Hi Wiseman.
My fear is the same as yours - people cant afford these food prices. Hell even I cant afford these food prices. Restaurant prices for food is skyrocketing and we are cutting back on eating out - even cheaper restaurants are becoming unaffordable. And our home dlivery of pizzas is also dwindling - as it costs some 700 Rs for the whole family to eat in - and 1000 plus to eat out.
A friend of mine living in Delhi and earning 25000 per month is unable to make ends meet and is thinking of shifting his family to Kerala. And this after his mother pays for his two children's education.
Life is becoming tougher and tougher. Something has to give and things have to become more unpleasant.
Re: gold, it is obviously a response to the fed threat (supposedly couched in terms of inducement) of quantitative easing. Gold in dollar terms will rise as long as the fed prints money.
But it is a high risk speculation. Bond yields are only imperfectly under the fed control. Bonds are currently in a bubble. When the bubble bursts, Gold will fall flat to the ground.
So buy dollar gold only if you are sure of being nible footed and exit well before the bursting of this bubble. It is definitely a good trade but a bad investment.
Rupee gold if you notice has stood still because of receprocal relation between gold-dollar and Rupee-dollar relationship. Local ETF will make money if Rupee depreciates. Not otherwise. The way the fed is behaving, dollar is likely to be weak for at least 6 months, before sufficient economic data comes in for the fed to take a stance one way or another.
Rupee-gold is likely to stay static, even with Rupee appreciation. I am suspending further purchases of gold ETF until there is clarity. I think one can get the same or even less prices between now and march.
With this much dollar weakness, I am also suspending further stock sales, unless the sensex seems super bubbly. This much liquidity has to flow somewhere and better to ride the bubble than to stay out. In any case, I have sold some 10% of stock and finished 80% of stock portfolio rebalancing.
As for RE, I anticipate exactly what you propose - abandoned projects, shortages of flats, unfinished and delayed flats, people's money stuck, poor movement.
Re: inflation, India's dollar Rupee exchange rate in 2000 was around 45. Today it is still 45. USA has seen some 3% inflation (not precise data). India probably some 10% inflation over 10 years (again not precise data). With this difference, Rupee should have been 70 or 80 to the dollar.
Even last year, USA had zero inflation. India had 15% inflation. Rupee appreciated 5% recently, so actual Rupee appreciation keeping inflation in mond is some 20%. In just a few months or days.
Every country is in a race to depreciate and we are achieving 20% appreciation? This is quite crazy and unsustainable. Obviously something has to give.
What that something is I dont know. But some catastrophic calamity is looming. Better be prepared for whatever it is.
My bet is either a sudden catastrophic market fall triggered by some butterfly fluttering, or flight of capital because of the failure of quantitative easing and bursting of the US bond bubble. That will start a chain reaction which can cause
1. Rupee depreciating to some ridiculously low figure like 100 to the dollar
2. Balance of payment crisis
3. Super spike in commodity prices - imagine our oil import, copper import and machinery import bill suddenly doubling. Gold in Rupees will also double
4. Hyper inflation - how can India sustain a doubling of oil prices?
5. Corporate crisis as repayment of dollar loans by Indian companies becomes unsustainable. Watch out for Reliance - planning on a dollar loan of 1 billion dollars
6. Stagflation for a few years.
Things are bad and I get a feeling of impending doom even as I ride the euphoria of the current bubble.
However, I get this "doom" feeling for India but do not really see problems in USA.
Actually I feel that quantitative easing will be successful - the end of which is always marked by a rise of interest rates as the bond bubble deflates. Which spells doom for India. So at the end of the day. USA will get away with it while crucifying us.
My fear is the same as yours - people cant afford these food prices. Hell even I cant afford these food prices. Restaurant prices for food is skyrocketing and we are cutting back on eating out - even cheaper restaurants are becoming unaffordable. And our home dlivery of pizzas is also dwindling - as it costs some 700 Rs for the whole family to eat in - and 1000 plus to eat out.
A friend of mine living in Delhi and earning 25000 per month is unable to make ends meet and is thinking of shifting his family to Kerala. And this after his mother pays for his two children's education.
Life is becoming tougher and tougher. Something has to give and things have to become more unpleasant.
Re: gold, it is obviously a response to the fed threat (supposedly couched in terms of inducement) of quantitative easing. Gold in dollar terms will rise as long as the fed prints money.
But it is a high risk speculation. Bond yields are only imperfectly under the fed control. Bonds are currently in a bubble. When the bubble bursts, Gold will fall flat to the ground.
So buy dollar gold only if you are sure of being nible footed and exit well before the bursting of this bubble. It is definitely a good trade but a bad investment.
Rupee gold if you notice has stood still because of receprocal relation between gold-dollar and Rupee-dollar relationship. Local ETF will make money if Rupee depreciates. Not otherwise. The way the fed is behaving, dollar is likely to be weak for at least 6 months, before sufficient economic data comes in for the fed to take a stance one way or another.
Rupee-gold is likely to stay static, even with Rupee appreciation. I am suspending further purchases of gold ETF until there is clarity. I think one can get the same or even less prices between now and march.
With this much dollar weakness, I am also suspending further stock sales, unless the sensex seems super bubbly. This much liquidity has to flow somewhere and better to ride the bubble than to stay out. In any case, I have sold some 10% of stock and finished 80% of stock portfolio rebalancing.
As for RE, I anticipate exactly what you propose - abandoned projects, shortages of flats, unfinished and delayed flats, people's money stuck, poor movement.
Re: inflation, India's dollar Rupee exchange rate in 2000 was around 45. Today it is still 45. USA has seen some 3% inflation (not precise data). India probably some 10% inflation over 10 years (again not precise data). With this difference, Rupee should have been 70 or 80 to the dollar.
Even last year, USA had zero inflation. India had 15% inflation. Rupee appreciated 5% recently, so actual Rupee appreciation keeping inflation in mond is some 20%. In just a few months or days.
Every country is in a race to depreciate and we are achieving 20% appreciation? This is quite crazy and unsustainable. Obviously something has to give.
What that something is I dont know. But some catastrophic calamity is looming. Better be prepared for whatever it is.
My bet is either a sudden catastrophic market fall triggered by some butterfly fluttering, or flight of capital because of the failure of quantitative easing and bursting of the US bond bubble. That will start a chain reaction which can cause
1. Rupee depreciating to some ridiculously low figure like 100 to the dollar
2. Balance of payment crisis
3. Super spike in commodity prices - imagine our oil import, copper import and machinery import bill suddenly doubling. Gold in Rupees will also double
4. Hyper inflation - how can India sustain a doubling of oil prices?
5. Corporate crisis as repayment of dollar loans by Indian companies becomes unsustainable. Watch out for Reliance - planning on a dollar loan of 1 billion dollars
6. Stagflation for a few years.
Things are bad and I get a feeling of impending doom even as I ride the euphoria of the current bubble.
However, I get this "doom" feeling for India but do not really see problems in USA.
Actually I feel that quantitative easing will be successful - the end of which is always marked by a rise of interest rates as the bond bubble deflates. Which spells doom for India. So at the end of the day. USA will get away with it while crucifying us.
I think Ben Bernanke is excellent at his job. He is using the right tool at the right time to achieve the US self interest.
Alan Greenspan was terrible at his job - he overstimulated USA after the locally contained dot com bubble - when real economy did not need it - and created the RE super bubble of 2007.
YV Reddy was excellent at his job. He correctly identified the RE bubble and took appropriate corrective action which was largely responsible for containing the crisis in India.
Subarao appears clueless. He seems to be under some govt pressure - why I dont know. His juniors are not getting extention, there is talk of setting up a finance ministry super-regulator over and above RBI, there is talk of divesting govt bond auctions away from RBI and then we have this unsterilised injection of liquidity into the Indian market.
While I dislike conspiracy theories (they are always wrong) I am unable to account for this much policy drift - it is totally dismaying and has to end badly - unless there is some vested interest which is responsible for this chaotic central banking.
Still at the end of the day, I must conclude on only extra-ordinary ineptitude on the part of RBI in recent days - and the current RBI governor is probably the worst we have ever seen.
Yes, I know, why would quantitative easing stop? I dont know, but sooner or later it has to.
But it is good for 6 months at least I feel. So for next 6 months, what you are saying seems likely.
All I can say is repeat my 1 and a half year old dictum of 30% stocks, 30% bonds, 30% RE and 5-10% gold ad nauseum.
Cant think of any other way to ride out these uncertain times and unpredictable global imbalances.
Munish, if you are so severely underweight equity, put your money in a liquid fund and do STP into a good fund of your choice - say 30,000 every month for 2 years - say DSP top 100, HDFC top 200, Franklin blue chip etc.
You should never be out of any of the 4 asset classes, only shift around 10-30% by changing the weight.
Returns come from the right asset allocation and not right instrument selection within an asset class
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