Wednesday, September 29, 2010

Small Update Uncertainty, Pressure again on !! - Correction ??

China, Japan, US
China who is praised for it's economic policies and growth by Very Important Persons like "George Soros", "Jim Rogers", is passing through tough phase. Recently there has been some "ego issues" with Japan over sea dispute. Although China came out of it with upper hand, with historical reference, China can never take Japan lightly..

At the same time, US has been "very seriously" behind China for quite a some time. Looks like current administration is going to follow it up till China takes concrete steps. It will be very very interesting to see how China reacts to this. But hopefully both parties will find mid way path over the time.

European Union
In Europe, PIIGS are again under pressure. Despite 1 Trillion fund created to help PIIGS, Portugal had done Salary cuts of 5% in Govt Jobs. So there is pressure on Euro again.

In short US, China, Japan and Europe That constitute 70% of World GDP,  (14.26, 4.909, 5.068, 16.24, 58.15 respectively out of total $58.15 World GDP) are still not out of woods and hence there will be volatility to continue. 

However unless something unbelievable happens, I do not see a change in UP Trend in Stock Markets except possible major correction (that may appear as change of trend) in time to come.

Wednesday, September 22, 2010

Does weak Currency really Help Exports .

Recently, there have been huge arguments between US and China on "Yuan appreciation" with both sides sticking to their points. US firmly believe that China is getting "unfair advantage" in export due to pegged currency; while China believes their currency is "their own call". We don't know what is right or wrong, but we thought of checking if there is any "real" correlation between Exchange Rate and Export.

* Figures in Million
Source: CIA Facts.

Taking Data from CIA facts and just looking at it we can see that saying "there is direct co relation between currency and export" is misleading. As If there would have been one, Zimbabwe should have been biggest Exporter or at least on improvement trajectory. Germany on the other hand should have been smallest exporter. In reality it's exactly opposite.

Although China has taken over Germany's No 1 Position as largest exporter, Germany has been there for a while, and in Ratio of Export to GDP at this volume, it's still No1. This is despite having one of the Strongest Currency (nominally); so for sure there is lot more to be " Successful Export oriented Nation" than just currency.

Obviously, it is story with US, despite USD being still a strong currency (in nominal terms relative to other currencies) Export figure is still huge. What's common in between these 2 nations is their technological edge led by innovation. e.g. no matter whether their currency become stronger or weaker, Intel Chip has to be bought from US. Steel that is used in orthopedic operations has to be bought from Germany, as it does not rust for 200 Years there is no alternate.

China on the other hand has slight different story, as their "Export Model" is slightly different. As I see it's based on strong will power from government, great Infrastructure and most importantly "conservative living standards".
On the down side, cloths and shoes and other daily use items that China export can be technically manufactured by others countries as well.

However making Chinese Yuan strong can have very interesting implications in short, mid and long term. In short term, it can alleviate inflation in china while it can stoke inflation in US as Wal-Mart won't change their vendors immediately and Vendors will raise price as they won't do business in loss.

In Mid term, it depends on whether China and Chinese People continues their policy to keep low profile and continue "Low Profit High Volume" Export or encourage internal consumption becoming a developed nation in itself. They can do both as e.g. If today Chinese household is getting 60,000 and is saving 30,000 If Yuan gets double, Technically Chinese Household will have same purchasing power with 30000 Yuan and even if he saves 15,000 he is good. In short higher purchasing power and possible efficiency improvement programs in Supply Chain can absorb the loss of competitiveness due to currency appreciation.

Another aspect to it is in Transition phase, countries like India, Philippines, Indonesia can take advantage of this phase and develop their manufacturing base leveraging their high population and weak currency becoming a strong competition for China. However doing so need a lot of planning and determination at political, social and Industrial level. If not, Higher Yuan will just mean higher prices for whole world in short term and even stronger economy for China in Mid and Long Term.

Monday, September 20, 2010

Short Update - India BSE Sensex Rocks 20,000 thanks to .... ? FIIs ?

Couple of weeks ago I predicted... 

Dow may have Huge upside i.e. even in range  of 35000 - 45000 i.e from 2012 - 2016. (World Markets will follow the trend e.g. Say FTSE UK may touch 20000, BSE Sexsex India may touch 60000 - 70000)

Obviously current market rally is part of same. There will be some interesting advantages and threats India as a country will experience out of this huge upcoming rally. Since this is capital inflow, INR will become stronger gradually against USD till the music is on e.g. at the end of 2016 or whenever this Rally finds it's top, INR - USD conversion may become in bracket of 30 - 35 or even better. However if there in intervention by RBI to keep INR down, That can prove very very costly down the road. 

Because when the music stop, there will be huge capital flight out of country and currency may swing back from it's position to downside may be 45 - 65 even may be 75 when measured in USD. very suddenly. This itself will trigger to Currency Crisis of India.

Inflation would have reached far high by then however since market will be doing good overall liquidity will take care of people's sentiments. But when music is off and Inflation is at it's top, There will be lot tough time to fact. 

Another interesting opportunity that may arise of this is if currency crisis first start in Western world, and INR is fully convertible by then, there is also a remote possibility of huge surge to INR vs USD or Euro e.g. in Range of 20 - 25 

Both these possibilities are there and events to come in years ahead will decide where it will go.

P.S. : Every bull market will have corrections I am not sure of that will be as radical as Robert Prechter says but there can be corrections. " However till the time there is a Direct pipeline between Fed to all Brilliant Wall street  Investment Banks and Investment Banks to BSE I do not see any reason for change in Trend"

Monday, September 6, 2010

Robert Prechter says Dow can go as low as 1000. Dr. Marc Faber says as high as anything to whom should we listen to?

It is said “If you ask same question to 10 economist you get 10 different answers.”

I have been following Dr. Marc Faber for a while and I am one of the big time fans of him. Robert Prechter who is another “Gray hair Wall street guru”, believes in Elliott Wave Principal can not be ignored. Even Dr Marc Faber says that we cannot dismiss him.

Dr Faber’s prediction is based on philosophy that till the time Fed keeps “Money Tap” ON and does not soak any liquidity out of system (by keeping ~ 0% Interest rate), markets will go up and up!! What we saw from Mar 2009 till date is exactly the same. None of the economic parameters have improved unemployment is at it’s record high. Still market is UP. And hence Mark Faber is right.

At the same time if you were tracking the news and market carefully since Sep 2007 (when Sub Prime issue was open to public) you can see that Markets were going down though FED was “co-operating”. Since Sep 2008 Fed started lowering Interest rates and made it effectively 0 in early 2009. At the same time via various means Fed “bailed out” number of Financial Institutes like never before. Still Dow travelled from 14000  - 6600 From Oct 2007 to Mar 2009.

So saying that If Fed Print money market will go up may prove wrong in Short term.

In March I remember mood was extremely pessimistic despite all bailouts money and support from governments. Dow was going down daily by 4-5% and there was not a single “good news” in media. People were angry on Banks, governments. Suddenly news came from Citibank saying they are expecting profit in Q1 2009. According to me that was a turning point in this recession. So we can’t ignore that even “news” can change the trend of market. And of course once city says that they expect profit their competitors have to say that they are expecting profit sooner or later and that changed the direction. So if that news would not have came Robert Prechter's figure of 1000 was perhaps only few weeks away. 

Once the direction was changed, 0% Interest rate and bailout money started working and it gave a huge rally of almost 6600 – 10600 in same year.

Concluding: For Common man it’s best to remain diversified strictly as all these big names can be correct in some or other way and if you are not diversified it can be very risky at times. Before ending let me put one sentence that I heard in this week from David Morgan “If all are thinking same then perhaps no one is thinking really”.

Amaresh Ashok Gangal