Do it yourself

Monday, June 27, 2016

Nifty to remain directionless for now

Thought for the day

"Nobody owes anybody a living, but everybody is entitled to a chance."

— Jack Dempsey (American, 1895-1983)

Word for the day

Tohubohu (n)

Chaos; disorder; confusion.

Malice towards none

It's a season of "Exits" everywhere.

Someone please show the "EXIT" door to those Indians who are celebrating the "No Entry" for India in NSG.

First random thought this morning

Referendums are usually conducted to find a definite binary answer, yes or no without any conditionality attached, to lingering debate.

A referendum aims to solve a problem through democratic process. The answer provided by it may not be to the liking of all, but it does settle the long drawn dispute.

UK referendum on membership of EU (popularly referred as Brexit) has raised many more questions, and answered none. It takes us nowhere.

Nifty to remain directionless for now

In line with the global markets, Indian markets also witnessed rise in volatility last week. Volumes are rose towards the end of the week.

The momentum that is necessary for the market to make a decisive directional move has certainly started to build in the market. However, as yet it is not strong enough to actually lead the market in any direction.

Last week, two events, RBI governor's decision to not to seek a second term and UK referendum results, caused huge intraday volatility and massive rise in volumes, correcting the short term indicators from extreme overbought conditions. The indicators are however still not close to "fearless buy" levels.

It is therefore likely that we may continue to see higher intraday volatility and exit of weaker hands this week also. The derivative expiry this Thursday shall also add to the tentativeness of the trade.

Nifty may continue to oscillate in larger 7930-8330 range for now with a strong support base in 7860-7930 range and stiff resistance in 8280-8330 range. For Bank Nifty range could be even larger at 16760-18080.

7730 for Nifty and 16300 for Bank Nifty are the level below which one could consider building leveraged positions with one year perspective.

Friday, June 24, 2016

Random thoughts on gold - 2

Thought for the day

"What gives the artist real prestige is his imitators."

—Igor Stravinsky (Russian, 1882-1971)

Word for the day

Paranymph (n)

A groomsman or a bridesmaid.

Malice towards none

Heard in Shastri Bhawan canteen in New Delhi.

"Gone are the days when EGoMs were set up to finalize the color of the uniform of Ministers' drivers, and it took years to decide.

Now the Shenshah reigns. Decision happen instantaneously."

First random thought this morning

It seems the government has surreptitiously established an Central Authority for Certification of Patriotic Credential of Citizens (CACPCC) with Mr. Subramanian Swamy as its Chairperson.

While preparing my application for certification, I wonder what would be status of the families of soldiers who fought for Mughal and British forces. There are Indians who still receive pension from the British Crown for serving the British Army in two World Wars. Some PIOs may be serving Pentagon, FBI, CIA etc. WTO may also have some Indian officials who might have to decide against Indian interests in disputes brought before them!

Random thoughts on gold - 2

Yesterday I expressed my serious doubts over the future growth in consumption demand of gold. (see here) The argument was pretty simple, in my view.

However, the demand of gold as store of value is a deeply complex matter. In past gold had been a preferred asset to store value both during economic as well as political (including geo-political) crises.

Gold has served as reserve currency whenever the paper currencies have lost faith of people due to a variety of reason, particularly high inflation and fiscal profligacy. It has also been used as such during transition periods in global strategic power equilibrium.

However since end of Breton Wood agreement in 1971, gold has not been used as reserve currency. Post fall of Berlin Wall in 1989 the strategic supremacy of USA, and consequently USD, has remained mostly unchallenged.

Post Breton Wood there have been two instances of global financial crisis.

In 1970s the world faced serious stagflation as the demand generated by post WWII reconstruction activities faded and Iranian revolution created a worldwide energy crisis. Gold jumped 10x in real terms during the decade of 1970-1980), to give back most of the gains in the following two decades.

Again in the decade of 2000s, as the dotocom bubble hit the global economy, interest rates crashed leading to sub-prime crisis that culminated in a major global financial crisis. The gold jumped 5x in real terms during this decade (2001-2011).

Gold is down about 33% from its 2011 high. But given the negative rates in large economies like EU & Japan; persistent deflationary pressures despite unprecedented and obscene amount of money printed by Central Bankers; poor economic growth outlook; and war like situation in global currency markets - the gold is reemerging as a favorite asset to store value.

At present the interest in gold appears to be more intuitive rather than analytical. It is being presumed that the end game of the non-conventional monetary policies currently in practice will be prolonged stagflation, complete disintegration (or euphemistically restructuring) of the present monetary systems where USD may longer be the sole reserve currency, massive debt write off resulting in near complete erosion of savers' financial wealth.

The popular commentary and trends in places like UK and US suggest that it is generally believed that gold held in paper form may face huge value erosion just like bonds and currencies, at the same time when physical gold value soars.

I intuitively find that most of the current analysis suffers from some degree of cognitive dissonance. It is trying to dress a trading opportunity into a secular trend. I do not see any reason why gold should ever touch its 1980 high in real terms and why not go below its 1971 lows (in real terms)....to continue next week

Thursday, June 23, 2016

Random thoughts on Gold

Thought for the day

"To listen is an effort, and just to hear is no merit. A duck hears also."

—Igor Stravinsky (Russian, 1882-1971)

Word for the day

Quaff (v)

To drink (a beverage) copiously and heartily, e.g., We spent the whole evening quaffing ale.

Malice towards none

Excess of everything is bad - even if it is Yoga!

First random thought this morning

Ever wondered what's the life expectancy rate in India!

The way people in their late forties and fifties are branded as kids and youth, it feels close to 120yrs!

But my insurance premium calculations are based on a life expectancy of around 70years.

What's amiss here? Is LIC cheating on me or the politicians & Bollywood fraternity?

Random thoughts on Gold

Not long back in the global history, aluminum was thought to be more precious than gold. Most powerful kings were served food in aluminum utensils while the lesser knights had to do with gold flatware. The sudden change in the value of aluminum took place when much cheaper means of refining the ore became available. Suddenly, it was disposable - as in aluminum foil or cola cans. In no time it transformed from most expensive thing in the world to garbage. Similarly, in African continent for long common salt remained a more prominent store of value and medium of exchange than gold.

I have always been crystal clear in my opinion that gold is not an investment product. But unarguably it has had its utility as the store of value for its limited supply and physical traits that make it indestructible.

In past five years, though, I have been expressing rather confusing views about the future of gold. On introspection, I discovered the following reasons for the incoherence in my views about gold.

First and foremost, I strongly believe that when economics fails in providing solution to the problem of livelihood and sustainability, philosophy provides the answer. It is a natural instinct of human being to look up to the skies for guidance when all our efforts fail. (Some even do so without making any effort at all!) Religion has therefore been an inextricable part of human life since beginning of the civilization and has grown with the growth and expansion of the global trade and commerce.

Most ancient cultures, China, Egypt, Mesopotamia, Indus Valley etc. have believed in continuation of life after death. Gold being an indestructible (and therefore sacred) object had always been an important part of their religion, culture, traditions and beliefs.

I therefore feel that a view on gold is not relevant without a view on the socio-religious trends.

In my view, the factors like popularity and spread of technology in common man's life; rising fascist and communist tendencies due to worsening socio-economic disparities; rise in electronic transactions (personal, social and commercial) thus lower risk (less travel, less physical transactions & deliveries); emergence of new articles of luxury to serve the vanity needs of the affluent; stronger and deeper social security programs; demise of monarchy; spread of spiritualism; dissipation of church & temples, etc., all indicates towards potential decline in traditional demand and pre-eminence of gold.

In the modern context, technologically challenging things, e.g., Bitcoins, have more potential to attract peoples' fancy as compared to gold, I feel.

The spread of radical Islamic forces is the only factor that somewhat weakens my conviction in decline of gold. But the way, the global war on radicals is progressing, I am sure that in next decade or so we shall see this concern easing materially and then gold may decline rather precipitously in value.....to continue tomorrow

Wednesday, June 22, 2016

Playing Ostrich

Thought for the day

"Harpists spend 90 percent of their lives tuning their harps and 10 percent playing out of tune."

—Igor Stravinsky (Russian, 1882-1971)

Word for the day

Embonpoint (n)

Excessive plumpness; stoutness.

Malice towards none

The politics over Yoga is unfortunate.

No surprises if it becomes a domain of foreigners, while our politicians bicker over it and Yog Gurus sell cosmetics.

First random thought this morning

I believed in the stories about how investment bankers manipulated markets, States, Central Bankers, Investors and politicians to rake in billions of dollars in trading gains during the global financial crisis 2008-09, but with a pinch of doubt.

I had been at a loss in understanding how come all these could be fooled so easily by a bunch of scrupulous bankers. This all sounded like commonplace stories of crooks looting jewellery from gullible women on the pretext doubling it.

But the clamoring of many "reputable" bankers and investment managers in the matter of Rexit and Brexit, which is clearly aimed at manipulating markets, makes things much more clear.

Playing Ostrich

"Ostrich" appears to be most popular global game at this point in time. Everyone appears to be closing their eyes or burying their heads in sand to obviate the need to address the real issues; some of which could be listed as follows:

· Trillions of dollars of debt is yielding negative returns, thus jeopardizing decades of future growth and exacerbating socio-economic disparities.

· Regional, economic, and social inequalities are rising at unsustainable pace -bringing back the specter of extreme nationalism (fascism) and communism, not seen since fall of the Berlin Wall.

· Rising demographic imbalances are challenging the current global strategic equilibrium. The resistance to the process of repositioning of the strategic equilibrium is igniting conflicts that may have lasting impact on global economic sphere.

· Ecological degradation is accelerating as many developing nations are beginning to industrialize at a meaningful rate.

· Conventional and non-conventional monetary policy tools used by the large global central bankers are becoming increasingly redundant. Consequently, many leading currencies are presently valued far from their economic value - a state of affair that may not sustain for long.

Brexit in global context is a fistful of sand; Trump is another. The global financial and political communities are burying their head in them just to avoid the real problems facing the global economy.

Gold has traditionally been a large bowl of sand, often used by investors and traders to stick their neck in, during the period of crisis. The current situation is no different.

In USD terms, the prices of yellow metal is up over 21% YTD. The consensus suggests that a "leave" vote in tomorrows' referendum may send it much higher.

My readers are well aware that I have never considered gold as an investment worthy product. Still many of my readers have been asking about my views on the trajectory of Gold prices in future.

Well I can only reiterate my consistent position. Gold as a commodity has very limited application. At household level, It is owned mostly for the reason of vanity and religious sentiments. However, as a medium of storing and exchanging economic value, gold has been in currency since time immemorial. Before demise of Breton Wood in 1970s', on many occasions it has served as the reserve currency for global trade & commerce; and unlike other reserve currencies it has stood the test of time.

But as all good things have to end someday, the importance of gold will inevitably recede too. In my view the process had started with the end of Breton Wood and might get completed in next couple of decade.........to continue

Tuesday, June 21, 2016

Who is Rajan? What does he do?

Thought for the day

"My music is best understood by children and animals."

—Igor Stravinsky (Russian, 1882-1971)

Word for the day

Cater-Cousin (n)

An intimate friend.

Malice towards none

Mr. Market is perhaps the most cruel person around - He just destroyed the halo around Gov. Rajan within 20minutes of the opening trade on Monday(:-

First random thought this morning

Heard from an executive of European engineering company - (a) Investment in railways core infrastructure has not picked up despite lot of noise; (b) Smart city development is still on drawing boards, though the government officials are meeting the developers and solution providers. Hopefully execution will begin this Diwali; (c) The power equipment sector has material unutilized capacity and may not need capex in next couple of years.

Who is Rajan? What does he do?

In past 15years, my wife (a post graduate in Hindustani classical music and English literature) has been my barometer for judging the popular public opinion on any issue. I am usually able to assess the gap between "reality" and the "media presentation" of an issue by 7.30AM when she finishes reading newspaper with her morning cup of tea and throws a barrage of questions on me.

Yesterday morning was no exception. The first question she fired was sufficient to explain the frivolity of whole controversy over the Governor Rajan. "Who is this Rajan fellow dominating the headlines this morning (she does not watch news on TV)? Looks very handsome!", she enquired at 7AM, her tea still unfinished.

It took me precisely 30seconds to find answers for all the queries I had been struggling with since Saturday evening. I knew instantly that Rajan is a superstar of Mint Street, darling of the media and ping ball of politicians, having little connection with the common man.

The following five questions fired by my wife in quick succession, without waiting for my answer, destroyed the whole fracas build over his decision to not to seek a second term.

(a) If Rajan successfully reigned inflation why tomatoes are selling at Rs60/kg and people are blaming Modi for this and not the governor?

(b) Why my NRI brother still gets 9.5% interest on his fixed deposit with SBI, while my small deposit is getting renewed at 7%?

(c) Accounting I do not understand. But tell me how much money banks have recovered from defaulters in past three years? My poor niece who works so hard for a bank, 13hrs a day and often on weekends also, did not get any bonus this year, because her bank passed some accounting entries!

(d) If Rajan's departure will severely dent India's credibility in the international markets, what is the role of the government? Was RBI really not a respectable institution before Rajan?

(e) Who is this El-Erian fellow? What business he has telling our sovereign government that failure to retain Rajan for another term will have serious consequences for India? Is he some terrorist or what?

I am actually thoroughly incompetent to answer these innocent questions. But after spending many hours in trying to answer the queries and worries of my readers since Saturday evening, I am sure that departure of Rajan may be a Good thing for Indian economy.

Insofar as the policies and programs are concerned, we have faced BoP crisis on many occasions in past. Every time we have modified our policies and introduced new schemes/programs to tide over the crisis. On all occasions we have been successful - 1991 being one case in point. S Venkitaraman, C. Rangarajan and then Bimal Jalan saw us through that crisis. Inflation and rates fell materially over that period. We sustained Asian crisis, global sanctions, and dotcom crash successfully and emerged stronger.

But none of these governors sought to undermine the stature of RBI as an premier and respectable institution. No one spoke out of turn. No one sought a super star status for himself.

Apparently both C. Rangarajan and Bimal Jalan harbored political ambitions, but not at the expense of the institution. They did not charm the media personnel or global investors to canvass support for them.

Insofar as the commentary of opposition leaders, Bollywood sundries, et. al. is concerned. I truly find it frustrating.

P. Chidambaram and Rahul Gandhi clamoring for Rajan is the most ridiculous sight I have seen in years. These are the people who denied second term to APJ Abdul Kalam and preferred a totally uninspiring Ms. Pratibha Patil over him. He was one man who was unarguably admired by 125cr Indians (except perhaps the Gandhi family) and all world leaders. If that was not wrong how this is wrong?

Please note that I have nothing against Dr. Rajan. I totally disagree with Mr. Swamy in casting doubts over his competence, integrity and patriotism.

But I feel, the way he has conducted himself in undermining the superiority of the RBI as an institution leaves much to desire. If PM and FM were wrong in not supporting him openly when Dr. Swamy attacked him, he is also wrong in not telling El-Erians of the world that RBI is a strong autonomous institution with a robust policy framework, and one person matters nothing to this. (Though he said something to this effect on Sunday, it was too feeble and insufficient, in my view.)

People who doubt RBI autonomy may explore the archives and read what the analysts said after each policy statement of Y. V. Reddy and D. Subbarao. These two governors were reportedly consistently at war with the respective finance ministers on rates, but did never succumb.

Last but not the least, if the monetary efforts of the RBI under governor Rajan were not duly complemented by the fiscal efforts of the government (risking its political career and perhaps some elections) the results might not have been as good as they look today.

Restrictions on gold imports and gold monetization scheme (annoying their core constituency of traders), not passing over the full advantage of the fall in crude oil prices to consumers by hiking duties (bearing the wrath of opposition in and outside the parliament), saving subsidies on LPG etc., attacking wholeheartedly on generation and deployment of black money through administrative and legislative measures etc. (annoying businesses and traders and even compromising on growth), taking government patronage off the willful defaulters, liberalizing FDI rules (to the annoyance of RSS and other affiliates) etc. are just some of the efforts that have strengthened the Indian macro position.

Monday, June 20, 2016

Nifty votes for "Stay"

Thought for the day

"Sins cannot be undone, only forgiven."

—Igor Stravinsky (Russian, 1882-1971)

Word for the day

Overslaugh (v)

To pass over or disregard (a person) by giving a promotion, position, etc., to another instead.

Malice towards none

The reaction of Congress leader over Raghuram Rajan's decision to move on clearly shows that it has scant regard for institutions; It prefers people over institutions.

First random thought this morning

In past RBI has had many illustrious governors who were well respected by the government, businesses, investors, bankers and global financial community. The outgoing governor Raghuram Rajan is just one of many and certainly not the only one.

At this point in time, it is preposterous to assume that the new appointee will be less competent than him.

If someone seeks my opinion I will vote for Urjit Patel, who I find equally competent.

Nifty votes for "Stay"

Despite higher somewhat higher volatility, Nifty ended the week absolutely unchanged. Though momentum continued to be weak, the short term overbought conditions have eased.

The Indian market participants appear to be firmly favoring a "Stay" vote in Brexit pole scheduled this Thursday. No major selling is anticipated on that count.

Today morning session may witness some exceptional volatility over RBI governor issue, which in our view would totally irrational and short-lived.

I would reiterate my trading strategy as mentioned last week (see here)

My trading strategy under the circumstances would be as follows:

(a) Any fall (sharp or shallow) in the market is a buying opportunity from medium term perspective.

(b) Nifty continues to face resistance at 8330 level and has a strong near term support in 7860-7930 range. Any fall below 7750 level will be an opportunity to create aggressive leveraged long positions.

(c) On Bank Nifty 18000 is a strong near term resistance. The near term support exists in 17150-17300 range but meaningful support is only around 16800 level. This suggests that the correction will essentially be led by banking stocks. I will consider aggressive leveraged long position in banking stocks around 16300 level.

(d) I continue to maintain August 2019 Nifty target of 13900 and view on cyclical Nifty bottom at 7490 level. Any fall below this is exceptional buying opportunity.

Friday, June 17, 2016

Gold is not the endgame

Thought for the day

"If we were to wipe out insects alone on this planet, the rest of life and humanity with it would mostly disappear from the land. Within a few months."

—E. O. Wilson (American, 1929)

Word for the day

Villatic (adj)

Of or relating to the country or to a farm; rural.

Malice towards none

Is CBFC social police or a constitutional institution?

If it is constitutional - why it does not appear to respect the "Right of Equality" by treating male nudity differently from female nudity?

If it is social police - do we really need it?

First random thought this morning

The media circles are abuzz with the juicy rumors of 2017 presidential elections. With BJP in poll position, normally it should be a "No contest". However, there could be an intense battle within BJP over choice of an "appropriate" candidate for the top post.

As per media reports, BJP is considering some RSS ideologue for the post. If this happens, it will might be another reason to consolidate the opposition and add more decibel to the "BJP vs. Rest" pitch.

Gold is not the endgame

The socio-economic disparities are rising in the developed world at a pace unprecedented in the economic history. The situation in my view is likely to materially worsen in coming years.

Inarguably, the so-called unconventional monetary policies followed by the central bankers own the primary responsibility for this phenomenon.

With an overwhelming US$15-17trillion worth of bonds, many of which are 10-30year maturity, are yielding negative return at this point in time. Many more promise to return no income to the holders.

Poor savers and pensioners who mainly rely on their savings for their livelihood are stressed like never before.

Large economies like Japan and EU have mostly failed in their vigorous efforts raising inflationary expectations in their respective economies. There is therefore little incentive to invest in these economies. The employment opportunities are therefore not likely to rise in any sustainable manner.

I sincerely believe that at this juncture no one appears to have any clue how to get out of this vicious cycle. So, we are likely to see many trial and errors, including from US Federal Reserve. The traders in financial markets therefore need not unduly worry about any move (e.g., a Fed hike in July) or absence of a move (e.g., BoJ staying put yesterday). Any adverse movement in the asset prices due to such trial and error would restored shortly through a prompt reversal or neutralizing effort.

The investors may however need to plan their strategy carefully. Though the endgame need not be built in the strategy for next 3-5years; a longer term strategy would require the end game to be factored.

There is no dearth of experts who have written about the endgame of the current monetary policy practices. Most of them suffer from historical hindsight and extrapolation of current trends.

Being no expert of global economics and monetary system, I can afford to conveniently break from the empirical experience and think freely. I believe the endgame will be mark a watershed in global economic history - among other things, many systems will become redundant; many currencies will cease to exist; and monstrous debts will be written off the books.

It is difficult to fathom that this task can be achieved under the current democratic system. Communism will therefore make a grand entry sometime in next two decades, in my view.

A large number of analysts have forecasted that gold will be a preferred currency of the world amidst all this chaos. I beg to disagree.

In my view, the factors (scarcity, indestructibility, religious sanctity, universal acceptability, and feudal ownership etc.) that made gold a preferred currency during many crises in the global history would have become redundant in two decades. It will therefore be something new and contemporary that will become global reserve currency....to continue on Tuesday.