Do it yourself

Tuesday, July 5, 2016

Sum of the Parts

"The word 'iconic' is used too frequently - an icon is a statue carved in wood. It was shocking at first, when I got that reference. It was a responsibility, and it's impossible to live up to - you're supposed to be dead, for one thing."

—Debbie Harry (American, 1945-)

Word for the day

Supererogatory (adj)

Going beyond the requirements of duty.

Malice towards none

Mostly sycophants and court poets do serious harm to their masters by imposing (undeserved) greatness on them.

First random thought this morning

Uttrakhand is struggling again. Mother Nature is furious. Deities do not want millions of revelers to crowd their abode with all their paraphernalia - SUVs, packets of potato wafers, cola cans, beer bottles, etc.

Why the Religious cannot appreciate this simple fact that Deities made the faraway, secluded, and difficult to reach mountains their abode because they wanted the pilgrimage to be an act of penance and not picnic.

Sum of the Parts

Last week I spent two nights walking the streets of Old Delhi. The atmosphere there was amazing. The aroma of great food supplemented the peoples' enthusiasm and gaiety well. I did not see any reflection of Dhaka, Brussels, Istanbul, Turkey or Kairana there. People from all faiths and socio-economic strata mixed well and all appeared happy.

This morning, while leaving for school, my daughter did not forget to remind that I need to book ticket of "Sultan" starring Salman Khan, first thing in the morning. "For me too", my wife a devout Hindu, shouted from the puja room.

From my various trips across the country and overseas, I have discovered that at individual level, people of all faith and cultures are much more friendly and compassionate to each other at individual and family level. But this goodwill is not necessarily shared at a wider society or community level.

A classic case in point could be Dr. Subramanian Swamy who may share good relations with his Muslim son-in-law but still show hostilities to the Muslims in general.

I find that the sum of the parts (SOP) of Indian society is much superior, harmonized, cohesive and acceptable than the aggregate picture, especially the one presented in media discourse of political narratives.

Despite occasional flaring up of passion due to localized events, Indian people are more or less at peace with their immediate neighbors. and friends from different faiths and communities.

Although SOP has been a popular method of valuing conglomerates with interest in diversified businesses; it has not yielded the desired results in most cases.

Perhaps drawing courage from the social context, analysts have traditionally valued conglomerates, like L&T, Jaiprakash Associates, ITC, HCC, AB Nuvo, etc. on SOP basis. The results have been mostly disappointing.

In most cases, we have seen the inferior parts impeding growth of the relatively superior parts. The cross subsidization of low yielding businesses by the parts with superior return profile has mostly diminished the overall performance, chronically.

Unlike the social context, where the SOP have complemented each other very well and kept India together, democratic and overall progressive, the SOP method of growth has not worked in business sphere.

No wonder we have seen frequent "de-merger" of earnings dilutive businesses and "sale of non-core assets" deals. Bankers, consultants and lawyers have certainly made much more money in this whole SOP process. Unfortunately, the same cannot be said about the lenders and shareholders.

As the economy seeks to turn the corner, we will see a great deal of newsflow on business re-organization and "value discovery" through SOP method. I chose to remain oblivious to all such great discoveries. I certainly do not mind taking the risk of missing on a few multi-baggers.

Monday, July 4, 2016

Nifty determines to move up as greed makes a comeback

Thought for the day

"You always fall for the rascal or the guy who's got a little bit of the devil in him. You can't help it."

— Debbie Harry, (American, 1945-)

Word for the day

Towser (n)

A big dog.

Malice towards none

Are you looking to invest in gold @$1340/oz having refused to buy it at US$1000/oz a few months ago?

First random thought this morning

There is an urgent need to democratize the politics in our country. Though our constitution mandates a democratic government, most politicians behave like feudal lords.

Elected representatives wants to be credited, praised and acknowledged for getting drains cleaned, getting pavements cleared, covering manholes, planting trees (all at people's expense). Congress VP never misses a chance to remind people that he "gave" them food (Food Security), education (RTE), employment (MNREGA), etc. otherwise all Indian were doomed to die hungry, illiterate and unemployed!

Nifty determines to move up as greed makes a comeback

Brushing aside the two "Exits" and the derivative "Expiry", Nifty managed to close at the upper end of its range (7930-8330) of past five weeks. This happened despite lower institutional activity and overall volumes.

The most striking feature of market in past 10 trading session is the return of "Greed" trade with a vengeance. Much deeper and enthusiastic retail participation is evident from the sharp outperformance of mid and small cap stocks.

Instinctively I know that this is usually pre-cursor to a meaningful correction.

Nonetheless, after having weathered significant intraday volatility, that helped correcting many overbought indicators, Nifty looks good for rise to 8560 level in next few weeks. Good support on the downside exists at 8065 level.

The target on Bank Nifty would be 18600 with a strong base around 17375.

Though the most of the activity shall be seen in the broader market, a cautious trade with regular profit taking and strict stop loss would be in order.

Friday, July 1, 2016

A clarification

Since morning, I have received numerous mails "accusing" me of over-simplifying things in relation to the political changes taking place in European Union.

May I take this liberty to address all accusations collectively & conclusively, and clarify as follows.

(a) I do firmly believe that UK referendum has the potential to become a watershed event in the history of modern world. But I strongly refuse to believe that it will push the global community back into the dark ages. As I wrote earlier, in my view it is not a problem but part of the solution.

(b) I have strong reasons to have an economic view that diverges from that of the global investment legends like George Soros and Mark Mobius. After all I have benefitted from not following them in past 10 years. Despite extremely persuasive arguments - I did not believe in China story, hyperinflation due to QE, weaker bonds, end of USD, commodity super-cycle, Grexit, blah blah. I did not plunged into Indian equities immediately after PM Modi moved to 7RCR, as advised by many of them.

Neither am I buying Gold now.

(c) Mumbai is perhaps one of the most filthy and unsafe city in the world. Despite Shiv Sena's anti immigrant movement, obscene realty prices, higher taxes, dismal security apparatus despite many terror attacks, floods, poor infrastructure and abundant filth - it has not diminished a bit in its status as India's financial capital in past many decades. I do not understand why would London do? Singapore & Dubai have been there for decades!

It is not over-simplification. It is in fact little complicated.

Ask a sociologist and anthropologist. They will tell you how a "CITY" takes shape and how people grow their roots in these cities. Politics and terror can't uproot them. It takes Mother Nature's strong intervention to end the importance of Rome, Agra/Sikri, etc.

(d) In my view, the magnitude of transformation must be measured from a single criteria - how many "lives" it does impact seriously?

History suggests - any event that impacts relatively smaller number of "lives" usually does not have transformative impact on the global order. I believe financial and political crises should also be evaluated by this criteria only. It is too early to assess how many "Lives" UK divorce from EU will impact seriously. If it does as expected impact millions of refugees and immigrants, it will qualify to be a transformative event having lasting impact on the global order - not necessarily negative.

I would also like to mention that I am NOT LIKING Mr. Market's complete disdain for the UK "Leave" vote. An apology may be in order. Sooner the better

Blind Men and the Elephant-4

Thought for the day

"I was a pretty good fighter. But it was the writers who made me great."

— Jack Dempsey (American, 1895-1983)

Word for the day

Nonpareil (n)

A person or thing having no equal.

Malice towards none

It will be really unfortunate if SC now decide to lift ban on registration of larger diesel cars in Delhi.

This will reflect how morality is often shadowing legality these days.

First random thought this morning

The announcement regarding implementation of 7th pay commission recommendations has met with varied reactions, expectedly.

Employees are dissatisfied and want more. Economist feel the massive cash payout could be inflationary and result in undesirable fiscal pressure, especially on State Government which are likely to miss fiscal targets due to signing the UDAY deal. It is feared that it may also worsen the already poor health of many PSUs.

The industry is happy, expecting the beneficiary employees to indulge in shopping spree. Equity market shares their optimism. Bond traders are uncertain.

Blind Men and the Elephant-4

In the aftermath of UK referendum vote to leave EU, numerous pessimistic forecasts have been made. The voices of optimism have been few and feeble.

Based on assumptions that post separation from EU, UK government will shut out all multinational businesses, fence all its borders, impose heavy taxes on immigrant workers and foreign businesses; and EU will erect strong barriers for trade and labor movement to & from UK, both GBP & EUR will decline materially - various forecasters have portended 0.5-0.75% decline in UK GDP, exodus of businesses from London, material in rise in cost of doing business and hence lower margins for businesses selling goods and services in Europe (including UK).

Instinctively, I find these assumptions contrary to the conventional wisdom. I believe, post break-up, British government will be more open, receptive, and congenial towards foreign businesses and skilled immigrant labor, for two simple reasons—

(a) The fear of recession, should economic activity slow down any further; and

(b) A point to prove that UK is better off outside EU.

Remember we are talking about a country deeply divided on political ground, with almost one fourth of the population riding guilt of having voted "Leave" for fun. Good economics is the only thing that could keep people together there.

Talking specifically about impact on Indian businesses, a lot has been said about Tata Motors and IT companies. The arguments of analysts based on simulations on Excel Sheets look impressive. But being a small investor, I can certainly afford to ignore deep analysis and apply my innocent logic.

I fathom that the separation of UK from EU will entail humongous IT work - modifying systems throughout EU, and other parts of the world also. Dislocation of some businesses both from UK and EU would also entail IT fix. Banks, airlines, insurers, VISA offices, et. al. would need to modify their IT systems and infrastructure. Besides, UK may enter a number of new treaties and arrangement, new alliances may develop, which would need IT services to implement. This could generate billions of dollars of new business for Indian IT companies. The cost of opening a new EU headquarter in Vilnius, Warsaw, Budapest, etc. may not be prohibitive in comparison, especially if you could borrow at rate close to zero and pay costs in a cheaper EUR. No need to open shop in Paris or Frankfurt.

Similarly, I am yet to find a JLR buyer who would be exactly bothered about the duty element of cost. On the contrary, there could be some buyers who may precipitate their buying, to a date before effective date of divorce, for the sake of convenience. The price of JLR may be lower due to cheaper GBP, but so would be costs and value of debt. JLR may be more competitive than its German competitors if GBP falls more relative to EUR.

Thursday, June 30, 2016

Blind Men and the Elephant-3

Thought for the day

"Tall men come down to my height when I hit 'em in the body."

— Jack Dempsey (American, 1895-1983)

Word for the day

Rib-tickling (adj)

Very amusing; funny or hilarious

Malice towards none

Pope says Sorry to LGBTs for all the discrimination faced by them in the past.

Pakistan clerics declare transgender marriages acceptable.

Indian Supreme Court agrees to hear petition challenging Sec377.

The change is in the air. And it's not a small one.

First random thought this morning

The recent spike in mindless killings by certain terrorist groups is an indication of the success of global war on terror. The desperation amongst radicals is conspicuous.

It is high time that the united offensive is intensified to fully neutralize these elements.

But in the interim, it is critical that various local administrations and people cooperate closely to step the vigil and help the armed forces in minimizing the civilian damage.

Blind Men and the Elephant-3

I believe, viewing UK's decision to terminate its present arrangement with EU as a problem may not be appropriate.

This view might be appropriate for a handful of bankers located in London, and even smaller number of investors who have invested in London real estate.

In larger picture, this referendum should be viewed as an attempt to find solution to some of the key problems that Europe currently faces, viz.,

(1) Lack of a clear leadership. Britain had lost its place at the top with end of cold war. In three decades since then it has mostly failed in taking lead in any issue of global importance and played just a second fiddle to USA. Rise in strategic and economic powers of countries like China and India, emergence of ECB as a key pillar of global financial stability, and consistent decline in its economy led to the diminishing of its historical stature.

Unwillingness (or unacceptability?) of Germany to don the mantle has left Europe behind in global strategic order.

(2) Poor economic conditions. Despite all the efforts and non-conventional policies, the economic growth in Europe has failed to show any improvement. Employment conditions remain poor and economic and regional disparities are rising faster than ever leading to serious discontentment amongst people, including in larger jurisdictions like France, Spain, Italy and UK.

(3) Worsening demographics. A large number of European countries have witnessed declining population growth rate in past two decades. Rise in the proportion of old and dependent population has been a cause of worry for most governments, as fiscal pressure are rising.

This juxtaposed with negative return on savings is becoming an epic disaster for old savers and pensioners.

Moreover, radical change in the ethnic and religious mix of conservative European jurisdictions due to free movement and large influx of refugees from troubled Syria etc. had been a cause of worry.

(4) Relatively stronger EUR hurting the periphery. A relatively stronger EUR may have helped German exports, but most of peripheral countries, like Greece, are claiming huge losses in market share to Asian competitors.

(5) Threat perception of rise in fascism. In recent years, due to poor economic conditions, rising disparities, and imbalances in socio-religious demographic mix, politicians subscribing to the extreme left and extreme right political ideologies have risen in importance.

This brings back the memories of WWII and the consequently threat perception of rise in fascism across the continent.

I view UK referendum as just another endeavor to solve some of these problems. It is certainly not done yet. It is not irreversible, should the outcome be different than as desired...........to continue

Wednesday, June 29, 2016

Blind Men and the Elephant - 2

Thought for the day

"Tell him he can have my title, but I want it back in the morning."

— Jack Dempsey (American, 1895-1983)

Word for the day

Endsville (adj)

Most wonderful or exciting, e.g., a rock band that was regarded as Endsville in the late fifties.

Malice towards none

Subramanian Swamy shall be there in Rajya Sabha till 2022 - whether you like it or not, hardly matters.

First random thought this morning

In a first, the sitting prime minister gave interview to a private Indian TV channel. The interview adequately touched upon most current issues, some controversial and some not that controversial. This interview shall settle many public debates, besides starting a couple of fresh ones.

Now since the government has decided to raise the bar, it would only be appropriate that PM Modi sets a traditions of making of a quarterly official "State of the Union" address to the nation, that may cover important current issues. That should save the nation lot of time and energy that we waste on inconsequential debates.

Blind Men and the Elephant - 2

In the late summer of 1998, I was sitting with a group of business managers in a cafeteria of Berkeley University, California. We all were attending a short duration program in marketing. The topic of the discussion was Y2K. A majority of group members portended disaster for the global economy. They were confident that a majority of the global businesses and financial institutions will not be able to "transit" their systems in time to avoid the crash as the new millennium rings in.

The streets of the California were filled with Indian IT workers, many of them with just three month certificate in C, C++, Java coding or something like that. They all were brought in to work on Y2K projects. The panic was palpable.

However, high on the GreenSpan steroids, the global markets were not looking worried. Even the impending impeachment of the president Clinton over Monica Lewinski issue did not bother markets.

Eventually, Y2K event passed off peacefully. No satellite crashed. No ATM refused to tend cash. No lift in the building stalled. No power cuts. No plane crashes. No payment delays. No nuclear accidents. Nothing.

The current debate over Brexit reminded me of that 1998 summer. I find that the debate, both political and economic, suffers from multiple limitations.

It is a common knowledge that the global economy is critically ill and put on the life support system (read trillions of dollar worth of free or negative rate debt supported by the liquidity created by the central bankers). Psychologically, under these circumstances usually no one would be inclined to try a new line of treatment, even if the patient is not responding to the current line of treatment. Brexit is just another line of treatment, that people are scared to try out. It's suitability or otherwise is not tested yet.

Secondly, we need to consistently remind ourselves that a positive vote in UK referendum is a consequence of poor economic conditions and rising inequalities in Europe. It is not a pre-curser to the decline of UK or EU economy. As of today there is nothing to suggest that conditions post Brexit would be better or worse, as compared to what these conditions would have been, had UK remained within EU.

The argument that UK exiting EU will terminate the process of globalization and push Britain back into 19th century also sounds rhetorical exaggeration. This view clearly ignores the fact that British traders and government were globalized much before anybody dreamt of a unified Europe. It would be reasonable to assume, with the benefit of hindsight, that UK, perhaps along with or without many other European countries, may perhaps lead a larger union of business partners that may include some larger economies outside Europe.

Weakness of GBP may also be hypothetical at this point in time. How could one completely rule out GBP emerging as a safe haven just like CHF or JPY a few years down the line....to continue

Tuesday, June 28, 2016

Blind Men and the Elephant

Thought for the day

"A good fighter usually knows, within a very few seconds, when a three-minute round is going to end."

— Jack Dempsey (American, 1895-1983)

Word for the day

Sniglet (n)

Any word coined for something that has no specific name.

Malice towards none

What's bigger loss for Tata Motors - Brexit or retirement of Messi?

First random thought this morning

Through drama of merger with and de-merger from Mukhtar Ansari's QED, SP has successfully established Akhilesh with clean image as undisputed and autonomous party leader in State. The uncles will drive from the back seat till election at least.

SP has apparently also beguiled Swami Prasad Maurya to materially weaken BSP.

BJP, still without a defined leader and confused agenda, needs to worry.

Blind Men and the Elephant

Referendums are usually conducted to find a definite binary answer, yes or no, without any conditionality attached, to a 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 mostly it does settle the long drawn dispute.

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

Since the results of the Brexit referendum became clear last Friday morning, almost everyone is seen raising a variety of questions, for example—

· Will other jurisdictions in EU choose to follow UK out of the Union, thus resulting in premature termination of the Project Europe?

· Will UK itself break-up post this referendum, given a completely fragmented verdict by English and Scot & Irish people?

· Will Germany emerge weaker or stronger post this referendum, given that ex-UK, it will have overwhelming dominance over the EU policy making?

· Will GBP emerge stronger as safe haven, like CHF and JPY, at the expense of EUR, or it will lose its place in the global trade?

· Will London continue to remain the global financial capital?

· Will we see a civil war like condition in UK, as immigrants (mostly youth); non-whites and non-Christians may not have voted for the Exit; but they stand to suffer most from the economic mess that may pursue the Brexit?

· Will Brexit vote bring back the specter of fascism in Europe?

· Will Brexit vote impact the politics in USA, giving an edge to the presumptive GoP presidential candidate Donald Trump?

· Will Brexit push Europe, including UK, deeper into recession?

· Will this lead to the abortion of globalization process that started with the fall of the Berlin Wall in late 1980s?

The worst, the referendum does not appear to have fully settled the issues at hand.

The overwhelming response (highest ever) to the online petition for a re-referendum suggests that the last word on the Brexit might have not been said as yet.

Many economics and market experts have expressed fear of apocalypse in the global economy as a consequence of UK exiting EU.

I find the commentary suffering from Blind Men and the Elephant syndrome. In some cases people are uttering some non-sense, so that they could someday tell the world - "See, I told ya'."....to continue tomorrow

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