowing economic growth.
Given the dependence of the emerging Asian economies on the US, they stand to be major losers in the event of a US recession.
Global Imbalances: resulting from large trade deficits in the US and growing trade surpluses in emerging economies, threaten to derail the global growth story.
As foreign fund flows enter emerging economies, local Central Banks try to control sharp appreciation in their local currencies, and large forex reserves are created. Large Foreign inflows impact the monetary base and consequently the money supply.
The rate of Money supply growth around the world has been increasing. An increase in money relative to a fixed number of consumable goods and services, results in rising prices. This is inflationary and gold positive.
CENTRAL BANKS bailing out Wall Street
The current crisis was caused by speculative leverage & excessive greed on the part of investment banks that created this maze of financial products & investors in their funds looking for returns not commensurate to their risk taking ability (all high net worth hedge fund investors are not as misinformed as they now claim to be). Bailouts would only encourage a repetition of such speculation & greed.
No end to Credit crisis!
On the 15th of November, 2007 the US Federal Reserve pumped $47.25 billion in temporary reserves into the U.S. banking system, its biggest since just after the Sept. 11, 2001 attacks, to calm a rising Fed Funds Rate. The LIBOR in the UK, also continues to rise.
Meanwhile, the U.S. asset-backed commercial paper market continues to shrink.
Gold miners have accelerated their de-hedging programs:
Anticipating higher gold prices in the future, large gold miners have begun to dehedge. No large gold miner is looking to place price-protection hedges.
Middle East Oil producers revaluing their currencies/ dropping the USD peg:
In May 2007, Kuwait dropped its USD peg, in favour of a basket of currencies. Rising local inflation in the region has made it difficult for Middle eastern Central Banks to follow the interest rate policy of the US Fed. For exporters whose oil revenues are USD denominated, a falling USD will certainly be a matter of great concern.
ADVICE FOR INVESTMENT IN GOLD:
So is this the right time to buy gold?
I am extremely positive on the prospects of Gold over the long term. However after the sharp surge in prices recently, a correction was bound to occur. The rise from the $ 740- $ 840 level has been steep, so a further retracement to the $ 740 level in the short term is possible if world markets and crude oil prices were to correct again.
Heres a few points worth considering before investing in gold.
Hot money and speculative leverage that exists in Crude Oil contracts, base metal contracts and in the Real estate market, also exists in the Gold Bullion market, and has contributed to the recent gold price surge.
When markets crash or correct sharply, gold is liquidated to meet margin calls. Speculators close positions as stop losses are triggered. As a result, gold prices fall along with the rest of the market. Such moments are opportunities to buy gold, which then recovers faster than the market, as investors soon flee for safety.
Market sell offs and Carry Trade unwinding result in a strengthening Japanese yen.
Those looking to buy Gold should look out for spikes in the Japanese Yen, to time their gold purchases.
Trading in gold (especially on margin) to generate short term returns is both risky and dangerous, given the volatility in Gold prices and markets in general. A long term buy and hold strategy is best advised.
Beware advice in the financial news media, reports from investment banks, and targets set by short term technical chartists/traders/speculators, instead invest in gold on declines with a view to hold it over the long term.
Stocks of gold mining companies offer greater leverage to the gold price. Investors need to take into account of factors such as current production, valuation of gold reserves, gold hedges and risks of small/junior mining companies with no track record, when considering investments in gold stocks.
REASONS TO BE POSITIVE ON GOLD:
Rising inflation: Inflation is always higher than government published estimates. Inflation can also be defined as "too much money chasing too few goods". Gold is a classic inflation hedge.
A Falling US DOLLAR: This is the most important factor responsible for the current rally in GOLD. A USDX index that is below the ‘80’ level is extremely positive for gold.
The first net capital outflow for 9 yrs, in the month of August 2007:
US Treasury data showed a net long-term capital outflow of US$69.3bn for August while there was a total outflow of US$163bn(now revised to $150bn). Central Banks selling US Treasury Bonds is extremely USD negative.
Financial Market turmoil or crises: Valuations across asset classes are no longer cheap, but remain fairly valued or expensive. While economic growth has been strong in developing and emerging economies, developed economies (especially the USA), have witnessed growing debt levels and slowing economic growth.
Given the dependence of the emerging Asian economies on the US, they stand to be major losers in the event of a US recession.
Global Imbalances: resulting from large trade deficits in the US and growing trade surpluses in emerging economies, threaten to derail the global growth story.
As foreign fund flows enter emerging economies, local Central Banks try to control sharp appreciation in their local currencies, and large forex reserves are created. Large Foreign inflows impact the monetary base and consequently the money supply.
The rate of Money supply growth around the world has been increasing. An increase in money relative to a fixed number of consumable goods and services, results in rising prices. This is inflationary and gold positive.
CENTRAL BANKS bailing out Wall Street
The current crisis was caused by speculative leverage & excessive greed on the part of investment banks that created this maze of financial products & investors in their funds looking for returns not commensurate to their risk taking ability (all high net worth hedge fund investors are not as misinformed as they now claim to be). Bailouts would only encourage a repetition of such speculation & greed.
No end to Credit crisis!
On the 15th of November, 2007 the US Federal Reserve pumped $47.25 billion in temporary reserves into the U.S. banking system, its biggest since just after the Sept. 11, 2001 attacks, to calm a rising Fed Funds Rate. The LIBOR in the UK, also continues to rise.
Meanwhile, the U.S. asset-backed commercial paper market continues to shrink.
Gold miners have accelerated their de-hedging programs:
Anticipating higher gold prices in the future, large gold miners have begun to dehedge. No large gold miner is looking to place price-protection hedges.
Middle East Oil producers revaluing their currencies/ dropping the USD peg:
In May 2007, Kuwait dropped its USD peg, in favour of a basket of currencies. Rising local inflation in the region has made it difficult for Middle eastern Central Banks to follow the interest rate policy of the US Fed. For exporters whose oil revenues are USD denominated, a falling USD will certainly be a matter of great concern.
ADVICE FOR INVESTMENT IN GOLD:
So is this the right time to buy gold?
I am extremely positive on the prospects of Gold over the long term. However after the sharp surge in prices recently, a correction was bound to occur. The rise from the $ 740- $ 840 level has been steep, so a further retracement to the $ 740 level in the short term is possible if world markets and crude oil prices were to correct again.
Heres a few points worth considering before investing in gold.
Hot money and speculative leverage that exists in Crude Oil contracts, base metal contracts and in the Real estate market, also exists in the Gold Bullion market, and has contributed to the recent gold price surge.
When markets crash or correct sharply, gold is liquidated to meet margin calls. Speculators close positions as stop losses are triggered. As a result, gold prices fall along with the rest of the market. Such moments are opportunities to buy gold, which then recovers faster than the market, as investors soon flee for safety.
Market sell offs and Carry Trade unwinding result in a strengthening Japanese yen.
Those looking to buy Gold should look out for spikes in the Japanese Yen, to time their gold purchases.
Trading in gold (especially on margin) to generate short term returns is both risky and dangerous, given the volatility in Gold prices and markets in general. A long term buy and hold strategy is best advised.
Beware advice in the financial news media, reports from investment banks, and targets set by short term technical chartists/traders/speculators, instead invest in gold on declines with a view to hold it over the long term.
Stocks of gold mining companies offer greater leverage to the gold price. Investors need to take into account of factors such as current production, valuation of gold reserves, gold hedges and risks of small/junior mining companies with no track record, when considering investments in gold stocks.
Saturday, November 10, 2007
Subprime Mortgages & ABX Indices.
As the subprime mortgage writeoffs get larger everyday, heres a look at the pricing of credit derivatives in the sector.
www.markit.com
" Markit was founded in 2001 as the first independent source of credit derivative pricing.
Working in conjunction with a consortium of key asset-backed security trading desks, Markit acts as administration, calculation, and marketing agent for ABX. Under this broad remit, Markit will provide a number of services and functions to facilitate the transparency, liquidity and standardisation of this new benchmark index.
The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages.
ABX contracts are commonly used by investors to speculate on or to hedge against the risk that the underling mortgage securities are not repaid as expected.
The ABX swaps offer protection if the securities are not repaid as expected, in return for regular insurance-like premiums.
A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments.
Likewise, an increase in the ABX Index signifies investor sentiment looking for subprime mortgage holdings to perform better as investments. "
8 NOVEMBER 2007:
Lastly, What are Credit Default Swaps?
According to Investopedia - They are swaps designed to transfer the credit exposure of fixed income products between parties.
The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the product.
By doing this, the risk of default is transferred from the holder of the fixed income security to the seller of the swap.
For example, the buyer of a credit swap will be entitled to the par value of the bond by the seller of the swap, should the bond default in its coupon payments.
............trouble is, subprime has begun to default!!!!
www.markit.com
" Markit was founded in 2001 as the first independent source of credit derivative pricing.
Working in conjunction with a consortium of key asset-backed security trading desks, Markit acts as administration, calculation, and marketing agent for ABX. Under this broad remit, Markit will provide a number of services and functions to facilitate the transparency, liquidity and standardisation of this new benchmark index.
The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages.
ABX contracts are commonly used by investors to speculate on or to hedge against the risk that the underling mortgage securities are not repaid as expected.
The ABX swaps offer protection if the securities are not repaid as expected, in return for regular insurance-like premiums.
A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments.
Likewise, an increase in the ABX Index signifies investor sentiment looking for subprime mortgage holdings to perform better as investments. "
8 NOVEMBER 2007:
Lastly, What are Credit Default Swaps?
According to Investopedia - They are swaps designed to transfer the credit exposure of fixed income products between parties.
The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the product.
By doing this, the risk of default is transferred from the holder of the fixed income security to the seller of the swap.
For example, the buyer of a credit swap will be entitled to the par value of the bond by the seller of the swap, should the bond default in its coupon payments.
............trouble is, subprime has begun to default!!!!
Sunday, October 7, 2007
PICKING STOCKS BY SECTOR !
Airlines
An industry that Capital intensive with high asset replacement costs. Low/no customer loyalty
high fuel prices, competition from low cost carriers make it very competitive.
Bankruptcy protection and cyclical downturns where no one makes money are other negatives.
Hotels
Buy stocks when occupancy is low & the business environment is weak
Steel/ Aluminium/Copper and other metals
Buy when industrywide financials are weak, and bankruptcy is high.Excess capacity exists and product prices are low. Metal ore producers, smelters,mill owners are worth a look at this stage.
Pharmaceuticals
Look at the new drug pipline, new drug research costs and possible failure risks.
For generic drugs ( copies of the original patented drugs ) look at patent expiry, legal costs,
and very competitive pricing of generic drugs on patent expiry.
Mining
Buy when mineral prices are weak.
Mining equipment stocks - trucks, dumpers, crushers, elevators, earth moving equipment, are the various ancillaries that are dependent on this sector.
Focus on hotels and real estate in mining areas during the downturn
And Roads, highways and bridges in mining areas during the upturn.
Oil and Gas
Rising oil prices benefit oil services industries such as drillers, rig operators,
Offshore supply vessels and tugs, marine engineers, welders, offshore helicopter
Companies, oil pipeline manufacturers and contractors.
Petrodollars from rising wealth in oil producing nations seek global investment avenues. The governments of Dubai and Qatar are a case in point. Oil producing nations see real estate booms, increased domestic consumption, and consequently inflation, as oil prices rise.
Rising Oil prices are positive for alternative energies, like wind energy, solar energy, hydro power etc, as their commercial viability vis a vis oil improves.
Oil dependent Businesses
A number of industries depend on raw materials/ inputs that are derived from crude oil.
These include
Chemicals
Petro-chemicals
Paints (oil based paints, the raw material titanium dioxide)
Tyre industry (carbon black)
Fertilizers (fuels- naphtha and natural gas),
Airlines ( Aviation Turbine Fuel)
Truck/ Road freight ( Fuel costs)
Government Monopolies and Policies:
Relevant to sectors such as oil and gas, pipelines, freight transport, telecom, Railways, foreign direct investment.
Liberalisation policies in emerging economies
Investing in Agricultural Commodity related stocks
Beware the cyclical nature of commodities, and study the demand supply situation well.
Known also as soft commodities, these include cereals such as wheat, corn & soy; cotton, sugar, rubber.
Rising prices benefit producers of seeds, fertilizers, crop protection, and farm equipment like tractors, & harvesters.
Agricultural economies benefit greatly, as was the case with sugar in Brazil recently.
Industries that are negatively impacted
--By a cereal crop boom include the poultry and meat industry; milk and dairy industry,
--By a rise in rubber prices include the Tyre industry and the auto industry.
--By a rise in cotton prices include the textile industry.
--By a rise in sugar prices include confectionery, beverages etc
Investing in Infrastructure related stocks in Developing Economies
Looking to benefit from rising infrastructure investment in developing economies requires a long term investment horizon.
Projects can get delayed, clearances may take time, and the resulting cost overruns erode investment return
Industries that benefit from rising infrastructure investment include
Trucking, construction machinery and cranes, steel, cement, construction contractors & road development companies.
Power and electricity generating equipment, transmission and distribution equipment, transformers , high tension cables (applicable to upgrading of infrastructure in developed countries eg. power grids etc)
Airport/Seaport development, logistics, packaging and forwarding, cold storage.
An industry that Capital intensive with high asset replacement costs. Low/no customer loyalty
high fuel prices, competition from low cost carriers make it very competitive.
Bankruptcy protection and cyclical downturns where no one makes money are other negatives.
Hotels
Buy stocks when occupancy is low & the business environment is weak
Steel/ Aluminium/Copper and other metals
Buy when industrywide financials are weak, and bankruptcy is high.Excess capacity exists and product prices are low. Metal ore producers, smelters,mill owners are worth a look at this stage.
Pharmaceuticals
Look at the new drug pipline, new drug research costs and possible failure risks.
For generic drugs ( copies of the original patented drugs ) look at patent expiry, legal costs,
and very competitive pricing of generic drugs on patent expiry.
Mining
Buy when mineral prices are weak.
Mining equipment stocks - trucks, dumpers, crushers, elevators, earth moving equipment, are the various ancillaries that are dependent on this sector.
Focus on hotels and real estate in mining areas during the downturn
And Roads, highways and bridges in mining areas during the upturn.
Oil and Gas
Rising oil prices benefit oil services industries such as drillers, rig operators,
Offshore supply vessels and tugs, marine engineers, welders, offshore helicopter
Companies, oil pipeline manufacturers and contractors.
Petrodollars from rising wealth in oil producing nations seek global investment avenues. The governments of Dubai and Qatar are a case in point. Oil producing nations see real estate booms, increased domestic consumption, and consequently inflation, as oil prices rise.
Rising Oil prices are positive for alternative energies, like wind energy, solar energy, hydro power etc, as their commercial viability vis a vis oil improves.
Oil dependent Businesses
A number of industries depend on raw materials/ inputs that are derived from crude oil.
These include
Chemicals
Petro-chemicals
Paints (oil based paints, the raw material titanium dioxide)
Tyre industry (carbon black)
Fertilizers (fuels- naphtha and natural gas),
Airlines ( Aviation Turbine Fuel)
Truck/ Road freight ( Fuel costs)
Government Monopolies and Policies:
Relevant to sectors such as oil and gas, pipelines, freight transport, telecom, Railways, foreign direct investment.
Liberalisation policies in emerging economies
Investing in Agricultural Commodity related stocks
Beware the cyclical nature of commodities, and study the demand supply situation well.
Known also as soft commodities, these include cereals such as wheat, corn & soy; cotton, sugar, rubber.
Rising prices benefit producers of seeds, fertilizers, crop protection, and farm equipment like tractors, & harvesters.
Agricultural economies benefit greatly, as was the case with sugar in Brazil recently.
Industries that are negatively impacted
--By a cereal crop boom include the poultry and meat industry; milk and dairy industry,
--By a rise in rubber prices include the Tyre industry and the auto industry.
--By a rise in cotton prices include the textile industry.
--By a rise in sugar prices include confectionery, beverages etc
Investing in Infrastructure related stocks in Developing Economies
Looking to benefit from rising infrastructure investment in developing economies requires a long term investment horizon.
Projects can get delayed, clearances may take time, and the resulting cost overruns erode investment return
Industries that benefit from rising infrastructure investment include
Trucking, construction machinery and cranes, steel, cement, construction contractors & road development companies.
Power and electricity generating equipment, transmission and distribution equipment, transformers , high tension cables (applicable to upgrading of infrastructure in developed countries eg. power grids etc)
Airport/Seaport development, logistics, packaging and forwarding, cold storage.
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