|»5 Minute Wrap Up by Equitymaster|
On This Day - 14 MAY 2011
Can stock markets teach you how to be brave?
In this issue:
Is it better to invest in gold or stocks? ...
'Gold Bug' Bill Bonner, answers these questions for you in the exclusive publication - The Guide to Gold
Based on data from Fidelity, one of the world's largest mutual funds, over the past four decades the US has been through six recessions. Globally, bubbles have burst, wars have broken out and various crises have come to the fore. Chief being the US Subprime mortgage crisis, the tech bubble, 9/11, and the Gulf War. In 2011 itself, two major macro events which shook the world were the turmoil in the Middle East and the Japanese earthquake.
Economies will keep entering periods of hardship. Not a year has gone by where something significant hasn't happened in the world. But, what prevails is human nature. The ability of a person, or a company to pick up the pieces, wake up the next morning, and try and make things better. All these events listed above had serious ramifications on stock markets, when they took place. But, markets have always bounced back. And most times stronger than ever before.
Jim O'Neill, chairman of Goldman Sachs Asset Management and the person who coined the term BRICS also echoes the same sentiment. He says that investors should stop worrying so much. Post the 2008-09 crisis, investors are overly concerned about the prospect of 'black swan events'. These are extremely unlikely, low probability events, with severe consequences. O'Neill however states that, "Every little problem that crops up somewhere in the world is not going to create another black swan". He believes that there is far too much conservatism, with investors holding onto cash instead of investing their money. There will always be bumps along the road of investing, the question is do you have the stomach for it?
There might be some downside risks to your investments, but do you look at managing these risks. Or are you thinking of staying away altogether in anticipation of the next crisis? Share your comments with us or post your views on our facebook page.
Either way, as India and China keep on growing, employees with the requisite experience and training become increasingly more desirable. And as a result tougher to hold on to. Employee retention has thus become a big new challenge in these emerging markets.
The level of economic activity as well as the demand and supply of talent are the main factors for the rise. But in India, the inflation factor is also playing a crucial role. As per Aon's estimate, double digit salary increment will continue in India for next several years. These will in turn further hurt company's profit margins which are already under pressure due to rising raw material and energy costs.
However, we believe that the shift from tier 3 cities to smaller towns would be challenging. And the main reason is connectivity. For any location to attract any kind of residential or commercial interest one needs to have a proper road infrastructure in place. Take the example of Yamuna Expressway. It connects Noida and Agra in the state of UP. There is a housing project coming up alongside the expressway. Some area has already been sold off along the road even prior to the completion of the project. Thus, there has to be some connectivity mechanism in place for any area to garner housing interest. There was some road infrastructure in place between metros and tier 1 cities. But there are major connectivity issues between tier 3 cities and smaller towns. So, perhaps we have to wait for some time before the housing boom ultimately shifts to the smaller towns and cities.
The common message that comes out is loud and clear. People want good governance and political reforms. They won't easily accept corruption and arrogance of the people in power. Now it is upon the new political leadership in these states to understand this message and deliver to the people who elected them. And if they do so, they will surely reap the benefits of getting re-elected for the next term as well.
In recent times, the US dollar has witnessed serious declines in value. At the same time, countries like China are setting up pacts with other countries to use alternative currencies limiting their dependence on the dollar. So will the greenback actually become redundant? The way things are going, it certainly looks sooner or later the world would have a new currency standard. As to which currency would take the baton from the dollar, only time will tell.
In Europe, Germany was the biggest loser down 1.2% while France and UK closed the week down 1% and 0.9% respectively. In the Americas, Brazil was down by 1.8% while US was down by 0.3%. China closed the week down 0.7%.
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