DON'T BELIEVE THEM when they say that…..

• The US Dollar has bottomed out.
• The US FED will save the day!
• The Fed and US Treasury believe in a strong US Dollar policy.
• GOLD is overvalued and must be sold.
• GOLD is illiquid.
• You must Sell gold and buy stocks!!!!
• Inflation is not a threat and is under control.
• We’ve seen the last of the write downs and losses at the banks. Their books are clean now.
• Financial stocks are cheap after the massive correction over 2007.
• The Credit Crunch is over!!
• The Sub prime mess is contained, and the US economy is resilient.
• Resetting ARMs will cause no trouble at all.
• The US Consumer is in good health, and is ready to leverage up again.
• It’s a good time to buy a home in the US.
• The US Economy will turn around sometime next year, or later in 2008, once we’re over this temporary blip.
  

INSTEAD REMEMBER that

• GOLD IS MONEY
• Inflation is becoming a major dilemma for Central Banks everywhere.
• Bailouts only come to those overloaded with ‘derivative counterparty risk’ (You cannot be a threat to overall stability!!)
• Deleveraging is a long and painful process. ( even Buffet recently said so!!)
• Losses from Toxic CDOs will only increase as the housing slump deteriorates further.
• The Banks won’t lend to each other, because there is no trust.
• They don’t know the losses in their own books, let alone try guessing potential losses in the counterparty’s books.
• Rate cuts won’t solve problems of fear and uncertainty, let alone deal with an oversupply in US home inventory.
• This is an Insolvency crisis, coupled with total loss of confidence, in addition to the much talked about credit crisis.
• The Pundits who were bullish on emerging markets going into 2008 are nowhere to be seen. Some even recommend waiting for a further fall(after the massive crash) in emerging markets before attempting any fresh buying.
• The government may brush aside inflation fears…. but rising unemployment from resulting job cuts, will be a difficult issue to deal with in an election year.

What you win on the roundabout, you lose on the swing!! :Part 2

This is a follow up to my post on Friday October 5, 2007 ; which incidently also happened to be my first post.

http://thebullishbear.blogspot.com/2007/10/blog-post.html

The Currency adjusted return on US Equities is just terrible.

Long term Eurozone investors are major losers as a result.
The US is now in a recession, and conditions could get a lot worse.

THE CHINDIA MELTDOWN

CHINDIA : http://en.wikipedia.org/wiki/Chindia

Stock markets here have had a dreadful first quarter.

There seems no end to the bad news, as writedowns continue across leading Investment banks.

Local Inflation is starting to concern governments, as food and fuel prices continue to rise.

The Shanghai Composite is down almost 45% since its peak in October last year. A lot of Chinese first time investors and retail investors will learn some very hard lessons. In addition to the crash in the stock market, the chinese economy is facing rising prices at home, and the prospect of a slowing US economy.

The BSE SENSEX is down almost 25% since it Jan 2008 high. Confidence has taken a beating, and fresh buying is waiting for lower levels.

The Financial sector is down sharply, after some banks disclosed indirect exposure to 'subprime linked' assets in their US subsidiaries.

The Oil and Gas marketing companies are down, on fears of rising subsidy burdens on retail fuels.

The Exporters in the IT space, auto component and textile sector are having a difficult time dealing with a volatile but strengthening Indian Rupee

Valuations in the Capital Goods and Power sector have corrected drastically, as investor expectations are now more realistic.

Avoid the Real Estate sector and stocks of Brokerage firms. Although these stocks are down sharply from recent 52 week highs, I do not see value at current levels.

Overall, its a wait and watch approach, as the bulls have disappeared on Dalal Street in Mumbai.

APRIL FOOLS' DAY ON WALL STREET !

The US Stock markets are up over 2.5%.
and WHY ???
- The writedowns at investment banks are behind us ..............................FOR NOW!!!!
- The UBS writedown will be its last.
- The US DOLLAR is on the road to recovery.
- The Financial sector has bottomed out, and financials are leading the market rally.
- The ''Subprime Mortgage Collapse mania'' was overdone!!
- Gold has continued to fall, as the stock markets are now a safer place,( Gold is a buy on such declines, a staggered buying approach is advised)

REALITY CHECK
- Bear Stearns just went bust!!!!!!!!!!! and no one but the FED seemed to be willing to lend it $30Bn for its'''questionable/worthless collateral'''
- Philadelphia becomes the first U.S. city to halt foreclosure sales in the current crisis...
http://www.reuters.com/article/idUSN2830318520080328?pageNumber=1&virtualBrandChannel=0
-The US economy is already in a recession!!!
- Central Banks are losing the Inflation fight!

GOLD & The Patient Investor

The recent correction in commodity markets has seen GOLD correct sharply back to the early 900's in USD terms. After its recent surge, a correction was to be expected.
Food Grains, Oil, and Precious metal prices have all pulled back sharply.

The US Treasury is now looking to expand the role of the US Fed, ensuring that it provides stability to a 'shaky US Stock Market', after the recent collapse at Bear Stearns.

The US Fed will continue to lend against 'questionable'/ 'worthless' mortgage backed paper, as its strives to avert a major collapse on Wall Street. The ECB and the BOE may have to follow the FED, if the credit markets dont ease up soon..

Coming back to the Patient Long term Gold Bullion Investor:

As was the case with the May 2006 correction, declines are pretty rapid, as leveraged speculators and short term traders who enter at peak prices get caught out.

Gold is headed for new highs for reasons listed below; the intelligent and patient gold investor, must just hang in there and enjoy the ride.

INFLATION : Gold - The Inflation Hedge

Countries around the world are struggling with rising inflation, mainly led by the surging cost of food and energy.

Central Banks are losing the fight against inflation, as they look to cut rates to combat slowing growth and continue to pump money into the markets.

India's annual inflation rate accelerated to a 13 month high of 6.68 % last friday, having doubled in just a few months.

The Chinese Consumer Price Index showed prices rising at 8.7 %yoy in February, the sharpest acceleration in almost 12 years.

Eurozone consumer price inflation rose to a new peak of 3.5 % in March.

Inflation in Saudi Arabia surged to a 27-year high of 8.7% in February.

THE CREDIT CRUNCH/ INSOLVENCY CRUNCH : No end in sight

Even as the Fed cuts rates, Mortgage rates remain high, as banks hoard cash.

The US Housing market Crisis continues....and consumer confidence is at new lows.

The ECB may have to cut rates if growth slows, even though inflation is at new highs. This action could lend support to the USD, and would as a result drag down the gold price.: This would be a good time to add to gold positions. Meanwhile the USD is headed for its biggest quarterly Loss Against Euro since 2004.

Counterparty risk is a risk no one seems to be willing to take.

Overexposed and Undercapitalized => Current state at most Investment banks with leveraged Balance Sheets.

In all the commotion, everyone seems to have forgotten about the Bond Insurers, who were the centre of attention only last month.

Bringing in more regulation now, will not make the outstanding Toxic OTC Derivative positions disappear overnight. Possibly more questions may be asked, additional paper work will add to costs and further casualties may arise.

This is a problem of Solvency, which cannot be solved by Cheap Money: The very culprit of the current crisis.

This is a time for preservation of capital rather than chasing yield.

Buy gold on declines, keeping its long term outlook in mind.

ABX MELTDOWN.

Since my last post on Subprime Mortgages and ABX Indices in November last year, and Billions on Dollars of writedowns and quarterly losses later.........there is clearly no solution yet.
'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.' www.markit.com

My November 10, 2007 Post : http://thebullishbear.blogspot.com/2007/11/subprime-mortgages-abx-indices.html

THEN

NOW

TO DO LIST :

Bail out the Investment banks, Banks with lax lending standards, speculators and CDO people that got us here in the first place.

Central Banks to buy all Toxic mortgage backed securities from banks & end the Credit Crisis.

Bail out the AAA rated Bond Insurers.

Bail out the US Housing market.

Bail out Freddie Mac and Fannie Mae, or nationalise them if need be.

Save the US DOLLAR.

Save the US CONSUMER.

BEWARE THE BOUNCE ! !

Its not over yet ! ! !

• The Credit Crisis is far from over.
• More banks to go under.
• Counterparty Risk continues to be a greater threat than ever, as no one is willing to lend.
• Losses to Employee Stock Options & Pension Fund Investments, in cases such as the Bear Stearns collapse.
• The Fed is down to his last few rate cuts, and he has no solutions yet!!
• USD pegged currencies, can no longer sustain falling interest rates, as local inflation soars.
• The impact of Middle East Oil producers dropping the USD peg, and pricing oil in ' a basket of currencies', as against the USD.

Lastly, heres an interesting article on 'The Credit Crisis', from the Interfluidity Blog

http://interfluidity.powerblogs.com/posts/1205997488.shtml

Best Explanation to the Credit Crisis yet.

THE SURGING JAPANESE YEN

As the carry trade continues to unwind, the Japanese Yen has risen sharply against the USD.

In addition to the slowing US economy; the rising Japanese Yen, is now affecting the profitability of large Japanese exporters like Toyota Motor Corp..
''A stronger yen cuts the repatriated value of vehicles sold by Japanese automakers in the U.S., the world's biggest auto market. Every 1 yen gain in the Japanese currency against the dollar trims 35 billion yen ($ 342mn approx.) from Toyota's annual operating profit, according to the company.''
http://www.bloomberg.com/apps/news?pid=20601080&sid=aBlqryleIE20&refer=asia

THE INDIAN MARKET MELTDOWN

Popular sectors have seen a sharp price erosion

BROKERAGE FIRMS:
REAL ESTATE FIRMS:

POWER SECTOR:

STOCKS THAT WERE RECENT TRADING FAVOURITES:

• The long term growth story of the Indian Economy is intact.
• This is a Stock Picker's market.
• Investing in popular or overvalued sectors is always risky. You can never know when the party ends.
• Invest with an adequate margin of safety, and know your investment risk profile.
• Never buy a good stock at an expensive price.
• Over the short-medium term, the direction of Indian equities will be dictated by global markets.
• The current recession in the US will continue to drag down world markets.

TIME TO EXIT SOFT COMMODITIES (Food Grains)

With everyone piling into soft commodities, I think we have hit a short term top in the food grain market.
While demand for food grains far exceeds supply, the vertical rise in price of these food grains warrants caution. Speculation is high, and everyone is desperate to join this party.

At these levels, a sudden sharp pull back, is likely to cause panic selling, a triggering of stop losses and losses for short term speculators.
Even in a long, multi year bull market in these commodities, be prepared for corrections, which can be used for fresh entry points.

For now, if you can't stand the heat, then stay out of the kitchen.

Corn:Wheat:Soybean: