Markets: What Next?

07-May-11 Leave a comment

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?

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NIFTY EPS vs P/E

04-May-11 1 Comment

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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NIFTY ex RIL ex INFY

28-Apr-11 Leave a comment

Did a crazy amount of number crunching on spreadsheets recently – trying to test the impact that INFY and RIL have on the NIFTY. I had earlier written about RIL being a sloth and I guess that was not enough to wake it up ;). And now that INFY has enthused no one with its results people might slowly start offloading this much over-owned stock. HCL Tech seems to be written about a lot these days and yes, TCS continues to deliver. Anyways, I tried to strip out the two bellwethers (really?) out of the NIFTY and see how things have panned out over the last one year period (20Apr2010 to 20Apr2011) . The results did not surprise me much – these two collectively have behaved quite much like the NIFTY with some dispersion coming out between the two data sets in recent times (bottom chart). The process itself has been quite a pain. The capital structure of companies mentioned on the NSE website is definitely incorrect. And I am not talking of some small cap, Ramprasad Chatak Mills kind of scrip, these are the largest listed companies by value in the Indian market! So having realised that error, I went to other places (BSE!!) to pick up the number of issued shares data and came up with the following charts after a lot of blah blah spread (under the) sheets. Corporate actions like splits and bonuses have also been accounted for. The green line is the NIFTY sans INFY and RIL while the blue line is the true blue blooded NIFTY as we track it. And yes, I don’t have time to write to the NSE and point out bugs/errors on their website.

The heartening thing is that the share (by m.cap) of the two loud-in-the-media companies has dropped from ~13.2% (on 20Apr2010) to ~12.1% (on 20Apr2011). Good!

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Spiced it Up!

15-Nov-10 Leave a comment

Turmeric is on a roll. Prices of the yellow spice are up a whopping 64% this year. That’s about thrice the rise of the Sensex. India is the largest producer, consumer and exporter of turmeric, so I am sure a few people in India must be very happy these days. But the bulk of the masses are not since the party is not just limited to turmeric (aka haldi). Prices of most spices are spiralling upwards. Cardamom, pepper, cloves, mace, nutmeg and all sorts of things are becoming dearer by the day. This article here talks about the awesome climb of turmeric and other things. And that left me thinking about what type of people invest in commodities and how do they do it and is there some opportunity here for people like me to dabble in condiments.

Most online brokerages offer commodity trading and one can take positions in the spot or the futures markets. That’s all I know and I guess I have no desire to know more. These are highly cycical things and difficult to understand. I guess the only commodity that I have direct exposure to is Gold in the form of units of an exchange traded fund. All rest are beyond my comprehension. The ban on commodity trading in India was lifted in 2003 and volumes have certainly risen along with the advent of institutions like MCX, NCDEX etc. Speculators, industry houses must be trading a lot for both hedging as well as speculation. Thankfully there is not much retail money being put there. Since commodities are much more volatile than stocks. That characteristic should be an ideal breeding ground for the day trading gangs hoping to make some alpha given the high beta. However, given the predominantly agrarian nature of the country’s economy, I would guess that commodity trading should be quite popular here. It was a pretty short-sighted decision on the part of the Government to have banned commodity trading in the wake of the serial droughts that had hit the country during the 50s and 60s limiting the farmers’ ability to honour the various forward contracts that they had taken positions in. So whats happening now that while commodity prices are zooming up due to inadequate supply lines, the action is restricted in the hands of few. And that must be fostering mindless speculation with the action centered around a very small clique. Reportedly, the average daily turnover by value of spices futures on the National Commodity Exchange has doubled from a year earlier. Since the market lacks depth, only a handful of players hold sway. Definitely not a situation for retail rats like us to be found dead in.

My father and his ancestors used to grow cotton on their fields. I stay away from the black alluvial ancestoral soil of mine, but trading in cotton and making a few bales of money in the bargain might just emotionally connect me to my roots. So what do I do? Where do I go? Some quarters advise the advent of commodity based mutual funds as a good avenue for retail investors to build exposure to commodities. That advise certainly does not work for me. These mutual funds do not take positions directly in the underlying commodities. They buy stocks of companies that are long commodities by the virtue of their area of operations. That’ s proxy investing and a bit of misrepresentation by the asset management companies if one goes by the names of such mutual funds. At least the Mirae Asset Management company’s fund in this regard is more modest by including the word ‘stock’ in its name:  “Mirae Asset Global Commodity Stock Fund – Regular Plan (G)”. And then there is constant drone from the commodity perma bull and India basher, hitchhiker and biker Jim Rogers who keeps telling us how commodities as an asset class has a looooong way to go – up, is what presume he means.

I guess we need to wait for some time for Indian banks & mutual funds to be given the green signal to start trading in commodity futures. The Forwards Contracts (Regulation) Amendment Bill is pending approval in the Parliament and once that happens, not just commodity futures but even exotics like weather indices and derivatives off them will start trading. The logic for people long agriculture to trade in weather deivatives is compelling enough. But it still comes back to the point regarding competency. Even if a (fairly liquid) avenue gets created and is readily available in the hands of retail investors like me (no hassles, slightly higher commission online brokerages), I guess I’d still stay away since I don’t think I will be able to understand what moves such markets in this lifetime of mine.

During an exit interview of a past colleague of mine, it was revealed that he had put down his papers to pursue his dream of trading in the commodity markets. I know not of what has happened to him. Hope he is fine and is profiting from his love for cloves.

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Vikram’s new Diwali

06-Nov-10 Leave a comment

We live in an age that’s called Vikram. Meaning one that has a strong stride or momentum. The stock markets certainly looked like that leading into the onset of Samvat 2067, the Hindu new year that befell most parts of India this Diwali. Astrologers, who are in demand during such auspicious times dole out their forecasts busily. Actually, astrologers are quite active in India during other times as well. They can predict market movements as well. There are intra-day prophecies, NIFTY vedic tips, astrological commodity futures, currency trading, etc. ‘Astrotraders’ idolise W. D. Gann and perhaps follow his theories. I read an astro forecast of the market technicals just before typing this post and the head reeled!

The head had reeled in a similar way during previous Diwali owing to the incessant din of firecrackers in the area where I (also) stay in Bombay. This year, suprisingly was quite sedate in comparision. Is that an indicator? I know not. Many people I know logged in during the special one hour Muhurat trading window that remains open on this holiday and did some token trades. Many traders in India believe that if the one hour Muhurat trading closes positive, then the year ahead is going to be gainful. That certainly seems to be a popular indicator. The intra-hour chart of this year’s Muhurat trading is above – please draw out your conclusions and your chequebooks accordingly!

I am sure many Muhurat eyes must have travelled to the fireworks on the Coal India Limited counter. It had listed a day before Diwali and as I and everyone else expected, the listing was a bang. I winged out with a 40% gain in 15 days. As I had written in a previous post, I had expected to make a modest 15% which was easily surpassed. It was money on the table really – like the time when the Ambanis had decided to split up and create listed baby Reliances for some serious value unlocking. Except that in case of reasonably priced, popular and monopolistic businesses, the bang for the buck comes in double quick time. On my part I continued to stare at Gitanjali Gems chart and given the festive spirit could not resist putting up the two images above – one is the price chart of GG and the other is the trajectory of a Diwali rocket. Which is which?

I did not put in any trades nor did I unwind any – just skimmed and glossed over the tickers and then sat down for Laxmi (Goddess of wealth a la Copia-the Roman & Renenet-the Egyptian ) Puja. To many, such astrological prognostications may seem utter madness. I, on my part certainly do believe in astrology but not in its predictive powers about the collective writ of humanity (and even some machines) that is the market. But then a few days after Diwali, I read somewhere that Leos would benefit the most this year if they wore yellow (which I did by chance) and faced north during Laxmi Puja (I faced east). So, if I go by that then I will remain flat this year? 🙂

Here’s wishing you a very profitable trading year ahead. More importantly, here’s wishing you that you increase your knowledge and learn many new things about investing/trading this year. That’s key to making money, I feel.

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QE2′s Titanic Voyage

16-Oct-10 Leave a comment

The QE2, now moored at Dubai is a magnificent ship. It is an awesome flotilla of human engineering with 5 restaurants, 2 cafes; 3 swimming pools; a pub, a nightclub and several bars; a casino; a 481 seater cinema; shops; health clubs; the largest floating library and a hospital – all comprising an ecosystem of 3000 people (incl full roster of passengers) that circumnavigates around the world in 80 days. Given the cacophony of the other QE2 (Quantitative Easing, proposed & hopefully stillborn Round 2) in the US, I try to compare this Cunard marvel to the US economy. I randomly switch between QE2, the ship and the Fed’s QE2 (the raising of a shipwreck)

I have been absorbing and echoing popular thoughts that the recent Indian market rally has been fuelled by Foreign Institutional Investment (FII) related flows and that once this spigot runs dry, we’ll have a nice juicy correction. A big enough gash to seriously bleed the short term traders. But I never counted on the Fed docks building and launching another armada of liquidity into the markets! The US docks, from this perspective just never seem to run dry. And now I am big time confused. The QE2 rush of dollars will only add fuel to the fire, right? So, will we be seeing a near parabolic rise in Indian equity? Will the Diwali rockets fire up real high this year? You may have noted my aversion to seeing parabolas in stock charts from some of my past posts and the accompanying note that parabolas are not self-sustaining. Good for the Indian Government really – considering the slew of paper that is about to be thrown into the ring.

Like QE2, the American economy moves slowly and consumes a lot. The QE2 reportedly moves a cool 40 – 50 feet per gallon of fuel. That implies a mileage of 3.7 meters per litre of fuel. A snail (if blown up proportionately) will be supersonic in comparision, I guess. Like the ship, the American economy is moribund and is crawling towards what many are calling a recession? The QE2 has been navigated by 23 Captains till date, the Fed on the other hand has seen only 14 Chairmen at its helm. The QE2 was introduced in 1967, the Fed came about in 1913. The Fed Chairmen are quite sticky: like barnacles I guess. The QE2, when it was floating around used to consume 430 tons of fuels per day. My back of the envelope suggests that the US drinks 2.3 million tonnes of gasoline a day. I guess India’s figure is at 100 million tonnes of petrol a year.

The other important point is that the Royal Navy recruited the QE2 in 1982 to serve the original Queen in the Falklands War. Similarily, the Fed Captain is pushing QE2 to prepare for war. Only this time it will be a war that will be played out on the currency screens of traders across the world. We seem to be bracing for a full scale global currency war as the QE2 sets float. The difference being that this new artifact from the Fed is being pressed into service on an already raging sea of liquidity. The voyage around Tierra del Fuego has always been notorious – imagine creating a tsunami on a particularly nasty day aross this southern tip of South America as a solution to taking ships over and around the bend! Davy Jones Locker, surely. That too a man-made artificial tsunami. That’s what the Fed is doing, I think. Raising the waves in the hope that domestic (read US) yatchs, boats, dinghies and sundry canoes will start ‘consuming’ the momentum by hoisting up their sails, revving up their motors, rigging up the tow lines and picking up their sculls. Really? What many think is that nature will always choose the path of least resistance and this extra liquidity will quit the Atlantic and flow down towards more Pacific waters. Whither QE2? What will it achieve if that happens?

And finally one last lesson to pick up from QE2. It’s new owner is the Nakheel Group – an Asian real estate group with diversified interests in asset management, liesure and real estate whose website, just like the QE2 seems to be quite slow. The lesson is that developing nations one day will get tired of having to bear the responsibility of mopping up all of this money that the QE2 is spilling out. Unfortunately, it’s not a cornucopia – it’s really a runny nose. And the virus is catching on fast. Emerging economies will one day realise that they’d be better off buying US assets and directly injecting equity into the US system as opposed to buying the rapidly falling US Dollar. If the US domestic investment does not get kickstarted by this QE2, can foreigners buy mines, companies, set up offices in the US and provide employment directly? Can they, is the other question. Arnold Schwarzenegger is touring Asia to see who can build a high speed train system for California.

 The war is on. We saw two wars around the time the gold standard was abolished and the major countries of that age took it upon themselves to support local inflation by printing currency to fund war. After the dust had settled down,  the US dollar was to be much more than just the national currency of the US. After the gold standard was abolished, the US was at its zenith, unscathed by the World Wars and it took it upon itself to make the USD a truly global medium of exchange. The people managing the USD (the Fed Captains) therefore, theoretically at least had a global responsibility. They still have. The point is that when the Fed does things like QE2, the pain is equally felt everywhere. That is why this unilateral stewardship of the world economy will make the recalcitrant new kids on the block itching to pick up a fight. The rednecks will stolidly hang on to their artifical currency pegs while the boys in blue will stoke up local inflation. Common man will get crushed under the weight of rising prices and a Government might fall.

Additional reading:

  3. A view from Infosys’ Think Flat blog: Will QE2 sail or sink?
  4. A caption that I do not agree with: QE2 to speed triumph of emerging markets

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When to Sell – Part One

28-Sep-10 Leave a comment

I’ve been spending some time digging around in my trade journal and trying to understand this. Getting a handle of this very important aspect of investing is one of my birthday resolutions. This study and therefore these series of posts are a set of steps in that direction. I’ve entered into 337 sell transactions till date. The first time I ever booked a profit on a secondary market trade was way back in 05Oct’01 and the latest one was as near as 06Sep’10. To understand more about the when of my selling behaviour I looked at these 337 in conjunction with the market and it’s valuation. I also tried to plot my sales in along time to see if there were clusters of sales happening during particular time periods. I will bother (and write) about the other questions of why, how and what regarding my selling behaviour at a later stage.

For now, I constructed this chart which shows my selling activity during the period spanning Oct’01 to Sep’10. The small green histograms at the bottom show the distribution of my sell trades. Three clusters seem to emerge: Aug’04 to May’05; Jan’07 to Apr’07 and Aug’09 till date. I have started my investing career with a handicap – which might seem like a paradox given the upward ascent of the NIFTY since 2001. What I mean is that my investing thought process has been spawned during a whopper of a bull run. Nearly anything anyone touched during 2001-03 turned to gold. Midases were everywhere, hemlines were getting higher by the minute. Then after that 2008 and the early part of 2009 was such a humbling moment. And a great learning experience. I lost money on a few trades and the flurry of sales that you see during more recent times are my unwinding of those doomed trades as they recouped some of their lost ground. The wicked blue line represents the market – NIFTY in this case. The oscillating orange band represents the value of the market – trailing 12 month NIFTY P/E ratios. If one uses this lens to view the art of getting off the train, then it’s good to be a net seller when the NIFTY’s P/E is above 25. It pays to be a net buyer if the NIFTY P/E is below the first quartile (under or at 15). Currently the NIFTY P/E is around 24 so we are entering hilly terrain – best to tighten up our seat belts. I use the terms “net seller” and “net buyer” since even at exalted heights of market valuation one can find a few lonely bulls rampaging around and likewise the depths of market penury still throw up some bears lying in wait to maul you.

The idea is that statistics and data tell a story about your trading pattern. It is useful to step out of the frame once in a while and see things from a wider time perspective. I guess successful traders need to necessarily have oodles of experience behind them. The best minds in the business have lived through at least a couple of downturns and figured out their behavioural patterns and emotional compass. Also, when you see the picture in cinemascope, a few down months don’t seem all that frightening.

The wise ‘old’ men of investing mysteriously say – buy when you see value and sell when your asset gets expensive. but how the heck does one go about ‘seeing value’? We seem to know/have heard about things like fundamental analysis, discounted cash flows, industry compares, etc. Most of us however, do not have the time to do detailed down-to-the bone analysis of company financials. Some of us don’t even know how to go about doing it. I don’t think that such people should not participate in the markets or run scared of balance sheets and mathematics. I guess what is required for this set (I may fall in this realm) is to develop and consistently use common sensical heuristics with modest return expectations. One such rule is getting in and out depending on the movement of NIFTY P/E as compared to the two control limits as depicted in the chart. You may have a better method – gazing at tea leaves perhaps – whatever it is, I think the key is to stick to it. Economies and therfore the stock markets have a slight inbuilt bias towards expansion and growth. Therefore, the dice is loaded – but only if you stick to the same dice.

I don’t drink tea, BTW.

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Loss of Time

22-Sep-10 1 Comment

Apologies. Nothing much to write today. Came back to Hyderabad and lost a great deal of time moving east. And the following things kept me occupied for the little time that I was awake:

First FIIs will froth up our markets. Then the enthusiasm will obviously dry up and things will flatten out.  Then all will fall like a pack of dominos and some of us will head for the cleaners. Housework has never been so much fun! Beware and tread with caution, if you want to have a happy Diwali. 

I did manage to take a peep at the markets during the trading hours though. Found nothing to sell, I think there is still some steam left. When I left the US the biggest aha! moment there was the official announcement of the end of the worst recession since WWII and the S&P 500 breaking its resistance level.

But we live in crazy times! That aha! seems like a bashful affront. Since some are saying that the S&P 500 is overbought and that mutual fund investors are still staying away from US stocks.

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The Glitter of Gold

10-Sep-10 Leave a comment

Does Bappi Lahiri have a golden voice? Well! Thats subjective, but to me he is the golden stud, many times over. He had once walked past me in the Oberoi Mall (Mumbai) during the promos of the film, Chandni Chowk to China and even then the Au aura that emanated from him, piercing the reverential envelope of fans that surrounded him was striking. Bappi da (as he is known to Bollywood) has a penchant for gold. And boy, has be been spot on. I am sure he must be having kilos of the metal and what a climb his portfolio must’ve made during the past 10 years. I can’t wait for the film, Bappida Tusi Great Ho to get released. It’s said that the secret of his attraction for gold will finally get revealed through the film! I don’t care whether his golden sheen works on the silver screen but I think he has delivered a fitting reply to the numerous mocking references that people have made for his affinity for gold. And an awesome investing lesson for many of us. And I have a confession to make: I like listening to Bappi music in my car- esp. the variety from my younger days. But I wonder why did he say,

Yaar bina chain kahaan re. Yaar bina chain kahaan re. Sona nahi, chandi nahi, yaar to mila. Arre pyaar kar le.
[trans: Where’s peace of mind if you are loveless? x2. No gold, no silver, but at least I found love. Let’s love.]

Bappi da has enjoyed a much steeper climb than someone who would’ve been long the NIFTY during the past 10 years. The graph alongside shows the relative performance of Gold vs. the NIFTY over the past 10 years or so. The price of 10 grams of Gold was around 4,000 rupees at the start of the millennium and it is close to 19,000 rupees now. In contrast, 4,000 ‘gold currenncy units’ invested in the representative sample of the Indian economy that is the NIFTY would have fetched you just 6,000 gcus today. I don’t mean XAU when I say gcu – the latter is just a hypothetical contruct to indicate what would happen if metal became our currency and not some signed bill of paper. At one point in time (7Jan’08) it looked as if equities would cross over and start performing better than Gold. That was not to be and the NIFTY turned south from that point in time with the relative performance gap widening from that point till today. I had purchased some Gold (coins) some 4 years back (partly by design since my equity holding had risen quite a bit) and thankfully I have not unwound that trade. Actually I have the tax laws to thank since long term capital gains set in for direct Gold investments only after a holding period of 3 years.

I also took out the index data for the Dow & the NIFTY and restated the two data sets in equivalent gold weight in local currency terms. While the chart above puts out quite a glum picture for the NIFTY if seen through a golden lens, the Dow droop is even more depressing. What the chart alonside tells us is that if one would have done a 10 year swap between the index and gold, he would receive 79% less of gold (by weight) in the US as compared to a drop of 29% in India. The inflection point for the NIFTY stated in gold occurred during the second half of 2003. Differential economic growths and currency movements took the lime green line far away only to come crashing down at the start of 2008.

Indians are known to be voracious consumers of gold. Global gold analyts make it a point to understand a bit about the Indian marriage season and track it expectedly. I did spend a fleeting moment of sympathy on parents of girls of marriageable age. These guys must be getting squeezed tight unless of course, they had the foresight of Bappi da. While the assorted gaggle of relatives and opinion makers that mill around the circuses that are Indian marriages might have knowingly shifted their discussions to the value of the gold lining our marriages (as opposed to the weight), I have a suspicion that Indian mothers-in-law still regard their daughters-in-law by the weight of the gold that the latter brings into the coop. Any suggestions, on how I can get our mothers-in-law-in-waiting to read my site?

Since it’s highly unlikely that you are a prospective mother-in-law, the question that may be on your mind would be: Wither gold? Well, I dont know! But I think that it will continue to climb for some more years to come. People have started looking at gold as an investment option now. The front covers of investment magazines have started displaying the golden glow quite frequently these days. I am sure you must have noticed an increase in the number of ads selling gold backed loans, etc. Since Indians have historically stuffed a lot of gold in bank lockers, under their mattresses, on their noses, etc, it’s a good opportunity for Indians to monetise it for income producing opportunities. I personally cannot relate to gold as an investment theme. While I have added some more gold (in ETF form now) after that past investment of mine, it is largely as a hedge. If you look at the first chart above, the metal (yellow line) has climbed almost on a linear basis. But the chart spans 10 years which is less than the time that I’ve been around investing in the markets. So my sense of patience is not adequate here. In any case, gold does not produce any income – there are no dividends to be had from gold. The utility and power of equity dividends itself is not understood by many, though I do feel that the attention to dividends would be more in the developed economies as compared to India since the yields are low. Perhaps an investigation into this might be a theme of a future post but here what I can say is that the moment the price of gold departs from it’s linear trend and starts to climb at a rate depending on the square of time, then it will be the best time to get out. Parabolas cannot sustain their weight. They need continuous energy to feed it and since equities cannot keep grovelling forever to droop below their book values, there will come a day when gold will sink down. I don’t have the data set, but there are quite a few charts on the internet that depict the 200 year movement of gold (see above). And that will be the day when our statistically challenged mothers-in-law will be happier welcoming more heavily laden daughters-in-law into their fold. Till such time, enjoy the ride.

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Are we done yet?

07-Sep-10 Leave a comment

We are now at a 31 month high for the NIFTY (@ 5590 therabouts)!

And my mood is getting to be optimistically cautious. It surfaces immediately in my latest tweet which in turn was inspired by the recent tweet from Clifford Alvares, an Outlook Money correspondent.

Clifford Alvares Tell-tale signs of the next downturn: Slow-down in daily FII figures; market PE of 24+; unjustified run in small-caps — and free lunches. 5:50 PM Sep 6th via web Retweeted by you

Most of the people tracking and working the markets will be cautiously optimistic now, but I’m a worm. And worms have no spine. It’s getting to be a cacophony of dire predictions and upbeat prophecies. The more one reads and listens and watches, the more confusing it gets. But if you dont read or listen or watch, you might as well invest using your keen sense of smell or touch, maybe. Thats puts a weird thought in the wormy head. I am thinking of taking a leaf out of Curtis Faith‘s “Way of the Turtle“, where two stock market professionals recruited a couple of dozen bright men and women with no prior experience of trading and transformed them into star traders in two weeks flat (or maybe more). The basic premise being that trading is a skill that can be learnt just like any other academic/vocational course and that traders are made not born. So, what I’m going to do is recruit a dozen sharp blind men and women. Then as study material I’m going to give them thousands of historical stock charts converted into 3d, beveling up the stock price movement lines and make them trace their fingers on the line. The charts would run only upto certain arbitrarily chosen past points in time but I would urge my blind charges to carry on the “momentum” of their fingers….the future path which  the fingers take will be compared against actual historical movements and feedback will be provided….. if this experiment of mine ever gets done, then my hypothesis that blind people can make the best technical investors can be tested. Maybe this personal blind worm method of forecasting will work for me. I’ll write a book, become hugely famous and after a hundred years, people will falsely believe that the phrase “momentum investing” was coined off the tips of blind star traders.

The reason for this lunatic ambling within moving average envelopes is that expert opinions are certainly not helping:

The New York Times carries a story telling us all that the cloud of a double dip recession seems to have passed us by while Nouriel Roubini chastises the US economy planners that we are now defenceless against the looming threat of a double dip. A year or so back, if you’d have mentioned double dip to me, I’d have visions of Taj Mahal tea bags and “dip dip dip, and it’s ready to sip. Do you want it stronger, then dip a little longer. Dip, dip, dip..and it’s ready to sip”. But that’s a triple dip – maybe a new challenge worthy for Roubini. But for now, everyone and her pet poodle is talking of double dips:

Double Dip: the pet food of your pet bears. “Dip, dip and it’s ready to slip. For teddy to be stronger, dip a little longer. Dip, dip…and it’s ready to slip”.

I felt that this interview of the equity analyst, Sangeeta Purushottam dispensed some sane advice. It seems to say that there could be money waiting on the sidelines and it could come pouring in taking our local markets to euphoric heights. But the premise operating here is that there is indeed money waiting on the sidelines. Is there? A browse through global investing sites does not indicate a clamour to invest in the much discovered Asian bourses. Indeed, for all that noise about the NIFTY reaching it’s 31 month high, this country performance table by The Bespoke Investment Group is quite educative and humbling. But then the presses in the USA are printing and printing and printing. Strange things can happen.

So I crawled the SEBI website to ferret out FII net flows into Indian equity over time.  I left out derivative data and picked data representing the FIIs’ stock exchange investments and primary market data only. I think the chart speaks for itself. The main question however remains unanswered: is there is more cash coming India’s way via the FII route for the remainder of the year (net inflows)? Since Jan’10, c 60,000 crores of rupees have come into Indian markets via the FII direct participation in equity. Logic dictates that we should definitely get in more for the remainder of the 115 calendar days left in 2010. However, I noticed that typically there are 3 months (modal frequency) that see net FII withdrawals from the equity markets. We have seen two down months this year (January and May) – is a third one coming? So money will definitely be made, euphoria or not, but it calls for nimble trading and investing. That to me is a big problem since I am a worm after all. Any advise will be greatly appreciated.

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