Rising Prices and Risk

If you agree to the idea shown in the below graphic, would you not agree that as Gold rises and rises, it is getting to be more risky?

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Newport, Rhode Island

Here today…

Sun TV Network

Keeping Sun TV in my sights. The stock is currently trading at a 1 yr fwd P/E of 17 (“broker consensus”). I have printed these two charts regarding the stock and kept it on my desk so that I do not forget about it. The first is a one year chart which shows us that the stock has really not gone anywhere. The second chart is on a past 3 year plot, which surprisingly paints the same picture. My first reaction is that the stock must have clearly been pricey during that time with P/Es of > 30 I am sure. Anyways, as of today, the 3 yr chart seems to be saying that a line which is near 360 – 365 seems to have been acting like a support line of late and has behaved like a line of resistance during the earlier part of the 3 yr trailing window. The hitch is that the stock is below both the 100 and 200 day SMA lines. Need to think more. But since I have a heavy exposure to the Indian export industry – both in my stock portfolio as well as my profession, I am inclined to give such charts a second, third and perhaps a fourth look!!

Atrologically, my ruling planet is indeed the Sun. Lets see.

The Next 100 Years

I had started reading “The Next 100 Years: A Forecast for the 21st Century” by George Friedman barely a couple of days before Osama bin Laden was assassinated and coincidentally was on the page where the author briefly talks about how the 9/11 strikes impacted USA. So, the interest in the book got sustained and finished it last week. It’s a rather boring topic (geopolitics) to me, but the fact that someone be audacious enough to predict what is going to happen to the world in the next 100 years coupled with my liking towards forecasting, Monte Carlo, etc. had prompted to pick up this book in the first place. But surprisingly, I was hooked. Now let me see what do I remember from it:

  1. Control of the oceans is key. The country that controls the waters controls the planet. That is the central premise that gets repeated again and again.
  2. The world population will grow and then hold steady for some time and then start declining as people age.
  3. The 21st century clearly belongs the US. No China or any other nation will upstage it – at least for the majority of the 21st century.
  4. Like humans, civilizations go through phases – a contradictory mix of juvenile brashness and fear – the US is described as a moody, teenaged adolescent; an accommodative maturity and a confused decline. USA is in the first stage of its life-cycle according to Friedman.
  5. The thing going for USA is its low population density and relative isolation from the world’s political hotspots.
  6. The preference for US is not to annihilate its enemies but to incapacitate them. Never allow any politically sensitive region to stabilize. US taxpayers will effectively fund this destabilization, thousands of miles away from their homes, via US aid money.
  7. There will be massive shortage of labour in the US. The country will ease its immigration policy and countries will compete against each other to attract skilled immigrants. President Obama is raising public awareness and debate in the US even as I type.
  8. BRIC! What BRIC? Though the author say as much, but the prognosis for the BRIC block is quite glum. Brazil is the best of the lot (more about it later). Russia tries to assert itself and reclaim its past glory but cannot match the dollars that start getting pumped into Poland. China cannot mend the tears in its society caused by the growing separation between its prosperous coast and penurious hinterland. And India? There is almost no mention of India at all!! 🙂
  9. Japan continues to grow and locks horns with the US over the control of the Pacific – at least the part which touches E. Asia.
  10. Turkey rediscovers its past glory and the modern version of the Ottoman Empire will rise and become a major superpower.
  11. The world’s reliance of oil will fade since it will become commercially and technologically feasible to capture solar energy in geo-synchronous orbits and microwave it down to the Earth.
  12. Japan will collude with Turkey and they have a World War III with the US. (Now it becomes a bit of a stretch really) Wars will be fought from guns placed in a geosynchronous orbit in space. Japan will use Turkey as a decoy and divert US’ attention there. Will fire projectiles from the “dark side of the moon” to US space bases along a path that’s non-collisional. US military observers will assume these are harmless meteors and space junk and ignore them till the point booster rockets and charges fire up on these Japanese projectiles to alter their course. End game: US will still win the war. It is here that India gets a brief mention as an US ally and the attacks that its western part will sustain from Turkish missiles!
  13. The soft immigration policy of the US I mentioned in point 7 above will reverse due to the waves of influx of the Mexicans. The Mexicans will take over their erstwhile territories that were annexed by the US. The US only knows to fight wars on foreign soil, it will have no solution to the threat that will rise from within. US Hispanic citizens will openly flaunt their Mexican citizenship and any sustained action on American soil will kill non-Mexicans too. The challenge from Mexico to US supremacy will be most perplexing and one for which the US will not have an answer for. This beautifully designed interactive chart shows how the center of density of US population is gradually moving in a south-westerly direction from the north-east. Towards Mexico.

Listing flashes of recollection from what you read is hardly a review and most certainly not a proxy for actually reading the book. Do read it, I am sure I have missed many points and certainly the tone and context that Friedman puts between the covers. This book will surely make you think.

My points –

  1. I’ve shown a map of the word showing the countries in which James Bond’s films have been shot and the countries which he visits in his films’ scripts – two separate data sets. James Bond is a good barometer of depicting the geopolitical footprint of the world and its roll-up to present times. But on the map, I’ve highlighted Turkey and Japan – visually at least they look so tiny! Oh yes, they have a strategic location advantage in terms of access to some heavily trafficked sea routes. But still…
  2. The internet and its impact on geopolitics is not mentioned.
  3. Lesson for Indian investors (who have a 3 – 5 year investing horizon): study the US. Understanding cross border flows of capital and patterns thereof can make money for you. At least for the next 100 years.

SKS Microfinance

A bit of a light hearted take on data I pieced together from the web. We know that JPMorgan did not get the mandate for the SKS IPO, but there are indeed some dark stories that have come out re SKS – upward bias of interest rates, insider trading allegations and all that. Some of these successive downgrades may have been dipping the toe in the water kind of cautious missives – but the latest one that drops the ball right down to 200 is a nice, clean cut. 

 

Markets: What Next?

The market fell for 8 straight trading sessions before twitching up its tail a bit on Friday. Probably helped by the falling global oil prices and/or the short covering purchases and/or some other reason. Whatever be the case, the picture does not look pretty for the near time. In fact the markets have badly misbehaved since the start of the year. Most of the mutual funds are reporting negative ytds and so are many stock prices. NIFTY took out its 50 and the 200 moving averages in one swift fell swoop. As always, the reason on the surface is the rapid vacuuming of money by the FIIs even as the DIIs try to pick up the pieces a little. So what next? Will the NIFTY fall down further to perhaps 5375 thereabouts before finding support? Rahul commented here the following words:

I think commodity prices will start coming down now, also a lot of froth in these markets is due to risk premium of Middle East crisis and speculative positions. We have seen how silver has almost fallen 20% after the contract margins were raised in China and India. Therefore I think commodities like Crude, Copper and base metals are next in line with Silver which has fallen nearly 20% from the peak in a week. This should bring inflation down and should trigger a big rally in Indian and emerging markets. This should begin somewhere in the middle to end of May.
My broad view is if commodity prices comes down by the end of this month which I think will happen, Indian markets could break all time High’s by Diwali i.e. October end. :)

But then today’s www.economictimes.com mentions that Angel Broking’s MD does not expect the Sensex crossing 20,000 (~ 6,000 for the NIFTY) over the next 6 months. Fine. I don’t know about all time highs (~ 21,000), but my gut says that 20k for the Sensex is possible. Lets see.

Silver has certainly fallen given that the poster face of uncertainty was slain recently. Seemed like the fall of Osama was a cue for silver to retract heavily. For once my tweets found their intended mark 😉

Of course, the other big event has been yet other round of belt tightening by the RBI when it announced its latest monetary policy approach. Forget exchange rates they seem to say, inflation is obviously a much more sensitive number to control. Which is all fine, but spare a thought for the poor real estate developers. Nothing is going right for them – or at least their equity prices! I remain committed to my play on Godrej Properties via an investment in Godrej Industries Ltd. though. The other big bunch that logically should be affected would be the banks, but the short term charts of banks show a mixed picture. One good bank that has corrected nicely of late is Axis Bank and I’m keep an eye open if that’s a possible entry point. Bank stocks surely get over this rate hike headache much more quicker than other more rate sensitive stocks.

Infosys, though not leveraged, continues to bleed. What can the new guard do? Well, they’ve certainly thrown in a corporate action in the mix by shortening the company’s name. The trouble about over-owned stocks is that when they start getting out, they go out in droves. Some wildebeests, these FIIs are!!

The other idea that is forming is about Provogue. I know its another slice in the real estate commotion and it does have a good packet of debt, but maybe, just maybe there is something to the notion. I am digging and reading up and trying to follow this trail and hopefully Mr. Market will oblige by falling a bit more?

The fact of the matter though is that the juice, the “spring” in the step is gone – every purchase idea that germinates in the head is now getting knocked around with doubts. “What if the markets fall further”, “Is the worst over? Maybe not” – this uncertainty is so unnerving. When can we start trading volatility in India please?

NIFTY EPS vs P/E

Played around some more with the market data. The chart below plots the locus of the NIFTY (solid, curvy red line) across the various EPS’ that it has had on the first day of each quarter since 1Apr2008 superimposed between a band of P/Es ranging from 12 to 26. The NIFTY has flirted with both these P/E envelopes at least once since 1Apr2008. Cycloidal? We are around 260 now. If it is cycloidal then it must droop. Which means the markets must fall. Am I crazy or are the markets crazier? 🙂

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