Spinning. - The Honest Truth By Ajit Dayal
Investing in India - Honest Truth by Ajit Dayal
Spinning. A  A  A
24 MARCH 2008

We don’t know what to make of it.
Britney wants to see her children.
Ben wants to print more notes.
And so does the US government.

We have lost count of how many dollar bills are being created. A billion here, a USD 100 billion there, another USD 30 billion to act as a guarantor of any mishaps in the Bear Stearns portfolio, and then the release of USD 200 billion in excess capital by a change in the capital reserve requirements for Fannie Mae and Freddie Mac. And another USD 25 billion for another US government agency that can now guarantee about USD 300 billion in mortgages.
By the time you add what the UK and European Central Banks have done, the total amount of printing and guaranteeing will be over USD 1 trillion.

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That’s what they have spent on the war against terror so far.
Five years in Iraq and there is still no clarity on where the world is heading.
We know the defence companies are doing well.

A trillion dollars on fighting the home loan mess built on the “origin and distribute” model. We know the CEOs of Wall Street firms will do well.
The banks and Wall Street firms packaged home loans so that those who should never have received the loans, got them. And, in the process, these firms made nice fees along the way. Now they leave the bills to the tax payers to settle.

Printing money – or creating money – is the ultimate power of the central banks. And of politicians. Promises are made, and to pay these bills, currency notes are printed. Problems arise in the financial system and, to rescue the foolish, currency notes are printed. This is worrying. And it also worries my son, apparently.

My son came back from school last week. He had borrowed two books from the school library. One was Harry Potter – but he is too young to read that. The other book was an introduction to money. With a lot of illustrations. A lot of history of currency and the use of gold and silver as a “store of value” in the past.

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But gold prices have slipped in the past one week. From USD 1,030 per ounce to a recent low of USD 910.
We re not sure why?
Did gold run up too fast?
Is there too much speculative money invested in commodities in general and gold in particular? Maybe.

Source: Bloomberg

But that does not give the US the liberty to print billions of paper currency and export that to the world.

Gold may have lost 10% in one week, but it is still up 15% for the year.
Keep on buying your insurance.
Consider investing in the Quantum Long Term Equity Fund and the Quantum Gold ETF.

Table 1: Suggested allocation in Quantum Mutual Funds
Quantum Long Term Equity Fund Quantum Gold ETF Quantum Liquid Fund
Why you should own it: An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% 15% 5%

Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"

Note: Ajit Dayal, the author is a Director in Quantum Information Services Private Limited and Quantum Asset Management Company Private Limited. Views expressed in this article are entirely those of the author and may not be regarded as views of the Quantum Mutual Fund or Quantum Asset Management Company Private Limited or Quantum Information Services Private Limited.

Mutual Fund Investments are subject to market risks. Please read the offer documents of the respective schemes before making any investments.

Other Views on News:

» Wise thoughts in unwise times...
In an April 2005 article in The Washington Post newspaper, titled "An Economy On Thin Ice", the former US Federal Reserve Chairman (from 1979 to 1987), Paul Volcker, had given clear hints of the ways he saw the US financial system collapsing under the weight of easy money and housing problems. Read on...

» How not to evaluate mutual funds
A lot of mutual fund advice/research out there is focussed on how investors must evaluate mutual funds. Unfortunately, that is often not enough, which explains why wrong mutual funds are still sold/bought and mis-selling continues to be the bane of the industry. Read on...

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