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Sudden Fall in Equities soon !? I can Sense and Feel it…Better Hedge Equities Right away

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… 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
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    Continue to GO for GOLD !

    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 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
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