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..."


Sep 26, 2009

US Dollar has bottomed out and is in the process of getting into a multi month rally against the major currencies of the world.
How dumb you guys can get?
If you understand what is happening in USA exactly, you will not do this cut & paste work every day.



Sep 26, 2009

Marc Faber is on the ball when he talks of growth from within, for India and other countries in Asia. Typically, this is seen as building the market for products in India, hence the focus on poverty alleviation, give aways, pay revisions and so on. However, there are at least three other initiatives which are easy to take:
1. Reduce post harvest losses. It is an absolute shame that we can get Californian apples but not good ones from India. The latter are any day tastier and more wholesome than the imported ones! The same goes for a whole lot of other things. The estimate of these losses runs into 50000 crores plus per annum.
2. Find a way to reduce losses in the public distribution system (PDS). Here again, the figures run into 30000 crores plus.
3. Unlock the market in land. Simply showing the spine to move cantonments out of the cities, dispensing with free accommodation for government servants and ridding Mumbai of the archaic rent control laws will give such a boost to this market that the momentum it could generate can only be imagined.

These are just three examples. But doing something in each requires focus and execution backed by political will. Much though our PM is erudite and makes wise comments once in a while, he lacks the spine to make these happen.

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