Sunday, February 21, 2010

China's possible currency revaluation: Advantage Gold!

An upward revaluation of its currency by China is being widely speculated in recent weeks. The rationale being to discourage Chinese exports by making them less competetive resulting in lower economic growth and hence lower inflation. The Chinese government and central bank seem exceedingly concerned lately with bringing down inflation. A valid concern given that the Chinese economy expanded by 10.7 percent in the fourth quarter of 2009, the fastest increase in two years. The Chinese central bank has already tried raising bank reserve requirements, clearly showing its intent.

Avoiding the economy from over-heating appears to be the number one priority for China. In early 2008, consumer price inflation jumped to a 10-year high of 8.7 percent. If the trend continues in 2010, inflation could be even higher. And indications are that the Chinese are continuing to spend. Household savings in 2009 was USD 48 billion less than the previous year, despite a 9.8 percent increase in real disposable income.

A stronger Chinese Yuan would make gold cheaper for Chinese traders and spur demand, boosting gold prices. Moreover, the Euro, already weakened by the Greek tragedy, doesn't look like its about to rebound soon with Portugal, Ireland, and Spain, other EU members, being in high debt situations similar to Greece (though to a lesser degree).

The USD has been gaining strength more on account of USD-EURO and USD-GBP pairs arbitrage strategies dumping the Euro/GBP rather than on account of improved fundamentals of the US economy.

In such a scenario, people looking for store of value would certainly find merit in investing in gold, I would think. I for one, surely do and only foresee an uptrend in gold prices over the next six months with positive (economy) newsflows from US doing the occasional damage and noises from Iran and North Korea providing the periodic thrusts.

Sunday, February 14, 2010

Thank-you Iran, lets make some money!

As Iran commemorates its Islamic revolution, Ahmadinejad has announced the order to increase the grade of its uranium stockpiles from the 3 percent used for energy to the 20 percent needed for weaponization. Political pundits in the US congress are busy trying to figure out next moves with dominant strategies being: Regime change - put Moussavi in charge of the country; Military strike by Israel, tougher UN sanctions, and Military strike by US.
Whichever way uncle sam decides to go, one thing appears very likely - commodity prices could get a fresh boost after many days of drubbing.

Sunday, February 07, 2010

NTPC FPO: Subscribe Target: Rs.235

NTPC's FPO is available at 201 for retail investors. Having had the opportunity to do a fairly detailed analysis of this company, I arrived at FY 2009-10 EPS estimate of 11.2 on a consolidated basis. Since NTPC debuted, on the bourses, the P/E multiple accorded to it my the market has averaged at about 18. The average multiple over the last 8 quarters stands at 22 with an uptrend over the last 3 successive quarters. At a multiple of 21,the stock should be worth Rs. 235 by the end of this fiscal year. This earnings estimate does not include the potential additional upside from a possible government move allowing the company to sell the 15% power, which is reserved for the center, in the open market.

Considering the recent market down-trend, if somebody is to ask me whether the stock will decline post its FPO to a level lower than Rs. 201, my answer is, I dont know. But I do have a two word strategy for those who expect such a scenario to play-out. Average-out! Of the sum you have set aside for investig in NTPC, deploy a bigger portion in the FPO and hold the rest for to buy on dips post the FPO.

Wednesday, December 02, 2009

As gold scales newer and newer heights, the question on the minds of many a savvy investors is the party nearing an end? Another question that some smart guys in Beijing might be wondering about is - how do we sell some of our 2.27 Trillion USD (T-Bond) reserves without letting the value of the rest of our dollar holdings fall? साप भी मरे और लाठी भी न टूटे

Money will likely start to flow out of gold as more attractive assets emerge. Assets that stand a chance to gain from further weakness in the USD and to a lesser extent, the GBP and EUR. Assets that shouldn't nosedive should it turn-out that the recovery in industrial commodities was purely a result of the Chinese government's USD 586 Billion stimulus package, and that demand appears to limp as the stimulus runs out.

As to the dilemma of the Chinese, we'll have to look at what promoter groups do when seeking to offload a part of their holdings. Some form of pump and dump appears one solution. There could be more. I'll ponder over it over this weekend..

Thursday, November 05, 2009

RBI bought 200 tonnes of gold for 6.7 billion USD, averaging at about 1047 USD/t.ounce..
How do we read into this event? Most news articles i read on this subject suggest that this is a trend likely to continue or even exacerbate with more central banks likely to further stock-up on gold. IMF has 200 tonnes more on the block..and Russia, China and India are being seen as the likely contenders to pick this up. But one of the major factors that has led to the gold rally over the last 2 years has been, sustained purchases by China. I mean when u r the fastest growing countryin the world with a mountain of a forex reserve mostly in the currency that you only see depreciating for the next several years, where do u park ur funds? You scramble all over the world buying coal mines, oil wells, precious metals and mineral assets, currencies of other rising-power countries...but then comes a point when u think - when practically every corner of the world trades with me (and hence uses my money - the yuan) why shouldn;t my yuan replace the dollar as the "world's local" currency? This seems to be the new policy emanating from Beijing. Press reports have been doing rounds that this is already happening with some African countries having significant trade with China now settling bilateral transactions in Chinese yuans. With such unsettling times ahead, what asset do you bet on to grow your wealth? Stocks, gold, commodities, crude, chinese yuan, russian rouble? Will continue this in a sequel.

Saturday, January 10, 2009

Earlier this evening, watching a traffic cop negotiate a "fair" bribe with a offending biker at the expense of total chaos around the intersection he was supposed to control, a thought came to mind - how about making traffic policing an independant professional activity something along the lines of Chartered Accountants? Modest targets may be set for cops manning intersections based on expected average daily collections worked out by the traffic department or other independant agencies. The expected revenue per cop based on a simple formula applied to these targets may be auto-debited from the cops' bank accounts. Any fines cops gather over the target would serve as his incentive. Cops who fail to acheive the target despite retraining and mutiple chances could be weeded out. This would address 2 important problems that traffic police face today -
  1. Curb revenue loss through the distribution chain caused by corrupt cops to a large extent.
  2. Provide incentive to cops who otherwise earn meagre salaries, to make money commensurate with the effort they are prepared to put-in.
As the (A)Satyam saga enfolds, why raju spilled the beans is now somewhat clear - he didn't have much choice. Merrill, the IBs entrusted with the task of finding a suitor for satyam, was about to spill the beans to sebi anyway...

A bunch of theories have emerged on what exactly has raju been up to:
  1. If we are to accept his own admission - the failed maytas deal was his last-ditch attempt to tally his b/s inflated over the last several years and by now showing reserves that didn't really exist. The idea being to create a charge against reserves while infinitely delaying payment to maytas (his own son's outfit) so cash outflow wouldn;t really happen at all and there would be somehting to show as to where the cash went.
  2. As the wise Mr. Naresh Chandra wisely pointed out on cnbc, this fax by raju could be plain lies perpetrated by raju to throw investigators off-track. It is quite unlikely that nobody, especially satyam's bankers would never once have noticed in all these years if satyam's statements had been showing deposits (in thousands of crores) with them that didnt exist! May be raju siphoned-off cash from satyam to pay for losses resulting from the recent fall in land prices resulting from real-estate correction across much of the country. (Remember between him and his family-run businesses, they own over 6000 acres of land mostly in AP)
  3. May be raju, over the last couple of weeks ran out of cash so badly that he decided to siphon-off cash from satyam to meet margin calls on his holdings (post the sharp fall in satyam stock prices post the failed maytas deal) pledged with institutions.
What he was thinkng would likely unfold as he "starts talking" in coming days!

Sunday, December 14, 2008

Its probably because I'm about to join an organizatin known for its debt ratings that this idea took shape in my mind, but it sure desserves further development.
Issuing ratings for political parties in India? Some criteria could be:
  • Avalibility and willingness to share data related to sources of funding
  • Utilization of funds
  • %age of funds spent on social work and community welfare
  • %age of funds spent on advertising and promotion during elections and otherwise
  • Availibility and willingness to share detailed resumes of all MPs and MLAs detailing education, work experience, and other verifiable achievements
  • %age of election manifesto projects delivered as promised when the party formed goverment.
  • Effect of programs (of the party's elected goverment) on key macro indices like per capita income, HDI, literacy, population, electrification penetration, etc
The list surely isn't comprehensive and needs more detailing.

The ratings issuing body could be certified by a non-partisan body like the election commission or so and a political party should be forced by law to display its ratings in all communication whether positive or adverse.

Surely, the idea can be developed further by the folks on jagore or others itching to "do something for the country".