Are we suffering the most?

Nov 27, 2013

In this issue:
» Agricultural wages continue to rise at a sharp pace.
» US Bank to charge depositors to keep cash safe?
» Exodus in Gold ETFs continues.
» Will Reliance Industries get its way?
» ...and more

2006 to 2008 was a boom period for Asian majors China and India - although things started taking a turn for the worse towards the end of this period. Majority of people would have not expected things to turn out the way they did. The eruption of the global economic crisis has pretty much put the brakes on the growth levels of these - then seemingly slowdown defying economies - quite strongly.

Today, growth rates in these countries have reduced significantly, to more than half (from peak level) in India's case. And things are expected to slowdown going by some of the recent predictions that are making rounds. Clubbing this with the many problems India has been facing and it seems to paint a grim picture. In fact, things are so grim that the negative developments seem to have made Indians to be amongst the most 'suffering' people on this planet.

As per a survey done by Gallup, the South Asian region - which largely constitutes of India - has seen the largest increase in terms of people suffering. The average number of people suffering in the country has more than doubled to about 25% during the 2010 to 2012 period from 10% in 2006 to 2008. On an overall level, India ranked fourth in terms of sharpest change in suffering between these two periods.

The survey was carried out by asking respondents to classify their current and future lives from 0 to 10. Any rating below 4 would be termed as 'suffering', with the other two classifications being 'thriving' and 'struggling'.

Whether this survey should be taken with a pinch of salt is something that would be difficult to comment on. But, we believe it does signify the high frustration levels of Indians. The past few years have been difficult. Difficult because of many factors. First and primarily being the high inflation level, which have pretty much increased the price of nearly everything! Be it basic necessities, food or energy. To add to that, the weak currency has made matters worse! Not to forget the unaffordable housing prices leaving most to extend their dreams of buying and owning a home and improving their lives. To add to that, the many episodes of scams along with the low business confidence levels are also aspects that have added to the frustration.

We are living amidst difficult times. And the way things are going, it seems we will continue to do so for a while. What is the approach an investor must take? The right asset allocation, we believe. Investing through troubled times should be done with care. Investments into relatively risky assets should be done only after keeping aside enough for one's short to medium term requirements.

Do you believe Indians to be the most suffering people on this planet? Let us know your comments or post them on our Facebook page / Google+ page

 Chart of the day
If there is one barometer to gauge the performance of rural India, it is the daily rural wages. The same have been growing at a strong pace. As reported by the Mint, agricultural wages increased by 17.4% YoY during the month of September 2013. These would however need to be adjusted for the inflation levels, to show a real rise in wages. Considering inflation levels in India to be in the high single digit to low double digit regions, one can assume the real wage growth rate to be in the 2% to 5% mark.

Growth in Agricultural Wages over Past Few Months

India has been witnessing a slow down. But as far as companies targeting the country's consumption theme are concerned, they are not seeing a slowdown in the rural parts of India; which is leading them to focus strongly on such markets. However, the question boils down to how long this growth will be sustainable. It gets difficult to comment on the same as there are many factors such as the monsoons and government spending programs that come into play. But with the aim to include the rural parts of India towards the country's economic growth, the scenario is bound to improve going forward.

--------------- The worst prediction for India is here... ---------------

It almost feels like yesterday...

India was comfortably growing at over 9% and hoping to cross 10% very soon. And everybody was just so optimistic about India.

Fast forward to the present, and the latest prediction for India says that the Indian economy will grow at just 3.4% in the current financial year.

This is lower than the 3.7% projection of the International Monetary Fund (IMF)... and in fact, the worst prediction so far!

But it is not without valid reasons. We have discovered, from our own research, that things are indeed really bad and could get a LOT worse in the days to come.

To understand why we are saying this, and the direct impact these things could have on YOUR financial future, please read the letter below...

Believe me, it will be the most important letter you've ever read! Just click here to find out.

It was not too long ago when few of these banks were being investigated for their involvement in the LIBOR scam. Turns out that the big banks in the US and Euro zone have tried their hands at rigging gold prices too, something that could tarnish the safe haven image of the yellow metal. As per Economic Times, the UK Financial Conduct Authority is scrutinizing price negotiations in the US$ 20 trillion gold market. The benchmark rate used by mining companies, jewelers and central banks to buy and sell gold is called the London fix. The tradition of top 5 banks deciding the value of the metal through a telephone call has been prevalent since 1919. Barclays, Deutsche Bank, Bank of Nova Scotia, HSBC Holdings and Societe Generale are entities involved in the discussion. However, the dealers and economists it seems have reasons to believe that some traders are taking unfair advantage of being privy to insider information. With so much power being entrusted with the too big to fail banks, we wonder if they will ever be brought to book for any wrong doing.

A question that investors have in their minds is where they should keep their safe cash. One alternative is to keep this cash in bank deposits. This is a popular alternative in India. But if you were in the US, you would need to think twice before keeping your cash in the banks. Because if the US Fed's proposal becomes a reality; then the banks would charge you for keeping your cash safe. In other words, the bank will make the depositor pay them for deposits instead of it being the other way round. The proposal that the Fed has is to cut the interest rates it pays to the banks on the reserves that the banks have kept with it.

The idea behind the proposal takes its roots from the proposed tapering of the QE. In order to taper off the QE and still have enough liquidity in the system to stimulate economic growth, the Fed has proposed to cut down the rate on the reserves. However the banks have opposed this. They have stated that even at current rates they are barely breaking even on the interest rates that they pay to depositors. If the Fed cuts the rate any further, they would be forced to ask depositors to pay for the deposits. This is because despite the liquidity in the system, there are really no takers for the loans. In short, the enormous money printing exercise of the Fed has been a royal failure since it has failed to stimulate credit growth. The banks have also warned that if the reserve rates are slashed they would be forced to invest in riskier assets to earn higher yields. And let's not forget that this is exactly what had led to the crisis of 2007. Therefore it is high time that the US Fed sat down and took stock of its own actions. Its money printing has not helped anyone. And if it takes any rash decisions now, it will cause more harm.

Let's face it. Gold hasn't been a particularly good investment this past one year. Most gold ETFs in India are down anywhere between 10%-15% during this period. Is it any wonder then that investors are making a mass exodus out of most of gold funds. As per a leading daily, investor folios in gold ETFs came down for four straight months till September 2013. And given how the world economy is shaping up, there isn't hope for gold price to go up, isn't it? Well, we don't think this is true.

The robustness in the global economy, US especially, is mainly on account of an artificial life support system. And once this support is taken off, we don't think the fundamentals have turned strong enough to help the economy stand on its own feet. Thus, the support will have to continue. And if it is given long enough, there's an inflation threat looming large. Therefore, either ways, the events are going to be favourable for gold investments. As a result, gold may be down but is certainly not out. Against this backdrop, it is hard to understand why people are moving out of gold on the back of a small price correction. As far as we are concerned, gold is a must have in one's portfolio from a medium to long term perspective.

In June 2013, in a landmark decision, the government approved a hike in gas prices starting April 2014. The decision led many to wonder if Reliance Industries (RIL) would be allowed to charge higher prices as well. The proposition seemed unfair. This is because the company had miserably failed on gas supply commitments from D6 field. While it cited geological reasons for the fall in supplies, it was alleged of cutting down the production on purpose. The likely motive is not hard to guess. The company could make huge gains by postponing supplies until gas price hike came into effect.

The matter was serious enough to question the cost recovery mechanism. The government was prompted to disallow proportionate cost recovery to RIL. Even as the arbitration proceedings are pending, it seems RIL will get its way. As per a leading financial daily, the company may be allowed to hike gas prices from April 2014. As far as losses due to shortfall in gas supplies are concerned, the oil minister Mr. Moily is confident of securing the bank guarantees to settle the claims. The minister will put up a proposal before the Union Cabinet. The matter is likely to be resolved in next 15 days. In case the company is allowed to hike gas prices, we will not be surprised to see the company suddenly finding a solution to the geological challenges that have blocked gas supplies for years now.

Indian stock markets have bounced back from day's lows but are still trading in the red. At the time of writing, the benchmark BSE Sensex was down 42 points (0.21%). Power and realty stocks were trading weak while consumer durable stocks were trading strong. Asian stocks were trading mixed, with China and Hong Kong being the top performers. The European markets opened on a weak note.

 Today's investing mantra
"Interestingly, we have beaten the market quite handsomely over this time frame, although beating the market has never been our objective. Rather, we have consistently tried not to lose money and, in doing so, have not only protected on the downside but also outperformed on the upside." - Seth Klarman

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1 Responses to "Are we suffering the most?"


Nov 28, 2013

I entirely agree. We suffer at every stage. Even people with money and a good house also suffer. There hardly any law and order, cheating/ deceiving is the order of the day. Lack of infrastructure, bad governance, etc. all contribute to make us miserable.

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