price the asset not time the asset !!!
|Posted by EJ on August 23, 2010 at 1:17 AM||comments (0)|
Last week's macro data from the US does indicate a slowdown and Republicans have started raising their voice against the faliure of the Obama policy on stimulus. The concern may be serious yet not catastrophic. There are ample evidence of a short term pause like drop in crude inventory stagnating commodity prices but the matter we shud not overlook is the rest of global eco environment. Europe situation is far from conducive, emerging mkts are high beta teritory for business which get heated/cooled faster to policy changes. Hence give the benfit of doubt to the Mr. Bernake and co. for pulling out the world from brink of financial collapse. The recovery has to be be practical and not speculative. In India we are still riding a speculative recovery. All cud have been well except it started reflecting in price inflation, not just in speculative assets but soft commodities. RBI is gradually tightening the noose around the lenders to soften the demand. So even-if the double bottom can happen, India will be spared if the policy makers play the cards carefully.
|Posted by EJ on August 19, 2010 at 11:56 PM||comments (0)|
US macro data is not looking great as we suggested in this column sometime back. The momentum is really stalled. Now the worry is whether it will reverse?? At this point of time this seems unlikely. However the point to be noted, all the major economies are withdrawing stimulus!! including India. If US economy falters, then we may not expect anything substantial from the emerging mkts to set-off the effects. Jobs and manufacturing and all other leading indicators have started pointing to a slow growth period.
Domestic mkts are buoyed by good monsoon, soft industrial commodity prices and reasonable interest rate; will continue to out perform the most of asia including China. Stay invested till the festive season.
|Posted by EJ on August 17, 2010 at 1:45 AM||comments (0)|
Three sets of data those I can see appear worrisome. Drop in oil prices and firmness of gold along with USD is a serious sign of risk aversion. Japanese and the US eco data is losing momentum. Without a stable eurozone growth, the burden will be wholy on the emerging mkts like China, India, Brazil etc. However these economies are fighting the domestic price rise and high inflation. Hence reverting back to a quick growth mode will be difficult. If the US data does not change for good in next quarter then we may see a bearish mkt for rest of 2010.
|Posted by EJ on August 16, 2010 at 12:46 AM||comments (0)|
Two important set of data over the weekend is going to give very marginal direction in the mkt. One is the lower than expected retail sales in the US and the second, less than estimated GDP growth in Japan. Both may appear as slightly disappointing, yet these are indicators of stability. We need to be apprehensive about the US data that may come out this quarter as these will show the true nature of recovery sans the stimulus. However there is general aversion of risk and currencies like USD and JPY were bought last week. Copper prices climbed up as the Goldman report suggests of firm emerging mkt demand against poor supplies.
Indian mkts were bullish last week, yet lil subdued from global cues. The results those came out during weekend like Unitech, suzlon etc were not at all immpressive. We expect a pause now before the momentum picks up again. Firm USD against INR is another key worry as the flow must be stopping or on hold. If the later is correct, then we can expect a good rally happening by begining of sept.
|Posted by EJ on August 13, 2010 at 10:00 AM||comments (0)|
US job data was mostly along anticipated lines, analysts may site some adjustments due to delayed lay-off, slowdown in emergency job schemes etc. yet the crux is - job growth is stable if not growing. This was probably worrying the fed as it falls short from their expectation. The Culprit, "Greek shadow" is back again hunting eurozone. Recent Greek economic data shows anything to cheer as EUR retraced its brave recovery in weeks. Although Asian markets are defying, it may be a lag effect that can show up later part of the month.
Domestic markets remain cheerful as the result season keeps us entertained. The monsoon effect is widely felt. The food price inflation is still sticky yet be assured it has nothing to do with rain-or-norain, it was started by a cratel of supply side players which has to bust to provide any kind of relief. Proof is the sugar price drop..yet there are lot more of them still holding out. Go short in these soft commodity players.
|Posted by EJ on August 11, 2010 at 2:57 AM||comments (0)|
The recent results of Tata motors and subsequent bull rally in the stock prices does not really indicate the wining startegy is at work. It is a benefit of doubt that bestowed this fortune to the investors and shareholders. It is not the efficiency that got rewarded but the investment decision that got rewarded. Like any investment, the reward can fluctuate quite a bit. The global recovery of the luxury car demand was taking place after a lull for 4-6 quarters and led by emerging mkts like China. Whether the trend will continue is a big doubt. Domestic mkt for Tata motors have almost similar story yet the contribution from this mkt is minimal compared to that from its JLR operation. Nevertheless as long as it can get good returns on its investment to substitute domestic bread-butter earning capability, the investors will get rewarded. Wot abt speculators?? They were probbly dreaming of a valuation that will run out of steam (petrol !!) soon.
Macro Numbers from the US is showing a reduced momentum as the FED started doing its bits of verbal intervention. There may not be any alarm yet. European crisis had taken the air out of the momentum seen last 2 quarters. Watch out for commodity prices, they were not reflecting the underlying demand rather playing to the tunes of currency; mostly as a substitute to Dollar-trend. So a flat mkt next qurter. Domestic mkt results have been good so far. Need further reasons for it to move higher.
|Posted by EJ on August 3, 2010 at 6:13 AM||comments (0)|
Macro condition in the US and China are mixed. The numbers came out last week do not suggest a tightening scenario in the US rather expectation is the continuation of quantitative easing. The government borrowing in the US remains a worry. The Economic data will probably remain positive in short term. The data from China suggest a cooling down effect which is good for world economy. Corporate results across the globe barring Europe remains better than analyst’s expectation. Emerging markets stocks had smart gain during last week. Domestic market will remain buoyant with good monsoon and anticipation of rural consumption. The rate sensitive sectors are relatively un affected by the RBI rate hike as the drop in loan revenue offsets better recovery and reduced provisioning. So all cheers for Indian mkts. Stay long.
|Posted by EJ on January 3, 2010 at 10:33 AM||comments (0)|
A decade of financial extremes made seasoned as well as neo fund managers to look back and analyze the vagaries and opportunities they witnessed. If we put it in a nutshell, the economic cycles just became fast and furious instead of being logical and smooth. It started with dot com boom-bust, 9-11 and subsequent expansion, BRIC becoming walls, subprime and ended with Bernake led-miracle. The result?? S&P 500 index produced negative 10% after factoring dividends during whole decade. I-e monetarily speaking, If U had put $10,000 in the US equity in 2000, it wud have been $9,090 now !!!!! As one fund manager commented, "it dispelled two myths about equity investments; 1-Investment is best way to create value 2-Equity will win for patient investor, no matter what they pay". This may be slightly different for emerging markets where investors have made money. Then what was different in case of emerging markets, they had a blessing in disguise; these are yet to be considered mature and these are yet to be leveraged. All assets were not created from borrowed money in these markets. Giving a comparison of the assets performance during the last decade, for a global investor, $10,000 in G7 equity cud be $9,000-$10,000 now; US treasury cud be $18,000, Commodity basket cud be $13,800, Gold cud be$37,850, Hedge fund index $20,000, BRIC equity $34,700. So wot have we learnt from this; diversify and be ready for similar action packed decade ahead. What will happen in next decade; we may make the same mistake in bigger scale. Last decade, individuals were more leveraged this decade Governments will be more leveraged ( huge amt of public debt is getting created ). If crisis comes, it will be gigantic. How to survive this; be smart, avoid extremes and diversify your value creation process…don't be a trader, don't be an investor….just be smart…as Warren Buffet puts it "Don't time the asset rather price the asset". Ask yourself before buying the asset at 20+ times PE. Most of the opportunities in this world can be replicated in short time, hence an alternative will always be present. It is just that some vested party may not want U to believe in these alternative so that they can manipulate the prices.
|Posted by EJ on December 3, 2009 at 2:15 AM||comments (2)|
How will u protect your assets (cash) that are getting affected by the inflation or getting affected by the hike in interest rate(EMI or Bond) or by fluctuation in global currencies(exporter with Dollars)....one single remedy...buy gold !! I will explain the relation in non-theoretical way. If you have Rs 100 cash, with inflation the value of the cash will go down to say Rs.90 next year, best way to hedge is to buy gold of Rs. 100 with inflation, the price will be say about Rs.110.That means after end of one year your value of liquid asset is mostly protected ! Now if you are a big investor like central bank of xyz land and invested in bonds then value of u'r investment going down as the interest rate goes up because of inflation (some bond theory involved ) then best hedge to me is to buy sufficient amt of gold as your holding to hedge the Treasury portfolio. Suppose u are an exporter and all the receivables in Dollars which is going down in value because inflation is at u'r own country and recession in the US, then best way to hedge the receivables is to buy gold, so even if Dollar value goes down you make that up in gold appreciation...If you think I made up this story ...then no!.. some of the big hedge funds and some large central banks have done this in recent past... If there are many others who are looking for similar remedy then it is probably first time I will be happy when my wife buys gold !!!!
|Posted by EJ on November 30, 2009 at 12:42 AM||comments (0)|
Once upon a time I was a fairly active sukuk trader. The interesting fact and fiction about this product served a larger purpose in those days; i-e acceptance of sukuk as a maverick instrument by the internationl financial community. The way things proliferated, it took the' purpose' of sukuk from the hands of issuer and investor to the ring of investment bankers. The guys who were the cheerleaders of this asset class became the first ones to shout foul. During the days of liquidity glut, these smart Investment bankers decided to substitute the corporate's funding need by issuing structured sukuks to the investors. The story never ended there. They took it one step beyond by creating a very private credit derivative market of these issuers thru these sukuks. Hence even if actual underlying or the obligation of the issuer in the cash/loan/sukuk market may appear managable, the derivative market carteled by the same set of investment banking outfits becomes manifold in terms of gross exposure. The only mistake from the issuer point of view is their liability management style and belief. Inadequate diversification of the liability pool and poor ALM practices landed them in a mess. Huge liquidity mismatch had resulted in this type of chaos. Had these sukuks been issued with slightly longer term maturity this Dubai-fiasco cud not have happened. Apprehension about Dubai's creditworthiness is misplaced. There are plenty of assets with Dubai state owned entities that can take care of funding needs.