»5 Minute Wrap Up by Equitymaster

On This Day - 15 JULY 2010
World's safest asset could be worthless in few years

In this issue:
» MF NFOs are falling flat
» Indian rupee finally has its own symbol
» India is ahead of China in one field
» India has its own Detroit in the South
» ...and more!!

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Can you tell us which is the safest asset in the world right now? Gold could be one of the options. However, there isn't enough quantity of the yellow metal for it to absorb trillions of dollars of cash and still not move much in terms of prices. How about the US Government bond? It is the sovereign bond of the most powerful and wealthiest nation on Earth. Plus, it was the asset of choice the last time a crisis happened. Certainly, the US Government bond does qualify as the safest asset in the world based on historical track record.

However, is the famed US Government bond going to be equally safe in the future? Clearly not if the noted economist and investor Marc Faber is to be believed. In fact, as per Faber, the value of the US bond would be nothing more than worthless pieces of paper going forward. This is thanks to the enormous amount of debt the US has piled on. Faber believes that the US Government will have to run a giant Ponzi scheme just to be even on its interest payments. In other words, it will have to keep issuing new bonds so that the money raised could be used to pay its ever rising interest expenses.

The repayment of debt is just impossible as per Faber. And this scheme would come to end the day new bond issuances will not be able to match interest payments. Then, the US Government will be left with no other option but to print money thus significantly raising the risk of a hyperinflation like situation. While the reality may not turn out as grim as Faber has predicted, the US is indeed staring at a problem the magnitude of which is unheard of. The safest asset in the world may not be that safe after all.

 Chart of the day
The sorry state of power generation in India needs no introduction. It significantly affects the per capita power consumption in the country. As today's chart of the day shows, power consumption in India is so low that forget developed nations, it fares miserably in comparison to even the world average. We know for sure that the demand is indeed there. If only our policymakers show some swiftness in lighting up millions of households and thousands of factories, India's consumption per capita would indeed receive a big boost. However, it would be hugely beneficial if a significant quantity of the new power generation comes from renewable and non polluting sources. Otherwise, once India reaches consumption levels of the developed nations, its negative impact on environment can only be imagined.

Source: Rediff.com

Source: NDTV
The Indian Rupee has finally got its new symbol. And it's a mixture of Indian and Roman literature. In short, the
rupee will retain its Indian character and still have an international flavour! The symbol is the one designed by an IIT post-graduate student, and will now await the Cabinet approval. As seen down, the symbol is an amalgam of the Devanagari 'Ra' and the Roman capital 'R' without the stem.

The finalization of the symbol will now put India in a select group of countries that have unique currency symbols. But how important will it be for the status of the currency carries in the global financial market remains doubtful. For that to happen, the Indian economy and government finances need to grow a lot stronger!

The National Highways Authority of India (NHAI) has been getting mired in controversies of late. And the Planning Commission (PC) has just compounded its misery. As per reports, a new report by the PC asserts that the NHAI is headed towards bankruptcy. This as it expects NHAI's debt to increase by 5 times in the next 3 years. The reason for this is that the PC sees NHAI's outgo over this period to be well above its cash inflows. This will lead it to raise huge amounts of debt.

The NHAI in response has said that the study does not take into account various projects that give NHAI a return. Apart from this, it has been quick to point out to the fact that funding for the body is a Union government responsibility. Thus, if any such scenario were to develop, the government would have to take care of its funding needs. For now, the war of words continues between the PC and NHAI. Our only apprehension is that if this confusion is not sorted out soon, it will be the citizens of India that will lose out in the process, not anyone else.

India beats China. Even though it is small, it is still a victory. The Indian stock markets outperformed the Chinese stock markets by a whopping 28% points this month. Indian markets have done well. The economy has been growing consistently. Growth estimates are being revised upwards thanks to the good monsoons and continued Government support for reform. In addition, India did not throw up any major surprise during 2010. It won the hearts of the investor community.China, on the other hand, is slowing down. The major shock for the markets came when China announced strict measures to control their booming property prices. These moves have built a fear in the minds of the investors and have forced them to park their funds elsewhere leading to a stock market decline in recent times.

The US city of Detroit is soon set to have tough competition from an Indian city in the south. Yes, the port city of southern India Chennai is literally vrooming ahead. Especially since many international carmakers are spending billions of dollars to make Chennai one of the world's biggest hubs of small cars. This, for exports as well as for increasingly affluent Indians. And these big names include the likes of Ford Motor, Hyundai, Nissan, Renault, Daimler, BMW etc. For Chennai, this has been a huge boon. All the investment has generated jobs for more than 200,000 people. This in turn accounts for 12% of the economic output of Tamil Nadu.

Indeed, Chennai can set an exemplary example for other cities in India. This can then go a long way in attracting that much needed long term foreign capital that will take India to the next level of growth.

Retail investors seem to have become a smarter lot these days. The ploy by mutual funds to garner higher funds by launching new schemes has seen its heydays. But the same is no longer fetching any interest from investors. Data from the mutual fund regulator AMFI's website shows that the new fund offerings have failed miserably in recent times. Reason for the same could range from market volatility to lack of novelty in the schemes.

The SEBI's dictate to stop commissions paid to distributors has also been a spoilsport. At the same time investors wary of expensive valuations are redeeming their units at regular intervals. This has created liquidity crunch in an industry that had got used to amassing billions in every new offering. The fund sponsored foreign trips for distributors and agents will also, alas, not have any takers!

After flirting with the breakeven point for most part of the morning, the Indian benchmark BSE-Sensex was trading marginally in the negative at the time of writing. Banking heavyweights seemed to be exerting the maximum pressure on the index. All major Asian indices closed in the red today whereas Europe has also opened on a negative note.

 Today's investing mantra
"When stocks are attractive, you buy them. Sure, they can go lower. I've bought stocks at $12 that went to $2, but then they later went to $30. You just don't know when you can find the bottom." - Peter Lynch

Note: You can now learn more about derivatives on Equitymaster! That's right! We now offer you both views and tutorials on derivatives. This is yet another effort to empower you with credible information and views, dear reader. We hope you will make the most of it!

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