BSE SENSEX closed today - Friday 6/26/2015 at 27811 down marginally from last month’s close of 27828. BSE SENSEX has closed above its 200 DMA of 27680.
BSE SENSEX monthly low was 26307 ( down 5.47 % from last month’s close of 27828 ) and NIFY monthly low was 7940. These were lowest levels for Indian equity indices since October 2014. We were correct in our prediction that global equity markets including India will be weak in June. After correction in March 2015 by about 11.00 %, Indian equity further corrected by around 5.00 % in June 2015 as predicted by us. Total correction in Indian equities to date is around 16 .00 % in calendar 2015 on basis of the lows for the month in June 2015. We were bang on for the Indian and Global equities as regards a correction in June 2015. As predicted global equities markets corrected in June 2015 except ^N225 in Japan. Details are given later in this post. Global equity markets recovered smartly on account of the news that Greece crisis will be resolved in the coming months. All global equity markets recovered smartly post this news from Greece.
However Indian equities recovered from their lows as above on account of FIIs buying and better than predicted SW Monsoon for India. The BSE SENSEX and NIFTY high for the month were 27948 and 8421 respectively.
The levels to watch for BSE SENSEX and NIFTY are as follows :
R1 28140 R2 28470 R3 29210
S1 27180 S2 26680 S3 26340 S4 25800 ( 200 DMA – 27680 )
R1 8520 R2 8620 R3 8845
S1 8230 S2 8080 S3 8000 S4 7810
Global emerging markets were also weak in the month of June 2015 but beta for Indian Equities was higher. FIIs pulled out large amount of funds from emerging market by selling Sovereign Bonds. Bond sales were witnessed from other markets as well including USA and Europe. US Fed kept interest rates unchanged. US GDP is contracting. In Q1 2015 – US GDP contracted by 0.20 %.
The correction in Chinese and Greek equities was with a higher beta as compared to Indian Equities in June 2015. Chinese correction was due to domestic reasons and Greece correction was on account of impending debt crisis.
FIIs are also selling emerging market equities including India and China. Emerging market currencies also took a beating in week ending 6/12/2015. Colombian Peso, Brazilian Real, Malaysian Ringgit, Russian Rouble, Indian INR etc were all weak as US Dollar strengthened against these currencies.
Indian Equity markets corrected after the announcement by RBI on 6/2/2015 of cutting Repo Rate by only 25 bpts. Repo Rate stands now at 7.25 %. Reverse Repo as a consequence is at 7.00 %. Market was expecting a 50 bpts Repo Rate cut. In addition the SW Monsoon will be deficient in 2015 as explained later in this update. These two factors spooked the Indian Equity markets by nearly 5% in just three trading sessions in the first week of June 2015.
Indian exports have slumped to six years low. Indian IIP was up at 4 % May and CPI at 5.1 % continued to hurt for May 2015. Food inflation in India is high as India imports pulses and edible oils – palm and soya oil.
Indian Debt markets also felt the brunt of “Global Bond sell- off” in the first week of June 2015. We witnessed a similar sell-off in May 2015. Indian Sovereign Bond ( G-Secs) yields also soared as did Sovereign Bond yields of US Bonds and German Bunds. Indian 10Y Bond yields were quoting at 7.81 to 8.01 % on 6/4/2015. This was about 50 to 75 bpts above the revised Indian Repo Rate announced by RBI on 6/2/2015 during its routine monetary policy review meeting. The Repo Rate cut by RBI was negated by the higher Sovereign Bond yields in India in a matter of few days. FIIs still invest in Indian Sovereign Bonds due to much higher yields as compared to the developed world. It is difficult for overseas foreign individual nationals to buy directly purchase Indian Sovereign Bonds ( G-Secs ) but FIIs can easily bid for Indian G-Secs through the bidding process. However Indian Sovereign Debt market is capped for investment by FIIs. INR also tested a 20 month low of 64.26 to a US Dollar.
Indian real interest rates are too high at 14 to 15 % pa for borrowers from the industry. Very low interest rates lead to retail investors not putting their savings in the commercial banks in the form of FDs. There needs to be a right balance for industry borrowers and retail investors. But a few analysts feel that – at these high real interests rates, investment cycle is not picking up in the industrial sector in India especially in the manufacturing sector, heavy engineering and infrastructure sector. The RBI’s monetary policy is stifling GDP growth at these high real interest rates according to a few leading economists. The Repo rates should be cut by 100 pbts to around 6.25 %.
Bond Market global sell off again on 6/3/2015 – German 10Y Bunds moved from 0.08 to 0.90 in a single day. 10Y Bunds tested a high of 0.96 on 6/10/2015. US Bond market also is facing the heat. In two days of trade – 2nd and 3rd June, yield on 10Y US Bond rose by 41 bpts. 10Y US Bond yield tested a high of 2.39 % on 6/10/2015. Two months ago the yields were near 1.00 %.
Sovereign Bond yields spiked in Euro Zone after Draghi’s announcement that QE was working fine and there was no need to change anything on this QE program . ECB unchanged all key interest rates in its policy review meeting on 6/3/2015. Bond yields also rose in France, Italy, Spain, Portugal and Greece in the first week and last week of June 2015
High FII selling was witnessed in Indian Equities in the first week of May 2015. We predicted that Euro Zone equities and Indian will correct in June 2015. We were close !
Another major factor for correction in the Indian equities - was a weak SW Monsoon as predicted by IMD – the SW Monsoon will be 88 % of the overall long term average with a tolerance of plus/minus 4 %. In 2014 – the SW Monsoon was deficient and there will a second consecutive year of drought in India i.e. 2015, if IMD’s predictions are correct. Central and Western India is dependent on rains as the belts are not well irrigated by canals. Northern India is a well irrigated belt. In India nearly 65 % of arable land is dependent on rain gods. SW Monsoon is an important issue for the Kharif crop in India – which is a major crop. Rabi is not the main crop in India. This is bad news for the Indian economy as a deficient monsoon leads to reduced demand for goods in rural India, where nearly 50 % of Indian population resides. This will lead to low demand for agricultural machinery (tractors, tillers etc) , two wheelers, white goods and FMCGs. The prices of pulses, edible oil seeds and rice will rise in India. Food inflation will rise in India. Plus GoI will revise MSP for these agri products as done on a yearly basis. Pulses prices already in India are nearly 80 – 90% higher as of date as compared to the same period in 2014. Cotton buffer stocks are fine in GoI godowns. Edible oils are imported to the tune of 10 million mtpa. A week INR versus USD brings in import inflation in the edible oil sector.
Indian Govt increased import duty on both flat (10.00 %) and long (7.50 %) steel products to deter the imports of said steel products from Russia and China. Due to a very weak Russian Rouble, exports of steel products from Russia to India have been hurting domestic steel producers since the past five months. The import duty hike does not completely mitigate the import threat but is a step in the right direction. There has been some relief to domestic steel products manufacturers.
Govt of India hiked the MSP for paddy by INR 500/mt (only 3.70 % increase) . The MSP for paddy for 2015 Kharif crop now stands at INR 14,100/mt. MSP for pulses was hiked by 2750/mt (6.00 % increase). This is not a inflationary measure as the MSP hikes are not outlandish as in 2013. In India - GST will finally be rolled out in March 2016.
Euro jumped vis a vis USD, GBP etc in first week of June 2015. Euro will be weak in July 2015
Russian RUB was whacked on Friday 6/19/2015 to 51.17 to the USD on back of developments in St. Petersburg economic meeting. Russian RUB was also down on 6/3/2015 to 54.00 to a US Dollar on the back of Ukraine crisis. The 52 week high and low for Russian RUB is 33.15 – 80.00. The Russian backed rebels and Ukrainian forces clashed again. The Russian rebels fortified their position in Eastern Ukraine with heavy military support from Putin – 1000 plus tanks and Anti-Missile Battery systems and Missile launchers.
Korean Won is the best performing currency in Asia. INR tested 64.22 to a USD on 6/16/2015. INR could test a level of 65 in end 2015 as estimated by a few foreign brokerage houses.
As anticipated as per last month’s update ^SSE COMP in Shanghai cracked in June 2015. ^SSE COMP zoomed to 5178 on 6/12/2015 – a new 52 week high. FIIs are not big buyers of Chinese Equities but the demand is from domestic Chinese investors. FIIs feel that Chinese equities are overvalued. MS said in a note that investors should not buy Chinese equities even at these levels of 4140.
^SSE COMP again cracked on 6/26/2015 by another 8.57 % to close at 4140. This percentage loss is the biggest one day fall in Shanghai since 2007. ^ SSE COMP has corrected today - 20.05 % from its June 2015 high of 5178. Also this is the biggest two week ( 15th through 26th June 2015) correction in the history of ^SSE COMP index since 1996. ^SSE COMP has corrected by whopping 20.05 % in the month of June 2015. We had predicted a correction in ^ SSE COMPOSITE in our last month’s update.
Margin calls liquidation and seasonal liquidity crisis were the two main reasons for crash in ^SSE COMP in Shanghai. FIIs are not major investors in the Chinese mainland equities. FIIs only own 1.00 % of Chinese equities. This savage correction is on account of domestic investors pushing the sell button. India unlike China is hugely dependent on FIIs inflows into equity markets. ^SSE COMP can correct further in July 2015.
IMF suggested to US Fed to defer the interest rate hike. The GDP growth data from USA is not very encouraging – Q1 GDP contracted by 0.20 % . US Fed did not raise interest rates in its meeting in June 2015. Analysts expect an interest rate hike in September 2015 by US Fed. We completely disagree. US Fed will not be able to hike interest rates in 2015 calendar and might switch back to fresh round of QE within calendar 2015.
Intra month lows for some important global equity indices were as follows :
^CAC monthly low = 4587 ( 3789 is the 52 week low)
DAX = 10860 ( 8355 is the 52 week low )
FTSE = 6651 ( 6072 is 52 week low )
GD.AT ATHENS = 652 ( tested a fresh 52 week low of 652, in fact lowest since 2012 )
IBEX SPAIN = 10660 ( 9370 is 52 week low )
MIB ITALY = 21978 ( 17556 is 52 week low )
^BVSP = 52856 ( 45853 is 52 week low )
^SSE COMP = 4140 ( 2024 is 52 week low )
^HSI = 26522 ( 28588 is 52 week low )
BSE SENSEX = 26307 ( 24892 is 52 week low )
The Chinese Equity market is the best performing equity market in the world in the EMs segment so far in 2015. Yes it is not dependent on FII funds. FIIs cannot buy and sell Chinese equities freely as they do in India, Russia, Brazil, Turkey, Malaysia etc. There is some red-tape in China for FIIs to buy shares in mainland China. This equity market is currently fuelled by funds from domestic investors.
^N225 in Osaka closed at 20868 on 6/24/2015 – an eighteen year high. It tested a fresh 52 week high of 20952 on 6/24/2015 on an intra-day basis. Japanese equity market is the best performing equity market in the developed world.
The Euro zone indices as above corrected because of a massive correction in GD.AT in Athens. Contagion fears lead to 10Y Bond yields rise in Spain, Italy and Portugal. 10Y Bond yield on Greek debt shot up to 12.64 % on 6/16/2015.
We predict that Greece Debt crisis will not be resolved. Greece will default on its debt repayment payment of Euro 1.60 billion to IMF on 30th June 2015. Greece will be forced to exit the EU. IMF will not disburse the next tranche of bailout fund of Euro 7.6 billion to Greece ever. The negotiations will fail between the Greek legislators, IMF and ECB. Greece will face bankruptcy. Greek default will lead to snap elections and there will a political chaos after the elections. The new Govt will be a coalition Govt and they will decide to exit the EU. There will be a chaos in the Banking Sector in EU. Euro zone equities will correct seriously with the highest beta in Greece, followed by Spain and Italy in EU. The ripple effect will engulf global equity markets which will correct but with different beta. We predict a financial collapse in the Euro Zone banking sector, if Greece defaults on 6/30/2015 and IMF does not disburse Euro 7.60 billion within July/August 2015.
We predict very weak equity markets in the Euro Zone in July through end August 2015 on account of the Greek debt crisis. The worst hit equity market will off course be GD.AT in Athens followed by equity markets in Portugal, Spain and Italy.
Equity markets in the developing world will also be bearish in July 2015 due to the weak European markets. We are not sure if ^DJIA and ^N225 will also follow the European equity indices and fall heavily in July 2015. ^DJIA and ^N225 may correct in July but with a lower beta as compared to ^DAX, CAC and FTSE. We advise investors to stay away from equity markets around in world in July and August 2015. This advisory is applicable to Indian investors also regarding equity investments. Stay away from equities till further notice.
Global Equities will correct seriously in mid August 2015 onwards. This correction could drag on into Q4 2015. Global investors including Indian investors are advised to book profits in equities in the month of July 2015, if they did not book profits in June 2015. Sit on cash or partly convert to buy physical Gold with purchases in small lots in July.
Investors are advised to trim their exposure to equities. Increase your exposure to secured Debt and physical Gold. Spot Gold closed in NY at US $ 1175.20 pto. We advise investors to buy physical Gold at around this level for a long term horizon.
BSE SENSEX closed today Friday ( 5/29/2015 ) at 27828 - marginally down from the last reference close of 26717. BSE SENSEX and NIFTY tested their life time highs on 3/4/2015 at 30025 and 9119 respectively. There after Indian equity markets corrected in April 2015 by about 11 to 12 % from their life time highs of January 2015. There was 3.1 % recovery in the month of May 2015.
BSE SENSEX has its 200 DMA level of 27680. If this level of 200 DMA is not sustained in June – BSE SENSEX will be bear territory. The Indian Equity markets are heavily dependent on FII inflows which have been robust in 2015 except for a pull out in May 2015 as mentioned later in this update.
The levels to watch for BSE SENSEX and NIFTY from June to September are :
R1 28140 R2 28470 R3 29210
S1 27180 S2 26680 S3 26340 S4 25800 ( 200 DMA – 27680 )
R1 8520 R2 8620 R3 8845
S1 8230 S2 8080 S3 8000 S4 7810
We predict BSE SENSEX and NIFTY to be bearish in the month of June on account of negative news from the Euro Zone. Greece crisis has still not been resolved. We expect a major correction in Global equity markets in Mid-September 2015. Hence investors can take profits home from June to early September 2015. The “Banking Crisis” in the Euro Zone will be main trigger for the said correction.
FIIs pumped record - Rs. 2730 billion in FY2014-15 i.e. US $- 44.03 billion ( US $ : INR = 62.00 ). A record in the history of Indian financial markets. Indian economy will be the fastest growing economy in the world in 2015 with GDP growth in excess of 7.50 % ahead of China which is slowing down and the GDP growth may be as low as 4.50 to 5.00% as explained later in this update.
FIIs invested US $ 17.58 billion in Indian equities in FY2014-15 and invested US $ 25.45 billion in the Indian Debt market in FY2014-15. Indian FDI for FY2014-15 at US $ 30.00 billion as per RBI. Indian CAD for FY2014-15 announced by RBI was at US $ 26.00 bn. So CAD fully funded by FDI, which is a good sign for the Indian economy. Indian Agri and Manufacturing sector is struggling.
FIIs have pulled out Rs. 170.00 billion out of Indian Equity markets since the first two weeks of May 2015. SENSEX and NIFTY corrected again. Indian equity markets were very volatile in May 2015. Tested 200 DMA levels and then bounced back.
Indian economy grew at 7.5 % (on an annualized basis) in Jan – March 2015 quarter. India now is the world’s fastest growing economy ! Ahead of China which grew at 7.3 % in the last quarter. Growth projections for the Chinese economy have been pared down by Morgan Stanley, USA.
Euro Zone continues to struggle in economic terms. Negative interest rates on Euro 3.00 trillion of Sovereign Debt in Euro Zone are a sure sign of policy failure. European Bond markets are being destroyed. Same is true for near zero interest rates in USA and Japan. Zero interests are against revenue models of Pension Funds, and Insurance Companies.
Bond Market witnessed a massive “sell off” – globally in early May 2015. Risk is now emerging in global Bond Markets. Reasons could be the “bubble” in this sector which we have been talking about for a few years now. The Debt in the global financial markets is not sustainable. The global Bond Market will give in one day but the timing is a matter of great importance. We are studying the patterns and will soon predict a year wherein the global bond markets will crash. This event will happen after the year 2025.
China has cut ‘one year’ interest rates a third time since the last six months. Desperate measures by PBoC as per Morgan Stanley (MS). As per MS – the GDP growth in China in 2015 will only be between 4.00 to 5.00 % . MS predicts - either a financial crisis in China resulting in a crash of Chinese Equities. We agree with MS !
^SSE COMP is up 100 % since the 12 months. ^SSE COMP in Shanghai tested a new life time high of 4986 on 5/28/2015 on an intra-day basis and closed down for the day at 4620 – down 6.50 %. This index has been very volatile index since the past few weeks. Chinese Equity bubble could burst as the “economy’ is highly leveraged and money in not being invested in the real economy in China but going into the Equity Market.
RBC published a report in May 2015 mentioning that Chinese Gold reserves at not at 1054 mt but around 3500 mt. We said about a year and half back that Chinese Gold reserves are in excess of 4000 mt or even 4500 mt. Let us see when does China officially raise its ‘Gold Reserves’ ?
Indian manufacturing sector is slowing down. March 2015 IIP number was only 2.1 % versus 4.9 % in February 2015. In Indian PSU banks – NPAs are now at a staggering level of Rs. 4.00 trillion. RBI is worried about this level of NPAs. Corrupt PSU Banks have lent huge amounts of money to un-deserving corporate companies operating in highly opaque sectors in India - Real Estate and Mining. In addition the borrowers are from the bleeding sectors – steel, power and infrastructure due to delays because of red-tape and high interest costs in India. Indian economy needs a “jump start” and the incumbent Govt can do the same. It has now been in power for a year. In addition quarterly results from corporate India have been lack lustre due to margin pressures in the industrial sector. Services sector is doing fine.
Sugar industry is in trouble in India. Sugar prices in India are at 6 year lows. Sugarcane prices are up 70 % in the same period. 4 to 5 million surplus Sugar in India. As per ISMA - Indian Govt should buy 2.8 million mt of Sugar from the open market to bail out the Indian sugar mills who owe nearly US $ 2.50 billion to the sugar cane farmers as arrears since the past one and half years. Sugar cane farmers in India are in distress and GoI might step-in. Framers is a ‘vote bank’ ?
Now after a decade - ^DJIA and European Indices are howing signs of “de-coupling”. April 2015 shows the trends are getting divergent. The global stock markets will decline in June 2015 thru September 2015 led by European indices - ^DGXI, ^FCHI, ^FTSE, IBEX, MIB and GD AT etc etc
^DJIA tested a high of 18335 ( very close to it’s life time high of 18351) and S & P tested fresh lifetime high at 2139 on 5/22/2015. We cannot understand these bullish levels – when all economic indicators in USA are showing slow growth. Debt to GDP ratio exceeds 100 %, Trade deficit and budget deficits are at high levels and yet S & P 500 is at lifetime highs ?
DXY tested a new 52 week high of 100.39 on 3/13/2015 and thereafter corrected to an intra-month low of 94.06 in May 2015. We expect DXY will be stable at around 98 level.
We expect Brent Crude Oil prices to be in the range of US $ 60.00 to US $ 65.00 in the month of June 2015. If there is a “war like situation” in the Middle East due to ISIS activities then there could be spike in the Brent crude oil prices.
Spot Gold NY closed today at US $ 1191.00 pto. It traded in a band of US $ 1175.00 pto to US $ 1125.00 pto. The volatility in the prices of Gold is linked to the news of an ‘interest rate hike’ by US Fed. Leading economists and brokerage house in USA feel that US Fed will hike interest rates by 25 bpts in Q3 of calendar 2015. Hence Gold prices may correct in Q3 2015.
We expect Gold prices to hold the all important level of US $ 1180.00 pto in June 2015.
Special Crude Oil Update – 6th May 2015
Crude Oil futures tanked to six years low in Q1 2015. Details are as under :
1. BRENT Crude Oil February 2015 futures tested a six year low of $ 45.19 pbbl on 1/13/2015 at London ICE – lowest since April 2009. In June 2014 the BRENT Futures were quoting at $ 115.71 pbbl ? Down 56.52 % from the highs of June 2103 to the lows of 1/13/2015.
2. WTI Crude Oil April 2015 futures tested a six year low of $ 42.51 pbbl on 3/18/2015. This was the first time since April 2009 that WTI Crude Oil futures were trading at levels of below $ 50.00 pbbl.
We predicted in November 2014 – one day after the OPEC meet in Vienna that one will see prices of BRNET Crude close to US $ 40.00 bbl. We were close. A lot of analysts started predicting prices to correct to US $ 30.00 or even as low as US $ 20.00 pbbl. We were silent on these predictions !
BRENT Crude Oil June 2015 futures are trading today - 5/6/2015 at US $ 69.05 pbbl and WTI Crude Oil futures are trading at US $ 61.93 pbbl at ICE and CME respectively as we print this ‘Special Crude Oil Update’. Saudis have officially ‘increased’ their prices of various grades of Crude Oil which are linked to BRENT Crude Oil.
We feel during the balance seven months of 2015 calendar BRENT Crude Oil prices should be around US $ 60.00 pbbl. We do not see a US $ 75.00 pbbl price of BRENT in 2015 – unless there is a ‘geo-political catastrophic’ event like a war in Middle East. Russian economy will stabilize as BRENT prices were not below US $ 40.00 pbbl level for a quarter consecutively.
Higher crude oil prices is ‘bad news’ for the Indian economy. Indian Equity indices – SENSEX and NIFTY are about 11 % off (to date) from their lifetime highs which were recorded in early 2015.
We advise Indian investors to stay away from the equity markets. Let the markets correct by another 6 to 7 % or so. Investors can decide accordingly in September 2015. We expect Indian equity markets to correct further by another 6 to 7 % from current levels of SENSEX of 26717 and NIFTY of 8097 as of close today 5/6/2015. We see this correction from date till early September 2015.
Global equity markets will also tank June 2015 onwards due to ‘banking crisis’ in the Euro zone in June through September 2015. We will put an update on June 2015 by end May 2015.
We advise investors to keep a close eye on Crude Oil and Gold prices. The pivot for BRENT Crude Oil is US $ 63.00 pbbl and for Gold is US $ 1180.00 pto. Above these levels – both these commodities are bullish. Investors can buy physical Gold with a trailing ‘stop loss’ of US $ 1169.00 pto.
The update for May 2015 is brief as we are waiting for the outcome of the Greek bail out package from IMF and ECB. It is our view that IMF and ECB cannot allow Greek to default again and hence there will be a bail out package announced within May 2015. It will bring Cheers to the global equity markets !
Gold is again flirting with its "pivot" of US $ 1180.00 pto as I print this update. It closed on Friday 1st May 2015 at NY Spot at $ 1177.90 pto. This is the third time that this pivot has been breached but let us see if this breached on a sustained level. NY Spot should close below US $ 1180 pto for at least three weeks.
Levels to watch for Gold in May are :
S1 $ 1124 S2 $ 1100 S3 $ 1050
R1 $ 1180 R2 $ 1200 R3 $ 1220
We will prepare a detailed update for June 2015.
SPECIAL GOLD ALERT - 3/21/2015
We mentioned in our last update of 3/13/2015 that we will wait for Gold prices to correct to US $ 1050 pto or lower. We will then post our regular updates. This price level of US $1050 pto will not be tested in March 2015
There is a technical issue on hands as regards prices of Gold. The "triple bottom" price level of US $ 1180 pto was breached and we saw a price of US $ 1124 pto in November 2014. In the recent few days Gold prices have moved from a low of US $ 1140 pto to US $ 1182.40 pto Spot closing in NY on 3/20/2015. The closing price on 3/20/2015 was above US $ 1180 pto level.
We cannot ignore technical indicators as analysts. We mentioned on our January 2015 post ( dated 31/12/2014) that - US $ 1180 pto was the last hope for the Gold bulls. The closing price NY Spot on 31/12/2014 was US $ 1184.00 pto. There is hope for Gold bulls again - NY Spot closing at $ 1182.40 pto on 3/20/2015. Closing above $ 1180.00 pto only for one day is not very significant but if US $ 1180 pto level is sustained for the next three weeks then we will see a short rally in the Gold prices to US $ 1220+. In that case in the short term - US $ 1050 pto will not be tested.
The price level of US $ 1180 pto is a very strong support for Gold. If this level holds then we will not see the price level of US $ 1050 pto and in fact there could be rally in the Gold prices.
We do not know the exact reason for this spike in Gold prices above US $ 1180 pto levels. It could be on account of a correction in DXY Index from 100.39 to 97.14 or because of impending Greek financial crisis. This update on Gold is a pure technical analysis.
We mentioned in our January 2105 update that there could be another Sovereign Greek Default within
H1 2015. There are signs of "liquidity crunch" in Greece. Govt is running out of cash. Greece might need Euro 240 billion "bail out before June 2015.
If Greece does default again - then expect Gold prices to be bullish. As of now we cannot predict an exact date of Greek Sovereign Default.
We should keep an eye on the US $ 1180 pto level.--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dear investors, friends and associates - the post has not been updated since February 2015 on three main reasons :
a) We cannot understand the bullish US Equity Markets in context of Total US Debt exceeding US $ 17 trillion. Total Debt to GDP ratio is in excess of 100+ %.
b) ^N225 at 19336 ( 52 week high ) when the Total Debt to GDP ratio in Japan is in excess of 250 % and
c) We are waiting for Gold prices to breach US $ 1124 pto and corret to US $ 1050 to US $ 1000 pto level.
We will post our monthly updates once
Gold has tested the above levels. Please be patient !
We wish our investors and all our associates a very Prosperous and a Profitable 2015 !
^BSESN closed today Wednesday 31/12/2014 - at 27500 marginally down 4.17 % from the last month’s reference close of 28698. ^BSESN tested a lifetime of 28,822 in November 2014. Indian economy is still not growing at its potential due to weak demand from the consumers and also due to high interest rate regime in India. Manufacturing is struggling. Indian IIP for October 2014 declined by 4.2% versus 1.2% yoy basis. Manufacturing activity is not picking up in India. However the Indian Equity was still the best equity market amongst the BRICS lot in calendar 2014.
We first mentioned in end August 2014 and again mentioned in end September 2014 that global equities including ^ DJIA will correct between 20 to 30 % in Q4 2013. We were close. In October2014, a few important global equity indices corrected as per details are here as under. Reference is from August or September 2014 highs of respective indices :
a) ^ DJIA in New York – by about 10%
b) ^CAC in Paris - by about 15 %
c) ^DAX in Frankfurt – by about 14 %
d) ^FTSE in London – by about 12 %
e) ^N225 in Osaka – by about 11 %
f) ^HSI in Hong Kong – by about 10 %
g) ^AXJO in Sydney – by about 9 %
h) ^ SEE in Shanghai – by about 4 %
In December 2014 a few important indices corrected as per details as under :
a) ^BVSP in Sao Paolo – by about 24 %
b) ^GD.AT in Athens – by about 31%
c) ^RTSI in Moscow – by about 55 %
^DJIA tested a new life time high of 18,103 in December 2014 and closed marginally today at 17983. S & P 500 tested a new life time high of 2093. US GDP grew by 5.00 % in Q3 2014 –above analyst’s estimates of 3.6 %. This was the main reason for bullish ^DJIA and equity markets in the developed world. Even we were wrong on prediction on US GDP. On the back of this bullish GDP data and jobs data - US Dollar Index (DXY) tested a five year high of 90.3040 today in Spot NY. Almost all the important global currencies depreciated against the mighty US Dollar. We feel DXY will strengthen further in Q1 2015.
^N225 tested a new seven year high of 17913 in December 2014 on the back of a big stimulus announced by Abe Government. ^N225 closed today marginally lower from its high as mentioned above 17450. JPY sunk to a seven year low versus the US Dollar at 121.690 on 12/5/2014 but recovered to close today at 119.50.
Fujimaki predicts collapse of the Japanese economy in 2016 and predicts that JPY will be 140 in 2015 and 200+ in 2016 ? Moody’s cut Japan’s Sovereign Rating by a notch. BoJ is monetizing Govt Debt and this cannot continue till eternity. Japan will have a Sovereign Default in 2016 as per Fujimaki – banker turned politician in Japan. We have been saying for more than a year that Japanese economy will collapse due to its precarious Debt to GDP ratio in excess of 250 %. Japan is now officially in recession and we agree with Fujimaki’s view on the collapse of the Japanese economy but differ on the timing.
^CAC in Paris at 4423 and ^DAX in Frankfurt at 10,093, tested fresh 52 week high. However ^FTSE tested a monthly high of at 6750. There is a massive QE on the cards shortly to be announced by ECB Prez Mario Draghi. European Equity Indices corrected later towards the end of the month as FITCH downgraded French Sovereign Rating by a notch AA+ to Aa.
^SSE COMP hit 3190 -52 week high on 12/22/2014. It corrected towards the end of the month. Massive stimulus announced by Govt - PBoC decided to inject 400 billion Yuan into the Chinese banking system. We were wrong on our call for ^ SSE COMP but we remain bearish on ^SSE COMP for 2015. PBoC also cut interest rates. Chinese GDP is slowing down though and India will be the fastest growing economy in the world in 2016, as per NOMURA, Japan. Chinese Risks –NPAs in the Banking Sector and about $ 1.0 trillion forex reserves are “un-hedged”.
Brazilian Real fell to 2.7600 – a fresh 9 year low against the USD. ^BVSP in Sao Paolo tested an intra-day trading low of 45853 on 12/16/2014 – an 8 month low on account of weak commodity prices. We feel ^BVSP in bear territory and its 52 week low is – 44905. We feel global commodity prices of hard commodities will remain soft till H1 2015 and hence the Brazilian economy will be under pressure as regards GDP growth. We expect ^BVSP to be bearish in 2015.
There was flight of capital into Switzerland due to the Russian situation as explained under. Swiss imposed its first negative deposit rate since 1970s and threatened further action to stem inflows of money into Switzerland after Russian financial crisis. SNB introduced a charge of 0.25 % on sight deposits – cash like holding of commercial banks at SNB. The Euro to CHF peg of 1.20 is difficult to maintain by SNB as huge inflow of funds into SNB is making CHF stronger verus Euro.
Russian economy needs a special mention.
We were amongst the first in the world to predict on 11/28/2014 that BRENT Crude Oil prices could be in the region of US $ 40.00 to US $ 50.00 pbbl in the near future. At these prices we mentioned Russian economy could collapse. We stick to our prediction. Crude Oil prices continue to slide as predicted in our last month’s post. Today-BRENT Feb 2015 futures tested fresh six year low of US $ 55.84 pbbl and WTI futures tested $ 52.51 pbbl. We are not very far from BRENT at US $ 50.00 pbbl. Russsian economy was in panic mode in December 2014 and the Central Bank had to step in to prevent a financial lock down of Russian financial markets. Both the Russian Ruble and bench mark Russian stock market Index- ^RTSI crashed in December 2014.
Russian Ruble collapsed to 80.10 versus a US Dollar on 12/16/2014, fresh life low high, since Russian default in 1998. Rate of Russian Ruble in October 1998 was about 5.50 vs USD – the year of Russian Sovereign Default. According to Bloomberg – Ruble is the worst performing currency in 2014 amongst 170 currencies which Bloomberg tracks around the world. Russian Ruble recovered to around 50.00 level but again started to sink close at 60.00 to a US Dollar on 12/31/2014 at the time of printing this update - still 35 % lower in 2014. It is estimated that FIIs pulled about US $ 120 billion from the Russian financial markets in 2014.
^RTSI Moscow tested a fresh multi year low of 578 on 12/16/2014. This was the intra day low. Never the less - ^RTSI was very near its 15 year low of 535, as tested on 1st Jan 2009. In the year 1998 – during the Russian Sovereign Default, ^RTSI tested a life time low of 38.81 on 10/2/1998. ^RTSI recovered from its near 15 year’s low and closed today at a respectable level of 790.
Russian Central Bank raised interest rates on 16th Dec 2014 from 10.5 % to 17.00% - highest since October 1998, when Russian interest rates soared 100 per cent and Russian Govt defaulted on its Sovereign Debt. 10Y Sovereign Russian Bond yields soared to record highs at 12.95 % on 12/16/2014.
Banking crisis in Russia ? Russian Bank- National Bank Trust, a medium size Russian Bank was bailed out by DIA, Russia by injection of 30 billion Ruble ( US $ 550 million ). This bank was once owned by former YUKOS owner - MK. How many banks more in Russia need help after Ruble collapse ? American Credit Rating Agencies are ready to cut Russian Soverign Rating to ”junk” status - if the fiscal situation does not improve in Russia soon. Russian Central Bank stepped in with USD supply to the Banks. This is temporary. Russian needs strong commodity prices – especially BRENT Crude oil.
Russia will have another Sovereign Default (as in October 1998 ) if BRENT Oil prices stay below US$ 50.00 pbbl for one quarter in 2015. This could happen well within H1 2015.
Another economy to watch is Greece. They could be heading for a Sovereign Default again within H12015. This could cause panic in the European banking sector.
We are not very bullish on global equities on the back of bearish equity market predictions for Jan 2015 in - Japan, China and Europe.
We are also bearish on Gold for 2015. Gold prices Spot New York were in the range of a low of $ 1140.00 and a high of $ 1240.50 pto in December 2014. It closed today $ 1184.00 pto. The last hope for Gold bulls is a level of US $ 1180.00 pto.
We stick to our recommendation of buying Gold mining stocks as mentioned in our post of October 2014. Gold might be listed 35% down from its high, but the gold mining sector lost about 80% of its value over the same period. We still recommend a “buy” on Gold stocks as recommended in October 2014 on our website.
Gold mining sector stocks are a neglected sector. We have a conviction that these Gold mining stocks will give mentioned returns over the period 2017/2018.
LMT, RTN, NOC and GD – new life time highs / 52 week highs in December 2014. Now every TD&H is saying to buy US Defence Stocks ? Buy at life time highs and sell at life time lows – brokers need their commissions, don’t they ?
LMT – new life time high of $ 199.00 on 12/23/2014 at NYSE
NOC – new life time high of $ 153.00 on12/19/2014 at NYSE
RTN – new life time high of $ 112.00 on 12/19/2014 at NYSE
GD – a 52 week high of $ 146.00 on 11/26/2014 at NYSE
We have to keen eye on Crude Oil prices, Situation
in Russia and Greece in the coming four to six weeks.
^BSESN closed today – Friday 11/28/2014 at a new life time high time high of 28694 ( up 2.97 % from last month’s close of 27866) . ^BSESN tested an intra day fresh life time high of 28822 in November 2014.
NIFTY too tested a new life time high of 8617 in the month of November 2014. We were right in our prediction that ^ BSESN and NIFTY will be bullish in the month of November 2014 on the back of further FII inflows into the Indian Debt and Equity markets.
FII investments into the Indian Debt and Equity markets zoomed to fresh life time highs of approx US$ 40 billion ytd November 2014 on the back of further bold reforms announced by the Government of India. This a record investment by FIIs into the Indian Debt and Equity markets – last record high was in the year 2005 at around US $ 30 billion. We are heading for ^BSESN towards 30000 in the coming months at this rate of FII investments into the Indian Debt and Equity markets. It is important to mention here that Indian Debt market is capped at US $ 20 billion for investment by FIIs. Hence any further investment by FIIs into the Indian capital markets till l3/31/2015 from date – will be into the Indian equity markets as FIIs cannot invest any more into the Indian Debt markets. So expect further FII inflows into the Indian equity markets till 3/31/2015 sans any global “tail risk event”.
^DJIA too tested a new lifetime high of 17895 (up 4.07 % from earlier fresh life time of 17195 tested in the month of November 2014). Global Equity markets rallied on the back of a bullish ^DIIA. We were incorrect in our prediction that ^DJIA will correct in the month of November 2014 on the back of weak European markets. European markets recovered from their fresh 52 week lows in November 2014 – on the back of massive QE measured announced by Mario Draghi. This QE announcement is a temporary solution to the bleeding economies in EEC specially France, Spain and Italy – where the fiscal imbalances are serious issues and unemployment is record high levels. It is a matter of time that one will see record lows in ^CAC, ^DAX and ^FTSE as tested in October 2014. Europe is bleeding and will have a contagion effect on ^DJIA as predicted. It is a just matter of time!
A very strong US Dollar is the reason behind the bullish ^ DJIA. The DXY index tested a further five year high of 88.4400 in November 2014. US Dollar appreciated versus all global currencies. US economy is on the road to recovery as per data from USA. A stronger US Dollar is a bearish sign for global commodities including Crude and Gold.
ICE BRENT January 2015 futures tested a fresh four year low of $ 69.78 ( down whopping 15.65 % from the last reference low $ 82.73 pbbl tested in October 2014). WTI too tested a fresh four year low of $ 65.69 ( down whopping 17.82 % from a low of 79.93 pbbl as of October 2014 ). OPEC announced no production cuts in its meeting in Vienna in November 2014. Hence there a was a savage correction in Crude Oil prices. Crude Oil prices are now headed further lower as we expect DXY to test a level of 90 – a four year high within end December 2014.
BRENT crude prices at say US $ 45.00 to US $50.00 ppbl will cripple the Russian economy. This level is the marginal cost of production at the new wells in Russia. After bashing Gold of Gold by - US Fed, be prepared to see prices of BRENT Crude Oil to the above mentioned levels in 2015. At these price levels Russian economy will collapse. There is now a tug of war between the Saudis
and North American
Shale Oil producers.
SPOT Gold closed today a US $ 1168.50 pto down marginally from last reference close of $ 1171.50 pto. Gold prices looks bearish as US $ 1180 pto has been breached today at the closing level. If Gold price cannot recover to $ 1180+++ pto then we are heading to lower Gold prices, as mentioned in our Special Gold update of 12th November 2014.
Levels to watch out for Gold in November 2014 are as under :
S1 1150 S2 1135 S3 1100 S3 1050
R1 1180 R2 1200 R2 1220 R3 1240
We advise investors to take profits home from the buoyant global equity markets and wait for a correction.
expect Gold prices to shoot up if the Sunday 30th
November 2014 – is a YES vote in Swiss Referendum. If the vote
is a NO, then the Gold prices will to the above mentioned
support level of $ 1050 pto in December 2014.
Gold prices tested a intra day panic bottom of US $ 1136.50 pto NY SPOT on 11/5/2014. The prices rebounded to an intra day high of US $ 1173.20 pto NY SPOT on 11/11/2014. The rally of US $ 36.70 is again being sold into and as we print this post the prices in Hong Kong SPOT are 1167.10 pto.
As mentioned in our November 2014 post - There is a triple bottom formation of NY SPOT Gold prices at US $ 1180.00 pto. If the above mentioned current rally breaks this level of US $ 1180.00 pto and price NY SPOT at close is higher than US $ 1180.00 pto for twelve consecutive trading sessions - then one can go long on Gold for November 2014. If this level is not sustained then prices will correct to levels as mentioned in our November 2014 post.
December 2014 is a very tricky month. Voting is Sunday 30th November 2014. Gold prices can be bullish or bearish depending on the Swiss Referendum results on Monday 1st December 2014. If the Referendum vote result is a "YES" - then expect Gold prices to zoom by US $ 100.00 to US $ 150 pto from the close on Friday 28th November 2014. If the vote result is "NO" - then expect price levels to correct to US $ 1100 pto or even lower to US $ 1050 pto.
Traders - positional and day traders are advised to pay heed to the above mentioned data. Please do not burn your fingers. The prices will be very volatile on Monday 1st December 2014. Our suggestion is - stay away and let the even happen. Reason - we are not day traders. We are long term investors in Gold.
Switzerland for a YES vote !
BSE SENSEX closed today 10/31/2014 at 27866 and NIFTY at 8322 – both are lifetime high at close. BSE SENSEX tested an intra-day life time high of 27894 and NIFTY too tested an intra-day life time high of 8331 today. ^BSESN and NIFTY (^NSEI) have been the best performing equity market indices in the world to date in this calendar year 2014 - including ^DJIA, Indices in Asia and Europe.
FIIs feel that India is the favourite market amongst the BRICS pack for investment of funds in Equities. FIIs have invested record amount of funds in India. This is on the back of the new Government in New Delhi which has a clear majority mandate and is reform oriented. In a short span of time the new Government has announced very bold reforms. ^BSESN looks the best equity index amongst the BRICS pack and other emerging markets. MOODY’s feels that Indian Sovereign Rating could be moved a notch up as Indian Govt announced that it will target to attain a fiscal deficit target of 3.00 % of GDP in fiscal 2016-17. It has announced cutting non-planned expenditure and also announced some austerity measures. This saw huge investments of FIIs into Indian Equities on 10/30/2014 and ^BSESN and NIFTY tested life time highs.
US Fed announced winding up of QE3 w.e.f. 10/31/2014 and the interest rates will not be hiked by the US Fed for a considerable point of time. US Q3 2014 GDP grew at 3.5 % on an annualized basis. ^DJIA was very bullish at the end of October 2014.
^DJIA closed today at a bullish level of 17195. ^DJIA tested a low of 15855 on 10/15/2014 ( an eight month low ) which was only 4.58 % above its 52 week low. One reason for this correction was that liquidity in US market is shrinking due to constraints (Dodd Frank rules) with high street banks on leveraged investments in US Capital markets. These banks provide cushion in the falling equity markets but with new rules in place – these commercial banks in USA cannot trade in the equity markets easily and hence the cushion is missing. Second issue for the poor liquidity is the winding up of QE3 in USA as on 10/31/2014 by US Fed.
Hedge funds which are highly leveraged were caught on the wrong foot with their investments in US Treasuries in Mid October. US Bonds yields tanked in Mid October. The liquidation of Hedge Funds positions in US Treasuries created a panic in ^DJIA. There is still too much leverage in US capital markets by way investments in Futures in various asset classes – equity, commodities, currencies and interest rates etc. According to some analysts this figure is as high as $ 400 trillion. The other reasons for weak ^DJIA were weak global growth and weak growth in EEC, Japan and China. In fact there are serious problems in EEC – Greece, Spain and Portugal etc as mentioned later in this update. This has contagion effect on US Stocks. There is some growth in the US economy but Europe is bleeding. A very weak European economy has a contagion effect on ^DJIA.
S & P 500 tested a low of 1821 ( 52 week low is 1696 ) on 10/15 2014 – sharpest daily percentage loss in S & P since three years. It recovered towards the end of the month. S & P closed today at 1995.
Global equity markets were very volatile in October 2014 and post the global correction in Mid-October the global equity indices rallied back on back of bullish ^DJIA. If Central Banks had stepped aside in the developed world – global equity markets would not have rallied back from the correction we saw in ^DJIA, ^FCHI, ^GDAXI, ^FTSE and ^N225 etc. During the next correction in ^DJIA and the indices mentioned – if Central Banks step aside, one will see sharper corrections in the global equity markets. We have some concerns on the global equity markets for November and December 2014.
US Fed Chair Janet Yellen faces a dilemma over when to raise borrowing costs from a record low, partly because economic data from USA is uneven. While the U.S. jobless rate declined to a six-year low in September 2014 - The Participation Rate, which measures the number of Americans employed or looking for a job as a share of the working-age population, decreased to 62.7 percent, Fed the lowest since February 1978. This is a shocking figure. Is the data being manipulated to keep ^DJIA afloat ?
US economy added 2,48,500 jobs in September 2014 and unemployment rate fell below 6 % to 5.9 % - first time since 2008. ^ DJIA was bullish on this news and so was US Dollar index. US Dollar Index ( DXY ) tested a 4 year high of 86.746 on back of jobs gain data in the US economy. The US Dollar has jumped 7.2 percent in the past three months, the best performer in that period among 10 developed-nation currencies tracked by Bloomberg. Almost all major currencies fell against US $ - GBP, Euro, CHF, Canadian $, Brazilian Real, Russian Rouble, Chinese RMB, Australian $ etc. DXY closed today 10/31/2014 at 86.58
A specific note on US $ versus JPY- The U.S. currency climbed versus the JPY, following its biggest decline in six months. Economists predicted the Bank of Japan (BoJ) will continue unprecedented monetary easing, while the US Federal Reserve weighs the timing of its first interest rate increase since 2006. The BOJ, which buys about 7 trillion yen ($64 billion) a month of government bonds, will leave policy settings unchanged and expect additional stimulus on Oct. 31 2014. ^N225 tested fresh lows in October 2014 at 14533 ( 52 week low - 13885 ) and ^ HSI tested low 22868 ( 52 week low – 21137 ). ^AXJO in Australia tested a low of 5162 ( 52 week low is 5028 ). SSE COMPOSITE tested a low of 2297 ( 52 week low is 1991 ). ^DJIA looks like the weakest in the bundle of developed market equity indices followed by ^N225. There was a rumour in the market place that BoJ was resorting to purchase of equities too.
^BVSP in Brazil crashed on 10/27/2014 to a intraday low of 48722 ( 52 week low is 44,905 ). Brazil has re-elected left leaning - Ms. Dilma Rousseff as its President and there are too many issues to be addressed in Brazil. The basic issue like India is massive corruption in Brazil. State run companies like PETROBRAS have governance issues. Real has taken a knock against the US Dollar. But that is good news for the Brazilian economy as its exports become competitive. Brazil is “resource export based” economy with major exports as – Sugar, Base metals and Iron Ore etc.
^RTSI in Moscow crashed to its 52 week low of 1036 on 10/28/2014. The Russian economy is taking a hit because of low global BRENT Crude Oil prices. The export price of their Crude Oil – URAL’S LIGHT is linked with a formula to dated BRENT prices at ICE, London. This economy in any case is going down the barrel because of Putin’s policies and poor management of the economy. For all practical purposes Russia is no longer a “democracy” and is an authoritarian State. FIIs do not fancy the Russian market.
We have been predicted a 20 to 30 % decline in ^DJIA in Q4 2014 since the past few months as mentioned on our webpage. ^DJIA has already corrected by 10 % as on 10/15/2014 ? It rallied after this correction. We have predicted a total correction of 20 % in ^DJIA in Q4 2014. Let us wait and see !
ECB announced on 10/27/2014 that 25 Banks in Europe have failed “stress tests” as of December 2013. Maximum number of Banks failed ECB’s stress test were in Italy ? The equity markets corrected mildly on the back of this news in Europe. There is “deflation” in European economies.
IMF lowered world growth targets for the calendar 2015. ^DJIA and three main EEC – CAC, DAX and FTSE corrected to fresh 52 week lows as mentioned later in this update. The growth in the US economy may fizzle out and the money is shifting to Bond markets in USA and across EEC and Japan. 10 Yr US Bond yields tested record lows at 1.86 % levels – a lot of money is flowing into US Bonds. Flight to safety – invest in Sovereign Bonds ! Record low yields on 10 Yr German Bund – sub 1.00 % on 10/15/2014 !
The global Sovereign Bond market especially – US Bond market is in bubble territory.
BoE held its benchmark rates. ECB announced that it will hold refinance and deposit interest rates at the present levels and will continue its Bond purchase programme to boost the slowing down EEC economies. ECB will ease monetary policy in a massive way as the EEC largest economy – Germany showed signs of industrial output declining in August 2014. German GDP shrank in Q2 2014 from 2.6 % to only 1.30 % qoq yoy basis. There are signs of Germany falling into recession. There was correction in three main EEC equities - ^FCHI, ^GDAXI and ^FTSE. All these three indices tested fresh 52 week lows on 10/16/2015 – 3814, 8386 and 6073 respectively but recovered from these lows. Greece and Spain are having difficulties with their Sovereign Bond as these countries need to raise more debt to stay to stay solvent. These nations were not able to sell the full quantum of Bonds they intended to in the auction in Mid October. The stock indices in Spain, Portugal and Greece tanked and their bond yields soared (10 Yr Spanish Bond yield -6.4 % to 10 Yr Greek Bond yield - 14.2 %). This lead to a serious correction in ^FCHI, ^GDAXI and ^FTSE on 10/16 2014 as mentioned above. These indices recovered from their multi-year lows on intervention of ECB by way of buying Sovereign Bonds and other QE measures. Most of the EEC countries are witnessing “deflation” in consumer prices. How does ECB handle this problem of deflation in EEC ? By increasing benchmark interest rates ? Raising interest rates has a negative effect on GDP growth in an economy. There is no clear signal coming from ECB on how to tackle deflation in EEC ? Money printing is not the long term solution. ECB has to take very tough decisions as QE easing is only a temporary solution.
SPOT Gold NY closed today at a bearish level of US $ 1171.50 pto.
World Spot Gold prices even hit a further low of US $ 1169.00 pto on 10/31/2014 in electronic trade in Asia Spot (a four year low). US $ 1183.00 is a triple bottom. If Gold prices do not recover to US $ 1180.00 in early November 2014 – then we are heading for much lower levels. The last hope for Gold bulls i.e. US $ 1000 pto. Some analysts are predicting a US $ 700 pto level within 2014. We will analyze the technical charts when we test US $ 1000.00 pto.
Analysts worldwide are bearish on Gold prices for 2015. The target prices we hear are $ 1150 to 1050 from a lot of analysts in India and around the globe. The main reason these analysts site is that somewhere in 2015 – US Fed will increase benchmark interest rates and hence the Gold prices will correct. This is logical but international Gold prices are not only dependent on the US interest benchmark interest rates ? Yes US benchmark rates effect the price of Gold but it is not the only factor.
We feel that Gold prices can correct to the above mentioned levels in 2015 when the interest rates are hiked in USA by the US Fed. But we feel that some sort of QE4 will be put in place by US Fed in 2015 as the US economy will slide into negative territory. There could be a blip in the prices of Gold but will recover post this interest rate hike in USA.
Everyone is shorting Gold – short, short short ! There was a technical relief rally from $ 1183 to $ 1256 pto within October 3014. This rally was sold into and US $ 1169.00 was tested. Levels to watch out for Gold in November 2014 are as under :
S1 1150 S2 1100 S3 1050
R1 1200 R2 1220 R3 1240
Commodity prices are falling globally and these leads to the issue of “deflation” which we have been mentioning since July 2010. Crude Oil prices have corrected within October 2014. ICE BRENT tested a low of $ 82.73 pbbl and WTI tested a low of 79.93 pbbl – four year low. There is a glut in global Crude Oil market due to shale Gas and Oil production in USA. Should USA start exporting WTI Crude ? Goldman Sachs have gone wrong on their call on WTI Crude Oil ? Their call on WTI Crude was US $ 150.00 pbbl in Q4 2014. Goldman Sachs have done a 180 degree turn on projected WTI Crude Oil prices for Q1 2015 with a price of US $ 75.00 to 80.00 pbbl.
At corresponding global price levels of BRENT at US $ 85 to US $ 90.00 pbbl ( assumption that BRENT will quote at a US $ 5.00 pbbl premium to WTI ) – we feel that some Crude Oil producing and exporting countries will have negative cash flows from their new Oil establishments. At these levels of BRENT at US $ 85 to $ 90.00 pbbl – Saudis and Russians may resort to production cuts. Let us wait and see. We feel BRENT Crude Oil prices will be above US $ 100.00 pbbl in H1 2015 due to geo-political reasons and production cuts.
Lower Crude Oil prices - is good news for countries like India which are more than 80 % dependent on Crude Oil imports. Inflation in India will come down if Diesel prices are cut. But S & P feels that inflation in India will be around 7.00 % in Q4 2014. Rupee also has depreciated vis a vis the US Dollar in October 2014 – hence the lower Crude Oil prices are partially offset by Rupee depreciation. Inflation is India will be under control if Brent Crude Oil prices stay below $ 90.00 pbbl level.
All ores base metals have corrected globally in October 2014 due to global slowdown – especially slowdown in China, which is the world’s largest resources material importer in the world.
These Gold Mining Stocks Offer Potential
The US broker RBC found that there are many bargains to be had in the gold mining sector. That should not be a surprise to anyone, however, considering the behaviour of the gold price in recent years and the painful correction in the precious metal. .
RBC selected 5 gold mining stocks with potential. The first one is Agnico Eagle Mines Ltd. (NYSE: AEM), which acquired Osisko Mining not too long ago. The takeover was a combined effort with Yamana Gold and RBC was happy enough to raise Agnico’s target price. CMP = $ 29.48. AEM’s – 52 week low and high prices are $ 24.87 and $ 42.41. The target price is $ 40.00 for 2016.
Barrick Gold Corp. (NYSE: ABX) is the second company and a top competitor among miners that should outperform according to RBC. The company has about 4 billion dollars in cash and its free cash flow could amount to 1.2 billion dollars. ABX was recently restructured. CMP = $ 13.58. ABX’s – 52 week low and high are $ 13.37 and $ 21.45
Goldcorp Inc. (NYSE: GG) is another giant that is doing great and is poised to outperform in the eyes of RBC. The company has operations in Canada, the US, Mexico, and South America. Goldcorp has cut its costs severely, moreover, which is something that investors like to see. CMP = $ 22.73. GG’s – 52 week low and high are $ 20.54 and $ 29.65
Kinross Gold Corp. (NYSE: KGC) is a small cap miner and the company announced that it will reduce investments by 500 million dollars or more this year. As this money now becomes available to shareholders, RBC spotted the opportunity. CMP = $ 2.84. KGC’s – 52 week low and high are $ 2.81 and $ 5.44
Yamana Gold Inc. (NYSE: AUY) is the last company in RBC’s top 5. This mining group is known for its conservative forecasts regarding reserves, which means that they are almost never adjusted to the downside. CMP = $ 5.70. AUY’s – 52 week low and high are $ 5.47 and $ 10.72
We also fancy ANGLO ASHANTI Gold (AU), Newmont Mining Inc (NEM) and RANDGOLD Resources (GOLD). Investors should check with their CFPs regarding investments in the above stocks.
Junior Gold Mining Stocks were battered in September 2014. These stocks were down between 20 to 30 % but are showing technical indicators of a turnaround – 200 DMA and MACD. Gold only dropped 6.00 % in September but average of all Gold stocks dropped around 12 % in September 2014. The very strong US Dollar is the reason behind weak Gold prices. All sustaining average production costs across the world now hover at around US $ 1200 pto. At prices lower than US $ 1200 pto – a few large Junior and Large Gold miners will be hit with negative operating cash flows. The companies have to resort to serious cost cutting measures in order to reduce losses.
Junior Gold mining stocks are more risky to hold than large mining stocks although returns are better when Gold prices turn around. We should keep an eye on Gold prices. Once the uptrend is confirmed – we should buy the above recommended Gold stocks - large caps and juniors.
There have been almost no discoveries of large new Gold ore bodies in the past 8 years. Ore grades are steadily declining and the world has become less hospitable in general to hard rock mining. We partly agree with Goldcorp CEO’s prediction of peak gold production this year or next, to be followed by a multi-year decline. In our opinion, many producers are liquidating capital and reserves to tread water financially in the Gold mining sector. We believe this will ultimately lead to a frenzy of takeovers, targeting both explorers and developers. The Osisko takeover battle earlier this year exemplifies what we believe lies ahead (AEM - NYSE ). We feel a few important Junior Gold miners will be taken over by large Gold miners viz GG, ABX, AU, AEM and NEM etc. We feel Gold prices will be bullish from 2015 to 2020. Gold prices will peak in 2019 and/or 2020. There could be decline post this period but the decline will occur from highly elevated levels of US $ 3000 to US $ 4500 pto.
Junior Gold Mining Companies – GSV, PVG, NUG are potential take over targets in the near future. These companies are too small to sustain on their own with limited certified Gold ore deposits. There will be a shake-up in the Gold mining industry if prices correct to US $ 1050 to US $ 1000 pto. Cash rich companies like NEM and ABX etc will take over the peers or juniors who will struggle with negative operating cash flows. Hedge books maybe opened again by big Gold miners if prices correct to sub US $ 1100 pto levels. Plus there will be mergers and acquisitions in the Gold mining sector.
We feel long term investors can start buying these Gold mining stocks at around US $ 1150.00 pto levels in small lots. Investors can buy on declines and average their costs as we feel US $ 1050.00 pto will sustain. Investors please consult their respective CFPs.
China deserves a special mention as in September 2014 – SHANGHAI GOLD EXCHANGE was launched. The launch of the Shanghai Gold Exchange on September 18th 2014 is, in our opinion, emblematic of China’s intent to become a major force in the bullion market. Annual Chinese Gold demand is around 2100 mt and not 1000 mt as announced by WGC if one goes by withdrawal of physical Gold from SGE vaults.
In an editorial published July 30, 2014, Song Xin, President of the China Gold Association and Party Secretary, stated that China should accumulate 8500 tonnes in official gold reserves, and that accumulation of the metal for official and private use was a matter of national interest. For reference, 8500 tonnes would require more than three years of global mine supply. Chinese economy is giving mixed signals. GDP growth for July-Sept 2014 quarter was a 7.3 % on annualized basis. This is the slowest growth in China since the past six quarters.
Indian Services sector seems doing fine. INFY reported good set of results for Q2 2014. Profits up 7 % qoq and announced a bonus 1:1 which is applicable to ADR holders as well. Revenue guidance is up 9 % for 2015. In India manufacturing sector is not picking pace. Indian manufacturing output rose at their slowest pace in nine months in September 2014. HSBC India Purchasing Managers’ Index ( PMI ) – a composite gauge designed to give a single-figure snapshot of manufacturing business conditions dropped from 52.4 in August 2014 to 51.00 in September 2014. Indian manufacturing firms lowered purchases and trimmed inventories. The economy needs to increase its manufacturing output. Indian IIP for August 2014 was a shocker at only 0.4 % growth against a target of 2.40 %. Indian Trade deficit soared to US $ 14.25 billion in September 2014 as imports climbed and exports slid. In September 2014 – Indian imports of Gold bullion were at a whopping US $ 3.47 billion up 450 % mom yoy basis. Festival buying season in India and lower prices of Gold as compared to mom yoy for the past two years !
Indian Prime Minister’s “MAKE IN INDIA” campaign could be a good answer to this slowdown, but this will take time. Under this campaign the Indian Government is attracting foreign companies to make their products in India both for domestic and international markets. The Japanese Government has earmarked US $ 30.00 billion investment towards India and the Chinese Govt has earmarked US $ 50.00 billion investment in India’s infrastructure sector. This could be towards high speed trains and rails, dedicated freight corridors, ports etc.
Big bang reforms announced by the new Govt in India rallied ^BSESN. Diesel prices in India are now de-controlled and Natural Gas produced in India will now have a new price @ US $ 5.7 per mmBTU. Also reforms in the Coal mining sector have been announced and Govt of India will reverse it’s policy of CIL’s ( Coal India Ltd) monopoly for mining coal in India. Captive Coal mines for private thermal power plants and steel plants in India will be e-auctioned. These private companies can mine Coal on their own and supply to their respective thermal power plants and steel plants. The Coal sector reform will be one of the boldest reforms to be announced in India. This is a very big reform in the Coal sector.
This new Govt in India is pushing big time on reforms agenda and maybe ^BSESN gets “de-coupled” from global equity markets after a few years. But on one issue we have reservations – Indian manufacturing sector is nowhere near China. India will have to shortlist sectors in the manufacturing segment where it can beat China, Japan and Indonesia etc and be a global manufacturing hub for the said sectors. New labour reforms have been announced by the new Govt but the implementation of labour reforms at the grass root level will take some time. There is too much corruption in India and the factory level by inspectors from various Govt agencies breathing down the neck of industrialists. The most difficult issue at the factory level is – low labour productivity and workers’ Unions’ Regulation. The implementation of labour reforms is the biggest challenge in India. NOKIA has just closed its only manufacturing plant in India near Chennai due to worker’s Unions’ Regulations ? The new Govt in New Delhi is talking about “MAKE IN INDIA” campaign !
FIIs have invested a record approx. US $ 36.00 billion in Indian equity and debt markets to date. Indian equity markets are highly dependent on FIIs investments. At this rate it looks like FIIs will have a new record of investments in Indian markets. The earlier record is at US $ 30.00 billion in 2005. This figure of US $ 35.00 billion into equities and debt in India is a record till date from 1992 when FIIs were allowed to invest in India. Let us see at what figure we close on 12/31/2014 ?
In the international equity markets, one sector which has been our favourite is “ Military Hardware Manufacturers" - especially private defence contractors in USA. A brief on this sector is as under.
We have been saying for more than two years that the best stocks to buy in USA are select Pentagon’s top five defence contractors. The top five defence contractors are :
i) Lockheed Martin Inc ( NYSE Code : LMT)
ii) Boeing Corp ( BA )
iii) General Dynamics Corp (GD )
iv) Raytheon Corp and ( RTN )
v) Northrop Grumman Corp ( NOC )
These top five contractors as above provide more than 600,000 jobs in USA alone and are global strategic players in the defence hardware supplies. Stocks of LMT, BA, GD, RTN and NOC have given returns of about 80 % to 125 % over the last three year period. These stocks can be bought at current levels of ^DJIA. Investors are advised to check with their CFPs regarding investment in above recommended stocks.
We feel that ^DJIA will be correct in November 2014 on the back of weak equity markets in Europe. Indian equity markets could see new lifetime highs on back of strong FII inflows.
Gold prices could test prices lower than $ 1150 pto in November 2014.
BSE SENSEX closed today – 9/30/2014
at 26630 and ^DJIA closed at 17042. NY Spot Gold closed today
at US $ 1208.70. However NY Spot prices of Gold did not close
below US $ 1220.00 for fifteen consecutive days but Gold
prices are heading lower at NY Spot prices tested a intraday
low of US $ 1203.50 pto today. We feel that US $ 1220.00 pto
level is breached. Levels of Gold to watch are listed later in
BSE SENSEX tested a new life time high of 27355 and so did NIFTY at 8180 on 9/8/2014. This was on back of reform measures announced by the Government of India. This NDA-II Government lead by BJP Prime Minister – Mr. Narendra Modi has completed 100 days in Office as of 9/2/2014 and there is a lot expectation from Indians and FIIs from this Government on economic reforms. Indian economy has been lagging for the past decade and the annual GDP growth in India has slipped from 9.0 % in 2004 to 4.6 % in 2014. There are hopes that within the next five years – 2019, Indian annual GDP growth will be in double figures under the leadership of the current Prime Minister of India. The basic issues of governance and fighting corruption are being addressed by the new Government. This Government has a very tough task of turning around India in the next five years.
FIIs have invested US $ 30.00 billion in Indian Debt ( $ 17.00 bn ) and Equities ( $ 13.00 bn ) as on 29th September 2014. This is a record high as this level of investment was seen in the year 2005. This figure could exceed US 30.00 billion for calendar 2014 as there are still three months to go. It is important to mention here that Indian Debt Market is capped at US $ 20.00 billion per fiscal year ( April – March ). FIIs turned nett sellers in the last week of September 2014.
We fancy a couple stocks in India but after some correction in BSE SENSEX and NIFTY levels :
a) LARSEN & TOUBRO
b) TATA POWER
c) ASTRA MICRO
e) ASHOK LEYLAND
f) ULTRATECH CEMENT
Please consult your CFP for investment in the above stocks. We feel these stocks should be bought when the BSE SENSEX is around 22500 levels. This is our view and advise investors to consult their CFPs.
ECB lowered refinancing interest rates to historic @ 0.05 % . Interest rate on marginal lending facility will drop to 0.30 % and rate on deposit facility be now negative @ 0.20 %. In other words you actually have to pay money to make an overnight deposit with the European Central Bank. This is crazy stuff ?
Bond yields across Europe to record lows. Bond yields on a 10 year German Bond is quoting in the region of 1.03 % and thereabouts. Bond yields in USA are at historic lows. Bond prices are at historic highs. Investors still have faith in US Dollars as massive amounts of money is being invested into Sovereign Bonds in USA. What happens if the interest rates are hiked by US Fed – Bonds prices will witness a major setback, with major correction in prices. Interest rates may however not be hiked in the near future in USA. We feel that global Bond markets and Equity markets at these levels are in bubble territory.
ECB will continue its Bond buying programme in Europe to inject liquidity into the EEC financial markets. We do not know the quantum of purchases by ECB on a monthly basis. ECB also announced a new stimulus programme that involves buying private sector debt in EEC, starting October 2014.
The US Fed on 9/17 announced that QE3 will be wrapped up on 10/31. Total US Federal Debt is mounting from the current levels of US $ 17.40 trillion. Total Federal Unfunded Liabilities stand at US $ 127 trillion. At this rate of debt growth – time will come in a few years where total US Debt exceeds US $ 20 trillion. It is possible. Let us not forget that annual US GDP growth figure projected for 2020 is only 1.80 % for 2020. At this meager rate of projected GDP growth in USA and total debt of around US $ 20.00 trillion – we feel by 2020 US Fed will not be able to service its Debt. Down grade of US Sovereign Debt again is possible in 2018-2020 as it happened in August 2011.
Spot Gold NY closed today at US $ 1208.70 pto. The levels to watch for Gold in October are :
S1 $ 1200 S2 $ 1150 S3 $ 1050 S4 $ 1000 ( very strong support )
R1 $ 1220 R2 $ 1240
Gold prices tested an intraday low of $ 1212.80 pto NY Spot on 9/19/2014, after US Fed announcement on 9/17/2014 that interest rates will be kept near zero percent for a considerable period of time, after suspending QE3 Bond purchasing programme. We mentioned in our last post that US Fed will not hike interest rates anytime in the near future. Gold prices have corrected by 6.00 % in September 2014.
US Fed detailed how it will raise interest rates in the short term ? This spiked the US Dollar Index and consequently Gold price corrected. However some analysts feel that US Fed will not hike interest rates till Mid 2015 as the labour market struggles in USA. QE3 will be would up by 10/31/2014. ^DJIA tested a new lifetime high of 17275 on 9/18/2014. US Dollar Index tested 86.09 level on 9/30/14 – a 4 year high. In September 2014 – the rally in US $ Index is the biggest since 1967 !
Technically if US Dollar Index sustains 84.71 – it will be bullish and can test higher levels. The next levels could be 87 and then in zoom mode – 90. Gold prices will correct further. We will issue a special alert if US $ 1200.00 pto is breached convincingly i.e. close below US $ 1200.00 pto for three weeks consecutively. We have count 15 trading sessions consecutive - NY Spot close below $ 1200.
Large global Gold mining giants are now de-risking their South African businesses. We had written way back in July 2010 that there will be labour strikes, production suspension, rising costs ( higher wages by labour ) and even nationalization of all Gold mining in South Africa. What we had predicted is coming true as witnessed since the past two years. We have seen strikes in RSA in the platinum mining sector since the past two years. Some Gold mines were also affected.
Gold mining companies – AU, GFI and ABX etc are spinning-off their South African businesses into separate companies, with RSA operations headquartered in Johannesburg and balance operations with a company registered in their native country or London etc. All major Gold mining in RSA is in the hands of MNCs with ownership in Europe, USA, and Australia etc. The South African business is in a new company with listing at Johannesburg Stock Exchange and businesses sans RSA are spun-off into a new company listed in London or Toronto Stock exchanges. This way the parent company is hedged from troubles in RSA.
The risks associated with Gold mining are on the rise in RSA and companies wish to de-risk the same. Major drivers of risk in RSA are :
i) Volatile Labour Market ( strikes, unrest etc )
ii) Government Policy Uncertainty
iii) Very Low Shaft Depths ( some exceeding 3 kms under the surface )
iv) Rising Costs of Production ( higher labour costs and higher safety standards )
This is a good way to de-risk the South African Gold mining business. A couple of large MNC Gold mining companies are selling their South African mining assets to completely eliminate South Africa country risk risks and also to reduce debt on their books.
The MNCs now understand the troubles of mining Gold in RSA. Please see our post of July 2010, wherein we have clearly mentioned that by 2012 one can see – strikes, arson, looting etc in RSA Gold mining sector. There could be rising costs of production due to higher wages sought by mining labour. We were correct in our forecasts ! We predicted that there is fear of all Gold mines to be nationalized in RSA. This can happen in RSA. Imagine the impact on global Gold prices if Gold mining is nationalized in RSA in the years to come ? There will be shortage of physical Gold on the world market.
We have mentioned about the problems in the Chinese and Japanese markets in our last posts. Our fears on China were correct. On 9/14/2014 – Chinese statistics showed that China’s factory output grew at the weakest pace in nearly six years in August 2014, while growth in other areas also cooled. As a result Australian Dollar was hit hard as Australia is a resource export economy and its major export market is China. Any slowdown in China will negatively affect Australian exports of Iron ore, Coal etc to China. Both ^SSE COMPOSITE in China and ^ASJO (ASX 200) in Australia – will correct sharply in the very near future and we will see both these indices test their 52 weeks low.
PBoC agreed to for a stimulus of US $ 81 billion by way of credit to four largest banks in China in order to boost liquidity and prime the economy. These kinds of stimulus lead to inflation although PBoC has announced that this liquidity injection is for short term only. PBoC also cut 14 day Repo Rates. China Gold President mentioned today that Chinese Gold reserves should be 8500 mt ?
Japan with its debt to GDP ratio in excess of 250 % is a “time bomb” waiting to explode !
Please keep an eye on Gold prices. If US $ 1200.00 pto is breached convincingly, then we are heading for a crash. We however maintain that ^DJIA and global equity markets can correct by 25 to 30 % in Q4 2014. Gold prices can correct sharply but will recover in December 2014.
Special Gold Alert - 18th September
^DJIA closed today Friday 29th August 2014 at 17098 ( short of life time high of 17154 ). ^BSESN closed today at 26638 but tested a new lifetime high of 26674. Global stock markets were bullish on the back of bullish ^DJIA. Indian stock markets were also bullish on account of domestic factors – a stable government announcing positive reform steps in major sectors of the economy.
There are signs of revival of in the Indian economy as April-June 2014 GDP growth figure was announced by Government of India at 5.7 % ( annualized ). This is the highest GDP growth figure since the past nine quarters. But due to deficit rainfall in India the agricultural output will fall in the current fiscal in India. This is not good news as 40 % of Indian population still is dependent on agriculture although contribution to GDP is only 16 % - down from 50 % in 1980s. India is now a “Service Economy” with GDP share in excess of 60 % from this sector. Even manufacturing has slipped to sub 20 %. Analysts are bullish on US Equities and Indian Equities, but we are not.
In India PONZI Chit Funds are now surfacing in India. The biggest scam we thought was – SAHARA Group’s embezzlement of Rs. 250.00 billion ( US $ 4.10 billion ) from investors in North India. But the biggest PONZI scheme – is the PACL scam again in North India, which could run into Rs. 400.00 billion ( US $ 6.56 billion ). According to an expert these PONZI schemes operate under the garb of Chit Funds in India – totally unregulated. The total amount in India which may have been embezzled under these Chit Fund scams in the last decade could be about Rs. 1000.00 billion ( US $ 16.39 billion ) from about 50 million poor rural depositors in India. These unscrupulous finance companies lure poor rural and middle class urban investors with very high rate of interests on their deposits with them, over the bank rates.
All these funds are siphoned off overseas or invested partly in real estate in India.
We are shocked as to what was SEBI doing for a decade ? Now the Government of India is moving in with caps on the NBFC’s for taking deposits beyond a certain amount and also promising rate of interests which are approved by SEBI. In India – the regulator is always behind the curve ? Why ? This stinks of sleazy politicians who are in hand-in-glove with these money launderers. The new NDA Government in Delhi has promised a “clean up” act in this sector but no money will be returned to the depositors. These depositors find opening a bank account in India a big issue in villages and hence fall prey to these PONZI scheme operators who have agents in villages. The new NDA Government in Delhi has announced new bank accounts for 50 million rural Indians in the next two years.
We have mentioned in the past that due to a major correction in US Equities expected within 2014 calendar year – we are bearish on global equities. Some analysts are now expecting a 50 to 60 % correction in US Equities over the next few months as they feel that US Fed will continue with its “near zero interest rate policy”. Also even if QE3 is wound up as of end October 2014 – US will need support of printed money. We have been saying this for the past one year !
There were rumours that US Fed could hike interest rates – Gold price were hammered on 8/21//2014 in NY at Spot rate of $ 1272.40. The prices recovered to US $ 1287.20 at today’s close NY Spot. Tested a intra-day high of US $ 1292.70 pto.
US Fed decided to keep interests in USA near to zero pct for some more time. Gold prices recovered. We said this exactly to our associates that Gold will tank on US Fed’s hawkish views to increase interest rates. But the interest rates will not be hiked. Good level to buy Gold at US $ 1270 pto levels.
For Gold to be bullish – it should close above US $ 1290.00 pto for at least three weeks NY Spot close. It is safe to buy Gold if this level is sustained in September 2014. The levels to watch for Gold are the same as per in the last post :
R1 $ 1290 R2 $ 1320 R3 $ 1340
S1 $ 1240 S2 $ 1220
We will post an advisory if US $ 1220 pto is not sustained.
We are again advising investors in India and overseas to take profits from the equity investments and put money in the Debt instruments, Gold or cash. Around 30 % funds can be allocated to physical Gold. We have lost faith in paper Gold in India – GOLDSHARE and the likes of SPDR in USA. Please convert your paper Gold to physical Gold. Smaller investors can buy 1 oz branded coins or bars – KITCO, PAMP and CREDIT SUISSE etc. Please get out of paper Gold and store Gold in secure vaults.
We stick to our view that ^DJIA will correct by 20 to 30 % within calendar 2014 and this will lead to global correction in equities including India. We stick to our prediction that Gold prices will be in excess of US $ 1450.00 pto in December 2014. Geo politics – Ukraine, Syria, Iraq, Libya etc are bullish for Gold !
Chinese PBoC did not announce its official Gold holdings in July 2014. Chinese gold imports declined by 19 % q on q yoy in April – June Quarter 2014. This is also a bearish factor for Gold prices. Goldman Sacs and Morgan Stanley predict prices for Gold in the region of range of $ 1100.00 to $ 1000.00 pto levels in calendar 2014. These levels look difficult to us but can be tested if Gold prices cannot sustain $ 1220.00 pto level in the balance months of calendar 2014.
Global Equities are at their life time highs in USA and India. ^DJIA tested life time high of 17151 and BSE SENSEX tested a new lifetime high of 26300 in July 2014. FIIs have pumped in excess of US $ 25.0 billion in Indian equities and debt markets in calendar 2014. This is short of record US $ 30.00 billion pumped by FIIs in 2000. Benchmark Equity indices in Europe also tested new six year highs on back of the bullish ^DJIA. We feel this is a good time to book profits in equities globally and trim once exposure to this sector. Be 75 % in cash balance in Gold Mining Equity Stocks and Pharma Stocks. One can invest in CHF Sovereign Bonds – in the Debt sector. In October through December 2014 we predict a global equities correction by 20 to 30 %. Beta may vary from USA to Europe to Asia.
We warned investor in Mid 2007 – that exit equities completely and sit on cash or in cash ( CHF cash or CHF Sovereign Bonds ) and Gold in say fifty : fifty ratio. We all know what happened in 2008. This time in Q4 2014 – the mayhem would by 10x of 2008 and no major recovery after the correction in equities. In the coming years we see ^DJIA in the region of 6000 and BSE SENSEX in 9000 range. We will specify the year where in we predict these levels – 2015 or 2016 ? Our research is pending on timing these levels of ^DJIA and BSE SENSEX. We are sure we will see these levels before 2018. We will advise. As of now we see a 20 to 30 % correction in global equities.
We see Gold prices shooting up from current levels to US $ 1450.00 pto levels in Q4 2014, as explained later in the post. The important support and resistance levels for Gold are as under :
S1 $ 1290 ( 200 DMA ) S1 $ 1240 S2 $ 1220
R1 $ 1320 R2 $ 1350
If $ 1220.00 pto is not sustained, then we will issue an advisory.
Spot Gold NY closed today ( 31st July 2104 ) at US $ 1283.00 pto. Gold is bearish technically if it trades below US $ 1290.00 pto for three weeks consecutively. This is a very important level as far as we are concerned. This is the 200 DMA level for Gold ( One year chart basis ). If Gold trades below this level it is bearish. But if Gold can trade above US $ 1340.00 pto for ten to fourteen trading days consecutively it will bullish technically. Gold tested a level of $ 1340.00 pto when Malaysian airliner having 300 people on board in Eastern Ukraine was shot down. For Gold, trend reversal level is 200 DMA of US $ 1290.00 pto. Price level of US $ 1290.00 should sustain.
The US Fed stimulus program has been toned down to US $ 25.00 billion a month and there are reports that this stimulus of cash injection in the US financial markets may be wound up by October 2014. In other words UD Fed will only purchase US Bonds and Mortgage backed Housing Bonds worth US $ 25.00 billion till further notice. This QE3 may be suspended but money printing in USA will accelerate to unprecedented levels as there will no other way to save US economy.
We have serious doubts that the US Economy can sustain without the various stimuli – one of them (QE 3) being purchase of US Bonds and Mortgage backed Securities ( also called Housing Bonds ) by the US Fed. Money printing will pick up further race in October 2014 – if this bond purchase is suspended by the US Fed. Gold may correct in September 2014 as the Bond purchase by US Fed will suspend. What will happen to the liquidity in the US Financial markets after QE3 is suspended ? We feel that the US economy will choke because of tight financial liquidity and the US Fed will be forced to print US Dollars.
As mentioned above we predict a serious correction in the world markets around end October 2014 – equities, bonds and commodities will have a massive sell off. Analysts expect that Gold will also see a massive sell off if what we predict actually happens. Some analysts expect the price of physical Gold to be in the region of US $ 500.00 to US $ 700.00 pto in Q4 2014. We strongly disagree. If what we predict happens i.e. massive correction in all asset classes in Q4 2014 – Gold will not correct. In Gold will zoom from lower levels to US $ 1450.00 pto levels. In fact Gold can test US $ 1630 pto level in Q4 2014 ( calendar ). If there is bad news on geopolitical front – Ukraine, Israel and Iraq etc, we predict we will see Gold testing even higher levels than $ 1630.00 pto in Q4 2014.
Banking crisis can spread from Portugal to main West European Banks like – DEUTSCHE, COMMERTEZ, SOC GEN, BARCLAYS and LLYODS etc. This banking crisis can hit the banks mentioned in Germany, France and UK. These banks in EU are highly leveraged to the extent of 40x to 50x. Spanish banks were bailed out in 2012. Any such bail-out again will not be contained and there could be a full blown banking crisis in West Europe. Not to mention about East European Banks. These banks are already on the verge of collapse. Bulgarian baking crisis is just the tip of the ice-berg.
Banks in US are no less healthy. They are leveraged to the tune of 10x to 20x. Plus the banks in USA have an exposure to derivatives to the tune of hundreds of trillions of Dollars. These banks are running on bailed-out funds. US economy has huge budget deficits since the past three decades. The US Budget Deficit is at record levels in 2014. The total US public debt is in excess of US $ 15.67 trillion. By 2020 – US Govt will not be able to service its debt ? Remember markets discount the future. We predict ^DJIA : Gold Price ratio as 1:1 sometime in 2020. We have mentioned about the same in our post of October 2010. Say ^DJIA at 5000 and Gold at US $ 5000 pto in 2020 ! This can happen.
In Q4 2014 – we predict the collapse of US Dollar. The US Dollar Index will crash to sub 75 levels from the current levels of 80.00. It could collapse to 67 levels. Other global currencies will also correct – GBP, EURO and JPY if the US Dollar collapses.
We have mentioned that Japan is bankrupt and China has its own problems in the banking sector. We expect a situation in Q4 2014 – which will be worse than September 2008. There is a threat of Argentina again having a Sovereign Default.
Cheers to Gold !
These days we have little faith in the world financial system.
Almost all developed economies of the world are living on
printed money. As such We have little faith in the equities, bonds or any
financial investment instruments. At this rate the world's
financial system is unsustainable as we believe the US economy
We have faith only in physical Gold stored outside the banking system in the developed world. In India physical Gold can be stored in only PSU Bank's vaults of repute -preferably only State Bank of India.
We are suspending our posts on
AFUND till more sanity returns in the world financial
system with de-leveraging and tangible signs are visible. Gold
our targets remain intact - maybe we are off by a couple of
We wish all our associates and
investors a happy and prosperous 2014 !
We are not clear on the equity market
trends and hence are not able to predict for the month.
We have been traveling in the month of November on a Gold related project in India. Hence the post for December is not being updated. We will resume in January 2014 as normal.
In the meanwhile we advise investors to take profits from the equity markets and be in cash. Gold is in bear market and may test levels of sub $ 1150.00. Stay away from Gold till further notice.
Equity markets may see new highs in
India and globally. Please take your profits and be in cash.
BSE SENSEX tested - 21,294 on
10/31/2013, hitting fresh life time high on back of FII buying.
Earlier life time high of 21208 as of January 2008 was breached
today. We were wrong by predicting that ^BSESN had made its top
in September 2013.
FIIs have pumped in Rs. 120.00 billion
( US $ 1.97 billion ) in October 2013 amid easing concerns over
the US tapering. Till date FIIs have pumped in US $ 15.60
billion in Indian equities this calendar year, as per data
available with SEBI.
tested 15721 – a new 52 week high on 10/30/2013. Easy monetary
policy in USA, EEC and other developed nations is behind
creating asset bubbles in equity indices across the developing
understand the equity markets since August 2013. US economy
near bankruptcy and ^ DJI at fresh 52 week highs. In EEC
banking sector in Spain at “insolvency crossroads” and three
benchmark indices in EEC - ^DAX, CAC and FTSE at multi-year
markets defy fundamentals – we get we eerie. We have no
predictions to make for November 2013 as markets are defying
fundamentals. We understand that markets discount the future
and markets expect global economic recovery on the back of a
robust recovery in the world’s biggest economy. Pundits feel
that US economy will recover in 2014. To us future looks
extremely bleak in USA and EEC, and still markets are at
Gold tested an intra month high of $
1360.80 pto but closed weak today at $ 1315.80 pto. Gold prices
are suppressed but we have to live with the fact. But we feel
that there is a limit to which US proxy agents can suppress the
price of Gold. Our Gold target for December 2013 is $ 1450.00
We are not able to understand the markets and hence are not giving any levels for BSE SENSEX and ^DJI for the month of November 2013. However we advise investors to book profits in the Indian stock markets as markets are at fresh life time highs.
closed today Monday 30th September at 19380 up 4.08 %
from last reference close of 18620. BSE SENSEX (^BSESN) tested a
new 52 week high at 20740 on 9/19/2013. In fact this is the
highest SENSEX level since 10th November 2010. This
was marginally lower than the life time high of 21208 as of
January 2008. We feel that ^BSESN has seen the top for this
in US $ 1.20 billion in Indian equities and US $ 0.50 billion in
Indian Debt in the month of September 2013. This is against the
outflows for the past three months. We predict that FIIs will
pull out money from Indian equity markets too in Q4 calendar
2013. The levels for ^BSESN for October are as under :
S2 17700 S3 16500
picture is very dismal as explained later in this post. ^BSESN
was very volatile in September 2013 with wild swings of 3 to 4 %
on lows and highs on a daily basis for a few days. In sixteen
trading sessions from 8/28 to 9/19 - ^BSESN has moved up approx
19.61 % from the
low of 8/28. This is really a very sharp rally aided by fund
flows, sentiment change, global events and hectic short
Governor’s policy announcement on Gold import curbs and
intervention to stop the arrest the falling INR helped this
surge in INR. Indian Gold imports were down 70 % in August 2013
at US $ 0.65 billion versus US $ 2.24 billion in July 2013.
Indian trade deficit was also lower in August 2013 at 10.7
9/19/2013, INR tested a high of 61.05 versus the US Dollar. This
is a month high for the INR versus US Dollar. RBI intervention
has worked but INR is too strong now and exports will be
sluggish. This kind of volatility in INR is rarely seen. INR has
moved from a low of 68.85 to a high of 61.05 versus US Dollar in
a matter of just a month. This level of 61.05 is a monthly high.
But we would like to mention volatility is not a good sign for
INR versus USD.
US $ 15 to
20 billion is slated to come to India by 30th
November 2013 as per new policy issue on FCNR deposits and also
the US Dollar Swap with the Central Bank of Japan. Gold imports
have been seriously curtailed and this US $ 15 to US $ 20
billion inflow, the INR could strengthen 60.00 levels versus the
US Dollar by early December 2013. But if Indian policy makers
slip on any issue affecting CAD – then INR will again slip.
There is a discussion going on at the top level in RBI and
Ministry of Finance that in order to considerably reign in CAD –
GoI should allow additional US $ 40.00 billion investment by
FIIs in Indian Sovereign Bonds, which is currently capped at US
$ 25.00 billion. This is a bold step as RBI needs to service the
interest on Bonds. This quantum of forex coming into India will
lead to INR stabilizing against the US Dollar at around 60.00
levels in the near future. We expect US Dollar to considerably
weaken against all global currencies in Q4 2013.
inflation in August was at 6.1 % versus 5.79 % in July in India.
The CPI inflation is in excess of 11.00 %. The food inflation
figures were very high and that is not good news for the
economy. Inflation is not being tamed as diesel prices are being
hiked @ INR 0.50 per month and gasoline prices were also hiked
by INR 1.63 on 9/14/2013.
RBI hiked Repo Rates by 25 basis points from 7.25 % to 7.50 % on 9/20/2013 in order to contain inflation. The new RBI Governor has great credentials. He is more concerned on rising inflation and is willing to sacrifice GDP growth. MSF has also been cut to 9.5 %. LAF window is capped at INR 375.00 billion. The CRR was unchanged at 4.00 %. Dalal Street was taken by surprise as the market was not expecting a Repo Rate hike. This was new RBI Governor’s first policy announcement since taking office at Mint Street, Bombay. He has made is clear that prime agenda is to rein in inflation even if it is at the cost of GDP growth.
situation reached at a compromise to put its chemical weapons
under international control lead by UN inspectors surprised the
financial markets. Crude Oil and Gold prices corrected sharply.
This was done under Russian pressure to avoid US lead air
strikes. This news affected on global equities as they rallied
and prices of Gold and Crude corrected as mentioned above.
predicted last month that FOMC meeting in USA on 9/18 will not
taper the QE4. EM economies equity indices were also at multi
year highs on the back of the FOMC announcement. The Malaysian
Ringgit staged a recovery never seen since 1997-98 Asian
currency crisis. Indonesian Rupiah also staged a smart recovery.
Ems equity indices tested multi year highs. ^DJIA tested a new 52
week high at 15710. EEC Equity indices also tested multi year
highs ( especially ^DAX ) on back of Syrian development and FOMC
After US FOMC announcement - Spot NY Gold prices tested a monthly intra-day high of US $ 1386.70 pto on 9/18. We are bullish on Gold if it can trade above US $ 1386.00 pto. We are long term bullish on Gold if it can hold US $ 1450.00 pto. Our target for Gold for December 2013 is US $ 1450.00 pto.
increased import duty on imported jewelry from 10 % to 15 % to
further curb imports of Gold. Indian Government has really
cracked down on Gold imports to curtail CAD.
business in USA will be QE Unlimited as we have said since
October 2010. Our views on this have been endorsed by legendary
Dr. Marc Faber. He also agrees with our views that US economy is
on a path of “no return” and eventually there will be a total
collapse of the US financial market. Dr. Faber also believes
that ^DJIA will correct by above 20 % in the near future. We
also have been mentioning a similar cut in ^DJIA but are off on
the timing. We predicted that there will be a 20 % cut in ^DJIA
followed by global equity levels in August 2013 onwards but so
far we are off. But we still stick that this correction will
happen. Let us wait till end October 2013. The US Fed will need
a “total federal debt ceiling hike” from the US lawmakers on
10/17/2013 as was the case in September 2011, when the US
Treasury was bankruptcy. US Fed is heading towards bankruptcy
again as on 10/17/2013 and there is no way but to raise the
“debt ceiling”. This would mean more printing of US Dollars and
depreciation of the benchmark US Dollar. US Bond rating could
also be lowered by American and European Sovereign Rating
agencies. This month of October 2013 is a terrible month for all
asset classes except Gold. One could see a repeat of September
2011 in October 2013.
Gold will zoom to US $ 1450+ in Q4 2103.
closed today Friday 30th August at 18620 down 3.75 %
from last reference close of 19346.
Indian macro scenario is not looking good and we feel that the Indian CAD will miss the budget target @ 4.80 % of GDP for current fiscal ending March 2014. This figure looks difficult to achieve as per our understanding. Also India’s GDP growth for Q1 FY2014 was only 4.40 %. This is the lowest since last seventeen quarters ( near four year low). IIP for Q1 FY2014 were also disastrous. We feel unless Indian Govt does not take strong measures the CAD and INR will further deteriorate. Crude Oil prices at US $ 115.00 pbbl are hurting Indian Indis’s balance of trade, which affects the CAD. Indian Govt has to act fast and raise price of diesel and LPG as the petroleum sector subsidies are hurting the Indian Fiscal Deficit seriously. We predict Crude oil in the range of US $ 115 to $ 117 pbbl for balance seven months of the current fiscal year. Gold prices will be around $ 1420 to 1450 pto the period mentioned. Strong steps are needed to mitigate the outflow of debt funds by FIIs and FIs from India. GoI further clamped down on Gold imports to arrest the burgeoning CAD :
- - Import duty on Gold raised from 8.00 % to 10 %
- - Increased excise duty from 7 % to 9 % on Refined Gold Bars
c - Ban on imports of Gold coins and Medallions.
) - 20 % of Gold imported has to be exported by manufacturer exporters
e - No credit
facilities to be extended by ADs to importers of Gold. Payment
by importers has to be on sight basis.
hit Indian financial markets.
The scam is still not resolved.This could be a Rs. 20.00
billion scam as the exchange – NSEL has defaulted. Indian equity
markets have discounted this news.
Equity markets tanked on 8/28/2013. BSE SENSEX tested a new
intra day low of 17720 down whopping 13.6 % from January 2013
high of 20500. We warned investors that the month of August 2013
is bad for equities. The main EEC equity indices are down to
their six week lows. The equity indices of BRICS pack were also
close to their 52
week lows. In additional EMs equity indices were also hammered
with Jakarta index testing new 52 week lows.
^DJIA did not correct by 20 % as predicted for August 2013. This may happen September 2013. We will see a fresh bout of selling globally in equities and debt markets on the back of a crack in ^DJIA. The US economy is still struggling and QE taper might not happen in September 2013. The next FOMC meet is in end September.
INR touched a new lifetime low of 68.83 to a US Dollar on 8/28/2013. This is biggest fall of INR versus US Dollar since the past twenty years ( May to August 2013 – INR has fallen by 18 % ). RBI stepped in late last night of 8/28 2013 and in a master stroke declared that three PSU Refiners of Crude Oil – IOC, BPCL and HPCL will be given US Dollars by RBI to import Crude. The PSUs need not go to ADs to finance their imports. This action should have been taken by RBI when INR breached 62 level. Anyway better late than never. Indian refiners – both PSU and Private Sector need about US $ 500.00 million per day to import Crude Oil. PSU refiners need about US $ 300.00 million per day. These Dollars will be supplied by RBI to PSU refiners. INR appreciated by 2.15 to 66.65. The Indian equity markets and Debt markets calmed down. Volume dried up on the Indian foreign currency exchange.
Two thirds of SENSEX stocks are trading below their respective 200 DMA. Nearly four fifths ( near 80 % ) of NIFTY stocks too are trading below their respective 200 DMA – a trend seen almost after four years. We think it is the start of a structural bear market in India. Book your profits in Indian equities and put the funds realized in secure long debt funds in PSU Banks.
There are fears in the Indian financial markets that capital controls may be put in place by RBI to stop the flight of foreign capital from India. According to REUTERS – Foreign funds have sold Indian Debt and Equities worth more than US $ 12.70 billion as of third week of August 3013. Mainly is Debt at US $ 11.00 billion and balance $ 1.70 billion of equities. Also there was fear of US Fed tapering the QE 4 in the month of September 2013 itself. These two factors spooked investors to sell equities in India.
On 8/28/2013 – Gold tested an intra day high in NY Spot @ US $ 1432.10 pto on the back of short covering by operators and due to its “safe haven” status in times of turbulence. It closed today at NY Spot at $ 1395.00. The impending military strike by NATO forces on Syria and a possible surgical attack by Israel on Iranian nuke enrichment facilities spooked the price of Crude oil in global markets. Gold also zoomed as mention above.
Brent Crude surged to US $ 116.67 pbbl – a two year high. Our price target for Gold for September 2013 is US $ 1450.00 pto and US $ 120.00 pbbl for Brent Crude. The prices of Brent Crude could rise to US $ 150.00 pbbl if the geo-political situation is not resolved in Syria which a marginal exporter of Crude Oil. Iraq is not exporting Crude Oil to its potential due to political instability because of sectarian violence between Shia and Sunni Muslim sects. Saudi Arabia could chip in the shortfall but the prices could be in the range of US $ 120.00 to US $ 150.00 pbbl.
In India physical standard gold bar prices surged to INR 34500 per 10 gms, the biggest rise in two years , on the back of a very weak INR and rise in prices of Gold in the world markets. If US $ 1386.00 pto can be sustained in NY Spot – physical gold prices will shoot to $ 1450.00 pto levels in about one or two weeks.
FIIs are pulling out funds from Stocks and Debt in Malaysia, Indonesia and Philippines. Ringitt, Rupiah and Peso have also depreciated but not at the same pace as INR since May 2013. UBS has predicted a price of INR 70.00 to a US Dollar in the next six months. This may be tested in before December 2013.
We are of the view that if FIIs sell Indian Debt at the rate at which they have been selling since June 2013 – do not be surprised to see BSE SENSEX at 16400 in September 2013. INR could test 70.00 in the same period as mentioned above. Indian CAD will not meet budgeted target of 4.8 % of GDP, set by the Hon Finance Minister of India for the current fiscal ending March 2014. Hon Minister might put severe restrictions on Gold imports but we feel the demand in India for Gold is “inelastic”. WGC, London estimates that in the current fiscal official Indian imports will exceed 1000 mts – a new lifetime record. On the Crude oil front – Indian Govt cannot do much as motor fuel cannot be rationed, as there will be a chaos in India. There is a proposal by Ministry of Petroleum and Natural Gas ( MoP & NG) in India that retail fuel stations should be closed by eight pm in the evening nationwide to conserve consumption of motor fuels – Gasoline and HSD. This is a crazy proposal as this is not feasible.
Hence one of the ways to cut Indian CAD is put severe restrictions of import of Gold as this yellow metal is not an essential item for running the economy. GoI can put quarterly quota for Gold import and also raise import tariff and local taxes to curb imports. The other proposal is that India imports finished white goods worth US $ 60.00 billion. This figure can be slashed as import duties can be increased by 15 to 20 % to contain Indian imports and reduce the trade deficit.
We feel the recovery in the US economy is “phoney” and the tapering of QE will not happen in September 2013. The military strike by US and its coalition partners is also delayed because of congressional approval sought by US Prez Obabma. Like UK’s House of Commons – the US Congress might not approve of military strike by USA.
We advise investors to be away from equities for the month of September 2013.
closed today Wednesday 31st July at 19346
marginally lower as compared to last reference close of
19396. BSE SENSEX tested a new 52 week high of 20,350 in June
2013 - short of lifetime high of 21208 of January 2008.
a new 52 week high of 15604 on 7/22/2013.
– is a very bad month for all asset classes. One can see a 20 %
correction in ^DJIA followed by all global equity markets.
Commodities, Bonds and Real Estate will also be severely hit.
Book your profits in all asset classes and sit tight on cash.
Post correction please allocate at least 30 % of your funds to
buy physical Gold.
Indian macro picture is still gloomy. As per rating agency Crisil in India – India Inc’s Forex Debt 290 billion. Out of this - Short Term Debt = $ 20 billion. This $ 20 billion is due for payment in one year from date ?
CDS for INR
has risen by 46% on an average of large cos in India in
April-June 2013 ? RIL, TATA STEEL and LARSEN – CDS has risen by
average 46 %. Rising CDS will hit the sentiment and there could
be defaults ?
Out of this
$ 290 billion Corporate India forex debt – only 50 % is
“hedged”. This will hit the net profits of large Indian
Corporates who have not hedged their forex import bills
payable and debt in forex currency.
is still a cause of worry. Indian Iron Ore exports have dropped.
Coal imports are high. Production of Indian Coal is stagnant.
There are rumours that Indonesia is thinking of putting some
curbs of exports of some lower grades of thermal coal. India is
a big buyer of these grades of coal from Indonesia.
results for Q2FY2014 buoyed the BSE SENSEX but guidance for next
quarters is muted. All Indian Tech stocks were buoyant.
There is no
respite as regards bad news for the Indian economy. IIP fell 1.6
% in May 2013. Manufacturing and mining sector were the worst
performers in IIP basket. Commerce ministry announced that
exports fell over 4.5 % to $ 23.7 billion in June – second
straight month of decline. Imports too fell by 0.4% to $36.00
billion. Trade deficit was lower at approx. $ 12.2 billion.
Indian Govt cracked down imports of Gold and Silver into India
by putting curbs through the Banks which have import licences to
import Gold & Silver. The curbs helped to taper down imports
of precious metals. CPI inflation threatened to re- tested
double digit figures again - estimated 9.87 % in June against
9.31 % in May 2013. The worst was food inflation in the basket –
11.84 % in June versus 10.65 % in May 2013. To top this bad news
Govt announced that India’s foreign exchange fell to US $ 280
billion –a three year low. Lower by $ 40.00 billion from May
2011 peak of $ 320 billion.
Indian CAD situation is looking scary as Crude Oil imports are surging because of high BRENT Crude prices in the international market. This is on account of unrest in Egypt wherein military has taken over interim control of the nation.
on 15th July 2013 – RBI shocked the financial markets
in India to shore up the falling INR versus US Dollar as its
tested a new lifetime low of 61.22 to the US Dollar. RBI
announced the following :
banks borrowing from RBI capped at INR 750.00 billon. At present
this rate is at 8.00 %. For any additional borrowing from RBI
above this cap – banks will have to pay interest @ 10.00%.
This interest rate hike will lead to increase in short term
interest rates for corporate India. The current borrowing of
banks borrowing from RBI is about INR 930.00 billion. This
interest rate hike will be with immediate effect. Bond prices
will crash in India as a result of higher interest rates.
ii) RBI will sell Bonds worth INR 20.00 billion to make INR scarce. Modalities of this bond issue are being worked out by RBI and Govt of India.
certain stringent curbs to check speculation of INR versus US
Dollar at MCX in India. Speculators in the currency markets will
be hit hard. Fine print awaited by the operators. Inspite
of the above measures INR lost 27 paise to close at 59.90 at MCX
These are short term measures and RBI may wind up the above in the six months or so if the INR retraces to 54 to 55 levels. We feel these levels are difficult to attain over the next months.
– RBI further announced measures to tighten the INR liquidity in
the financial markets to shore up the INR versus US Dollar.
Banks can borrow only half percent of their deposits from RBI on
any given day. CRR now is applicable on a daily basis instead of
average fortnightly balance as earlier. Fine print is on RBI’s
– RBI announced new Gold import policy. These strict measures
were announced to curb imports of physical Gold in India :
a) 20 % of the
imported quantity of Gold will be retained in the customs bonded
warehouses. Fresh imports of Gold by jewellers will be only
allowed only after 75 % of the retained Gold is exported out of
b) 20 % of every lot of Gold imported must be exported out of India by the jewelers in form of Gold jewelry.
leading jewellers in India- the new RBI Gold policy is
very cumbersome and will hit exports. Gold prices spiked
to INR to 28,425 per ten grams in the bullion markets in India
on 7/28/2013 – a five week high ? Smuggling of Gold into India
will rise as per the new Gold policy.
We feel all
these measures are futile as Gold smuggling will start in a big
way in India as prevalent in seventies in India. Yes official
Gold imports will drop in the next few months and the pressure
on INR will be eased versus US Dollars.
The FIIs are pulling out massive amounts of forex from the Indian Debt market since May 2013. The short-term lending rates may be hiked by the commercial banks in India. Profits of corporate India will be hurt ?
We feel that
India needs to attract large amount of FDI into India. This is a
long term solution as PFI ( PMS ) is “hot money”. Govt of
India on 7/16/2103 finally unleashed big-bang FDI reforms and
opened up the defence sector too. The equity markets in India
did not welcome the said FDI reforms as there are bureaucratic
caveats in the reforms. The main reforms as under :
i) FDI limit in telecom to be hiked to 100 % from 74 %
ii) FDI limit in insurance to be raised to 49 % from 26 %
iii) FDI limit in single brand retail to be hiked to 49 %
iv) FDI limit in defence production hiked to above 26 % but the approval to be given by CCS..
markets would have been on fire if the caveats were not there in
all the above four sectors. The fine print of the announcement
as above is available on Ministry of Commerce website of Govt of
Municipal Bonds junk status – US $ 18.00 billion bankruptcy
protection under Chapter 9. Biggest bankruptcy protection since
1936 in reference to Municipal Bonds. Bondholders will
have to take a haircut. Beginning of what we said in October
2010 and also later on our webpage. Every section of US
Financial Sector will need assistance – Banks, Mortgage
companies, Municipal Bondholders, Investment banks etc etc. This
is the beginning. One will see more municipal bonds bankruptcies
Oil prices not coming down. Still at $ 104.00+ bbl . This is not
good news for Indian CAD.
high of Gold Spot NY was $ 1341.10 pto. It is now
considerably above the pivot of US $ 1266.00 pto. Gold closed
today at NY Spot at US $ 1323.10 pto. Gold still is in bear
phase till it trades above US $ 1450.00+ pto levels.
Investors are advised to take profits from equities and bonds. Sit on cash and re-enter in equities and gold post the correction predicted in August 2013.
BSE SENSEX closed today Friday 28th June at 19396 down marginally 1.84 % from the last reference of 19760. BSE SENSEX tested a low 18500 during the month but rebounded back on the back of bullish ^DJIA .
We mentioned a year back that there will be a massive correction in global equities including India in June 2013. We are close to our year old prediction but the real correction will happen in August 2013 as mentioned in our last month’s post. All asset classes will correct in August 2013 – equities, bonds, real estate and commodities ( incl Gold ).
FIIs pulled out a whopping US $ 6.60 billion from Indian Equities and Debt (Equity and Debt is termed as PMS) in the month of June 2013. INR has tanked by 11 % since 1st May 2013 versus the US Dollar. The news of US Fed easing QE over the next six to nine months has sent shock waves the price of Gold and Equity & Debt markets in the emerging markets. Gold crashed to its three year low and then recovered marginally. It is not only India in the Ems baskets which is feeling the heat. The FII outflows from PMS in EMs have hurt INR versus US Dollar parity the worst. The funds which FIIs have pulled out from EMs are being invested is US Bonds and in the US Financial markets. ^DJIA and US Dollar Index both are buoyant. The US economy is expected to grow only at 1.80 % the calendar year 2013.
PMS inflow figures for the calendar year 2013 are still positive as regards FII inflows into India for both investment in Debt and Equities ( PMS ). FII inflows in to Indian Debt and Equities have been positive for the past two decades except for the calendar year 2008. The figures may not be around US $ 20.00 to 25.00 billion as projected by GoI for the calendar 2013, as per our analysis. Indian CAD has been financed primarily by PMS and not by FDI inflows since the past decade. This PMS is “hot money” and the flows can reverse in a matter of few weeks. This is what has exactly has happened in the month of June and GoI has to take urgent steps to attract FDI into India ahead of China which has FDI about six times the Indian FDI since the past decade. The GoI will be forced to hike the FDI caps in the sectors like Aviation, Telecom, Defence, Insurance etc in order to attract long term capital. This will happen very shortly as there is no way out to arrest mounting CAD.
Indian Govt increased the import duty on Gold by another 2 % – second time in the last six months. Now at 8.00 %. INR tested a level of 60.76 versus the US Dollar on an intra-day low on 6/26 - a lifetime low on account of concerns of surging CAD. Every INR 1.00 fall versus the US Dollar – Indian annual Crude Oil import bill rises by INR 90.00 billion ( US $ 1.50 billion). Analysts are predicting that INR will hit INR 62.00 to a US Dollar in the next three to six months. I am not an expert on forex currency exchange rates but if FIIs withdraw money from India – equities and debt markets at the current quantum, then this figure could even cross 62.00 level versus the US Dollar in a matter of one month or so. Mr. Rajwade – as per my opinion the best analyst in India for forex exchange rate mentioned that INR could test 70.00 to the US Dollar. As per him the situation in India is as scary as was in 1991. This will be very inflationary for the Indian economy as we import more than 80 % of our total Crude Oil imports.
Indian CAD is really hit hard by falling INR and surging Gold imports because Indian trade deficit is worsening – April trade deficit was around US $ 20.00 billion. This is a monthly record high in the history of Indian trade deficit figures. At this rate Indian trade deficit for the fiscal ending FY2014 will exceed US $ 220.00 billion. Indian Forex reserves are at around US $ 290.00 billion only ? Situation is getting worse on the CAD issue and looking as scary as was in 1991.
GoI announced the CAD FY2013 at 87.00 billion which is 4.80 % GDP for FY2013. The figures were better than expected and Indian equity markets were buoyant. Dalal Street was expecting a figure of 5.80 %. We feel that CAD will re-widen in the coming quarters as the nett remittance from Indians staying overseas and service remittance have declined by 7.7 % from a gain of 27.5 % a year ago. Financing CAD by, Government of India will be a major challenge this fiscal ending March 2014. Capital inflows are declining, there is a massive outflow of forex from the PMS segment and remittance from NRIs are declining. On the capital account from under the CAD – FDI flows into India are also declining. This will lead to widening of CAD and will put further pressure on INR versus the US Dollar.
GoI also announced much anticipated
revised Natural Gas pricing formula w.e.f. April 2014.
Base price $ 8.4 per mmBTU and will be revised every
quarter. Oil and Gas stocks were on fire on 6/27/2013 –
RIL, ONGC, OIL etc. GoI kept its word that it would
announce the revised price for Natural Gas within July
Indian CAD is a matter of concern by foreign brokerages – CLSA, SOC GEN. Capital flows are have reversed from India as FIs are getting out of the Indian Debt market in a big way. Indian CAD is surging as imports bill is surging because of strong gold demand and India’s dependence on imported crude oil. India imported about 150 million mt of Crude oil in the fiscal ended March 2012 valued at approx US $ 100 billion. Indian Gold imports were about worth US $ 56.00 billion in the fiscal ended March 2012. Figures for imports of Crude Oil and Gold for the fiscal ended March 2013 have not been announced by RBI till date.
INR has not depreciated to the extent against other currencies – Euro, GBP, CHF etc. as it has fallen against the US Dollar. Actually US $ has appreciated against all the global currencies but the BRICS currencies are worst hit versus US $. INR is the worst performing currency in the BRICS pack.
Hon Finance Minister feels that he will not dip into scarce Indian forex reserves to finance the CAD. Indian economy has the potential to grow @ 8.00 pa. We have our serious doubts on this growth figure for current fiscal. GoI might put more curbs on imports of physical Gold – quantitative curbs plus further hike in import duties.
Gold imports continue to surge. RBI instructed ADs not to sell Gold coins for investments to retail customers. This is crazy stuff. Prices of Gold will spike in India in the grey market, if GoI interferes in the free market economics of gold. GoI and Hon Finance Minister wish to curb imports of physical gold for investment purposes. He mentioned that this current rate of Indian Gold imports were not sustainable and thus import duty increase. As per him it is not feasible to fund gold imports at this rate.
These policies of GoI will not work as per our analysis as Indians love the yellow metal – for jewelery and now off late as an asset class. In the last fiscal year India’s monthly average of Gold imports were @ 70 mt per month. In the first two months of this fiscal – April and May 2013 – Indian monthly average of gold has been about 150 mt per month ( 304 mt were imported in April & May 2013 ). Lower gold prices in the international market from last year’s average of $ 1685 pto ( London Fix ) versus average prices of around $ 1360 in April/May pto has triggered a surge in Indian imports of Gold.
Crude price may come done in the short term due to shale oil development on commercial scale in USA but in the long term we feel BRENT will sustain the US $ 100.00 pbbl mark.
^N225 continued its correction. Post stimulus – Japanese Public Debt versus GDP ratio is now at 230 %. At these levels – there is a threat of JPY Bond Market collapse ?
China is slowing down as per HSBC PMI for this economy. ^SSE COMP tested a new 52 week low of 1958 on 6/24. Down 5.29 % down on 6/24 – single largest daily fall since 2009 ? ^SSE COMP further corrected to a fresh 52 week low of 1923 during the month. There is a warning by MOODY’s about possible Chinese Bond market collapse ? We had cautioned investors that ^SSE COMP will correct to its fresh 52 week lows in our previous month’s update. There are huge problems in the banking sector in China. We have been saying this for years and now the truth is coming to light ?
All Asian markets were weak on the back of the weak ^SSE COMP. PBoC is tightening the money supply in the banking sector in China. Liquidity crunch in the Chinese economy is a cause of concern. The credit boom is now being addressed by PBoC. Also there are now questions being raised by global analysts regarding the NPAs in the Chinese banking system. We have been saying for the past two years or so that Chinese banking system has huge NPAs ( as high as gross about plus 20 % ) for the four or five largest Chinese banks. Analysts are now also talking about the “shadow banking” sector in China. There are a few hundred banks in China which are based in provinces are smaller in size as compared to the large five banks in China. These small banks in China are not tightly regulated by PBoC and are called “shadow banks” in the Chinese economy. PBoC wants to now regulate this “shadow banking sector” in China so that the real NPA figures are known to PBoC.
New regulations will be put in place to regulate these provincial banks as it is feared that the NPAs in this sector are much higher than the regulated banks under supervision of PBoC. The official inter- bank interest in China rose dramatically in second week of June 2013 onwards - from a low 4.85 % to 13.56 % (these are intra-month lows and high levels). This is a historical high level of 13.56 %.
Out of BRICS economies – the worst performing equity market till date has been Brazil followed by China. Indian equity market is the best performing equity market in the BRICS basket. This could mean that BSE SENSEX could correct further to be in line with its peers in the BRICS pack. China’s GDP is expected to be around 7.50 % in the calendar 2013. Indian GDP figure should be around 5.00 % as per our estimates although GoI projects a figure of 6.00+ %. Brazil’s GDP will be sub 2.00 % and Russian GDP around the same as Brazil. Indian GDP growth at 5.00 % is still second highest in the world as developed market GDP growth figures will be sub 2.00 % for 2013. What we fear unlike the Indian MoF, GoI is that there could be a massive flight of foreign capital from India over the next six months or so. INR could be then under severe pressure and could test 65.00+ levels to the US Dollar. This will stoke inflation in India as we import about 80 % of our crude oil requirement and the Brent Crude prices are still above $ 100.00 pbbl.
Inflation seems to be tamed in India as per the latest CPI figures. But we feel this is a temporary dip as INR is depreciating versus the US Dollar.
BSE SENSEX levels to watch in July are :
S1 18500 S2 16500 S3 14500
R1 19000 R2 19600
On 6/28/2013 – NY Spot Gold tested an intra-day low of $ 1182.60. Our predicted level of $ 1266.00 pto was convincingly breached. Gold can now crash to US $ 1100.00 pto by Q1 2014. Investors are advised not to invest in physical Gold till further notice.
In India the equity markets maybe bullish in early July as GoI will announce big ticket FDI cap relaxation in order to attract FDI.
BSE SENSEX closed today Friday - 5/31/2013 at 19760 up marginally from the last reference close of 19576. But BSE SENSEX tested a thirty month high of 20210 during the month of May 2013, on the back of heavy FII inflows into Indian equities. There was a sell off today on account of GDP growth number announced for the Indian economy for Q4 FY2013. Indian GDP grew only at 5.00 % in Q4 (annualized basis) FY2013. This low Indian GDP growth number was the lowest quarterly growth number since a decade. There are a lot of factors – both domestic and international for the very poor GDP number for the fourth quarter of FY2013. Indian equity markets are heavily dependent on FII inflows. FII inflows into Indian equities since January 2013 till date are approx. US $ 14.80 billion. In May 2013 itself whopping – US $ 3.40 billion was pumped by FIIs into the Indian markets. DIIs have been net sellers. FIIs believe in the long term Indian economic progress although there have been some negative news on the Indian macroeconomic parameters in the last fiscal. The capex cycle in India has been stalled since the last twelve months or so due to some policy paralysis in the Indian economy. Government of India is to be squarely blamed for this lapse.
Indian parliament may shortly approve current Government’s pet populist bill – Food Security Bill which will cost the exchequer about INR 1420.00 billion ( US $ 26.18 billion ). We have serious doubts how will Hon Finance Minister of India fund this huge expense ? Where does he get this kind of money ? We in India do not print INR the way US Fed prints US Dollars or ECB or BoJ Euro and JPY respectively ?
GoI wishes to raise US $ 7.00 billion in the current fiscal ending 3/31/2014 by stake sale in PSUs to rein in the fiscal deficit. The target by GoI is end December 2013. We have to wait and see that by end December 2013 – can GoI raise this kind of money ? There is appetite for good Indian paper and FIIs will lap up the offerings. The question is that will BSE SENSEX be bullish for the next six months ? Will BSE SENSEX test new lifetime highs of 21208+ by December 2013 ?
EU needs a special mention as inspite of negative news the three main indices were near their 52 week highs. FITCH in mid-May upgraded Greek Sovereign Debt to “B-“ with outlook stable ? We do not understand this upgrade by FITCH as the Greek restructured Sovereign Debt is also not at “sustainable” levels. Anyway – this upgrade by FITCH, means that Greece will get much needed Euro 8.00+ billion by the troika to avoid a Sovereign Default. This is pure waste of money. Greece should be allowed to exit EEC as its public finances are in a dire situation and there is no way in our opinion, that Greece will come out of its financial mess. Mark our words – Greece will ultimately have a Sovereign Default like Russia in 1998.
^DAX in Frankfurt tested a new 52 week high of 8512 in May. ^CAC in Paris tested 4059 in May, very close to its 52 weeks high of 4072. ^FTSE in London tested 6840 in May, close to its 52 week high of 6875. This inspite of EU unemployment at record 12.2 % ( 19.38 million people unemployed ) with Greece and Spain being the worst hit. There is a serious disconnect between ground realities and bullish equity markets in EU ? These rallies in EU equities (and globally) are liquidity driven rallies on the back of super bullish ^DJIA.
^N225 in Japan tested 15943 in May -short of life time high of 16000 in 1990. ^N225 corrected from this two decade high to close at 5/31/2013 at 13774. This represents a sharp correction of about 13.6 % from the high of 15943 as per above. The stimulus in Japan seems to be working but we feel this is a short term phenomenon. Japan’s total public Debt to GDP ratio is a big problem – in excess of 200 % since a decade or so. The stimulus has paved way for JPY to depreciate to levels of 102.00+ against the US Dollar in May. This will push other Asian economies to re-think about “devaluation” of their currencies versus the US Dollar.
^DJIA tested a new life time high at 15542 on 5/22/2013 and closed today at a lower level of 15116. The US economy is still not out of the woods and our view was endorsed by US Fed. US Fed will continue its monthly bond purchases of US $ 85.00 billion per month till further notice. Ben & Co are now convinced that a robust US economic recovery is still not in place. There are rumours that there could be further QE announcement by US Fed if the US economy falters in the next couple of months. The mortgage backed housing bond market in US is shaky.
There are signs of economic slowdown in China too. This means soft commodity prices globally. ^SSE COMP closed today 2300 short of its 52 week high 2434. Brazil is also not showing signs of a robust recovery as price of both hard and soft commodities are not bullish. ^BVSP closed today at 53507 – much short of its 52 wk high of 63473. ^RTSI closed today at 1331 – much short of its 52 week high of 1635. These economies are resource export oriented economies.
Gold closed today NY Spot at US $ 1388.30 pto. Gold is in a “bear phase” and it looks like that US $ 1386.00 pto will not be sustained in the coming months. Stay away from investments in Gold, even though there are confirmed reports of shortage of physical Gold in EU. The price of Gold is being suppressed by the paper market players. It has been proven historically that in the long term derivatives trading in a commodity like Gold has no effect on its price. Short term the prices can be manipulated but concrete research has proved that prices cannot be manipulated in the long term for Gold – by derivatives trading.
In South Africa – LONMIN faces labour trouble at its platinum mine. In Kyrgyzstan at the Kumtor Gold mine fresh labour trouble has irrupted. The said mine is a JV between a Canadian company and State run Kyrgyz mining company. The labour wants the mine to be nationalized. We have mentioned for years now that eventually all Gold mines outside of USA and Canada could be nationalized. This could well happen in the coming three to four years.
US Fed does not want a substitute for their Dollar and hence will use every option on the table to thrash the price of physical Gold. This means even dumping their entire 8133 mt of Gold reserves to un-rattle the physical Gold market so that prices crash and all weak bulls sell their physical Gold. US Govt ( under directions of US Fed) will put pressure on American allies also to sell their physical gold reserves as well. This is all a part of the bigger design to save the US Dollar. We have to see how the US allies act and how does China act with its huge pile of US Bonds ?
US Fed cannot afford US Dollar to lose its “world reserve currency status” and will try every trick to keep status quo. One can expect un-ethical activities by the US Govt to save the sinking US Dollar. But ultimately the US Dollar will collapse as US Debt to GDP ratio will cross 150 % in the coming two years.
Gold - If US $ 1386.00 Spot NY cannot be sustained for whatever reason one will see prices of US $ 1266.00 pto in the near future. If this level is not sustained then there will be carnage in the Gold market. You can see prices as low as US $ 1100.00 pto. Gold is then a steal as a buy at these levels. But then it will take a couple of years for Gold to be in a bull phase again. For the bull phase Gold has to trade above US $ 1590 pto which looks very difficult at this stage as the prices are being suppressed by large American market players working covertly for the US Fed. This will be biggest scandal to hit the world financial markets – if there is evidence in the years down the line that US Fed had paid large market players to suppress the price of Gold.
The predicted correction in global equities, bonds, real estate and all commodities ( including Gold) will now happen in August 2013 and not in June 2013. We are shifting the goal post on account of our proprietary cosmic and astro inputs. August 2013 will be a game changer in the world of investments across all asset classes for at least coming two years. We expect a bear phase to start globally in the financial markets w.e.f August 2103. Start booking profits in all asset classes and sit tight on cash. We are entering a very difficult period for investors across all asset classes w.e.f. August 2013. Cash will be the “king”.
We will advise when to re-enter in Indian equities and Gold.
Gold has again corrected over the last few trading sessions since our regular monthly update along with other commodities due to a strong US Dollar. Spot NY close today Friday - 5/17/2013 was @ US $ 1360.20 pto. Intra day low was US $ 1354.60.
Spot NY close today @ US $ US $ 1360.20 pto is much below our pivot of US $ 1386.00 pto. If Spot NY Gold closes below this pivot of US $ 1386.00 pto for another ten consecutive days - then Gold will slip to a "bear phase" in the short to medium term. Prices could crash to US $ 1270.00 to US $ 1266.00 pto in a matter of just two weeks.
Our sources inform us that trioka has approved a Euro 8.0+ billion package for Greece to avoid sovereign default. This news will be in public domain shortly. Informed sources have a whiff of this very important development and hence we are witnessing record highs for European equity indices inspite of France officially slipping into recession.
In view of the Greece bail out - our predicted crash in June 2013 in Eurozone equities and global equities may not happen.
Money is moving into equities globally. ^ DJIA hit a life time high of 15357 today in NY and ^DAX in Franfurt hit a new 52 week high at 8409. ^CAC in Paris too hit a fresh 52 week high of 4018 and ^FTSE at 6726. ^N225 hit a multi year high at 15157.
BSE SENSEX hit a thirty month high at 20328 - not too far from its life time high of 21207 of January 2008. Global equity markets are bullish on account of bullish ^DJIA. We advise investors to book profits in equities as we feel that US economy is still not out of the woods. Data from US is mixed and does not confirm a solid recovery. Anyway markets have their own ways ?
A big commodity sell off can happen again in the next two to three weeks if Gold prices cannot sustain US $ 1386.00 pto
Indian CAD for third quarter ending December 2012 @ 6.7 % came as a shocker. We have mentioned in the past Indian economy was on a “sticky wicket” ? Indian Fiscal Deficit figure FY2013 will also be a shocker ? The major commodity sell-off happened in Mid April 2013. Indian fiscal year ends on 3/31/2013 ! The Q1 FY14 fiscal CAD may be a lower figure due to lower Crude Oil and Gold prices. These two commodities have been havoc with Indian trade deficit and CAD for the past two quarters plus sluggish exports from India. One silver lining though in India – CPI inflation @ 5.96 % for March 2013 was an encouraging number. We hope that RBI is able to manage inflation in the near future too.
GoI wishes to partially fund around US $ 78 billion CAD (budgeted) for the fiscal FY 2014 by FDI. So GoI – has to open FDI caps on various industries in order to get long-term capital. In order for India to be a hot destination for FDI, GoI has to relax its archaic labour laws in the country, give faster clearances for environment, fasten land acquisition process, introduce GST etc. GoI has marginally hiked FI investment into Indian Sovereign Debt and Indian CP at US $ 25 billion and US $ 50 billion respectively.
Globally – the biggest talking point has been the Japanese stimulus announced by their new PM. ^N225 tested 13984 - a five year high in May 2013. Japan is sitting pretty as BoJ has allowed JPY to depreciate from November 2012 - from a level of 78.0 to a US Dollar to 98.0 as of today. Even ^SSE and ^KOSPI were in bullish trend taking cues from global equity indices although export figures from both these export oriented economies were not encouraging. The official figures from China indicate that the Chinese economy is slowing down, but ^SSE was bullish. The Won and Yuan have not depreciated much vis a vis the US Dollar as compared to JPY in the said period.
Markets discount the future. There are views from some global brokerage houses that US economy is on a road to recovery and this future expectation lifted ^DJIA to multi year high of 15000+ and NASDAQ COMP to a 12 year high @ 3314. We believe that the recovery in the US economy is very short lived as the total US Public Debt is mounting. It has exceeded US $ 17.0 trillion and is still ticking. Data from US economy is mixed. US GDP data for March 2013 showed slowest annualized growth @ 2.50 % pa since the Depression of 2008. Jobs data has shown improvement in the US economy. This triggered the hopes of a recovery in the US economy. One month job data – does it mean recovery ? ^DJIA is too volatile.
There are mixed news from economies in EU. Some rumours are doing the rounds in media that there are some solvency issues in the banking sector in Portugal and Greece. This has lead to bond yields soaring in Greece. ECB has given seven more years to Portugal and Ireland to pay back the loan amount which they were given for “bail out”. Problems in EU have still to be sorted out. Greek re-structured debt is not sustainable as per analysis. Greece will run of money in June 2013 – the reason we predicted a serious correction in global equities and commodities (except physical Gold). Greece total re-structured public debt stands at Euros 266.00 billion. Out of this Euros 194.00 billion ( around 73 % ) is held by way of Greek Sovereign Bonds (junk status) by ECB, Central Banks in EEC and IMF. These creditors as being paid a coupon interest by the Greek Govt, but private creditors of Greek Sovereign Debt holding around Euro 72.00 billion are in a limbo. Not being paid interest and hence Greece remains in “technical default” as the second bail out is in fact a manipulation by the trioka ? Greece has raised further debt by way of 180 days T-Bills worth Euros 1.30 Euros on 4/10/2013 at 4.69 % yield. We agree with FX Concept, Frankfurt that troika will not give any further money to Greece and that Greece will run out of funds by 6/30/2013 ? Greek Govt needs Euro 8.80 billion from the troika by end May 2013 to stay afloat. But to get this “bail out” funds – they need to pass a law to axe 15,000 public jobs by May 2014. This may not be passed by the Greek parliament. Greece exiting Euro is now a real possibility as Sovereign Default will happen in Athens. What happens to commercial banks in Italy, Spain, France and Germany who still hold large chunks of Greek Sovereign Bonds ? JUNE 2013 – our deadline is near ?
Unemployment in Spain @ 27.2 % of its registered workforce is at historical high level. France is no better – 3.50 million of registered workforce is now unemployed. Francois Hollande’s forecasts have gone haywire for France. EU’s biggest economy – Germany is also showing signs of a slowdown.
In reference to our special Gold post of 4/18/2013 – NY Spot Gold prices sustained our crucial level of US $ 1386.00 pto and the much anticipated crash by Soc Gen to US $ 1266.00 pto never happened.
NY Spot Gold tested intra-day low of US $ 1328.00 pto on 4/16/2013. Spot Gold closed on US $ 1596 pto on 3/28/2013 – last reference post date. Gold down massive 16.80 % from US $ 1596 pto to US $ 1328.00 in just two weeks. This is biggest fall in Gold prices over a span of two weeks in the past thirty years. Bulls were stunned and now Gold is officially trading in a bear territory. It will enter a bull phase only if it can trade above US $ 1660.00 pto levels.
Gold prices have corrected whopping 30.80 % from its peak of $ 1920.00 pto of September 2011 as compared to the intra-day low of US $ 1328.00 pto. WGC informed the media that the crash in the Gold prices in mid-April 2013, was the handiwork of speculators. Paper Gold equivalent to about 1109 mt of Gold was “shorted” on major commodity exchanges around the world as per analysts in Mid April 2013 and in a matter of days these short positions were covered by speculators. Hence prices recovered from US $ 1328.00 pto to US $ 1485.00 pto. Gold Spot NY closed today at US $ 1471.00+ pto.
We feel nothing has changed in the world financial markets and that Gold is in long-term bull market. In the short term – gold is trading in a “bear market” as it trades below its 200 DMA of $ 1660.00 pto. We would like to mention that – gold is still in its long-term bull phase till 2020. Since September 2011 – gold has traded below its 200 DMA many times but has sprung back to trade above 200 DMA. Gold has been trading below and above its 200 DMA since September 2012 and many analysts have predicted a price of Gold of $ 1200 to $ 1000 within 2013. We feel the average price of Gold for 2013 would be around $ 1800 pto. In other words – we expect a massive rally in international Gold prices from June through December 2013.
Central banks around the globe bought physical gold at around US $ 1420.00+ pto levels. There is a shortage of physical Gold on the global markets as there are delays for more than a week for investors who are asking for physical deliveries of Gold exceeding one metric ton. BARRICK GOLD’s largest gold mine in Chile is shut down by the Chilean Govt due to HSE reasons. This is one of the biggest gold mines in the world. There are cost over-runs of about $ 6.50 billion on this - Pascua Lama gold mine in Chile. This is not good news on the supply side for Gold ?
Crude Oil also corrected in Mid April commodity sell-off. BRENT tested sub US $ 98.00 pbbl. But BRENT Crude closed today above US $ 104.00+ pbbl. We do expect BRENT and WTI Crude oil prices to correct in June 2013 along with other commodities but beta may be lower as compared to industrials.
US cannot export Crude oil without Presidential approval except to Canada. It is now exporting shale crude oil to Canada @ 7.00 million bpd. Saudi is pumping close to 9.00 million bpd. The geo-politics of crude oil is experiencing a major shift with such large exports of Crude oil from USA to Canada. Shale Crude oil and gas in USA has completely turned the geo-politics topsy turvy !
We expect a bloodbath in EEC equity and financial markets in June 2013. This will also have ripple effects in the US Equity and financial markets followed by global economies. All equities, commodities and other asset classes will correct but this time like in September 2008 – gold will move in the opposite direction. One might see gold rising whopping 30.0 % in just nine weeks starting early June 2013.
We have been ignoring equities in India for more than a year and were overweight on Gold. We feel as per our analysis the best sector in Indian equities to invest in July 2013 would be the Indian Fertilizer Sector. This holds true for global equities also – investors to put some funds in fertilizer stocks with due allocation to N,P and K category in consultation with their CFAs.
In India the Phosphoric and Potassium sector fertilizers are totally de-controlled since 1992, but the most important i.e. nitrogenous fertilizer ( Urea) in India still “controlled”. There is a “subsidy” given to Urea fertilizer manufacturers in India. India is also a net importer of Urea. We fancy the following fertilizer stocks in India as we feel subsidy on Urea will be removed in phases like HSD :
- - Tata Chemicals ( Urea)
- - Chambal Fertilizers ( Urea)
- - RCF ( Urea)
- - GNFC ( Urea )
- - FACT ( DAP etc)
- - GSFC ( DAP etc )
We will update all what levels to buy the above stocks or some of the above stocks in early July 2013. As of now – please take your profits from Indian equities and run !
Cheers for the Indian SW Monsoon !
Special Update on Gold - 18th April 2013
Gold prices corrected on 4/12/2013 through 4/16/2013 by a whopping 16.69 % - biggest drop in thirty years.The prices corrected from US $ 1596.00 to US $ 1328.00 during the above said three trading days. However, the closing price of Gold in NY Spot today was at US $ 1392.10 pto.
Is the "bull run" which started in 2001 in Gold over ? We do not agree. Gold is in a long term 20 year bull phase from 2001 to 2020. Corrections on this journey are a part of the game. Prices corrected in 2011-2102 from life time high of US $ 1920.00 to US $ 1540.00. But prices moved up from this triple bottom of US $ 1540.00 level to test prices of US $ 1796.00 to US $ 1800.00 during September 2011 to December 2012.
Since February 2013 - Gold is trading below its 200 DMA, indicating a bear phase. Corrections in a long bull phase are healthy signs.
A lot of analysts in the world were predicting a collapse of the prices of Gold on 4/17/2013 to levels of US $ 1266 to 1270 pto by May 2013. We mentioned that - If Gold can trade above US $ 1386.00 for at least ten trading days consecutively - then this correction is a very good level to buy physical Gold and that prices would recover to
pre-crash levels of about US $ 1600.00 pto Today - 4/18/2013, Spot Gold has closed above this level of US $ 1386.00 pto in NY. Please keep a very close watch on this level of US $ 1386.00 pto.
We feel that if US $ 1386.00 is held as mentioned above, this crash would be a "blip". But if this level is not sustained - the Gold "bull run" is over for the short to medium term and prices will crash to US $ 1270.00 to US $ 1266.00 pto levels.
Gold prices have closed above this US $ 1386.00 today for the first day. We have to wait and watch for the next nine trading sessions. If Spot NY can close above this crucial US $ 1386.00 pto for the next nine consecutive trading sessions - the prices will rebound to pre-crash levels and then move further towards its 200 DMA of US $ 1660.00 pto.
This correction was brutal and was quick but the rebound ( up 5.8 % ) from the low of US $ 1328.00 pto to US $ 1405.00 ( intra-day high of 4/17/2013) has been equally swift.
We advise investors not to panic and keep a keen eye on US $ 1386.00 levels. Please have faith in our knowledge and analysis on Gold. We have gone awry on our predictions of Gold prices only for one year since 2001 ? Our predictions were off the mark only for the year 2012.
We are improving our research and are confident that we will be bang on target in the future regarding prices of Gold.
BSE SENSEX was bearish in
March as predicted. BSE SENSEX closed today -28th
March at a level of 18836. Last month’s closing was at 18920.
Today is the last trading day for the month of March. We were
bang on target regarding our prediction that BSE SENSEX will
test a level of 18500 in the short term. BSE SENSEX tested sub
18500 level in March and then recovered to level above this
crucial support level. The next level is 16500 – which should be
tested within June 2013. RBI cut Repo Rates in India by 25 bpts
to 7.5 % as inflation in India is still sticky. In a bid to
attract foreign capital and to improve forex inflows -
Government of India hiked the Debt Limits for overseas FIs to US
$ 25 billion for Indian Sovereign Debt and to US $ 50 billion
for Indian CP. Indian Debt market is capped by RBI for
investment by overseas FIs.
BSE SENSEX has corrected
from its January high of 20500+, however ^DJIA is near its
record highs of 14500+. This index will also correct seriously
in June 2103 or thereabouts as predicted in our earlier posts.
Abundant liquidity due to QE 3 and QE 4 - totalling to about US
$ 85 billion per month in the US financial sector is adding to
the euphoria inspite of respected analysts mentioning that this
Bond purchasing program under QE 3 and 4, is not really
effective in any way. But US has no options – it has to keep
printing money till hyperinflation will creep in and cripple the
entire US banking system as predicted by us in January 2009 ? US
Fed has run out of options – it needs to print US Dollars to
keep the US economy afloat.
We mentioned about Cyprus
in need of a “sovereign bail out” in our post in February 2013.
It has now come to light that the size of the banking system is
nearly eight times the Cypriot GDP ? The said “bail out” is done
and sealed by the troika but the fine print of the package is
not yet available to us at the time of printing this update. The
troika cannot afford even a small country like Cyprus to leave
the EEC, as this will have cascading effect on the banking
system in the entire EEC. The banking system in Cyprus got
whacked due to the exposure of the banks like Liaki to Greek
Sovereign Debt – junk status. The summary is that weak and
peripheral EEC economies like Cyprus, Greece, Portugal etc are
not able to meet the stringent conditions laid down by the
troika even with their re-structured public debts, for further
loans from the troika. That is the reason Greece remains in
“sovereign technical default” since almost a year now, as the
second bail out package of about Euro 130 billion has not been
approved by the troika. Greece is being kept afloat by the
troika by paying interest on its re-structured public debt to
sovereign creditors in EEC. The private Greek Sovereign Debt
holders have not been paid a dime after re-structuring the said
debt, since almost a year. These debt holders agreed to a 50 %
hair cut on their principal amount and a reduced coupon rate
with maturity extended to 2037 and 2040. As per our analysis of
the Greek public finances – these private creditors of Greek
Sovereign Debt will have to agree for a 100 % hair cut in the
near future as even with the re-structured debt – Greek Debt to
GDP ratio by 2015 will be whopping 120 to 140 %. This is not
sustainable and the Germans are aware of this fact. Hence no
sanction of the second bail out package for Greece ?
The situation is very
grave with public finances of France, Italy, Spain and now even
UK. Any sovereign defaults scare in the EEC and/or de-rating of
Sovereign Debt of any of the above countries by the likes of
FITCH or S&P etc will send shock waves in the banking sector
in EEC. There is a distinct possibility of any of the said
events to unfold in EEC in the next three months.
The euphoria in the ^DJIA
at 14500 and a few other stock markets in the emerging economies
in Asia is on account of “easy monetary policy” by the US Fed.
This is creating bubbles in certain stock markets in the Asian
economies. The stock market indices in Philippines, Thailand and
Indonesia are nearly four times from their 2009 lows. BSE SENSEX
is not even two and a half times from its 2009 low. The issue is
that US is creating bubbles in certain Asian economies as above.
Let us not forget the dot.com bubble burst in 1999-2000, the US
housing bubble burst in 2007 and the global commodities bubble
burst in July 2008. The next biggest bubble to go burst in the
history of global financial markets is the – US Bond bubble. We
cannot give a time-line on this as we gone awry on this
prediction in the past. But we are sure that this bubble will
burst as Bond yields are at historical low levels in USA, with
prices at record highs. In addition China will dump US Bonds at
some time in future and buy Gold with the funds realized by the
said Bond sales.
We remain skeptical on the global equity indices as we expect a massive correction in June 2013 or thereabouts. We have mentioned in the recent past that nothing has changed in the banking sector in USA and EEC. In addition banking sector in China too is saddled with huge NPAs but “dressed” ?
The global financial
sector is sustaining on the basis of “bailouts” and huge
stimulus packages being announced in some large economies in the
world- China and Japan. Japanese economy is saddled with a Debt
to GDP ratio of 200 % since the past decade. The economy is in
recession and the Japanese government has announced the biggest
Bond buying program since the past twenty three years at
staggering JPY 101+ trillion ( US $ 1.06 trillion). This is
going to be the biggest stimulus in the history of Japan till
date. BoJ will print JPYs, which will lead to further
“de-valuing” of JPY versus US Dollar and other major currencies.
JPY has declined from a level of 78 in November 2012 to a
whopping low of 95 to a US Dollar in March 2013. This weak Yen
helps Japanese exporters but only in the short run as Japan’s
large importers – USA and EEC are in recession. China also
serious issues on its exports to USA and EEC but the Yuan
is not “fully afloat”. PBoC keeps Yuan in a strict band although
it is under tremendous pressure to “re-value” the Yuan versus
the US Dollar since many years now. But China does not budge
with it’s artificially controlled weak Yuan as it bolsters
exports. Printing money across the world will lead to currency
wars and the biggest beneficiary of this reckless money printing
will be the price of physical Gold.
Globally newly increased money supply peaked in 2012, totaling in excess of US $ 4.10 trillion. China accounted for nearly half of this new printed currency in 2012 at US $ 2.10 trillion (about 13.00 trillion Yuan). China added to its financial markets - US $ 1.13 trillion ( Yuan 7.10 trillion) in 2008, US $ 2.10 trillion each in 2009, 2010 and 2011. This level of money printing – trillions of Yuans will for sure lead to further de-valuation of Yuan versus the US Dollar and other major currencies of the world. Inflationary signs are cropping up in China. Japan’s addition at US $ 1.06 trillion (JPY 101+ trillion) has been mentioned above.
US added US $ 815 billion
in 2008, US $ 600 billion in 2010 (QE 2) and will add US $ 85
billion/month till eternity (QE 3 & 4). ECB has added in
excess of Euros 800+ billion in 2012. Printing presses are
working 24 x 7 around the globe ! Higher inflation is an issue
on account of increased money supply globally.
BSE SENSEX closed today 1st March 2013 at a low level of 18920, down 7.70 % from the January 2013 high of 20,500. We had mentioned that the rally in global equities in November 2012 through January 2013 was a “classic bull trap” and we were correct.
markets are FII driven and FIIs poured in US $ 25.00 billion in
calendar 2012 in Indian equities. In the first two months of
calendar 2013 – FIIs have invested about US $ 8.00 billion into
Indian equities. DIIs have been net sellers of Indian equities
over the said period. If FII investments dry up – we will have a
serious “bear phase” in Indian equity markets in the balance ten
months of the calendar 2013. This may not happen as FIIs have
huge funds to invest as the returns on investment in debt
instruments in their home countries are at sub 3.0 % per annum.
FIIs will continue to invest money in developing markets around
the world unless some major financial disturbances happen in USA
^DJIA has not corrected from the 14000+ levels but the equities in Europe and Japan have corrected from the January 2013 highs and in our view will correct further in March 2013 through June 2013. None of the problems in the banking sector in USA and Europe have been resolved since 2010. In addition in USA – there is a serious issue of another “debt ceiling hike” as the US Fed will run out of funds before September 2013. We anticipate that this might happen anytime between March through June 2013. In EEC – there is still the impending sovereign default issue haunting a few important members. Spain, France and Italy are in serious trouble with their public finances. Any debt ceiling hike in USA and/or sovereign default by a member state in EEC will cause ripples in the global financial markets. ^DJIA could correct in double digits and so can ^N225 and ^SSE in Tokyo and Shanghai respectively, if the events as mentioned in USA and/or EEC actually take place.
EU is in deep recession. GDP data shows contraction not seen since Q1 2009 ? Japan is slipping into deeper recession – USD/JPY hitting 94 level. This was too sharp depreciation of JPY versus USD. Although this depreciation of JPY is good for Japanese exporters !
Indian Union Budget announced for FY 2014 on 2/28/2013 is too optimistic on the GDP growth side ( revenue side) as per our views. The fiscal deficit issue may have been reined in by the Hon. Indian Finance Minister for FY 2013, but we feel the target of 5.3 % may not be met with only one month left in the current fiscal year. The fiscal deficit target for the next fiscal @ 4.8 % is too optimistic. The Finance Minister has seriously cut expenditure in the current fiscal and has reined in the petroleum subsidy. The food security bill is a welcome step for the poorest of the poor in India. But will the food reach the target consumers with such massive corruption in India ?
The investment cycle had dried up in India in the past three years or so with large infrastructure projects in India being put on the back burner. It is felt now post Budget (CCI set up) that large infrastructure projects in India will be put on track. One single issue which needs to be addressed on war footing is the “coal pass through hike” for IPPs in India. This should be cleared asap as a lot of coal based power projects are lying abandoned in India. We need power to fuel GDP growth in excess of say 6.0 % in the next fiscal year. India is a power starved country.
But the Indian current account deficit ( CAD) is a cause of worry and so is the balance of payments issue. Our estimate is that Indian “balance of payments” for the current fiscal ending on 3/31/2013 will exceed US $ 240 billion. This figure is a whopping 29.8 % higher that yoy figure of US $ 185 billion for FY2012. The main culprits are Indian surging crude oil import bill and gold import bill. Needless to mention that Indian exports are struggling. India needs serious amount of FDI for funding its CAD and spurring projected GDP growth. We have to cut red-tape in India and ease our policies on giving faster clearances to the large FDI projects which are sitting on the side-lines because of policy paralysis hitting Indian economy since the past three years or so.
Indian economy came up with a shocker of a number of GDP growth @ only 4.2 % for the quarter ended October to December 2012. This is the lowest quarterly figure for the past nineteen quarters. Indian economy is suffering on account of high inflation and high crude oil prices. RBI may have to step in and cut interest rates as we feel global crude oil prices may not ease from the current US $ 90.00+ levels.
Gold corrected to US $ 1556.00 pto in February 2013 and is trading at US $ 1580 pto as we print this update. We still stick to our prediction that Gold will give the best returns in the calendar 2013 vis a vis all other asset classes. We were however incorrect in our predictions on this aspect for the calendar 2012 !
We advise investors to be very cautious on Indian equities as we feel that BSE SENSEX could test a level of 18500 – 16500 between March to June 2013. ^DJIA could test 12500 by June 2013.
The update is late as we were waiting for the US Fiscal issue to pass. US Fed has increased the quantum of purchase of US Govt Bonds and MBS from US $ 40.00 bn per month to (QE 4) US $ 80.00 bn per month. This too will not work. US Economy is on a â€śventilatorâ€ť and will eventually collapse under its debt servicing obligations and hyper-inflation in the next two years. We had predicted this collapse to happen in December 2012 through June 2013. This impending collapse will happen in 2015 but one will see a serious correction in all asset classes in June 2013 across the globe except Gold.
US and EU have managed to postpone the impending disaster by â€śprintingâ€ť their respective currencies and keeping interest rates at near zero levels. The interest rates cannot be at these low levels for eternity in USA and EU although analysts disagree with me at quote example of Japan which has interest rates at similar levels for the past decade and half. Look at Japan â€“ total Public Debt to GDP ratio is in excess of 200 % and the economy is in recession. The BoJ has now decided for another stimulus of US $ 116 billion. BoJ will also print the JPY in train-loads !
My prediction for December 2012 regarding equities and gold has gone awry. I have gone wrong after a very very long time but request investors to have faith in me. My timing has gone wrong after a very long time but I wish to be bang on in the near future. Gold has given meager returns in calendar 2012 @ of only 12 % against return on equities globally @ an average rate of about 26 %. I was off target for Gold although I mentioned that BSE SENSEX will test 21608 before end December 2012. It tested 20000+
BSE SENSEX tested 20,000+ today again and so did ^DJIA at 13000+ levels. These are â€śclassicâ€ť bull traps and you will see cracks in global equities in and around June 2013 as mentioned earlier in my posts. All asset classes will correct around June 2013 except Gold across the globe. I predict that BSE SENSEX may test its lifetime high of 21608 in the coming two to three months.
I advise investors to book profits in equities worldwide and sit on cash. Buy physical Gold at dips. The reason to be bearish on global equities lead by ^DJIA and to be bullish on Gold is that â€“ US Fed will soon request US Congress to â€śraise the debt ceilingâ€ť by another US $ 1.7 trillion. US Fed is bankrupt and so are all its banks with toxic debt on their books which are valued at issue price and not market prices. US economy is showing â€śfalse signsâ€ť of recovery ? All manipulations by operators with hand in glove with commercial banks and US Fed. This â€śprinting businessâ€ť will have to stop in USA, EU and Japan.
US total outstanding public debt was capped at US $ 16.394 trillion by US Congress in August 2011. As of today â€“ 1/17/2013, this figure has been breached and no one in the US media or Wall Street is talking about it ? The figure stands at whopping US $ 16.432 trillion. Yes the â€śdebt ceilingâ€ť has been breached and US Fed no other tool left but to again approach the US Congress for a â€śdebt ceilingâ€ť hike. I hope I am not missing something on this issue to â€śdebt ceilingâ€ť breach as my research shows that the debt ceiling of US $ 16.394 trillion has been breached. This is a disaster but has not been highlighted by the media in USA and pundits at Wall Street. When does US Fed request US lawmakers for a hike in â€śdebt ceilingâ€ť is any bodyâ€™s guess ? My prediction this will happen before 3/31/2013. Before that you may see global equities including BSE SENSEX testing new lifetime highs. Classic â€śbull trapâ€ť !
This hike will lead to DXY correcting sharply and my prediction is that Jan 2008 low of 71.80 will be breached and we are heading to a precarious level of sub 70.
My advise is to use the current rally to exit from equities and have only 30 % exposure to equities. My picks for 2013 for Indian Equities as â€śpure trading buys till 3/31/2013 are as under :
- - BPCL
- - ULTRATECH CEMENT
- - FEDERAL BANK
- - IDEA CELLULAR
- - EID PARRY and
- - KIRLOSKAR OIL ENGINES
We are not bullish on the Indian Retail Sector.
Please keep a keen eye on DXY. Any breach of 72 â€“ start buying Gold.
update is delayed as we were waiting for the results of the US
President elections. We wish President Barak Obama and his
team good luck for the next four years !
predicted as per our last update that equity markets will be
volatile in October 2012 with a bullish undertone and that markets
will correct in December 2012. We stick to our predictions.
2012 â€“ global equity markets will be range bound but with a
bearish undertone because of financial crisis in Greece and Spain.
In addition US Treasury Department might have to intervene towards
end of November and request US Congress to â€śfurther increaseâ€ť
the debt ceiling limit, which is currently capped at US $
16.394 trillion till September 2013. As per estimates - US
Treasury will run out of funds in December 2012.
We advise equity exposure to be trimmed to only 15 % of the funds. Balance convert to physical Gold and Swiss Sovereign Bonds.
total debt as of date reached â€“ US $ 16.229 trillion (105 % of
its GDP). The total debt is capped at US $ 16.394 trillion as
mentioned above. Hence only US $ 165 billion in incremental debt
capacity is left before it breaches the federal debt limit. This
limit will be reached within December 2012 itself ?
we are heading for a repeat of August 2011 in USA, wherein we
expect the US Treasury to request US Congress to further increase
the â€śdebt ceiling limitâ€ť from the current cap of US $ 16.394
trillion. We predicted this in early 2012 â€“ that this US $ 2.10
trillion debt ceiling raise will not last till September 2013 and
US Treasury will be bankrupt again in June 2013. Looks like this
will happen in December 2012.
donâ€™t know how much debt ceiling raise Ben & Co will ask the
President Obama and for how much time period ? Whatever be the
amount and time span â€“ these issues need to be ratified by
the US Congress. We expect this request in late November or early
December 2012. US Dollar will correct seriously against other
global benchmark currencies, if the debt ceiling is reached as
agencies may cut the AA rating of US Sovereign Bonds by a notch or
maybe two notches lower in December 2012. Gold prices will spike
by US $ 300 to 400 pto if what we have predicted above actually
happens. Also ^DJIA will correct by 25+ % followed by all
equity markets in the world. Beta will be different for
corresponding global equity market indices.
second financial bail out package for Greece is under discussion
and still has not been finalized. This is on account of difference
of opinion between the troika and Greek coalition Govt. Greece
is heading towards bankruptcy as early as 11/16/2012. We
have said earlier and we repeat there is no point for a second
â€śbail outâ€ť package for Greece, as this economy will again need
a bail out in 2014. Post the second bailout, if any â€“ the total
Debt to GDP ratio will still be in excess of 140 %. The best
solution is that Greece exits EEC. Politicians may decide on the
are rumours that Spanish commercial banks may need a second bail
out soon as Euro 70 billion approved by ECB may not be
sufficient. In any case â€“ ECB will not allow a Spanish Sovereign
default, as there will be a collapse of European Banking
system. Monetize Spanish sovereign debt, print Euros and
inject liquidity into the Spanish economy. Italy is next in
the line as per our estimates.
situations â€“ in Greece and Spain do not augur well
for ^CAC, ^DAX and ^FTSE, needless to mention about other
equity market indices in Europe. The events in these two countries
will also have a positive affect on the price of Gold. In
turbulent times â€“ Gold is a safe haven investment.
analysts in USA are now talking about impending
â€śhyperinflationâ€ť in the worldâ€™s largest economy. We have
been saying so since January 2009 !
US economy is entering a â€śdouble dipâ€ť recession scenario as
the GDP growth is slow and the housing data is â€śphoneyâ€ť. The
Case-Schiller index shows that US residential real estate
market is picking up. A little research reveals that the home
buyers are not actual users but rich investors buying residential
real estate across USA and then renting them or holding as an
investment. These investors will be whacked out of shape, if what
we predict about the US economy comes true in December 2012.
physical Gold and enjoy the ride till early 2013.
Cheers to Gold !
Two major developments announced in the month of September 2012 will lead to excess liquidity in the financial markets in USA and EEC over the next couple of months. These two developments â€“ â€śUnlimited supportâ€ť by ECB to monetize sovereign debt of struggling EU member countries and across the Atlantic â€“Open ended unlimited support by US Fed till maybe end 2014, by way of QE 3 to save the US economy, may lead to rallies in ^DJIA and all major EEC stock market indices in the near future. Global equities will be very volatile but may rally in the next couple of months but will correct in December 2012. ^DJIA is already at a five year high. ^DAX and BSE SENSEX tested fresh 52 week highs on the back of these announcements in September.
However hard ECB might try, in our view â€“ it cannot avoid a sovereign default of Spain. The Spanish banking system needs about Euro 60.00 billion to avoid insolvency. This was announced by the Spanish central bank after the so called â€śstress testsâ€ť conducted by an independent auditor. The funds will be provided by the ECB to save the Spanish banks but we still need to address the bigger problem â€“ can Spain avoid a â€śsovereign defaultâ€ť ? In our view the answer is no.
Spain and Greece have one very big issue in common i.e. unsold luxurious real estate assets. ECB announced that it will buy unlimited Spanish sovereign bonds to keep yields in check and infuse liquidity in the Spanish markets. If the contagion spreads to Italy - ECB will monetize Italian sovereign debt as well. Markets are great levelers. Spanish Bond yields again soared to near 6.0 % after the announcement of the results of the â€śstress testsâ€ť on 9/28/2012.
ECB does not have the mandate to print Euros without hard currency collateral but looks like that mandate has been dissolved and that ECB will keep its printing presses running 24x7 and inject Euros into EEC financial system. Spanish â€śsovereign defaultâ€ť â€“ maybe is stage managed by ECB ? Before the actual said default happens â€“ ECB may approach Spain with an â€śaid packageâ€ť. This is possible within December 2012.
These two announcements by US Fed and ECB have a very positive â€śshort to medium termâ€ť effect on the equity markets in USA and EEC but our long-term view remains intact â€“ there will be a total collapse of US Banking system. We still feel US Dollar will collapse first followed by Euro. Reason is simple â€“ reckless printing of US Dollars and Euros at some point in time in 2013, will lead to hyperinflationary depression. Also asset bubbles will burst across the world in developing economies due to the easy monetary policies of both ECB and US Fed.
Greece is a gone case. It will need another bail out in 2013. It will not be able to pay back its loans. Why is ECB throwing good money after bad money ? Greece should be out of the EEC as per our understanding. The second â€śbail outâ€ť package for Greece is still pending.
USA â€“ we have mentioned in our post of October 2010, that this economy is at a â€śpoint of no returnâ€ť. US Fed will keep its balance sheet growing by way of QE 4,5â€¦â€¦..Z, till there is a total collapse. The operation â€śTwistâ€ť comes to an end by end December 2012. As a result of operation â€śTwistâ€ť â€“ long term interest rates will come down, which will further lead to easing of financial markets in USA. US Fed has kept QE 3 â€śopen endedâ€ť â€“ can buy US $ 40 billion worth of mortgage backed securities or US Sovereign Bonds per month, till 2015. This is really crazy stuff. Instead of de-leveraging the financial system in USA, the US Fed is further expanding its balance sheet by monetizing debt by bond purchases. US Dollar will collapse before the Euro. The US annual budget deficit is in excess of US $ 1.50 trillion and is growing. Debt will spiral out of control in USA â€“ maybe in the next twelve months or so. Our target is June 2013.
Needless to repeat as we have mentioned in our October 2010 post - worldâ€™s financial system is bankrupt and is surviving due to false valuations of banksâ€™ toxic assets.
These money printing exercises by ECB and US Fed will lead to huge liquidity in EEC and USA. Funds will flow in hundreds of billions of dollars from USA into developing economysâ€™ equity markets around the globe in the next two months or so. We predict major fund flows into Hong Kong, Malaysia, Indonesia, India, Vietnam, Russia, Brazil and South African equities in the next couple of months. BSE SENSEX could well test its life time high of 21208 in the coming months. Similar can be the case with other countries as mentioned above â€“ their equity marketâ€™s indices testing life time highs.
We expect a global meltdown situation in June 2013. It will be ten or twenty times of what happened in September 2008. Gold is the answer !
This euphoria has serious negative effects as by devaluation of Euro and US $ against say CHF, Yen or Singapore Dollar â€“ the developed world is exporting inflation into the emerging economies. Chinese will not sit tight. They will intervene and one will see â€ścurrency warsâ€ť across the Altantic and Pacific. Yuan as such is pegged to the US $ in a band by PBoC , at artificially low levels, so that exports from China remain competitive. But China will not wait till eternity, as devalued Euro and US $ will hurt Chinese exports seriously. EEC and USA are the biggest export markets for Chinese produced consumer products. Expect China to enter into â€ścurrency warsâ€ť with USA ? China is selling long maturity US Bonds and using proceeds to buy short term maturity US Bonds. A complete reversal of operation â€śTwistâ€ť. China understands that if it â€śdumpsâ€ť US Bonds in the world financial markets â€“ there will be a â€śchaosâ€ť and said Bond prices will correct. China is following a wait and watch policy as regards US Bonds. China is focusing on amassing Gold assets overseas after having amassed fossil fuel assets across the globe. It is using is huge forex reserves for the same so as to be less dependent on US Bonds.
Chinese, Japanese and maybe Swiss will also devalue their currencies so that their exports remain competitive. This is a not a good sign for the global economy as Chinese, Japanese and Swiss Central banks will start printing Yuan, JPY and CHF to keep their currencies in line with US $ and Euro. This will lead to chaos in the global currency markets.
This is not the solution to problems in USA and EEC. USA needs to address a structural issue of â€śfiscal disciplineâ€ť. For the past five decades the US Fed is spending more and earning less and is funding the deficits by raising debt levels. By raising debt ceilings or monetizing US Debt one can only firefight the situation for the very near short term. We still feel the easy monetary policies of US Fed and now of ECB too, will lead to hyperinflation in the next two or three years. The hyperinflation levels would be unmanageable and currency wars will kill all kinds of paper money floating in the global economies. This should be arrested now in Washington and Brussels as here is where it all has started from and needs to fixed asap.
These monetary policy measures announced by ECB and US Fed will have a very positive effect on the prices of Gold. We expect our price targets for Gold for December 2012 will be met.
Crude Oil prices will also rally for the next six to nine months as the US $ will get debased and also on account of geo-political issues.
Globally printing presses are working overtime. US Fed announced this week that it purchased US Bonds worth around US $ 2.00 trillion in the past two months. This injected liquidity in financial system in US economy and is some sort of QE ? Gold jumped around 3.00+ % post this announcement by Ben & Co and tested near US $ 1700.00 pto. As we mentioned in our update of October 2010 â€“ US economy is at a â€śpoint of no-returnâ€ť as it will keep raising its debt ceiling till there is a â€śsystematic bank failureâ€ť as predicted. There are some rumours in DC that Republican Prez nominee wants to set up a committee to somehow reinvent a â€śstrategyâ€ť to re-peg the sinking US Dollar to physical Gold. This is not an easy task as post 8/15/1971 â€“ US Fed has printed far too many US Dollars till date without keeping any collateral in the form of physical Gold or basket of other global currencies.
As we all know â€“ US Fed is â€śbankruptâ€ť and is running on borrowed time. Sometime in 2013 â€“ the US $ 2.10 trillion, will be exhausted and the US Fed will again approach the lawmakers to increase the debt ceiling to keep the economy float. In USA the housing market is showing no signs of revival. Unless the housing sector revives â€“ we are in the red zone as far the US economy is concerned. How long can Ben & Co continue to monetize US Sovereign Debt ? This is my question to my friends, associates and investors globally ? This â€śUS Bond bubbleâ€ť will burst one day and that day is around nine months away as far I am concerned. US Bond yields are at ridiculously low levels and the prices are at non-sustainable levels in the Bond markets. Interest rates in US cannot be at these near zero levels till eternity. Japan is exception.
Most of the analysts with whom I am in correspondence are not in agreement with my views that US economy will have a banking system collapse on lines as in the year 1930. They feel as US Dollar will remain the reserve currency of the world â€“ US Fed will keep printing money and the US $ 15.00+ trillion Titanic will never sink. They are not in agreement with my prediction that US economy will be hit by â€“ â€śhyperinflationary depressionâ€ť in the next two years or so. I am still of the view that in June 2015 â€“ one will see complete failure of the banking system in USA due the hyperinflationary depression. One will see Gold prices in excess of US $ 9000 by June 2015.
ECB continues its Bond purchasing of Sovereign Spanish and Italian debt like as in the USA. This is not the solution to save Spain. We are waiting for the â€śSovereign Spanish Defaultâ€ť. It will happen within 2012 or maybe in June 2013. This will trigger a collapse of the major banks in EEC and the contagion will spread to USA also as a lot of US Banks hold sovereign debt of Greece, Spain & Italy.
As regards Greece â€“ we feel that the â€śbail outâ€ť package should not be sanctioned and it is better for Greece to exit from EEC. We are not sure if this will happen because if Greece is not bailed out- a few large banks in EEC will go bankrupt as they hold huge Greek sovereign debt, which is junk grade. Greece remains in technical sovereign default since 20th September 2011 ?
Chinese and Indian economies are also slowing down. Indian GDP growth @ 5.50 % for Q1 FY2013 was a shocker. Inspite of this slowdown and fiscal deficit disaster in India â€“ BSE SENSEX is at 17400 levels. This is beyond us to justify. We feel BSE SENSEX will correct by 20.00 to 30.00 % in the nine months or so i.e. in June 2013. Our BSE SENSEX target for June 2013 is 14000 to 12200. Investors may kindly note and allocate funds to the equities as an asset class in India accordingly. Please consult your CFAs.
Chinese SSE COMP index will also correct by 30 % from current levels 2060 by June 2013. Global equities can correct by more than 25.00 to 30.00 % in the developed world by June 2013.
Brent Crude Oil can spurt beyond US $ 150.00 pbbl due to geo-political reasons from date till June2013. One can stay â€ślongâ€ť on Crude as long as Brent trades is above US $ 108.00 pbbl
Gold will give best returns from date till June 2013. We expect labour unrests in gold mines in South Africa and other African nations within the next six months or so. Marikana contagion will spread within South Africa and then to other Gold producing nations in Africa. We predicted this labour unrest issues in the mines in South Africa in July 2010 ? This contagion could spread to all gold mines around the globe and stock prices of all major gold producers will crâ€¦.ash as production will be hit. This could well be for other metals like Silver and Platinum. Hence do not hold stocks of gold, silver or platinum producers but rather hold these precious metals in physical form.
Hold physical Gold away from the banking system. We have proven all our critics wrong â€“ as they were of the view that Gold prices will test US $ 1420 levels in Q2 calendar 2012. Prices tested US $ 1520+ pto twice in the calendar 2012 till date and then reversed to test near $ 1700.00 as of today i.e. 9/2/2012.
We repeat Gold will explode within the next nine months or so. WGC also reports that there is a strong demand of physical gold from Central Banks across the emerging economies. BASEL III accord is forcing all large commercial banks across the globe to keep more physical gold in their vaults.
Gold is the safest asset to own from date till June 2013.
As predicted global equity markets were choppy in April
2012. Indian macro situation is worsening. FIIs were net sellers
of Indian equities in April 2011. S & P downgraded Indian
credit rating by a notch but still the Indian equity markets are
resilient which is beyond my understanding. Any issue which
defies fundamentals â€“ I pause and step back . I advise
Let some sanity return to equity markets and I will post
accordingly. I do not understand these levels of global equity
indices when the whole banking system in
I am still accumulating physical Gold. This asset class will give you the best returns in calendar 2012.Regret â€“ I am not posting anything for maybe a month or so, till sanity returns to global equity markets
BSE SENSEX closed today Friday 30th March
2012 at 17404 marginally down from 17584. Today was the last
trading day of the current fiscal year in
FIIs pumped in another US $ 1.00 billion into Indian equity markets in March 2012 and till date FIIs have invested nearly US $ 8.00 billion into Indian equities from January to March 2012. The figure is confirmed by SEBI data and the figure in the last post stands to be corrected.
Indian macro picture is not showing signs of
improvement. The official figure estimated for fiscal deficit
for the fiscal ending tomorrow by Government of India is 5.9 %
of GDP. There is severe liquidity crunch in the Indian financial
markets. RBI cut CRR by a surprising 75 bpts to inject liquidity
into the Indian banking system. CRR now stands at 4.25 % down
from 5.50 %. No cut in Repo rates which stands at a
Budget announcement on 16th March 2012, for next fiscal year, was given â€śthumbs downâ€ť by the Indian equity markets but FII money continues to pour into Indian equity markets. I think the Union Budget for next fiscal FY 2013 is too ambitious on the fiscal deficit front â€“ 5.10 % of GDP by 3/31/2013. GoI estimates that Indian FD will be 5.9 % of GDP by 3/31/2012 â€“ end of current fiscal. Target was 4.60 %, when the budget was presented to the Indian Parliament in Feb 2011. The Indian macro picture has seriously deteriorated since the past six months of the current fiscal. My estimate is a figure of 6.10 % when the figures are announced by GoI in Mid/End April 2012. In number terms the total subsidy figure could be in excess of US $ 48.00 bn for the end of current fiscal, as per my estimates. Break up â€“ US $ 30 bn for petroleum and $ 18.00 bn for farm sector (includes both food and fertilizer sector) subsidies. In addition â€“ the disinvestment target of PSUs will be well short of targets for the current fiscal ending. This also hits the â€śrevenueâ€ť side on the books. The budget for next fiscal FY2013 provides for total subsidies (fuel, food and fertilizer) at Rs 1800 bn ($ 36 bn) only. This is figure is â€świshful thinkingâ€ť by FM. I think itâ€™s a â€ścruel jokeâ€ť. This figure is too low ? Lets us wait and see â€“ April 2013 ?
Detail of the Union Budget is available on the website of MoF. Issues concerning our domain are :
a) Across the board hike in excise duty by 2.00 %, from 12 to 14 %. Adds to inflation.
duty on standard gold increased 2 % to now 4 %. Import duty on
â€śNon-Standardâ€ť gold increased from 5 % to now 10 % . This is
to curb demand for Indian gold (imported by
on crude oil hiked from Rs. 2500 pmt to Rs. 4525 pmt. This will
impact local producers of Crude Oil in
The Indian FM is seriously constrained on the revenue
side for the next fiscal and has capped the total subsidy as
2.00 % of GDP. This figure includes total subsidies
for next fiscal @ Rs. 1800 bn ( $ 36 bn ) which I feel is too
low and not achievable, unless there is a â€ścomplete
de-controlâ€ť of prices of HSD and substantial price increases
in SKO and LPG. Also there should be a complete switch to NBS
in the fertilizer sector. Failing which as per my
estimates â€“ the figure for FD will cross 6.00+ % of GDP for
FY2013 also. I think this figure of Rs. 1800 bn only is a
â€śjokeâ€ť. As per my estimates prices of Crude Oil & Gold
are not going to correct significantly during the entire next
fiscal. This pushes imports in value terms substantially and
swings BoP figures into more negative territory. Crude oil is
the single largest commodity imported by India in value terms (
estimated in excess of US $ 110.00 bn for the current fiscal
year ending) and Gold imports are also soaring in India inspite
of record high prices of gold in international markets.
Let us look at the current fiscal year which will ends
on 3/31/2012. The initial total subsidy estimate
was only Rs. 1340 bn ( $26.80 bn) when the budget was
presented by FM in February 2011. It was revised to
Rs. 2090 bn ( $ 41.80 bn ) in September 2011, up by
whopping 56.00 %. The main reasons - were high
crude oil prices, high upstream crude oil subsidies, high down
stream petroleum subsidies ( on HSD, SKO & LPG) and Farm
sector subsidies going awry. Under the Farm sector â€“ GoI could
not switch the subsidy regime on fertilizers to NBS. Urea prices
are strictly controlled by GoI and should be completely
de-controlled in order that new Urea plants can be set up in
We were right in our prediction that global equity
markets lead by ^DJIA will be bullish from January through March
2012. ^DJIA is trading around 13000+ levels. The prediction from
April to August 2012 was that equity markets globally will be
very choppy and volatile. We stick to the same. April 2012 â€“
global equity markets will be choppy. We have to keep a keen eye
on US Housing data and Spanish CDS. Till the housing market
R1 17420 R2 18000 R3 18400 R4 18600
S1 16800 S2 15960
These months are â€śtraders paradiseâ€ť as during volatile times â€“ smart traders make a killing. We wish them luck. There is only one caveat â€“ if BSE SENSEX cannot hold our pivot of 17420, then it can slide to 15960 levels. So investors and traders should keep a watch on this level. If FIIs continue to pour money into Indian markets then one will not see a breach of pivot 17420.
My views on Gold and Crude remain unchanged, although my target for Gold was not achieved in March 2012 as predicted. It may be tested in April 2012.
As often mentioned â€“ Gold will give best possible returns on investment in 2012, as compared to any other asset class. One has to be patient with Gold.
UPDATE : INSC â€“ part of new great game ? March 2012
This corridor if comes through would be a â€śgame changerâ€ť for India-Iran crude oil and natural gas supplies and serve Indiaâ€™s long-term strategic interests in Caspian Sea reserves of oil and gas.
The US and EU sanctions on Iranâ€™s oil sector is making it difficult for India to pay for its oil imports in hard currency. India imports about 12 % of its imported crude in hard currency from Iran with indications being that this figure could go upto 14 % in calendar 2012 subject to solution of â€śpayment issuesâ€ť for Iranian crude oil. One of the best ways of paying for Iranian crude oil is through infrastructure projects like the proposed â€“ â€śInternational North-South Corridor (INSC)â€ť which is lying in cold storage, although signed in the September 2000. This mutli-modal corridor project was signed between Iran, Russia and India in the year 2000 but little progress has been made on this important project which is of great strategic importance to India and now Iran too. In the last article on crude oil and geo-politics it was mentioned by the guest that India is too slow to react to tie up its energy needs as compared to China. Yes it is true that China has spread its tentacles in entire Central Asia since the past decade and is building an extensive road and railway network to tap the Caspian Sea crude oil and natural gas. Chinese infrastructure is already on the ground in Central Asia for strategic reasons for its long-term energy tie ups. China is quick in executing large infrastructure projects be it in power generation or railways or ports and bridges. India is still struggling with red-tape. No wonder Chinaâ€™s FDI for the past one decade or so is at about whopping US $ 60 billion per annum. Indian FDI is not even one-fifth for the same period on per annum basis on an average. Just to give an example â€“ China added 5,00,000 MW of electricity to its national grid in the last five years and India could not even add 75,000 MW ? This is the Chinese way of handling large infrastructure projects which attracts FDI in manufacturing by MNCs based worldwide. In addition to start a â€śnew businessâ€ť in India is very cumbersome. Too much red-tape. India ranks around 137 in number out of 192 countries in setting up a new business ?
Coming back to the point - the Central Asian leaders are not comfortable with the Chinese policy in their region, as they understand Chinese military might. They trust India more than China, as India has had centuries old historic trade links with Central Asia. In fact the President of Kazakhstan had offered a crude oil block to India in 2003 on strategic considerations. Indian Government of the time in 2003 did not take up the project through ONGC Videsh Ltd. Leaving black gold offered on the platter? It seems India is now realizing the importance of Caspian Sea crude oil and natural gas apart from settling â€śpayment issuesâ€ť with Iran.
TAPI and IPI pipeline projects are not feasible in Indian context as both Afghanistan and Pakistan are in turmoil. Political instability in Pakistan will never be resolved hence these TAPI and IPI pipeline projects are of no real meaning to India. So far India â€“ Iran is the best bet for gaining access to Central Asian crude oil and natural gas. Since the year 2000 â€“ eleven other Central Asian Republics of CIS have joined this important INSC and now there are total 14 players to develop huge Caspian Sea reserves of crude oil and natural gas. Recently secret negotiations were held between representatives from India, Iran, Russia, Kazakhstan and Turkmenistan regarding giving shape to INSC. It is learnt from the print media in India that energy experts from all the fourteen countries are now officially meeting in New Delhi on 29th March 2012 to discuss the implementation of INSC. This is good news for all the stake holders but for India it has huge strategic importance â€“ to get access to Central Asian reserves of crude oil and natural gas via Iran and avoiding Pakistan. India must play a â€ślead roleâ€ť in the proposed INSC as it has the requisite technology for multi-modal transportation of both crude oil and natural gas â€“ by rail and pipelines over land/sea. In January 2012 â€“ Indian government officials told their counterparts in Tehran officially that India â€śwould take chargeâ€ť of the project including building missing transport infrastructure in Iran â€“ road, rail and pipelines. Looks like the lazy elephant is awakening from a deep slumber ?
The INSC envisages an undersea pipeline from Bandar Abbas in Iran to main ports on Indiaâ€™s west coast. A land pipeline from the port of Bandar Abbas to Bandar Anzali port on the Caspian Sea. From Bandar Anzali the route will be the town of Rasht in Azerbaijan - Astara (a border town between Azerbaijan Iran) and then onwards to Kazakhstan and finally to Russia. The huge Russian pipeline network already serves Western Europe through the pipelines passing through Ukraine and other eastern block nations for natural gas. Addtional crudeoil pipeline will be laid from Russia to Western European ports under INSC. Once INSC is complete, this would connect Europe and Central Asia in a â€śunique wayâ€ť â€“ avoid the Suez Canal and save transportation time. The Iranian and Central Asian crude oil and natural gas from these destinations will reach main European ports in 25 to 30 days as currently it takes 45 to 60 days. As of date the only â€śfunctionalâ€ť pipeline from Caspian Sea is the crude oil pipeline from Kazakhstan to Ceyhan port, Turkey.
This big-ticket infrastructure corridor â€“ INSC, seems like an affirmation on Indiaâ€™s part regarding its commitment to its strategic interests in Caspian Sea hydro-carbon reserves in Central Asia. I feel this is Indiaâ€™s best bet for its long term energy requirements. I hope all other thirteen stakeholders back India in the forthcoming meeting. Indian Government deserves â€śkudosâ€ť on this initiative !
BSE SENSEX closed today 31st January 2012 at a bullish level of 17194 up 8.36 % from the last reference of 15868. We were bang on our prediction that global markets and Indian equity markets will be bullish in January 2012. This rally was a pure liquidity lead rally as fundamentals have not changed in the Indian economy. In fact the Indian macro level fiscal picture has worsened in January with Indian government finances going haywire. Fiscal deficit as percentage of GDP in India for the current financial year will be in the region of 5.20 and 6.00 % as against the budgeted figure of 4.60 % according to officials in MoF and policymakers. This is bad news as the total shortfall by 3/31/2012 would be in the region of Rs. 1520 billion ( US $ 30.40 billion. Exchange rate : 1 US $ = INR 50.00). This is a â€śhuge holeâ€ť in Indian Govtâ€™s finances and it seems the same will not be filled by 3/31/2012 as tax mop-ups are sluggish, subsidies are higher as mentioned in the last monthâ€™s post and PSU disinvestment targets are a fraction as compared to budgeted figures. Indian Govt will borrow an additional Rs. 500.00 billion ( US $ 10.00 billion) in February 2012 to keep the economy running. RBI cut the CRR rate by 50 bpts on 1/24/2012 to ease liquidity in the Indian financial markets. The CRR now stands at 5.50 % against 6.00 % earlier. But we must note that RBI is not giving signals of interest rate cuts in the near future due to absence of a credible fiscal consolidation plan from the Govt of India. The Governor of RBI said last week that â€“ â€śStrong signs of fiscal consolidation, which will shift the balance of aggregate demand from public to private and from consumption to capital formation, are critical to create the space for lowering the policy rate (repo interest rate) without imminent risk of resurgent inflation. In absence of credible fiscal consolidation, RBI will be constrained from lowering the policy rate in response to decelerating private consumption and investment spendingâ€ť. Governor of RBI has given a credible hint that interest rates in India will not be lowered in the next two months. The Hon Finance Minister of India has a tough task in hand as he has to address this fiscal deficit in the forthcoming Union Budget for the next fiscal in end February 2012. We wish him luck ! But there is no magic wand in Hon Ministerâ€™s hands ? Some harsh decisions would have to taken by the Hon Finance Minister of India to tackle the fiscal mess the Indian economy is in.
Inspite of all the above negative news - FIIs pumped in approx US 2.00 billion in Indian equity markets in the month of January 2012. The INR also strengthened from a level of 52.14 to sub 49.00 levels versus the US Dollar due to intervention by RBI and on account of the FII funds flowing into Indian equities as mentioned above. As mentioned above the rally in global and Indian equities in January 2012 was purely liquidity driven. The interest rates are too low in USA, EEC and Japan and hence the rally as above in equity markets. Bull markets ignore fundamentals in the short to medium term and vice versa.
The Indian equity markets are poised very precariously and can see a 7.00 to 8.00 % movement in either direction. The reason being that BSE SENSEX is trading near its 200 DMA level of 17420. The levels to watch for BSE SENSEX for February are as follows :
R1 17420 R2 18000 R3 18400 R4 18600
S1 16800 S2 15960
If BSE SENSEX can close convincingly above its 200 DMA level of 17420 â€“ it will zoom to 18400+ levels in February 2012. But if BSE SENSEX cannot hold above 17420 level, then I expect a sharp cut in BSE SENSEX to 16800 levels. We have to watch this level of 17420 very carefully.
Globally â€“ printing presses are running 24x7. The balance sheets of central banks in USA, EEC, UK and Japan are getting bigger and bigger. As mentioned in my January 2009 post â€“ one will see â€śhyperinflationâ€ť in USA towards the end of 2012. We now add EEC and Japan to this list. Commercial banks in France, Italy and Germany are at huge risk if the Greece â€śbail outâ€ť package is not resolved in the coming two weeks. Greece remains in â€śtechnical sovereign defaultâ€ť since 20th September 2011. The Greek creditors have still not been paid the interest on the Sovereign Greek Bonds they hold, since 9/20/2011. As I have said in the past Greece cannot pay its huge debt and will default eventually ? God save the Euro !
We advise investors in India not to rush and buy equities. Please wait till BSE SENSEX sustains 17420 level. We feel Gold is the best investment in 2012. I predict a very â€śsharpâ€ť up move in the price of Gold in March 2012. The old high of US $ 1920.00 pto will be breached before 3/31/2012. Expect fireworks in Gold prices in February and March 2012. I still maintain my target of Gold at $ 2240.00 pto in Q3 2012 and a level of US $ 3000.00 in December 2012. A lot of analysts are predicting that Gold will test a level of US $ 1410.00 pto in the coming two months. We do not agree with them. The correction in physical Gold is over from US $ 1920.00 to US $ 1522.00 pto.
On Crude Oil â€“ we stick to our target of US $ 180.00 pbbl as mention in our post of January 2009. Iran in most probable situation will trigger a rally in Crude oil prices.
to Gold !
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