What's your resolution for the New Year?

Jan 1, 2010

In this issue:
» Why Chindia will make the world prosperous?
» Indian government misses yet another target
» Government may soon be issuing 'trills'
» Huge real estate bubble building up in China
» ...and more!!

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Wish You A Very Happy & Prosperous New Year!

As per the Chinese calendar, 2010 is the Year of the Tiger. Being symbolic of strength and vigour, the animal is expected to bring good luck to the world this year. We truly hope so after having endured a couple of years of bankruptcies, corporate scams, job losses, terrorist attacks and painful recovery in the recent past. While stock markets the world over have already run ahead of the euphoria about 'the worst is behind us'; we believe that a reality check would not hurt.

Emerging markets, in particular, have reaped the biggest benefit of this euphoria. And they could be the worst affected in case of a sudden change in economic scenario. Don't mistake this to be a guide on how to make better returns from near term economic trends. For the simple reason that hoping to maximize 12-month returns based on economic projections is a lost proposition. However, there are a few trends that we would like to caution you about.

  • A sudden spurt in inflation triggered by the massive increase in money supply
  • A sharp fall in stock prices triggered by the unwinding of loose monetary policies by central banks
  • A shift from a weakening dollar trend to a strengthening dollar trend if the Fed decides to tighten interest rates.
  • Sovereign debt default by a major world player or a significant downgrading of sovereign debt (the most likely candidates being Greece and California)
So, ensure that you have these contra trends in mind while managing your money to derive smart returns. With this, we wish our readers a very Happy and Prosperous 2010! While our resolution for the new year is to continue providing you the highest quality content and interesting investment ideas, let us know what are your resolutions for the year with regard to managing your money.

 Chart of the day
We expected the 'decoupling' phenomena to work in our favour when the Lehman debacle unfolded. And how disappointed investors in Indian markets were when the theory did not really help shield them from the downturn in the West! However, that was 2008. Data of returns in emerging markets in the last decade versus that in the developed economies show that the former have handsomely outperformed the latter. Infact, it is a clear case of long term decoupling. We believe that this trend may continue.

Data Source: Mint
Note: Countries are representative of their benchmark indices

If the coming decades belong to China and India, then we are going to witness the changing lifestyle of the average Chinese and Indian. In particular, he will be consuming more energy. The primary sources of energy remain hydrocarbons - coal, crude oil and natural gas. Of these, natural gas is the most environment friendly. Little wonder then, the growth rate in demand is going to be the highest for natural gas, from all across Asia and especially from China and India.

So, natural gas producers and transporters are going to create a lot of wealth for themselves and their shareholders. In short, that's the message of yesterday's edition of 'Daily Wealth'. We agree. In fact, we have long been positive about the natural gas segment here in India. The demand is evident in the off take numbers. But the supply side might also surprise us. In fact, we believe India also has enormous potential in terms of new discoveries.

Guess what it takes to make a company truly global? Not just having a diverse clientele from around the globe or having sales offices in every nook and corner of the world. It's also about having a well diversified work force, from different nationalities and cultures. IT giants like Microsoft, IBM and SAP are called global organisations. Not just because they are huge or have their products installed on computers even in the remotest place. It is because of their global presence in terms of human resource. One third of Microsoft's employees are non-Americans. Moreover, companies like HP and IBM have as much as 18% Indians in their global workforce.

It appears that Indian IT majors are also following the strategy. Indian IT Big-3 i.e. TCS, Infosys and Wipro have ramped up their local hiring at overseas locations. Giving local 'tadka' to their global operations will help them penetrate deeper in the foreign markets which are culturally and professionally very different from India. Having a local face to lead the team will help in understanding the customer better and rake in additional business. It can also help them foster their brands as good employers.

The GDP growth rate is one of the most popularly tracked economic statistics. But one major problem blatantly continues to be a very big drag on the India's economic progress. And the authorities accept it too. India's finance ministry believes that inadequacies in the country's ports, power, roads and other infrastructure shaves about 2% off the economic growth rate every year.

But progress continues to be slow as usual. Take ports for example. The average turnaround time for ships at Indian ports was 3.85 days in FY09, compared with just 10 hours in Hong Kong. However, a recent report states that the government may miss its 2012 target to add capacity at its 12 major ports. The government-controlled ports will have a capacity to handle 743 m tons of cargo by 2012, compared with a target of 1.02 bn tons. While some of this may have to do with the credit crisis induced recession that stifled world trade, India's huge long term needs for such important infrastructure are clear. In our view, it would have been so much more wiser to use the downturn to catch-up on lost time instead of slowing down capacity addition.

How much would you like to stretch yourself if you intend to buy a house and presently earn a salary of say Rs 6 lakhs? If you were to go to a bank, it would perhaps draw a line at Rs 25 lakhs. That makes it around 4 times your annual salary. Now, imagine a situation where a decent residential property goes at a whopping 80 times the annual average income of the city's residents! If this property market isn't a candidate for a bubble then what is? No, we aren't talking any Indian cities here. We are referring to the Chinese city of Beijing.

Stories with respect to a massive real estate bubble building up in major Chinese cities have already been doing the rounds for quite some time now. Bloomberg provides further evidence. Real estate prices in China are rising at a rapid rate, pushing prices way out of reach of an average Chinese citizen, says a story on Bloomberg. Although official estimates are not available, it is being believed that a good portion of the huge US$ 586 bn stimulus money is finding its way into the real estate market, heating up prices and encouraging heavy speculation.

It's not as if the government is not aware. Already, steps are being taken to curb the excess. But we believe the authorities seemed to have made a massive mistake. They have allowed the bubble to go too far ahead. Thus, if there is a hard landing now, given the kind of forward and backward linkages the real estate sector has, the Chinese economy could get crushed under the deflationary spiral. And this may not bode well for the global economy as well.

So far governments have been raising funds from the market by issuing debt. But noted economics professor Robert Shiller has proposed a new kind of government security i.e. one based on equity. Just as corporations raise money by issuing debt as well as equity, Shiller believes that there is no reason why the governments cannot do the same thing. What is more, he has even suggested a name for the new security, which would be based on GDP. It would be called a "trill" because it would represent one-trillionth of annual GDP. Shiller is of the opinion that if substantial markets could be established for trills, they would be a major new source of government funding. Not just that, these would be issued with the full faith and credit of the respective governments. Therefore, investors will be assured that governments would pay out shares as promised or buy back the trills at market prices. While the idea does seem novel it remains to be seen whether implementation will happen anytime soon. After all, most governments are in the habit of piling up negative net worth on a consistent basis.

Meanwhile, most markets across the world, including India, remained closed today on account of the New Year's Holiday.

 Today's investing mantra
"Absent a lot of surprises, stocks are relatively predictable over twenty years. As to whether they're going to be higher or lower in two to three years, you might as well flip a coin to decide." - Peter Lynch

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40 Responses to "What's your resolution for the New Year?"


Jan 6, 2010

Thanks to equitymaster for their updates and also their advice(on one of their recent 5 Min's Wrap-up) to keep the MUTE button ON while watching any Financial(Investment issues) topics on any TV channel.Like most people I am not a Financial exprt to analyse company profile,marked trends and invest.I am an Engineer so I do not understand the medical proffession so I go to doctor and get treated as advised by him or to a specialist if recommended by him or by myself for getting cured(rather say better result). Similarly I go and deposit money in PO or Bank where rate of return is less but assured.But going through couple of Financial magazines(Outlook Money,Business Today --- etc) where they advised to invest in Mutual Funds(having experienced Fund Managers who will take care of your investment and assure better return than PO or Bank)to beat the inflation(rising prices)deposited my hard earned money with HDFC,TATA-AIG,MAX-NY,SBI(Renowned name in the market) ULIP's also on MF's directly through HSBC(advised by their Relation ship managers)on established brands like TATA Infrastucture,Relience Infrastucture,Reliance Power ----- etc from 2005 till 2008 to see my deposits FV reduced by 50%.But the agents and the Fund Houses(their Expert Fund Managers) only enjoyed at customers money.One of your reader Mr.Agarwal rightly said RICH(Politicians,Business class,IAS,IPS ---- people in the power corridor) doesn't bothers and poor doesn't have anything to loose only middle-class have tears in their eyes.MUTUAL FUNDs are nothing but modified versions of earlier CHIT FUNDS,patronised by Govt.(I mean political class representing Business class) to cheat public.If I donot render my service I am out of job(i.e punished).What about highly paid Fund Managers? Why no make a system a)High Return(assured) higher commission to Fund Houses,b)Midium Return(assured)midium commission,and Lesser return but higher than PO/Bank(assured)with lesser commission to Fund Houses.We talk about accountability/credibility but where is this in Financial market ?
I have burnt my hand and no-more.



Jan 5, 2010

my new yr resolution is----------be serious



Jan 4, 2010

Excellent information

With regards




Jan 4, 2010

Keep selling the stocks wherever i get substantial profits and keep the remaining portion below the BV( the Buffet way). Take out the profits off the table and invest in fixed return instruments untill the market corrects by atleast 20% (which i am sure will happen in 2010 itself)and then deploy the abv said profits back into the eqiuties



Jan 4, 2010

I am sanjeet.My resolution of this year is:-

1. I will prioritize my work.
2. I will never believe on anyone.
3. I will save some money for my family.


A K Agarwal

Jan 4, 2010

The problem with overheated real estate markets is that when and if they crash, they also will bring down the banks as it happened in US. Wealth will just disappear as bad loans. That is why it is very important for governments to regulate and stabiise the real estate sector. It is logical that government bodies like CIDCO, CGEHO, MHADA etc should bring out houses in the big cities and stabilise big city markets. They should also provide reasonably priced plots of land to cooperatives and groups of genuine individuals.Construction activity will continue without established builders also. It is afterall the big cities whose property rates decide the other city markets, hence more efforts should be concentrated on Navi Mumbai. It is unfortunate that government bodies have been acting in a manner which feeds inflation in real estate, and allows the builders to cartel and fleece middle class. Is anybody bothered?


Anshuman Damani

Jan 3, 2010

keep things simple.. Aal izz well



Jan 3, 2010

Resolution for Twenty10
1. Get adequate insurance for my family ASAP
2. Invest more in knowledge and education in my profession as well as in field of wealth creation.
3. Wait for another depression to hit before i allocate higher funds to equity markets


Jayesh H Katalkar

Jan 3, 2010

I want to do some experiments on movement of scrips, say i will visualize the scrip movement and it will.

and if happens i will become millionaire



Jan 3, 2010

Religiously follow value investing regardless of how boring it is.

Regularly practice yoga and cardio exercises.

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