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 !

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

It’s not some startling truth that I’m revealing to you…..but deliberate misguidance has been a major weapon in the armoury of Investment Icons….I daresay when they play ‘Scale’ they will make monies only when you lose !….in that they influence and guide you to take contrary positions to what they actually do !…It’s a common occurrence in India Too…so when you Hear the experts on the stock channels,do play devils advocate and be skeptic…it could save you a lot of Money !

Last few days ,I have come across some very astute observations,which have gone largely unreported in the Press…deliberately so…you’ll understand why as you read this Blog

Our Vice President,Mr Hamid Ansari, gave a speech in January which highlighted the dangers of this fast growing practice of ‘Paid News’ in leading Newspapers with a National Footprint….he spoke of the potential danger of destabilising the Polity and Economy of India through this practice of  ’Buying Newspaper and Television Space’ to promote Interests by spreading what one wants to deliberately disseminate

The way I look at this is that this ‘Paid News’ is a way of legitimising an age old practice of wooing top Journalists and editors to plant headline stories !….I know of one leading ex-editor of a top Pink Paper who unabashedly indulged in this practice and was rewarded handsomely and regularly,obviously not on records!, by a top Industrial House….he also shamefully,in the 1980s,as if it was his right, ordered promoters of New Companies to allot shares to him from their quotas before the IPOs…made a killing from such cornered and preferred Investments !…SEBI and Demat came later in the 1990s…In return the Company’s IPO was reported favourably with high ratings…guaranteeing oversubscription and a high price on listing !

M V Kamath reported in his column in Mumbai’s daily tabloid that the Vice Prersident’s speech was covered only by ‘Hindu’….the others,deliberately did not cover it as they were the ‘ire’ of the Speech for resorting to ‘Paid News’…Money Matters,not Content !   

So don’t believe everything you read ! 

But more Interesting to me,is the accusations being levelled at two of our biggest Investment Icons in the World….Warren Buffett and George Soros

Both have been “talking their book”….giving opinions contrary to what they actually are implementing in their investment strategies 

Why would they do this ?….obviously to help them profit from their strategies…they would do so,only when those holding contrary positions to theirs lose…and the irony is that these contrary Investors would have lost if they followed or were guided by the stated ‘Opinions’ of these Icons! 

In 2009,Warren Buffett had heavily shorted the US Dollar and continued to ‘opine’ of it’s weakness…what he however was quietly doing was short covering the Dollar as it was clearly rebounding in the short term. so he’s being accused of fooling people for a short time to square up and exit his short position at a profit 

Then just last month in January 2010,in Davos in Switzerland, George Soros stated “The ultimate asset bubble is gold.” ….But SEC records reveal that Soros Fund Management had purchased 6.2 million shares of the SPDR Gold Trust ETF (NYSE: GLD) for $663 million !

Now this is what Soros said in the 1990s

Economic history is a never-ending series of episodes based on falsehoods and lies, not truths. It represents the path to big money. The object is to recognize the trend whose premise is false, ride that trend, and step off before it is discredited.

So who do you trust for Investment Advice with Integrity and no Vested Interests !?….Let me know if anyone fits the Bill !

Cheers !

This is my synopsis,deliberately devoid of too many statistics that support my view, on what’s likely to go UP and DOWN in 2010….This should help you form a view on Asset Allocation when rebalancing your Portfolio

UP          

OIL….from US $ 80 /barrel to US $ 110/barrel…..will cross and stay above US $ 150/barrel inside three years….not good for Importing India and it’s battle with reducing the Fiscal Deficit and Government Borrowings….Russia,which supplies 13% of the World’s Oil, threatening to close the Belarus route for Supplies to Europe,the volatile US-Iran situation,demand picking up and difficulty in maintaining 94 million barrels a day World Output would all lead to increasing the Price of Oil.  

GOLD…..was bang on target past two years (check my blog for earlier Gold insights)…see further upmove to US $ 1250/oz this year as USA tackles rising record Deficits and Low Interest rates….and much more in the long term as we approach US $ 3000/oz and then even US $ 5000/oz in the next decade…with USA doubling it’s monetary base in 2009 and expected to increase it’s deficit,currently at US $ 1.4 Trillion,by atleast another US $ 7 trillion in the next decade,Gold will remain on a firm uptrend in the coming decade 

METALS….as long as China and India continue to record high growth rates and a West Recovery gathers momentum,metals will see upmoves as will mineral resources like Iron Ore that feeds Steel

AGRI COMMODITIES….Ouch ! you name it !…all commodities are entering the ozone layer !…Sugar,Tea,Grains,Pulses….Food Inflation has eaten away wages and salaries in India…suddenly in 2009, Indian households were grappling with a surge of 50% in grocery bills on same quantities…Ouch !…..Don’t expect 2010 to bring any relief…so expect Sugar and Tea Producing Companies to record Non linear growth in Profits in 2010…Such Listed Companies have already recorded fantastic highs and will continue toperform strongly on the bourses in 2010 as profits are certain and visible    

INDIAN RUPEE v/s US DOLLAR….The US Dollar is rebounding and made to look strong by a weak Euro…However the Rupee and the Yuan will strengthen against the US Dollar as India will yet again record strong Inflows of over US $ 20 Billion and China continues to buy more Gold and move more of it’s US $ Two  Trillion reserves away from the US Dollar this year…The Rupee should close FY 10 in March this year at close to Rs 44 to the Dollar…It’s already reacted by over a percent to below Rs 46 in the first week in 2010….does not augur too well for Indian Exports,already hit by the recession in the West…and ofcourse the competitiveness of IT companies too will be impacted 

INDIAN EQUITIES….It great to be an Indian !…..India recovered brilliantly in 2009 and remains truly the best positioned in 2010 to move up from current Sensex Levels of 17500 as Forward Macro Valuations are fair ( 16 times FY 11 Sensex EPS) and Record FII Inflows, Domestic Consumption and Infrastructure Spending Stories remain intact….In fact I reiterate there is no better and compelling Investment Destination than India and FIIs,no matter what they state,will have litlle option but to continue to come to India in a big way…….  Selectively, on micro valuations,the returns would be more compelling…..Expect the Quantum of Primary paper through PSU Disinvestments and other IPOs to  be high…this could be a short term dampener for the secondary market….other risks remain rising Food Inflation and Fiscal Deficits…..USA is just about holding up…but record Unemplyoment Rates and Excessive Currency Printing are worrying……and the next bout of Housing and even Commercial Estate Slump seems imminent….Rising Record Deficits and National Debt and the dangerous practice of resorting to increasing printing of fresh currency dollar notes to fund the recovery and the deficit will inevitably lead to an inflationary spiral….The eventually weakening Dollar,the moving away from Petro Dollar Trade,China buying less Dollars will force US Interest rates to rise in the future from near zero levels right now…..China is moving full steam ahead as if 2008 never happened…Prices of Stocks and Real Estate have rebounded with vigour in 2009,doubling from 2008 end lows…yet there is some whiff of danger…and a true fear of an asset bubble formation in a few years ahead…so be a bit wary of China  

INFLATION RATE…..It’s rising in India and should close out March 2010 and the Financial Year FY 10 at 7%…Now that’s the current yeild too….so what’s going to be your real rate of return !?..closer to zero !

INTEREST RATE…..Has an upward bias due to inflationary pressures…however the adequate current liquidity and slow credit offtake will delay any possible immediate upward movement in the Interest Rate…in any case 2010 may see just a 1% to 1.5% move up in the Interest rate in India,keeping it yet in single digits

CORPORATE EARNINGS…..Clearly there is a recovered momentum here and one can expect a 15% to 20% Earnings growth in FY 11 in the Sensex 30 Companies…a sensitive barometer for Corporate India…The new GST and Direct Tax Code Implementation would be significant Game Changers

GDP GROWTH RATE…..Our FM,Pranab Mukherjee, played Santa Claus a fortnight ago and declared that despite the Drought in 2009,India will achieve a GDP Growth Rate of 7.75% this year and which is likely to move upwards to 9% next year….Sensex took the cue and surged…Spoilers could be rising Oil Prices,unfavourable geo-political situations,Government Borrowings and the Fiscal Defict continuing to remain High….also keep a watch on China’s Economy…any red flags should serve as a warning to India too  

DOWN   

LONG TERM US TREASURY BONDS……GET OUT OF THESE BONDS or you’ll be staring at a Capital loss…Interest rates are poised to move up and rising yeilds and a weakening Dollar will drop Bond Prices….In India,rising Food Inflation may just force RBI to raise CRR by half a percent at month end January….However the comfortable liquidity and a slow credit offtake may not put any immediate pressure to raise Interest rates….Investors are waiting for Interest rates to move up in India before committing to Long Term Debt Allocation this year    

DOLLAR AND THE EURO against Major World Currencies…….USA and Europe continue to grapple with recession….recovery will be slow and painful and will take several years….The Common Currency Concept of EURO is being severely tested and questioned….Sovereign Debt Defaults are likely….Italy,Greece,Spain,Portugal and Ireland are all in vulnerable positions….The Growth and Stability Pact of the European Union prescribes that Deficit should not exceed 3% of GDP and Government Debt should not exceed 60% of GDP…countries mentioned above are on course to violate both these important criteria in 2010…The Euro will get orphaned as Nationalism and Protectionism will surface…no other stronger European Country,like Germany will come to the rescue to bailout any country or the Euro…..The US Dollar will continue to weaken as US deficit surges further from the current US $ 1.4 Trillion,China reduces lending and investing in US Treasuries and apportions a lower ratio of it’s US $ Two Trillion FX reserves to the US Dollar…forcing USA to print more currency to fund the deficit….will lead to high and possibly hyper inflation in years ahead…so as an Indian if you want to benefit from this inevitable decline of the US Dollar and the Euro,simply Borrow in these currencies,but don’t create any assets in these by switching from other stronger currencies!  

US EQUITIES……As someone quipped ” Wall Street is Dead and you’re dancing on it’s Grave”

US HOUSING….. an estimated 3.9 million homes went into foreclosure in 2009…Expect a similar story in 2010…..this has forced the USA Treasury Department to announce on Christmas Eve that it will remove any limits to any aid extended to the two Big (otherwise Bankrupt) Mortgage Houses of Fannie Mae and Freddie Mac in the next three years….The Treasury continues to bail out the Country’s most outrageous Risk Takers….expect the next bout of the Housing slump in 2010….will extend even to Commercial Estate in a big way this year. 

Anyone wants my macro view on anything not covered above,do let me know

Do manage your risk rationally and focus on appropriate asset allocation to suit your Risk Profile,Goals and Needs….Rebalance your Portfolio if necessary…It will help you to protect and grow your wealth

I reiterate…It’s great to be an Indian in India…Top US Universities like Harvard,MIT and Duke have all evinced interest in setting up in India…Government may just allow this….soon you may have non Indian origin US Citizens migrating to India and applying for Indian Citizenship !

Cheers and all the best for 2010

Leave you with this thought…just imagine the day when ONE INDIAN RUPEE = 46 US DOLLARS….Yeah ! 

Wishing all of you a Happy Diwali and a Prosperous New Samvat 2066 Year…..with Safety,Surety and Solidity…and using the terminology of our SS Recommendations may you get many spectacular and sparkling winners in your Equity Portfolio….However keeping in the spirit of a Safe Diwali 

MY TWO SAFE,SURE AND SOLID DIWALI PICKS

BOTH ARE SS 4 SELECTS (SS 4 : Scriptech Shield)   LARSEN & TOUBRO @ Rs 1700 & Continue to GO for GOLD

GOLD WILL CONTINUE TO SOAR FROM US $ 1000/oz to US $ 2500/oz IN THE NEXT TWO  TO THREE YEARS

Wish all of you a very Happy Samvat 2066….Muhurat Trading is from 6.15 pm to 7.15 pm today.Diwali is a Festival to wish safety,peace and prosperity and well being…Keeping with this spirit and philosophy of Well Being and feeling nice and warm and pure and happy and safe,my Diwali Recommendations are safe,sure and solid and will rebound even if they correct   Evergreen LARSEN & TOUBRO ,even at Rs 1700 and Gold   LARSEN & TOUBRO @ Rs 1700   &   GOLD Reiterating again what we said in Feb 2009 and even earlier Continue to GO for GOLD !  February 19th, 2009   I see the next Five Years as a great period for Indian Stocks and with the right selection and a good measure of patience and temperament you could well be in a position to retire rich before 2015 !….Don’t worry too much about where our Sensex is going from 17300 levels today…Think beyond the short term…and as I keep repeating,if our government can have Five Years Plans,why can’t you !…..Think 5 years Cheers !

Interestingly you can observe that the relatively higher GDP Growth Nations of India and China have single digit percentage of Gold as part of their Fx Reserves

With China already beginning to flex it’s economic might and demand that the World must debate the need for another Reserve Currency than the US Dollar,it is very likely that it will move it’s Gold Reserves up by over 300% past 4000 tonnes in the coming few years…Currently it holds justs over 1000 tonnes valued at under US $ 30 billion,with Gold hovering around US $ 900/oz…This is  very low at under 2% of China’s Fx Reserves of @ US $ 2 Trillion…Buying another 3000 tonnes at current prices will involve US $ 100 billion and will bring the Gold percentage past 6% of Reserves

Nothwithstanding claims by USA that the fortunes of China and USA are coupled strongly and that the US Dollar will remain the Reserve Currency and that China to maintain it’s economic growth and stability will have no alternative but to invest heavily in US $ Denominated Treasury Instruments,it is likely that China will continue this policy of lowering exposure to the US Dollar…It will continue to buy Gold

In an era of Asset Bubbles in Stocks (2001) and Housing (2008), Gold Price has soared from US $ 250/oz levels in early 2001 to cross US $ 1000/oz in early 2008…Since then it has corrected and is currently just over US $ 900/oz 

 A fresh Bull run in Gold is indicated in the coming years as the Global Financial Crisis will take a few years to abate and the US $ will seek new lows…This time around the Bailouts are in Trillions of US Dollars and already a huge 30% of US GDP ….This Inevitably will lead to eye popping and heart attacking and brain haemorraging Mounting deficits and National Debt of Trillions of US Dollars in USA….the Fed itself may need a Bailout ! There is clearly no Fresh Thinking by the Obama Government…In the crisis of 2001,Bush too had resorted to pumping in Billions of Dollars into the System…Obama is merely scaling it up to a Trillion and more !His “Yes, We Can! ” Speech now seems to be more an answer to Bush’s poser to him ” Can You Print More Dollars to save USA ! ?”….”Yes, We Can !” 

Enough Ground and Growing Evidence that Gold will enter another bullish trajectory soon…Strong corrections should serve as entry points like when it dipped below US $ 750/oz in late 2008 

In thirteen trading days from an intraday low of 8047 on March 6,2009,the Sensex is once again kissing 10000….moving up near 25%

Getting a lot of calls…basically to make some sense of this rally

Is this the beginning of the recovery and have we seen the Bottom of 8000 for the Sensex and the October 27,2008 low of 7697 will not be tested ?

Or

Is this just a Pullback rally and we shall see the Sensex breach 8000 again in 2009 ?  

I hold the view that the macro pains have yet to unfold in their entirety…This rally is a strong counter- trend and a powerful one at that…. we shall see such bounces on oversold markets…Maybe the Bottoms may not  be tested for a while…but they will

In fact even on October 27,2008 when the Sensex touched a intraday low of 7697,it swung back sharply within just three days to close at 9788 on October 31,2008 !…and it had begun October at levels of 13000 !

If you think the WORST MUST BE OVER ,then think again !…Sensex at 11 and 12 multiples may appear cheap against the 25 + Multiples we had in January 2008….With Earnings slowing down,we’ll probably see single digit P/E,trailing and forward, on the Sensex in 2009 and that would sustain for some time

The Dow took 25 years to regain it’s 1929 High…It did so in 1954 !…Our wait for the Sensex to regain 21000 should not be so long !…Right Now I see Stressed Prices but not Distressed Prices on our Bourses…..These will come in 2009 itself and give you some great buying opportunities.    

Ask an Investor who got into Unitech at Rs 500 in January 2008,whether he’s excited with this rally !…he may be too shell shocked anyway to respond !

The poor Bloke saw a 95% erosion to Rs 25 in just over a year….he now needs to get a 1900 % surge to recover his loss of Rs 475…so if Unitech has gone up 40% from Rs 25 to Rs 35 how does this matter to him !….so don’t live under delusions and the phony excitement being generated by experts and TV Anchors on the Stock Channels of this “big” 40% gain in Unitech

These swings require you to have a Traders Mentality to capture opportunities…and that’s a tough ask….I thought Investment was about Investment !…not Trading or Speculating ! 

So what do you do to recover from being Hit last Year in Equity ? Some Thoughts….

• Just Holding on to your Equity Portfolio may not work as some scrips may have seen permanent erosion…so review and reposition…believe me taking a real loss than sleeping everyday with a notional one is a big relief !
• Save/Hold/Generate Cash to capture greater opportunities ahead 
• Hedge your Portfolios against declines…the volatility is just too unnerving
• If you must Trade then do so with strict stoploss
• Use upswings to exit some holdings to create cash to later capture scrips at distress prices to reposition your Equity Portfolio 
• Be prepared to adopt a tactical,rather than strategic, approach to capture great opportunities
• Get some significant Gold exposure in your Portfolio…Physical or through ETFs
• Ensure proper Asset Allocation to suit your Risk Profile and be disciplined in the rebalancing exercise when predetermined allocation ranges are breached

You’ll be deafened and confused by the divergent views and the cacophany being generated on the channels and the print media by a host of Experts and TV anchors

Try some Independent Thinking….after all it’s your monies at stake….If you’re going to stick your nose at ‘Monalisa’s nose you’re not going to see her smiling at you from whichever angle you look at this Leonardo Da Vinci Masterpiece…..Stand back to look at the whole landscape and get a feel of the macros…only then you’ll get a feel of how they intensely impact the micros currently 

There are Plenty Opportunities coming up…It’s better to be prepared and not get them rather than you’re faced with them and you don’t know what to do or don’t have the cash to do so !

Value and Price are two very different Issues…Milk in Mumbai is sold at @ Rs 25/litre….would you buy it at Rs 60/litre ,even if it’s a Swiss Cow giving it !?….But when it’s at a distress Rs 5/litre don’t question the buying opportunity by being skeptical and saying ” Doodh meh kuch kaala hai !” 

I made strong contrarion calls in 1992,1997,2001 and 2003….missed the speed,scale and intensity of the USA Financial Fiasco that has burned the world markets….I’m gearing to make a contrarion call again in 2009….so these bounce back rallies are only delaying distress prices on the bourses and therefore my call….I’m patient….even if this bounce may take the Sensex up to 12k

Get the Point !

Retail and Small Investors need to feel and touch tangible Gold…They assign more safety to Tangible Gold than Exposure to Gold in other ways…Also they can commit smaller amounts to buy a few grams of Gold

So it was was with some interest and curiousity that I again reached out to a few Banks today to gauge what they had to Offer in Gold Coins…Check out the results below

Clearly Union Bank is the Cheapest…In fact 8 gms category allows us to compare apple for apple…ICICI Bank has always been known to be more expensive than PSU Banks…their today’s rate for a .999 Pure Gold Coin of 8 gms is Rs 15020,that’s over 9% more expensive than the Rs 13744 quoted by Union Bank and just under 7% more or nearly Rs 1000 more than the Rs 14045 quoted by Bank of Baroda 

These Coins are Imported and the Surge in Gold Price and the 20 % Rupee Depreciation in 2008 has clearly impacted rates too

ICICI Bank has a wide variety of Coins available…It’s 5 gms Combo offer of God Ganesha and Goddess Lakhsmi Motifs ( Each a 2.5 gms coin in a single packing ) is a very popular purchase and the Bank prices it higher than a Plain 5 gm Gold Coin Offer 

The underlying Gold Price for .999 purity for 10 gms is Rs 15700 today…so even the Union Bank Offer today,the  cheapest of the three banks,of Rs 17192 is 10% higher

And if you dare to extrapolate the ICICI Bank rate of Rs 15020 for 8 gms and it’s  rate of Rs 37340 for 20 gms ,you will arrive at a computation of bewteen Rs 18750 to Rs 19000 for a 10 Gms Coin !….that’s 20% higher than the underlying !…Gosh !

You’re paying a high Premium when you buy Gold Coins from Banks…for surety of Gold Content,weight,purity and therefore better resale values

When you purchase Gold Coins from Jewellers,you get .995 purity…..but you run the risk of Gold Content not really being as stated….It has been reported that Gold Coins turn out to be actually Silver !…and many have some Iridium too !…so you may be paying for Gold,but getting shorted really ! so when you buy from Jewellers ,insist on a Bill and check that the Standard Gold Hallmark is there on the Coins…currently the Television Channels are running Government Ads to highlight this !

International Price of Gold is US $ 976/oz….Now this is a Troy Oz and is 31.1gms…A regular Oz is a weight measure for Food etc and is 28.35 gms…Thus for Gold this translates to Rs 15691 /Ten grams

So if US  $ 976/oz moves towards US $ 2000/oz in the next Two Years,then a 10 Gm Gold Coin of .999 Purity will cost past Rs 30000 ! (assuming exchange rate remains constant)…that’s a 100% surge from Now

Think about It ! 

As Wall Street slaps Washington,Dalal Street will damn Delhi too….It’s been perceived as a STIMU-LIE Package in both countries

Yesterday the DOW teetered more towards the Edge clsoing at 7466,the lowest in six years

It’s just past 2.30 pm in Mumbai and the Sensex and Nifty are struggling to stay over 8800 and 2700 respectively

I can sense and feel that soon,the Dow may just plunge 500 to 1000 points in a Day soon…we will follow as we too will test October 2008 Lows

This Intuition or gut feel is strongly supported by weakening macros fundamentals in USA particularly and the world over in general…The IMF has already stated that it expects many more countries to come to it for Bail-Outs

I was watching the classic Movie ‘Sea Biscuit’ last night on Star Movies…What a parrellel !…The Movie is about a Champion Horse and Horse Racing and is set in the times when America was devastated by the Depression of 1929…The Wealthy became Poor,literally overnight,and lost their Homes and All their Assets….they took to the Highways and settled in poorer conditions….It’s happening allover again,I daresay ! 

If disinclined to sell off equities at these low levels,atleast exercise prudence to fully hedge your equity portfolio right away

You can do this in Three Ways

• Sell off All or Part of Equities…Hard Call at these Low levels already as Heavy Loss sitting in Portfolios…but it will give you Capital to Grasp Greater Opportunities ahead
• by committing appropriate additional Funds and Investing in negatively or less positively correlated Investments to Equity…Silver and Gold as Alternative Investments run at the top of my mind  or
• Go Short in Index or Specific Stock Futures or buy Protected Index or Stock Puts…by shorting Futures ,you are locking in the current value of your equity portfolio…so if the Market fall,so will the value of your portfolio…but this fall will be offset by the gains you make on your Futures Contracts that you shorted…..by buying Protected Puts,you pay the Premium to insure your Equity Portfolio from any Fall,while keeping the upside potential alive…this would seem the best strategy,if you need protection from significant downside,but don’t really have such an intense feeling or sense like I do that this will happen suddenly and soon…It is better to pay a 2%-3% Premium to protect from a 15% to 20% potential downside from here…The OPTIDX Nifty PE with Strike Level of 2700 and Market lot of 50 has a premium of Rs 47 and Rs 142 respectively for Feb 26,2009 and March 26,2009 contracts…You’ll be paying Rs 2350, that’s under 2% costs, on a contract Value of Rs 135000 for a week’s hedge and a high Rs 7100,under 5%  cost, for a month’s hedge…the underlying Nifty is 2717 and it’s just past 2.30 pm

Watch out for a Sudden Big Fall in US Equities soon…It will mirror on Indian Equities the next Day

You may not be inclined to sell Equities or commit further funds even to Gold….so then atleast Hedge your Equities to protect thier Current Value as I see some more quick decimation ahead.

Or if you are a passive Investor and feel any short term decimation in equities will reverse in the longer term and Equities will recover,then you possibly will do just nothing…no hedging or selling  of equities…you are not perturbed with another 15% to 20% decline in Equity values…..then I have only this query for you…. how ‘Long’ do you define ‘Long’ term !…The way it looks now ‘Long’ looks really,really  ’Long’ and far far away !  

I would say atleast hedge.

Ever since I was convinced that USA stood for Unintelligently Searching for Answers,I have been convinced that ‘Gold’ has to be in your Portfolio

Check this blog of mine on October 23,3008 http://www.gauravblog.com/?p=263 where the Title warns whether the US $ will become Tissue paper ! and the Blog concludes with me recommending to Go for Gold

Gold has soared to US $ 976/oz and in India it’s crossed a record Rs 15500/ten grams and close to Rs 18000 for a Ten Gram Gold Coin of 99.99 purity…Just about 18 months ago,a similar coin was quoted below Rs 11000 !

With an explosion of CDOs and CDSs defaults in Trillions of Dollars expected this Year to further crash Global Economies,the US Dollar is poised to decline significantly against major world currencies

Gold was given a US $ 35/oz value in 1944 when the Bretton Woods Agreement came about and where Gold was the World Standard and Reserve Currency.In 1971 this Agreement was abandoned and the US Dollar became the World Reserve Currency….Adjusting for Inflation Gold should now have quoted at US $ 2200/oz !

Dollar goes Down,Gold Goes UP…that’s the simple equation really

Gold is marching towards US $ 2500/oz in the next two years ….Reason to be bullish on Gold are many

• Demand swells…Contrarions have been buying Gold for some time now…Public are now seen climbing on to this ‘Gold Rush’ bandwagon…Huge Demand is seen not only in USA but even in China and India…The World Gold Council has reported that in Q 3 ended September 30,2008,Over US $ 6.5 Billion was spend on 232.1 Tonnes of Gold Coins and Bars….highest in Ten Years and up 121% from the previous year…This figure will get even more pronounced this year…Infact since July 2008,the US Mint has stopped selling the American Eagle Gold Coins as there is a shortage and a huge pent up demand 
• There have not been any huge Gold Discoveries in Recent Times
• Other Asset Classes,especially Equity,are being decimated and further decimation is indicated as the crisis deepens and widens…await the CDO’s and CDS’s Derivatives default Explosion…. and in times of such crisis and great uncertainty,Investors are turning to Safety and Gold
• Gold Exchange Traded Funds are creating Demand for Millions of Ounces of Physical Gold 
• US Dollar is declining in Value and Gold has already defacto become the World’s Currency.In fact ,since 1971,the Dollar has depreciated over 95% against Gold ! and over even lost over 90 % of it’s purchasing power against Hard currencies like the Swiss Franc and the DM,before the Euro came about.A Rising Dollar in the Longer term !? Unlikely…Scenario of Lower Interest rates and Trade and Budget Deficits will continue to put pressure…would you believe it that USA has never had a Trade surplus since mid 1970s ! 
• Gold cannot be printed like Currency Notes…so Gold as an asset does not create any liabilities…it holds it’s monetary value over time
• The more USA resorts to printing Currency to fund it’s crisis…in other words more the bail-outs, more Inflationary Pressures will be seen and the US Dollar will decline further in Value. M 3,that measures Currency in circulation, has shown an average 8% annual growth rate in the last 15 years ! USA,to avoid Defaulting on Sovereign Debt,would have no option but to print more currency. 
• Unlike 1930s and 1970s,the World Stage now has major Global Players other than just  USA…the Demand for Gold will be stronger 
• Since 2005 all World Currencies have been depreciating against Gold 
• If Conflicts escalate in the Middle East,Afghanistan and other sensitive global pressure points,Gold will simply surge

So in India,how do you create exposure to Gold ? You could

• Buy Physical Gold…99.95 Purity Coins from Jewellers or more expensive ( by 15% ) 99.99 Purity Coins & Bars from Banks
• Go Long on Gold by Purchasing Contracts on the Commodities Exchanges
• Invest in the Secondary Stock Markets in Listed Units of Gold Exchange Traded Funds (ETFs)
• Invest in the Secondary Stock Markets in Gold Mining Companies…after assessing Price v/s Value

One more Advice….Silver too will ride Piggy back on Gold…you could see Silver racing to US $ 75/oz in the next two years…so you could buy into Silver too 

As as Asset Class Allocation,Bullion would constitute a sub asset class under Alternative Investments…in times like these,adopting a integrated portfolio strategy that would involve tactical play,rather than solely a strategic one is clearly called for

Depending on your Risk Profile and the Risk to Return trade off create an appropriate Bullion Exposure in your Portfolio…atleast 10%…going up to maybe even 20% of your overall portfolio…if it means rebalancing your portfolio,then Do it !

Contrarions have already taken home over 50% appreciation in Gold in the past eighteen months…you can yet ride another 100% run atleast in the next two years..it is strongly indicated 

Continue to GO for GOLD !