"Are we out of the woods yet"

I am happy to write my first blog post.

I intend to use this blog page as to share, communicate ...misguide :-) with my understanding about Investments in SHARES- REAL ESTATE- COMMODITIES.

I also intend to share all the article in any form of media that I may come across pertaining to this subject.

"ARE WE OUT OF THE WOODS YET "


This is one question that seems to be pondering in mind in most of people.
But I wish I knew the answer to this question. ...

OH WAIT !!!! Please don’t stop reading here since I do not have the answer.

I have few interesting observations that might help you to be Vigilant and Cautious.

1) Markets globally have rallied between 30 -90% from the bottom in March 2009 are near to there resistance levels

2) Copper a base metal commodity, of which China and US are main consumers finds its prime use in Housing and Industrial sector and contributes to major demand of this commodity.

In rupee terms after making
high of 370 (June 08 ) and
lows of 145 ( Jan 09) has rallied almost 97% from the bottom to 265 levels or
the other way to look at is --the commodity has corrected merely 25- 30% from highs of June 08.
(Note now near its stiff resistance zone of 267-285).

I fail to understand from what corner of world this demand is pushing this commodity. (Try to understand, just in March we were in most pessimistic economic environment).

This makes me feel fishy about the rally in this commodity.
(I know generally analyst say commodities turn UP before mkts improve.howsoever for me rally of this magnitude especially in this commodity is hard to digest.)

3) Gold is indicator of fear in mkt
Gold had slid from high of 1060 to 780 levels and is now at 940 levels ( in USD per troy ounce) .
Generally banks and retail (general public) are two categories of customers that drive the demand of this commodity.

Lets try to understand why this commodity is Strengthing and who is BUYING it.

IS BANK BUYING? probably yes if retail USERS/Consumers are not buying .
..so lets check if retailer is Buying it?

Do u think retailers in India and Dubai ( major demand dominating markets).. buy gold for use in ornaments .. at RS 15000? here i mean to say

Would people be buying same quantity they used to buy at Rs8000 for 10gm ?
I dont think so.
I would share a experience of my friends.
My friends family were intending to Buy 150 gms (15 tolas) of gold for her marriage and waited in anticipation that prices of gold would come down to 9000 Rs.
They missed the opportunity BUY gold during the fall in Nov 2008
Now the prices have escalated.
Her parents had to choose the option of using the existing ancestral Gold saving ..instead of Buying Intended Quantity.

Like wise there may be many whose finance may restrain their allocation to the precious commodity.

so my understanding is the firmness in Gold is as a result of Buying by Institutional Investor , HNI's and Bank.(some may argue there is not enough evidence that Banks have bought gold recently ......to them I say I havent come accross any information where Banks and Institution who invested in early 2004--20005 exiting this investment ....specially then there were mouth watering levels in equities and Bonds Globally.)

When do Bank buy gold...
during war
during uncertain economic conditions
during inflation worries
In scenario of weaker dollar … as a Hedge

When do Investor Buy gold ..Ans: When he expects the price to rise ( simple answer)
the difficult question is what would cause the price in Gold ( some say there are Finite reserves of gold .... same was the reasoning for Crude when it topped out at $145 ..Finite reserves ..limited reserves ,etc)

My reading is Banks and Institutions still find it as safe heaven because econmic conditions are still uncertain.( of late we have started hearing about one of large financial institution in US i.e CIT group is battling to avoid filing bankruptcy .http://finance.yahoo.com/q?s=CIT )

4) Markets generally consolidate for quite sometime before it comes out of recession and not run like marathon sprinter with Adidas shoe on its foot.

It is seen in past that whenever mkt rise from fall different breed (group) of stock lead the rally.But this not the case in Indian Mkt since stocks like Educomp, RELIANCE , RNRL,RCAP, SUZLON, IFCI , DLF the darlings of yesteryear are still raking the moolah of volumes on bourses.

Markets haven’t seen substantial phase of consolidation yet.... its just zig zag and see-saw movements.

5) Volatility has increased in Indian Markets.

6) What made US govt to ask the 26 -28 banks close shutter in the year 2009, higher in number than those in 2008 in the improving economic
conditions. If I am not wrong probably 4-5 banks have gone bankrupt in last two months.

7) Housing Sector has shown some "S O M E " signs of improvement ...thanks to concentrated effort of govt and generous distribution of money to first time home buyers along with reduced interest rates.

8) Tech stocks are outperforming.
see TCS ..INFOSYS..PATNI...MPHASIS.....

are mkts expecting dollar to stay where it is or weaken or strenghten.

Its ok as long as dollar stays in range ....but gold is firming up which may indicate a weakness in dollar in future.
Rising gold and dollar to strengthening are rare phenomenon in Recovery and Improving economy phase.

So there is this disconnect to watch out for ...either gold will go down if dollar appreciates ....or gold goes up in dollar depreciates...which in turn decides the direction tech stocks in India.

Also remember if dollar strenghten furthers that would be bad for pharma-- for forex losses...few of indian pharma like ranbaxy, wockhard are carrying their mark to market losses...and not accounted in P&L .

Am not sure if market is even considering the remote possibility of Inflation starts escalating?

The above mentioned were the BEARISH reading about mkt.



On the other hand few BULLISH "r e a s o n i n g"( though not comforting...defying logic)

Mkts bounced almost 2-3% in last 4-5 trading session out of 7..where as drawdowns have not been more that 1.5% in those trading session on closing basis.

China still holding strong and moving ahead .

Lastly and most importantly many are expecting the mkts to correct.... ( mkts surprises the consensus) .

Hence in such scenario I wont suggest to go short on MKT...... but would definitely recommend to be very selective on BUY .

Also probably book profit at every rise or cut losses in some of their holdings (previous gold medals which they might had bought in mid 2008 ) and wait on sideline with cash in HAND.

It is wise to be CAUTIOUS than to be HEROIC.

I know my post has been too long ...and would try to convey my points in better and shorter manner.

Look forward to your Criticism as CRITICS are your best friends :-).

Thank you for spending your valuable time to read my post.

All the Best!!