Tuesday, April 1, 2014

Trading strategy and themes

Thought for the day
“Economists perform the same function as shamans and witch doctors in tribal societies, who regard the entrails of some  animal and predict the future, which generally corresponds to what the chief wants to hear. Economists are far more advanced than that, of course. We painstakingly gather data and develop complex computer models to show what our politicians want to hear.”
-John Mauldin (American, 1951- )
Word for the day
Entrails (n)
Internal parts of anything
(Source: Dictionary.com)
Teaser for the day
Both BJP and Cong promising reforms, i.e., incremental changes to existing policies. We need revolution, complete change, not reforms.

Trading strategy and themes


In my view it is clear that we are headed towards a major trading rally in Indian equities over next 12-15months. I will not be surprised if this rally actually transcends into bubble territory as the “US rate hike” clamor gains further momentum. Also there is little doubt that this bubble will also meet the same end as the previous ones, more recently 1998-2000 and 2005-2007.

Having this view in mind, I set my strategy for trading with following assumptions:

1.       The new government in India will follow the classical Keynesian method to revive economic growth. Both fiscal and monetary stimuli shall be provided to spur consumption and investment demand. Monetary policy will not be further tightened.

2.       Government will raise substantial resources through aggressive assets’ sale to recapitalize struggling public sector banks.

3.       US Fed achieves the QE tapering target driven by consistent improvement in housing and job market. US rate hike anticipations lead to stronger USD, and massive rotation from US bonds to risk assets like EM equities.

4.       No major geo-political event occurs that would create supply disruption in energy market.

Caveat: Remember, this is trading strategy focused on next 12-15months. It may differ in places from our core investment strategy.




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