So what’s a Double Dip ! ?….so I asked around and this is what I get…..

Young Daughter : It’s an Icecream, Dad !

Older Son : It’s when they serve starters with two types of Dips

My Tea-sing Wife : Darling, it’s what I do to make your ‘kadak’ Tea…Double Dips…Two Tea Bags in one cup of Tea

A Club Friend : It’s when I dive into the swimming pool twice in a single day

Ben Bernanke ,the US Fed Governor : USA is not facing it or causing it !

Clearly Individual Perspective influences the Definition

For those who really want to know….Double Dip refers to a Recession,followed by a short Recovery and then a more Deeper Recession than the previous one from which any recovery becomes more difficult….not good for the Economy and not good for Stock Markets….and USA is certainly facing the Possibility of a Double Dip Recession

So if the Dow goes Down bad,what shall be the fate of our Sensex !?

Let’s debate this over a Double Dip Tea ,shall we !

Cheers !

China and USA…different political idealogies that makes for strange bedfellows….China deliberately keeps it’s Yuan low to benefit from exports to USA…get’s paid in US Dollars which it reinvests substantially in US Government Treasuries !..nearly US $ 900 billion of the US $ 2.3 Trillion Fx Reserves of China are invested in these Treasuries

USA was threatening to declare China manipulator of Currency…China agreed to revalue it’s Yuan upward a wee bit recently and also has just declared their continuing faith in the US Dollar and US Treasuries !

That’s some Consolation between the two on the surface….but the undercurrents run deep

Here are two Alerts….you can put it this way….one by China for USA and the other by USA for China! 

• Is China facing a Housing Bubble ?…the Western Countries seem to think so
• A Chinese Credit Rating Agency has just downgraded USA from  ‘AAA’ to  ’AA’ Country Rating

Is China facing a Housing Bubble ?

Have a Look at the above Graph that matches the Value of Residential Housing against the Country’s GDP for USA,Japan,Hong Kong and China

In 1989,Japan shows a peak level of 3.8  and since shrunk to 2….Japan has been facing Economic Woes for the past two decades now…..China has reached an alerting level of 3.5 and if historic precedent is to be believed for this parameter,the Fall is inevitable….China is heading for a Real Estate Bubble soon

A Chinese Credit Rating Agency has just downgraded USA from  ‘AAA’ to  ’AA’ Country Rating

Two months ago in May 2010 ago I had blogged on how the top Credit Rating Agency S & P yet continued USA’s Rating at ‘AAA’ 

S & P’s Sovereign Rating of USA remains at Top ‘AAA’….Amusing!

Friday, May 21st, 2010

Now China’s leading Credit Rating Company,Dagong Global Credit Rating Co has downgraded USA from ‘AAA’ to ‘AA’

The World’s Top Three Credit Rating Agencies…all based in the West….S & P,Moodys and Fitch….. have come in for  some scathing attacks…and justifiably too…they have lost considerable credibility in the past few years for their failures to spot and alert proactively  and, even more stupidly, reactively on Lehman’s Collapse,the Sub Prime Dangers,the Greece Problem among others….seems these rating agencies are a cartel with vested interests and agenda….when a Problem is so apparent even to a Commoner,it becomes difficult to believe that these Top Agencies run by Top People out of Top Colleges and Institutions and with Top Pedigree Degrees and Positions are really Dumb,Stupid and Incompetent or even Complacent!…..so the conclusion is that the ‘High Ratings’ maintained for Corporates and Countries by these Western Agencies is a deliberate Game plan not to break the Hand that’s feeding you…combined probably with a Political agenda too !…..Bloody Shame !

Though Dagong may not wield much global Influence,it’s action last week to downgrade USA will be seen as an unbiased and Non Western View of USA….a Pioneering and courageous forward step to call a Spade a Spade….despite the fact that China itself has a near US $ 900 Billion Investments in US Treasuries….and it may lead to a weakening Dollar and an increased Risk Premium for Dollar Investments and a fall in the Value of Dollar Investments….a True and Tough Call made by Dagong for USA, a Country whose massive Deficits will lead to Massive Debts that will soon eclipse it’s own GDP 

Where will our Sensex head now in the second half of 2010 ?

So while both USA and China continue to hope that Stimulus packages will bale their Economies out and GDP Growth rates would gradually move up or at least the decline will be stemmed,where does this leave India……Our Country is not decoupled enough yet not to feel the adverse Impact in case USA and China shrink….Fed Governor has finally removed the Gloves and warned Congress last week that the Labour,Housing and Credit Situation in USA yet remains dangerously worrisome

Our Sensex has crossed 18000 and Nifty 5400 while the Dow is struggling to stay above 10000….What if the Dow seeks lower 8000 levels by 2010 year end ! ? where would our Sensex head then !?….the way I see it on a macro level is like this…..when 2010 began I called that the first half of 2010 would see a Sensex range of 14000 to 18000…this was on the mark…..the second half has now commenced…I see our Sensex range in this half to be 16000 to 20000….the upmove range is considering that India will benefit from Good Monsoons,strong FII Inflows,Higher GDP Growth rate of 9.5% forecast for FY 11,Infrastructure and Consumption India Story being intact and strengthening of Corporate Earnings…my contention is that these positive drivers will net out the negatives of continuing High Inflation,increasing Interest rates and a possible Downtrend in USA and China Economies, Stock and Real Estate Markets….16000 on the Downside would me more by default if the Dow or China shrinks 

However on the Cautious Side,the Short Term does not strongly indicate a One Way Upward Movement for the Sensex…therefore you will have to contend with Volatility…..Therefore A Bottoms Up Approach with Specific Stock Selection would probably fetch you better returns than a Top Down or Index Strategy in the Short Term

Cheers !    

One often gets wise after the Event…. but what if one does not !… does not deliberately want to actually!

I don’t want to get into the game of Bashing up the Rating Agencies… but was curious to see how Standard and Poors have rated USA on long term and short term sovereign domestic and fx currency obligations

For Long Term Ratings,Top of the Line is AAA… it indicates extreme strength in meeting obligations…. BBB indicates adequate protection parameters but economic adversity and changing circumstances can weaken the capacity to meet obligations… anything below BBB is speculative in nature

For Short Term Ratings, the highest is A-1 …. while A-3 indicates adequate protection parameters but changing circumstances can weaken the capacity to meet obligations… B onwards are speculative in nature 

As of May 17, 2010, USA retains a Top Rating of ‘AAA’ on long term obligations on both domestic and fx curriencies… the outlook is ‘Stable’, indicating that there should not be any ratings revision in the next six months atleast….on short term obligations,yet again USA has retained the top A-1 Rating

It’s Western Ally, United Kingdom has similar ratings… only the outlook here is marked ‘Negative’…. indicating the rating could be revised downward

Amusing really !… Methinks S & P lacks the spunk to downgrade USA…. USA’s Debts and Deficits are larger and more scary going forward than even those of some of the ‘PIIIGS’ Nations in Europe….. and S & P has rated these European nations on Long Term from a High of AA (Spain) to a Low of BB + (Greece) and on the Short Term from a High of A-1(Italy, Ireland & Spain) to a Low of B (Greece) 

India has got a S & P Sovereign Rating on Long Term Obligations of BBB- and on Short Term of A-3…with Outlook marked as Stable…… just one rank above being classified as Speculative in nature !…..Really !……we’re more or less been rated on par with Hungary,Iceland,Morroco and Egypt 

Just to jog your memories…S & P had continued to rate Lehman Brothers at A+ in early 2008…in March 2008 they merely changed Outlook to ‘Negative’….then beginning June 2008,they actually downgraded Lehman to A from A+….Even in early September 2008,they warned of a downgrade but did not actually make one stating “we continue to view Lehman’s near-term liquidity as satisfactory….”… Lehman collapsed in the same month later in September 2008… yet S & P defended their ‘A’ rating asserting “  We believe the downfall of Lehman reflected escalating fears that led to a loss of confidence — ultimately becoming a real threat to Lehman’s viability in a way that fundamental credit analysis could not have anticipated with greater levels of certainty,”

Wow !…. but I’m not going to get into this Game of Bashing up Credit Rating Agencies !

In India too the game is no different… there will be conflict of interest and therefore softer ratings as long as the Rating Agencies are retained by and therefore derive their bread and butter earnings from the very Corporates and Issuers who are being rated  

… and I yet feel USA’s sovereign rating should be reviewed for a potential downgraded…. Atleast mark the Outlook as ‘Negative’ as done for UK….. Some other countries also assigned the top AAA rating are Australia, Canada, UK, France, Denmark, Norway, Finland and Germany….. what do you think ?

In the end the Investor and Lender gets the short end of the stick if he depends wholly on ratings by the agencies !

Oh ! … I see India as a  Stable ‘AAA’ Rating 15 years from now… by 2025… Vision 2025

Cheers !

SENSEX CLOSE IN 2009 : 17465..SENSEX LEVEL NOW AT 11.09 am,MAY 17,2010 : 16628

Down 367 points from Friday Close….but down 5% from 2009 Close   

FII EQUITY FLOWS AND SENSEX MOVEMENTS …A CLEAR DICHOTOMY IN 2010 

Total FII FII Equity Investments : US $ 78.76 Billion

Registered FIIs :1714    Registered Sub accounts : 5369

India remains  a great Investment Destination…But have a look above….whenever we’ve seen huge FII Inflows,the Sensex has simply run away….in 2008 when we witnessed huge outflows,the Sensex sank,only to recover brilliantly when inflows topped US $ 17 billion in 2009

But 2010 has been a revelation…There is a clear dichotomy between FII Inflows and the Sensex…In Four and a half Months yet in 2010 we’ve seen strong FII Inflows of US $ 6.1 Billion…a strong part were in IPOs….one would have expected the Sensex to power ahead…Instead it has buckled 5% till date today from 2009 close

It’s a clear Macro Warning…India remains coupled to World Markets….the disturbing PIIIGS Solvency Scenario in Europe and the Debts and Deficits of USA continue to spook the Global World…It’s a contagion that’s being tackled

Beginning of the Year in January 2010,I had blogged that the Sensex range will remain in the 14000 to 18000 for the first part of 2010…when it touched 18000 a few weeks ago,I had given a  macro warning that we’re at the top end of the range and extreme caution should be exercise when playing the Indices or Trading…the onbly way to beat the Indices benchmark would be specific selections

Don’t get unnerved by this Volatility…it’s part of the Equity Experience….just stay focussed on Long Term Goals and Proper Asset Allocation when playing out your Strategy 

And I continue to reiterate,as I’ve been for a few years now….do consider GOLD strongly….it’s moved from US $ 650/oz to over US $ 1200/oz now….My first target was US $ 1000…it reached this late in 2009…Beginning 2010,I had said that Gold would touch US $ 1200 in 2010…it’s done so in May itself !…..My next big target is US $ 2500 inside a few years…..and then US $ 5000 !……given the huge uncertainties and poor visibilities in global economic recovery in USA,Europe and Japan…and the liquidity tightening in China to reduce fears of any Asset Bubble Formation…any Investment in Equity,anywhere in the World….and even in Debt,I daresay, should be done cautiously and with complete understanding of the Risks involved   

Very Few Believed me on my ‘Against the Trend’ calls for Equity,Gold and even Oil….been called an idiot a few times too in debates and discussion with Experts !…but then Contrarions are called Idiots quite Often !

To conclude…for the Long Term,I’m bullish on all three….Indian Equity,Gold and Oil….for the Short and Medium Term,there is a huge Overhang in Global Equities and Currencies….as I blogged a few days ago…Greece is bigger than Greece…India will feel the coupling effect….don’t be in any hurry to expend your Cash….unless you want to add or increase exposure to  Gold in your Portfolio…..you’ll probably get your scrips cheaper down the line 

As for existing Equity Portfolio…don’t worry as long as your selections are sound and your weightage allocation is sensible and rational based on your risk profile…so even if your Tracker shows realtime,your portfolio losing Value…stop looking at your Tracker ! 

Get into the discipline of thinking ‘Few Years’ and not ‘Few Days’ or ‘Few Months’!

Cheers !

Greece is bigger than Greece !…..it’s not a liquidity issue…it’s a big solvency problem!…and no amount of stimulus can solve a solvency problem !

The debt and deficit figures of several countries indicate doomsday scenarios across Europe…PIGS nations are in HUGE trouble…Portugal,Ireland,Italy,Iceland,Greece and Spain…are facing a doomsday scenario

USA Treasuries and Corporate Yeilds…..Have a look at this Yield table below

For the First Time ever,the USA Treasury Yield is higher than that available on Top Corporate Bonds for similar maturity periods !

So for the risk free rate we can now stop referring to the Treasury Yield,but instead use as the proxy, the lower yield offered by Warren Buffett’s Berkshire Hathaway !

That’s an ominous warning !

Lenders Trust Top Corporates more than they do the US Government !…even though the Government enjoys a Top AAA Rating currently….When queried whether USA would lose this Top Rating of AAA,Tom Geithner,the Treasury Secretary emphasised on ABC News ” Absolutely Not !…that will never happen to this country!”…Emotional…Patriotic….but unrealistic and impractical…if US ,like it has little alternative,continues to borrow and print currency to fund it’s deficit,it will have to increase yields to tempt lenders

Clearly The Huge Spiralling National Debt and Fiscal Deficit Situation that has reached record levels of Trillions of Dollars is unnerving Lenders….This situation is more likely to escalate in coming years,rather than reverse 

The Demand for US Treasuries has ebbed at the auctions…and the Government is being forced to offer higher yields to attract subscriptions….dangerous ,but an inevitable trend setting in

This will create increasing pressure on the US Currency and lead to the US Dollar weakening…..this should inspire Gold Prices in the Years to come

Rough and Tough being an American in America these days!…going to get much rougher and tougher!

It’s always a ‘Must’ read every year….Living Investment Guru,Warren E Buffett’s Annual Letter to his shareholders of Berkshire Hathaway….his insights,his ‘packing a punch’ at many issues,his confessions,his core heartwarming values,his demystifying the rationale for his investment decisions,his philosophy and his fabulous sense of humour…and he’s all of 79!

Warren E Buffett has never authored a Book…does he need to!…If ever there was a Nobel Prize for Financial Journalism,his Annual Letter would be the Winner every year !

Access his latest one of February 26,2010 below

 http://www.berkshirehathaway.com/letters/2009ltr.pdf

….and I’m sure you’ll want to become a Shareholder of BH to access the Annual Meet which Buffett himself bills as the ‘Woodstock of Capitalists’!…it’s traditionally held on the First Saturday in May….this year it’s on May 1,2010

Mind you it’s BH share is not cheap….One Original ‘A’ Common Stock is quoted at US $ 124080 !…that’s Rs 57 lakh or Rs 5.7 Million Rupees (US $ 1=Rs 46)….To make it affordable BH issues in 1996 the ‘B’ Common Stock which was prescribed by BH to be valued at 1/30th of the ‘A’ Share but carried only 1/200th of Voting Rights

Interestingly on November 3,2009,BH passed a resolution to splt the ‘B’ Share 50:1 ratio to facilitate small shareholders of Burlington Northern Santa Fe to get the BH ‘B’ share in the acquisition deal,should they opt for it…..This has resulted in the Share Quotation of the ‘B’ Share to be under US $ 83 yesterday (just Rs 3800)…this computes to a pre-split share price of US $ 4150 (Rs 1.91 lakhs)

In 1981,there were just 12 shareholders who attended the Omaha Meet…In 2009 there were 35000 who did !…This year they obviously expect much more….Both ‘A’ and ‘B’ Shareholders get the Annual Report and an Invite coupon attached with it for the Annual meet…they need to fill it and send it back to BH…and within a week their Credentials will arrive for the Meet…As I’ve said,the Meet is always held on the first Saturday in May…this year it’s May 1,2010…and the Report is send to shareholders as on Record Date ,which is normally 60 days before the Meet Date…It takes three days to register you as the shareholder from your date of purchase…so play it safe and buy the BH share by the third week of Feb if you intend attending the BH Meet that year…you will receive the Report early March and can initiate the process to attend the Meet

For a die hard Value Investor,Omaha is the ‘Mecca’…even for others,it would be an experience worth experiencing….So begin Planning to be in Omaha on Saturday May 7, 2011 now !

Cheers !

We all Love Larsen & Toubro and have capitalised superbly on it’s brilliant run on the bourses in the past years…and with India positioned to emerge as a World Economic Superpower in the years to come,Larsen has it’s best Days up ahead !…It simply has to occupy significant space in your Core Portfolio

Larsen is positioned to Lead India into the next Level of Dynamic Growth in the Years ahead….but who will Lead Larsen itself after Mr Naik !?

This Larsen Leadership Heir Question has been asked before…a latest take on this is by Forbes India…it’s  gives an elaborate take on this in their March 5,2010 Issue…you can access the article on the web too

The article refers to GE and Siemens capturing the opportunities in USA and Europe in the past decades to make them behemoths…Larsen is on a similar threshold in India…and interestingly,GE and Siemens are looking towards India as their Saviour on the back of the Global Financial and Economic Crisis epicentered in the West !

My take on this Larsen Leadership Heir is a little ‘hatke’….It does not really matter who really leads Larsen after Mr Naik…The Momentum is so strong for the next level of Dynamic Growth in the years ahead,that Larsen will move ahead regardless who’s heading it, and continue to scale up and  capture and leverage the giant opportunities that are arising……something like our FM’s Position…does not really matter who’s our FM….India is on a long term Dynamic growth path ahead…Infrastructure and Domestic Consuption being the Two major Drivers…..the Momentum itself will drive our Economy

Extrapolate this to our Stock Markets…anyone who Invests in Equity will make good and even great Money over the Years to Come…..and Larsen & Toubro must be your Core Investment for the Long Term !

Cheers! 

When RBI raised the CRR recently,I had blogged on January 29,2010 ,that I was increasingly getting impressed with our RBI Governor,Dr Subba Rao.

RBI announces a CRR hike by 0.75% to 5.75% to tackle Record Food Inflation at 17.40%…Interest rates must rise soon !…Equities will React

But why did the Federal Reserve Board raise the Discount rate by 0.25% to 0.75%…the first rise since 2006 ? 

For the record the Fed stated

The move will encourage financial institutions to rely more on money markets rather than the central bank for short-term liquidity needs…..These changes are intended as a further normalization of the Federal Reserve’s lending facilities.The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy.

But just think……

• US Economic and Housing Recovery is years away
• Unemployment Rate is yet over 10% 
• Record Deficits (US $ 1.6 Trillion this year) and Debt (US $ 15.6 Trillion and counting)  will continue for Years
• US $ 4.8 Trillion Foreign Debt
• The US Mint will be running at overcapacity for years to come ! 

Rising Interest rates would spell disaster for the recovery process

So they why did the Fed raise the Discount rate ?…the rate at which it lends to banks

The simple answer is that It simply had no choice !

The Treasury Auctions were showing signs of not just Investor weariness,but also the bids had become more demanding for better yields

In the days preceding the announcement of the Fed Discount rate hike,the US Treasury attempted to auction US $ 25 Billion worth 10 year Notes and US $ 16 Billion worth 30 year Bonds…Bidders,that included Foreign Governments and other International Ivestors bought 35% less of these long term securities than they did at earlier auctions

Indirect Bidders that include Foreign Central Banks,bought just 33.2% of the 10 year notes sold…down from the 39.3% ten auctions average…shows overseas investors not as aggressive as before…Yeilds were 3.692% ,up from the expected 3.68%

for the 30 year bonds the yeilds were higher at 4.72% than from the 4.687% expected with Indirect Bidders taking just 28.5% of the Bonds,down from the Ten auction average of 43.2

…..and China for the first time since 2000,sold a net US $ 34.2 Billion of US Treasuries and now holds US $ 755.4 Billion in it’s FX Reserves….Both,India and China have been buying more Gold to increase it’s weightage in their FX Reserves   

Clearly Strong Overseas Lenders are forcing US to raise Interest rates….so if US officially does nothing to increase the Interest rate overseas lenders sink US Bond Prices by selling off Bonds or not buying them !…. to increase the Yeild !….They’re bluntly warning USA that if you don’t act,we will !…and a desperately indebted (over 60% of total Treasury Debt is owed to foreign lenders) USA has to meekly toe the line ! 

Problem is how long will Overseas Investors bail out USA !….the writing is on the Wall !…With over US $ 2 Trillion in Fx Reserves,China has begun to offload US Treasuries in it, to reduce exposure to the US Dollar and USA 

So we had the Wall Street Internet Bubble bursting in the late 1990s ,the US Housing Bubble Bursting in inside ten years of this….and now US is facing a Long Term Treasury Bond Bubble !

Read an earlier Blog on January 7,2010 where I had said India would raise CRR by 0.5% to tackle Food Inflation later in the month…..Gold will seek further highs….. and warned Investors to stay away from Long term US Treasury Bonds