Is everything worse today than it was in 2008? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Is everything worse today than it was in 2008? 

A  A  A
In this issue:
» Infosys is likely to face a turbulent AGM today
» Another broker revises China growth downwards
» Why the case for gold is stronger than ever?
» When will India outpace China in terms of population?
» ....and more!

Irrespective of whether you are a gold bear or a bull, we believe Twitter was the place to be a few days back. On display was a marathon 16-hour fight between camps which were on the opposite sides of the gold trade. Representing the bear case for gold was Dr Doom, Nouriel Roubini. Worth adding that Dr Roubini penned a lengthy article recently about how the gold bull run was over. 'The gold rush is over', he proclaimed in the article. The run up in gold prices in recent years had all the features of a bubble, he added further. However, what took the cake was his prediction that gold prices would hover around US$ 1,000 by 2015, a huge downward revision from the current levels!

Not one to take things lying down, the gold bulls did hit back strongly at Roubini. They were represented in this case by Jim Rickards, author of a New York Times bestseller and noted currency expert. Rickards went to the extent of asking whether Roubini is indeed living on planet earth. Simply because as per Rickards, everything that was present about the risks in 2008 is worse today.

Long time readers of this newsletter would know which of the two sides we would be more inclined to take. Just like Rickards, we too have been arguing all along that the adjustments that need to be made to put global economy back on track have hardly been made. Instead, what we've done is print enormous amount of money and paper over the problem.

Of course, it could well be argued that we may be suffering from sort of bias. And are thus ignoring the bright side of things. But wherever we probe and try and look beyond the surface of things, we seem to be encountering significant problems. Financial, political, geopolitical, name the risks and you will have the global economy facing them currently. Thus, to say that gold prices are in bubble in such an environment would be taking things too far we believe. The risk of the global economy coming in the cross hairs of a major turmoil is higher than any other time in recent history as per us. And hence, in such an environment, it will pay to have a significant portion of one's investments in gold we believe.

Do you think things are much worse today than they were in 2008? Please share your comments or post them on our Facebook page / Google+ page

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01:15  Chart of the day
We don't know if we will be if ever, able to match China in terms of economic clout but the days are not very far if we are talking only population here. In fact, if a new United Nations report is to be believed, it could happen as early as the year 2028. As per the report, both India and China are expected to have a population of 1.45 billion each by 2028 with India well outpacing its Asian rival by the time the year 2050 draws to a close. In fact, by the end of this century, even Nigeria is projected to displace China and emerge as the second most populous nation. We all know how this could be a double edged sword. Use one's manpower sensibly and it could well herald an era of economic prosperity. However, if we don't produce enough jobs and we are setting ourselves up for a disaster we believe.

Source: LiveMint

There are times when even the best of the companies slip on things. And it can spell disaster for them if things are not kept in check. Something like this seems to be happening with India's leading IT company, Infosys Ltd. The company had announced a few weeks ago that it intends to reappoint its retired founder, Mr Narayana Murthy. Let us not forget that it was his vision and leadership that made Infosys what it is today. But Mr Murthy's return is being questioned as a slip up on the company's corporate governance. Something for which it was revered till now. Let us look at the facts that have led to this questioning. Mr Murthy's reappointment goes against the company's rules of retirement, which he himself made. It also results in the creation of the post of Executive Chairman, a post that was dissolved after his retirement.

The biggest question is the appointment of Mr Murthy's son as his executive assistant. This is clearly nepotism and against the company's rules that states that the founders' children cannot be appointed in executive roles. With so many questions, the company is heading for an Annual General Meeting with some very irked investors. As per a leading daily, the company did not inform the stock exchange of Mr Murthy's reappointment either. This has irked the market regulator SEBI as well which has sought an explanation from the company. We at Equitymaster have always been big fans of companies with high corporate governance standards. And Infosys is definitely one which would rank high on these standards. But current events seem to be going against the company at least on this point. We hope that at its AGM today, the company has a plausible explanation for its actions.

China's new leaders are believed to have higher tolerance levels for lower growth levels as compared to their predecessors. This indirectly means that stimulus packages announcements would be made rarely. In other words, the world will have to get used to China's lower growth rates. According to investment bank Nomura, China's growth rate is likely to slide to below 7% during the second half of the year. During 2012 the country grew by 7.8%. Growth marginally slowed to 7.7% during 1QCY13.

In addition to lesser government intervention, tighter liquidity is expected to lower growth levels. Deleveraging in the bank sector would curb social financing - total fundraising by Chinese non-state entities. Further, the weakening export demand would also contribute to this. All these developments do point towards a possible ratings downgrade. And with China's sparkle dimming and a lower possibility of a downgrade in India, would the global investor focus shift back on India? Difficult to gauge at this moment. But within two emerging nations, it does seem that India could be the preferred choice.

Here's another one on the yellow metal. Gold and equities have inverse correlation. If one rises the other falls. Hence, gold proves to be an effective diversifier for a portfolio. Allocation to the same should be seriously considered when one senses that the risk of economic uncertainty is high. That's because during economic uncertainty paper assets fall be it stocks, bonds or currencies. Gold on the other hand acts as a safe haven. So, is the time ripe to increase/have some proportion of your portfolio into gold now?

The entire developed world is submerged in debt. In fact, Japanese bond markets are in a state of panic. Huge money printing exercise undertaken by the Japanese central bank to fund the nation's deficit has virtually destroyed the value of its currency. Yen is falling. The problem is compounded by the fact that the country has started running a trade deficit. And getting foreign financing is becoming difficult since it has already piled on huge debt. In short, Japan is in serious trouble.

Similar is the case with most leveraged developed nations now. Some have been bailed out. Some are still struggling. In short, they are in complete chaos. And the signs are they won't come out of it soon. In fact, we feel these nations are submerged in quick sand. The more they try to come out of it the more they go deeper into it. All this means that paper assets have a dim future. Gold is the only asset class that can come to the rescue during these times. Hence, it's time investors have some exposure to it before it gets too late.

Meanwhile, it was quite a volatile week for global stock markets. All the major world stock markets ended the week in red. The US stock markets were down 1.2% on account of weak economic data and a potential tapering of quantitative easing. The report of drop of employment in the Euro area and concerns regarding US monetary policy dragged down the European stock markets. The stock markets in France and Germany were down by 1.5% and 1.7% respectively over the week.

The global economic developments, volatile currency markets and bond markets influenced the Asian stock markets during the week. The stock markets in China registered losses (down 2.2%) on account of slow economic growth. The stock markets in Japan also ended the week in red (down 1.5%).

The Indian equity markets closed the week in the red with the shares in the The consumer durable space leading the downfall. The Indian stock markets were down by 1.3% during the week. In the coming week, Reserve Bank of India's policy review, along with movements in global markets will influence the stock markets.

Source: Cnnfn, Yahoo finance, Equitymaster

04:53  Weekend investing mantra
"The first 80 percent of the available information is gathered in the first 20 percent of the time spent. The value of in-depth fundamental analysis is subject to diminishing marginal returns" - Seth Klarman
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4 Responses to "Is everything worse today than it was in 2008?"


Jun 16, 2013

It's true atleast for poorIndians


Gauri Dangat

Jun 16, 2013

Today global economy appear worse than in 2008. The very excesses that caused the crisis, are being used to postpone the pain only to be aggreviated later.
Unless the economic growth is accompanied by significant productivity gains in near future, the ills of debt & excess money are here to haunt us!


sunilkumar tejwani

Jun 15, 2013

i fully agree with Mr. noriel roubini, Gold has been in a bull trend till 2012 since 1999. agreed that there is a case of excess money supply against the gold reserve held by various central banks, but remember, high prices of anything lead to demand destruction. take the case of copper about three years ago, China was hoarding Copper and other metals as if there was not tomorrow. Sooner or later, all central banks will be compelled to stop printing excess money due to stagflation, and this will lead to lowering of price of gold. Gold is nothing but a barbaric relic.


anupam garg

Jun 15, 2013

Equimaster's recent decline in buy recommendations can be this the way to respond to subscriber's money?
but then again, equitymaster is only acting sensibly and in favor of its subscribers
so is mr. Murthy...he has returned to rebuild the momentum of the company, aacting in interest of all stakeholders...pragmatism always weighs above ideals...especially when the times r dark

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