Is this asset class ripe enough to crash?
In this issue:
» Developed nations are highly indebted
» Sensex to touch 22,000 by the end of 2011?
» Extending Subbarao's term is logical
» India's fuel subsidy bill rises further
» ...and more!----------------------------- A Good Time To Sell Bad Stocks -----------------------------
It's never too late to get rid of 'bad stocks'.
After all, you never know how bad a market crash could get.
But what are these 'bad stocks'? How do you identify them?
For answers to these questions, and more,click here to read on...
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But the sustainability of this strong run in commodities is now being questioned. In this regard, investor and author Gary Shilling is of the view that commodities are not only about to end their bull run but are going to come crashing down. And one of the main reasons for this has been attributed to the likely slowdown in China. Indeed, the Chinese economy is battling inflation and its government has been raising interest rates to tackle the same. This is bound to have some negative impact on demand as well as profitability of companies. At the end of the day, there is only so much that China can consume. And as its economy enters the cooling phase, it will no longer needs as much oil, base metals and other commodities.
For India, meltdown in commodity prices would certainly be a big boon for India Inc. India, too is grappling with high inflation. The central bank's rate hiking measures have begun to weigh heavy on the profitability of companies. In such a scenario, high input prices have further compounded woes and a softening on this front will certainly be a welcome relief for companies. But while it seems that a fall in global commodity prices is inevitable, when that will happen is anybody's guess.
Do you think that commodity prices are likely to crash anytime soon? Share with us or post your comments on our Facebook page.
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Now, while Indians trust their friendly neighborhood bankers, are mutual fund managers to be trusted? What strikes us as a surprising fact is that while one needs a certification by SEBI to 'distribute' mutual funds, no qualification per-say is needed in order to 'manage' one. So how important is a fund manager in the scheme of things? Most big mutual funds have various processes in place in terms of an army of analysts, and researchers. Some passive funds, just benchmark their investments to a certain index or benchmark. These are thus more dependent on IT and software systems. But, there are funds which are actively managed, and where your hard earned money lies at the mercy of the fund manager. He can decide his allocation to various sectors, when to buy and sell stocks, and what kind of stocks to invest in. Stock picking does require certain skills and qualities. Maybe some guidelines like minimum experience in the money management field, or some certified training will help ensure that your money is in safe hands.
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Hence, we will not be surprised to see another round of price hikes for fuels. However, this will only raise inflation and hurt growth rate of the economy. But the other option is no good. Leaving fuel prices unchanged will shoot India's fiscal budget deficit well beyond the targeted 4.6% and lead to higher debt. A higher fiscal deficit will push inflation anyhow.
So, is there a way out of this catch 22 situation? While the main culprit, crude oil prices, remain beyond India's control, we believe the best that the Indian Government can do is to be realistic about the subsidy grants. While uncertainty in the oil prices will stay, it can at least announce a clear subsidy sharing mechanism so that the stakeholders can plan accordingly. This will only help the Government in its alternative disinvestment plan to control the deficit.
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04:56 | Today's investing mantra |
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9 Responses to "Is this asset class ripe enough to crash?"
Agnel Pereira
Jul 7, 2011The so called experts talking about a crash in commodities are day dreaming! They dont really know the ground level revolution taking place in India and China and how many multi millionaires these countries are creating. Just see how these countries' stocks are faring. Just see how quickly Gold and Silver came back. These experts are also not aware that the commodities that they are talking about are:
Not abundantly available;
Once purchased, are rarely resold (except for traders and speculators) and for oil, are consumed and finished;
India and China's obsession for Gold is unimaginable - in India alone, no festivity or a marriage is complete without a heavy investment in Gold;
So there could be some price corrections from time to time (10-15%), but the track of their prices is upward for a long term without any doubt.
kaycee
Jul 7, 2011I dont have anything to say adverse to your reco to extend RBI Governor Dr Subbarao's tenure. Infact his continuity will offer prolonged stability, instead of an induced short term nervousness, irrespective of likely policy leanings or status quo of a new Governor.
Yet, your portrayal, crediting Dr Subbarao for policy wisdom which is an envy even amongst other central banks (notably of developed economies & notoriously Alan Greenspan the Central banker who drove the Fed & US down the tube!) is, I think, misplaced. All credit should go to Dr YV Reddy, for steering India away from the abyss created by Greenspan for not just US, but for the whole world to fall.
No doubt, as a trusted lieutenant, Dr Subbarao stays the course charted by Dr Reddy (and I am sure, Dr Subbarao as an understudy, also played a role in authoring the RBI policies thru those difficult years of DR Reddy's tenure!).
Hope, the blue turbaned Dr is not compelled to bring in a politician like SM Krishna (in the name of fresh air, outside wisdom et al, euphemism for Coalition Dharma - take a look at the umpteen thoroughly unfit MOSs around the place, to ruin RBI's hard earned respect & stability & deny India Inc an opportunity to recover without pain thru the high inflation, high interest rate & high input cost regime.
p.goswami
Jul 7, 2011It will not crack down.Slightly come down.This is the thing which never ripe nor remain too green to bite.
sastry tejomurty
Jul 7, 2011About your advice to invest in Mutual funds instead of keeping money in Fixed deposits, I beg to defer. I had the bitter experience of investing in several well reputed fundswhich gave me huge negative returns. What irks me most is while the Asset mangers collect fixed fees ( entry, exit, annual etc.,) they are not obliged to be accountable in anyway to the investor, while they make a packe( by way of huge pay, bonuses etc to the extent of even Rs 1 Cr.). I tried even private eqiuty investment ( 25 lakhs ) Even that was a miseable failure. The problem seems to be that these asset managers do gambling with a semblance of eductaed guess work and create huge hype regarding their abilities. Indian stocks are volatile beacuse of foreign investments, and fundamentals and logic does not work.
Sthithapragnja
Jul 7, 2011Eq . Master Team,
Your above quesion reminds me to respond with an apt analogy as under ::
In the good olden daysof yore (in the absence of the latest laser SURGERY to remove cataract OF THE EYEs ??)
the Eye surgeon after detailed examination will advise the patient to come after some time as it is " not ripe enough " to be operated upon ??
Similarly the asset class(commodities)are not yet
" ripe enough" to be operated upon (to cure them from the disease/illness) of the impending CRASH ??
I hasten to conclude !!
Nandan Shah
Jul 7, 2011China plans to build 36 million affordable homes over five years. Will it not require commodities?
anupam garg
Jul 7, 2011oh sure, sensex will touch 22k...somethin like this was gonna happen by the end of last yr as well na...wht happened to those reports which predicted of a gr8 correction after QEII...in tht false hope i kept aside my money with patience, hopin correction will come...but now even my parents r troubled by my plans & logic, as the mkt keeps movin up.
i submitted em a watchlist of 32 stocks (which i thought wld never go up) but 26 of em matched, rather surpassed the expected returns...m being asked 2 engage myself, the concern of family is logical...i somehow managed to buy time till end of july claimin tht a correction will happen...come august, my money's association with the watchlist is certain coz even i don't wanna lose out on the rally...the herd may b goin in the wrong direction, but i dont hav a choice, rather m forcibly left with none...May Nomura b right!!
deepak sheth
Jul 7, 2011take it as a gift of modern trading tools and technicals which often lacks sanity if not lunacy the financialisation of co mmodities and ETF route of investments has attracted lot of non serious players in commodity arena which not only distorts the price mechanism but plays havoc by creating artificial levels of valuations and pushing out the serious players and evaluators out of the market mechanism for an extended long period thereby harming the society at large and prevent people from any valueaddition to their skills of pricediscovery . so one may better stop forecasting any rise or fall in commodity prices and be a spectator to the modern pricediscovers