But, NOOOOOOOOO! Let me tell you all about it now… First, we had what I called the potential White Knight for risk assets yesterday, the Indian election results, which pushed the Indian stock market to levels it hadn’t seen in some time. That carried over to the Japanese stocks, which carried over to Europe and finally the U.S. It took most of the day to really get things going, but by the time I was packing up to head home, the move was on… And risk assets all around, save for the safe haven Gold, kicked into gear, and were off to the races. And Currencies were in the pole position of this rally!

I just can’t get my arms around this stock rally folks… What are they rallying for? Corporate earnings are awful… And the prospects of future earnings are awful… Why do I say that? Well… Have you seen the rot on the labor market’s vine lately? “Real” unemployment is north of 16%… And with announcements like the one last night from American Express, where they say they will layoff 4,000 employees, hitting the news wires each day… There’s just no way that consumers are going to have the “juice” to support corporate earnings… Those that do have the “juice” will probably squirrel it away, and those that don’t, well… They don’t have any to squirrel away or spend!

But… I always think of things logically, right? This is logical that stocks would suffer going forward… But will it play out this way? Who knows? I’m certainly not even your last choice for a stock jockey! But… It just seems to me that this is just the way it is… Some things will never change… It’s just the way it is…

OK… The “other” news this morning that’s fueling a huge currency move overnight… German Investor Confidence, as measured by the think tank ZEW, rose more than the “experts” were forecasting, and reached a 3-year high this month! WOW! OK, I hate to throw cold water on this, but this “investor confidence” is all tied to the rally in stocks… And what’s good for the goose (the U.S.) in stocks, is good for the gander (EUROPE) in stocks…

But hey! Why step in front of this bus? If the stock jockeys want to take their assets higher, then I’m not going to throw myself under their bus! The ZEW report is “supposed” to predict economic developments 6 months ahead… Well… By the time we sit down to eat our Turkey on Thanksgiving, I’ll look back and see if the ZEW think tank predicted correctly!

The Huge currency rally is across the board, including the once beaten and battered pound sterling, which has really mounted a strong performance in recent weeks… Yes, things in the U.K. are still teetering… But the pound sterling has seemed to have weathered the storm… At least for now!

Of course, in this crazy mixed up world we live in with currencies, a Huge rally currently means that Japanese yen is back on the selling blocks. And… The high yielders are soaring…

The Aussie dollar (A$) seemed to ignore the news from China overnight that the Chinese had ordered an immediate 30% Steel production cut by all mills to address 25-30% over-capacity. Then it seemed for certain the A$ would back off when Reserve Bank of Australia (RBA) Gov. Stevens’ gave a speech and revealed his bias toward easing rates further. Watch… At some point in the near future, there will a story that hits the news wires that claims traders are selling the A$ because they believe the RBA will lower rates further… And they will all act as though they “just found this fact out!” But for now… The A$ is kicking tail and taking names later!

I keep seeing one story after another these days from people that claim they “know” the Bank Stress Tests were a “sham”… Well? Didn’t I tell you that first? Didn’t I tell you the Gov’t would not tell us the “real facts” because if they did, they would spook the markets, and even more important spook our foreign buyers of U.S. debt! And we can’t afford for that to happen!

But just for kicks… Here’s a sample of the stories I’m talking about… Put away the sharp objects before reading, we don’t want any injuries…. This is… Howard Davidowitz, Chairman of Davidowitz & Associates, talking… (NOT ME!) “The stress tests were a sham and part of a “con game to get private money to finance these institutions because [Treasury] can’t get more money from Congress. It’s the ‘greater fool’ theory. We’re now in Barack Obama’s world where money goes to those that should never receive a penny….we’re bailing everyone out. The bailout money is in the sewer and gone.”

OK… That’s just a sample of the things I read each day and night… Of course last night I didn’t do any reading, as I was glued to my TV for the final 2 hours of my fave show, 24!

And in a story that makes you wonder what the heck these people are thinking… Two economists, Gregory Mankiw, former White House advisor, and Ken Rogoff, former Chief Economist at the IMF, believe that the U.S. economy is in need of a dose of good old-fashioned inflation! WHAT? They believe the Fed should have a looser rein on inflation, to help debt-strapped consumers and governments to meet their obligations… Again… WHAT? I have to wonder just what else the Fed can do to create an inflationary environment! Come on! They’ve cut rates to near zero… The implemented Quantitative Easing… They’ve pushed Trillions into the system… And these two dunderheads want more? Did they stop, in the name of love, and think about what they were saying before they said it?

And… I can’t understand why they believe that running 6% inflation for “at least a couple of years” is a good thing! Talk about “spooking our foreign investors”! And talk about sending the dollar to the woodshed! Let’s hope these two go away… Don’t go away mad, just go away…

And then… It sure looks like the Bank of Canada (BOC) is doing everything they can to put a 100 miles of desert between them and Quantitative Easing… There will be a speech today by BOC Gov. Murray titled: “Unconventional Monetary Policy Measures and the Zero-Bound, Differing International Approaches and Critical Considerations”… Now, that looks like a speech title that his marketing team came up with… Why not say… “the rest of the world is doing Quantitative Easing, and we’re not!”

Of course… Should this be the “real” gist of his speech, the Canadian dollar / loonie should look to continue its recent strong performance!

The Swiss franc is nearing 90-cents again… Every time it gets to this level, the Swiss National Bank (SNB) makes a statement that “they are watching the currency gains closely” This is supposed to scare traders to not take the franc higher… Who’s afraid of the SNB? Of course “real traders” like the ones that were around when I began to deal in currencies, would take this message as a challenge, and push the franc to the point that the SNB had to intervene or lose credibility… And then they would attempt to push the franc higher! But today’s traders, are not your “father’s traders”… They are wimps! Every time a Central Bank jawbones their currency lower, traders just put their tails between their legs and go home… Give up, quit… Hey! Quitters don’t win, and winners don’t quit! You can’t quit here! When the Germans bombed Peal Harbor, did we quit? NO! (ok that’s a line from Animal House, I don’t want 100 emails telling me that the Germans didn’t bomb Pearl Harbor! HA!)

Today, the data cupboard yields Housing Starts for April… I saw a news story on the TV yesterday that said “Home Builders were seeing a pick-up of new homes being built”… Well… That should be our indication that Housing Starts for April will be stronger! See how easy this stuff is? HAHAHAHAHA!

I always get a kick out of my friend, The Mogambo Guru, and the ending each week of his newsletter… Each week he ends his letter with some message about buying Gold and Silver… And then this line… “Whee! This investing stuff is easy!”

The Mogambo always puts a smile on my face!

Currencies today 5/19/09: A$ .7760, kiwi .6050, C$ .8640, euro 1.3635, sterling 1.5480, Swiss .8990, rand 8.4620, krone 6.42, SEK 7.6675, forint 203.85, zloty 3.20, koruna 19.5660, yen 96.20, sing 1.4610, HKD 7.7510, INR 47.79, China 6.846, pesos 12.91, BRL 2.07, dollar index 82.12, Oil $59.89, Silver $13.94, and Gold…. $922.80

Source: Currencies Bounce Back!

I remember what an oasis of calm that hotel was after spending a day in bustling Bombay. I remember its onyx columns and archways and domes, its hand-woven carpets and crystal chandeliers, its exceedingly polite staff and impressive Sikh doormen.

Poor India, the old stomping grounds of the great Hindu kings, the playground of the Mughal Empire, had a rough year in 2008. India has had such a good run – five years of nearly 9% economic growth and a booming stock market – that it had reason to feel it was Fate’s spoiled darling. But in a long and checkered life, a good many things come unstuck. And so India has.

In 2008, it stock market lost 60% of its value. The rupee lost 20% against the dollar. Foreign investors pulled out in record numbers. India’s best companies struggle. The global economic freeze walloped India hard.

So the question is should you buy India or forget it?

India is a place of staggering contradictions. On the one hand, there is “the Indian miracle.” There are the booming companies and spotless IT campuses. The many millionaires minted daily. Yet there is also awful poverty. The World Bank estimates some 420 million people live below the poverty line. That statistic doesn’t capture the awfulness of it at all.

I’ll never forget the train station in Agra. The mass of poor people lying on the ground in blankets, the beggars and human misery in that place. Yet it has been this way for eons. Mark Twain wrote about the squatters in Following the Equator (1897), about the crowds with their “humble bundles and baskets and small household gear.” Twain would probably still recognize the place.

In India, you’ll see a man in a suit chatting away on a cell phone and on the ground next to him a snake charmer. You’ll see elephants pottering down roads in Rajasthan alongside buses and scooters and hand-pulled carts. You’ll see beautiful buildings right next to absolute squalor.

In Paul Theroux’s new book Ghost Train to the Eastern Star, he retraces a route he took 33 years ago, when he was 33 years old. Part of that trip goes through India. And so Theroux, now 67, is in a good position to judge the changes in India. He is mostly unimpressed. “We drove through the streets of Mumbai, past the slums, the sidewalk sleepers, the lame and the halt. Was the miracle, I wonder, just an illusion?”

Theroux writes about the constant presence of the poor. “Unlike the poor in Europe or America or even China, the poor in India are a constant presence. Where else do people put up with plastic huts on the sidewalk of a main road – not one or two, but an entire subdivision of humpies and pup tents? They inhabit train stations, sleep in doorways, crouch under bridges and railway trestles.”

The biggest slum in all of Asia, Dharavi, lies right in the heart of India’s Manhattan, Bombay. Over some 520 acres live 600,000 people, with one public toilet per 800 people. It is a place of unbelievable filth.

Yet many people in India seem to ignore such slums. I remember sitting in a presentation in which some official from Bangalore showed us slides of new buildings and smooth, functioning roads – a modern city – as he talked up the investment potential of his rapidly changing city. Yet right outside was a completely contrary view: dusty, uneven roads; derelict buildings; and extreme poverty.

Yet there is a lot of good in India. These episodes recount how much more there is to do.

It doesn’t neglect all the progress. And the promise of India, even now, is still enormous.

Consider that even as growth forecasts come down from 9% to 5%, India is still one of the world’s fastest-growing economies. Its people are young and hungry for a better life, unlikely to unbutton the old waistcoat and put their feet up. Half of India’s population is under 25 years old. There are many English speakers. The savings rate is near China’s lofty levels. “The crowning reason for optimism,” opines The Economist “is the savings rate.” Unlike the U.S., India is a nation of savers.

What to Buy in India

And there are many needs and opportunities. India’s road network is the world’s second largest, but in need of further upgrades. Power outages are common in Indian cities, too. India plans to spend nearly $500 billion on infrastructure over the next five years. Power generation alone should increase 14% annually over that span.

There are good companies here available on the cheap. The economic deepfreeze won’t last forever. If you can sit on Indian investments for a few years, my guess is you will be amply rewarded.

If you believe in the long-term growth of India, as I do, then now is not the time to overlook it. The sun dipped behind some clouds in 2008. It won’t always look so dark. Stick with the survivors, build low-cost positions and be patient.

Source: Investing in India in 2009

India is suffering high inflation, its growth is slowing and there are signs that a credit crunch is about to hit. But this can work to the advantage of investors. Without these problems, India’s stock market would be trading at 40 times earnings – and not 18 times earnings, as it is now.

Martin says that buy buying into India now, investors are likely getting in on the ground floor of a major long-term bull market. And he has selected three stocks most likely to benefit from the country’s growth potential…

India’s economic growth was 9% in 2007, and will be around 8% in 2008, so the overall market seems reasonably valued at the current multiple of 18. If India can get its political and economic houses in order, it has some very real prospects for a couple of generations of rapid growth before living standards start to approach the West and growth rates slow.

In the short-run, however, there are some potential pitfalls to be aware of. The current Indian government, in office since 2004, is a coalition between the Congress Party, which had ruled India for most of the period since independence without any great success, and the anti-market Communists. Although Prime Minister Manmohan Singh is a moderate, the government has seen India’s economic emergence as an opportunity to fund favorite projects and social programs.

The budget for the current fiscal year (ending next March) proposes an 18% spending increase, and that’s after spending rose 24% last year. The state budget deficit (federal plus local) is around 7% of gross domestic product; in any kind of recession, that could easily spike to the 10% of GDP level at which deficits become difficult to finance.

There is hope on the horizon: An election is due in May 2009, at latest, and the center-right opposition is currently leading in the opinion polls. But wise investors know better than to base their investment plan on something as uncertain as that.

India’s other big problem is inflation, currently running at 8% per annum, which is higher than short-term interest rates. Higher commodity and energy prices have affected India as they have other countries; India’s position is made more difficult by the poverty of much of the population.

The Indian government has restricted exports of rice and has subsidized other foods and gasoline (the latter makes no sense socially since automobiles are largely owned by the middle classes).

Needless to say, these subsidies and restrictions make the budget deficit worse, and will pose an additional problem when they are lifted and newly unfettered consumer prices soar in response.

Growth has now acquired huge momentum, and any conceivable Indian government will do no more than slow it temporarily. Furthermore, the economics of the contracted-out customer support and manufacturing services that India has built into a national mainstay – in the era of globalization and the Internet – is so compelling that it will inevitably continue to produce huge profits for decades to come. The question is not:
“Should I invest in India?”  It’s actually: “How can I afford to ignore India?”

And the answer is: You can’t.

Stocks to consider would include Infosys Technologies Ltd. (ADR:INFY), the Bangalore-based software giant, which seems pretty invulnerable to Indian or global recession and is selling at a fairly reasonable 19 times current earnings and 20 times next year’s earnings.

Another possibility is the pharmaceutical company Dr. Reddy’s Laboratories Ltd. (ADR:RDY), a major generic drugs manufacturer that can expect to benefit from the expiration of many U.S. pharmaceutical patents in the next five years, and carries a fairly reasonable forward P/E ratio of 23.

Finally, you might consider India carmaker Tata Motors Ltd. (ADR:TTM), whose shares currently trade at about 8.5 times earnings. In the luxury end of the market, Tata recently bought Jaguar and Land Rover from Ford Motor Co. (NYSE:F). And at the bottom end, Tata has grabbed global headlines with its $2,500 Nano, a car that’s 40% cheaper than anything else on the world market.

The farmer grew cotton, some trucking company delivered that cotton to the textile mill, the textile mill converted the raw cotton to denim, the denim was sent to some garment company which then made the jeans – and the jeans found their way to the mall where you bought them. At each step of the way there is an involvement of “economic activity”. And there are many “linkages”. Someone needs to make the trucks to move all the cotton and the denim clothes. Someone needs to build the roads so that the trucks can move on them. And then you need cement to make the roads and machinery for making cement. You also need machines to convert cotton to denim and then the buttons and zips to make the jeans.

GDP is clearly a complex event. Imagine all the people who need to be involved in some economic activity just to get you your one pair of jeans. And that pair of jeans does a few things: it clothes you and covers you; it represents a fashion statement; or it is just another “thing” you bought for the sake of buying something.

But not every bit of GDP is necessarily “good” GDP. Take the case of gambling. It is an industry and is counted in GDP. Someone needs to build the casinos, manufacture the cards, manufacture the tokens, manufacture the liquor that is consumed (another not so “good” GDP), manufacture the cigarettes (yet another not so “good” GDP), and then all the linkages that come from there – the cement to build everything and the trucks to transport everything. So a country that builds many casinos may be adding to GDP but, chances are, its society will not be that “happy”. If parents are busy gambling all day long, then who is with their children? Or if people smoke and drink a lot (which could happen in a casino environment) what happens to the health of the “healthy” people and the cost inflicted to society over time? Looking after sick people in hospitals is not “good” GDP – there is an economic activity that adds up to GDP but no one is really “happy”.

And I see a large contribution to GDP from the fund management industry. There are 33 of us fund managers registered as Asset Management Companies with SEBI. And we have hundreds of mutual funds that we have created to cater to your every imagined financial need (uh, not Quantum). We (except Quantum) have deployed an army of distributors and sub-brokers and sales agents and wealth advisors to look after every conceivable need for any financial product you may have. All these new fund launches, recommendations to move from one fund to another fund every week or every month – all of this generates economic activity and adds to GDP.

Most of it is useless for you, the investor, but tends to make the middle men rich. That is why Quantum Asset Management Company and the Quantum Mutual Funds have no distributors to “sell” you anything. That is why we launch a few products: most mutual funds are useless and will give you little benefit in the long run – though they will add to the GDP of the middle men a lot in the short term.

Another example of “useless” GDP comes from the statistics of foreign buying in India. Over Rs 4,000 crores of buying and selling by foreign “investors” occurs every day in the Indian stock markets. At the end of the day, they have actually bought or sold only Rs 150 crores of stocks. The other trades of Rs. 3,850 crores – which they “squared up” and offset in the course of one trading day – added to the GDP of the brokers, the custodians, the banks, the stock exchanges, and the government’s income from a trading tax. But it did little to anything real about India, about India’s GDP, and neither did it give anyone a more accurate picture of the “true” level of stock prices.

In fact, I can make a strong case that this “casino” activity hurts India’s standing as a serious contender for long term capital that is required to build India’s future GDP.

So GDP is not an indicator that should make you feel proud or sad. When you read that India’s GDP was 9% per annum that is a useless statistic. Particularly if most of it was from selling you mutual funds you don’t really need; or from building casinos; or selling more alcohol; or manufacturing guns. That is all “bad” GDP.

As India’s GDP slows down to a more sustainable rate of 6.5% per annum, I hope that it is the “bad” GDP that gets hit more than the “good” GDP. For example, if you spend less time buying and selling mutual funds, it will have a dramatic impact on your distributor’s GDP but not on your GDP. Invest wisely, invest long term, and your GDP will chug along quite happily.

Investing in the Indian stock markets – while on holiday.

But while the brain is lulled by vacations and the body needs to be repaired, life goes on around us. A new war is born in one corner of the world, a new natural disaster needs to be dealt with in another part of the world. Life moves on around us and markets jump around in random motion.

One day there is news that the world is running out of oil, another day we hear about the political instability in countries where much of the oil is produced. So oil spikes above USD 125.

Then we get news that the world is running out of rice, so rice jumps 50% in a few weeks.

We may be running out of oil, I guess, you cannot “grow” oil. But running out of rice? Well, farmers will grow more over time. And maybe prices will collapse in a few months. Like the price of wheat. There was a drought in Australia last year, the price wheat surged, the next crop is now being harvested and wheat is down some 40% from its peak in December 2007. It is still a 100% more than where it was in May 2007.

And May 2007 was vacation time. Just like May 2008 is vacation time. And the world has changed between these 2 vacation periods. And where will the world be by the time of the next vacation? We don’t know.

But we know that husbands will still love their wives and the wives will still love their husbands – for the most part, that is. And parents will always love their children and always wish them to have the love and care that they need. And we know that the “24×7″ media will still try to predict every sway of the market; every little jiggle that the market makes will be amplified.

So here we are, then, planning the vacation. And thinking about our investments. We have worked hard to earn a fair living and need to make sure that we don’t let our investments drift into oblivion.

No Wall Street firm is knocking on my door to pay me a USD 10 million sign-on bonus to blow them up again. No press pundits are boosting my ego and the perceived market value of my skill sets. So we need to plan our investments.

Investing in Indian stock markets – the Quantum funds.

Over the last year, an investment in the Quantum Long Term Equity Fund would have given an investor a return of +15%. Gold was up +32% over that same time period. (For those looking for a comparison, the BSE 30 Index gained +20% over the same time period – but the Reliance group companies accounted for nearly 50% of that increase; the Quantum Long Term Equity Fund does not own Reliance shares.)

The body and the mind may be in a “holiday mood” – well deserved, I am sure. But it is a good time to make decisions. And review the ones made last year.

We have not changed our view of the world: there is still a lot of irrational behaviour and the worst is not behind us in a global sense. But we believe we can identify a few investments that will make us a decent return on our investments.

Meanwhile, there is one “guarantee” that I can give you by the time your May 2009 vacation comes along. Nope, I cannot promise you that the NAV of the Quantum Long Term Equity Fund will do well. Nor can I promise you that gold will cross USD 2,000. But I can tell you this: India will have a new government by May 2009. It may be this government or a “new” government, but the election will be over.

And the rains will bring much relief from the heat and the dust.

Source: No Vacation from Decisions

The last time I checked the US was the country in a recession, not India.

How come India performed this fabulous rope trick?
Why did the Indian stock market do worse than the US stock market?

While surfing the net a few days ago, I came across a survey on Ndtv.com which asked the surfers whether the Indian economy is in a recession?
I clicked on “no” and was diverted to a page with the results.
There were some 2,600 responses at that time and approximately 60% of those had clicked on a “yes”.
The “no” vote was some 35% and the other 5% were “not sure”.

A recession is when there are 2 quarters of negative growth in the economy. Not a slowdown in growth (say, from a growth rate of 8.5% of GDP to 7.0% of GDP) but a negative number. For example, if growth is -3% in one quarter and then falls again by 2% then because we have two consecutive quarters of negative growth, we can say that the economy is in a recession. A reversal. A decline.

When growth rates are positive but lowered, then that is called a slow down.

But the 60% of the internet surfers who voted on Ndtv.com were probably not aware of the difference between a slowdown and a recession.

Just like our policy makers who don’t seem to have a clue on the difference between short term money and long term money.

We have invited a (yet another) collapse of the Indian stock market by patting ourselves on the back every time a foreigner showed up at our door with a bag of cash.

We did not care whether the cash was here for the short term or the long term.
The colour of money is green.
A surging Index is better than a falling Index.
Even if it takes P-Note money brought in by speculators to cause that false surge.

So, the US is in a recession and most of its financial institutions are morally bankrupt and financially close to the edge.
Yet, Indian stock markets fall more than US stock markets?

Yes, because of an instrument called P-Notes.
The back door method for taking in gambling money from international gamblers.
You add that gambling money to our own local talent and you have a recipe for a spike and then a fall.
The international gamblers brought in USD 6 billion in 3 weeks in September/October 2007. The local punters added to their open positions.
The market surged.

The US economy and financial system was under threat.
The international gamblers went home. They have sold USD 3.3 billion worth of stock since January, 2008.
The local gamblers went bankrupt and there are fears that they will not pay their local brokers all their margin money and outstanding dues.

The Reserve Bank of India is our sanity.
They have strived to preserve the integrity of the financial markets by asking for a complete ban on P Notes since December 2003.
But no one listened.
And no one is still listening.

The RBI recognised the problem of playing host to gamblers.
India needs capital to build its economy for the next few decades.
Would any sensible housewife plan a savings pool for her child’s education based on what her husband earns at the gambling table?
Well, India did that.
We accepted short term money to build a long term economy.

And now the casino is empty.
The economy still needs to be built.

So, here is a suggestion to set the house in order.
Ban P-Notes completely.
Make it easier for long term international pools of capital to enter India: widen the FII door.
Tweak the tax system to encourage larger flows by local Indians, for the long term. I am not a tax expert but there can be ways to allow long term investors within India, to allow local Indians the opportunity to invest as much as they want to in stock markets via mutual funds. If these monies are kept in the funds for 5 years, the initial investment is to be treated as a tax deduction. However, if the money comes out before 5 years, put a penal tax rate of 40% on that initial corpus and on any gain.

India needs to do a better rope trick: one that harnesses long term pools of money to build for the long term economy. The rope trick we have concocted is a short term pool of gambling money that is now turned into a noose.

Gold has taken a bit of a beating since the middle of March and is now down some 12% from its peak. But here is a chart (since February 28, when the Quantum Gold Fund was listed) showing the 0.5% gain in the Quantum Gold Fund against the Quantum Long Term Equity Fund (-9.97%) and the BSE-30 Index (-12.20%).

Gold is a hedge, an umbrella for that very wet day. While I believe in the stock markets and certainly in the Quantum Long Term Equity Fund, there is a room for gold – just in case.