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Stagflation, crude and more... - Views on News from Equitymaster
 
 
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  • Jan 3, 2008

    Stagflation, crude and more...

    • Yesterday was the first trading day in most parts of the world and one couldn't have asked for a more eventful beginning to 2008. Stocks took a pounding in the US as weak manufacturing report reinforced doubts of a looming recession. Even the Federal Reserve chief Ben Bernanke's benevolence is unlikely to have much impact this time as flooding the markets with money means little when the output is not growing. If at all, it only leads to further inflation or to borrow from former British MP Lain MacLeod, 'stagflation'.

    • While Mr. Bernanke is leaving no stone unturned in trying to bring the dollar to its knees, huge demand for energy and better lifestyles from nearly one half of the world's population (read India and China) is leading to an unprecedented rise in commodity prices. While the entire world frets at the prospect of ever rising crude prices, a few economists at Goldman Sachs, one of the world's leading investment banks might be gushing. A few years back, this bunch had predicted that the black gold is likely to touch US$ 100 per barrel and yesterday was their day of reckoning. Concerns over reduced output from strife torn Nigeria made crude oil prices jump to a record US$ 100 per barrel. Gold too continued with its lustrous upward move and reached its highest ever levels since January 1980. Indeed, worries over a weakening dollar is making investors look for safer haven like gold.

    • Back home, Maruti Suzuki, the proxy for the Indian automotive industry came out with its December sales numbers and while it did not really set the streets ablaze, overall growth came in at a respectable 10% over corresponding previous month. Domestic sales growth, however, came in a lower 7% YoY. Thus, while the company has closed 2007 ahead of the industry, it will have its hands full in 2008, as competitive threat looms large. None fiercer than from rival Tata Motors' 'Rs 1 lakh car' touted to be the cheapest in the world. The way the company's chairman has reacted to the prospective launch gives the indication that the jitters are indeed being felt. Things continued to be rather unrosy for the two-wheeler players as after TVS Motor, India's Bajaj Auto too continued to report lackluster sales for the month of December. The company's two-wheeler sales fell 5%, a little lower than overall sales, which dipped 7% YoY for the month. With interest rates expected to come down, 2008 is likely to bring in better sales numbers for these players but with inflationary pressures continuing to mount and little room for price hikes, companies are going to have hard time trying to manage margins at acceptable levels.

     

     

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