Forget Gold, buy this instead...

Sep 26, 2009

In this issue:
» India better than China in time taken to start a business
» US dollar is a 'short' of the century
» FCCBs are back in vogue
» Monsoon deficit has come in at 22%
» ...and more!

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When your books on sensible investing sell over 26 million copies and when not one, not two but three of them appear on the 10 best sellers list simultaneously in top newspapers, you surely know more than a thing or two about investing. Hence, when Robert Kiyosaki, the author of the hugely popular Rich Dad, Poor Dad series of books and the man we are referring to, spoke about his favorite investment recently; we thought it worthwhile to share the same with you. And guess what, his favorite investment is neither stocks nor gold, asset classes that are immensely popular with other investors currently. Instead, Kiyosaki lists silver as his favorite investment.

There could be some merit in his argument. After all, in addition to being a storehouse of wealth just as gold, silver's growing use in industries such as superconductors and microcircuits, is leading to more and more demand being created while the supply remains constrained. Hence, this could lead to prices of silver growing at a faster pace than that of gold in the future, making it a better investment than gold.

However, this is not the only asset class that Kiyosaki is bullish on. He also likes real estate as unlike stocks where investors get no leverage, buying real estate does involve debt and hence, even a small rise in real estate values could lead to a significant jump in the return that an investor earns from it. However, as Kiyosaki rightly points out, if you are playing a game of debt, you've got to be a lot smarter than the average bear out there.

 Chart of the day
Few days back, we had highlighted how it was most expensive to do business in India compared to even smaller nations like Pakistan and Vietnam. And since it's widely assumed that time is money, today's chart of the day depicts the time required to start a business from scratch in the same set of nations. In other words, it tries to see whether the countries that require the most amount of money in starting a business also fare poorly when it comes to the total time taken to let a business take wings. In our view, the co-relation should be rather strong. Well, the chart reveals that it may not be the case after all. Although India scores the poorest in terms of cost involved, the time taken to start a business in the country is lower than that required in countries like China and Vietnam. Perhaps it has to do with the communist leanings of the latter two that India has managed to steal a march over them.

Source: Asian Development Bank

'The US has launched a massive offensive in Latin America and has bombed its key cities'. Well, this might be a figment of our imagination right now but if veteran investor Marc Faber is to be believed, the event could actually play out in reality in few years. Speaking to a leading daily, Faber, the author of the Gloom, Doom & Boom newsletter believes that the fiscal and monetary responses in the US and elsewhere have solved nothing and postponed everything. And hence, when the moment of truth will finally arrive, there will be a total breakdown of the financial system. But before that, it is highly likely that Governments will continue to print more money, leading to high inflation rates, lowering of standards of living and eventually, wars. Faber heaped further criticism on the US dollar and believes that it is a doomed currency and is in fact, the 'short' of the century.

However, people staying in Asia especially in countries of China and India have little or no reason to fear as he believes that these countries are living in exciting economic times and these regions could see continued prosperity for years to come. Of course, as he very rightly pointed out, Asians should learn to grow from within the region rather than through exports to sick countries.

Besides being India's Prime Minister, Mr. Manmohan Singh is also an economist par excellence and hence, one can count upon him to come up with very useful suggestions to counter the current economic slowdown. And this is what he exactly did during his address to the G20 nations. Among the measures listed, emphasis was placed on replacing lost export demand by expanding investment in infrastructure. By this, he effectively asked the developed nations to commit additional resources to fund the developing nations. Manmohan Singh also commented to the growing protectionism being practiced by the US while India has been facing pressure to allow imports ranging from California almonds to Washington apples.

Coming back to the G20 summit, a great deal of focus has been given to a major overhaul of the banking system. The banks have been told to avoid multi-year guaranteed bonuses and to postpone a significant portion of variable compensation if earnings flop.

However, some countries such as France wanted even stricter rules such as introduction of specific limits on the pay structures. It was further stated that awards must also be curbed if they are inconsistent with the maintenance of a sound capital base and that regulators should be allowed to modify the compensation practices of key firms. It was also proposed that bank should increase the quality and quantity of capital they hold by the end of 2012. While these seem steps in the right direction, we would like to wait and watch how these translate on the ground given the strong banking lobbies.

FCCB's caused a lot of pain to Indian companies in the form of forex and mark to market losses during 2008 with the unexpected depreciation in the rupee. But that bad phase seems to be forgotten rather quickly with a spurt in FCCB issues by many companies once again. As per reports, in the past four days, four companies have announced plans to raise a total of about US$ 702 m through FCCBs. Infact, even the coupon rates being offered on the same have seen a fall, going from 7% to 8% earlier this year to 4% to 4.5% recently. Despite that, we doubt if this propensity of Indian companies to expose themselves to the risk of foreign exchange rate volatility by way of FCCBs can be good for investors.

With the monsoons season slated to end on September 30, the rains have finally begun to withdraw in many parts of the country, and will do so in the rest of the country over the next few days. They have however, left in their wake, an overall rainfall deficit of 22% and concerns about the Kharif harvest. The maximum deficiency of 34% is seen in the north-west region of India, followed by the north-east with 25%, central India with 19% and the southern peninsula with a deficit of 8%. The only positive was the month of September, which witnessed a fresh spurt in rain that benefited the already standing Kharif crops and also raised hopes about timely sowing of Rabi crops, thus alleviating the adverse effects of the deficit to some extent.

After stellar gains for the last two consecutive weeks (of 3.7% and 2.9%), the Indian markets lost some steam this week, logging in a loss of 0.3% for the week. But this comes in the backdrop of much higher declines in almost all other major indices around the world. The benchmark BSE-Sensex hit a 16 month high on Tuesday, but subsequently lost the momentum to finally close the week on a marginally negative note. The Indian markets were under pressure from the weak cues emanating from the global markets. China led the list of losers with a loss of 4.2% for the week. This was followed Hong Kong and France which lost 2.8% and 2.3% respectively. US markets declined by 1.6% for the week. All this comes in the midst of a slump in crude and gold prices, which headed southward during the week. Crude oil closed lower by over 8% while gold lost 1.6%.

Source: Yahoo Finance, Kitco, CNNfn

 Weekend investing mantra
"First, beware of companies displaying weak accounting. If a company still does not expense options, or if its pension assumptions are fanciful, watch out. When managements take the low road in aspects that are visible, it is likely they are following a similar path behind the scenes. There is seldom just one cockroach in the kitchen." - Warren Buffett

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12 Responses to "Forget Gold, buy this instead..."

sujay kumar banerjee

Aug 25, 2012

i want to subscribe



Oct 31, 2009

Also, if Treasury Bonds are 'THE short' of the century, then what could be 'THE buy' of the century? My bet is the Berkshire Hathaway stock, which last closed at USD99,000. What do you think?



Oct 31, 2009

I believe Marc Faber had stated that Treasury Bonds were the short of the century and not the U.S. Dollar. A defaulted treasury bonds would lead to a depreciated dollar, but still its not the same as shorting the dollar. Please verify against your sources before publishing.



Sep 30, 2009

I believe in the idea. But there are practical difficulties - how much physical silver one can buy and store? There are no ETFs available for Silver like GOLD etf.

Liquidating physical silver will again be a hazzle...



Sep 29, 2009

Different insight of silver,hope this stratergy will work out



Sep 28, 2009

intresting,about silver portfolio for long term investment



Sep 27, 2009

Dear Ajitbhai
Referring to 00.53, it is just like climbing a steep mountain
for NRI even in opening a damat. It took more than two months
for leading broker and another fortnight to operate the account. Mountain un-necessary paperwork and repetition of the same info is not only mind-boggling and time-consuming
but wasteful of resources. It seems we are still living in the past in spite of leading in IT. There is a crying need to reorganise on this practice and inbuilt mentality.





Sunil M S

Sep 27, 2009

It is mentioned in your chart of the day that in India a business can be started in 30 days. India is even better than China on this count. But I find it too good to be true. A few years ago, I started a very small grocery shop (of the street corner type) less than a kilometre away from home. A licence from the local Panchayat was necessary. Though I had applied for it three months in advance, the licence was not issued before I started the business. One of the members of the Panchayat was, however, apologetic about the delay and asked me to go ahead and start the business without waiting for the licence. Reluctantly though, I heeded the advice and started the business. A little more than one month later, the licence was issued. If a grocery shop that employed none took more than four months to get just one licence, there is no way a larger business, employing many hands and needing clearences from a multitude of authorities can get all of them in a matter of 30 days. The ‘single window’ clearence system might be functioning well in some areas, but there could be areas where the ‘single window’ doesn’t open at all for months on end! I have always felt that manufacturing ventures shouldn’t need any prior clearence. Entrepreneurs should be free to start such ventures right away on condition that (1) the commencement should be reported to the concerned authorities in a single, simple format, within a fortnight and (2) within the next six months, the formal registrations with the concerned authorities should be done. The hundreds of laws that exist now should be enough to guide the entrepreneurs during the initial six month period. Thus India will become perhaps the first country where the number of days needed for starting a business is zero.


prejish nair

Sep 26, 2009

In your article 'Bomb Scare of a Different Kind', I had commented that developing countries could try to divert attention or to have their control indulge in getting the world environment into further disaster by probing for a war & that's what Marc Faber seems to have also higlighted here. After all, a country like US would never wish to lose their controls or preferential status just like that. We should pray that they do not indulge themselves into dirty tactics and pull the world into it maybe a BAD WAR.


Yogesh Desai

Sep 26, 2009

Interesting read

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