Be ready to pay more for everything!

Mar 19, 2011

In this issue:
» Goldman to buy back from Warren Buffett
» Investors flock to short term assets
» US Fed realises futility of stimulus
» No captive coal for private sector?
» ...and more!

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We're living in really turbulent times. There's chaos in almost every aspect of our lives: politics, economics, environment and so on. We're witnessing a spree of man-made and natural disasters across the globe. The world will probably end, sooner or later. Or maybe it will not. Whatever be the case, you have no choice but to pay your bills. And the figure on your bills is set to rise.

The political turmoil in the (Middle East and North Africa) MENA region has already pushed oil prices beyond the century mark. The US and its allies are preparing for a military attack on Libya. Saudi Arabia just recently sent troops into Bahrain. And this could very well provoke Iran to launch a proxy war. Though oil supply hasn't been affected much as yet, these events are clearly signs of danger.

And then to make things worse, the unfortunate tragedy struck Japan. The country is desperately struggling to battle the nuclear crisis which seems to be only worsening. And this has severely rocked the world's nuclear industry. So far hailed as the solution for future green energy, nuclear power has suddenly started looking very dangerous. This is going to have far-reaching consequences on the global energy system.

11 nuclear reactors (12.4 GW) which constituted 5% of the country's total power generation capacity have been shut down in Japan. The public outcry following this crisis has forced Germany to declare the shut down seven of its oldest reactors which supplied about 6.2 GW of power. Several countries are reviewing their nuclear policy. China has suspended approval of 25 reactors under construction.

What is going to be the consequence of all this? Who will fill the power supply gap? The shortfall will have to be met by coal, liquefied natural gas (LNG) and petroleum products. So be ready to pay more for almost everything.

Do you think Japanese crisis is going to hurt your pockets? Share your comments with us or post your views on our facebook page.

 Chart of the day
Advance tax payment is a staggered system of paying taxes. It is generally seen as a barometer of a company's performance as the tax payments are made in line with profit expectations. Today's chart of the day shows the fourth quarter advance tax figures for some of the biggies of India Inc. The numbers show an impressive rise over the corresponding quarter of the previous year. However, given the current inflationary scenario, it is debatable whether the companies will continue to grow at this pace in fiscal year 2012.

Data source:

What separates a good investor from a bad? Among other things, it is the ability to not lose one's head when most people around us are losing theirs. And no one in the modern world perhaps does this well than Warren Buffett. The Oracle of Omaha's US$ 5 bn investment in Goldman Sachs during the peak of the subprime crisis was one such instance. It was a masterstroke we believe as extracting a 10% interest payment from an asset at that time was no mean feat. However, it looks like the party for Warren Buffett and Berkshire Hathaway is about to come to an end. Reuters reports that Goldman Sachs will buy back US$ 5 bn worth of preferred shares that it sold to Buffett's investment vehicle Berkshire Hathaway in 2008. The buyback does make sense for Goldman Sachs as giving out a 10% interest rate in today's low interest rate environment is indeed not the most economic way to run business. Besides, the company has nursed itself back to health and the resultant liquidity can be put to use for buying back shares. As for Berkshire Hathaway, it will have to look at new avenues to invest the buyback money in.

"Investors are flocking to short-term assets". These are the words of the India country head of Fidelity International, one of the world's largest mutual funds. As per its head, Ms Ashu Suyash, investors are shying away from long term investment opportunities. The reason is that they are looking at more stable income and capital preservation. As a result, the cash-segment of fixed income market is witnessing rapid growth. In fact even in the mutual fund industry, investors are moving away from the volatile equity funds and investing more in the fixed income funds. With the recent turmoil in the equity markets, we don't doubt that investors would look at the 'safer' fixed income assets for investments. And with growing political and global uncertainty, investors are shifting their focus to short-term rather than looking at long-term. However, our views differ here. We strongly believe that if an investment is made on the basis of the fundamental strength of the asset, then it is always better to invest for a long-term. Because only then can one maximize one's returns.

What took trillions of dollars and a couple of years for the US Fed to understand was quite clear to us from the beginning. The futility of quantitative easing that is. In fact, it will be fair to say that the Fed still does not seem to have any clue of the goings on. Inflation expectations in the US are on the rise. This is driven mainly by crude oil as well as food prices. But what is also important to note is that despite huge monetary stimulus, unemployment has refused to come down significantly. Besides, wage rates are also not going up as much as required. Thus, the stimulus money is not going where the Fed intends it to go. Instead, it is expressing itself in higher energy and food prices. This has left the US Fed in a tizzy. It is wondering whether it should bring a stop to loose monetary policy. Or continue with it till the time US employment rates go up. We would rather go with the former option. This is because waiting till the time job market improves could mean inviting the wrath of inflation. And one is certainly aware of what this beast is capable of once it goes out of hand.

Coal sector in India has long been a victim of flawed Government policies. As an emerging country aiming at 9% -10% GDP growth, we need huge supplies of energy and power. With 50% dependence on coal for energy needs, we can't afford to go wrong here. However, it seems we are heading right there. As if flawed Coal Nationalization Act was not enough, the coal ministry is mulling over a new policy to take back the captive coal blocks from the private sector. Since the latter is not allowed to trade coal, there is no incentive for it to develop more than what is needed for captive use. This leads to inefficient use of an essential fuel. However, going hard on captive coal blocks will not bridge the demand supply gap. It is time to wake up to the need of policy reforms for the coal sector. To hit the nail on the head, the Government should allocate coal mines only to specialised mining companies and let market forces decide the prices.

It was a negative week for the world stock markets as barring Brazil all other markets closed in the red. This was a combined effect of the Middle East crisis as well as the earthquake/tsunami which hit Japan last week leading to a nuclear disaster. Not surprisingly, Japan was the biggest loser of the week for the second consecutive time down 10.2%. Brazil the only market to close in the green was up 0.3%.

In Asia, both Chinese and Indian stock markets were down by 0.9% and 1.6% respectively. Singapore and Hong Kong closed the week down 3.5% and 4.1% respectively. In Europe, UK was down 1.9% while France and Germany were down 3% and 4.5% respectively. US closed the week down 1.5% respectively.

Data source: Kitco, Yahoo Finance

 Weekend investing mantra
"An investment in knowledge pays the best interest." - Benjamin Franklin

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7 Responses to "Be ready to pay more for everything!"

Manoj Kumar

Mar 25, 2011

It definitely is going to hurt the pockets of everyone but the question still remains that why we as a country are laggards in the field of newer discoveries, newer inventions and innovations. Why it was the USA to have discovered the "SHALE GAS"? I mean why not India? And even when it is discovered why it is taking us so long to embark on its exploitation? We are a country which is most dependent on the import for energy, then why have we not allocated more for the field of newer and renewable sources of energy?



Mar 20, 2011

Good piece of information



Mar 20, 2011

Our rulers (Present & past)have never thought of any concrete long term planning in any field. Energy power food are few of them. They will force JAITAPUR PLANT to go ahead for the benefit of FRANCE & concerned HODs. They are least interested in ecology & natives who are entirely depending on agriculture (Paddy-Mango-Cashew-Coconut to name a few).If neuclear power stations are Must then locations can be changed. Fertile land at any cost must not be converted in to concrete floor & dangereous sysmic Zones likely earthquake prone area.ATOMIC ENERGY IS DEMON IN BOTH SENSE - EXTERMELY Productive & on very few occasions DESTRUCTIVE. As you have rightly said We will have to pay more for everything"


Tamal Dasgupta

Mar 19, 2011

Nuclear power is the ultimate solution for power. Yes, like any investment there are risks which we should try to mitigate to extent practical. But the answer cannot be that we will not undertake any risk. That's rubbish.
Many nations understand this; India does not. So India has continued to be a spectator nation. Miserably poor, unable to take care of itself, yet always critical of others. We want guaranteed sucess always. Fools.


O P Sharma

Mar 19, 2011

No I dont like the idea of handing over a National resource to private and market. They will over exploit it. It should be done like O & G way.


Ramesh S Patil

Mar 19, 2011

our knee jerk response to impending nuclear disaster is though natural-is very premature.we are too short of energy and coal and hydroelectric have their limits
Nuclear energy is the only pollution free source of energy
Accidents happen natural disasters also but how many nuclear power plants in the present word have exploded except Chernobyl.And India is not so chronically prone to sismic disaster.If we want energy at present it seems nuclear energy is the only available sure shot source-Solar and wind energy have their limitations very obliviously- So let us not be violent about jaitapur and
make things worst for energy short nation



Mar 19, 2011

Our wise-men are planning, despite popular protest, a
nuclear power plant in Jataipur, situated in the Latur -
Rathnagiri earth-quake prone region.

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