I personally dont like Tech Mahindra (or M and M) and RCOM. They have poor quality managements who tell more blatant lies on their balance sheet than other Indian companies (all of whom do lie to some extent). THere are better companies.
Re: Unitech, there is every risk that the comany will be wound up if someone other than Congress is in power. Same with DLF - so a future beyong 2014 depends on election results.
Re: Gold, current total value of Gold is about 9 trillion dollars. Assuming it becomes defacto gold standard, then it should represent about 10% of the total global wealth (currently 450 trillion) = 45 trillion. So gold will have to rise 5 times from current prices i.e from 2000$ to about 10,000$. If all assets have to be denominated in gold, it will have to rise to 100,000$ but obviously hard assets will remain.
But gold standard is never coming back. So one should sell much before that.
I agree with Sanjana's advice - having accumulated very little gold (like my 5%), it doesnt make sense to clean out the position just because of 2 bearish views on gold bubble. Ride the wave for some more time - but know to get out in time.
As I said, every asset is in bubble - a liquid bubble not an air bubble. The liquid is leaving one bubble and going into another bubble - like a tom and Jerry cartoon.
The 50-70 trillion dollars in deficit liquidity I talked about earlier can be easily extinguished if gold goes from 2000$ to 10,000$ - from 9 trillion to 45 trillion in value. Inflation to this level followed by a slow deflation over 30-40 years is the best way to drain the liquidity without harming anybody.
People who buy stocks and bonds are too financially savvy to be caught wrong footed.
Inducing the lay public into buying gold - especially illiquid bullion gold - is the best way to drain out the false money - allow this bubble to inflate, make a killing in the process - and leave the public holding the baby.
They could not do the same in stocks and bonds, because lay public dont hold stocks and bonds - those who hold are too smart and all know how to play the same game.
With real estate and gold, lay public which is more easily fooled into buying an inflated asset is involved - ideal situation to deflate the bubble.
If even this fails, then only general economic inflation of over 10% in developed countries can deflate this bubble. Obviously US govt would prefer to see gold, bought by Indians and Chinese, absorb the excess liquidity than see general inflation of all prices in their economy - which would bring great hardship to their own people.
One great gamble tried by the US was to have their living standards rise by having China and Japan sell them things - and then invest in US treasuries. WHile Japan has been a sucker in this, CHina has proved to be quite evasive - their 2 trillion in UST has been successfully released in Yuan into their own economy and had been more or less successfully absorbed, raising living standards of the Chinese.
India's living conditions are pathetic, making us poor. We should be careful as a country not to buy up a lot of inflated gold and see our wealth effectively drained out to support the living standards of USA and Europe. Which means, at some point, our RBI should sell its gold at the best price.
Individually, the same rule - ride the gold wave but exit at an opportune moment- and definitely much before 10,000$ (since that would represent that gold is holding the maximum of the bubble liquidity).
I would exit at 3000$ (by practiving the same exit strategy I outlined earlier)
Saturday, August 27, 2011
Friday, August 26, 2011
Extinguishing "mirage" money
Most current estimates put the total wealth of the globe around 450-500 trillion dollars. This wealth is being continuously increased by the GDP of the nations and extinguished by depreciation of the wealth assets.
Into this situation, from 2000 to 2011, there has been a wave of intangible asset creation, mispricing real assets. This includes derivatives, swaps, futures and options in stocks, bonds and commodities as well as PM like gold. Fuelled by Greenspan and Bernanke, this has caused confusion as to how much wealth the world really has. Since these paper assets have infinite loops and liquidity waves pushing up or down various assets in interlinked ways, it is difficult to exactly pinpoint total global wealth - just like the Heisenberg uncertainty principle, you just cannot know.
Probable estimate for this uncertain wealth is 50-70 trillion dollars i.e about 10-15% of total global wealth is totally indeterminate. Probably, all of this is just fairy gold - meant to vanish when the sun rises.
Question is, what is the asset which will depreciate in value enough to make this 70 trillion dollars vanish? No market is this big and 70 trillion is around slightly more than one year's global GDP. Obviously, multiple assets have to depreciate to achieve this depreciation of wealth.
Another way to put it is that people did a lot of work which was wasteful and did not create wealth (rise in living standard). WOrk was wasted and is now gone. Americans moved houses in a musical chair, without creating wealth addition. A lot of financial instruments created the illusion of wealth and were not backed by real assets and so the wealth had to vanish.
But since no market is big enough to absorb this extent of depreciation, what will fall? Whichever asset seems likely to fall, investors are fleeing and trying to hide in another asset less likely to fall.
The first asset to fall was house prices - but this was location specific and instead of absorbing the fall, it only shifted loss from the asset holder (buyer) to the banks. THe banks were reluctant to let their assets fall - rightly, it should have been AMerican and European banks which should have been allowed to fail. But they were not allowed to fail and were bailed out. Probable size of the bank bad loan size (US and Europe and global) is only around 5 trillion - only 10% of the actual short fall in wealth. SO it alone was also not enough - a recession in living standards was also needed to extinguish the fairy wealth - which would have been assured by letting the banks fail. But the US govt and fed did not do this - and passed the buck to other people to take the fall.
THe second asset to fall was global stocks. Total market size is only about 40 trillion and this market (if it halved in value) could absorb only about a third of the global shortfall.
The bank bailout had the paradoxical effect of making the stocks rebound - and so no wealth cound be extinguished - fairy wealth was re-created in the form of the 2009-10 stock bounce.
THe third asset to fall was the dollar. But there was no inflation in USA because of the recession - instead there was risk of deflation. Even now, when deflation has receeded, there is no real inflation in dollars.
So the falling dollar, instead of extinguishing the global wealth deficit by inflating out of the problem, has paradoxically caused sufficient inflation of all other assets - stocks, bonds and gold - to offset the attempted devaluation of the dollar. There is no sign of stagflation also.
SO the imaginary wealth is still floating from asset class to asset class, refusing to be extinguished.
Ultimately, it is imaginary and will be extinguished. Smart people know this and leave every asset class just before it starts to show signs of extinguishing wealth. To me it looks as if this will continue like a never ending game of ping pong. On each bounce, some of the imaginary wealth will die out, hurting some people, but the ball will continue to keep bouncing for years - thanks to the financial ingenuity and complexity created by the Wall Street pros.
Gold is no safe haven in this scenario - it is only one of the asset classes into which people temporarily flee, pushing up prices, until it starts to looks shaky - when people flee gold into some other asset. SO gold is only fools gold - true fairy gold.
The only thing a participant has to do in this game is to hold the ball while it is rising and pass it on to someone else before it falls. In this game, there is no fundamental analysis involved - assets rise and fall for reasons other than fundamentals. You cannot put the rules of cricket into this game of ping pong - you cannot put the rules of fundamental analysis into this game of money. Only technical analysis will help.
There are two ways to play this game - one is the short term game - hit the ball and run. Other is to catch the ball, ride out a few falls, and then let go just before a bigger or perhaps even the biggest bounce of all. Both games are equally dangerous.
You might buy an asset just before fall and then sustain losses - and be the patsy who extinguished some of the fairy wealth. You might buy and asset and keep holding it for long time waiting for it to rise - only to find that you missed the selling chance and now the price will only fall never to rise - and again become the patsy who extinguished more of the fairy wealth.
One option is to spend the money as quickly as possible on useless gadgets or whatever - and extinguish your wealth but get a bang for your buck. Nobody can beat the AMericans at this game - they have already spent the surplus wealth of next 20 years.
Indians instinctively do not do this.
Understanding the situation should help one make a wise choice.
Real estate in this scenario can also serve as an extinguisher of wealth. You can buy at a high price and be left holding an empty shell of an asset for years to see any gain - or you can buy and exit quicky, timing the market and making notional gains - letting another sucker carry the asset, but then - you have to keep playing. As long as the music of liquidity keeps playing, you have to keep dancing - if you stop dancing you are OUT - you have lost your money on a useless asset.
Gold, Real Estate, Stocks, Bonds - they are all the same - as long as the global liquidity of imaginary wealth keeps sloshing around.
Being prudent in this scenario- spending less, making systematic investments, asset allocation - all can turn out to be foolish in time, for no fault of yours. BEst is to do what the AMericans do - spend it today on whatever strikes your fancy.
Dont stop to think about tomorrow (paraphrasing Fleetwood Mac)
Into this situation, from 2000 to 2011, there has been a wave of intangible asset creation, mispricing real assets. This includes derivatives, swaps, futures and options in stocks, bonds and commodities as well as PM like gold. Fuelled by Greenspan and Bernanke, this has caused confusion as to how much wealth the world really has. Since these paper assets have infinite loops and liquidity waves pushing up or down various assets in interlinked ways, it is difficult to exactly pinpoint total global wealth - just like the Heisenberg uncertainty principle, you just cannot know.
Probable estimate for this uncertain wealth is 50-70 trillion dollars i.e about 10-15% of total global wealth is totally indeterminate. Probably, all of this is just fairy gold - meant to vanish when the sun rises.
Question is, what is the asset which will depreciate in value enough to make this 70 trillion dollars vanish? No market is this big and 70 trillion is around slightly more than one year's global GDP. Obviously, multiple assets have to depreciate to achieve this depreciation of wealth.
Another way to put it is that people did a lot of work which was wasteful and did not create wealth (rise in living standard). WOrk was wasted and is now gone. Americans moved houses in a musical chair, without creating wealth addition. A lot of financial instruments created the illusion of wealth and were not backed by real assets and so the wealth had to vanish.
But since no market is big enough to absorb this extent of depreciation, what will fall? Whichever asset seems likely to fall, investors are fleeing and trying to hide in another asset less likely to fall.
The first asset to fall was house prices - but this was location specific and instead of absorbing the fall, it only shifted loss from the asset holder (buyer) to the banks. THe banks were reluctant to let their assets fall - rightly, it should have been AMerican and European banks which should have been allowed to fail. But they were not allowed to fail and were bailed out. Probable size of the bank bad loan size (US and Europe and global) is only around 5 trillion - only 10% of the actual short fall in wealth. SO it alone was also not enough - a recession in living standards was also needed to extinguish the fairy wealth - which would have been assured by letting the banks fail. But the US govt and fed did not do this - and passed the buck to other people to take the fall.
THe second asset to fall was global stocks. Total market size is only about 40 trillion and this market (if it halved in value) could absorb only about a third of the global shortfall.
The bank bailout had the paradoxical effect of making the stocks rebound - and so no wealth cound be extinguished - fairy wealth was re-created in the form of the 2009-10 stock bounce.
THe third asset to fall was the dollar. But there was no inflation in USA because of the recession - instead there was risk of deflation. Even now, when deflation has receeded, there is no real inflation in dollars.
So the falling dollar, instead of extinguishing the global wealth deficit by inflating out of the problem, has paradoxically caused sufficient inflation of all other assets - stocks, bonds and gold - to offset the attempted devaluation of the dollar. There is no sign of stagflation also.
SO the imaginary wealth is still floating from asset class to asset class, refusing to be extinguished.
Ultimately, it is imaginary and will be extinguished. Smart people know this and leave every asset class just before it starts to show signs of extinguishing wealth. To me it looks as if this will continue like a never ending game of ping pong. On each bounce, some of the imaginary wealth will die out, hurting some people, but the ball will continue to keep bouncing for years - thanks to the financial ingenuity and complexity created by the Wall Street pros.
Gold is no safe haven in this scenario - it is only one of the asset classes into which people temporarily flee, pushing up prices, until it starts to looks shaky - when people flee gold into some other asset. SO gold is only fools gold - true fairy gold.
The only thing a participant has to do in this game is to hold the ball while it is rising and pass it on to someone else before it falls. In this game, there is no fundamental analysis involved - assets rise and fall for reasons other than fundamentals. You cannot put the rules of cricket into this game of ping pong - you cannot put the rules of fundamental analysis into this game of money. Only technical analysis will help.
There are two ways to play this game - one is the short term game - hit the ball and run. Other is to catch the ball, ride out a few falls, and then let go just before a bigger or perhaps even the biggest bounce of all. Both games are equally dangerous.
You might buy an asset just before fall and then sustain losses - and be the patsy who extinguished some of the fairy wealth. You might buy and asset and keep holding it for long time waiting for it to rise - only to find that you missed the selling chance and now the price will only fall never to rise - and again become the patsy who extinguished more of the fairy wealth.
One option is to spend the money as quickly as possible on useless gadgets or whatever - and extinguish your wealth but get a bang for your buck. Nobody can beat the AMericans at this game - they have already spent the surplus wealth of next 20 years.
Indians instinctively do not do this.
Understanding the situation should help one make a wise choice.
Real estate in this scenario can also serve as an extinguisher of wealth. You can buy at a high price and be left holding an empty shell of an asset for years to see any gain - or you can buy and exit quicky, timing the market and making notional gains - letting another sucker carry the asset, but then - you have to keep playing. As long as the music of liquidity keeps playing, you have to keep dancing - if you stop dancing you are OUT - you have lost your money on a useless asset.
Gold, Real Estate, Stocks, Bonds - they are all the same - as long as the global liquidity of imaginary wealth keeps sloshing around.
Being prudent in this scenario- spending less, making systematic investments, asset allocation - all can turn out to be foolish in time, for no fault of yours. BEst is to do what the AMericans do - spend it today on whatever strikes your fancy.
Dont stop to think about tomorrow (paraphrasing Fleetwood Mac)
Saturday, August 6, 2011
On US debt downgrade
Quote:
Originally Posted by SanjanaSingh
S & P has downgraded US debt -- absolutely surreal, and will have disastrous effects on managed money around the world. This is stunning.
S&P Downgrades US To AA+, Outlook Negative - Full Text | ZeroHedge
Wiseman, Venky, please comment in detail [ if you're not speechless like me, that is ]
What's the outlook for markets on Monday ?
I am quite speechless and dont really know what this means.
First reaction:
1. US treasury yields will head to 3.5 and refuse to come below that. QE3/4/5/6 whatever will no longer be able to work - they wont be able to budge the yield to less than 3.5%. Those who are holding treasuries - like China and Japan and pension funds, are going to hurt a lot because what little return they get from the treasury is going to be negated by falling bond prices
2. Sentiment which was already quite bad will be affected even more: Double dip recession is inevitable, despite the good show in jobs yesterday.
3. Money is likely to move back from treasuries into stocks, as people sell off treasuries until we get a 3.5% yield at least. People who sold stock in a panic on Thursday and moved to treasuries are going to regret their decision - it has badly boomeranged.
4. Returns on equities are however going to be more difficult because earnings will be affected by the rising rates and poor sentiment
5. Gold will continue to be safe haven. No brainer hold/buy for gold.
6. Over the next 6 months, if yields become fixed around 3.5%, pension funds will pull money out of emerging markets and seek a safe 3.5 % yield.
7. This downgrade is probably is a Republican conspiracy - S and P is probably under their control - it seeks to stymie the QE3 before it has started. Whether it succeeds depends on what happens to bond rates. Obama is doomed though - I am 60% sure he will lose the election. I would have been more certain except for one thing - Unfortunately the Republicans are like the BJP - they have no credible leadership. I mean, apart from his looks, Romney is a sleasebag and Michele Bachman is a moron. As pathetic as Advani, Swaraj, Jaitley and company. Both right wing parties need a real leader and not these idiots.
8. Oil is likely to drop. Which should act as a stimulus much better than stupid old QE3. If I was Ben, I would have raised rates and not looked to QE3 to stimulate the economy - falling commodities are the best fertilizer for economic recovery
9. Long term - I think this is a good thing. No unnatural stimulus, QE and zombie creation. The free market will actually become free and act the way it is supposed to. Long term rates should be determined by business prospects and the free market, not by fed fiats
10. US economy is likely to recover better if the fed stops its stupid QE program and lets the economy get on with it.
11. I think markets will move up on Monday as people exit bonds and slosh the liquidity around. Oil up, gold up and stocks up, bonds down - but as I said, this is really unpredictable.
Like removing a Jenga block from the bottom and waiting for the pile to fall - and trying to predict the exact shape of the pile after it finishes falling. Impossible to really predict.
Originally Posted by SanjanaSingh
S & P has downgraded US debt -- absolutely surreal, and will have disastrous effects on managed money around the world. This is stunning.
S&P Downgrades US To AA+, Outlook Negative - Full Text | ZeroHedge
Wiseman, Venky, please comment in detail [ if you're not speechless like me, that is ]
What's the outlook for markets on Monday ?
I am quite speechless and dont really know what this means.
First reaction:
1. US treasury yields will head to 3.5 and refuse to come below that. QE3/4/5/6 whatever will no longer be able to work - they wont be able to budge the yield to less than 3.5%. Those who are holding treasuries - like China and Japan and pension funds, are going to hurt a lot because what little return they get from the treasury is going to be negated by falling bond prices
2. Sentiment which was already quite bad will be affected even more: Double dip recession is inevitable, despite the good show in jobs yesterday.
3. Money is likely to move back from treasuries into stocks, as people sell off treasuries until we get a 3.5% yield at least. People who sold stock in a panic on Thursday and moved to treasuries are going to regret their decision - it has badly boomeranged.
4. Returns on equities are however going to be more difficult because earnings will be affected by the rising rates and poor sentiment
5. Gold will continue to be safe haven. No brainer hold/buy for gold.
6. Over the next 6 months, if yields become fixed around 3.5%, pension funds will pull money out of emerging markets and seek a safe 3.5 % yield.
7. This downgrade is probably is a Republican conspiracy - S and P is probably under their control - it seeks to stymie the QE3 before it has started. Whether it succeeds depends on what happens to bond rates. Obama is doomed though - I am 60% sure he will lose the election. I would have been more certain except for one thing - Unfortunately the Republicans are like the BJP - they have no credible leadership. I mean, apart from his looks, Romney is a sleasebag and Michele Bachman is a moron. As pathetic as Advani, Swaraj, Jaitley and company. Both right wing parties need a real leader and not these idiots.
8. Oil is likely to drop. Which should act as a stimulus much better than stupid old QE3. If I was Ben, I would have raised rates and not looked to QE3 to stimulate the economy - falling commodities are the best fertilizer for economic recovery
9. Long term - I think this is a good thing. No unnatural stimulus, QE and zombie creation. The free market will actually become free and act the way it is supposed to. Long term rates should be determined by business prospects and the free market, not by fed fiats
10. US economy is likely to recover better if the fed stops its stupid QE program and lets the economy get on with it.
11. I think markets will move up on Monday as people exit bonds and slosh the liquidity around. Oil up, gold up and stocks up, bonds down - but as I said, this is really unpredictable.
Like removing a Jenga block from the bottom and waiting for the pile to fall - and trying to predict the exact shape of the pile after it finishes falling. Impossible to really predict.
Friday, August 5, 2011
On the global sell off
In 2008 we had world wide competitive devaluation by lowering of interest rates.
By 2011, India, China, Brazil, Greece, Spain and Italy have been forced to hike their rates - either because of inflation (BRIC countries) or because of poor economic performance forcing debt default fears (southern Europe).
That leaves just Japan, USA and North Europe in the race for competitive devaluation. The only real way for a devaluation to work (in increasing local manufacturing and exports - which is what central bankers hope) is to devalue own currency in the face of other currencies maintaining or increasing value/interest rates. If everyone devalues at the same time, there is no effect - which is why QE-1 and 2 failed.
So will QE3 suceed in stimulating the US economy? Devaluation did not work in Japan for last 20 years. They finally seem to be losing their competitive advantage - look at Sony and Toyota. Augurs bad. Their per capita GDP actually seems in a decline in dollar terms in the last 20 years - and I havent even tajken dollar depreciation into account.
Currently US short term rates are actually negative (not in inflation adjusted levels, but in actuality - one bank on Wall Street is actually charging for keeping people's cash!!!!) while long term rates (10year) are at 2.5%. Even more bizarre - 30 year bonds are at 3.5%!!!! Surely this cant last?
After US jobs data came out strong, 10 year rates are heading back up, so maybe the bond market will actually decide the fate of QE-3. I think it would be foolish of the fed to go for QE-3: it wont do any better than QE2.
Only time will tell, too difficult to call the current roiled markets
To me, it seems that the fed is trying to stimulate a dead body - at great expense to those who had been prudent and had actually saved - and at taxpayer's expense. Playing with US savings in this way is really unfair and will definitely get Barack Obama defeated next year. (If US were my household budget, I would have cut loose the junk debt papers and bancrupted the useless banks.)
Ultimately, all the cash generated from stock and oil sell off has to go somewhere. Looks like Sanjana might be right and it will all head back into gold.
OR-oil might drop sufficiently and economy might respond to the adrenaline injections - and the liquidity sloshing around might head back into equity. I have a feeling this is what will happen.
In this flood of liquidity, the only easily visible high ground is gold. Not Indian equity, not BRIC, not European equity, not bonds at such ruinous rates, not indistrial commodities when economies are floundering.
Only gold is left. Or perhaps US/North Europe equities if they fall enough to look attractive.
Gold is also very dicey - at the first sign of a bond sell off, gold will collapse.
If you are a global investor, bite your nails. Not much more you can really do.
If an Indian investor, have a diversified portfolio and exclude nothing - my good old 30-30-30-10 distribution continues to feel right.
PS: I bought a lot of equities in small quantities from my buy list today. I plan to buy at every dip. With this much global turmoil, RBI is likely to pause rate hikes. India inflation is structural and due to supply constraints and govt bottle necks/poor governance. It will not respond to RBI rate hikes - which will only convert inflation into a stagflation.
RBI is fairly sensible and is likely to (finally) pause rate hikes. Given that our short term rates are like 8% and long term bond yields are like 8.5%, it would be just plain silly of RBI to keep hiking.
By 2011, India, China, Brazil, Greece, Spain and Italy have been forced to hike their rates - either because of inflation (BRIC countries) or because of poor economic performance forcing debt default fears (southern Europe).
That leaves just Japan, USA and North Europe in the race for competitive devaluation. The only real way for a devaluation to work (in increasing local manufacturing and exports - which is what central bankers hope) is to devalue own currency in the face of other currencies maintaining or increasing value/interest rates. If everyone devalues at the same time, there is no effect - which is why QE-1 and 2 failed.
So will QE3 suceed in stimulating the US economy? Devaluation did not work in Japan for last 20 years. They finally seem to be losing their competitive advantage - look at Sony and Toyota. Augurs bad. Their per capita GDP actually seems in a decline in dollar terms in the last 20 years - and I havent even tajken dollar depreciation into account.
Currently US short term rates are actually negative (not in inflation adjusted levels, but in actuality - one bank on Wall Street is actually charging for keeping people's cash!!!!) while long term rates (10year) are at 2.5%. Even more bizarre - 30 year bonds are at 3.5%!!!! Surely this cant last?
After US jobs data came out strong, 10 year rates are heading back up, so maybe the bond market will actually decide the fate of QE-3. I think it would be foolish of the fed to go for QE-3: it wont do any better than QE2.
Only time will tell, too difficult to call the current roiled markets
To me, it seems that the fed is trying to stimulate a dead body - at great expense to those who had been prudent and had actually saved - and at taxpayer's expense. Playing with US savings in this way is really unfair and will definitely get Barack Obama defeated next year. (If US were my household budget, I would have cut loose the junk debt papers and bancrupted the useless banks.)
Ultimately, all the cash generated from stock and oil sell off has to go somewhere. Looks like Sanjana might be right and it will all head back into gold.
OR-oil might drop sufficiently and economy might respond to the adrenaline injections - and the liquidity sloshing around might head back into equity. I have a feeling this is what will happen.
In this flood of liquidity, the only easily visible high ground is gold. Not Indian equity, not BRIC, not European equity, not bonds at such ruinous rates, not indistrial commodities when economies are floundering.
Only gold is left. Or perhaps US/North Europe equities if they fall enough to look attractive.
Gold is also very dicey - at the first sign of a bond sell off, gold will collapse.
If you are a global investor, bite your nails. Not much more you can really do.
If an Indian investor, have a diversified portfolio and exclude nothing - my good old 30-30-30-10 distribution continues to feel right.
PS: I bought a lot of equities in small quantities from my buy list today. I plan to buy at every dip. With this much global turmoil, RBI is likely to pause rate hikes. India inflation is structural and due to supply constraints and govt bottle necks/poor governance. It will not respond to RBI rate hikes - which will only convert inflation into a stagflation.
RBI is fairly sensible and is likely to (finally) pause rate hikes. Given that our short term rates are like 8% and long term bond yields are like 8.5%, it would be just plain silly of RBI to keep hiking.
Thursday, August 4, 2011
On the mrityunjaya mantra
Aum Tryambakam Yajamahe
Sugandhim Pushti-vardhanam |
Urva - rukamiva Bandhanan
Mrtyor - muksheeya Maamritat ||
The famous Maha mrityunjaya mantra from the 12th verse 59th chapter of the 7th Mandala of the Rig Veda Samhita. Ascribed to Vashishta, who is supposed to have written most of the most ancient parts of the Rig Veda Samhita, this mantra is probably the 2nd most famous mantra after the Gayatri Mantra.
It actually came into my head when I was reading up on the Kundru – a plant belonging to the Cucumber family which my son found growing wild in our garden hedge, yesterday. An internet search showed that this is a very tenacious plant, very difficult to eradicate. In parts of Hawaii it has become a pest. Apparently, if you cut it away, small bits of it left behind in the soil take root and re-grow into not one but many new plants. So it is like an immortal plant. The only way to control it is to let the plant live on for ever, but pluck its fruit so that the seeds do not disperse and propagate the plant.
Strange indeed.
Coming back to the mantra, the words mean:
Aum= This is actually not there in the original mantra
Triambhaka = three eyed.
Yajamahe= we worship
Sugandhim= fragrance
Pushti =prosperous,thriving, nourish
Vardhanam=enhance
Uruvarukam=cucumber (also uruva=big, rukam= disease)
Iva=like
Bandhanan=from binding, captivity (from stem)
Mryutyor= from death
Mukshiya=liberate
Maa=not
Amritaat= nectar of immortality
An internet search reveals these two usual meanings:
1. (Sayana’s interpretation): We hail the fragrant Three-eyed One who nourishes [all] and increases the [sweet] fullness of life. As the cucumber is liberated from captivity [from its stem], may we [also] be liberated (mukshiya) from death (mrityor) not for the sake of immortality (maamritaat).
2. (Usual sense): We worship The Three-Eyed Lord Shiva who is naturally fragrant, immensely merciful and who is the Protector of the devotees. Worshipping him may we be liberated from death from our dreaded disease and may we attain the nectar of immortality
3. An alternative explanation occurs to me – is the sage trying to say the following?
Oh Triambaka, we worship you, your fragrance enhances our nourishment. Like the tenacious “Kundru” plant which is difficult to uproot, deliver us from death and grant the nectar of immortality.
Much less obscure and a simple straitforward prayer, like the rest of the prayers Vashishta has written. (Perhaps Vashishta had observed the nature of the plant!)
Regardless of its meaning, this mantra is chanted by millions to deliver them from death and disease. Markandeya, the boy who worships Shiva in the Markandeya puranam (born to Mrikandu, who choses an exceptional son cursed with early death versus a dull son who has a normal life when Shiva grants him a boon) was supposed to die at the age of 16. But he famously evades Yama himself by his mastery of this mrityunjaya prayer – averting his own certain death.
Still, the prayer occurs suddenly in the Rig Veda and is clearly separate from the other verses before it, which are devoted to simple prayers to the Maruts as can be seen below:
HYMN LIX. Maruts.
1. WHOMSO ye rescue here and there, whomso ye guide, O Deities,
To him give shelter, Agni, Mitra, Varuṇa, ye Maruts, and thou Aryaman.
2 Through your kind favour, Gods, on some auspicious day, the worshipper subdues his foes.
That man increases home and strengthening ample food who brings you offerings as ye list.
3 Vasiṣṭha will not overlook the lowliest one among you all.
O Maruts, of our Soma juice effused to-day drink all of you with eager haste.
4 Your succour in the battle injures not the man to whom ye, Heroes, grant your gifts.
May your most recent favour turn to us again. Come quickly, ye who fain would drink.
5 Come hitherward to drink the juice, O ye whose bounties give you joy.
These offerings are for you, these, Maruts, I present. Go not to any place but this.
6 Sit on our sacred grass, be graciously inclined to give the wealth for which we long,
To take delight, ye Maruts, Friends of all, with Svāhā, in sweet Soma juice.
7 Decking the beauty of their forms in secret the Swans with purple backs have flown down hither.
Around me all the Company hath settled, like joyous Heroes glad in our libation.
8 Maruts, the man whose wrath is hard to master, he who would slay us ere we think, O Vasus,
May he be tangled in the toils of mischief; smite ye him down with your most flaming weapon.
9 O Maruts, ye consuming Gods, enjoy this offering brought for you,
To help us, ye who slay the foe.
10 Sharers of household sacrifice, come, Maruts, stay not far away,
That ye may help us, Bounteous Ones.
11 Here, Self-strong Maruts, yea, even here. ye Sages with your sunbright skins
I dedicate your sacrifice.
12 Tryambaka we worship, sweet augmenter of prosperity.
As from its stem the cucumber, so may I be released from death, not reft of immortality.
http://www.sacred-texts.com/hin/rigveda/index.htm
Shiva was not a part of the pantheon of the Vedic gods (Shivam was used in the sense of good in Rig Veda). Shiva is usually equated with the vedic Rudra (God of the storms and also supposed to be a god of illness or curing – the one to whom you pray for relief from diseases – so appropriate here) but Rudra was not supposed to be three eyed. Triambaka is not repeated elsewhere in Rig Veda (perhaps once only). Zeus and Jupiter are however occasionally depicted as three eyed, the three being taken to represent all seeing. Rig veda of course antecedes these Gods by a good millennium and a half. However Shiva as we now know him might have evolved in the second century BCE keeping the three eyed Zeus as a model (just as the Satapatha Brahmana, perhaps 800BC, obviously was influenced by the depiction of the great flood described by the Jews and Mesopotamians.
The possibility of this Mrityunjaya prayer being a later interpolation or translocation from elsewhere in the Rigveda during re-arrangement cannot be ruled out.
Sugandhim Pushti-vardhanam |
Urva - rukamiva Bandhanan
Mrtyor - muksheeya Maamritat ||
The famous Maha mrityunjaya mantra from the 12th verse 59th chapter of the 7th Mandala of the Rig Veda Samhita. Ascribed to Vashishta, who is supposed to have written most of the most ancient parts of the Rig Veda Samhita, this mantra is probably the 2nd most famous mantra after the Gayatri Mantra.
It actually came into my head when I was reading up on the Kundru – a plant belonging to the Cucumber family which my son found growing wild in our garden hedge, yesterday. An internet search showed that this is a very tenacious plant, very difficult to eradicate. In parts of Hawaii it has become a pest. Apparently, if you cut it away, small bits of it left behind in the soil take root and re-grow into not one but many new plants. So it is like an immortal plant. The only way to control it is to let the plant live on for ever, but pluck its fruit so that the seeds do not disperse and propagate the plant.
Strange indeed.
Coming back to the mantra, the words mean:
Aum= This is actually not there in the original mantra
Triambhaka = three eyed.
Yajamahe= we worship
Sugandhim= fragrance
Pushti =prosperous,thriving, nourish
Vardhanam=enhance
Uruvarukam=cucumber (also uruva=big, rukam= disease)
Iva=like
Bandhanan=from binding, captivity (from stem)
Mryutyor= from death
Mukshiya=liberate
Maa=not
Amritaat= nectar of immortality
An internet search reveals these two usual meanings:
1. (Sayana’s interpretation): We hail the fragrant Three-eyed One who nourishes [all] and increases the [sweet] fullness of life. As the cucumber is liberated from captivity [from its stem], may we [also] be liberated (mukshiya) from death (mrityor) not for the sake of immortality (maamritaat).
2. (Usual sense): We worship The Three-Eyed Lord Shiva who is naturally fragrant, immensely merciful and who is the Protector of the devotees. Worshipping him may we be liberated from death from our dreaded disease and may we attain the nectar of immortality
3. An alternative explanation occurs to me – is the sage trying to say the following?
Oh Triambaka, we worship you, your fragrance enhances our nourishment. Like the tenacious “Kundru” plant which is difficult to uproot, deliver us from death and grant the nectar of immortality.
Much less obscure and a simple straitforward prayer, like the rest of the prayers Vashishta has written. (Perhaps Vashishta had observed the nature of the plant!)
Regardless of its meaning, this mantra is chanted by millions to deliver them from death and disease. Markandeya, the boy who worships Shiva in the Markandeya puranam (born to Mrikandu, who choses an exceptional son cursed with early death versus a dull son who has a normal life when Shiva grants him a boon) was supposed to die at the age of 16. But he famously evades Yama himself by his mastery of this mrityunjaya prayer – averting his own certain death.
Still, the prayer occurs suddenly in the Rig Veda and is clearly separate from the other verses before it, which are devoted to simple prayers to the Maruts as can be seen below:
HYMN LIX. Maruts.
1. WHOMSO ye rescue here and there, whomso ye guide, O Deities,
To him give shelter, Agni, Mitra, Varuṇa, ye Maruts, and thou Aryaman.
2 Through your kind favour, Gods, on some auspicious day, the worshipper subdues his foes.
That man increases home and strengthening ample food who brings you offerings as ye list.
3 Vasiṣṭha will not overlook the lowliest one among you all.
O Maruts, of our Soma juice effused to-day drink all of you with eager haste.
4 Your succour in the battle injures not the man to whom ye, Heroes, grant your gifts.
May your most recent favour turn to us again. Come quickly, ye who fain would drink.
5 Come hitherward to drink the juice, O ye whose bounties give you joy.
These offerings are for you, these, Maruts, I present. Go not to any place but this.
6 Sit on our sacred grass, be graciously inclined to give the wealth for which we long,
To take delight, ye Maruts, Friends of all, with Svāhā, in sweet Soma juice.
7 Decking the beauty of their forms in secret the Swans with purple backs have flown down hither.
Around me all the Company hath settled, like joyous Heroes glad in our libation.
8 Maruts, the man whose wrath is hard to master, he who would slay us ere we think, O Vasus,
May he be tangled in the toils of mischief; smite ye him down with your most flaming weapon.
9 O Maruts, ye consuming Gods, enjoy this offering brought for you,
To help us, ye who slay the foe.
10 Sharers of household sacrifice, come, Maruts, stay not far away,
That ye may help us, Bounteous Ones.
11 Here, Self-strong Maruts, yea, even here. ye Sages with your sunbright skins
I dedicate your sacrifice.
12 Tryambaka we worship, sweet augmenter of prosperity.
As from its stem the cucumber, so may I be released from death, not reft of immortality.
http://www.sacred-texts.com/hin/rigveda/index.htm
Shiva was not a part of the pantheon of the Vedic gods (Shivam was used in the sense of good in Rig Veda). Shiva is usually equated with the vedic Rudra (God of the storms and also supposed to be a god of illness or curing – the one to whom you pray for relief from diseases – so appropriate here) but Rudra was not supposed to be three eyed. Triambaka is not repeated elsewhere in Rig Veda (perhaps once only). Zeus and Jupiter are however occasionally depicted as three eyed, the three being taken to represent all seeing. Rig veda of course antecedes these Gods by a good millennium and a half. However Shiva as we now know him might have evolved in the second century BCE keeping the three eyed Zeus as a model (just as the Satapatha Brahmana, perhaps 800BC, obviously was influenced by the depiction of the great flood described by the Jews and Mesopotamians.
The possibility of this Mrityunjaya prayer being a later interpolation or translocation from elsewhere in the Rigveda during re-arrangement cannot be ruled out.
Thoughts on productivity
After going through a lot of IMF data and previous discussions, I feel that one can arrive at broad levels of productivity ($ per capita per annum) in large polulations as follows:
Personal productivity level
Illiterate subsistence: <500 $/PA
Literate/Semi skilled: 2,500 $/PA
Skilled 10,000 $/PA
Intelligent and skilled 20,000 $/PA
Governance Pemium National productivity level
Non-existent governance Same as personal productivity
Poor quality governance Double personal productivity
Good governance but corrupt Quadruple personal productivity
Good governance without corruption Eight times personal productivity
Regional deflator:
Above average population: 1.25
Average 1
Below average 0.75
Personal productivity levels:
1. Illiterate subsistence: These are basically living in iron age agrarian subsistence level or below, without mechanization. Examples are Africa, Indian subcontinent, Burma. People living in Neolithic hunter gatherer tribal levels have a per capita GDP of about 200$. Depending on climate and rains, agricultural settlements can range from 200 (famine in Orissa or sub-Saharan Africa) to about 500$ (=25000Rs=2000Rs per month) per annum in most illiterate agrarian communities. Bihar at 350$ is an example, as is Burma, rural UP and most of rural India.
2. Literate/semi skilled: This includes agrarian communities with some amount of irrigation, some amount of mechanization. For example, Rural Poland, Ukraine, rural Byelorussia, rural Slovakia, Rural North Korea, Indonesia, rural Malaya and Thailand, Rural China. Also for semiskilled workers like weavers, metal workers, carpenters, masons, BPO workers etc. Range of productivity from 2000-5000$ (80- 250,000 Rs per annum = 10,000 -20,000 Rs per month). Many of the worst exploited industrial workers in India, China, Mexico, Bangladesh have this level of productivity. Also includes BPO workers fresh out of school or college, without significant work experience.
3. Skilled: These are highly trained workers who can do five-10 times as much work as semiskilled workers and use the latest machinery and equipment. Similar to most blue and white collar workers in countries like USA, Italy, Germany etc, urban South Korea, Taiwan etc. (production floor workers in big mechanized factories high on machinery and low on labour, nurses, secretaries. Lack math skills and or big memory retention or independent original thinking but capable of learning and using highly specialized equipment. Most factory workers in Taiwan, South Korea, Malaysia, other healthcare professionals like nurses etc, low level IT workers.
In many developing countries surviving on wage arbitrage, such skilled workers are paid the wages of semiskilled workers despite their higher productivity. So a Hero Honda worker is probably half as productive as a Japanese Honda worker, but is paid only 15-20,000 per month, much below his actual levels of productivity – but this gets reflected in low cost of the finished product as well.
4. Intelligent and skilled: These people have the capacity for innovation, highly specialized thinking along with high skills. Include engineers, doctors, IT workers, entrepreneurs, business men, business managers, biologists, college professors, pharmacologists etc. Their productivity is to be measured in terms of managers who direct the activity of other less able workers and hence part of their value is how they help others to work.
Governance premium: National productivity level
This is reflected in governance success or failure. I have tried to ball park my estimate of its value as indicated above. There can be no doubt that it can boost productivity in geometric progression. So the same doctor has a value of say 20,000 $ per annum in India but 160,000$ per annum in USA – eight times higher, because of the improved governance, refected in superior productivity at every level.
1. Non-existent governance: Govt doesn’t work. Includes Africa, Rural India, Burma etc. Most populations living in illiteracy are because of this kind of govt failure. India probably has pockets of poor quality governance alternating with large swathes of no governance. So the current 1200 $ per annum per capita GDP reflects an average between enormous numbers of illiterates with no governance, small numbers of literates/semi skilled/skilled/skilled with intelligence living in no governance areas and many small pockets of poor quality governance like Gujrat, Bombay and other big cities. Extremely small numbers live in good governance but corrupt levels of governance, largely within the confines of a big companies campus, where to some extent the pervasive government failure is held at bay. For example, Infosys, Jamshedpur, some of the Bombay companies, some areas of Gujrat etc.
2. Poor quality governance: Deeply flawed non-democratic govt. Includes, Stalinist govt like in USSR, Mao China and other communist regimes which are no more, current govt of Burma, Cuba, Venezuela and other South American and Central American countries, North Korea, Indonesia, Soudi Arabia, Iran, Egypt, Algeria etc. These flawed govts differ from the non existent govt in 2 main respects – their populations will show either cent per cent literacy or higher levels of productivity of their country as a whole from about 2500-5000 $ per annum. The few parts of India which have governance have this kind of flawed socialistic and ineffective governance. It is manned by inept people and run on flawed governance principles. So unnaturally loud and vociferous people (NGO, commies, socialists, loud and abrasive media) are able to sway and influence this governance. Until one gets right thinking people at the top and widespread literacy and some level of appreciation of capitalist principles, such a government will remain ineffective. Corruption in such governments is not only pervasive, it has the effect of stalling all meaningful work. Despite that, some things work. So Cuba’s health system, Mao’s education system, Russian military, Indian banking system – all work well.
3. Good governance but corrupt: These are highly efficient capitalist govt but having populations unused to corruption free existence. Include Southern Europe (Spain, Italy, Greece), Eastern Europe (Ex-communist countries), Deng’s China, Recent Brazil, Mexico, Turkey, Syria, Iraq, Malaysia, Thailand. The degree of corruption and level of efficience can vary within a range. Some aspects of US government in recent years falls within this (as it did from 1870 to 1930). Mostly these are countries which have been affluent for only a generation or so and include a lot of Crony Capitalists, Robber barons, Mafiosi, but have better administration so that capitalism can perform its magic. These countries will have periodic crisis because the corruption magnifies the economic cycle effects causing deeper and more pervasive recessions. For example the Greek crisis, the South East Asian crisis of 1998, Chaebol failures of South Korea, Dubai RE crisis of 2009, even the US crisis of 2008 marred by regulation failure in the face of corrupt lending practices. Older recessions in USA like the great depression, the recession in the 1870s, the 1890s, the 1907 also fall within the Crony Capitalist/Robber baron territory. The bursting of the South Sea bubble, the Dutch tulips etc also fall within this.
From 1850s or so, most of northern Europe moved from the “good governance but corrupt” to “good governance without corruption” phase. There are very few additions to this group since then. Japan is the great success. South Korea will probably join soon, along with Taiwan. USA, Italy and Spain continue to flirt with it. Most of the USA probably is solidly within, but significant populations show poor governance and corrupt practices associated with a less developed state. China is very very far away - as also rest of East Asia and West Asia.
4. Good governance without corruption: Mainly North Western Europe, Japan, parts of USA, parts of South Korea and Taiwan. Characterised by a population which has been affluent for a significant number of years or centuries of affluence. Highly law abiding and hard working. No tendency to break rules. Govt is efficient and doesn’t have corruption problem.
Regional deflator:
Countries away from equator (North Europe, north America, Argentina, Australia, New Zealand, Japan) have a tendency to have harder working population with high levels of intelligence, hence leads to a higher proportion of the population taking up skilled and intelligent jobs. Such countries tend to be more productive and I have jacked in 1.25 as an inflator for these. Mainly these are north Europeans, Jews and Japanese. Small pockets of classes within every average population, usually for historic reasons of hard work like with Koreans, some classes of Chinese, East and Southern Europe, West Asia etc and some classes within India (otherwise mainly slothful) also have such tendencies.
Rest most of the countries have average levels of intelligence and hard work and perform averagely
Some countries have slothful populations who demonstrate an inability to learn and improve themselves. Africa, Indian Subcontinent, Burma and small pockets elsewhere (Ukraine, Peru, Yucatan, Jamaica, Borneo, SriLanka etc) usually characterized by very bad (hot or cold) weather and historic national character of laziness. I have put in a 0.75% deflator as a ball park figure. People are not going to change their national character in a hurry. What the masses within a country do defines the country – small elites cnnot change national character.
Comments:
Countries with literate populations tend to have poor quality/communist govt. Such countries have per capita GDP ranging from 2500 (literate but ungoverned like North Korea) to 5000 (literate 2500, double for poor quality govt = 5000). Such countries are currently trying to finish the basic step of literacy. India is one such country. Such countries are currently in the transition from 2500 to 5000$ per annum. Examples are Egypt, Algeria, Ukraine, Indonesia. Literate populations within India are in the same stage. Until they achieve this basic level of productivity, further increases are difficult.
Some Countries with highly efficient but corrupt govt are currently in the high growth phase. Examples are China, Brazil, Russia, Mexico, Malaysia. These countries have recently acquired efficient govt. Their population is largely agrarian (China, rural Russia, Malaysia) but is systematically transitioning to Literate/semiskilled and to highly skilled levels. Hence their national average reflects proportions of their population in these levels of development. So China has mainly Semiskilled labour (2500$ = 5000Rs per month) mixed with skilled (10,000$ per annum). Because of efficient govt, these are then multiplied by four. Hence national GDP per capita of around 4000$ with 1.3 billion people.
Countries like Mexico (60 million population) , Brazil (200 million population), Russia (140 million population) have national GDP of 10,000 $ average. So does Poland, Malaysia etc.
In this scheme:
Lowest productivity is around 500$, highest is around 200,000$ productivity.
If you are intelligent and skilled (20,000$), live in efficient non corrupt country (8 times = 160,000) and are of north europe/Japanese (1.25) then you can be productive to the extent of 200,000 $.
India has a zero govt with focal poor quality govt.. Most population has 500 x 1 level of productivity. Some have 2500 x1 productivity. Very few have 10,000 x 1 and 20,000 x 1 levels. So if you are intelligent and skilled and adopt the non-corrupt efficient hard working ways of the north european/Japanese, maximum you can produce is 20,000 x 1.25 = 25,000 dollars.= 2000 dollars per month = salary expectation of around 1L per month ON AVERAGE for the best population pockets in India, assuming your salary reflects your productivity. So company salaries can be expected to be between 50,000 and 2L per month = the best you can do within India (usually best practices of north European levels are only found to some extent in software companies). Of course, small number of managers in manufacturing relying on semi skilled workers (2500 $ = 10,000 Rs per month salary) can earn whatever amount – since these are a small elite group running the working of much more inefficient workforce. Company can pay them much above 200,000 dollars also, depending on their value to the company.
Please note that because of very poor govt, no matter what you do, you cannot be more productive than 20,000 x 1 or 20,000 x 2 = no way out except emigrate for achiving higher levels of productivity (and hence income)
China: It has a efficient but corrupt govt and has average per capita GDP of 4000$ = average of 500 x 4 levels (rural) and (2500 x 4 = 10,000 levels of production along with small numbers in the 10000 x 4 levels.
Taiwan and South Korea have around 25000$ productivity i.e. average of 2500 x 4, 10,000 x 4 and small numbers of 20,000 x 4.
Japan, UK, USA, north Europe has a large number of 2500 x 8 = 32K, many 10,000 x 8 = 80K and some 20,000 x 8 = 160 K leading to an average of around 45000$ per annum.
Trends: Non-existent governance usually goes with slothful nature and illiteracy. Such countries like India, Bangladesh, Burma, Africa usually have per capita GDP of less than 500 (illiterate plus zero in govt plus 0.75% deflator)
Mexico and Brazil have a lot of 2500x4, few 10,000 x 4 and miniscule 20,000 x 4
Future Trend:
This analysis clearly indicates that India is in a different position from China, Russia and Brazil.
Growth in India is coming from shifting people from 500$ of productivity to 2500$ of productivity. This has to coincide with shifting from non-existent governance to poor quality governance. So far, this shift has been very difficult to manage (excruciatingly slow politicians) but slowly our younger population are becoming literate and employable at 2500$ productivity level. Since this has to coincide with a shift of the governance premium from single to double, India can look forward to shifting from 500$ per annum to 5000$ per annum productivity over the next couple of decades.
This means a ten times rise in AVERAGE productivity levels = 1000% return on human capital = 10,000% return on any smart business which is able to capitalize on this gigantic shift in productivity levels.
Russia Brazil and China can at best look forward to shifting from 5-10,000$ productivity levels to 20,000$ productivity levels = 2 times return on human capital. All three countries have skewed economies. Brazil has a growing population with commodity export economy, Russia has declining population and commodity export economy while China has a declining population with cheap manufacturing (2500-5000$ type) of economy.
Shifting Chinese to 10,000$ productivity by a mix of 5000 and 20,000$ productivity should be easy enough. Then it will hit a demographic impossibility to grow.
Shifting Russia from 10,000 to 20,000$ is probably more difficult because of declining education and engineering abilities. They have probably reached the best level of productivity they can. Russia is where China hopes to reach. Then both will pause without growth.
Brazil has the best growth possibilities of these 3, because of increasing population and massive tourism opportunities. Probably it will shift from 10,000 to 30,000 levels within the next 3 decades.
There can be no doubt on two things:
India is a structural long term bull run in equities and for real estate for next 50 years (ours and our children’s lifetime)
If you had money in 1950s, you should have invested in USA. If you had money in 1980s, you should have invested in China. If you had money in 2000, you should have invested in Brazil.
If you have money in 2011, invest in India.
Personal productivity level
Illiterate subsistence: <500 $/PA
Literate/Semi skilled: 2,500 $/PA
Skilled 10,000 $/PA
Intelligent and skilled 20,000 $/PA
Governance Pemium National productivity level
Non-existent governance Same as personal productivity
Poor quality governance Double personal productivity
Good governance but corrupt Quadruple personal productivity
Good governance without corruption Eight times personal productivity
Regional deflator:
Above average population: 1.25
Average 1
Below average 0.75
Personal productivity levels:
1. Illiterate subsistence: These are basically living in iron age agrarian subsistence level or below, without mechanization. Examples are Africa, Indian subcontinent, Burma. People living in Neolithic hunter gatherer tribal levels have a per capita GDP of about 200$. Depending on climate and rains, agricultural settlements can range from 200 (famine in Orissa or sub-Saharan Africa) to about 500$ (=25000Rs=2000Rs per month) per annum in most illiterate agrarian communities. Bihar at 350$ is an example, as is Burma, rural UP and most of rural India.
2. Literate/semi skilled: This includes agrarian communities with some amount of irrigation, some amount of mechanization. For example, Rural Poland, Ukraine, rural Byelorussia, rural Slovakia, Rural North Korea, Indonesia, rural Malaya and Thailand, Rural China. Also for semiskilled workers like weavers, metal workers, carpenters, masons, BPO workers etc. Range of productivity from 2000-5000$ (80- 250,000 Rs per annum = 10,000 -20,000 Rs per month). Many of the worst exploited industrial workers in India, China, Mexico, Bangladesh have this level of productivity. Also includes BPO workers fresh out of school or college, without significant work experience.
3. Skilled: These are highly trained workers who can do five-10 times as much work as semiskilled workers and use the latest machinery and equipment. Similar to most blue and white collar workers in countries like USA, Italy, Germany etc, urban South Korea, Taiwan etc. (production floor workers in big mechanized factories high on machinery and low on labour, nurses, secretaries. Lack math skills and or big memory retention or independent original thinking but capable of learning and using highly specialized equipment. Most factory workers in Taiwan, South Korea, Malaysia, other healthcare professionals like nurses etc, low level IT workers.
In many developing countries surviving on wage arbitrage, such skilled workers are paid the wages of semiskilled workers despite their higher productivity. So a Hero Honda worker is probably half as productive as a Japanese Honda worker, but is paid only 15-20,000 per month, much below his actual levels of productivity – but this gets reflected in low cost of the finished product as well.
4. Intelligent and skilled: These people have the capacity for innovation, highly specialized thinking along with high skills. Include engineers, doctors, IT workers, entrepreneurs, business men, business managers, biologists, college professors, pharmacologists etc. Their productivity is to be measured in terms of managers who direct the activity of other less able workers and hence part of their value is how they help others to work.
Governance premium: National productivity level
This is reflected in governance success or failure. I have tried to ball park my estimate of its value as indicated above. There can be no doubt that it can boost productivity in geometric progression. So the same doctor has a value of say 20,000 $ per annum in India but 160,000$ per annum in USA – eight times higher, because of the improved governance, refected in superior productivity at every level.
1. Non-existent governance: Govt doesn’t work. Includes Africa, Rural India, Burma etc. Most populations living in illiteracy are because of this kind of govt failure. India probably has pockets of poor quality governance alternating with large swathes of no governance. So the current 1200 $ per annum per capita GDP reflects an average between enormous numbers of illiterates with no governance, small numbers of literates/semi skilled/skilled/skilled with intelligence living in no governance areas and many small pockets of poor quality governance like Gujrat, Bombay and other big cities. Extremely small numbers live in good governance but corrupt levels of governance, largely within the confines of a big companies campus, where to some extent the pervasive government failure is held at bay. For example, Infosys, Jamshedpur, some of the Bombay companies, some areas of Gujrat etc.
2. Poor quality governance: Deeply flawed non-democratic govt. Includes, Stalinist govt like in USSR, Mao China and other communist regimes which are no more, current govt of Burma, Cuba, Venezuela and other South American and Central American countries, North Korea, Indonesia, Soudi Arabia, Iran, Egypt, Algeria etc. These flawed govts differ from the non existent govt in 2 main respects – their populations will show either cent per cent literacy or higher levels of productivity of their country as a whole from about 2500-5000 $ per annum. The few parts of India which have governance have this kind of flawed socialistic and ineffective governance. It is manned by inept people and run on flawed governance principles. So unnaturally loud and vociferous people (NGO, commies, socialists, loud and abrasive media) are able to sway and influence this governance. Until one gets right thinking people at the top and widespread literacy and some level of appreciation of capitalist principles, such a government will remain ineffective. Corruption in such governments is not only pervasive, it has the effect of stalling all meaningful work. Despite that, some things work. So Cuba’s health system, Mao’s education system, Russian military, Indian banking system – all work well.
3. Good governance but corrupt: These are highly efficient capitalist govt but having populations unused to corruption free existence. Include Southern Europe (Spain, Italy, Greece), Eastern Europe (Ex-communist countries), Deng’s China, Recent Brazil, Mexico, Turkey, Syria, Iraq, Malaysia, Thailand. The degree of corruption and level of efficience can vary within a range. Some aspects of US government in recent years falls within this (as it did from 1870 to 1930). Mostly these are countries which have been affluent for only a generation or so and include a lot of Crony Capitalists, Robber barons, Mafiosi, but have better administration so that capitalism can perform its magic. These countries will have periodic crisis because the corruption magnifies the economic cycle effects causing deeper and more pervasive recessions. For example the Greek crisis, the South East Asian crisis of 1998, Chaebol failures of South Korea, Dubai RE crisis of 2009, even the US crisis of 2008 marred by regulation failure in the face of corrupt lending practices. Older recessions in USA like the great depression, the recession in the 1870s, the 1890s, the 1907 also fall within the Crony Capitalist/Robber baron territory. The bursting of the South Sea bubble, the Dutch tulips etc also fall within this.
From 1850s or so, most of northern Europe moved from the “good governance but corrupt” to “good governance without corruption” phase. There are very few additions to this group since then. Japan is the great success. South Korea will probably join soon, along with Taiwan. USA, Italy and Spain continue to flirt with it. Most of the USA probably is solidly within, but significant populations show poor governance and corrupt practices associated with a less developed state. China is very very far away - as also rest of East Asia and West Asia.
4. Good governance without corruption: Mainly North Western Europe, Japan, parts of USA, parts of South Korea and Taiwan. Characterised by a population which has been affluent for a significant number of years or centuries of affluence. Highly law abiding and hard working. No tendency to break rules. Govt is efficient and doesn’t have corruption problem.
Regional deflator:
Countries away from equator (North Europe, north America, Argentina, Australia, New Zealand, Japan) have a tendency to have harder working population with high levels of intelligence, hence leads to a higher proportion of the population taking up skilled and intelligent jobs. Such countries tend to be more productive and I have jacked in 1.25 as an inflator for these. Mainly these are north Europeans, Jews and Japanese. Small pockets of classes within every average population, usually for historic reasons of hard work like with Koreans, some classes of Chinese, East and Southern Europe, West Asia etc and some classes within India (otherwise mainly slothful) also have such tendencies.
Rest most of the countries have average levels of intelligence and hard work and perform averagely
Some countries have slothful populations who demonstrate an inability to learn and improve themselves. Africa, Indian Subcontinent, Burma and small pockets elsewhere (Ukraine, Peru, Yucatan, Jamaica, Borneo, SriLanka etc) usually characterized by very bad (hot or cold) weather and historic national character of laziness. I have put in a 0.75% deflator as a ball park figure. People are not going to change their national character in a hurry. What the masses within a country do defines the country – small elites cnnot change national character.
Comments:
Countries with literate populations tend to have poor quality/communist govt. Such countries have per capita GDP ranging from 2500 (literate but ungoverned like North Korea) to 5000 (literate 2500, double for poor quality govt = 5000). Such countries are currently trying to finish the basic step of literacy. India is one such country. Such countries are currently in the transition from 2500 to 5000$ per annum. Examples are Egypt, Algeria, Ukraine, Indonesia. Literate populations within India are in the same stage. Until they achieve this basic level of productivity, further increases are difficult.
Some Countries with highly efficient but corrupt govt are currently in the high growth phase. Examples are China, Brazil, Russia, Mexico, Malaysia. These countries have recently acquired efficient govt. Their population is largely agrarian (China, rural Russia, Malaysia) but is systematically transitioning to Literate/semiskilled and to highly skilled levels. Hence their national average reflects proportions of their population in these levels of development. So China has mainly Semiskilled labour (2500$ = 5000Rs per month) mixed with skilled (10,000$ per annum). Because of efficient govt, these are then multiplied by four. Hence national GDP per capita of around 4000$ with 1.3 billion people.
Countries like Mexico (60 million population) , Brazil (200 million population), Russia (140 million population) have national GDP of 10,000 $ average. So does Poland, Malaysia etc.
In this scheme:
Lowest productivity is around 500$, highest is around 200,000$ productivity.
If you are intelligent and skilled (20,000$), live in efficient non corrupt country (8 times = 160,000) and are of north europe/Japanese (1.25) then you can be productive to the extent of 200,000 $.
India has a zero govt with focal poor quality govt.. Most population has 500 x 1 level of productivity. Some have 2500 x1 productivity. Very few have 10,000 x 1 and 20,000 x 1 levels. So if you are intelligent and skilled and adopt the non-corrupt efficient hard working ways of the north european/Japanese, maximum you can produce is 20,000 x 1.25 = 25,000 dollars.= 2000 dollars per month = salary expectation of around 1L per month ON AVERAGE for the best population pockets in India, assuming your salary reflects your productivity. So company salaries can be expected to be between 50,000 and 2L per month = the best you can do within India (usually best practices of north European levels are only found to some extent in software companies). Of course, small number of managers in manufacturing relying on semi skilled workers (2500 $ = 10,000 Rs per month salary) can earn whatever amount – since these are a small elite group running the working of much more inefficient workforce. Company can pay them much above 200,000 dollars also, depending on their value to the company.
Please note that because of very poor govt, no matter what you do, you cannot be more productive than 20,000 x 1 or 20,000 x 2 = no way out except emigrate for achiving higher levels of productivity (and hence income)
China: It has a efficient but corrupt govt and has average per capita GDP of 4000$ = average of 500 x 4 levels (rural) and (2500 x 4 = 10,000 levels of production along with small numbers in the 10000 x 4 levels.
Taiwan and South Korea have around 25000$ productivity i.e. average of 2500 x 4, 10,000 x 4 and small numbers of 20,000 x 4.
Japan, UK, USA, north Europe has a large number of 2500 x 8 = 32K, many 10,000 x 8 = 80K and some 20,000 x 8 = 160 K leading to an average of around 45000$ per annum.
Trends: Non-existent governance usually goes with slothful nature and illiteracy. Such countries like India, Bangladesh, Burma, Africa usually have per capita GDP of less than 500 (illiterate plus zero in govt plus 0.75% deflator)
Mexico and Brazil have a lot of 2500x4, few 10,000 x 4 and miniscule 20,000 x 4
Future Trend:
This analysis clearly indicates that India is in a different position from China, Russia and Brazil.
Growth in India is coming from shifting people from 500$ of productivity to 2500$ of productivity. This has to coincide with shifting from non-existent governance to poor quality governance. So far, this shift has been very difficult to manage (excruciatingly slow politicians) but slowly our younger population are becoming literate and employable at 2500$ productivity level. Since this has to coincide with a shift of the governance premium from single to double, India can look forward to shifting from 500$ per annum to 5000$ per annum productivity over the next couple of decades.
This means a ten times rise in AVERAGE productivity levels = 1000% return on human capital = 10,000% return on any smart business which is able to capitalize on this gigantic shift in productivity levels.
Russia Brazil and China can at best look forward to shifting from 5-10,000$ productivity levels to 20,000$ productivity levels = 2 times return on human capital. All three countries have skewed economies. Brazil has a growing population with commodity export economy, Russia has declining population and commodity export economy while China has a declining population with cheap manufacturing (2500-5000$ type) of economy.
Shifting Chinese to 10,000$ productivity by a mix of 5000 and 20,000$ productivity should be easy enough. Then it will hit a demographic impossibility to grow.
Shifting Russia from 10,000 to 20,000$ is probably more difficult because of declining education and engineering abilities. They have probably reached the best level of productivity they can. Russia is where China hopes to reach. Then both will pause without growth.
Brazil has the best growth possibilities of these 3, because of increasing population and massive tourism opportunities. Probably it will shift from 10,000 to 30,000 levels within the next 3 decades.
There can be no doubt on two things:
India is a structural long term bull run in equities and for real estate for next 50 years (ours and our children’s lifetime)
If you had money in 1950s, you should have invested in USA. If you had money in 1980s, you should have invested in China. If you had money in 2000, you should have invested in Brazil.
If you have money in 2011, invest in India.
Thursday, June 30, 2011
DDA flat prices in gold
Real Estate gold price denomination: I did some actual research and found these historical gold prices per 10 Grams in Rupee:
1925 18
1930 18
1935 30
1940 36
1945 62
1950 99
1955 79
1960 111
1965 71
(Rs)
1970 184
1975 540
1980 1,330
1985 2,130
1990 3,200
1995 4,658
1996 5,713
1997 4,750
1998 4,050
(Rs)
1999 4,220
2000 4,395
2001 4,410
2002 5,030
2003 5,260
2004 6,005
2005 6,165
2006 8,210
2007 9,500
Since I have actual DDA flat price data only from 1980 when it was 50,000 for 2BHK, I have calculated below the price of flat in gms psf:
Gold price DDA FLAT PRICE
1980: 133 per gm (gold bubble) 50 psf = 0.37 gm psf
1985: 213 per gm 250 psf= 1.2 gm psf
1990: 332 per gm 800 psf= 2.4 gm psf
1995: 465 per gram 1600 psf = 3.4 gm psf
2000: 439 per gram 1600 psf = 3.6 gm psf
2006: 821 per gram 3500 psf = 4.2 gm psf
2009: 1570 per gram 8000 psf = 5 gm psf
2011: 2200 per gram 14000 psf = 6.36 gm psf
As per this data, excluding the 1980 price as being an outlier due to the 1979 oil crisis and historical peak of gold prices, average price from 1985 to 2009 has been about 2.7 gm psf. But there has been a secular trend of increasing RE prices from 1980 to 2011 which has shown about a 1gm psf increase every 5 years or so.
Assuming 1gm psf in 1985, in 1990 it is 2 gm psf, in 1995 3gm psf, in 2000 4 gm psf, 2005 5 gm psf and 2010 6 gm psf.
According to this trend of 20 years, RE has been increasing steadily and hence current levels probably represent fair value.
I am unable to comprehend this trend properly or find any real explanation - we need to think about this. According to this trend, RE increases by 1gm of gold psf every 5years in India.
I dont think anyone has ever talked about this that I have read about. This is new stuff.
Probable cause: Increasing tendency to overvalue real estate as time goes on, because of "percieved" safe haven status. Otherwise in real prices, RE price should keep pace with inflation.
Another cause for overvalue is because of changing location premium. In 1980, DDA flats bere built at the outskirts. Now they are in the center of the city.
If we look at the prices for remote flats at outskirts of the city, prices would be:
Gold price DDA FLAT PRICE
1980: 133 per gm (gold bubble) 50 psf = 0.37 gm psf (Yusuf Sarai)
1985: 213 per gm 100 psf= 0.46 gm psf (East of Kailash)
1990: 332 per gm 500 psf= 1.5 gm psf (Mayur Vihar)
1995: 465 per gram 1000 psf = 2.15 gm psf (Dwarka)
2000: 439 per gram 1000 psf = 2.27 gm psf (Gurgaon)
2006: 821 per gram 1900 psf = 2.31 gm psf (Sohna Road)
2007: 950 per gram (RE bubble) 3300 psf = 3.47 gm psf (Sohna Road)
2009: 1570 per gram 3000 psf = 1.91 gm psf (NOIDA Expressway)
2011: 2200 per gram (Gold re-bubble?) 2000 psf = 0.9 gm psf (NOIDA Extention)
According to this analysis, cost of a flat is betwee 1 to 2 gm psf in the edge of the city. When the flat price drops to 0.5 gm psf, then gold is getting into a bubble. When cost psf drops to below 0.5 gms psf, then price of gold is likely to crash.
Conversely, when price of RE rises above 2.5 gms psf, then RE is overvalued. When price of RE is more than 3-3.5 gms psf, then RE is likely to crash.
According to this analysis, current RE valuation is fair value - whereas gold is getting overvalued. Chances of gold prices correcting are more than RE prices correcting.
1925 18
1930 18
1935 30
1940 36
1945 62
1950 99
1955 79
1960 111
1965 71
(Rs)
1970 184
1975 540
1980 1,330
1985 2,130
1990 3,200
1995 4,658
1996 5,713
1997 4,750
1998 4,050
(Rs)
1999 4,220
2000 4,395
2001 4,410
2002 5,030
2003 5,260
2004 6,005
2005 6,165
2006 8,210
2007 9,500
Since I have actual DDA flat price data only from 1980 when it was 50,000 for 2BHK, I have calculated below the price of flat in gms psf:
Gold price DDA FLAT PRICE
1980: 133 per gm (gold bubble) 50 psf = 0.37 gm psf
1985: 213 per gm 250 psf= 1.2 gm psf
1990: 332 per gm 800 psf= 2.4 gm psf
1995: 465 per gram 1600 psf = 3.4 gm psf
2000: 439 per gram 1600 psf = 3.6 gm psf
2006: 821 per gram 3500 psf = 4.2 gm psf
2009: 1570 per gram 8000 psf = 5 gm psf
2011: 2200 per gram 14000 psf = 6.36 gm psf
As per this data, excluding the 1980 price as being an outlier due to the 1979 oil crisis and historical peak of gold prices, average price from 1985 to 2009 has been about 2.7 gm psf. But there has been a secular trend of increasing RE prices from 1980 to 2011 which has shown about a 1gm psf increase every 5 years or so.
Assuming 1gm psf in 1985, in 1990 it is 2 gm psf, in 1995 3gm psf, in 2000 4 gm psf, 2005 5 gm psf and 2010 6 gm psf.
According to this trend of 20 years, RE has been increasing steadily and hence current levels probably represent fair value.
I am unable to comprehend this trend properly or find any real explanation - we need to think about this. According to this trend, RE increases by 1gm of gold psf every 5years in India.
I dont think anyone has ever talked about this that I have read about. This is new stuff.
Probable cause: Increasing tendency to overvalue real estate as time goes on, because of "percieved" safe haven status. Otherwise in real prices, RE price should keep pace with inflation.
Another cause for overvalue is because of changing location premium. In 1980, DDA flats bere built at the outskirts. Now they are in the center of the city.
If we look at the prices for remote flats at outskirts of the city, prices would be:
Gold price DDA FLAT PRICE
1980: 133 per gm (gold bubble) 50 psf = 0.37 gm psf (Yusuf Sarai)
1985: 213 per gm 100 psf= 0.46 gm psf (East of Kailash)
1990: 332 per gm 500 psf= 1.5 gm psf (Mayur Vihar)
1995: 465 per gram 1000 psf = 2.15 gm psf (Dwarka)
2000: 439 per gram 1000 psf = 2.27 gm psf (Gurgaon)
2006: 821 per gram 1900 psf = 2.31 gm psf (Sohna Road)
2007: 950 per gram (RE bubble) 3300 psf = 3.47 gm psf (Sohna Road)
2009: 1570 per gram 3000 psf = 1.91 gm psf (NOIDA Expressway)
2011: 2200 per gram (Gold re-bubble?) 2000 psf = 0.9 gm psf (NOIDA Extention)
According to this analysis, cost of a flat is betwee 1 to 2 gm psf in the edge of the city. When the flat price drops to 0.5 gm psf, then gold is getting into a bubble. When cost psf drops to below 0.5 gms psf, then price of gold is likely to crash.
Conversely, when price of RE rises above 2.5 gms psf, then RE is overvalued. When price of RE is more than 3-3.5 gms psf, then RE is likely to crash.
According to this analysis, current RE valuation is fair value - whereas gold is getting overvalued. Chances of gold prices correcting are more than RE prices correcting.
Thursday, June 23, 2011
[QUOTE=Kimmig;201595]Awesome analysis in the above note .. but let's get down to basic fundamentals .. how can prices of dwellings in India be more or even equal to those in developed nations (in relatively comparable neighbourhods .. let's say in terms of commute time to the central business district) WHEN
1. The average salary of people in India is nowhere near that of people in the developed nations
2. The infrastructure cannot be compared to those in developed nations
3. The quality of construction / fittings cannot be compared to those in developed nations
4. Even the type of ownership cannot be compared to those in the developed nations. What we terms as "flats" are termed as "co-ops" in the US .. these are considerably cheaper than independent houses / condos as one does not own the 4 walls of the apartment or the land on which the dwelling stands. Can someone tell me how much it would cost to have a 3 bed "house" (not flat) in Mumbai??
Any thoughts? I know a lot of people make a lot of money in India .. but am talking abt the Average Joe on the street not the investment banker types here. For me .. the math just doesn't add up. People are paying 1.5 Lakhs rent in Bandra .. that's as much as one would pay in Manhattan in one of the swanky towers there .. and from what I could make out of the note .. this is just the beginning .. jeez .. give me a break.
Look at any of the recently released buildings .. not even 10-20% of the lights are on in the evenings .. as middle class .. are we just shooting ourselves chasing this dream of owning a home?[/QUOTE]
The answer to your question is simple - currency depreciation.
Right now, Indian Rupee is temporarily strong. So you are calculating 1Crore = 200,000 dollars. But if our currency depreciated to 90Rs to the dollar, 1Cr = 100,000 dollars.
Since whatever you have said above is absolutely true, something has to give way and that something is our currency.
So expecting 60Rs to the dollar within the next one year would not be wrong. Only reason it hasnt happened is because US rates are abnormally low.
The moment US rates start tightening (and it has to happen at some time in the next few years), our currency will depreciate like crazy.
Let us assume a few approximate prices and see (dont remember exact prices)
Year X USD/Rupee X Median US house price X DDA flat 2BHK price in Rs (dollar) X Ratio India house/US house
1982 X ? 12 X50,000$ X1,00,000 Rs (=8000$) X6.25
1987 X? 18 X75,000$ X8,00,000 Rs (=40,000$)X 1.85
1992 X30 X100,000$ X6,00,000 Rs (=50,000$) X2.0
1997 X35 X150,000$ X25,00,000 Rs (=70,000$)X 2.0
2002 X45 X200,000$ X35,00,000 Rs (=70,000$)X 2.85
2007 X45 X250,000$ X80,00,000 Rs (=175,000$) X1.42
2011 X45 X225,000$ X125,00,000 Rs (=275,000$)X 0.81
So historically US homes have costed around twice the price of a DDA flat. 1982 I dont remember the US exchange rate (strangely, could not find a good web site going back that far - anyone can post a good link????) , but US median housing price readily available - I have rounded off for easy analysis. For rIndia, I went with DDA flat whose market price I know.
Currently, US homes are cheaper than in India. For reversion to mean, this ratio, currently 0.8 has to go back to about 2.
So one of three things has to happen
1. US homes have to appreciate by 100% (double). Seems impossible, but with inflation stoking by printing currency, ultimately it will happen
2. India prices have to fall 50% (RE bull theory proved wrong guys believe this).
3. USD has to appreciate 100% (i.e double to 90 per dollar).
It can happen in any ratio. Over the long term, probably, 30% of each of these will happen i.e US prices will rise 30%, Indian prices will fall 30% and USD will appreciate 30% i.e Rupee depreciation of 30%.
Question is which will come first? I as a RE bull theory proven right person, believe the order will be: Fall in Indian prices by 30% (happening right now), Rupee depreciation by 30% (expect to happen in next one year) and then US house appreciation by 30% (probably take 5 years and more)
OR - Rupee can show run away depreciation. I remember 1991 when there was flight of capital. We had to devalue and shift to semi float. From 18Rs to dollar price went to 30 Rs to dollar if I remember right.
If there is flight of capital, same thing can happen again. All of our forex reserve is hot money from FII who want to chase our volatile stock markets.
We cannot allow them to put money in our gilt bonds - because with US rate at 0% and Indian rate at 8.4% or so, that is an arbitrage which will either bankrupt us or shift our rates to about 4% which would stoke the wildest inflation we have ever seen and collapse our monetary system.
Our only option is to allow them to take their money and go and face a massive depreciation of Rupee - which will cause a bad recession and also stoke oil price inflation.
The truth will lie somewhere in between -30/30/30 I wrote above is the safest prediction possible
1. The average salary of people in India is nowhere near that of people in the developed nations
2. The infrastructure cannot be compared to those in developed nations
3. The quality of construction / fittings cannot be compared to those in developed nations
4. Even the type of ownership cannot be compared to those in the developed nations. What we terms as "flats" are termed as "co-ops" in the US .. these are considerably cheaper than independent houses / condos as one does not own the 4 walls of the apartment or the land on which the dwelling stands. Can someone tell me how much it would cost to have a 3 bed "house" (not flat) in Mumbai??
Any thoughts? I know a lot of people make a lot of money in India .. but am talking abt the Average Joe on the street not the investment banker types here. For me .. the math just doesn't add up. People are paying 1.5 Lakhs rent in Bandra .. that's as much as one would pay in Manhattan in one of the swanky towers there .. and from what I could make out of the note .. this is just the beginning .. jeez .. give me a break.
Look at any of the recently released buildings .. not even 10-20% of the lights are on in the evenings .. as middle class .. are we just shooting ourselves chasing this dream of owning a home?[/QUOTE]
The answer to your question is simple - currency depreciation.
Right now, Indian Rupee is temporarily strong. So you are calculating 1Crore = 200,000 dollars. But if our currency depreciated to 90Rs to the dollar, 1Cr = 100,000 dollars.
Since whatever you have said above is absolutely true, something has to give way and that something is our currency.
So expecting 60Rs to the dollar within the next one year would not be wrong. Only reason it hasnt happened is because US rates are abnormally low.
The moment US rates start tightening (and it has to happen at some time in the next few years), our currency will depreciate like crazy.
Let us assume a few approximate prices and see (dont remember exact prices)
Year X USD/Rupee X Median US house price X DDA flat 2BHK price in Rs (dollar) X Ratio India house/US house
1982 X ? 12 X50,000$ X1,00,000 Rs (=8000$) X6.25
1987 X? 18 X75,000$ X8,00,000 Rs (=40,000$)X 1.85
1992 X30 X100,000$ X6,00,000 Rs (=50,000$) X2.0
1997 X35 X150,000$ X25,00,000 Rs (=70,000$)X 2.0
2002 X45 X200,000$ X35,00,000 Rs (=70,000$)X 2.85
2007 X45 X250,000$ X80,00,000 Rs (=175,000$) X1.42
2011 X45 X225,000$ X125,00,000 Rs (=275,000$)X 0.81
So historically US homes have costed around twice the price of a DDA flat. 1982 I dont remember the US exchange rate (strangely, could not find a good web site going back that far - anyone can post a good link????) , but US median housing price readily available - I have rounded off for easy analysis. For rIndia, I went with DDA flat whose market price I know.
Currently, US homes are cheaper than in India. For reversion to mean, this ratio, currently 0.8 has to go back to about 2.
So one of three things has to happen
1. US homes have to appreciate by 100% (double). Seems impossible, but with inflation stoking by printing currency, ultimately it will happen
2. India prices have to fall 50% (RE bull theory proved wrong guys believe this).
3. USD has to appreciate 100% (i.e double to 90 per dollar).
It can happen in any ratio. Over the long term, probably, 30% of each of these will happen i.e US prices will rise 30%, Indian prices will fall 30% and USD will appreciate 30% i.e Rupee depreciation of 30%.
Question is which will come first? I as a RE bull theory proven right person, believe the order will be: Fall in Indian prices by 30% (happening right now), Rupee depreciation by 30% (expect to happen in next one year) and then US house appreciation by 30% (probably take 5 years and more)
OR - Rupee can show run away depreciation. I remember 1991 when there was flight of capital. We had to devalue and shift to semi float. From 18Rs to dollar price went to 30 Rs to dollar if I remember right.
If there is flight of capital, same thing can happen again. All of our forex reserve is hot money from FII who want to chase our volatile stock markets.
We cannot allow them to put money in our gilt bonds - because with US rate at 0% and Indian rate at 8.4% or so, that is an arbitrage which will either bankrupt us or shift our rates to about 4% which would stoke the wildest inflation we have ever seen and collapse our monetary system.
Our only option is to allow them to take their money and go and face a massive depreciation of Rupee - which will cause a bad recession and also stoke oil price inflation.
The truth will lie somewhere in between -30/30/30 I wrote above is the safest prediction possible
Saturday, January 1, 2011
Long term predictions and predictions for 2011
Wish you all a very happy new year.
Before making any predictions for 2011, I would first like to make some long term predictions.
Usually these are supposed to be easier to get right than short term predictions, but let us see.
Predictions are from 2010 to 2050. All dollar values in current value not inflation adjusted.
Economy:
USA: I expect the USA to go into a fairly long term low production growth situation. Having peaked at $45000 per capita GDP per annum, I expect much slower growth of maybe 0.5% per annum in productivity. Total productivity rise can only take place with increasing population of immigrants who will be less productive than the mean – so productivity per capita should fall even if the total GDP rises. This means Americans will be progressively less wealthy and will fall to meet the rising East Asia.
I am failing to see the kind of innovations from 1980-2010 in computers, telephony and internet which transformed society. I don’t think there is any such enormous technological shift in the near future which increased productivity drastically. USA will remain a 15 trillion economy till 2050, unless they encourage massive migration
Europe: I anticipate steady state. Productivity will be dependent only on the aging phenomenon and demographic shifts. Productivity of 6 trillion in Germany, 4 trillion in UK, France and Italy each. Probably 20 trillion in whole of Europe put together.
Japan: Status quo. 4 trillion economy
Korea, Taiwan, Singapore: Will reach developed country status of 45000 dollars per capita very soon. Total economy will grow because of younger population and will flatten trajectory by 2030. Probable economy size of South Korea would be 4 trillion, Taiwan 2 trillion.
Indonesia, Malaysia, Tailand: Will accelerate productivity growth to reach Korea levels in next 20 years and by 2050, Tailand and Malaysia at least should have reached 45000 levels (or whatever level inflation adjusted). Which means Indonesia 5 trillion, Malaysia 5 trillion, Thailand 3 trillion $.
China: Currently at 4000 dollars, it may rise to 8000 by 2020, 15000 by 2030 and mean productivity of 25000 per capita per annum is possible by 2050. It will be a massive economy and supreme super-power. Probable size of economy 30 trillion.
India: I anticipate a lot of struggle to rise.
It is the only economy facing multiple hurdles and suffering from stupidity on a massive scale, with inability to learn modern ways. Currently it is at 1000 $ per capita per annum. With insufficient infrastructure and training, will reach 2000 $ per capita by 2017 assuming 9% growth, which is by no means certain.
India is facing massive government failure and economic failure, given the speed with which every other economy is racing ahead. The capable elite in India is prevented from leading the country by disenfranchising the educated population, unsustainable taxation levels which kill growth and encourage low grade parallel economy in black. The current population of 15 million elites, who were released from shackles in 1992, have propelled the last 2 decades of growth, with current ptoductivity of around 20,000$. Their numbers have failed to reach critical mass. They will probably double in the next 10 years to 30 million, since the population is young and 1 to 2 children from each family will be added to the productive population, along with slow accretion from the lower classes. The rest of the population currently consists of 150-200 million at 2000 $ per annum and 800 million at 500$ per annum.
Much of India’s growth is going to come from movement of an unpredictable number from 500$ per annum to 2000$ per annum and beyond to 3-4000$ per annum.
By 2020 one can expect the 2-3000$ producing workers to increase to around 300 million, 4-500 million by 2030 and 1000 million by 2050. Best case scenario for per capita productivity gain is 2000$ by 2017, 4000$ by 2025. I actually expect 8000$ in 2050, because I anticipate problems which would prevent doubling every 7 years. Which means probable size of economy is 8 trillion.
However, if India overcomes its problems, it could reach 15000$ per capita by 2050 and a 15 trillion economy, which would be a best case scenario.
However, please note that a 500 to 5000 $ productivity transition is twice as good as a 5000 to 25000 transition and five times better than a 25000 to 50,000 transition and is a much better business opportunity because the unconsuming become consuming rather than already consuming upgrading their consumption. So for businesses, India is the best
Russia, Brazil: Currently at 10,000 per annum, should reach 45000 by 2050, matching developed country. So they will be some 8-10 trillion each.
Politics
USA: It is likely to see marked shifts in focus in internal and external politics.
The total growth of population being needed for increase in economy size, there will be marked fights between the right and left on immigration. Currently, with underemployment, we are likely to witness a prolonged shift against immigration, until the excess unemployed workforce gets employed again. Since currently democrats are in power, they are likely to shift to right against immigration for the next election. As a repercussion, a fairly prolonged 5-7 year anti immigration wave is likely. If democrats win re-election, the anti-immigration will be overturned as soon as the economy recovers, maybe by 2014. If republicans win in 2012, the anti immigration is likely to continue till 2016 re-elections are over. After that, both parties would encourage immigration on a fairly large scale.
Lower paid workers would be needed for the infrastructure upgrades, health care and nursing for elderly. Mexico is currently at 10,000$ per capita. By 2016 this should be close to $15,000.
Infrastructure of Mexico is much better than India and there is no real incentive for richer Mexicans to go to USA where they will be looked down upon as “illegals”. Same may be the case with east Asia, where incomes and productivity will reach developed country levels soon. So I expect that only the poorest grade of workers would come from Mexico to USA, largely illegals.
USA will also encourage the best workers to immigrate there. Since most of East Asia would be close to attaining productivity of 40-45000$ per annum on their own, in all probability, Indians, currently stuck at 20,000$ productivity and salary would be the most likely to emigrate to USA. Within a few years, there is likely to be massive migration of highest grade of Indian workers to USA, maintaining the trend seen over the last 2 decades. Doctors, IT workers, Managers and Finance pros are the most likely people who might migrate to USA. Where they can shift from $20,000 to $60-80,000 paying jobs and more. They will also have the attraction of much better infrastructure, law and order, lack of corruption, health care and no chaos.
In other internal politics, democrats will try to increase taxes to pay for health and elderly care, but that will lose elections.
Also, democrats don’t have children whereas right wing republicans have lots of children, increasing their voter base.
The only quick fix is to import doctors, nurses (Philipinos and Latinos) and cleaners/construction workers (latinos). They will also have to reduce the doctor and nurse pay – currently 200,000 and more per annum / 45,000 per annum. This is likely to further reduce the incentive for whites to undergo prolonged training and difficult working conditions.
In international politics, USA will try to maintain its pre-eminence by a few tactical strikes.
There are two main strategic goals for USA. One is to prevent Iranian oil and Ex-USSR republics oil from being piped to China, without at the same time encouraging massive terrorist strikes in retaliation. Second is to encircle China.
Currently, USA is encouraging Ex-USSR oil republics to pipe oil to India and Pakistan. It is in our interest to cooperate in this, possibly using US capital for it.
Once this is in place, USA will probably encourage Israel to carry out air strikes in Iran nuclear sites. Iran will probably retaliate by trying to bomb the USSR-India pipelines and other US assets, which will give USA the excuse needed to effect a regime change in Iran. Once in control of Iranian oil, it will again try piping the oil to India through Pakistan.
Its policy of encirclement of China should see USA encourage India to have more border disputes with China, encourage India to be permanent member of UN – (the latter only if India stops being stupid and learns how to play the great game, which currently it does not), and engaging with Bangladesh to counter Chinese presence in Chittagong and to discourage Muslim extremists there. It may also try to boost tourism in Nepal and Tibet. It will probably leave Taiwan and North Korea alone, since China has given nuclear weapons to N Korea to deter USA (same as with Pakistan).
Once US economic situation improves, it is likely to target Chinese economy by trade wars.
China is probably trying to counter these moves in many ways. First by scaring India from being a partner with USA in these by war mongering. Second by using Indian communists as a fifth column sabotaging these efforts. Third by building its own oil pipeline from Baluchistan to China, which can then be linked to both Iran and Ex-USSR oil. Fourth, by encouraging North Korean belligerence and using the threat to peace as a bargaining counter in preventing US attack on Iran and reducing the efficacy of US encirclement of China. It will also increase presence of Chinese navy in Chittagong, Rangoon and Columbo ports. There is a possibility of China Iran military pact with stationing of Chinese forces in Iran to prevent Israel or US attacks. Fifth, China is busy reducing its reliance on US economy and is in a race to see whether US recovers first or China reduces dependence levels first.
All Indications are that Chinese efforts have been superior to USA and it will win the strategic battle.
India has shown itself to be a bad friend to USA and too unreliable for any real push from USA in these tactical and strategic goals.
Europe and Japan are likely to partner USA in these efforts, all of which require Indian cooperation for any bite.
By 2015 I expect the Iran situation to spin out of control, which will coincide with an oil super spike, if and when it happens.
By 2020 I expect China to win the supremacy battle with USA and massive recruitment of its population in a wordwide army stationed in strategic positions in South America, Africa, Middle East and Asian trouble spots.
USA will join battle and there will be a re-emergence of a cold war for world domination. Unless India joins in the battle on the side of the Whites, China will probably win the war, since its economy is in shape unlike USSR was.
China: Apart from its counter moves to US actions (US moves which appear quite constrained and limited, US seems basically helpless) China will be going full force in building a massive entente against the US led West.
Its main partner will probably be Russia. Russia plus China is a most dangerous combination and US will counter this by probable alliances with EX-USSR republics like Khazakhstan. They will probably fail and a massive Asian entente of Iran, Central Asia, Russia on one side and China on the other side consuming their output seems likely.
China will also build up its Navy and engage with Brazil, Argentina and other South American and African countries.
In its internal politics, China will probably keep succeeding as long as it is able to run its economy properly. Its efforts in the last 2 years have been masterly – possibly they understand economics and politics better than even Anglo Saxons. Whenever Chinese economy falters, chances of robust diplomacy/ war is likely to increase.
India. India faces complete political failure.
Our leaders are ineffective both in Congress and BJP.
Alternatives in BSP, SP and Communists are probably downright anti-national and economically suicidal.
Improvement in political leadership requires reform in Congress and BJP. Both seem currently incapable.
Long term change will probably require a complete breakdown to happen – either war with Pakistan/China, a massive Maoist rebellion or complete economic breakdown. Of these, war would be the most welcome alternative. Complete economic breakdown will probably not result in reforms and would be counterproductive, leading to a failed state and widespread chaos.
Internal: Congress is likely to initiate big reforms and elimination of corrupt and old people. It is more likely to succeed than BJP, whose efforts so far have been laughable.
I anticipate emergence of Arun Jaitly and Sushma Swaraj as the new leadership at center and dwindling of the rest. Possibility of Nitish Jumar as PM is possible if these prove ineffective in next 3 years and if Nitish proves effective. BJP will have to shed its old fashioned fuddy duddy image and become more modern if it is to succeed. If BJP loses next 2014 election it is likely to emerge stronger later on.
Congress needs massive modernization, which it has so far shown great reluctance to do. A lot depends on Sonia’s next move for the party. Long term over the next 40 years, the main trend is likely to be atrophy of regional parties and strengthening of large central parties i.e. Congress and BJP.
The period of breakway and small parties seen from 1990 to 2010 is likely to reverse direction slowly over the next 10 years and gain momentum.
By 2025, I expect disappearance of BSP and SP.
DMK and AIADMK will have to give up opportunistic alliance and chose sides with either BJP or Congress on long term basis and give up a lot of political space to these parties.
UP, MP, Maharashtra, Karnataka and AP are likely to see subdivisions into smaller states.
If India has to prosper, there has to be planned urbanization and setting up of city states. I expect our politicians to fail in delivery of this, which will lead to emigration of the best talent out of the country.
In foreign policy, extreme stupidity and inability to side with the Anglo saxon world will continue.
Pakistan: I expect a status quo in Pakistan which will play off China against USA without taking sides. In case of war between India and China, it is likely to launch an opportunistic attack on Kashmir. It is likely to be a big beneficiary of the oil economy from Iran and Central Asia if it plays its cards right – currently it is being stupid. Ideally it should seek massive investments in oil and oil based manufacturing by getting rid of the terrorists and taleban etc. So far, it has shown as much stupidity as India in making right economic moves. Its political leadership has failed the Pakistani middle class which is larger than India, wealthier and better educated, when seen in percentage terms of total population vis a vis India.
·Demographics.··Chinawill reap the demographic dividend of population control by the simple expedient of deserting its old and infirm and focusing on the young, its future. It will simple allow the old people to die and not worry overmuch about their standard of living. This is a big difference between China and the West, the latter being forced to look after its old. By this simple method, China will overcome the overhang of aging population and march ahead. ··USA will face a slow graying of its population. Baby boomers will become old all of a sudden just 10 years from now and will live into their 90s, putting strain on its economy. Growth in economy will have to come from immigration.
Russia will continue to dwindle in numbers even as its population gets much wealther, same as Eastern Europe.
India will face large scale political disruption as its young population gets impatient with the stupidity of its political leadership. However, every youth succeeding in politics will be corrupted and will fail to deliver anything, this being our national tendency. Real leadership will only come from the 50 something generation – when they realize that our restive population is asking for a change from current corrupt ways, they are likely to effect a change.
Arun Jaitly and Sushma Swaraj seem the only possible leadership which might emerge, who have sufficient intelligence to transform India to suit its young population’s requirements. If the stupid BJP leadership does not recognize their intelligence and continue with idiots like Gadkari, their party will fail completely.
Congress is likely to look for leadership from Rahul. If he fails them, their current anachronistic chaotic party system will also fail. Although Rahul is dumber than most other politicians, he has sufficient support from the party and people – just like Rajiv Gandhi – and is likely to be asked to take over the party with in the next 5-6 years. If he waits longer, he will fail and his party will go into terminal decline.
It is impossible to predict longer than the next 10 years for India because unlike China and USA, where there is effective leadership and stability of thinking and social movements, in India, everything depends on both our parties effecting life saving changes. If they fail in the next 10 years, India will fail as a state and is likely to break up, helped by China, Pakistana and Maoists/Communists
·Weather: The latter part of 19th and whole of 20th century has been exceptionally benign from extreme weather. This window period is now over and the world will return to extreme vagaries of nature in the next 40 years. Anything predicated on good weather – like Indian and Chinese farming practices, will face stress and this is likely to be one of the big negatives for the increase of Indian productivity upgrade above 500$.
·Stocks. India is in a long term bull phase which will last for 50 or more years. There will be cyclical patters within this, but the growth chart will be like the Dow from 1930 to 2000.
China will be similar or even better.
Europe and USA will be flat or show 2-3% growth – any growth higher than this will come entirely from the operation of multinationals.
Russia and Brazil will be the best performers and will rise meteorically. ·
RE. India and China are both in a fantastic long term bull phase.
India will perform better than China because it will be more inefficient in its urbanisation. Any efficiency like the coming of the RE regulator, improvement in land use laws, improvement and computerization etc will initially cause a small term downtrend for a short period which will be followed by a massive upmove as more and more people enter the RE consumption place. Again, India will be dominated by the first time buyers while China will be dominated by the upgraders from small 2BHK (current Chinese all families have 2BHK of 600-1000sf, from which they will shift to 4BHK 2000-2500 sf carpet area which is the norm for developed nations.
USA will depend entirely on immigration for its growth and for the next 20 years one should expect static markets.
Europe will be static.
Brazil will grow while Russia will be a declining market.
Basically RE growth/decline will be based on demographics.·
Bonds: As we recover slowly from the economic crisis, expect rise in bond yields to around 5-6%. Rates will rise all over the world and will be linked to inflation. Robust central bank actions will be increasingly perceived as deleterious to the economy and the trend to have too many rate adjustments will decrease. Within 10 years, inflation control will become the main purpose of central banks and not growth stimulation. In USA, I expect current low rates to continue for a few years, with slow upward bias. This will change to sharp upward bias when there is sudden and extreme inflation. At that point, there will be a crash in the bond market and rates will probably reach 8%. Europe will be similar with more stabe rates than USA. China and India will have corresponding changes too – so in India, rates of 15-17% can be expected when US rates become 8%. Probability of this happening is high in the next 10 years. After this round of rate increase, the rates are likely to stabilize around 5-6% for the long term and same will happen in India.·
Gold. This will be highly volatile. Its value will be in focus for the next 10 years. After that when world returns to stability with steady bond rates, gold will lose its value. Within 20-25 years, it will lose its status as a proxy for money and prices will decline to its production value and consumption value as jewelery. It is unlikely to return to favour for the rest of this century, because a lot of people will have observed its behaviour and would have learnt its ways and would have also burned their hands.
Gold is the classic speculation – something of no value being bid up in price based entirely on the greater fool theory. Those who are stuck in it last – when the gold bubble bursts, will never again return to this metal and will warn all future investors against it.
However in the near future, gold will be one of the best repositories of value – as we wait for the economy to recover and the rates to rise suddenly. Everyone in gold is basically waiting for the sudden global inflation event, as the QE and rate lowering across the world finally finishes. After this inflation event, which will last for 2-3 years and even more in some countries like India, gold will collapse. The better one times exit from gold, better ones returns – selling at the last possible moment before collapse will deliver fantastic returns, sudden crash will wipe out a lot of gains. Since every bubble has many bull market corrections, it will be a difficult to ride this upmove, but basic allocation to gold is essential until the inflation even is behind us.
·Education. The price of education will fall in USA as earning capacity will become more constrained. The difference between the intelligent and highly trained getting 200,000 and more $ per annum versus the stupid and untrainable who will earn 25000 $ per annum will widen. Many Americans in low paying jobs will find that they are better qualified and capable than many in the Asian economies who are less efficient and earn better – these whites will increasingly take up jobs in BRIC countries, which will limit the amount of salary increase one can possibly get in BRIC. In India, tose earning around 25000$ i.e. 1L per month will find that their future growth prospects are being dimmed by whites taking away job opportunities in the 75000$ per annum range i.e. 3-4L per month. The west will lower the bars for education in medicine, currently 12-14 years of training, making it easier for whites to enter medicine in the general practitioner level. Probably, they will make it 8 years of training. This will probably limit the number of Indians who enter medicine in West. General pay for doctors will also fall to 200,000 dollar levels.
In other fields, the entry barrier for education leading to high paying jobs will widen. Initial investment in education for engineering and technical fields will increase to around 150,000 dollars for jobs paying over 100,000 dollars per annum. This will greatly restrict the field for those who are less talented and are unproductive i.e. most lawyers and finance executives, whose pay will decrease and also the entry fee for management education and law education will fall.
Computer will be the top field after medicine in USA, followed by other engineering fields.
In India, focus will shift to better organized fields for education. Engineering and software will be top followed by manufacturing. Management will slowly fall in value as management skills improve across the population regardless of training.
Medicine will see chaos because of the current reservation policy and is unpredictable what will actually happen.
Long term, there will be shift from govt sector to private medical colleges, but fees will fall as earning capacity and capacity to deliver good medical care will slowly come into focus. Regulation of the medical field is likely to improve but only after a widespread failure event.·
Wars. In the long term , all wars will be resource wars. War over oil access is likely to be a cold war between China and USA. War over water access is likely to be border wars between India on one side and China, Nepal, Bangradesh and Pakistan on the other.
PROBABILITIES IN LONG TERM PREDICTIONS
Probablity:
Long term ecomomic direction:
USA static picture with immigration determinant ~ 100%
China rising to 25,000$ production by 2050 ~ 100%
All other countries ~ 100%
India rising to 8-10,000$ by 2050 ~ 50%, main limitation is weather, wars and Maoism/govt failure
Best place to invest: China, Brazil, Russia.
Best possibility of higher return with high risk high reward scenario:India
Wars:
Cold war with China and USA ~100%
Hot war action by USA ~5%
Hot war action by China depends on economic slump.
Since long term rise of China is likely to be marked by many market corrections, every major downturn will increase the risk of hot war from China.
Risk of one Chinese war ~20%. Tisk of second and many wars if one war has already taken place ~100%.
So peace on earth is mainly determined by China rising peacefully and not initiating the first war.
Risk of India having a war with one of its neighbors in next 50 years ~ 50%.
Risk of India China war ~5%,
Risk of India Pak war ~40%,
risk of military action on Nepal and Bangladesh border 5%.
Any India was other than with China will showcase the futility of war and will probably reduce incidence of second war.
Reasons for predictions : We have had 5 wars in last 60 years. Current neighbors more unfriendly than before. Chances of govt failure being percieved as complete collapse of India govt are high. Probable time frame for war is around the time of the extreme inflation event which as anticipated might transpire in 5-6 years time.
Demographic predictions: ~100%
RE for India:
Bull phase for 50 years ~100%.
Following of 7-8 year RE cycle ~100%.
Since previous bull phase of 2004-2008 was extra-ordinarily strong, next bull phase in 2014-2018 is likely to be weak.
However, in caser this RE bull phase coincides with the anticipated hyper inflation event, there will be combined increase in price drastically combined with economic turbulence – so there will be combined high rates and economic chaos preventing new release of vacant property combined with extreme price volatility. It will be very difficult to be able to buy property in this scenario. It is therefore better to complete one’s planned acquisitions before these events transpire. Once we cross this inflation and turbulence event, likely to be over definitely by 2020, once things settle down, one can buy better quality RE with better inflastructure in tranquility. Those planning to buy should buy now or hold their peace for 10 years, wait out the turbulence and then buy. The next bull phase is likely to be quite risky and difficult time to buy.
Gold ~50% chance of things happening as predicted. Other 50% chances are that gold collapses much before massive rise (25%) and gold becomes defacto currency because of widespread currency failures and wars (5%) and that gold maintains current status quo bull phase for extended periods over 50 years (20%)
Predictions for 2011 for India:
Stocks
Chance of a 10-15% correction very high ~70%.
Chance of status quo at nifty 6000~ 20%.
Chance of a upmove to Nifty 6500-6700 ~ 10%
Chance of big upmove to Nifty 7000 ~ 5%.
India will be a very difficult stock pickers market with very few companies.
Advice – SIP investment if longer term. Avoid for short term.
Most likely shorting opportunity for a 15% fall is around Feb-March.
After that, get into metals (Hin zinc, Hindalco) and oil (Reliance) as the best betw for 2011. FMCG: steady.
IT: steady.
Infrastructure: steady.
Pharma: upwards.
Bonds: Chances of falling price high ~100%.
Rates might move to around 9% at least in 2011.
Advice: Avoid Bond funds totally (except liquid and FMP). Wait for March for maximum of the expected rate rises to be factored in before getting into FD/FMP.
Commit 90% of capital to fixed return for best returns, unless following a bigger asset allocation plan.
Gold: Chances of 10-15% rise very high around 90%. Invest 10% of capital
Rupee: Likelihood of steady state ~60%. Chances of rise by 10% around 10% based on USD weakness. Chances of 10% fall of around 30% because of high inflation in India.
Economy: Should grow at 8-9%
Crude: Should show upward bias. If Rupee remains constant as expected, then based on dollar rates should rise 5% which translates into probably 3-4 Rupee rise in petrol and 1-2Rs rise in Diesel. If 30% chance of Rupee falling 10% comes about, then Petrol rise of 6-7 Rs and Diesel of 3-4 Rs. So a miniomum rise of 5% is almost inevitable
Inflation: Will move upwards. Food inflation is probably over. Commodities i.e metals and crude will rise and contribute most to inflation
Politics:
I expect the current chaotic misgovernance of Congress to continue.
I expect Pranab, who is a shrewd finance minister to have no more fiscal profligacy, which is essential for inflation control. Because of his record over last 1 year, I think inflation will taper towards end of 2011.
Jairam Ramesh will probably face stings/ exposures and will be forced out.
BJP shows no signs of growing up.
Crucial year for Mayawati – if she delivers some big things in this year, she will win the next election. Most likely big event should be opening of the Yamuna expressway and sudden announcement of some big projects along it. An airport or two would also be important – she should grandstand for a big fight with center for airport issue.
Chances of Karunanidhi dying and political chaos in Tamil Nadu.
RE: Downward bias.
NOIDA: Expect large scale abandonment of projects in NOIDA because of metals and cement price inflation. Buy only in under construction/finished products in NOIDA. NOIDA prices will be steady with upward bias, because prices already very low.
Gurgaon: Expect poor sales in recent launches – avoid booking for quick re-sale of booking.
Prices will be steady for 2011 with downward bias for plot prices.
Kundli: Expect 10-15% correction. If bought for short term in 2010 middle this is the selling time
Faridabad: Expect 20% price correction in plots. Again, now and the previous 2 months were best time to sell as in Kundli
Daruhera, Bhiwadi: No resales will be possible. People will have to wait for 3-4 years to sell plots.
Small town India: Steady prices with upward bias
Mumbai: Steady prices 50% chance, Fall in price by 20% likelihood of around 50%
Pune: Steady prices with slow construction and poor sales in new launches.
Chennai: Steady
Bangalore: Steady with upward bias of maybe 10-15%.
Kolkata: Doldrums until election results are out.
Invest in RE in 2011 if
Own use only, avoid investment in RE
Part of larger asset allocation plan for 30% in RE. 2009 was the best time to book in new project, avoid it now
If allocating fresh capital, go only for finished products or under construction projects.
Before making any predictions for 2011, I would first like to make some long term predictions.
Usually these are supposed to be easier to get right than short term predictions, but let us see.
Predictions are from 2010 to 2050. All dollar values in current value not inflation adjusted.
Economy:
USA: I expect the USA to go into a fairly long term low production growth situation. Having peaked at $45000 per capita GDP per annum, I expect much slower growth of maybe 0.5% per annum in productivity. Total productivity rise can only take place with increasing population of immigrants who will be less productive than the mean – so productivity per capita should fall even if the total GDP rises. This means Americans will be progressively less wealthy and will fall to meet the rising East Asia.
I am failing to see the kind of innovations from 1980-2010 in computers, telephony and internet which transformed society. I don’t think there is any such enormous technological shift in the near future which increased productivity drastically. USA will remain a 15 trillion economy till 2050, unless they encourage massive migration
Europe: I anticipate steady state. Productivity will be dependent only on the aging phenomenon and demographic shifts. Productivity of 6 trillion in Germany, 4 trillion in UK, France and Italy each. Probably 20 trillion in whole of Europe put together.
Japan: Status quo. 4 trillion economy
Korea, Taiwan, Singapore: Will reach developed country status of 45000 dollars per capita very soon. Total economy will grow because of younger population and will flatten trajectory by 2030. Probable economy size of South Korea would be 4 trillion, Taiwan 2 trillion.
Indonesia, Malaysia, Tailand: Will accelerate productivity growth to reach Korea levels in next 20 years and by 2050, Tailand and Malaysia at least should have reached 45000 levels (or whatever level inflation adjusted). Which means Indonesia 5 trillion, Malaysia 5 trillion, Thailand 3 trillion $.
China: Currently at 4000 dollars, it may rise to 8000 by 2020, 15000 by 2030 and mean productivity of 25000 per capita per annum is possible by 2050. It will be a massive economy and supreme super-power. Probable size of economy 30 trillion.
India: I anticipate a lot of struggle to rise.
It is the only economy facing multiple hurdles and suffering from stupidity on a massive scale, with inability to learn modern ways. Currently it is at 1000 $ per capita per annum. With insufficient infrastructure and training, will reach 2000 $ per capita by 2017 assuming 9% growth, which is by no means certain.
India is facing massive government failure and economic failure, given the speed with which every other economy is racing ahead. The capable elite in India is prevented from leading the country by disenfranchising the educated population, unsustainable taxation levels which kill growth and encourage low grade parallel economy in black. The current population of 15 million elites, who were released from shackles in 1992, have propelled the last 2 decades of growth, with current ptoductivity of around 20,000$. Their numbers have failed to reach critical mass. They will probably double in the next 10 years to 30 million, since the population is young and 1 to 2 children from each family will be added to the productive population, along with slow accretion from the lower classes. The rest of the population currently consists of 150-200 million at 2000 $ per annum and 800 million at 500$ per annum.
Much of India’s growth is going to come from movement of an unpredictable number from 500$ per annum to 2000$ per annum and beyond to 3-4000$ per annum.
By 2020 one can expect the 2-3000$ producing workers to increase to around 300 million, 4-500 million by 2030 and 1000 million by 2050. Best case scenario for per capita productivity gain is 2000$ by 2017, 4000$ by 2025. I actually expect 8000$ in 2050, because I anticipate problems which would prevent doubling every 7 years. Which means probable size of economy is 8 trillion.
However, if India overcomes its problems, it could reach 15000$ per capita by 2050 and a 15 trillion economy, which would be a best case scenario.
However, please note that a 500 to 5000 $ productivity transition is twice as good as a 5000 to 25000 transition and five times better than a 25000 to 50,000 transition and is a much better business opportunity because the unconsuming become consuming rather than already consuming upgrading their consumption. So for businesses, India is the best
Russia, Brazil: Currently at 10,000 per annum, should reach 45000 by 2050, matching developed country. So they will be some 8-10 trillion each.
Politics
USA: It is likely to see marked shifts in focus in internal and external politics.
The total growth of population being needed for increase in economy size, there will be marked fights between the right and left on immigration. Currently, with underemployment, we are likely to witness a prolonged shift against immigration, until the excess unemployed workforce gets employed again. Since currently democrats are in power, they are likely to shift to right against immigration for the next election. As a repercussion, a fairly prolonged 5-7 year anti immigration wave is likely. If democrats win re-election, the anti-immigration will be overturned as soon as the economy recovers, maybe by 2014. If republicans win in 2012, the anti immigration is likely to continue till 2016 re-elections are over. After that, both parties would encourage immigration on a fairly large scale.
Lower paid workers would be needed for the infrastructure upgrades, health care and nursing for elderly. Mexico is currently at 10,000$ per capita. By 2016 this should be close to $15,000.
Infrastructure of Mexico is much better than India and there is no real incentive for richer Mexicans to go to USA where they will be looked down upon as “illegals”. Same may be the case with east Asia, where incomes and productivity will reach developed country levels soon. So I expect that only the poorest grade of workers would come from Mexico to USA, largely illegals.
USA will also encourage the best workers to immigrate there. Since most of East Asia would be close to attaining productivity of 40-45000$ per annum on their own, in all probability, Indians, currently stuck at 20,000$ productivity and salary would be the most likely to emigrate to USA. Within a few years, there is likely to be massive migration of highest grade of Indian workers to USA, maintaining the trend seen over the last 2 decades. Doctors, IT workers, Managers and Finance pros are the most likely people who might migrate to USA. Where they can shift from $20,000 to $60-80,000 paying jobs and more. They will also have the attraction of much better infrastructure, law and order, lack of corruption, health care and no chaos.
In other internal politics, democrats will try to increase taxes to pay for health and elderly care, but that will lose elections.
Also, democrats don’t have children whereas right wing republicans have lots of children, increasing their voter base.
The only quick fix is to import doctors, nurses (Philipinos and Latinos) and cleaners/construction workers (latinos). They will also have to reduce the doctor and nurse pay – currently 200,000 and more per annum / 45,000 per annum. This is likely to further reduce the incentive for whites to undergo prolonged training and difficult working conditions.
In international politics, USA will try to maintain its pre-eminence by a few tactical strikes.
There are two main strategic goals for USA. One is to prevent Iranian oil and Ex-USSR republics oil from being piped to China, without at the same time encouraging massive terrorist strikes in retaliation. Second is to encircle China.
Currently, USA is encouraging Ex-USSR oil republics to pipe oil to India and Pakistan. It is in our interest to cooperate in this, possibly using US capital for it.
Once this is in place, USA will probably encourage Israel to carry out air strikes in Iran nuclear sites. Iran will probably retaliate by trying to bomb the USSR-India pipelines and other US assets, which will give USA the excuse needed to effect a regime change in Iran. Once in control of Iranian oil, it will again try piping the oil to India through Pakistan.
Its policy of encirclement of China should see USA encourage India to have more border disputes with China, encourage India to be permanent member of UN – (the latter only if India stops being stupid and learns how to play the great game, which currently it does not), and engaging with Bangladesh to counter Chinese presence in Chittagong and to discourage Muslim extremists there. It may also try to boost tourism in Nepal and Tibet. It will probably leave Taiwan and North Korea alone, since China has given nuclear weapons to N Korea to deter USA (same as with Pakistan).
Once US economic situation improves, it is likely to target Chinese economy by trade wars.
China is probably trying to counter these moves in many ways. First by scaring India from being a partner with USA in these by war mongering. Second by using Indian communists as a fifth column sabotaging these efforts. Third by building its own oil pipeline from Baluchistan to China, which can then be linked to both Iran and Ex-USSR oil. Fourth, by encouraging North Korean belligerence and using the threat to peace as a bargaining counter in preventing US attack on Iran and reducing the efficacy of US encirclement of China. It will also increase presence of Chinese navy in Chittagong, Rangoon and Columbo ports. There is a possibility of China Iran military pact with stationing of Chinese forces in Iran to prevent Israel or US attacks. Fifth, China is busy reducing its reliance on US economy and is in a race to see whether US recovers first or China reduces dependence levels first.
All Indications are that Chinese efforts have been superior to USA and it will win the strategic battle.
India has shown itself to be a bad friend to USA and too unreliable for any real push from USA in these tactical and strategic goals.
Europe and Japan are likely to partner USA in these efforts, all of which require Indian cooperation for any bite.
By 2015 I expect the Iran situation to spin out of control, which will coincide with an oil super spike, if and when it happens.
By 2020 I expect China to win the supremacy battle with USA and massive recruitment of its population in a wordwide army stationed in strategic positions in South America, Africa, Middle East and Asian trouble spots.
USA will join battle and there will be a re-emergence of a cold war for world domination. Unless India joins in the battle on the side of the Whites, China will probably win the war, since its economy is in shape unlike USSR was.
China: Apart from its counter moves to US actions (US moves which appear quite constrained and limited, US seems basically helpless) China will be going full force in building a massive entente against the US led West.
Its main partner will probably be Russia. Russia plus China is a most dangerous combination and US will counter this by probable alliances with EX-USSR republics like Khazakhstan. They will probably fail and a massive Asian entente of Iran, Central Asia, Russia on one side and China on the other side consuming their output seems likely.
China will also build up its Navy and engage with Brazil, Argentina and other South American and African countries.
In its internal politics, China will probably keep succeeding as long as it is able to run its economy properly. Its efforts in the last 2 years have been masterly – possibly they understand economics and politics better than even Anglo Saxons. Whenever Chinese economy falters, chances of robust diplomacy/ war is likely to increase.
India. India faces complete political failure.
Our leaders are ineffective both in Congress and BJP.
Alternatives in BSP, SP and Communists are probably downright anti-national and economically suicidal.
Improvement in political leadership requires reform in Congress and BJP. Both seem currently incapable.
Long term change will probably require a complete breakdown to happen – either war with Pakistan/China, a massive Maoist rebellion or complete economic breakdown. Of these, war would be the most welcome alternative. Complete economic breakdown will probably not result in reforms and would be counterproductive, leading to a failed state and widespread chaos.
Internal: Congress is likely to initiate big reforms and elimination of corrupt and old people. It is more likely to succeed than BJP, whose efforts so far have been laughable.
I anticipate emergence of Arun Jaitly and Sushma Swaraj as the new leadership at center and dwindling of the rest. Possibility of Nitish Jumar as PM is possible if these prove ineffective in next 3 years and if Nitish proves effective. BJP will have to shed its old fashioned fuddy duddy image and become more modern if it is to succeed. If BJP loses next 2014 election it is likely to emerge stronger later on.
Congress needs massive modernization, which it has so far shown great reluctance to do. A lot depends on Sonia’s next move for the party. Long term over the next 40 years, the main trend is likely to be atrophy of regional parties and strengthening of large central parties i.e. Congress and BJP.
The period of breakway and small parties seen from 1990 to 2010 is likely to reverse direction slowly over the next 10 years and gain momentum.
By 2025, I expect disappearance of BSP and SP.
DMK and AIADMK will have to give up opportunistic alliance and chose sides with either BJP or Congress on long term basis and give up a lot of political space to these parties.
UP, MP, Maharashtra, Karnataka and AP are likely to see subdivisions into smaller states.
If India has to prosper, there has to be planned urbanization and setting up of city states. I expect our politicians to fail in delivery of this, which will lead to emigration of the best talent out of the country.
In foreign policy, extreme stupidity and inability to side with the Anglo saxon world will continue.
Pakistan: I expect a status quo in Pakistan which will play off China against USA without taking sides. In case of war between India and China, it is likely to launch an opportunistic attack on Kashmir. It is likely to be a big beneficiary of the oil economy from Iran and Central Asia if it plays its cards right – currently it is being stupid. Ideally it should seek massive investments in oil and oil based manufacturing by getting rid of the terrorists and taleban etc. So far, it has shown as much stupidity as India in making right economic moves. Its political leadership has failed the Pakistani middle class which is larger than India, wealthier and better educated, when seen in percentage terms of total population vis a vis India.
·Demographics.··Chinawill reap the demographic dividend of population control by the simple expedient of deserting its old and infirm and focusing on the young, its future. It will simple allow the old people to die and not worry overmuch about their standard of living. This is a big difference between China and the West, the latter being forced to look after its old. By this simple method, China will overcome the overhang of aging population and march ahead. ··USA will face a slow graying of its population. Baby boomers will become old all of a sudden just 10 years from now and will live into their 90s, putting strain on its economy. Growth in economy will have to come from immigration.
Russia will continue to dwindle in numbers even as its population gets much wealther, same as Eastern Europe.
India will face large scale political disruption as its young population gets impatient with the stupidity of its political leadership. However, every youth succeeding in politics will be corrupted and will fail to deliver anything, this being our national tendency. Real leadership will only come from the 50 something generation – when they realize that our restive population is asking for a change from current corrupt ways, they are likely to effect a change.
Arun Jaitly and Sushma Swaraj seem the only possible leadership which might emerge, who have sufficient intelligence to transform India to suit its young population’s requirements. If the stupid BJP leadership does not recognize their intelligence and continue with idiots like Gadkari, their party will fail completely.
Congress is likely to look for leadership from Rahul. If he fails them, their current anachronistic chaotic party system will also fail. Although Rahul is dumber than most other politicians, he has sufficient support from the party and people – just like Rajiv Gandhi – and is likely to be asked to take over the party with in the next 5-6 years. If he waits longer, he will fail and his party will go into terminal decline.
It is impossible to predict longer than the next 10 years for India because unlike China and USA, where there is effective leadership and stability of thinking and social movements, in India, everything depends on both our parties effecting life saving changes. If they fail in the next 10 years, India will fail as a state and is likely to break up, helped by China, Pakistana and Maoists/Communists
·Weather: The latter part of 19th and whole of 20th century has been exceptionally benign from extreme weather. This window period is now over and the world will return to extreme vagaries of nature in the next 40 years. Anything predicated on good weather – like Indian and Chinese farming practices, will face stress and this is likely to be one of the big negatives for the increase of Indian productivity upgrade above 500$.
·Stocks. India is in a long term bull phase which will last for 50 or more years. There will be cyclical patters within this, but the growth chart will be like the Dow from 1930 to 2000.
China will be similar or even better.
Europe and USA will be flat or show 2-3% growth – any growth higher than this will come entirely from the operation of multinationals.
Russia and Brazil will be the best performers and will rise meteorically. ·
RE. India and China are both in a fantastic long term bull phase.
India will perform better than China because it will be more inefficient in its urbanisation. Any efficiency like the coming of the RE regulator, improvement in land use laws, improvement and computerization etc will initially cause a small term downtrend for a short period which will be followed by a massive upmove as more and more people enter the RE consumption place. Again, India will be dominated by the first time buyers while China will be dominated by the upgraders from small 2BHK (current Chinese all families have 2BHK of 600-1000sf, from which they will shift to 4BHK 2000-2500 sf carpet area which is the norm for developed nations.
USA will depend entirely on immigration for its growth and for the next 20 years one should expect static markets.
Europe will be static.
Brazil will grow while Russia will be a declining market.
Basically RE growth/decline will be based on demographics.·
Bonds: As we recover slowly from the economic crisis, expect rise in bond yields to around 5-6%. Rates will rise all over the world and will be linked to inflation. Robust central bank actions will be increasingly perceived as deleterious to the economy and the trend to have too many rate adjustments will decrease. Within 10 years, inflation control will become the main purpose of central banks and not growth stimulation. In USA, I expect current low rates to continue for a few years, with slow upward bias. This will change to sharp upward bias when there is sudden and extreme inflation. At that point, there will be a crash in the bond market and rates will probably reach 8%. Europe will be similar with more stabe rates than USA. China and India will have corresponding changes too – so in India, rates of 15-17% can be expected when US rates become 8%. Probability of this happening is high in the next 10 years. After this round of rate increase, the rates are likely to stabilize around 5-6% for the long term and same will happen in India.·
Gold. This will be highly volatile. Its value will be in focus for the next 10 years. After that when world returns to stability with steady bond rates, gold will lose its value. Within 20-25 years, it will lose its status as a proxy for money and prices will decline to its production value and consumption value as jewelery. It is unlikely to return to favour for the rest of this century, because a lot of people will have observed its behaviour and would have learnt its ways and would have also burned their hands.
Gold is the classic speculation – something of no value being bid up in price based entirely on the greater fool theory. Those who are stuck in it last – when the gold bubble bursts, will never again return to this metal and will warn all future investors against it.
However in the near future, gold will be one of the best repositories of value – as we wait for the economy to recover and the rates to rise suddenly. Everyone in gold is basically waiting for the sudden global inflation event, as the QE and rate lowering across the world finally finishes. After this inflation event, which will last for 2-3 years and even more in some countries like India, gold will collapse. The better one times exit from gold, better ones returns – selling at the last possible moment before collapse will deliver fantastic returns, sudden crash will wipe out a lot of gains. Since every bubble has many bull market corrections, it will be a difficult to ride this upmove, but basic allocation to gold is essential until the inflation even is behind us.
·Education. The price of education will fall in USA as earning capacity will become more constrained. The difference between the intelligent and highly trained getting 200,000 and more $ per annum versus the stupid and untrainable who will earn 25000 $ per annum will widen. Many Americans in low paying jobs will find that they are better qualified and capable than many in the Asian economies who are less efficient and earn better – these whites will increasingly take up jobs in BRIC countries, which will limit the amount of salary increase one can possibly get in BRIC. In India, tose earning around 25000$ i.e. 1L per month will find that their future growth prospects are being dimmed by whites taking away job opportunities in the 75000$ per annum range i.e. 3-4L per month. The west will lower the bars for education in medicine, currently 12-14 years of training, making it easier for whites to enter medicine in the general practitioner level. Probably, they will make it 8 years of training. This will probably limit the number of Indians who enter medicine in West. General pay for doctors will also fall to 200,000 dollar levels.
In other fields, the entry barrier for education leading to high paying jobs will widen. Initial investment in education for engineering and technical fields will increase to around 150,000 dollars for jobs paying over 100,000 dollars per annum. This will greatly restrict the field for those who are less talented and are unproductive i.e. most lawyers and finance executives, whose pay will decrease and also the entry fee for management education and law education will fall.
Computer will be the top field after medicine in USA, followed by other engineering fields.
In India, focus will shift to better organized fields for education. Engineering and software will be top followed by manufacturing. Management will slowly fall in value as management skills improve across the population regardless of training.
Medicine will see chaos because of the current reservation policy and is unpredictable what will actually happen.
Long term, there will be shift from govt sector to private medical colleges, but fees will fall as earning capacity and capacity to deliver good medical care will slowly come into focus. Regulation of the medical field is likely to improve but only after a widespread failure event.·
Wars. In the long term , all wars will be resource wars. War over oil access is likely to be a cold war between China and USA. War over water access is likely to be border wars between India on one side and China, Nepal, Bangradesh and Pakistan on the other.
PROBABILITIES IN LONG TERM PREDICTIONS
Probablity:
Long term ecomomic direction:
USA static picture with immigration determinant ~ 100%
China rising to 25,000$ production by 2050 ~ 100%
All other countries ~ 100%
India rising to 8-10,000$ by 2050 ~ 50%, main limitation is weather, wars and Maoism/govt failure
Best place to invest: China, Brazil, Russia.
Best possibility of higher return with high risk high reward scenario:India
Wars:
Cold war with China and USA ~100%
Hot war action by USA ~5%
Hot war action by China depends on economic slump.
Since long term rise of China is likely to be marked by many market corrections, every major downturn will increase the risk of hot war from China.
Risk of one Chinese war ~20%. Tisk of second and many wars if one war has already taken place ~100%.
So peace on earth is mainly determined by China rising peacefully and not initiating the first war.
Risk of India having a war with one of its neighbors in next 50 years ~ 50%.
Risk of India China war ~5%,
Risk of India Pak war ~40%,
risk of military action on Nepal and Bangladesh border 5%.
Any India was other than with China will showcase the futility of war and will probably reduce incidence of second war.
Reasons for predictions : We have had 5 wars in last 60 years. Current neighbors more unfriendly than before. Chances of govt failure being percieved as complete collapse of India govt are high. Probable time frame for war is around the time of the extreme inflation event which as anticipated might transpire in 5-6 years time.
Demographic predictions: ~100%
RE for India:
Bull phase for 50 years ~100%.
Following of 7-8 year RE cycle ~100%.
Since previous bull phase of 2004-2008 was extra-ordinarily strong, next bull phase in 2014-2018 is likely to be weak.
However, in caser this RE bull phase coincides with the anticipated hyper inflation event, there will be combined increase in price drastically combined with economic turbulence – so there will be combined high rates and economic chaos preventing new release of vacant property combined with extreme price volatility. It will be very difficult to be able to buy property in this scenario. It is therefore better to complete one’s planned acquisitions before these events transpire. Once we cross this inflation and turbulence event, likely to be over definitely by 2020, once things settle down, one can buy better quality RE with better inflastructure in tranquility. Those planning to buy should buy now or hold their peace for 10 years, wait out the turbulence and then buy. The next bull phase is likely to be quite risky and difficult time to buy.
Gold ~50% chance of things happening as predicted. Other 50% chances are that gold collapses much before massive rise (25%) and gold becomes defacto currency because of widespread currency failures and wars (5%) and that gold maintains current status quo bull phase for extended periods over 50 years (20%)
Predictions for 2011 for India:
Stocks
Chance of a 10-15% correction very high ~70%.
Chance of status quo at nifty 6000~ 20%.
Chance of a upmove to Nifty 6500-6700 ~ 10%
Chance of big upmove to Nifty 7000 ~ 5%.
India will be a very difficult stock pickers market with very few companies.
Advice – SIP investment if longer term. Avoid for short term.
Most likely shorting opportunity for a 15% fall is around Feb-March.
After that, get into metals (Hin zinc, Hindalco) and oil (Reliance) as the best betw for 2011. FMCG: steady.
IT: steady.
Infrastructure: steady.
Pharma: upwards.
Bonds: Chances of falling price high ~100%.
Rates might move to around 9% at least in 2011.
Advice: Avoid Bond funds totally (except liquid and FMP). Wait for March for maximum of the expected rate rises to be factored in before getting into FD/FMP.
Commit 90% of capital to fixed return for best returns, unless following a bigger asset allocation plan.
Gold: Chances of 10-15% rise very high around 90%. Invest 10% of capital
Rupee: Likelihood of steady state ~60%. Chances of rise by 10% around 10% based on USD weakness. Chances of 10% fall of around 30% because of high inflation in India.
Economy: Should grow at 8-9%
Crude: Should show upward bias. If Rupee remains constant as expected, then based on dollar rates should rise 5% which translates into probably 3-4 Rupee rise in petrol and 1-2Rs rise in Diesel. If 30% chance of Rupee falling 10% comes about, then Petrol rise of 6-7 Rs and Diesel of 3-4 Rs. So a miniomum rise of 5% is almost inevitable
Inflation: Will move upwards. Food inflation is probably over. Commodities i.e metals and crude will rise and contribute most to inflation
Politics:
I expect the current chaotic misgovernance of Congress to continue.
I expect Pranab, who is a shrewd finance minister to have no more fiscal profligacy, which is essential for inflation control. Because of his record over last 1 year, I think inflation will taper towards end of 2011.
Jairam Ramesh will probably face stings/ exposures and will be forced out.
BJP shows no signs of growing up.
Crucial year for Mayawati – if she delivers some big things in this year, she will win the next election. Most likely big event should be opening of the Yamuna expressway and sudden announcement of some big projects along it. An airport or two would also be important – she should grandstand for a big fight with center for airport issue.
Chances of Karunanidhi dying and political chaos in Tamil Nadu.
RE: Downward bias.
NOIDA: Expect large scale abandonment of projects in NOIDA because of metals and cement price inflation. Buy only in under construction/finished products in NOIDA. NOIDA prices will be steady with upward bias, because prices already very low.
Gurgaon: Expect poor sales in recent launches – avoid booking for quick re-sale of booking.
Prices will be steady for 2011 with downward bias for plot prices.
Kundli: Expect 10-15% correction. If bought for short term in 2010 middle this is the selling time
Faridabad: Expect 20% price correction in plots. Again, now and the previous 2 months were best time to sell as in Kundli
Daruhera, Bhiwadi: No resales will be possible. People will have to wait for 3-4 years to sell plots.
Small town India: Steady prices with upward bias
Mumbai: Steady prices 50% chance, Fall in price by 20% likelihood of around 50%
Pune: Steady prices with slow construction and poor sales in new launches.
Chennai: Steady
Bangalore: Steady with upward bias of maybe 10-15%.
Kolkata: Doldrums until election results are out.
Invest in RE in 2011 if
Own use only, avoid investment in RE
Part of larger asset allocation plan for 30% in RE. 2009 was the best time to book in new project, avoid it now
If allocating fresh capital, go only for finished products or under construction projects.
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