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The perfect insurance - Views on News from Equitymaster
 
 
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  • Jan 7, 2009

    The perfect insurance

    Gold's dream run to continue
    "Gold may advance for eighth year as perfect insurance sought," screams the title of one of the stories on Bloomberg. With major nations willing to print and inject trillions of dollars into their respective economies, there will barely be any paper currency left to hide.

    A perfect setting for the only dependable alternative - gold. No wonder the commodity is having a dream run, a price appreciation for seven consecutive years and the one, which is likely to continue for the eighth year as well. Although the precious metal has risen only 6% in US dollar terms in 2008, against the other major currencies like Euro and British Pound, it has risen an impressive 11% and 44% respectively.

    Still, the ratio of worldwide paper currency to gold is agonisingly low as compared to few decades back, indicating the recklessness with which governments have gone about printing money and supporting inflation. However, they are not done yet. Another trillion of dollars are likely to find their way into the global economic system in 2009, further lowering the ratio and further strengthening the case for a massive appreciation in gold prices. If you haven't bought gold yet, you are perhaps shying away from the only possible hedge against inflation.

    Time ripe for Japan to up M&A ante
    The worst slowdown since the great depression has meant that assets are available at fire sale prices. And this is indeed one of the best times to engage in M&A (merger and acquisition) activity and ensure strong shareholder value creation. But cheap valuations do not always occur at the same time as access to cheap funding. And this time around too, it has been no different.

    The only companies that are able to sew up a deal are the ones that are sitting on huge cash pile and do not require the help of capital markets. And there are no firms in a better position in this regard than the Japanese firms. Fresh from a long and tenuous era of restructuring, it is believed that these firms are sitting on trillions of dollars worth of cash that could enable them to scoop up assets on the cheap.

    And if the trend of 2008 is any indication, they are indeed putting their money where the opportunity is. As per reports, while M&A deals in 2008 for companies in the US and the UK witnessed a sharp slowdown, Japanese companies had their best year ever, splurging more than US$ 77 bn towards buying companies. And with credit markets showing little signs of thawing, Japanese companies might once again emerge as the frontrunners for M&A deals.

    The fact that the country's currency has appreciated significantly has also put them in a strong competitive position. India too got a taste of the same when just a few weeks back, Japanese telecom major DoCoMo forked out US$ 2.7 bn for a strategic stake in Tata Teleservices.

     

     

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