A rally you should not miss out on
In this issue:
» There is a need to cut down subsidies
» Rating agencies to rank real estate projects
» Commodities rally is far from over
» Foreign investment in Indian MFs could be capped
» ...and more!---------------------------------------------- Don't Miss! ----------------------------------------------
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We are not sure about the price that gold will quote at going forward. But it looks certain that from a long term perspective, gold is headed on an upward path. The reason for this is to do with the US' wanton disregard for the US dollar by resorting to excessive money printing. Debt there has bloated and the scenario in Europe is rather grim too. Meanwhile, the US economy has not displayed any sure signs of recovering. Thus, prolonged weakness in the economy would only spur the US Feds to go in for more quantitative easing. This, in turn would lead investors to flock to the relative safety of gold.
A bull market in equities has never been smooth. It is always marked by many corrections, all of which provide investors opportunities to buy into stocks. Especially those that they missed out on the previous rally. And this same logic applies to gold as well. The status of the US dollar and the paper currencies in general has increasingly been questioned in the wake of dubious monetary policies by governments of the developed world. Against this backdrop, gold will continue to evince considerable interest. Hence, the fundamentals supporting the rally in gold look strong. And a correction in this yellow metal should be looked upon by investors as an opportunity to lap up more of this precious metal.
Do you think that the gold rally is showing signs of slowing down? Share with us or post your comments on our facebook page.
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In the Union Budget 2011-12, the finance minister had set an optimistic fiscal deficit target of 4.6% for the fiscal year. But can it really achieve that goal? Montek Singh Ahluwalia, the Deputy Chairman of the Planning Commission opines that we need to cut subsidies to bring our fiscal deficit lower. He points at some very pressing concerns that could derail the government off its fiscal deficit target for the year. We all know that oil prices, especially those of diesel, kerosene and cooking gas are heavily subsidised by the government. It is not difficult to imagine how much burden rising international crude oil prices put on the government's finances. The same holds true for coal. Coal prices are kept artificially close to 50% of global coal prices. If that was not enough, subsidy of electricity nibbles away 1% of the state GDPs.
These are issues that need to be addressed with urgency. Otherwise, the malady that is plaguing the Western world will soon creep to our shores as well.
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All this drama has certainly raised a very obvious question. Is this the end of the road for commodities or just a cyclical downtrend in a journey where commodities would see higher highs? The popular magazine Economist has passed a judgement and it seems to be in favour of the latter. It has argued that demand from China is far from being satiated and hence, this factor alone is enough to light a fire under commodity prices for a long time to come. And mind you, it has not even considered demand prospects from other emerging markets like India. Add to this the fact that it is certainly not easy to increase supplies at a fast enough pace and it becomes clear that commodity prices are not going to stop rising in a hurry. Of course, there would be cyclical corrections along the way. But such opportunities should be looked at from the point of view of making profits and certainly not as some sort of a structural downtrend.
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04:56 | Today's investing mantra |
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12 Responses to "A rally you should not miss out on"
prabhakar
May 19, 2011It seems Governance is simply an income/expenditure exercise for the Government. Though it is true to some extent,give subsidies to the properly identified populace with a firm policy and procedure in place and remove corruption with a zero tolerance attitude.I dont think an Ambani or a Tata or a Govt bureaucrat really requires subsidy on LPG/Diesel.The policy should also ensure that once the individual crosses a certain economic criteria is automatically out of the subsidy loop.for this to come lot of political will,political honesty, bureaucrat accountability need to gell. Will this happen in our time is the question.
Radheshyam Sharma
May 17, 2011While I normally agree with what they write in the newsletter, this time I differ.
If a person like Mukesh Ambani can live in a house costing Rs 40 billion, which has been made possible by the policies which the present finance minister Pranab Mukherjee initiated during the time Dhirubhai ruled. All policies then were made to benefit Reliance.
Just because these big industrialists have voices through the media and the politicians they can get what they want but the poor people just want a few subsidies so that they can live just above subsistence level.
They want just two square meals which is made possible since some items are subsidized.
Even this is not acceptable to the media and the industrialist.
There is a better solution.
Why don't they just collect all the poor in ships and dump then in the Arabian Sea or the Bay of Bengal.
After that they should get very good GDPs.
S.K.Damani
May 17, 2011I am right now writing from Nashville US. I have been here for almost a fortnight and do not see any downturn. Of course you see many boards of "for sale" or to rent and also many ads in the local papers for properties available cheap, but it looks more of routine, nothing very excessive. However what i have observed is the amount of wastage here. Wastage of electricity, food, plastics etc. Nobody things of using a thing again/ reuse. Once bought use it and throw it. AT nights most of the shops have their showroom lights full on. (This cannot be for security reason as there are so good security systems that keeping the lights on is definetly not the answer.)
If only US can imbibe in their people the habits of savings as indian have, many of worlds problem can be reduced. Please note there is no mention of any Indian stock exch or indices on any of the tv channels. You have to rely on internet to get the info. Rest later
Thanks
Damani
Sarath Chandra
May 17, 2011There is more than sufficient talk about subsidy cuts. But why doesn't even a single entity/body even consider tax rationalization on petro products?
AML
May 17, 2011Comments on subsidies are precise.Unfortunately in India everything has background of POLITICS the great word damaging all good efforts' We will have to face situation like Sub-prime crisis or struggle of Euro & few countries in Europe. They are capable of overcoming the calamity but in our case 2G,Scandal of commenwealth etc. will go out of memory & culprits will again start inventing newer pastures " MERA BHARAT MAHAN" Jay Ho or JAYA Ho ? We have to keep "Adarsh" for our next generation who are ignorent about History & even yesterday.....
Pradeep
May 17, 2011Gold will continue to appreciate till a point, where quantitative easing would become counter-productive and Erozone nations such as PIIGS would be done with the belt tightening. That would be the time equities would start looking up and Gold would probably revert to moderate growth rate. law of averages has to catch up in not too distant future.
K.J.Haroon Basha
May 17, 2011David Skarica of the Gold Stock Advisor newsletter opines that gold could soar to US$ 10,000 an ounce as stocks stagnate.
Dont mislead the readers and do not live in fool's paradise. Gold never will touch US $ 10,000 per ounce. Not even in seven more generations.
Eisen
May 17, 2011Time and again Equitymaster talks about the tears shed by Indian Oil marketing companies. It would be nice to know the exact break up of the cost per litre of fuel. Not many people know that there is a 40% state and National tax attached to it. can we write about it as well
Debapriya
May 17, 2011Whenever the gold rally slows down the emerging market's
govt. like India will buy more gold as the confidence on
dollar has gone down.This will again push up the gold
rally.
Shahsmit
May 19, 2011Fed was not successful in boosting the economy by going in for QE2.Hence as QE2 ends on June 30,We need to wait for the Fed actions on whether it will go for another round of QE or end there itself.In the latter case,the Price of commodities especially GOLD will see a huge correction.If the Fed goes for another round of QE to restructure its debt,there will be escalation in the prices of GOLD.As we are unsure of Fed's action in the near future,My view is to have wait and watch approach on the movement of GOLD.