The man who made too much is bullish on...

Oct 31, 2009

In this issue:
» One of world's top hedge fund managers is bullish on Gold
» India's oldest jewelry retailer eyes IPO
» Emerging market inflows suffer a steep fall
» China's NASDAQ triples investor money in a day
» ...and more!

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How big is a sum of Rs 17,000 crores? Seriously big, isn't it? It takes a company even the size of Reliance Industries one full year to earn a sum in the vicinity of it. Now, how far would you be willing to go to listen to a man if we tell you that he amassed wealth equal to the sum mentioned above from just a handful of deals? Yes that's right!

In 2007, when amongst the world's most seasoned financial institutions were falling like nine pins, this man's bet were raking in millions by the minute. So much so that by the time the year ended, he was a cinch to take home the biggest pay package in the history of mankind. A sum that is rumoured to be in the region of Rs 17,000 crores! Meet John Paulson, who the Portfolio magazine has dubbed 'The Man Who Made Too Much'.

Fortunately, you will not have to go too far to listen to his current views on the market. We will bring it right here. In his most recent presentation at an investment conference and covered by Daily Wealth, Paulson thrust forward the following chart.

Source: Daily Wealth

Paulson believes that the above chart is one of the most compelling reasons to invest in Gold. The US monetary base has zoomed unlike any other time in history. And such a rise will almost certainly result in runaway inflation. The reason inflation is absent currently is because the money has not been lent and has not been allowed to multiply. But once that happens, there's nothing that can stop inflation from raring its head. And in such times, gold will provide the most attractive insurance. As Paulson said, "Gold could do much better this time around, reaching "$3,000 or $4,000, or $5,000 per ounce".

 Chart of the day
The result season is nearly over. And today's chart of the day makes an attempt to highlight the performance of the some of the key sectors in the quarter gone by, and the stock market's reactions to the same. As seen below, with auto sector's earnings (auto companies that are tracked by Equitymaster) witnessing a strong 76% YoY jump during the quarter, investors have rewarded the sector stocks handsomely, what with the BSE auto index gaining 35% between June 30, 2009 and October 30, 2009.

On the other hand, while IT companies have managed amongst the lowest growth rates in the sectoral universe under consideration, investors have still rewarded the sectoral index with a 34% gain. A case of better than expected showing perhaps. Sectors like FMCG and Healthcare have also done well, both in growing their earnings as well as stock market returns.

Source: Equitymaster, CMIE

The gold bug seems to have bitten not just investors and asset management companies but even gold retailers are now succumbing to its charm. As per Bloomberg, Tribhovandas Bhimji Zaveri, India's oldest gold-jewelry retailer is looking to tap the equity markets for the first time to meet its expansion plans. The company, after whose founders Mumbai's main gold market Zaveri Bazaar is named, now wants a bigger slice of the country's US$ 16 bn jewelry market and hence, wants to open 50 stores in the next three years by raising as much as 4 bn rupees.

The sale is likely to be concluded by the second quarter of next year. It remains to be seen whether investors show the same enthusiasm towards a respected gold jewelry maker as they have shown towards gold in recent times.

The fate of gold as we all know has been closely linked to the US dollar. And hence, it is important to assess the latter's outlook to know the future of the former. If superstar fund manager Bill Gross is to be believed, the outlook for dollar does not look good. "I think the dollar is an over owned currency. The Chinese, the Asians have basically owned too many dollars for too long," Gross is believed to have said.

While most experts seem to side with Gross on the issue of dollar's long term structural decline, some like Jim Rogers have an opposite near term view. "Whenever you have everybody on the same side of a boat, you know it's time to move to the other side for a while. We may have a rally in the dollar," Rogers opined. Interesting thoughts indeed!

Just as the dollar, the Indian stock markets also seem to be feeling the heat. As per Bloomberg, India's premier stock market gauge, the BSE Sensex is the worst performer amongst Asian stocks this month. What is more, the current week's decline, where the markets closed lower for all five days of the week, was its longest losing streak in 11 months. Such moves could indeed be unnerving. But only for traders we believe. If you are a most recent investor and your portfolio is under water currently, please stay the course and keep the faith from a long term perspective. For the long term fundamentals of the country are still intact and there is no reason why one would not earn 12%-15% per annum from a well diversified portfolio consisting of companies with strong competitive advantages.

Please remember, the last few words cannot be emphasized enough. Investment in companies with strong competitive advantages is the key.

While we may be quite a distance away from removing the roadblocks that are coming in the way of a sustainable long-term GDP growth rate of 9%-10%, it was heartening to see that the importance of removing these roadblocks has not lost on India's top political leader, its prime minister. Dr. Manmohan Singh recently spoke at a leadership conclave and unveiled his vision for India in 2020, which rested on the three pillars of inclusive growth, composite culture and a peaceful, forward looking neighborhood.

"If we get our house in order, if we can liberate each and every citizen of this free nation from the tyranny of poverty, ignorance and disease, there is no external challenge that we cannot overcome," the honorable Prime Minister is believed to have said. Indeed. We are of the opinion that while the ingredients are definitely in place like a vibrant democracy and robust institutions, what requires is a will to rise above our own narrow self interests and put the interest of the nation before anything else.

The dotcom bubble is back! But this time it is restricted to the Chinese city of Shenzhen, where the country's newest stock exchange for innovative start-ups and small businesses has opened. And when it opened for trading yesterday, some stocks almost doubled while there were several that tripled...within hours! As a report from DNA Money states - "The IPO prices valued the 28 companies in excess of 50 times their earnings, but even those bubbly valuations were sent soaring sky-high as investors starved of investment avenues poured money in blindly, unmindful of the risks." Risk-taking has come back to the system. For sure!

The lure of returns from emerging markets continues to be irresistible for foreign investors. This is despite the fact that valuations across these markets have had a marathon run since mid-2009 and currently price in most of the near term upsides. Some recent pullback has been attributed to the central bank's hawkish stance on inflation and couple of disappointing corporate results. As per Bloomberg, equity funds' net inflows fell to US$ 2.2 bn in the week to October 28, after averaging US$ 4.4 bn over the previous two weeks. Nonetheless, gains this week took the total inflows for the year to a record US$ 64 bn.

As per the IMF, Asian economies seem to be on an accelerated recovery track helped by fiscal stimuli that the region's governments must maintain due to sluggish world export demand. Most central bankers in Asia concur with this opinion. Governments in the region have already pumped more than US$ 950 bn into their economies by cutting taxes, distributing cash and boosting spending. And probably some more is yet to come. However, it would be foolish to assume that the sustenance of the stimuli will continue to hold these emerging markets on the investment radar of foreign investors; unless their underlying fundamentals show some colour.

All major markets the world over fell like a set of bowling pins this week. India too was not spared, and in fact headed the list of losers. The BSE-Sensex fell 5.4% during the week. A host of reasons led this fall. Weakness in commodity prices, poor results by some large companies, skepticism about the recovery being only liquidity driven, fears about the stimulus packages being withdrawn, rising inflation, and expectations of an impending exit by the government of its loose fiscal stimulus were some overshadowing factors. Some disappointing results from large companies like PetroChina and National Australian Bank weighed down on Asian markets, further fueling concerns that markets may have gotten ahead of fundamentals and that stocks may have risen faster than the pace at which earnings will perhaps rise going forward.

Source: Equitymaster, CMIE

 Weekend investing mantra
"Once we realize that imperfect understanding is the human condition, there is no shame in being wrong, only in failing to correct our mistakes" - George Soros

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4 Responses to "The man who made too much is bullish on..."


Dec 1, 2009

We are focusing too much on Gold. But there is ahuge commodity market out there. When every one is entering the Gold I say its the time to exit. Because as and when the crisis hits and if every one around is selling Gold it will loose its glimmer and grace.



Nov 1, 2009

I do not understand how investing in gold will benefit the real economy. When the real economy benefits everone gets a share of the cake.The secret of the prosperity of the American people lies in the fact that they have always invested in technology and development rather than gold.In fact they prefer 9 carat gold for their ornaments unlike Indians who are satasfied with nothing less than 22 carat and in the process lock up huge amounts of investible funds into hoards of useless metal.Reminds me of a beggar who had 50000 rupees in the bank but would still beg for paisas the money in his bank only giving him a psychological sense of security for some imagined disaster.When the disaster finally came in the shape of his death his little hoard
never helped.What a great thing it would be if all the money That Indians have hoarded as Gold were invested in the real economy!



Oct 31, 2009

The little knowledge is dangerous but too much knowlege remaing idle is more dangerous



Oct 31, 2009

It is worthless,do not send any mail to me.I have no time to read it

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