On the gold bubble

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)