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This article is by a dear friend Mr. Loveraj Takru - a guest post. I hope afundindia readers, subscribers, associates will enjoy the guest post. First time I am posting a guest view. I have been blowing my own trumpet for the past decade or so !

Oil Security for India & Geopolitics

The recent hike in Petrol prices by the OMCs had once again provoked expected reactions from across the political spectrum. While the UPA allies were by and large supportive, the opposition as is their norm was highly critical. The exception was the UPA ally the TMC which used the opportunity to extract their pound of flesh. It was heartening to see that at least some of the political parties understood the economic logic of the price increase. Once petrol prices have been taken out of the APM umbrella what is the option available to the OMCs except to raise prices when their raw material procurement price goes up due to either increase in International crude oil prices or depreciation of the Rupee against the US Dollar. Given the existing duty/tax structure on petrol, the OMCs cannot be expected to make losses on a decontrolled item. Lambasting the Government shows nothing but either complete ignorance of finance/economics or rank political opportunism or both. Now that prices have been brought down once again the political furore will subside but the underlying problem will stay intact. Which brings us to the bad news – that petrol prices are not only not going to come down but are actually expected to keep rising in 2012. Gone are the days of petrol under Rs.60 per liter in India.

Free market economics dictates that when the price of an item increases the demand is likely to decrease. Agreed that demand for petrol is relatively inelastic but is there an option to allowing free pricing of petrol ? There are currently three petro products of mass consumption under the APM -Diesel, Kerosene and LPG. The combined subsidy on these is running at about Rs.3.50 billion per day which is Rs.1.30 trillion per annum. Taken along with the subsidy the Government gives to the agricultural sector on inputs such as seeds and fertilizer and the subsidy on food grains for the PDS is it practically possible for the Government to manage the financial jugglery to meet the budget deficit ? No wonder we already hear statements that the fiscal deficit is likely to be in excess of 5.5% of GDP and some estimates have it as high as 6.5%. Blaming the Government for high inflation and simultaneously expecting higher subsidies and support prices are clearly contradictory.

India imports about 75% of its requirement of crude. Since crude oil prices are governed by demand and supply in the international market let us examine the likely trend. The worldwide consumption of oil is about 92 million barrels per day and growing at about 2-3% per annum (1 barrel is about 158.9 litres and 1ton of crude is equivalent to 7.33 barrels). China and India are responsible for a good part of that growth. Indian consumption has increased by almost 50% in the last decade and with a projected GDP growth rate of 8 % the trend is likely to be maintained. Given that our production has been fairly constant at 30 million tpa, the increased requirement will have to be met by imports. China has already surpassed the USA as the largest importer of crude oil. While China has steadily worked on tying up its crude oil import requirements (since it imports about 250 million tpa of oil or 60% of its consumption) and has aggressively locked up supply sources in Africa, Central Asia and the Middle East, we unfortunately lag far behind.

As per the Hubbert Peak Oil theory oil production worldwide will hit a peak rate and then keep declining as crude oil starts to run out. While new technology, discoveries and development of alternatives has so far postponed the inevitable, it is a matter of speculation that the peak will occur in the next 40-50 years. As a nation we should be concerned about our energy security in the long term because we would like to keep up the pace of development and therefore what should be long term strategy ? One of the obvious answers is that we need to change over to other forms of hydrocarbon fuels such as natural gas. Other options are to accelerate the development of non conventional energy sources such as solar or wind. Still another option is the increased use of nuclear energy particularly for power generation but there is enough controversy on this. Unfortunately, there are transportation applications where there is no easy substitution of crude oil based motor fuels.

To be able to make an effective strategic response, let us examine who is sitting on what level of crude oil resources. The table below gives the proved reserves of crude oil for some of the major players:

COUNTRY PROVED RESERVES ( bn barrels)*

Saudi Arabia 264

Venezuela 211

Iran 137

Iraq 115

Kuwait 101

UAE 97

Russia 77

Libya 46

Kazakhstan 40

To put this in perspective the proved reserves of USA, China and India are 30,15 and 9 billion barrels respectively. This off course does not mean that all of this is extractable so the actual usable quantity is likely to be lower.

In addition the proved reserves of Natural Gas are as below:

COUNTRY PROVED RESERVES ( trillion cbm)**

Russia 45.0

Iran 29.0

Qatar 25.0

Turkmenistan 8.0

USA 7.5

UAE 6.0

Venezuela 5.5

Nigeria 5.2

Algeria 4.5

P.S. : * and ** - Source is BP Annual Review June 2011

Again to put it in perspective China and India have proved reserves of 2.8 and 1.5 trillion cbm respectively. Based on these China, with a consumption of 450 million tpa of crude oil and a domestic production of 200 million tpa, is going to run out of crude oil much faster than India and has hence aggressively pursued strategic tie ups to ensure supply of crude oil around the world.

If we look at the history of the world for the last 50 years we begin to see a distinct pattern. Nothing sums it up better than the remark of the then US Energy Secretary – Mr. Bill Richardson in 1998 when he said “This is about America’s energy security. It’s also about preventing strategic inroads by those who don’t share our values. We’re trying to move these newly independent countries towards the West”. While this remark was made in the context of Caspian Sea crude oil, this is what the entire US policy has been about for the last 50 years. They have always had a substantial presence in Saudi Arabia, put the Shah in power in Iran (unfortunately he in turn,was thrown out) and have only pursued it more aggressively since then. Iraq was widely touted as having weapons of mass destruction (which were never found, but then public memory is short and who is going to scold the policeman) and Libya’s Gaddafi was a terrorist and ran an oppressive regime. The NATO partners were accordingly thrown this problem to handle and now that Libya is out of the way we see increased rhetoric on how dangerous Iran’s nuclear program is and how it is a major threat to the peace and security of the world (this time Israel is the front man). Presidential elections in the US are due in 2012 and the timing is just right. Venezuela’s Chavez has traditionally been a thorn in the US flesh (the western press is a willing partner in this build up) but he is reportedly unwell and that problem may solve itself. In case we haven’t yet figured it out – it’s about the crude oil stupid. Most surprisingly the problem in all the States is common - Dictators figure in the list of the crude oil rich nations. A further area of interest to the US is the crude oil in the Caspian Sea region but unfortunately the way out logistically for this crude oil was planned via a pipeline through Afghanistan and Pakistan. US now realizes that the proposed pipeline from Caspian Sea to Karachi via Afghanistan is not feasible now as these countries have not yet been tamed inspite of years of effort by US and its allies. Iran is once again is the only way out for a pipeline to ship Caspian Sea crude oil ? So start applying “Jakarta Plan” on Iran asap !

In this scenario, what should be India’s strategy ? Besides the obvious steps like increased exploration in Rajasthan and offshore (KG basin), let me stick my neck out and suggest additional areas we need to cover:

1. If the Iranian natural gas pipeline via Pakistan is not feasible (and we don’t trust Pakistan enough to put our eggs in that basket) why not consider building a pipeline via the Arabian Sea? This solution will be expensive but once oil prices start going up (which I think they will in years to come) the picture will change. In any case we will save the gas transit charges we would have paid Pakistan year after year. Isn’t it time India spent some of the huge forex reserves it has ? The US will not be happy with this step by India (considering sanctions imposed on Iran) but then we are caught between the rock and the hard place. Our development needs come first and we urgently need to source the requisite technology for this kind of pipeline. However in a situation where oil will start to become scarcer and expensive our energy security for 20 % of the world’s population has to take precedence.

2. Accelerate development of shale oil extraction and processing technology. We know that Arunachal Pradesh has huge reserves of Shale Oil and it was claimed by Mr. C. Ratnam, former CMD of M/s. Oil India Ld that the reserves were sufficient to meet Indian total needs of Crude Oil for a further 100 years. If we combine this technology with the rapidly depleting Chinese reserves, we know exactly the interest that China has in claiming ownership of Arunachal Pradesh ? Our answer must be two pronged, first – undertake massive development of that part of the country, which is anyway necessary given the abysmal lack of infrastructure and second – put enough security in place to ensure against any misadventure by the Chinese, given that state of our border information systems as shown during Kargil.

3. Adopt a realistic Natural Gas pricing policy for domestic gas. As long as we keep expecting RIL to supply gas at $ 4.2 per mmBTU the current deadlock will continue and RIL will be reluctant to invest in expanding the production and distribution of gas. While the price of Iranian gas was increased to $ 8.3 per mmBTU (based on a crude oil price $ 60 per bbl) we continue to rigidly stick to the $ 4.2 per mmBTU price. Our agreements with the E & P private companies must be flexible. In this connection the recent recommendation of the Mr. Soumitra Chaudhuri committee on gas pricing to have a price $ of 7.5 to $ 8.0 per mmBTU is welcome. Flexible pricing will also send the right message to other companies wanting to bid and take up E & P efforts. We must recognize that as crude oil/natural gas becomes scarce they will have to be explored at greater depths under the sea and that is expensive and risky business. Anyway, RIL will probably be happy with even $ 6.00 per mmBTU price.

4. Strengthen our tie ups in Africa, the Middle East and the Caspian region. This involves a massive diplomatic and financial effort but we must ensure some degree of security for crude oil and natural gas supplies. Since Iran also forms a part of the route to bring out crude oil and natural gas from Caspian region, we must work diplomatically to ensure that the same whitewash as was done in the case of Libya (a UN resolution which though limited in scope was used a cover for total invasion) is not repeated in Iran.

5. Currently about 7 % to 8 % of the world oil production is offshore. As we move ahead the figure is likely to increase because fresh land based finds of any magnitude will be unlikely. Also offshore finds and further E & P will be at greater depths and is likely to be in international waters. We need to access the technology to work in international waters at greater depths to increase our chances of finding fresh oil. In this context our recent face off with the Chinese in the South China Sea is relevant. We must be prepared to stand up for our rights while respecting the territorial integrity of others.

6. Consider dismantling of APM for Diesel, Kerosene and LPG. While this would be political suicide for any party isn’t it at least possible to decontrol diesel prices at least ? Worldwide diesel prices are about 10 to 20 % cheaper than petrol. If we make the Diesel price about Rs. 60 per ltr (or Rs. 10 per ltr less than petrol) it would certainly increase transport costs dramatically but that is exactly what is needed to disturb our comfort zone and force us to look for more cost effective and efficient transport solutions.

As home to 20 % of the world population having only 0.7 % of the world oil reserves, we in India will continue to be heavily dependent on oil imports and therefore subject to international price fluctuations. International crude oil prices are now never likely to come to below $ 70 per bbl but 2012 will only see increases across the world and average Indian import prices will range above $ 120 per barrel particularly if there any further adventurism by the US. It is unfair to expect the Government of India to both reduce the duties & taxes and to maintain petroleum sector subsidies. The Government has to generate revenue for development from somewhere. Soon the issue is likely to move away from pricing of crude oil & natural gas to availability of crude oil & natural gas. Since this sector has very high lead times and risk factors, it is time we identify the potential areas of growth and start work on them. However recognizing the critical nature of powerful geo-politics involved in terms of the interest of China ( more immediate than ours) and the US attempt to control all the known resources we will have to play our cards right. The time for action is now !

Guest post concluded. Thanks Loveraj for your fantastic article !

My views are concurrent with the guest author. I would just like to add the following as regards geopolitics in Asia, US policy and Indian position :

a) US will never allow Pakistan’s nuke assets to get into the hands of terrorist organizations – LeT, Al Qaeda or Taliban etc. General Pervez Musharraf is an US asset and after an eight year exile – he will soon return to Pakistan and will be the President of Pakistan with December 2012. He will make sure that Pakistani nuke assets are handed over US to the last nut and bolt. On this – I am 100 % sure. There is a pact in place to bring Musharraf back in power in Islamabad. Just wait and see ?

b) Around November 2012 – Israel will attack Iranian nuke assets in Natanz, Eshafan and Busherer or wherever they are in Iran. No way will US allow a nuke powered Iran. Already as per “Jakarta Plan” the first phase is on – public knowledge that Israel will attack Iranian nuke assets by surgical air-strikes !

c) US will put extreme pressure on India to sever ties with Iran and not source any crude oil and natural gas from this rouge nation. India should not tow the US line on this issue as we will not get cheaper gas from anywhere via a pipeline to India except from Iran.

31st October

The update was intentionally delayed as I was waiting for the Greece “bail out” package details. Greece debt crisis is discussed in brief detail later in this update.

BSE SENSEX closed today Monday 31st October at a bullish level of 17705 up marginally from the last reference close of 16821. BSE SENSEX did not close below 15960 level for ten consecutive days although tested a new 52 week low of 15745. Intra period highs and low for BSE SENSEX were 17908 and 15745.

We had predicted that equity markets globally will be bearish in the month of September 2011 and we were bang on ! We had predicted that a few equity indices will test further new lows as against the last update. I track a few global equity indices and they tested fresh new 52 week lows in September and October 2011. Brief details are as under :

a) ^DJIA in USA tested 10653
b) ^HSI in Hong Kong tested 16404
c) ^KOSPI in Seoul tested 1644
d) ^SSE COMP tested 2314
e) ^TWII in Taipei tested 6877
f) ^ BSE SENSEX in Mumbai tested 15745
g) ^CAC in Paris tested 2702 and
h) ^DAX in Frankfurt tested 4791

Some of the above levels for respective indices are multi-year lows. These are sharp cuts versus last updates. Prime reason was “solvency” issues of large commercial banks in EEC. In addition M/s. Standards & Poors downgraded Spanish Sovereign Debt by a notch lower to AA- (minus) from AA in Mid October 2011 and also downgraded 24 Italian commercial banks. DEXIA was nationalized in Belgium. MOODY’s placed Belgium Sovereign Debt on review for a possible downgrade. Even Italy was not spared by these “hawkish” rating agencies as regards – Italian Sovereign Debt. Italian Sovereign Debt was also put on the “watch-list” for a possible downgrade by FITCH. A few large banks around the globe were put on the “watch-list” by FITCH as they might need “re-capitalization” to meet BASEL III norms. These banks are – BNP PARIBAS, CREDIT SUISSE and DEUTSCHE BANK. The financial sector stocks in France and Germany were battered in end September.

Markets discount the future - ^CAC and ^DAX were mauled in Paris and Frankfurt in the last week of September 2011. My worst fear was Spain but now it seems Italy will sink before Spain as its fiscal situation is far worse than Spain. If Italy needs a “bail out” within December 2011 – all bets are off on global equity markets. Gold will spike to US $ 2100 to 2250 pto in case of Italian Sovereign Default ?

World’s fastest growing economy – China is slowing down. On an annualized basis Chinese GDP grew only at 9.10 % in Q3 2011 calendar. This is the slowest growth rate since the past 24 months in China. I have two more serious concerns in China. First the still “red hot” residential real estate sector in China and second the issue of NPAs of four largest Chinese banks. On the former the Chinese central authorities in Beijing are trying hard to cool down the residential real estate prices but with no real effect. The prices still continue to soar in mainland China and also Hong Kong. My bigger fear is the NPAs of the main four Chinese commercial banks. Out of the world’s seven largest banks by market cap – four are Chinese. These four Chinese banks could have NPAs as high as 30 % of their total loans. This figure comes to a mind-boggling number – US $ 2.46 trillion. The said Banks are – China Construction Bank, Industrial and Commercial Bank of China, China Agricultural Bank and China National Trust Bank. This is as per a report by FITCH of April 2011 to its global investors. I have been saying for more than two years that there are serious NPA issues with main Chinese banks. My views are now endorsed by FITCH ! Chinese data is not very transparent but it has huge forex reserves to raise capital and in emergent situations raise cash to inject into its financial markets. There are no “liquidity” issues with China.

Economic data from USA is not very encouraging. I expect Ben & Co to announce QE3 before 24th December 2011 to the tune of US $ 500 billion. The US economy will need this stimulus or else there are serious fears of a “double-dip” recession. Gold will spike on this announcement.

Indian economy is also slowing down on account of interest rate hikes announced by RBI. On 16th September 2011 – RBI hiked Repo rates by 25 bpts to 8.25 % it hiked the same to 8.50 % on 26th October 2011. Inflation is a “thorny issue” in India and RBI is willing to sacrifice GDP growth in India as the cost of taming inflation. Inflation for the week ended 10/8/2011 was at 11.18 % in India. Indian GDP growth for the current fiscal may end up with a figure of around 7.40 % as per my estimates. GoI expects the figure to be 7.60 %. I have serious doubts. Indian domestic fiscal situation is not getting better either. The fiscal situation is in a mess in India. GoI wants to borrow more, tax collections are lower and subsidies on the petroleum & farm sector are soaring higher. Goldman Sachs predicts that GoI will overshoot its fiscal deficit target of 4.60 % to 5.80+ % for the current fiscal. I feel this figure will exceed 6.00 % as I do not see GoI addressing any subsidy issue seriously before 31st March 2012 – the end of the current fiscal year. Indian government has political compulsions as it runs a coalition government in New Delhi.

Global equity markets soared more than ten percent after hitting multi-year lows as mentioned above on news of the Greek “bail-out”. I somehow feel the Greece bail-out package is not the solution to debt ridden EEC member country which has a total debt of around Euro 320 billion. Under the revised package the private sector debt has been reduced by fifty percent to Euro 100.00 billion. In other words the private sector Greek debt holders have suffered a loss of Euro 100.00 billion. These private sector debt holders (European Banks, FIs etc) will be issued “fresh” Greek Sovereign Bonds with maturity in 2037 and 2040. The net Greek debt is still Euro 220.00 billion which is estimated by ECB to be 120 % of Greek GDP in 2020. Please mark my words – Greece cannot be saved. It will again need another “bail out” in 2013. This is just “phoney politics” ECB and Greece for sure will default again in late 2012 or early 2013 as its GDP is not growing and the debt at Euro 220.00 billion is still too high. The second question is that – the loss faced by private Greek debt holders will show on the books of accounts of the banks and financial institutions. Some of these banks may need financial help in the due course of time. The fine print from ECB is not clear as to which private banks and financial institutions in EEC have taken a 50 % “hair-cut” on their investments in Greek Sovereign Bonds.
There is euphoria all around the globe in the equity markets due to the Greece “bail-out” package bit I feel this is an opportunity to take profits of the table in the equities universe. This euphoria may be short lived on account of debt crisis hitting Italy.

BSE SENSEX will be range bound ( 16000 to 18000) in the month of November 2011. The levels to watch are the same as per the last update as under :

R1 18090 ( 200 DMA )
S1 16800 S2 15960 S3 14500 ( if BSE SENSEX closes for ten consecutive days below 15960)

Spot Gold tested a lifetime high of US $ 1920.10 pto on 6th Sepetmber 2011. This was short of my target of US $ 1936.00 pto. Gold corrected to US $ 1536.00 pto in September 2011. It is trading at US $ 1724.00 pto in the world spot markets at the time of posting the update. We feel correction in Gold is over or in the worst case scenario in November 2011 might test its 200 DMA of US $ 1520.00 pto. We are of the opinion that Spot Gold will not test levels being quoted by analyst around the world – US $ 1200.00 pto to US $ 1400.00 pto in November 2011.

We stick to our prediction that Gold will test US $ 2100.00 pto to US $ 2250.00 by end December 2011.

2^nd September

BSE SENSEX closed today on Friday 2^nd September on bearish level of 16821 down 2.80 % from the last reference close of 17306. Our prediction was correct for the month of August 2011. BSE SENSEX closed below our critical level of 18190 for fifteen consecutive days and tested our predicted level of 15960. In fact BSE SENSEX touched an intra-month low of 15766 and thereafter there was technical rally wherein BSSE SENSEX was close to our level of S1 16800.

Global equity indices tested their yearly lows in August 2011 on the back of weak US economic data and on the fears of the contagion of debt crisis spreading to Italy and Spain. Economic data from France and Germany was also not encouraging. I track a few global equity indices and they tested fresh new 52 week lows in August 2011. Brief details are as under :

a) ^DJIA in USA tested 10686

b) ^HIS in Hong Kong tested 18868

c) ^KOSPI in Seoul tested 1685

d) ^TWII in Taipei tested 7149

e) ^ BSE SENSEX in Mumbai tested 15766

f) ^FTSE in London tested 4791

g) ^CAC in Paris tested 2951 and

h) ^DAX in Frankfurt tested 5348

Financial and Banking sector stocks were mauled in Eurozone on fears of “insolvency” of some large FIs and large commercial Banks. I have mentioned many times since October 2010 that technically all large banks in USA and Europe are “insolvent”. These banks have large “toxic debts” on their books and if one was do a “mark to market” stress test of these banks in USA and Europe – most banks will have NPAs more than their net assets on their balance sheets. None of the problems since September 2008 in the global financial sector have been resolved in the real sense by the governments all across the world. They have just been swept under the carpet by politicians.

We are very bearish on global equities for the month of September 2011. The equity indices level as mentioned above maybe breached and we will see new 52 week or multi-year lows. I advise investors globally to stay away from Sovereign Bonds, Currencies and Equities till December 2011. Only safe haven is “physical Gold” stored outside the banking sector in Zurich or Singapore with private vault owners who only store Gold for clients for a fee. Too much risk to store one’s physical Gold in bank lockers with commercial banks in USA and Europe.

My prediction on Gold was correct as Gold tested a price of US $ 1800.00 pto in August 2011. The yellow metal, in fact - zoomed to a new lifetime Spot Asia price of whopping US $ 1908.00+ on 23^rd August 2011. It corrected to a low of US $ 1702.00 pto till 25^th August 2011 and from there on rallied to US $ to close at $ 1885.00+ pto today NY Spot close. We now predict that Spot world Gold price will test US $ 1936.00 pto in September. If this crucial level holds for a ten consecutive days on closing at Spot NY – Gold prices will zoom to US $ 2100.00 to US $ 2250.00 pto in September. Failing which Spot Gold prices will find support at US $ 1739.00 pto.

There are serious problems in Greece on the release of funds by IMF and ECB. In addition some members of EEU – are asking for collateral to lend further funds to Greece. Greece has no “collateral” to offer to its lenders – both Sovereign and Private across Europe. Also buy-back of Italian and Spanish Sovereign Bonds by ECB – has had no impact on the financial markets across Europe.

There are serious problems in Japan – wherein its Debt to GDP ratio stands at 206 %. Rating agency MOODY’s downgraded Japanese Sovereign Debt to a notch lower from Aa2 to Aa3 on 24^th August 2011. Equity markets did not react much to this downgrade. This was surprising !

I feel September will be a “nightmare month” for equity markets in USA and Europe. I expect a serious crack in equity markets globally on the back of negative news from both USA and Europe. Asian equities will also correct on the back of negative global cues. I feel a Sovereign default can happen in Europe – Portugal and/or Spain are the likely casualties. Surprise could be Italy even. Alternatively a couple of banks in EEU can file for bankruptcy in September. One can check Sovereign CDS figures to get an idea which country from the above will be hit the first. This data is in public domain although the market is fairly ill-liquid for derivatives trading in Sovereign CDS.

I feel BSE SENSEX can also correct severely if the crucial level of 15960 is breached convincingly. The levels to watch for BSE SENSEX for September are :

R1 18190

S1 16800 S2 15960 S3 14500 ( if BSE SENSEX closes for ten consecutive days below 15960)

In India WPI is now in double figures i.e. at 10.00+ %. RBI may hike Repo Interest Rates by 25 or 50 bpts in end September to tame inflation. FIIs pulled out approx Rs. 120.00 billion (US $ 2.61 billion) from Indian equities in the month of August. This figure maybe higher in September 2011. It is clearly evident that Indian equity markets are totally dependent on FII inflows into India

Investors outside India are advised to stay out completely from US Bonds, EU Bonds, Equities and Currencies till end of September 2011. Gold is the safest bet but in physical state and stored outside the banking system. Some large banks and insurance companies in Eurozone may be declared “insolvent” in September 2011. It is safe to increase exposure to physical Gold above 60.00 % of one’s investible funds. Fresh investors in physical Gold can enter at sub US $ 1800.00 pto levels when there is a correction in the prices of Gold.

Investors in India are advised to stay away from equities and increase exposure to physical Gold to say as high as 60.00 % of investible funds. Balance in FDs with SBI.

We will post a special update if BSE SENSEX closes below 15960 level for ten consecutive trading days at BSE. Brent Crude Oil should hold a level of US $ 97.00 pbbl even after Gaddafi leaves the country or is assassinated in Libya.

Gold – the only safe haven. It is not in a “bubble zone”.

AUGUST 5 2011

BSE SENSEX closed today Friday 5th August at a bearish level of 17306. We had predicted in our update that BSE SENSEX will be bearish in the month of July. BSE SENSEX was down 7.32 % at close today from the last reference close of 18672. Intra-month high and low for the BSE SENSEX for the month of July was 19620 and 17000 respectively. This high of 19620 was due to some freak trade on BSE in the month of July 2011. The benchmark index breached S2 level of 18190 convincingly.

This update is late by a week as I was waiting for the US Administration’s announcement on raising of the debt ceiling on 8/2/2011 to avoid a Sovereign default. US lawmakers reached a last minute agreement on 8/2/2011 to raise the nation’s debt ceiling from US $ 14.30 trillion by US $ 2.10 trillion till 2013. The spending cuts have been agreed to the tune of 2.40 trillion over the next ten years. This spending cut fell short of expectations of rating agency S & P ‘s target of US $ 4.00 trillion. On 8/5/2011 late evening after close of trading hours in USA – the rating agency S & P, downgraded for the first time US Sovereign Debt rating from “AAA” to a notch lower to “AA+” while keeping the outlook “negative” as the agency has become less confident that US Government will fail to cut spending, enough to reduce record US fiscal deficit.

S & P mentioned in its announcement that further downgrades are possible in the next two years, if spending reductions are lower than agreed to, interest rates rise or new fiscal pressures result in higher general US Government debt. I feel that Ben & Co might announce QE 3 within August 2011 if the US economy slips into “official recession”.

US Administration lashed out at S & P, mentioning that the said downgrade by rating agency will not the change the status of US Treasuries and other securities backed by US Government. We will have to see how the US financial markets react to this downgrade when the markets open for trade globally and specifically in USA on Monday – 8/8/2011. I feel global equity and financial markets will correct further when markets open for trading globally on 8/8/2011.

Global markets corrected sharply from 7/26/2011 through 8/5/2011 on concerns of slowdown in the US economy and Eurozone debt crisis. Asian stocks had their biggest fall in the past three years. EU stocks posted their biggest weekly drop since November 2008 led by banking stocks. US stocks had their biggest drop since the year 2008. In such a short term span as above – equity markets corrected sharply. I am extremely bearish for global equity markets including India for August 2011.

Greece was “bailed out” in end July with a Euro 150.00 billion package funded by ECB and IMF. I am of the opinion that Greece will again default in early 2012. This is not the solution as this type of bail out will not be applicable to Ireland and Portugal. This was a “special one-off” package for Greece with interest rates cut on their Sovereign Debt and maturity period extension given to the Government of Greece. Now we have threat of default from Italy and Spain. This debt crisis in Italy and Spain has caused a panic in the Eurozone. I have been saying since the past few months that Spain may need a “bail out”. This issue is looking even more serious for Italy as its Debt to GDP ratio is higher than Spain.

There are issues of slowing down of the Chinese and Japanese economies. This also has an impact on the global equity markets. Japanese government intervened to depreciate the Yen against the US Dollar as a stronger Yen – hurts Japanese exports, which in any case are lingering due to weak demand from USA and Europe. Swiss Franc (CHF) is one of the strongest currencies in the world as evident from the data in the month of July. The USD/CHF tested 0.7568 – a record low on account of de-basing US Dollar.

The issues of sluggish growth in the US economy and Eurozone debt crisis caused panic in the global equity markets including India. In India – inflation is still a burning issue. WPI in India for June 2011 was at record 9.44 %. RBI stepped in with another interest rate hike on 7/26/2011. This was the eleventh interest rate hike by RBI since March 2010. RBI hiked “Repo rate” by 50 bpts from 7.50 % to 8.00% and consequently the “Reverse Repo rate” to 7.00 %. The markets were expecting a hike of 25 bpts. RBI is willing to sacrifice Indian GDP growth at the cost of taming inflation in India. The revised GDP growth figure for the current fiscal now stands at 7.90 % - down from 8.60 %. Some FIIs feel that Indian GDP growth for the current fiscal maybe as low as 7.20 % because of high inflation and other macro factors in India. In July 2011 – PMI data in India was lowest since the past twenty months. There is an issue of governance in India as per these FIIs. Some FIIs feel that in the current fiscal - Foreign fund flows into Indian equities maybe as low as US $ 14.00 billion as against a record US $ 30.00 billion in the last fiscal.

We feel that BSE SENSEX will be bearish for August 2011. The levels to watch are :

R1 18190
S1 16800 S2 15960

If BSE SENSEX closes below 18190 for fifteen consecutive days – it will correct to 15960 in a panic mode. I feel this is possible on the back of weak global cues on accounts mentioned above. I feel this level of 15960 will hold for BSE SENSEX and is a very strong support level.

Gold tested a new life time high of US $ 1683.30 pto on 8/4/2011 to close at US $ 1664.40 pto. My prediction was that Gold will test US $ 1600.00 in July 2011. Gold spiked much beyond US $ 1600.00 pto level on account of weak US Dollar and Eurozone debt worries. Gold is turning to be a “safe haven” investmen now by investors. I feel we will see a level of US $ 1800.00 pto in August through September 2011. I feel Gold is the best investment from date to June 2013, as repeated in earlier posts.

Sovereign Swiss Debt or cash in CHF is also a sound investment for the near future. A combination of investment in physical Gold and Swiss Sovereign Debt is the best combination as per my estimates for the near and medium term future.

Cheers to Gold !

1 JULY 2011

BSE SENSEX closed today - Friday 1^st July 2011 at bullish level of 18672, well past our R2 level of 18500 on back of heavy FII buying towards the end of June 2011. BSE SENSEX tested a low of 17314 during the month of June 2011 but could not close below our level of 18190 for fifteen consecutive days. BSE SENSEX will be bullish as long as it stays above 18190 convincingly.

RBI increased interest rates in India as anticipated to tame inflation. This is the tenth time that RBI has increased interest rates since January 2010. RBI increased Repo rates by 25 bpts to 7.5 % and Reverse Repo rates to 6.5 % in mid-June 2011 as WPI in India for the week 23 of calendar 2011 exceeded 9.00 %. Inflation is not being tamed due to high fuel prices which were marginally hiked by GoI on 6/24/2011. There was a marginal hike in the prices of HSD, SKO and LPG but in my view this is not the solution to the petroleum and natural gas sector in India. In my view prices of Petrol (Gasoline), HSD and LPG prices should be completely de-controlled in “one shot”. Petrol prices are on paper completely de-controlled in India, but OMCs need to seek a nod from the MoP&NG, GoI to increase price of Gasoline.

For SKO – there is a big problem as under-recoveries are huge as this poor man’s fuel is highly subsidized in India. Total under-recoveries for sale of all the four petro-products for three OMCs in India after the said price hike are still in excess of US $ 40.00 billion as per our estimates. Out of this staggering figure how much subsidies does the GoI absorb and how much amount does GoI pass to these three OMCs – IOC, BPCL and HPCL is a political issue for which I have no answer ? All I can say is issuing “Oil Bonds” to these OMCs is a temporary solution so that these OMCs can run their businesses. By issuing the said Bonds GoI is just providing cash-flow to these OMCs and is postponing the liabilities. Who is ultimately going to pay for the massive under-recoveries in the petro-products sector in India ? Answer is simple – ultimately the normal Indian taxpayer and who else. This “malaise” must end as I do not see Brent Crude Oil prices below US $ 100.00 pbbl in the Q3 2011. There are too many geo-political issues in – GCC, North Africa, Iran and Venezuela ?

A political solution has to be found for sales of SKO – which is diverted from the PDS in India for adulteration with HSD since the past three decades. There is a nationwide mafia which handles this diversion and pockets billions of dollars since the past three decades. In addition the PDS shops “black-market” the SKO openly and not supply allocated quantity to the poor Indian families who have relevant ration cards issued by GoI. These are two different issues with sales of SKO in India. One is diversion and second is black marketing. The former also is basically black marketing but it is in bulk to companies which own retail auto fuel outlets nationwide, who mix grey market SKO with HSD. This malaise has to end. If there is a political will – this issue can be addressed. Petroleum sector subsidies are a big drain to GoI’s fiscal deficit. The fiscal deficit target for current fiscal ending March 2012 will exceed targets if APM for petroleum sector is not scrapped or maybe capped for SKO. Petrol, HSD and LPG should be completely de-controlled. On SKO – our view is that the poor families should be given “cash coupons” which they can encash at nominated Government establishments nationwide. At the POS – the poor man must pay the administered price which is “market price” of SKO. The subsidy element on SKO - whatever GoI decides, should be in the form of “cash coupons”. These cash coupons should be given to the poor Indian families at POS at PDS shops nationwide under the current infrastructure. The cash coupons for SKO can then be encashed by the poor family member at a GoI nominated establishment. This will stop “black marketing” of SKO in the PDS in India.

As regards diversion of SKO by dealers of these three OMCs – this issue can easily be handled. All you need is a GPS tracking device on every tanker carrying SKO which is supposed to deliver the cargo to PDS shops. Now one can also have RFIDs attached to the tankers transporting SKO. This issue will be addressed but need political will. Reason – in India a lot of retail auto fuel outlets and PDS shops are indirectly or directly owned by politicians or their cronies ? The issue of Petrol (Gasoline), HSD and LPG has been discussed as above – dismantle the APM for all these three products in “one shot”. Period. But this Government in India is “spine less”. They cannot take bold steps.

All the “reform processes” are on hold in India for the past six months due to scams in various sectors in the Indian economy. Reforms in FDI in Retail, Insurance and Defense etc are in the “cold storage” since January 2011. FDI into India for the period - January to June 2011 is one-ninth than that of China in the same six month period. Plus Indian fiscal deficit is ballooning due to high crude oil prices and Indian Government’s inability to dismantle APM for petroleum products as mentioned above. Such low level of FDI is not a good sign for the Indian Economy. JFI - Indian trade account deficit for last financial year was US $ 105.00 billion. We predict that RBI will further raise interest rates, when its Board meets for monetary policy discussion in the last week of July 2011. We expect a 50 bpts hike in Repo rates by RBI in the last week of July 2011. Analysts feel that the hike will only be to the tune of 25 bpts. Let us wait and see. RBI is willing to sacrifice GDP growth in India at the cost of reining in inflation.

The BSE SENSEX will be bullish if it closes convincingly above 18190. There have been net FII flows into the Indian Equities and Asian Equity Markets in June 2011. If the trend continues in July 2011, then the levels for BSE SENSEX to watch for July 2011 are as follows :

R1 18800 R2 19340 R3 19500

S1 18500 S2 18190 S3 15960 (subject to closing below 18190 for fifteen consecutive days)

We predict that Indian equities will be range bound for the month of July 2011, with a bearish undertone. The levels are as per above figures. But we are bearish for the Indian equity markets for August and September 2011. We will see BSE SENSEX levels lower than 15960 in Q3 2011. By the way Credit Suisse said in its report of June 2011 to its investors that it predicts BSE SENSEX to be around 16000 in Q3 2011 ? We said this or near about (15960) in Q1 2011 ? AOTC – my problem !

We wish to discuss the issue of Greece and other financially pressed economies in Europe – Portugal, Ireland, Spain and Italy. Greece was “bailed out” today by EU and IMF by an emergency tranche of Euro 12.00 billion failing which Greece would have had a “Sovereign Default” in Mid-July 2011. Greece will be able to roll-over its debt (due maturity 7/15/2011) with this emergency tranche of Euro 12.00 billion by paying interest to Bond holders. This is just postponing the inevitable – Greek Sovereign Default. Greece has debt of around Euro 320.00 billion. In our view Greece will default in any case as it does not have the GDP growth to pay back its creditors – largest chunk are the French and German Banks. Austerity measures and massive sale of Greek State assets is a “fairy tale” according to my analysis ! The issue in Greece is not of liquidity but of solvency and IMF is aware of this but they along with ECB decided not to allow Greece to default. This according to IMF and ECB would have lead to a few Lehmans and AIGs put together. This default would have led to a cascading effect in EU Banks – especially France and Germany, which have the maximum exposure to Greek Sovereign Debt. According to a respected financial analyst in Vienna - French Banks have an exposure of US $ 23.00 billion and German Banks have an exposure of Euro 15.00 billion to Greek Sovereign Debt. This figure is estimated as ECB will never give out exact figures, as it rattle the financial markets.

The issue is that Greece needs about Euro 120.00 billion to avoid Sovereign Default in 2012-2014. Where will this kind of money come from ? As of today Greek Sovereign Bonds are on “junk status” ? As of week 25 of calendar 2011 – the price to insure against Greek Sovereign Default on a US $ 10.00 million worth of Greek debt was US $ 1.90 million pa up from US $ 0.775 million a year ago according to Markit – a financial institution, partly owned by banks in Europe. Markit is based in London and is a quasi financial institution which handles default, banking arbitration issues etc.

In our view as in 1998 in Russia and as in 2001 in Argentina – Greece should have been allowed to default and be out of the EMU like UK with a “separate currency”. Let the new currency be “de-valued” as in Argentina and in Russia and start afresh. Our view is endorsed by M/s. Lombard Advisory Services, London and PIMCO. But there is too much at stake with Greek default as per ECB. In any case Greece will default in the next the year as per my analysis. The liabilities are being postponed on the Greek balance sheet. When Greece defaults you will have at least five or six AIGs in Europe go bankrupt as no one knows how many players (bond holders) have insured how much Greek debt as derivatives markets are as opaque in Europe as in the United States of America.

We are now asking a US $ 616.00 billion question ? Does the Euro zone crisis have hidden and dormant AIGs ? According to Markit the gross exposure of “Derivatives (Swaps & Other Contracts)” linked to Sovereign Bonds of most financially pressed EU countries – Greece, Portugal, Ireland, Spain and Italy is about US $ 616.00 billion. Broader figure on all “financial derivatives” from these countries is unknown. Just for information here – according to JCT, Chief of ECB, total exposure of all “derivatives” in EU is to the tune of US $ 2.00 trillion. Spine chilling number ! I am of the view that “derivatives trading” in all sectors – financial, commodities, forex etc needs to be curbed globally and especially in USA.

If this exposure of US $ 616.00 billion as per above is insured by Bond holders in EU and defaults occur in 2012 – then for sure a few European Insurance companies will go bankrupt like AIG. This is a futuristic question and a possible “no no” scenario according to a lot of analysts but I feel this will happen as there is no way Greece can avoid bankruptcy. There is no growth in the economy and debt is too high at Euro 320.00 billion.

As mentioned above – Derivatives markets are complex, inter-twined and opaque in EU (as also in USA). No one knows how much of Greek Debt is insured and by which insurance company or financial institution in EU ? According to Markit – gross physical exposure of Banks in EU to Greek Debt is about US $ 79.00 billion (French and German is about US $ 38.00 billion). Other Contracts are worth US $ 44.00 billion in “bank guarantees” tied to Greek Debt as per Bank of International Settlement. We have a time bomb worth US $ 123.00 billion stashed in EU ? Another one is worth US $ 616.00 billion through the “Derivatives” as explained above ?

As per Ben & Co – US has very little exposure to Greek Debt. Who knows what is the amount ? International Swaps and Derivatives Association – ISDA, USA handles issues related to “Swaps” in the American market. Wall Street has handled “Swaps” tied to large corporation’s debt but has no exposure to Sovereign Debt defaults. AIG was bailed out by US Fed by injecting US $ 182.00 billion in 2008, because it had insured performance of “mortgage bonds” through derivatives and could not pay all its creditors as said bonds crashed in September 2008 – worst financial crisis in America post 1930.

Let us be clear on two issues. First “Sovereign Debt” ratings are handled by agencies like - Fitch, Moody, S & P etc who have no “stake” in the debt market. They are just “referees” in soccer or a base ball field. Second “Derivative Markets” – ISDA takes the call in USA. But if the default is in EU Sector – ISDA will pass the “baton” to Markit. This is a dicey situation as then Markit will hold an “auction” to determine how much value has been lost on account of the Sovereign Debt default; that determines how much money is paid to the parties that purchased insurance on the “Swaps” default.

In case of AIG, there was no “unwinding process” run by ISDA, because AIG’s contracts were tied to “mortgage bonds”(derivatives/contracts linked to these bonds pay money over time), whereas pay-out on derivatives tied to a country’s debt need to be paid in one shot – if a default occurs. This is the issue of massive liquidity requirements in case of Sovereign Debt defaults. That makes derivatives tied to sovereign debt similar to derivatives on corporate bonds and different in some ways from the AIG situation. My point of highlighting this issue of “derivatives” and “other contracts” tied/linked to sovereign debt is that – if sovereign defaults occur in EU over the next twelve months or less, then massive pay-outs are required within hours or say max twenty four hours to the players who purchased insurance for their derivatives trading at exchanges in London, Frankfurt or Paris. Failing which – financial markets will be shut till the pay-outs are settled. Needless to say – a few AIGs will be bankrupt in UK, Germany and France etc. We are not scaring Indian or European or American investors but wish to put some facts on record regarding the magnitude of the ‘impending financial crisis” which will hit the global markets in 2012.

American market is showing signs of a sluggish recovery as the housing and jobs data is disappointing. Inspite of this ^DJIA closed today at a bullish level of 12583. ^DJIA is close to its existing 52 week high of 12876. Profits from a few large export-oriented American MNCs have been encouraging, due to a weak Dollar. In addition “hectic short” covering by investors as Greece Sovereign Default was avoided. We are very bearish on ^DJIA for 2012 on account of “de-basing” of the US Dollar and “hyper-inflation” due to reckless printing of the US Dollar over the next twelve months or so. By printing money countries cannot become rich. In 1950s, 1 US $ = 5.00 CHF. Today US Dollar is at par with CHF ? QE 3 was not announced by Ben & Co and ^DJIA was buoyant. But beware – Debt ceiling issue is pending clearance from the US lawmakers. They have “no option” in USA as per my understanding. Current debt figure is at US $ 14.30 trillion in USA. Debt Ceiling will be cleared under a “Presidential Decree” if the US lawmakers block it. US Fed has no options. I feel it is a matter of time – maybe three months or so and QE 3 will be announced. The US economy is slowing down. Ben & Co announced on 6/24/2011 revised forecasts for US GDP as against announced in April 2011. For 2011 calendar – US GDP revised forecast by US Fed is @ 2.7 to 2.9 % down from April 2011 forecast of 3.1 to 3.3 %. For calendar 2012 revised GDP forecast is @ 3.3 to 3.7 % against 3.5 to 4.2 %. I feel in calendar 2012 – US GDP will be in negative territory.

China – we stick to our prediction as per our last post that ^SSE COMP will test its 52 week low of 2320 in Q3 2011. Inflation is big problem in China also. PBoC raised CRR in June 2011. Property prices in mainland China and Hong Kong are still in the “bubble zone” as per my estimates. This bubble will burst but I cannot put a time frame as China is trying to cool the real estate prices both in main land and in Hong Kong. Barclays Capital expects property prices to correct by 18.00 to 20.00 % in H2 2011 in China. We are in agreement with these views by Barclays Capital. In fact we feel the prices may correct by 30.00 % in main land China and Hong Kong in H2 2011. We remain bearish on the Chinese Equity markets for Q3 2011 with a sharp cut as Chinese manufacturing industry is slowing down and the “impending” correction in its real estate prices. PBoC has raised interest rates and CRR in Q2 2011 but there has been a marginal impact on the real estate prices in China. In Hong Kong there has been no impact. In fact residential property prices have increased marginally in Q2 2011. China is in a jam ?

Crude Oil markets crashed on 6/23/2011 and then recovered slightly at close of today. IEA in consultation with US Administration decided to release 60 million barrels of Crude Oil over the next sixty days to “cool off” the energy markets. OPEC was not towing the “US Line” for increasing production to cover the shortfall on account of Libyan Crude Oil being ‘off the market’. Hence this sudden jolt to OPEC by the American Administration. This sudden announcement rattled not only the Crude Oil markets but all the commodity markets including Gold. Brent Crude Futures tested a low of US $ 107.26 pbbl – lowest since February 2011 but recovered to close today at US $ 111.38 pbbl at NYMEX. We feel in Q3 2011 – Brent Crude Oil prices will not breach US $ 105.00 pbbl as situation in Libya, Iran and Venezuela can “implode” any time. The situation in Libya can suddenly turn aggressive in a matter of days.

Spot Gold too crashed to a low of US $ 1477.00 pto but recovered to close today in COMEX at US $ 1487.00 pto. I am getting e mails and messages by the dozens everyday as my target for Gold for July was at US $ 2250.00 pto and it will not be tested. I agree that in July 2011 – my price target at US $ 2250.00 pto may not be tested but you may see this price by September 2011. I maybe “off” by a few months as I was off regarding the price level of US $ 1500.00 pto. My target was December 2010 and I was off by a few months as Gold tested US $ 1500.00 level in May 2011.

Gold has a “strong support” at US $ 1480.00 based on pure technical analysis. Our trading philosophy of buying Gold on sharp dips has been a “bull’s eye” since the past twelve months or so. One can check at KITCO website links. I can give a very recent example. Gold prices corrected from US $ 1570.00 pto in May 2011 to a low of US $ 1461.00 pto in June 2011. From this low the prices rallied to US $ 1560.00 pto in June 2011 and then corrected to US $ 1477.00 pto in June 2011. Today the price as of close is at US $ 1487.00 pto. Prices will move up in July 2011 to US $ 1600.00 pto. So buy at dips and exit at rallies in Gold is working. We are following this “trading pattern” since December 2010, when we started exiting from equities. We are trading in Gold only for the past six months. One has to be patient for trading in Gold as it gives a good opportunity to buy at sharp dips. We have done limited but successful trading in Gold since January 2011 by buying on sharp dips and exiting by making a single digit percentage profits.

My predictions regarding prices and timing for Gold are my proprietary “cosmic inputs”. I still stick like a rock that by December 2011 – Gold will be at US $ 3000.00 pto. Do not be surprised to see US $ 2250.00 pto in September 2011. I still stick to my stance that Gold is the best and safest investment from date till June 2013. In my view - it is an excellent opportunity to buy Gold at sub US $ 1500.00 pto levels, both for trading and investing over long term.

Think Swiss and protect your capital as we are in for very choppy times for global equities in Q3 2011. Invest in physical Gold at these levels and in CHF Sovereign Debt. If investors wish to sit on cash – convert your cash reserves to CHF till September 2011. Indian investors can put cash in SBI FDs.

Cheers to Gold !

JUNE 2011

Global financial markets are edgy on account of European sovereign debt crisis. As mentioned earlier in our update of OCTOBER 2010 – we repeat almost all commercial banks in Europe and USA are technically “insolvent”. These large banks in USA and Europe were “bailed out” in 2008 and 2009, after massive “capital injection” by their respective central bankers. The trillions of Dollars and Euros pumped into these banks in USA and Europe stand as “liabilities” on their balance sheets. How do these banks plan to re-pay the loans to their respective central bankers is a million dollar question ?

In the same context we stick to our prediction that - Spain is next on the line in Europe. If Spain goes – all bets “are off” in the global equity markets. There will be a mayhem in banking circles in EU with cascading effects of a few more defaults like maybe Italy ?

Japan – Fitch has recommended for a possible “downgrade” a couple of days back. Our analysis pre-Fukushima was that Japan is a “zombie nation” and will go burst if some drastic and harsh economic decisions are not taken to cut its debt. In our OCTOBER post – we had mentioned that Japanese Debt stands at 200% of its GDP and is heading for a “default”. Post Fukushima and Tsunami of March 2011 – this figure is now staring at 206% and is soaring. BoJ is printing trillions of Yens since the past few months and pumping into Japanese financial markets. It is a matter of time and one will see Japan’s Sovereign Debt rating near junk status like Greece etc.

China – as predicted growth is slowing down on account of soaring inflation like India. ^SSE COMP is down more than 16.00 % in May 2011. We expect ^SSE COMP to hit 2320 levels in June/July 2011. This 2320 level is the current 52 week low for ^SSE COMP.

BSE SENSEX has seen a correction in May 2011 with FIIs pulling out about US $ 1.17 billion from Indian Equities. BSE SENSEX has been “resilient” in the month of May 2011 and did not close below our crucial level of 18190 convincingly. BSE SENSEX closed today Friday -5/27/2011 at 18226.

If BSE SENSEX closes 18190, for fifteen consecutive days, will correct to 15960 in a matter of weeks. This will happen in June 2011 or by mid July 2011. Annual GDP growth figures have been revised downwards for India for fiscal FY2012 to 7.40 % down from 9.00 % due to RBI’s “tight monetary policy stance” which will effect growth. RBI is expected to further hike interest rates further in the coming months and that will for sure hamper GDP growth. RBI has a tough task at hand in India – rein in inflation with Crude in excess of US $ 110.00 bppl BRENT. Gasoline prices were again hiked by GoI in May 2011. HSD, SKO and LPG will be hiked in mid-June 2011. This will further stoke inflation which will push RBI to hike both Repo and Reverse Repo rates ? The levels to watch out for BSE SENSEX in June 2011 are :

R1 18500 R2 18800

S1 18190 S2 15960

In this update there is special reference to Pakistan. As the world knows for all practical purposes Pakistan is a “failed state”. After assassination of OBL in May 2011 by US Special Forces right next to the military training academy in Abbotabad, the relations between ISI and CIA are strained. ISI in Pakistan is a “frankenstein monster” with parallel and independent funding in addition to funding by the Pakistani Army. The whole world knows that ISI gets annual funding in excess of US $ 4.00 billion through the “opium trade” from Afghanistan. Army was the “biggest power centre” in Pakistani politics pre-assassination of OBL by US Special Forces. This is going to change very quickly in Pakistan and one will see nefarious ISI in its new avatar in June through July 2011 in Pakistan.

The Taliban controlled elements of ISI will join hands with Pakistani Taliban elements in the Army and attempt a “coup” in Islamabad to seize power in June 2011. ISI in its “new avatar” will lay claim to run the Pakistan. We do not know what will happen to Zardari and Gilani ? Zardari may flee Pakistan before this event. Gilani in any case is a marginal element in Islamabad. We predict one of the worst period in the history of Pakistan – June and July 2012. USA – Pakistan’s natural ally will be “mute spectator” to the events as predicted. US assets in Pakistan will come under military attack with threat to its intel infrastructure in Pakistan. We are predicting very dangerous situation in Pakistan in June and July 2011.

One will see first steps towards – “Islamic Republic of Pakistan” in the coming couple of months. We predict chaos in Pakistan in June and early July 2011. The situation in Pakistan is very precarious. Karachi is one of the most dangerous places in Asia to live as of now and situation is getting no better. Even the CIA is “not at grips” with the situation in Pakistan post OBL’s assassination. Pakistan’s civilian leadership is now vulnerable post the attack on the Mehran Naval base in Pakistan in May 2011, wherein two US donated “PC3 Orions” were blown up. The subs being manufactured by DCN of France in JV with Pakistan are also at heightened risk ? The situation in Pakistan is “code red” ?

Gold tested US $ 1571.00+ corrected to US $ 1461.00 in May 2011 and closed today 5/27/2011 at US $ 1537.50 pto. Our target for Gold for June/July 2011 is still at US $ 2250.00 pto. US Dollar will take a beating with launch of QE3 by Ben & Co. These guys have no option. Come QE3 ( > US $ 500 billion ) and see Gold shoot to US $ 2250.00 in July 2011 ? Our views on QE3, QE4 etc are now endorsed by Marc Faber ? He too feels that post QE2 “winding-up” – there will be a serious financial crisis in USA in June 2011 and Ben & Co will have no option but to announce QE3 in early July 2011? Disaster for US Dollar ? This leads to further “de-basing” of the US Dollar ? Expect Crude Oil and Gold to spike in July 2011.

Investors can buy Gold at current levels and get decent returns over the next eighteen months or so. We are out of global equities since January 2011. We will re-enter Indian equities in June 2013.

Special Update 5/20/2011 : US Dollar will no longer be the world's reserve currency !

World Bank is now saying in a recent report that US Dollar will cease to be the world's reserve currenecy in the years to come. They do not give the time frame ? The details are in FT, London's report on this subject of date 5/18/2011 and some brief details are on World Bank's official website. The report mentions three scenario. We only buy two of them as reported as follows :

i) SDR will the world's reserve currency

ii) Multi Currency Options are world's few reserve currencies

We buy the option (ii) as above with a cavaet though - the world's two or three reserve currencies will somehow be linked directly to physical Gold.

Can one imagine the level of ^DJIA and prices of Gold when the US Dollar loses its "world's reserve currency status" ? Do we need to say any more on the possible scenario - US Sovereign Debt Default, Collapse of US Financial System including large commercial high street Banks, Gold prices above US $ 6000.00 pto etc etc.???

There will be a "new world economic order" post this scenario of US Dollar de-basing and losing it's global reserve currency status.

We said this in our January 2009 and then again in October 2010 updates on our webpage.

MAY 1 2011

We are pleased that our predictions for Gold and Crude Oil were "bull's eye" although our predictions for Equity markets - BSE SENSEX and ^DJIA were off target. But we remain extremely bearish on global equity markets including India from date till December 2012 through June 2013.

Gold tested US $ 1500.00 pto and BRENT Crude tested US $ 126.00 pto in April 2011 against our prediction that these prices would be tested in March 2011. But we were "off only" by a couple of weeks. BINGO !

We wish to put certain records straight, as under, on some very serious economic issues which will effect global economies in the next two three years. We have been getting hundreds of e mails and messages from investors, analysts and associates around the world since the past two months. We wish to repeat our views as under :

1. Gold : Tested a new life time high of US $ 1570.60 Spot New York on 4/29/2011. Our targets for Gold are under :

a) June/July 2011 - US $ 2250.00 pto

b) December 2011- US $ 3000.00 pto

c) December 2012- US $ 6000.00 pto

We wish to repeat what we mentioned on our OCTOBER 2010 update regarding Gold - " Physical Gold is the only financial asset in the world that is not simultaneously some body else's liability". That is the reason why we have been advising since 2009 that buy 'physical Gold'. We then mentioned in our October 2010 post - that HNWIs should store physical Gold bars outside the commercial banking system as most commercial banks in USA and Europe will be "insolvent" by December 2012.

We repeat - Physical Gold is the only asset which will give "best returns" from 2009 through 2012. We said this in early 2009.

2. US Bonds : People are asking us what do we mean when we say "US Bonds Bubble" will burst ? Please see our post of 2nd January 2009 vide a "Special Update". We mentioned "Please exit from your investments in US Bonds - advice for an American Bond Investors". In our post of October 2010 we mentioned "There is a serious possibility of "US Bond Bubble" going burst towards of end 2011".

What we mean by this "US Bond Bubble" going burst is very very simple - US Bonds prices will cr.......sh. This further means that US Bonds will have "junk status" by end 2011. We stick to this prediction like a rock as for all our predictions since the year 2000 !

We have one advice for PBC, Beijing and BoJ, Tokyo - Start selling US Bonds and convert cash raised into "physical Gold". Reason as the time goes by - The prices of US Bonds will seriously start correcting. We are lesser mortals and do not have access to the Governors of the said banks in Beijing and Tokyo ! China understands Gold and PBC has been selling US Bonds slowly and buying physical Gold. We repeat China will press the “nuclear option” of dumping US Bonds at a right time in 2011 and 2012. Anyway - please note all Central Banks across the globe will "dump" US Bonds by the end of 2011 or maybe early 2012 on the basis of logic ? Mark our words as per our October 2010 update. "China and Japan - world's largest holders of US Bonds, will be forced to sell US Bonds before these Bonds reach junk status".

Trust we have made our position clear on US Bonds. We can repeat for one last time for the attention of all US Bond holders including FIs and HNWIs - Dump these Bonds on 5/3/2011 onwards and convert cash raised into physical Gold. All you folks who act on this advice will remember us in 2012 !

It is worthwhile to note that annual production of Gold is stagnant @ 2500 tonnes for the past few years. On top of this IMF has no more Gold to sell to Central Banks across the globe. Bolivian Central Bank recently cleaned out IMF's last tranche of Gold.

Now let us have some fun with some numbers regarding Gold !

Let us calculate when China and Japan put-together - enter the world bullion markets to buy physical Gold worth US $ 1.50 trillion in phases. This is combined value of US Bonds – PBC and BoJ hold as of date. This situation is a "simulation exercise" after PBC and BoJ have "dumped" US Bonds and "cashed-out" . At today's price of US $ 1560.00+, this translates to about whopping 30,000.00 tonnes of physical Gold. Yes the figure comes out to be thirty thousand tonnes of physical Gold. We are talking of 12 years of annual Gold production which may be bought against funds to the tune of US $ 1.50 trillion say over a period of six to nine months, by PBC and BoJ. ? Any school kid with an IQ of more than 150 will tell you what will happen to the price of Gold as daily stock levels of physical Gold worldwide are only 3000.00 tonnes ?

Hence when this event happens i.e. dumping of US Bonds by Chinese and Japanese Central Banks, other Central Banks will follow. This will lead to serious price erosion of US Bonds and we predict there maybe no buyers of these "junk status" US Bonds in end 2011 through 2012. This is what we mean by "US Bond Bubble" burst.

A couple of analysts in USA last week informed Bloomberg that they anticipate "US Sovereign Debt" default as early in July 2011. This also means "US Bonds" will be "junk status" ? This will lead to a crash in US Bond prices as who wants to hold “toilet paper” as an investment ? This is another way to say that "US Bond Bubble" will burst ?

Let us not forget S & P's recent announcement that - AAA rating of US Sovereign Debt may need to be revised to a few notches lower in 2013, if US Fed cannot put it's house in order as regards its Federal Debt which is near US $ 14.30 trillion. This is almost equal to US GDP. How do Ben & Co - plan to service this debt ? In my view print more US Dollars and keep the US Ship afloat. But there will come a point when with so much US Dollars being printed and pumped into the financial markets via QE 3s and 6s etc - "hyperinflation" will set in and there will be a complete failure of the US Banks like in 1930. No one can avoid this situation except Paul Volker. Bring Volker in, instead of M/s. Ben & Geitner Inc. and so shall America be saved. Failing which one will see complete collapse of US Financial system (repeat of 1930) in December 2012 through June 2013. We repeat no one save America ! The story is over and with America shall sink China, Japan, South Korea and Taiwan, in this order. People are telling us since early 2009 that we are “too pessimistic” about US Economy and as a consequence the economies of China, Japan, South Korea and Taiwan. See for yourself – the price of US Dollar since January 2009 and the value of the US Dollar index ? Do we need to say anymore ???

What we said January 2009 and re-endorsed in October 2010 - is now being endorsed by the rating agency S& P. There is a serious possibility of US Sovereign Debt de-rating in 2013. The problem with us is we are too early in our predictions ?

3. Global Equity Markets : We advised our paid Indian clients to be completely out of equities in December 2010. We advised investors in our last update to be completely away from Indian Equities till June 2011. For Indian and global equities investors, we again repeat - Please cut your exposure to equities to "nil" from date till June 2013. Move into "physical Gold" and CHF Sovereign Debt till June 2013. Our short term target for BSE SENSEX is 15960 in June 2011.

We repeat what we have mentioned in our October 2010 post on Indian equities and ^DJIA as under :

“We predict ^ DJIA to be in the region of about 3000 to 1500 around between December 2012 to March 2013. All our associates and clients think that we are ”too pessimistic” on the ^DJIA. Only one of our associates in Switzerland agrees with us on the ^DJIA levels and is even more pessimistic than us. His target for ^DJIA is 1000 in a few years. Bob Prechter founder of M/s. Elliot Wave International says that ^DJIA can test 3000 to 2000 levels in a few years. One can imagine the plight of other global equity indices during the said period when ^DJIA is in the region of 3000 to 1500. We have mentioned earlier that US economy will recover from the year 2013 through 2017. There will be a new world economic order with a new global reserve currency which will be linked to or be a part of Gold post this financial crisis as predicted in December 2012 through March 2013 in the US economy.”

“BSE SENSEX will also correct during the said period and may test 6500 to 5000. India will be the third largest economy in the world by the year 2020. Somewhere in 24 months period during the years 2013 thru 2017 – BSE SENSEX will double from 22500 to 45000+ or from 30000 to 60000. As of now we predict that in 2014 to 2016 – BSE SENSEX will double from 22500/30000 to 45000/60000 respectively. It is too early to predict accurately on the said two year golden period for Indian Equities, but we will reconfirm at an opportune time well in advance as usual !”

We again repeat - we will enter Indian Equity markets only in June 2013 and remain invested till June 2016. Three years holding period - with all our recommended stocks giving returns in excess of 300.00 %. In some stocks we anticipate returns of 450.00 to 900.00 % in the predicted historical "bull phase" of Indian Equity Markets in the said period. We will announce our list of stocks at an opportune time in early 2013.

4. Crude Oil : Our next target for Brent Crude is US $ 150.00 pbbl in June 2011. We stick to our target for BRENT Crude Oil @ US 180.00 to US $ 200.00+ pbbl by December 2012.

Libyan situation will end soon with assassination of Gaddafi by NATO forces. This will lead to a US $ 20.00 pbbl correction in Brent Crude Oil prices the day Gaddafi is killed. But again in a short time Crude Oil prices will start rising as Iran may erupt ?

5. Inflation : Inflation globally remains a worry with Crude Oil @ 126.06 pbbl (closing at NYMEX for Brent Crude futures on 4/29/2011). Indian Central Bank has raised interest rates in April and so has PBC, Beijing. We will see more interest rate hikes in India and China over the next two years. Indian Government will raise prices of Diesel, Petrol (although totally de-controlled by the Government of India {GoI} - OMCs have been told by the GoI to defer the price hike till elections are over in a few states), SKO and LPG. This will further stoke inflation and one will notice Indian Equity markets taking a serious knock.

The best bet against inflation is Gold !

People around the world say - we are obsessed with Gold. Yes we are in love with Gold !

In conclusion - exit Equities and US Bonds. Move cash to physical Gold and CHF Sovereign Debt. Take advice on allocation into these two assets by your certified Financial Planner. Our allocation - 85.00 % in physical Gold and 15.00 % CHF Sovereign Bond.

MARCH 2011

We wish investors and associates a belated prosperous 2011 !

Our update is late by two months as we were waiting for Crude Oil to test US $ 100.00 pbbl as predicted in our forecast as of October 2010. We refer to our update for October 2010 from where we produce excerpts as under :

October 2010 - "There is a strong resistance at US 87.30 pbbl. If Crude Oil closes above this level of US $ 87.30 pbbl for fifteen consecutive trading days at NYMEX then it will zoom a level of US $ 96.00 to US $ 100.00 pbbl in October thru December 2010." BINGO - this happened, but in February 2011 !

In fact Crude Oil prices tested a high of US $ 113.49 pbbl at NYMEX for WTI futures and a high of US $ 120.00+ pbbl for BRENT Crude futures at NYMEX/ICE on 2/24/2011 on account of
geo-political tensions in North Afica and Middle East. The trigger was Libya as against our prediction of Pakistan, Iran and North Korea as per our last update. For all future reference in our updates - Crude Oil will mean BRENT Crude prices at NYMEX or ICE and not WTI Crude prices. Since WTI Crude is not exported by USA - it has lost its historic benchmark status as far as we are concerned.

We repeat - In all future reference in our updates - the benchmark reference of Crude Oil will be BRENT Crude Oil futures prices at NYMEX or ICE, London and not WTI futures prices at NYMEX.

We have been bearish for Indian Equities since 11/30/2010 and we were right. BSE SENSEX closed today - 2/28/2011 at a level of 17823. It tested a low of 17200 in February 2011. A correction of about 18.50 % ( November intra-month high of 21080) as against our prediction of about 15.00 to 20.00 %. We were very close in our prediction for BSE SENSEX !

We continue to be bearish on Indian Equities for the month of March 2011. The level to watch is the 200 DMA of - 18190. If BSE SENSEX closes below this 200 DMA level for fifteen consecutive sessions at BSE - then we expect it to correct to a level of 15900. On event of geo-political tensions spreading to Algeria, Iran and Oman - there could be heavy FII ouflows from Indian Equity markets on account of spiralling inflation and higher current account deficit in India. Govt. of India still imports seventy percent of its Crude Oil requirements from West Asia and Africa. If the pro-democracy contagion spreads to Algeria, Iran and Oman - then expect BSE SENSEX to correct to a level of 14840 or even 14500 in March through April 2011.

China

will crush any pro-democracy movement and so will Iran. Iran may spin out of control but the Chinese will crush the same at any cost. Even if it means one thousand Tianamen Squares !

FIIs have pulled out US $ 3.60 billion ( provisional) from Indian Equities in calendar 2011 till date and BSE SENSEX corrected to low of 17200 in calendar 2011 till date. FIIs pumped in a record US $ 30.00 billion into Indian Equities in calendar 2010. The earlier high was US $ 18.00 billion in calendar 2007. This is just for reference. We predict a very serious FII outflow from Indian equities in March through June 2011 - hence are bearish on Indian Equities. In fact we have been bearish on Indian Equities since end November 2010 as mentioned in our last update. We are bearish on Indian equities on account of soaring inflation in India due to high food prices and high anticpated Crude Oil prices in March through June 2011.

However BSE SENSEX may have an upside in March 2011 due to bullish ^DJIA. Levels to watch for BSE SENSEX for Marh 2011 are :

R1 18190 ( 200 DMA) R2 18500
S1 15960

We predicted Gold to test a level of US $ 1500.00 pto by 12/31/2010. We were off by 4.50 %. Spot Gold tested a life-time high of US $ 1432.00+ pto in New York spot in January 2011. We were off by three weeks on the time horizon and 4.50 % off on the price target.

We expect Gold prices to test US $ 1500.00 pto in March 2011 on account on "global inflation" due to high Crude Oil prices. Our target for BRENT Crude for March 2011 is US $ 126.00+ pbbl.

We advise Indian investors to stay away from Indian Equities till June 2011. If one has to invest in Indian equities then only have exposure to Crude Oil stocks in India - ONGC, CAIRN INDIA and HOEC. We have exposure to only three Indian Stocks as above since November 2010.

Do not be surprised to see Gold at US $ 2250.00 pto in June-July 2011 and BRENT Crude at US $ 150.00+ pto in June 2011. Cheers to Gold !

DECEMBER 2010

BSE SENSEX closed today Tuesday 11/30/2010 at a level of 19521. Intra-month high and low for BSE SENSEX were 21080 ( just 0.60 % short of the life time high of 21207 as of January 2008) and 18955.

We predicted in our last two months updates that global equity markets will correct in December by 15.00 to 20.00 % on account of Eurozone Financial crisis. Ireland is bailed out the EC as per details given later in this note. Next to go is Portugal and followed by Spain ? We were two weeks ahead on our prediction ? We had advised investors to have almost nil exposure to equities. BINGO !

India’s Central Bank – RBI on 11/2/2010 again hiked key interest rates to tame inflation in the Indian economy. Hawkish RBI hiked “Repo Rates” and “Reverse Repo Rates” by 25 bps each to now 6.25 % and 5.25 % respectively with immediate effect. LAF spread is now only 100 bps in India. This is the sixth hike in interest rates by RBI in India in the current fiscal. This marginal hike was already discounted by Dalal Street and hence BSE SENSEX did not correct at all on this announcement. RBI however left CRR and SLR unchanged. This hike will affect housing mortgage interest rates in India primarily. We feel real estate prices in some pockets in India are unrealistic. We have mentioned this to our associates and clients since the past few months. We feel there is nexus between the politicians and the real estate developers in New Delhi Region and Bombay to artificially “jack-up” the prices of residential real estate. We would like to put in on record that residential real estate sector in India is not “transparent” as in the developed world. About fifty percent payment is made by the buyer in cash (black money) and balance fifty percent is made through the banking channel. There is almost a parallel “black money” economy running in India as per some analysts. In that case actual Indian GDP is in excess of US $ 2.00 trillion. We feel this figure is exaggerated. For every one Rupee which is running in the banking sector in India we feel there is fifty paise running in parallel in the black market in India due to a variety of reasons including high tax rates – both corporate and individual.

Indian PSU Banking Sector have lent huge amount of funds to real estate developers on the basis of the “collaterals” which is the land-bank. The prices declared and valued of the said collateral is fake, as per our understanding. In most of the cases the prices at which the “collateral” is valued two times the actual market value. We feel that prices in Delhi Region and Bombay will correct in the next months or so. Investors who are planning to buy a flat or a bungalow in these geographies can wait for the next few months, as we expect a correction in the range of 20.00 to 25.00 %. Corrupt bank officials in the PSU banks are exposed along with the middlemen who are working on behalf of the real estate developers to get the loans sanctioned. It is all happening in India as predicted. BINGO AGAIN !! Housing Sector scam has come to light in India as predicted to our associates a couple of months back. On 11/24/2010 a few PSU Banks and a few finance companies have come under the “scanner” of CBI and we think this Housing loan scam will be to the tune of US $ 3.00 to 4.00 billion. Life goes on in India with these small scams. Yes – property prices will correct in India.

IMF in September 2009 got a mandate from its BoDs to sell 403.30 tonnes of Gold. Indian Central Bank - RBI bought 200.00 tonnes of Gold in October 2009 at average price of US $ 1045.00 pto from IMF. IMF was left with only 203.30 tonnes of Gold to sell to Central Banks in the world. In the calendar Q2 2010 - Central Banks of Mauritius and Sri Lanka bought 10.00 tonne of Gold each from IMF. In July 2010 – Central Bank of Thailand bought 15.60 tonnes of Gold from IMF. In September 2010- Central Bank of Bangladesh bought 32.00 tonnes of Gold from IMF. In Q3 2010-about 84.00 tonnes of Gold was sold to Central Banks of Russia, Philippines and Turkey. Russia in calendar 2010 has bought a total of 178 tonnes of Gold. These figures are as per IMF. Hence as of 10/1/2010 – IMF has only 52.00 tonnes of Gold on offer for sales to global Central Banks. This small quantity of about 52.00 tonnes of Gold, as per our analysis will be sold to Central Banks in the emerging markets by 12/31/2010 if not earlier. Even Central Bank of Vietnam has granted more quotas to import physical Gold by 12/31/2010, in a bid to cool domestic Gold prices as per Official State run media report of 11/24/2010. China’s Gold consumption will rise by 4.00 % to 430 tonnes in calendar 2010. China produces 270 tonnes of Gold per annum and is the world’s largest producer of Gold now – slightly ahead of South Africa. China will be a nett buyer of Gold in the near future. Indian imports of Gold in the calendar 2010 will be around 600.00 tonnes. We will be on our target to see a price level of US $ 1500.00 pto by 12/31/2010. NY Spot Gold prices closed at US $ 1370.30 at COMEX on 11/29/2010.

Head of the Central Bank of Iran informed the world media on 11/3/2010 that it bought physical Gold worth US $ 15.00 billion in the past twelve months from open bullion market. This means about 390.00 tonnes of physical Gold. It is important to note by doing so - Iran has converted 15.00 % of its forex reserves into “Physical Gold”. As of 11/1/2010 – Iran’s forex reserves were about US $ 100.00 billion. Iran has bought this huge quantity of Gold neither from IMF and nor from ECB. This leads to the assumption that Iran has bought this Gold from bullion banks in London or Geneva. This lead Gold prices to spike to a new lifetime high of US $ 1425.50 pto Spot New York on 11/9/2010. London Fix too tested a new lifetime high of US $ 1421.00 pto on 11/9/2010. The issue now is that all Central Banks in the developing economies around the world are nett buyers of physical Gold since the past one year. Even some Central Banks in Europe have stopped selling physical Gold. There is news that Gold is “attracting” huge speculative positions on the major global commodity exchanges including COMEX. Physical Gold is not an asset class yet and is “under-owned” by Global Financial Institutional Investors, Insurance Companies, Pension Funds and Trusts etc. Global Gold ETFs have shown huge accumulation of physical Gold since the past eighteen months with world’s largest Gold ETF – SPDR now having excess of 1320 tonnes of Gold. This ETF - SPDR is listed on NYSE (Code:GLD). Just for information SPDR’s Gold holding is more than twice the amount of Indian Central Bank’s Gold Reserves which are at 558 tonnes only. China’s official Gold reserves are at 1054 tonnes only ? The relevant details are mentioned on our “Special Update 4^th November 2009 – Gold” on our webpage.

Where do Central Banks in EMs go if they have to buy further Gold ? IMF has no further mandate to sell physical Gold. Central Banks will have to buy any further physical Gold only from Bullion Banks in London and Geneva etc. This will further push up prices of Gold as any buying by Central Banks means lesser and lesser confidence in the US Dollar and also is an indication to protect “their own currencies” which are at multi-year highs against the US Dollar. Thai Baht being a classic case testing at a 13 year peak to a US Dollar at 29.53 Baht in Mid-November 2010.

Speculation in Gold is a matter of concern to us as this yellow metal can be “accumulated” on the global commodity exchanges especially – COMEX. What we fear is that CFTC might intervene as in 1971 when Hunt Brothers were accumulating Silver at COMEX ? On 11/9/2010 – Gold and Silver tested new highs and CME was concerned about “huge speculative trades” at COMEX. After the closing bell at COMEX on 11/09/2010 – the exchange informed members that as at the close of the trade tonight increases in deposits and margins on Silver contracts would come into place. In other words – to curb speculative trading in Sliver at COMEX, the exchange authorities (CME) hiked deposits and daily margins on speculative positions on Silver. Insiders had the news already and in the dying moments of close of trade at COMEX on 11/09/2010 - Silver prices crashed by nearly ten percent and Gold by nearly three percent. More details as per web link as under :

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=114625&sn=Detail&pid=102055

This had effect on Spot prices of Silver and Gold on the other commodity exchanges in the world – London, Hong Kong and Tokyo etc. on 11/10/2010 when the prices corrected for Gold and Silver. All base metal prices also corrected globally. But prices of Silver, Gold and other precious metals recovered within a period of two weeks.

Inflation is also fuelling China. There are fears of further interest rates hike by PBoC in the near future. Speculative trading at commodity exchanges in China was a matter of concern for Chinese authorities. To curb speculation in all commodities - Chinese Govt on 11/26/2010 hiked cash margins on commodities with effect 11/29/2010 on all trades at Shanghai and Dalian Commodity Exchanges. This lead to a correction in prices of all base metals including prices of Gold globally on 11/26/2010. This is the last resort before PBoC again hikes interest rates in China as inflation especially “food inflation” is rising due to higher Agri-commodity prices. The Agri-commodity prices have gone up globally and this gain is not China specific. The move was to curb “speculative trading” in commodities. We feel the prices of Gold will again resume their upward journey in a matter of a week or so.

We fear contractual failures in Gold at COMEX, ICE etc across the world in 2011. Physical delivery of Gold will be “short” sometime after Q3 2011 globally, as Central Banks, Financial Institutions, Insurance Companies and Pension Funds etc will be buyers of physical Gold after Q1 2011 onwards. Hence we had advised in our October 2010 update that – High Net Worth NRIs and PIO should buy “physical Gold” and store the same outside their country of residence and outside the banking system. We had advised storing physical Gold in private vault in Zurich, Switzerland. We will do the same for a fee as we are tying up with a Gold Asset Management Company in Zurich. Indian HNWIs should buy physical Gold and store in the vaults of State Bank of India only. They were advised to buy only UTI’s Gold ETF code : GOLDSHARE. Their will be “custodial risks” with other Banks in India and with other Gold ETFs except UTI’s GOLDSHARE. Trust matter is well understood by the target investors.

Jeffery Nichols a renowned analyst predicts Gold heading towards US $ 2000.00 to US $ 3000.00 pto in a few years. Jeff Nichols is the President of APMA, New York and his views are respected. For further details please log onto the web link as under :

http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=114204&sn=Detail&pid=102055

We agree with Jeff Nichols who is well respected globally in the field of Gold and other precious metals. He is a bit conservative with the price targets on Gold !

David Levenstein another global renowned analyst mentions – Gold prices continue to soar on the back of the declining US Dollar. For further details log onto the web link as under :

http://www.mineweb.com/mineweb/view/mineweb/en/page103855?oid=114428&sn=Detail&pid=102055

Morgan Stanley is now backing Gold ! Their recent report on currency view suggests sustained support for Gold on the back of weak US Dollar for the year 2011. For further details please log onto the web link as under :

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=114700&sn=Detail&pid=102055

Global equity markets in the emerging world tested new highs after US Fed announced QE2 on 11/3/2010. The US Govt. will buy US Sovereign Debt Bonds worth US $ 600.00 billion over the next six months or so under QE2. Our estimate was US $ 700.00 billion as per last month’s forecast. No we have moles in Ben’s Office ? This was a moderate figure and global commodities tanked as US Dollar surged against the basket of currencies. We have said in the past that QE measures will not work for the US Economy, as it leads to ‘printing US Dollars’ which will finally lead to inflation in the US Economy. US Fed will announce QE3, QE4 to maybe QE10 before the catastrophic demise of the US Dollar as predicted in January 2009 on our website. We need structural reforms in the US Financial markets. Cut spending and raise Government revenues. This is basic economics. Please log onto an article by renowned American economist - Prof. Joseph Stigltz who endorses our views that these QEs will not work ? Log onto web link under :

http://www.cnbc.com/id/40125556?__source=yahoo%7Cheadline%7Cquote%7Ctext%7C&par=yahoo

Now someone as renowned as Howard Davidowitz agrees with us that the US Dollar is under “serious threat” by the year 2012, on account of huge borrowing by the US Fed and reckless printing of the US Dollar. BINGO !!! Please log onto the web link as under :

http://finance.yahoo.com/tech-ticker/%22obama-is-toast%22-davidowitz-says-u.s.-to-face-dollar-crisis-by-2012-535652.html?tickers=udn,tbt,%5Etnx,uup,%5Edji,%5Egspc,TLT

China, Russia and Saudi Arabia have quietly started dumping the US Dollar. They are selling US Bonds of longer maturities say 30Y Bonds and buying shorter maturity Bonds say a 1Y or 2Y US Bonds. Plus China and Russia are selling US Bonds and converting the cash into buying “hard assets” – agricultural land in Vietnam, Combodia and Continental Africa. China and Russia have decided to start import and export of products amongst themselves not in US Dollars but under a specially structured mechanism through their respective Central Banks – “Yuan and Rouble Bank Clearing System”. Under this mechanism each country’s Central Bank will keep certain amount of other country’s currency. The payments are made in Yuan and Rouble respectively. The settlement is done as of now on “quarterly basis” but later if the scheme is successful – settlement will done yearly basis. This is exactly on the line of “Indo-Russian Rupee-Rouble Trade Agreement” which was in place from 1970s through 1990. China and Russia are following exactly the same successful mechanism of trade without the involvement of US Dollar. Saudi Arabia is buying US defense hardware worth US $ 60.00 billion including Fighter Jets, Tanks, Missiles and Anti-missiles hardware etc. There are un-confirmed reports that Saudi Arabia will triple its Gold Reserves in the calendar year 2011.

What is saving the US Economy unlike Iceland, Greece, Ireland and Portugal etc is that US Fed Reserve can “still” borrow more US Dollars in the international markets. Central Banks around the world still have faith in US Dollar. Countries like Iceland, Greece etc mentioned above could not borrow anymore as the Bond investors had no faith left in their Sovereign Bonds as they had reached “junk status” ratings by the likes of S &P, Moodys and Fitch etc. Ben & Co are printing US Dollar recklessly and are keeping the US Economy “afloat”. The question is till when ? The answer is till another two years max and one shall see the collapse of the US Dollar towards the end of the year 2012. Obama and Ben – are on the sure shot path of destruction of the US Dollar and hence the US Economy. Howard Davidowitz comments as above as per weblink also mention exactly the same and incidentally he also predicts demise of the US Dollar by December 2012 ?

We have also been cautioning the investors since the past year or so about the impending “bubble” in the US Bonds. As per Robert Rubin – former US Treasury Secretary, China cannot not dump US Bonds but countries like Singapore, Malaysia and Thailand etc can dump US Bonds as the yields drop further to historic sub 2.90 % levels for the benchmark 10Y US Bond. Our view is endorsed by Robert Rubin on the status of US Bonds and the QE by US Fed. For complete details please log onto the web link as under :

http://finance.yahoo.com/tech-ticker/update-rubin-warns-of-bond-market-implosion-us-in-terribly-dangerous-territory-yftt_535621.html

On the back of the QE2 - ^HSI in Hong Kong tested a fresh fifty two week high of 24989 on 11/8/2010. ^STI and ^TWII too tested fresh fifty two week highs of 3314 and 8474 respectively on 11/8/2010. ^KOSPI hit a fresh fifty week high of 1976 on 11/11/2010. South Korea has also increased interest twice in the calendar 2010 to cool inflation due to heavy FII inflows into its equity and debt markets. This injection of fresh liquidity in the US financial markets to the tune of say US $ 75.00 billion per month by way of QE2 will result in flight of “capital” from USA to the EMs in the world wherein the equity markets will rise further as per our analysis.

The problem with these US Dollar inflows into EMs is that it causes “currency appreciation” of the EMs – which makes their exports un-competitive. Also huge foreign capital inflows will lead to higher inflation in EMs and lead to higher ‘current account deficits” as exports are hit due to currency appreciation of EMs versus US Dollar. Central Banks in EMs have hiked interest rates a few times in calendar 2010. Central Banks of the EMs will have to intervene by selling US Dollars from their forex reserves to ‘sterilize’ these huge capital inflows from USA. Other options could be to impose “Special Tax” on “Non-FDI Capital Inflows” by the Central Banks of EMs who are under pressure of hot-money pouring into their economies from USA. PBoC has been the most pro-active Central Bank in EMs to protect its Yuan. BoJ’s intervention to protect its JPY has had no effect. Indian Central Bank has so far not intervened to protect INR appreciation against the US Dollar. Let us see at what level RBI will intervene to protect the appreciation of INR against the US Dollar ? RBI could impose TOBIN tax on ‘hot-money’ pouring into Indian equity markets. We wish Indian Central Bank – RBI is listening ? As per Goldman Sachs - Indian “current account deficit” will exceed the targeted level of 4.00 % of its GDP for the current fiscal ending 3/31/2011, if the current level of exports and imports trend remains in tact for the balance four months in the current Indian fiscal year. Indian Exports are seriously hurt on account of recession in USA and EU- largest export markets of Indian goods. INR tested a twenty six month high of 43.95 to a US Dollar on 10/15/2010 as mentioned in our last month’s update. It tested a low of 45.90+ on 11/29/2010 thanks to the EU Financial crisis and Korean military engagement as mentioned later in this note. We are not all – forex experts but we feel that by 12/31/20100, INR will be around 46.10+ to a US Dollar and not 42.00 to a US Dollar as predicted by the Chief Economist at YES BANK, as mentioned in our October 2010 update. We strongly feel that the Indian Central Bank-RBI should seriously intervene to stem the appreciation of INR versus the US Dollar on account of heavy FII inflows into India. Failing which the Indian “current account deficit” will exceed the target of 4.00 % for the current fiscal ending March 2011. FIIs do not like to invest in the economies over the long-term (FDI) period, if the country has a repeated history of large “current account deficits” as a percentage of their GDPs. As mentioned earlier – RBI should consider introducing TOBIN Tax on hot FII inflows.

Even key European indices hit near two year highs on the back of the rally in ^DJIA post the QE2 announcement. ^FTSE tested a two year high of 5902 on 11/9/2010. ^DAX too in Frankfurt hit a near two year high of 6811 on 11/9/2010. The Brazilian benchmark index - ^BVSP traded close to its fifty two week high of 73100+ till Mid-November 2010 but slipped on 11/23/2010 onwards on fears of growing “inflation” in the Brazil. Hence stoking fears of an “interest rate” hikes by the Central Bank of Brazil under their new President Ms. Dilma Rousseff. It is worthwhile to note that Brazil has been the only country with a “fully afloat” currency in the EM pack to protect its currency – REAL from further strengthening against the US Dollar by imposing a “special tax” on Non-FDI capital inflows. A strong Real on account of overseas fund flows – hurts Brazilian exports and causes its “current account deficit” to rise. Brazilian Government under popular President Silva Lula – tripled a “special tax” in October 2010 on overseas purchases of Real denominated Debt to stem a two-year forty three percent rally in the Real versus the US Dollar and rein in the ‘current account deficit’.

The only country in the BRIC pack and the Asian economies to put a ‘inward tax’ on FIIs inflows to control the appreciation of Real against US Dollar. We appreciate the efforts of the Brazilian Central Bank. We wish RBI is listening in India ?

The Russian benchmark equity index - ^RTSI in Moscow is disappointing @ 1580.00 levels. Russia has problems of GDP growth @ 4.00 % only for calendar 2010. In calendar 2009 – Russian GDP contracted by a whopping 7.90 % -worst in fifteen years. Russia was the worst hit economy in the BRIC pack the year 2009. As per our analysis Russia is a “mafia state” and cannot be compared with India and China. It has lost the race in the BRIC pack. There is criminalization of bureaucracy, dilapidated infrastructure, collapsing defence production facilities and poor labour productivity in Russia. What is keeping Russia “afloat” is high Crude Oil prices – above US $ 80.00+ pbbl. This economy will have serious problems if Crude Oil prices dip to US $ 60.00 pbbl levels. As per the global situation as of date - this price level of Crude Oil at US $ 60.00 pbbl looks difficult for the year 2011. Russia starts to slip into “budget deficit” status if Crude Oil prices stay around US $ 60.00 pbbl levels. Yes – Crude can slip to US $ 60.00 pbbl levels if the US economy does not recover and slips into recession again in 2012 as predicted. This is what some renowned economic analysts around the globe call the impending “double-dip recession” in the USA.

If the US Economy recovers in Q2 2011 – then Crude Oil prices could test US $ 96.00+ to US $ 100.00 pbbl levels. American Crude Oil analyst Mr. T. Boone Pickens of M/s. BP Capital Inc. predicts that the global demand for Crude Oil in 2011 will be around 88.00 million bpd against a supply of only 86.00 million bpd. Mr. Pickens expects the price range to be in the band of US $ 90.00 to US $ 95.00 pbbl in 2011. Mr. Mihir Worah of M/s. PIMCO Commodity Fund predicts a price of Crude Oil at US $ 100.00 pbbl in 2011. We are sure that US Economy will slip into deep recession in 2012 if not in the second half of 2011. We are very bullish on Crude Oil in 2012 on account of a very very weak US Dollar. Our target for Crude Oil for Q4 2012 thru Q2 2013 is around US $ 150.00 pbbl. Prices will settle down to lower levels in 2014 thru 2017. Crude Oil futures tested US $ 88.70+ pbbl at NYMEX on 11/11/2010 – a two year high. The prices retraced below US $ 81.00 pbbl in a matter of a week. Our view on Crude Oil remains the same as of our update of October 2010.

During the first three weeks of November US Dollar was weak against basket of currencies and specifically against CHF and Australian Dollar. Even the Canadian Dollar is coming on parity with the US Dollar as did CHF a few weeks back. Canadian Dollar has been the “best” currency amongst the sixteen globally afloat currencies since the past four weeks. CHF has gained about fifteen percent against the Euro since the start of Eurozone financial crisis with Greece. A strong CHF also hurts exports from Switzerland. We expect a short term rally in US Dollar as everyone is “short” on the greenback and the rally to fizzle out in January 2011. The Eurozone financial crisis has lead to US Dollar appreciate versus the Euro. We feel the long-term prospects of both US Dollar and Euro are very weak. Our currency of preference in the Eurozone is CHF and in Asia is the Singapore Dollar.

^DJIA tested a fresh fifty week high of 11452 on 11/5/2010 based on a better employment data from the economy. But unemployment rate officially remains at 9.60 % in USA ? U.S. government reports showed on 11/17/2010 that the increase in consumer prices and housing starts trailed economist forecasts, bolstering the Federal Reserve’s case that it needs to buy Treasuries to spur growth. QE3 maybe needed sooner than expected. Economic data from USA continues to disappoint the Wall Street but the benchmark index ^DJIA is still bullish. This defies logic and anything which defies logic gives us jitters. It is our view that we will see ^DJIA at 9600 levels in December 2010 if the macro-economic data continues to be weak from the US Economy. Ireland is just bailed-out.. There is still Banking crisis and Sovereign crisis looming large in EU economies of Portugal and Spain. Portugal is a small economy but if the contagion spreads to Spain – there would be bloodbath in EU Equity markets. Please note the Spanish economy is equal to the economies of Greece, Ireland and Portugal put together. Another issue which could add fuel to the fire is the Korean military issue. We in any case have been bearish for the global equity markets for December 2010 since the past three months.

^DJIA closed at 11052 on 11/29/2010. The levels to watch for ^DJIA for December are :

S1 11000 S2 9800 S3 9600

R1 11310 R2 11500

Global equity analysts are not in agreement with us that ^DJIA could test 9600 level in December 2010. We are very cautious even at this level of 9600 also. If Spain needs at “bail-out” from EU on account of its Sovereign Debt crisis – then all bets on ^DJIA levels are called off ? One can see ^DJIA at a level of 8590 in December 2010 or in Q1 2011. Expect a “blood bath” in European Equity Markets.

World Bank President – Robert Zoellick on 11/8/2010 ahead of the G20 summit meet in South Korea, told Financial Times propagating a “Bretton Woods II” system of floating currencies wherein he mentioned that policy makers should also consider employing Gold as a reference point. In other words suggesting a modified global “Gold Standard” for the US Dollar. This comment surprised the global media as it compromises the position of the US Dollar. For complete details please log onto :

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=114456&sn=Detail&pid=102055

Gold takes another step towards monetization – an article by our dear friend from South Africa is a “must read” for investors who have faith in long-term prospects on Gold and its importance in the next few years as a cornerstone for global currencies. Please log onto the web link as under :

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=114600&sn=Detail&pid=102055

Data from China is a mixed bag. Data from China hurt the sentiment in Asia on 11/10/2010. China’s import growth in October 2010 was slower than expected, indicating softening domestic demand. Chinese Crude Oil imports fell 30.00 % in October 2010 as compared to the same month in 2009. Data on 11/11/2010 was some what confusing. China’s industrial production grew 13.1 % in October 2010 as compared to October 2009. Corporate earnings in China were better than expected. There was a substantial jump in new Yuan loans in the month of October 2010 in China. Chinese micro-economic data is difficult to get and the authenticity as per our view is questionable ? China needs to ‘re-value’ its Yuan as it is creating huge “current account” deficit in the US Economy as Chinese imports flood the US economy. But China refuses to budge on the Yuan ‘re-valuation’ issue ? We feel China is stuck with worthless US Bonds worth US $ 900.00 billion and does not know what to do with these Bonds. As per understanding - China might take action on this US Bonds issue first and then address the Yuan ‘re-valuation’ issue.

Chinese Central Bank – PBoC, raised RRR (Required Cash Ratio Reserves) by 100 bps for its biggest commercial banks on 11/10/2010, to mop up some of the cash that is streaming into its economy and posing a growing inflationary threat. This is on the account of fresh round of money printing by the US Federal Reserve on the back of said QE2 announcement –which is leading to huge FII inflows into EMs including China. Chinese consumer price inflation in October 2010 (4.40 %) rose to its fastest pace in two years. ^SSE COMPOSITE index in Shanghai corrected by 5.16 % on 11/12/2010. Chinese Central Bank again indicated on 11/16/2010 that it would again hike interest rates in the very near future to ‘cool off’ inflation and control high real estate prices in mainland China. There were unconfirmed reports that four main Chinese Banks will curtail lending to Residential Real Estate developers in China. In four trading sessions (11/12 thru 11/17/2010) - ^SSE COMPOSITE lost 10.06 % rattling almost all Asian Equity markets and leading to a correction in all base metal commodities including Gold which corrected to a low of Spot US $ 1328.20 pto on 11/16/2010 in New York. On 11/19/2010- PBoC further announced a hike in RRR for all major Chinese Banks by another 50 bps to further reduce liquidity in the financial markets. In China RRR now stands at a whopping 18.50 %. This figure as per our analysis is the highest in the EMs and other Asian economies. We have mentioned in our last update the problems in the Residential Real Estate sector in China. As per our analysis – the damage is done in China. The major four Chinese banks have lent too much money to the Real Estate developers like – Vanke and Poly Reality etc. NPAs ? Now watch the movie in China on a seventy mm screen !

We have mentioned in our last two updates categorically that we expect global equity markets to correct in December 2010 on back of ‘European Financial Debt’ crisis. We were ahead by about two weeks. A close call ! The first indication hit the global markets on 11/12/2010 – Ireland’s “banking sector” may need a bail-out in the very near future. Even Greece may need some more “financial aid” as their revised budget deficit is more than estimates. Over the weekend 11/28/2010 - EU and Ireland finalized a “bail-out package” for Euro 85.00 billion to save the large ailing Irish Banks and also service its Sovereign Debt. Ireland’s budget deficit is estimated to be about 32.00 % of its GDP for the calendar 2010. This deficit is catastrophic and a record high since post world war era. Irish banks had suffered huge losses on account of the real estate crash of the year 2008.

We had predicted that Spain would be the first out of Ireland, Portugal and Spain which would need a “bail out”. After the Irish bail-out, it seems that the next on the list is Portugal and Spain. Please visit the Reuters web link as under to get an idea about the gravity of the financial problems in these three EU economies. In Spain Bond prices fell the most on 11/29/2010 – highest daily fall since the start of the Euro era. Fiscal situation is not good in Spain and Portugal. Please log onto :

http://graphics.thomsonreuters.com/F/10/IE_ECON1010.gif

Portugal 10Y Sovereign Bond yields hit lifetime highs on 11/26/2010 in excess of 7.00+ % indicating the trend that Portugal is next in the line ahead of Spain where 10Y Bond yields have also risen past 5.90+ % level. Also there were a few buyers of the Spanish Bond auction on 11/23/2010, which fell short of the target. These are not good signs for the Spanish Sovereign Debt. Portugal will be mauled next. It is important to note that Greece, Ireland and Portugal account for 2.00 % each of the EU Economy. Spain accounts for 10.00 % of EU Economy. If Spain needs a “bail out package” then Eurozone as an economic block will be shaken. Then even the US $ 1.00 trillion IMF Eurozone Financial Aid package will be insufficient to keep the economies in the Eurozone solvent. Spain “going down under” will be a disaster for the very existence of the Euro. We feel Spain will sooner or later need a a “bail out package”. Spain as mentioned in our last month’s update has a residential real estate crash since 2008 and now has an unemployment level of whopping 20.00 %. Spain may need a “bail-out package” within the calendar 2010 or in early 2011. It seems Bond manipulators are fishing for smaller “fishes” first – Iceland, Greece and Ireland etc before mauling the big fish – Spain ? First signal of Spanish distress and one will witness carnage in the Banking Sector equities in entire Europe.

On 11/23/2011 – North Korea (PDRK) stunned the Asian region by attacking the island of Yeonpyeong which is under South Korean control. North Korea claims that this island (one twenty miles west of Seoul) is a disputed territory. This is the heaviest shelling by North Korea on the South Korean soil, since the Korean War ended in 1953. This lead to equity markets across the globe to correct on 11/23/2010. Indian equity markets corrected with the least beta. Equity markets recovered in a couple of days but we feel that North Koreans cannot be trusted. There are serious domestic problems of food shortage and widespread diseases like Tuberculosis and Swine Flu in North Korea. Plus there is an issue of regime range with the youngest son (Kim Jong-un) of the President – Kim Jong-il, to be anointed as the successor. Till the regime range is over this area will remain under tension. Only China can tame North Korea. Even Russia which shares the border with PDRK –has little influence on the current leadership in Pyongyang. The nuclear ambitions of PDRK are also un-clear.

North Koreans have built a “super-secret” spanking new uranium enrichment facility right in the heart of the city of Yongbyon and recently invited a renowned American nuclear weapon scientist for inspection ? The American scientist reported to the world media that this new compound in Yongbyon is a well established atomic research compound and is built at a site which is among the most heavily surveilled geographies on the planet earth. The facility has new centrifuges and allied enrichment equipment and will significantly boost North Korea’s nuclear weapons making capacity. This report left the CIA and South Korean intelligence agencies stunned. How did the North Korean’s build a new facility in eighteen months and that too in Yongbyon which has easy access to American satellites and other surveillance equipment ? Analysts assume that the centrifuges at the new Yongbyon facility are from Iran and China assisted on logistics and installation etc. There could be more sites likes the one in Yongbyon in North Korea in the rugged mountain ranges in this reclusive country.

It is a well known fact globally that North Koreans are the best “tunnel-diggers” in the world and this facility has caused alarm bells in Washington and Seoul. This new facility is a “game changer” in the Korean peninsula ?

We have an important issue to address – why did the North Korean’s attack the South Korean island of Yeonpyeong ? Please note our views as under on PDRK’s attack on the said South Korean island.

PDRK : Forecasting Pyongyang's next moves requires taking an educated guess about why the secretive regime chose to launch the attack now. Some scenarios are much less sanguine than the baseline forecast and imply prolonged instability on the Korean peninsula that could keep markets edgy for months or years. Good for Gold ?

We have a few scenarios for discussions as under as to why this attack was initiated. It is much more likely that the attack was planned in advance but that Pyongyang used the South Korean drills as a pretext. This allowed it to claim it was acting in self defence - and PDRK (North Korea) was unusually swift in attacking claiming that South Korea was the aggressor.

a) If the attack really was the result of a spur-of-the-moment misunderstanding or overreaction, this is by no means good news for the risk profile of the Korean peninsula. North Korea has a vast amount of artillery aimed at Seoul that it can unleash within minutes.

b) It was another blackmail attempt. For decades, North Korea's leadership has followed a strategy of trying to get what it wants from the international community through bouts of bad behaviour followed by promises to stop making trouble in return for concessions. It is a strategy that has been highly successful - repeatedly Pyongyang has agreed beneficial deals with the United States and its allies only to abandon them when they cease to be useful. This artillery attack is likely to be the latest example of this strategy in action.

c) North Korea wants to reopen dialogue with the United States and South Korea, but experience tells us that often its idea of getting there is to undertake extreme acts. The United States and South Korea have been notably reluctant to reopen dialogue with North Korea, and so the North chose the shelling of the South Korean military exercises to make its point. However, the North may well attempt more provocations to bolster its bargaining position and increase its leverage -- a third nuclear test certainly cannot be ruled out.

d) It was a bid to gather support at home. North Korea has entered a potentially long and unpredictable period of leadership transition, with the elevation of Kim Jong-il's youngest son, Kim Jong-un, to the rank of General in a clear signal he is the chosen successor. The media has begun celebrating Kim Jong-un as "The Young General" - even though his military experience appears to be zero. The unveiling of a clear succession plan may have led to internal conflicts and sparked anger among other powerful and ambitious members of the military and political elite. The fact that Kim Jong-il may be having to rush his succession plan due to ill health - he is thought to have suffered a stroke in 2008 -- adds to the unpredictability.

The artillery attack, therefore, may have been an attempt to burnish the military credentials of the "Young General" and win him more support among the armed forces. Pyongyang's provocations maybe calculated to boost support at home without sparking a major conflict that the regime does not want and knows it cannot win.

e) It was a sign of desperation. North Korea's economy has been struggling for decades, and the leadership's policy of putting the interests of the huge military ahead of even feeding the population has taken a huge human toll in terms of famine, malnutrition and misery. A botched “currency reform” scheme last year significantly worsened the plight of ordinary North Koreans and provoked rare signs of dissent. Food production this year is believed to have been badly hit by flooding and winter is coming. The regime has survived in the past despite inflicting mass starvation on its people, but particularly if hardship is also affecting senior members of the military, there may be an element of desperation in this attack. Kim Jong-il may have an urgent need for aid, and the artillery barrage may have been his way of demanding it.

f) It was the military making trouble. “One of the most worrying scenarios is that 11/22/2010 artillery attack, and the sinking of the South Korean Corvette- Cheonan in March 2010, were not ordered or approved by Kim Jong-il at all, but were the work of hawkish and disgruntled elements in the military who are increasingly acting on their own. With the ongoing leadership transition in North Korea, there have been rumours of discontent within the military, and the current actions may reflect miscommunications or worse within the PDRK’s command-and-control structure, or disagreements within the North Korean leadership," geopolitical risk analysis firm STRATFOR said.

If this is the case, the carefully calculated balance that has held the Korean peninsula back from the brink of war may be unravelling. Conflict could be a real possibility.

So if more evidence emerges that a hawkish military is operating outside of control by the senior leadership in Pyongyang, expect a heavy sell-off of South Korean assets and a very significant upward re-rating of investment risks. The key issue for investors is whether Kim and his close allies remain firmly in charge, and are playing the same game that has served them so well in the past, or whether the regime is losing control and the army is increasingly acting alone. The former scenario would be benign for markets. The latter scenario would be a disaster. We should be prepared for the worst as we cannot predict what is happening inside reclusive PDRK (North Korea).

Fresh artillery fire was heard from North Korea on 11/26/2010 – hours after their State run media warned that it was on “brink of war” with South Korea. There were no casualties are the shelling was in the seas and not on the said Island. The Defence Minister of South Korea was sacked by the President of South Korea on 11/26/2010. The situation is very tricky in Pyongyang and no one really knows what is happening in this reclusive State. Investors are urgently advised to move out of all equity assets in Asia. Sit on cash or part-convert to our favourite asset – physical Gold.

We in India are not sitting pretty either ? Our problems are a bit different than China. In India about 400 million people earn less than US $ 1.25 per day. The Indian “growth story” is not inclusive. It is sad that after six decades of independence from the British – about 400 million people in India do not get clean drinking water, have to fall back on almost defunct public health system and lack basic education infrastructure. Our politicians both in New Delhi and various States loot trillions of Rupees every year in scam after scam. India ranks poorly at 87^th position on M/s. Transparency International’s “corruption index” out of 138 nations polled. China is slightly better at 78^th position ! We in India recently have been rocked by major scams – CWG Scam, 2G Spectrum Scam and Defence Housing Scam worth billions of US Dollars. In our view the – “2G Spectrum Scam” is the biggest scam in the history of Independent India. It is worth whopping about US $ 38.00 billion loss to the Indian exchequer. Even the current honest Indian Prime Minister has not been able to “stem the rot” nationwide as regards grafts and slush money is concerned in Government contracts. Somehow this corruption needs to be controlled in the Indian economy and we have no idea who will have the political will to control this malaise.

We wish to print excerpts from a study entitled :- “The drivers and dynamics of illicit financial flows from India : 1948-2008” conducted by an Ex-IMF Indian economist – Mr. Dev Kar, for M/s. Global Financial Integrity Corporation – Washington based non-profit research and advocacy group. The study shows between 1948 and 2008, India lost a total of INR 9600.00 billion in illicit financial flows out of the country. Present value of this amount is INR 21000.00 billion (US $ 467.00 billion), which is close to forty five percent of Indian GDP as of last fiscal year. If India had been able to contain illicit financial outflows it would have been able to wipe out its external debt (US $ 245.00 billion) as of 2008 and had INR 10000.00 billion (US $ 222.00 billion) left for poverty alleviation. Transfer of illicit funds out of India by wealthy individuals and private companies accelerated post liberalization period (1991-2008). About INR 780.00 billion (US $ 17.34 billion) is laundered per annum by Indian individuals and private companies as per the said study into tax havens around the world. Money has been stashed in tax havens like Switzerland, Cayman Island, Seychelles, Isle of Man and Mauritius etc which have loose regulations. This illicit money is on account of tax evasions from Indian authorities, corruption, bribery, kickbacks and criminal activities. We strongly recommend that investors read this article in detail at the GFI Corp, Washington’s website. These illicit flows not only present a challenge for economic development of India but also pose grave national security issues as the main sources of money laundering in India result from illegal activities carried on both within and outside the country such as drug trafficking, fraud, counterfeiting of Indian currency, translational organized crime, human trafficking and corruption. We have already mentioned India’s poor record as regards corruption as above.

Inspite of the corruption and scams in India –IMF expects Indian GDP growth around 8.60 % in the next fiscal year i.e. FY 2012. Indian Government expects the GDP growth of around 9.00 % for the next fiscal. We have short listed four more Indian equities – UNITED PHOSPHORUS, RCF, TVS MOTOR and EID PARRY. We had short listed three stocks in our last update including ASHOK LEYLAND. This stock has been a “market out-performer” during the correction in November in the Indian equity markets. The news is public now that Institutional buyers - Franklin Templeton and ICICI Prudential are buyers in ASHOK LEYLAND. We had recommended a niche stock - ASTRA MICROWAVE to our investors in May 2010.

The stock performed as per our given targets and gave one hundred returns as predicted in a short span of time. The company announced 1:2 bonus on 11/15/2010. We advise investors to hold this stock and claim the bonus. We will advise investors accordingly when to sell the stock at an opportune time. As for investment in Indian equities – we will advise investors when to enter the Indian Equities.

Mr. Adrain Mowat of JP Morgan has a target of BSE SENSEX at 24300 for the calendar 2011. The similar levels of around 24000 to 25000 for BSE SENSEX have been predicted by a couple of Indian and Foreign brokerage houses for the calendar year 2011. Almost all the analysts in the world are bullish on Indian economy and equities ahead of China for the calendar year 2011. We have still not finished our research for Indian Equity indices for 2011. We also feel India has now arrived but needs to put its infrastructure in place at a brisk pace. India seriously lacks behind China to implement the large infrastructure projects on the ground. We have mentioned about the delays in the large infrastructure projects in our last update also.

Here is a statistic out of Indian Prime Minister’s nightmares: The country has lost an astounding INR 1167.00 billion (about US $ 26.00 billion) due to cost-overruns in about two hundred infrastructure projects. This works out to sixty eight per cent over the approved original cost. And these are the official figures from the Ministry of Statistics and Programme Implementation that monitors the six hundred infrastructure projects that cost over INR 1.50 billion each (about US $ 34.00 million). The total estimated figure including smaller projects is almost as huge as INR 1500.00 billion (US $ 34.00 billion). The main reason is the bureaucratic “red tape” regarding the large projects as approvals are required from about a dozen departments including the most difficult these days in India – Ministry of Environment, in New Delhi. The other major bottleneck is land acquisition for the large and medium infrastructure projects, which is a State subject in India. The star underperformers are projects being executed by the Ministries of Health and Family Welfare, Railways, Urban Development, Petroleum and Water resources. Needless to mention about rampant “corruption (red-tape)” in the said departments from where approvals are required - both from the Central Government in New Delhi and State Governments where the projects are to be implemented. At the State level the biggest problem is “land acquisition” for large projects. Politicians want their ‘pound of flesh’ in addition to the corrupt bureaucrats. The Indian Prime Minister is honest and one hundred percent ‘above board’ but he cannot fight the system alone from his Office in North Block in New Delhi. We hope the Hon’ Indian Prime Minister is aware of these figures. These figures are really nightmarish !

To get an idea about the total mess, please log onto to the following web link as under to get startling and disturbing details regarding the status of large infrastructure projects in India. Please log onto :

http://in.news.yahoo.com/248/20101123/1582/tnl-cost-of-upa-delay-is-rs-1-2-lakh-cro.html

Inspite of all the corruption, red-tape and infrastructure bottle necks in India, we are extremely bullish on the Indian equities in the years 2014 through 2017 wherein we could see BSE SENSEX levels of 60000+. We have mentioned about this in our October 2010 update. Every global investor would be chasing Indian equities in 2013 onwards as per our analysis. A recent global study by British banking giant-Standard Chartered mentions that “India is set to become the fastest growing major economy in the world by the year 2012 and the third largest by GDP-size in the next two decades, behind the USA and China. India would have over-taken Japan and will be trailing the US by a slim margin by 2030. China would be at a comfortable number one position by 2030. StanChart expects the Indian GDP to grow at an annual rate of 9.30% for the next two decades. This is as per the findings of the “Super-Cycle Report” on the world economy by Samiran Chakraborty - Head of India Research at StanChart. As per this economist from StanChart – the world is currently growing through the “Third Super Cycle.” We however differ from the rankings predicted by noted economist at StanChart. We feel by 2030 or even a few years earlier – India will be second largest economy in the world slightly behind USA, with China being behind India in terms of GDP numbers. China will have serious problems with its economy in a decade or so on account of civilian unrest due to human rights and democracy related issues. In addition there is also an issue disparity of income in China. South Coastal China is rich along with a few other cities. Northern China is poor and like India the growth too in China is not inclusive.

We have said many times in the past and in this update as above that the Chinese “Real Estate Bubble” is a matter of serious concern. If this bubble bursts – one will see four major Chinese Banks and a few regional Banks severely hit. Chinese Banking crisis will be ninety times the Dubai banking crisis as per a leading US analyst – Mr. James Chanous. He predicted this figure in Q1 2010 regarding the Chinese bank NPAs. Hence we are talking about a figure of US $ 550.00 billion to rescue NPA struck Chinese banks. We tend to more or less agree with James Chanous who owns a Hedge Fund in USA with assets of around US $ 10.00 billion under management. We also feel that the Chinese Government is just on the course to postpone the in-evitable i.e. Banking Sector crisis on account of lending to the Real Estate sector. One serious problem with China as far as we are concerned is the authenticity of the data released by their State controlled media ? We feel China fudges its figures which are released through their media. The Chinese government has huge reserves. They will dump “US Bonds” and raise cash to “re-capitalize” their NPA hit banks if the crisis as above erupts. The effect will be temporary on the ^SSE COMP in Shanghai. Yes – the sentiment will be hit in China on account of these large four banks being rescued by PBoC. Please note China too has its problems of “corruption” but the action there is swift. The sentence is capital punishment - execution if found guilty. Chairman of M/s. SINCOCHEM was executed recently when found guilty of embezzlement of only US $ 11.00 million. The action is straight and simple in China. It is nothing like India where corrupt politicians do not face prison sentences on account of pocketing hundreds of millions of US Dollars. Recent scams in India are running in excess of a tens of billions of US Dollars. The judicial process takes decades to book the corrupt politicians in India. They are “out on bail” in the interim period (when the matter is sub-judice) for years. We have not seen any politician being jailed in India on account of corruption charges in the past three decades. It is said that - India is a functioning democracy !

For the month of December we will watch a level of 18190 for BSE SENSEX very carefully. If this level is held – we may start buying our six short listed stocks as “pure trading calls” for about thirty to forty five percent price appreciation. We will advise investors accordingly. If the level of 18190 for BSE SENSEX does not hold in December 2010 – we will advise investors exit from equities. We and our associates have very limited exposure to equities since early October 2010. We are invested in Gold –both Physical and UTI’s GOLDSHARE.

The levels to watch for BSE SENSEX for December 2010 are :

S1 19500 S2 19340 S3 18800 S4 18500 S5 18190 (200 DMA)

R1 20850 R2 21000 R3 21200

If Spain has Sovereign Debt and Banking crisis that leads to a “bail-out package” stage from EU - then all bets are off on BSE SENSEX levels. The index can slip to sub 200 DMA levels. BSE SENSEX 200 DMA is 18190. This is a very important levels in our analysis i.e. 200 DMA and we use this as a benchmark for trend reversal. This level should hold and there could be a “technical” pull back from this level to near 19140 levels. But if this level of 18190 does not hold then BSE SENSEX will slide to 16960 in “panic-selling” mode –bull liquidation. The next levels for BSE SENSEX are subject to the heavy FII selling of equities in India on account of any factor – “Spanish” crisis, some Indian scams related issues or global sell-off in Equities due to geo-political issues viz Pakistan, Iran and North Korea etc. In that case BSE SENSEX can to slide to 15900 level or even lower at 14840 in January 2011. As per our prediction - Spain in all probability will need financial assistance to stay afloat in December 2010. We will try and post a brief scenario for 2011 for Equities, Gold and Crude in the last week of January 2011 along with our monthly forecast for 2011.

We wish to point out that December 2010 is a very bearish month for global equities as predicted by us in October 2010 on our website. The problem is that we are very early with our predictions and sometimes analysts sneer at us ? There will be panic selling in equities globally on account of any of the reasons mentioned above in this note – Portugal/Spain Financial Crisis, North/South Korean Military Engagement and poor US economic data. If panic selling sets in and 200 DMA level does not hold – trend reversal will be confirmed. We will advise accordingly. Then BSE SENSEX is entering a two to three year bear cycle till December 2012 or December 2013.

Gold will zoom in December 2010 to test our predicted level of US $ of 1500.00 pto.

NOVEMBER 2010

BSE SENSEX closed today Friday 29^th October 2010 at a bullish level of 20032. The intra-month high for BSE SENSEX was 20854 as 10/14/2010 on an intra-day basis. This was close to our R1 20800. FIIs till date have poured in a historic record amount of funds into the Indian equities. FIIs prefer the Indian domestic oriented growth story over its peers in the BRIC pack. Plus Indian Disinvestment of PSUs will be on track. FIIs pumped in excess of US $ 6.42 billion into Indian equities in the month of October 2010 – a monthly high record since 1992 when they were allowed to invest in Indian Equities. Dalal Street was expecting BSE SENSEX to test 21200+.

BSE SENSEX gained 13.40 % in Q3 2010 calendar, notching its seventh consecutive gain quarterly and the longest winning streak in the 20 years of its history. FIIs till date 10/29/2010 have poured in excess of US $ 24.80+ billion into Indian Equities. This is a record so far for the calendar year. We still have two more months to go in this calendar year of 2010 ! Record highs as Indian growth story @ 8.00+ pa is attractive to FIIs. IMF says Indian economy will grow @ 9.70 % for the current fiscal FY11. IIP in August 2010 grew @ 5.57 % only – slowest in fifteen months, nearly half the rate at which it grew in August 2009. Indian equity markets ignored this negative news. Remember in bull markets all bad news is discounted as is good news in bear markets. BSE SENSEX is in a “bull phase” since the past few months.

The levels to watch for BSE SENSEX for November 2010 remain the same as the last month’s update as under :

R1 20850 R2 21200

S1 18800 S2 18500

Indian PSU Disinvestment will be on target to raise INR. 400.00 billion by FY11. India’s biggest IPO in its history was oversubscribed over fifteen times – IPO of M/s. Coal India Ltd. This is a record in the history of Indian capital markets. M/s. Coal India Ltd’s IPO garnered US $ 52.00 billion against the issue size of only US $ 3.51 billion. Coal India IPO hit the street on 10/18/2010 worth INR.155.00 billion ( US $ 3.51 billion) and was closed on 10/21/2010. IPO of Coal India Ltd. was a super success as it was priced rationally. Further the Government of India (GoI) has lined up a 5.00 % equity dilution of ONGC and further 10.00 % equity dilution of IOC by FPOs in the current fiscal. These will be followed by FPOS/IPOs of SCI, SAIL, POWER GRID, MANGANESE ORE and HIND COPPER. Against the target of INR. 400.00 billion from Disinvestment of PSU shares by the GoI for the current fiscal – the figure now stands revised to INR. 480.00 billion for the fiscal FY11. IPO of M/s. Satluj Jal Vidyut raised INR. 10.40 billion in April 2010 followed by a FPO of M/s. EIL which raised INR. 10.50 billion. This is a very positive step as it reigns in the “fiscal deficit” of GoI. FIIs love the reforms process the GoI is implementing under the UPA-II regime. Indian economy is on a “roll”. For H1 FY11ended 9/30/2010 – Income tax collection was up 44.00 % yoy basis at INR. 1506.90 billion. Direct tax collection is also being pushed hard by the Ministry of Finance, GoI so that companies do pay taxes on their incomes and not indulge in tax evasion which has been the malaise in India for the past few decades. The current Finance Minister, GoI minces no words and has instructed his team nation wide to “crack the whip” on defaulters and companies which evade taxes.

We have been advising investors to invest in Gold seriously since October 2005. We will be focussing more on Gold and less on equities from date till the year 2012 thru 2013. Equities might take a ‘back seat’ with trading calls only. We like three stocks as of now – ZODIAC CLOTHING, BIOCON and ASHOK LEYLAND. We will advise when to enter these stocks. We expect global equity markets to correct by 15.00 to 20.00 % in December 2010 on account of Eurozone Sovereign crisis and Eurozone Banking crisis. We will advise investors accordingly.

^DJIA closed today at a bullish 11126. The intra-month high for ^DJIA was 11258 on 10/22/2010. ^DJIA has a pivot 11115. If it stays above this level it will be bullish. Next level would be 11500. This level could be tested in November 2010 if ^DJIA can convincingly close above the pivot of 11115. The levels to watch for ^DJIA for November 2010 are as under :

R2 11250 R2 11310 R3 11500

S1 11115 S2 9800 S3 9600

Asian Stocks tested near their two year plus highs. Some indices testing new 52 week highs. BSE SENSEX new intra-month high @ 20854 on 10/14/2010. ^KOSPI at 1925 – a fresh 52 week high on 10/27/2010. ^STI at 3221 on 10/14/2010 a new 52 week high. ^HSI at new 52 week high at 23867 on 10/14/2010. ^BVSP at new 52 week high of 71835 on 10/18/2010. ^SSE COMPOSITE which was lagging behind has fast caught up with its peers and closed today at 2997. Fifty two week high for the Chinese benchmark index is 3361.00. South Korean currency – Won, has been the lowest against the US Dollar in Asia since the past month. There are heavy FII inflows into the equity markets of these countries as well but no where near the FII inflows into the Indian markets. The large FIIs are aware that the returns on equity investments in the future are in Asia and the BRIC pack. FIIs are also pouring funds into some small economies in Latin America which produce Gold and export to the international markets – Chile, Peru, Mexico etc.

^DAX tested a new 52 week high at 6668 on 10/25/2010. German consumer index was at a three and a half month high - by far the best economy in Eurozone. We have a word of caution here for the ^DAX in Frankfurt. German and French banks have a substantially large exposure to the Spanish Residential Real Estate Sector. Spain is having serious problems with its premium “Residential Real Estate Sector (RRES)” as mentioned in our last update. The housing companies are bleeding to a slow death in Spain. It is only a question of time and Spain will go the “Greece” way, as mentioned in our last update. Hence we advise caution to investors to stay away from large German and French Banks. We feel more than twenty to twenty five percent of the loans of these banks in Germany and France to Spanish companies will be “NPAs” in the next six to eight months on account of exposure to the Spain’s RRES.

We are focussing on Gold for the next couple of years as mentioned above. An ultra rich net worth couple in Europe bought one tonne of Gold worth US $ 42.00 million and decided to store it out of the “banking system” even in Switzerland. The couple decided to store this gold in a “private vault” in Switzerland. We recommended something similar in our last month’s update ! Please visit the web link as under :

http://www.reuters.com/article/idUSTRE6932NR20101004

Reuters conducted a poll on 10/1/2010 regarding the price estimates of Gold by December 2010 with top analysts in the business of Gold. The details are as under the web link. Prices of Gold predicted by December 2010 – US $ 1350.00 pto US $ to US $ 1400.00 pto by eight analysts. Three analysts – The House of Heraeus, Kitco and Commerzbank – below US $1250.00 pto by 12/31/2010. Please visit the web link as under :

http://www.reuters.com/article/idUSTRE6903ER20101001

Our target for Gold is well known to investors – US $ 1500.00 pto by 12/31/2010 !

Gold prices will peak in 2011 and then fall to levels below US $ 1000.00 pto levels in 2012. Natixis’s Commodities view is as per web link as under :

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=112892&sn=Detail&pid=102055

We are not in agreement with the view of the author from Natixis’s commodities division as per above. Gold will peak between December 2012 thru Q2 2013 to levels as high as US $ 6000.00+ pto.

Gold had a gruelling eighteen year bear cycle. In 1981 the cumulative average price of Gold @ US $ 460.00 pto and in 1999 it was @ US $ 280.00 pto. The bull cycle we are currently in started in the year 2001 when the cumulative average price of Gold was US $ 271.00 pto. We feel this current bull cycle of Gold will last till 2013 with a “blow out” and thereafter will the prices will settle at sane levels ! We will address the same at an opportune time in 2013, if we are around.

CFO of world’s largest producer of Gold – M/s. Barrick Gold Corp. Canada (NYSE Code: ABX) told the media at LBMA last meeting in September 2010 in London that he expects the prices of Gold to around US $ 1500.00 pto in Q4 2015. This is our target for December 2010 ? CEO of M/s. AngloGold Ashanti, South Africa (NYSE Code : AU), world’s third largest producer of Gold recently told the media that he is counting on gold prices rising by $70-$100 a year through 2015, far outpacing any increases in average industry mining costs. As per him the price of Gold in 2015 should be around US $ 1740.00 to US $ 1860.00 pto. Our target for December 2012 thru Q2 2013 is US $ 6000.00 pto ? We are too bullish on Gold.

M/s. Resource Capital Research Inc. USA says it is no longer only about analysing Gold's fundamentals, but also about analysing market psychology - what it calls an "almost total lack of trust in most asset classes, and the predominance of a crisis mentality. At the moment it seems that gold and other precious metals as a safe haven are virtually the only investment vehicles that can be trusted," it said in a report on Tuesday – 10/12/2010. Please visit the web link as under.

http://in.news.yahoo.com/48/20101005/1237/tbs-is-gold-s-drop-a-pause-or-end-of-a-t_1.html

We are in total agreement with M/s. Resource Capital Research’s view on Gold.

Currency wars – Yuan was up 2.00 % versus US Dollar in August 2010. US $ fell to a new 15 year low of JPY 80.65 on EBS platform on 10/25/2010. This is a fresh fifteen year high for JPY against the US Dollar. This level was very close to the 79.75 to a US Dollar set in April 1995 – highest since the post world war period.

Fair price for JPY to the US Dollar would be around 90.00 level but analysts feel that this level may not be seen even after the intervention by BoJ. We feel fair value of US Dollar to JPY is around 118.00 to 120.00 but the US Fed with its policies is “de-basing” US Dollar is creating problems in the Japanese economy as exports from Japan suffer. We have to remember that Japan like China is an ‘export oriented’ economy. Peoples Bank of China (Central Bank – PBC) bought physical foreign exchange worth US $ 198.40 billion in Q3 2010 to keep its Yuan stronger versus US Dollar. China wants its Yuan to be “strong” i.e. undervalued artificially – to protect its exports. Such a large intervention by PBC is historic per quarter since the Yuan was allowed to be traded in “band” by PBC. Yuan peg to the US Dollar was removed on 19^th June 2010 by PBC after a gap of twenty three months. This “heavily undervalued” Yuan is causing problems in USA as exports from China remain buoyant and skew the “trade deficit” of USA – leading to huge “current account deficits” for the US economy. Some economists feel that Yuan needs to be least 25.00 % weaker versus the US Dollar from the current levels and some feel 40.00 % !

BoJ on 10/15/2010 – cut key interest rates i.e. “Overnight Call Rates” virtually to zero percent ( 0.00 % to 0.01 %) so as to inject life into the faltering Japanese economy. BoJ will set up a special fund worth US $ 60.00 billion, which will buy JPY Sovereign Bonds, CP, ETFs, and REITS etc for the first time in the history of Japanese financial markets. There was a big rally in ^N225 as exporter’s shares were up. This will give a temporary fillip to the Japanese Equity Markets but the long term bearish trend may not be reversed as per analysts. We agree as ^N225 is trading below its 200 DMA. ^N225 has a stiff resistance at R1 9530. It closed today at a bearish level of 9387. We stick to our views mentioned in the last month’s update that the story of Japan is over, like the story of USA. It is a ‘zombie nation’ and will sink with US economy in December 2012 thru Q2 2013 as mentioned earlier. China will survive the 2012-2013 US and EU financial crisis. China will dump substantial amount US Bonds slowly in 2011 thru 2012 and convert the cash into physical Gold, Swiss Sovereign Bonds and CHF cash. It will hold a nominal value of US Sovereign Debt in the years 2012-2013.

BoJ sold US Dollars worth US $ 25.00 billion on 9/15/2010 to support JPY to appreciate against US Dollar. It had little effect temporary effect. PBC’s intervention in Beijing is far too much to support their Yuan as compared to BoJ’s efforts for JPY.

In a surprise move PBC increased interest rates in China by 25 bpts on 10/19/2010 and stunned the commodity universe. The yearly deposit rates by PBC now stand at 2.50 % against earlier 2.00 %. Annual lending rates annually have been hiked to 5.56 % from earlier 5.31 %. Analysts feel that this interest rate hike by PBC is “minimal” and will not have any affect on the Chinese financial markets. The residential real estate property is still “red hot” sector in China’s South Coastal areas. As a result of this interest rate hike in China - Gold corrected to US $ 1330.20 pto Spot New York to an intra-day low and closed at US $ 1335.50 pto - down 2.50 % on 10/19/2010. Intra-month low for Gold was US $ 1317.10 pto on 10/21/2010.

China is concerned about the ‘red hot” sector of residential real estate in the major urban towns. China announced some tough measures in mid October 2010. China imposed “one home” limit policy on families in Shanghai, Shenzhen and Beijing etc – for residents or migrants w.e.f. 10/7/2010. In addition “property tax’ will be imposed in the said cities w.e.f. November 2010. They are working out the details on how much ‘property tax’ to levy on the residential high rise flats in the said cities. Loans have been suspended with immediate effect buy third house by any Chinese resident citizen. The down payment for purchase of first and second house too has been increased with immediate effect. This is to curb “red hot” property sector in China. CITI GROUP believes that this is a “short term” measure. Overall demand for housing will be robust as population is high and economy is stable with rich people buying houses for investment and also self occupation.

The meeting of finance ministers of G20 nations in South Korea on 10/22 thru 10/23/2010 did not come out with any concrete solutions over Currency status, Huge amount of fund flows from the developed world to the EMs and other important Geo-political issues which have bearing on global financial markets. It was more of a diplomatic stuff at the G20 meeting in South Korea. Gold rallied a bit after the said meeting. Base metals zoomed after this meeting of G 20 finance ministers in South Korea as there were no concrete steps taken on the said parameters. US Dollar was weak on 10/24/2010 after the said meeting was over.

INR is under too much pressure due to heavy FII inflows. Similar is the situation with the like the currencies of Brazil, Russia, Indonesia and Malaysia. Even smaller countries like Chile, Mexico and Peru are feeling the pinch as their currencies are becoming stronger by heavy FII inflows. Brazil recently imposed curbs on ‘hot money” entering its capital markets. Exports from these countries are affected. INR tested a 26 month high at US $ 43.95 on an intra-day basis to a US Dollar on 10/15/2010 not seen since 29^th August 2008. INR closed at 44.10/44.11 to a US Dollar on 10/15. Chief Economist of YES BANK in India feels INR will further strengthen to 43.00 levels to a US Dollar by 12/31/2010. RBI – India’s Central Bank has so far not intervened in the forex markets in India to defend the strengthening of INR versus US Dollars even when Indian exporters are feeling the pinch. We feel at around INR 42.00+ to a US Dollar – RBI will intervene and sell a “massive chunk” of US Dollars in the Indian forex markets to let the INR depreciate against the US Dollars. Failing which, we feel that Indian exports will “go for a toss” as the export target set up by Ministry of Commerce, GoI for the current fiscal FY2011 will not be met ( US $ 200.00 billion). This will lead to ‘further deterioration’ of India’s Balance of Payments - which in any case is in deficit because of India’s huge import bill for Crude Oil. Please remember India still imports 70.00 % of its Crude Oil requirements from Gulf and other destinations world wide including producers as far as Venezuela.

This is one of few authors in the world is talking on lines similar to our thought process that US Dollar as a “reserve currency” of the world is under serious threat. The article by the author is titled – “Another perfect storm brewing for the markets and economy”. Please visit the web link as under :

http://seekingalpha.com/article/230278-another-perfect-storm-brewing-for-markets-and-the-economy?source=email

We also feel US Fed is running out of ammunition. It has limited choices to aid the faltering economy in the US. The US Fed should work on some “structural reforms”.

There is an interesting article by an analyst who is “bearish” on Gold. The article is “Forget US $ 2000.00 ounce – Gold set to plummet”. Visit web link as under :

http://seekingalpha.com/article/228879-forget-2000-an-ounce-gold-set-to-plummet

This we certainly feel is not going to be the case with Gold as the author is comparing Crude Oil crash of 2008 with the current bubble in Gold. He is predicting Gold to crash to US $ 400.00 pto in the next year. This was approx. the cumulative average price of Gold in the year 2007 (pre financial crisis level in USA in 2008).

This one is really funny. Gold is now available through ATMs in Germany, Spain, Italy and UAE. Similar ATMS will be soon in India too. Please visit the web link as under :

http://in.news.yahoo.com/20/20101017/372/tbs-gold-vending-atms-may-become-a-reali_1.html

Spot Gold in New York tested a new lifetime high of US $ 1385.20 pto on 10/15/2010. London Fix tested a lifetime high of US $ 1380.75 pto on 10/14/2010. Our target for Gold price for October 2010 was US $ 1320.00 pto. Prices spiked due to the weak US Dollar. Intra-month low for Gold was a whopping US $ 1317.10 pto as on 10/21. We feel this was a very healthy correction and Gold may correct to US $ 1290.00 pto in November 2010. Gold will be very bullish in December 2010. Gold Spot NY closed today at US $ 1360.80 pto. We are pretty sure that it will test our target of US $ 1500.00 pto by 12/31/2010 if not earlier. FOMC meeting is on 11/3/2010 wherein US Fed decides on ways and means to inject life into the faltering US economy. There are rumours of further QE measures by the US Fed.

Economic data continues to disappoint from USA and still ^DJIA is in an uptrend. Markets discount the future. Maybe the large equity markets operators and analysts at Wall Street feel that US Economy will recover in the near future and hence ^DJIA is bullish. We have a “contrarian” view on the recovery in the US economy. As mentioned above US Fed’s next meeting is on 2^nd and 3^rd November 2010. Indications are for further QE. Allan Greenspan says these are “dangerous signs” for the US Economy. Data from USA is disappointing on the job front too. Some analysts say the real un-employment rate in the US economy is around 20.00% against the official figures of only 9.60 %. Results were disappointing for Q3 2010 from BoA, Morgan Stanley and JP Morgan. CITI results for Q3 2010 were better than Street expectations. Housing data was better for new home sales since the past five months but “foreclosure issues” by mortgage lenders is looming large. These US Banks are house mortgage lenders and have no experience in handling “foreclosures” and “re-possessing” of homes. Paperwork issues regarding lien have been found to be wanting at the lender’s offices by auditors as reported in the American media and at the AEI Conference in NY recently by one of the panellists.

There is too much importance being given by global analysts to the next US Fed meeting in Washington on 11/2/2010 and the announcement thereafter on 11/3 regarding the quantum of QE and modus operandi. There is too much speculation in the global currency markets and equity markets on account of the said US Fed meeting as per above. We feel it will be a very moderate QE with US Fed proposal to buy US Sovereign Debt Bonds over the next six months or so to the tune of around US $ 700.00+ billion. If the figure is drastically more than this amount and the modus is also different – we expect US Dollar to drop against JPY and CHF. Gold will rally fast in case of the latter. As of now US Dollar is oversold. JPY and CHF are overbought currencies. These aberrations will settle 11/3/2010 onwards till maybe 11/10/2010. Global financial and equity markets will settle down in a weeks time.

We feel Gold will correct in November 2010 and we expect a level of US $ 1290.00 to be tested. This is possible if the QE2 is very moderate i.e. below US $ 500.00 billion only over a period of six months via monetizing of US Sovereign Debt by the US Fed. It will be an “excellent opportunity” to buy Gold for investors who so far have no exposure to Gold as an investment asset. We expect Gold to be extremely bullish in December 2010 and stick to our prediction that we will see a price of US $ 1500.00 pto by 12/31/2010.

Pakistan is causing more headaches in Washington than ever before. Its external intelligence agency - ISI stands fully exposed to the US Administration and yet the policy makers in Washington are ‘doling out’ billions of Dollars in aid to allow to stay Pakistan afloat. Pakistan’s KHUSHAB III Nuclear reactor is nearing completion with the Chinese aid. KHUSHAB II became operational in Feb 2010. This infuriates the Americans but they cannot do anything about the same as they do not know whom to talk to in Pakistan – the President, Prime Minister or Chief of Army Staff. The US Administration might take a very “drastic step” if any major terrorist strike aided by ISI happens in India, UK, Germany, France and USA in the coming two months. Taliban are being sheltered and aided by ISI in Pakistan to create serious problems in Afghanistan. ISI was behind the 11/26 attacks in Bombay in India – this fact has been established and US agrees with the same. ISI is openly sending terrorists in Jammu and Kashmir in India over the past decade or so and the US Administration was turning a ‘blind eye’. But not anymore !

ISI is opposed to the Indian presence in Afghanistan, as India is assisting war torn Afghanistan in re-building its infrastructure – roads, highways, power plants, drinking water infrastructure etc. ISI wants India to move out of Afghanistan so that they can ‘Talibanize’ Afghanistan again – which USA and NATO forces will not allow under the US military command in Afghanistan. Please do not be surprised if there is again a ‘military coup’ in Pakistan in the coming months with Chief of Army Staff as the new President the way it happened in 1999.

The threat of Usreal attacks on Iran’s and Pakistan’s nuke assets is still looming large and investors must be careful as this can suddenly and will cause Crude Oil to spike above US $ 150.00 pbbl. Our views on Crude Oil remain unchanged as per our last month’s update. Hence please do not “short” Crude Oil naked.

OCTOBER 2010

BSE SENSEX closed today – 9/30/10 at a bullish level of 20069, a new thirty two month high. We had predicted that BSE SENSEX would face a stiff resistance at a level of 18000. The pace at which BSE SENSEX pole-vaulted from 18000 level to 20268 in September 2010 was amazing. FIIs were main drivers of the BSE SENSEX to nearly its lifetime high of 21207 as seen in January 2008. The intra-month high of BSE SENSEX at 20269 was just 4.63 % short of the lifetime high of 21207. The FIIs put money into Indian stocks in – Auto, Pharma, FMCG and Banking sectors.

FIIs are pumping in huge amounts of money into the EMs - India, Brazil and Russia in a major way in the said order. China is lagging behind as mentioned later in this note. Smaller markets like - Singapore, Indonesia and Malaysia are also attracting FIIs inflows into their equity markets. We feel FIIs have no option as markets in USA and EU are risky due to financial problems in these economies.

India's GDP is expected to grow @ 8.40 % for the financial year ending March 2011. FIIs are chasing the Indian growth story ahead of China as India is “functioning democracy” and has a solid PSU Banking Sector, which is well regulated. FIIs also appreciate the efforts of the Indian Central Bank – RBI on its hawkish stance to control inflation. Indian GDP growth rate is the second highest growth rate in the world after China . But we feel that Chinese annual GDP growth @ 11.00+ % per annum is not sustainable in 2011. We also feel there is lack of transparency in data from China . In addition mainland Chinese stock exchanges in Shanghai and Shenzhen – do not have “derivates trading” platform either for the indices or for individual stocks. This FII money is “hot money” and it is much easier to get money out of Indian equities as compared to getting this money out of Chinese equities. This is one of the reasons why FIIs have preferred to put money into Indian equities ahead of China . The data later in this note mentions the performance of BSE SENSEX versus ^SSE COMPOSITE from the lows of 3/9/2009 – when global equity markets were at their multi-year lows after the US financial crisis in the year 2008. India equity markets out performed all the global equity markets including Chinese equity markets.

One major factor where China outscores India is FDI. China for the past decade or so has been getting US $ 60.00 bn per annum as FDI into the economy. This is the ‘real money’ as it goes into building factories, roads, dams, highways, ports, power plants and also services sector. India does not even attract one fourth of Chinese FDI inflows into its economy. As per a UN report- China ’s FDI in 2008 and 2009 put together was whopping US $ 137.00 billion. India ’s FDI in the years 2000 to 2009 totaled only US $ 135.00 billion. India is second followed by Brazil and US is fourth largest recipient of FDI globally. India has to open sectors like Insurance, Retail, Aviation and Infrastructure for more foreign ownership. Especially – Infrastructure, wherein India is too slow in implementation of large projects viz Ultra Mega Power Plants, Ports, Highways and Mega Steel Plants etc. India has to follow the Chinese example of ‘single window ‘clearance of large FDI backed projects in infrastructure. If India has to grow its GDP @ 9.00 % per annum over the next ten years – India needs US $ 150.00 to US $ 180.00+ billion investment in its infrastructure. We in India can do the same as there is political will now under the current Govt. in power in New Delhi under the UPA lead by the Congress Party. We just need to have a ‘single window’ clearance policy. POSCO’s mega steel plant in the state of Orissa is still to take off the ground as land allotment is not done as yet since 2007. POSCO of South Korea is planning to put up an integrated mega steel plant in Orissa in India with an investment of Rs. 400.00 billion ( approx. US $ 9.00 billion). Similar is the fate of ARCELOR MITTAL’s mega steel plant in the state of Jharkhand in India . Land allotment, environment clearance, forest clearance etc have forced the company to shift the proposed US $ 12.00 billion mega steel plant to the state of Karnataka in southern India . These delays in mega infrastructure projects with large FDI commitments place India in an embarrassing situation in the eyes of global MNCs who are interested to invest in the ‘core sector’ infra projects in India . We have to pull-up our socks !

We were incorrect in our prediction that global equity markets will correct in a massive way in August 2010 thru September 2010, on the prediction that Usrael will attack Iran ’s nuke assets with surgical air strikes. We were nearly correct on the date of the said attacks i.e. 9/22/2010 – as mentioned on our website. Instead of air strikes – Usrael attempted a “Cyber Attack” on Bushehr nuclear plant in Iran on the said date but failed. Media reports confirm this attack. Details are given later in this note. Our “cosmic inputs” were correct. In fact “bulls eye” !

The said air attacks never happened in Iran and global equity were very bullish in August thru September 2010 with huge FII inflows into the EMs including India . India was the largest recipient of FII funds into equities during the month of September 2010. The Indian equity markets have been the best performing equity markets globally from the March 2009 lows till date as compared to other global indices. Brief details are as under :

- BSE SENSEX is up 150.00 % from the 3/9/2009 low of 8160.

- ^HSI is up 97.00 % from the 3/9/2009 low of 11345.

- ^BVSP is up 89.00 % from the low of 3/9/2009 of 36741.

- ^RTSI is up 137.00 % from the low of 3/9/2009 of 635.

- ^DJIA is up 65.00 % from the low of 3/9/2009 of 6547.

- ^N225 is up 32.00 % from the low of 3/9/2009 of 7086 and

- ^SSE COMP is up 25.00 % from the low of 3/9/2009 of 2119

As water finds its lowest level, in the same way capital follows the destination of best returns. The equity indices of India , Brazil and Russia far outperformed indices of the developed economies of USA , Japan , UK , France and Germany etc. Surprise pack is China – the ^SSE COMPOSITE was the worst performing index out of the BRIC pack. FIIs fear the ‘Residential Real Estate” property bubble and “Huge NPAs” on the books of four major Chinese Banks. This is after the successful mega IPO of about US $ 22.00+ billion of M/s. Agriculture Bank of China in July 2010. On the other hand - Brazil kicked in successfully with the world’s largest IPO in end September 2010 worth whopping US $ 72.00 billion from State owned Crude Oil and NG major M/s. PETROBRAS. So there is an appetite for “good paper” in the promising markets like Brazil and India . In India – a host of PSU majors are hitting the markets with IPOs and FPOs. These will be lapped by FIIs and domestic investors in a matter of a couple of days after the book is opened for the bids. FIIs love ‘reforms process’ in India and PSU Disinvestment is one such major reform.

BSE SENSEX tested a high of 20268+ in September and ^DJIA tested a high of 10949 during the same month. It was very surprising that FIIs pumped in US $ 4.50+ bn into Indian equities in the month of September 2010. FIIs have pumped in US $ 17.90 bn into Indian equities in the calendar 2010 till 9/27 as per SEBI, which is the highest so far in the history of Indian equity markets on a yearly basis . There are still three more months left in calendar 2010. The earlier record of the calendar year 2007 at US $ 17.65 bn has been broken in calendar 2010. BSE SENSEX could break its lifetime high of 21207 as of January 2008 – if FIIs keep pumping in funds at a similar pace in the next three months. BSE SENSEX has strong resistance at 20800 and 21000. Levels to watch for BSE SENSEX in October are :

R1 20800 R2 21000

S1 18800 S2 18500

We have been skeptical about these huge FII inflows into India much larger than into Brazil and China . We have been telling our associates since August 2010, that something is fishy about these huge FII inflows into the Indian equities market and we smell another “scam”- wherein Indian ‘slush money’ is being laundered back into India by a ”few big market operators” via the FII route. SEBI has ordered an enquiry to this effect but as in the past nothing serious will happen as we in India are a very “corrupt society”. Big players manipulate the equity markets and at the end the small investor bleeds ! SEBI has confirmed to the media that is concerned that a few individuals maybe manipulating the Indian Equity Markets via the FII route.

M/s. Newedge Group – Mr. Daley Kerby is the only analyst who is in the same league as us on the correction in the global equity markets which will be triggered by the impending Eurozone financial crisis. We agree with him that there is a possibility of a 25.00 to 30.00 % correction in the global equity markets including EMs in the coming months. As per our analysis, in India the “beta” will be the least in the said correction as the “fiscal issue” is substantially contained by the UPA Government in India with the aggressive fund raising by way of – Disinvestment of PSU Stocks, 3G Spectrum Auction, WBA Auction and CNG free market pricing. The motor fuel prices have already been hiked in a phased manner since July 2010. Gasoline and CNG prices have been “completely de-controlled”. HSD prices have been partially de-controlled. Domestic LPG prices have been hiked by 12.30 %. Poor man’s fuel – SKO is still very highly subsidized by the Indian Govt. This issue is also being addressed by the Govt. of India by providing LPG connections to the houses of poorest of poor Indians so that they use less SKO and switch over to LPG which is a much cleaner fuel and is subsidized to a lesser extent. FIIs love reforms process and hence were pouring funds into the Indian equity markets. We are a bit disturbed with such heavy FII fund inflows in a single month i.e. September 2010. Our concerns were endorsed by the media as per above. India is ranked poorly by M/s. Transparency International Ltd. on the ‘corruption index’ ?

We feel ^DJIA can correct to 8250-8160 in calendar 2010, if the attacks on Iran ’s nuke assets take place. 6th March 2009 low on intra-day basis was 6470 for ^DJIA. This level may not be tested during the said correction. BSE SENSEX could test levels of 16300-14450 - 12500 in the said correction. BSE SENSEX tested a low of 7697 in October 2008 correction post Lehman crisis, when global markets tanked. This level seems too far for the said correction. We will address at an opportune time. If the said attacks do not happen – then global equity markets will trade in a band but with a “downward bias” as some of global markets are near their fifty two week highs or near their lifetime highs – ^BSE SENSEX (20069 versus 21207) and ^STI (3117 tested on 9/29 versus 3116) in Singapore and KOSPI (1873 tested on 9/30 versus 1874) in Seoul, South Korea.

It is worthwhile to note that some of the equity indices in Asia are near their fifty two week highs as above. Two major equity market indices tested their new fifty two week lows in July and August 2010. Markets discount the future. ^SSE COMPOSITE index in Shanghai tested a fresh fifty two week low of 2320 on 7/2/2010 and then bounced back to near 2680 levels. ^N225 in Japan tested a fresh fifty two week low of 8807 on 8/25/2010 and then bounced back to 9600+ levels. Both these economies are export oriented economies and major markets being USA and EU. Both USA and EU block markets are in financial difficulties. Exports from these two countries to USA and EU will be lower as these economies are in recession. Japan according to one of our associates in Vienna is a “zombie nation”. He feels that the party for Japan is over ! Japanese total Govt. Debt is 230.00 % in terms of GDP and Govt. expenses are more than one hundred percent higher than revenues. He is of the view that instead of Budget or Fiscal Deficits as a percentage of GDP of say 9.00 to 12.00 % - the real figure to watch is the difference between Revenues and Expenditure of a nation. This figure of say 100 to 150 % will raise ‘red flags’ faster and the Governments can take corrective action under the pressure of its citizens. But politicians prefer to talk about numbers which are not alarming. Chinese data on the said macro parameters is not in public domain hence this analyst could not comment on the same. Chinese economy is the fastest growing economy in the world with annual GDP rates in excess of 10.00 % calendar 2009. This figure is more or less authentic but other data is difficult to get from China . Let us see at what pace the Chinese GDP grows in calendar 2010 ? With USA and EU nations in financial difficulties – we feel the GDP figure would be in single digit at around 9.00 % for calendar 2010. This would be followed by India at say 8.00+ % for fiscal FY2011.

Also as often repeated – both these countries hold huge amount of US Sovereign Bonds whose yields are at historic low levels. China holds US Bonds worth approx. US $ 900.00 billion and Japan holds worth US $ 400.00 billion respectively. There is a serious possibility of “ US Bond Bubble” going burst towards the end of the year 2011. China could use the “nuclear option” of dumping say thirty percent of their US Bond holdings in the global markets and converting the same to physical Gold or CHF cash. Japan will not sell US Bonds as it is a very close ally of the US . But when market forces demand and economic sense prevails – Japan could also join the bandwagon and sell US Bonds in the global financial markets. This will lead to Gold prices to spike when China dumps US Bonds and converts say US $ 300.00 billion worth of cash raised to buy physical Gold. Just for information – please note that at a price of Gold at about US $ 1300.00 pto, one can buy nearly 7500.00 tonnes of physical Gold with US $ 300.00 billion. This is three times the global annual production of Gold. Annual production of Gold is stagnant at 2500.00 tonnes per annum for the past few years. Imagine what will happen to Gold prices if China presses the said “nuclear option” ? There is only about 3000.00 tonnes of physical Gold available in the global market “as of a day”.

Almost all our associates in the world do not agree with us that China will press this “nuclear option”. Please mark our words – China will have no option but to dump the worthless US Bonds it holds when it will realize that the “US Bond Bubble” is ready to burst. Prior to this event slowly China will start converting cash raised by selling US Bonds into physical Gold. Yes – we agree with our associates that China will not sell US Bonds overnight and cause a panic in the global financial markets. China has been selling US Bonds since 2009. As mentioned later in this note – only China understands value of Gold. It reminds us of a famous quote by an analyst to us in Vienna a few months back. Quote “Physical Gold is the only financial asset in the world that is not simultaneously somebody else’s liability.” Unquote. We feel physical Gold stored outside the banking system is the safest investment from date till December 2012 thru March 2103 – by when the financial crisis in USA would be done away with and sanity will return to the prices of Gold. Yes even at these level of prices of Gold @ US $ 1300.00+ pto it is the best investment as per our analysis. We have predicted a price of US $ 6000.00 pto latest by December 2012. Only one caveat - please store your physical Gold with private vault companies in Switzerland and not in bank vaults in your country or in bank vaults in Switzerland . Almost all major Banks in the USA and EU will be bankrupt by December 2012, if not earlier. Major Banks in USA are already bankrupt with huge “toxic debts” on their books. In addition US Banks hold “Derivative Instruments” in excess of US $ 400.00 trillion. God only knows the real tangible worth of these OTC Derivatives ? As per one analyst in Zurich –A big percentage of these “Derivatives” are worthless as there are virtually no reserves to cover the potential losses. This figures send ‘shivers up our spine’ in India as we are only a US $ 1.08+ trillion economy as of March 2008 !

The US economy is at a point of “no return” as per our understanding. Like Japan – the story for USA is over as per our analysis. “Fiscal Deficit” is at record levels. ‘Current Account’ deficit is also very high as imports are far higher than exports from USA . Total Federal Govt. expenses are around 150.00 % more than the revenues. This figure will soon reach an alarming level of 200.00 %. US Federal Debt has increased from US $ 8.00 trillion in 2006 to US $ 14.00 trillion in 2010. This is almost equal to the US GDP. This figure could go up to US $20.00 trillion by the year 2014. How do you service this debt is our question ? Either “start de-leveraging” or “print more dollars” ? Latter is the easy way out for the politicians. This will lead to unprecedented printing of money in the history of the world by 2012. Hyperinflation will cripple the US Economy as mentioned repeatedly by us since January 2009 on our website. Please note this hyperinflation is not “demand lead” but on account of sinking of the value of the US Dollar like the currency of Zimbabwe . Similar could be the fate of the economies of UK and EU nation members unless they stop and not follow the US route of “reckless money printing”. US $ 40.00 trillion has been injected into the global financial markets since the year 2008. The majority of this money has been pumped into the US and EU block economies to bailout major Banks, Insurance companies, Home Mortgage companies etc. ^DJIA index could test a level of 11000 in October 2010 inspite of the weak economic data coming out of the US markets. Levels to watch for ^DJIA for October 2010 are :

R1 11000

S1 9800 S2 9600

There is still a risk of some EU block Banks failing – as of now in Ireland and Spain . Ireland is in all sorts of trouble. Two major banks are in trouble. Allied Irish Bank – the Irish Govt is taking a controlling stake as of media confirmation of date. There are rumours of winding-up of Anglo Irish Bank which would need Euro 34.00 billion over the next decade as cost of closure. Irish Government needs about US $ 68.00 billion to “bail out” its own lenders. Rating agency Moody today cut Spain ’s “Sovereign Debt” rating from “Triple-A” to “Aa1” as per street expectations. Spain is the next country to go the “ Greece Way ” as per our estimates. Too much “Sovereign Risk” in EU block ? Austerity measures do not work as the public is effected and hence politicians in EU block countries will also follow the US option –print more money to pay for your excesses ! Disaster as it will lead to hyperinflation in EU block too like anticipated in the US .

Analysts de-bunk our prediction of “hyperinflation” by mentioning that there will be a “serious deflationary” environment in the US economy followed by the economies in UK and EU nations. Yes we agree as we are witnessing this “deflationary recession” in USA as of now. This deflationary environment it will last for say twelve months or so followed by hyperinflation as excess money printing will cause debasing of the mighty US Dollar. In this scenario of hyperinflation wherein the currency i.e. US Dollar is collapsing – the only way to protect your wealth is holding on to ‘Physical Gold’. Please start thinking on the lines of “wealth protection” and “preservation”.

We have mentioned this umpteen times since the past year and half – buy ‘Physical Gold’. Now we are add a rider – store your physical Gold outside the banking system as most banks will fail in USA , UK and EU nations in the coming years. Indian investors can buy ‘Physical Gold’ through their own channels or we can recommend them trusted bullion traders nationwide. We would suggest that the Gold purchased be stored in bank vaults of PSU Banks in India – preferably SBI. In addition – please get the Gold stored in SBI vaults insured for Theft, SRCC, Fire and War. We are checking with RBI if HNW “Resident Indians” can buy ’Physical Gold’ and store it outside India for the purpose of investment like in ‘Residential Property’ under FEMA.

HNW NRIs and PIO can buy as much Gold they wish even at these price levels as above – say 15.00 to 30.00 Kgs and store the same outside their country of residence ( USA , UK , Europe , Middle East etc). We recommend to NRIs and PIO to procure physical Gold thru an AMC based in Zurich , Switzerland and store the same outside the banking system even in Switzerland . This AMC in Zurich will store physical Gold bought by NRIs and PIO in private vaults in Zurich and charge a fee. When the NRIs and PIO wish to sell their physical Gold say in 2011 or 2012 – this AMC will do the same and remit sales proceeds to the nominated bank accounts of the sellers. NRIs and PIO can contact us on the e mail and we will manage the entire gamut with pleasure in alliance with the nominated AMC in Zurich We again repeat -this is a one hundred percent safe way to protect your wealth in the coming two to three years.

After the US financial crisis is over by say Q2 2013 – we will enter the Indian Equity markets with a big bang ! In the meantime we advise HNW NRIs and PIO to allocate about 60.00 % of their investible funds in ‘Physical Gold’, 30.00 % into CHF ‘Sovereign Debt Bonds’ and balance 10.00 % into cash in CHF.

As per WGC – Gold has given 30.40 % return in the past one year and has given 221.00 % returns in the last six years. We repeat that Gold will outperform all “asset classes” in the calendar 2010. Investors were advised on our last update of 5th May 2010 to trim one’s equity exposure to only 15.00 %. Balance 85.00 % to be invested in Gold at every dip. Gold corrected on 21^st May 2010 in early morning trade in Asia on spot basis to test a low US $ 1169.00 pto. Gold tested a new lifetime high of US $1316.90 pto Spot NY and London Fix also tested a new lifetime high of US $ 1311.00 pto today 9/30/2010. We stick to our prediction of Gold @ US $ 1500.00 pto latest by December 2010. M/s. Macquarie Securities predict the price of Gold at US $ 1400.00 pto by December 2010. M/s. Anand Rathi expects the price of Gold to be US $ 1500.00 pto by December 2010 ? A reputed commodity brokerage house in India expects a price of about US $ 2000.00 pto by end December 2010. We thought we were the biggest Gold bulls in the world but now there is another reputed brokerage house in India which is even more bullish than us on Gold for the next three months. We wonder what were these guys doing in October 2005 or later in June 2007 when the prices moved from US $ 474.00 to a lifetime high of US $ 850.00+ pto respectively ? Anyway bygones are bygones.

Only China understands the value of Gold. On 4^th August 2010 – Chinese Govt for the first time allowed Chinese Regional Banks to export and import Gold. These banks are buyers of physical Gold from the global markets since this announcement. Prior to this only Chinese Central Bank had the monopoly to import and export Gold. The prices of Gold were on the uptrend since this important policy change by the Chinese Govt. from August thru September 2010. Gold will be bullish in October 2010 and some analysts expect the next levels to be US $ 1315.00 and US $ 1350.00 pto. We feel Gold will test US $ 1320.00 pto in October 2010. We expect a correction in Gold prices in November 2010. Post this correction – we predict Gold will zoom to our earlier predicted level of US $ 1500.00 pto latest by December 2010. Three cheers for Gold ! Gold has been our best friend since December 2001. BINGO !!!

Crude Oil as per our analysis - will be in the range of US $ 60.00 to US $ 75.00 pbbl in the months October thru December 2010, if there is no attack on Iran ’s nuke assets. It will be bullish if it can breach US $ 75.00 pbbl convincingly. The next level for Crude Oil on the bullish trend is US $ 82.58 pbbl. There is a strong resistance @ US $ 87.30 pbbl. If Crude Oil closes above this level for fifteen consecutive trading days at NYMEX then it will zoom a level of US $ 96.00 to US $ 100.00 pbbl in October thru December 2010. On the flip side it has a strong support at US $ 68.00 pbbl. Crude only becomes bearish if it falls below US $ 56.25 pbbl. Please square off all your “long positions” on Crude if the level of US $ 60.00 pbbl is breached. Crude becomes bearish below US $ 56.25 pbbl – trend reversal “inflexion point”. We however feel that due to geo-political factors Crude may not breach US $ 60.00 ppbl. Also US Dollar is getting weaker by the day. By end of the current quarter i.e. Q3 2010 as of today – US $ is down 8.30 % against basket of major currencies. This is the worst quarterly fall in more than eight years in USA . Also US $ is at a five month low against the Euro. A weak US Dollar will also support higher Crude Oil prices. Hence we feel Crude Oil will not breach the US $ 68.00 pbbl level in October 2010.

There is still a threat of Usrael attacks on Iran ’s nuke assets. If you cannot destroy Iran ’s nuke assets by “Surgical Air Strikes’, then resort to “Cyber Sabotage”. It is confirmed by our sources and the media that Usrael mounted a “Cyber Attack” at Iran ’s Bushehr nuclear plant on 9/22/2010 using “Special Software Virus -STUXNET” which can play will play havoc with the operations of the computer systems at nuclear power plants. This virus can cause “blow out” at the nuke reactors including Bushehr I, which is already “charged” with enriched uranium from Russia .

Usrael did not somehow succeed with this “Cyber Attack” on Bushehr nuclear plant. This virus – Stuxnet will not give any alarm signal to the operators who are keeping a watch on the ‘process instrumentation panel’ at nuclear plant site. In our view this threat still looms large on Iran and hence we are not advising any investments in Equities at all till further notice.

We advised our Indian associates and investors to allocate their funds as mentioned earlier i.e. 85.00 % in “Physical Gold” or UTI’s Gold ETF – GOLDSHARE. Balance 15.00 % cash or in pure Debt MFs in our last update. For overseas investors we recommend the similar fund allocation as for NRIs and PIO as mentioned above. Remember - “Gold is a sum of all fears.” There is fear all around in the developed world – USA , UK , EU and Japan . There is too much risk in the developed economies but is not visible to the naked eye because of stimuli being provided by various Govts and reckless printing of money. This will lead to hyperinflation and collapse of the banking system in USA as it the fastest “money printing machine” as mentioned above !

For the first time ECB has given guidance in July 2010 for the near future and for the next calendar year in its Financial Stability Report. ECB Head – JCT, told the media that EU Banks would need to make provisions “further losses” in the balance months of the current year to the tune of Euro 90.00 billion and for 2011 to the tune of Euro 105.00 billion. So as per ECB the total losses in the Eurozone banks will be around Euro 195.00 billion in 2010 thru 2011. Remember this is on top of the “NPAs” to the tune of Euro 238.00 billion written off by EU Banks by the end of the year 2009, after the 2008 financitial meltdown in USA .

ECB is buying Sovereign Debt Bonds of Greece, Spain and Portugal since 3rd May 2010 to calm down the financial markets in EU and this has been a good step. Failing which there would have been a catastrophe in EU financial markets. Ireland has been bailed out by ECB as its major banks are nearly bankrupt as mentioned earlier. Spain as mentioned above has its ‘Sovereign Debt’ downgraded now by three rating agencies. Latest being – Moody as of today as mentioned above. Spain is having massive problems as its major Banks have huge exposure to the real estate sector. The premium real estate sector in Spain is in doldrums with no buyers of premium villas on the coastline. The builders who have built these premium villas are defaulters as they cannot pay interest on the loans taken from major Spanish Banks. These loans will very soon turn into NPAs and will lead to collapse of the banks in Spain as their debtors will default. Ireland and Spain are bleeding to a slow death ! This is not a good sign for Eurozone’s already poor financial health. We feel the banking crisis in EU could lead to a serious ‘Sovereign’ default crisis with a few countries.

A couple of analysts of global repute are now talking of a “double-dip” recession in USA, EU and UK in the next six to nine months or so but are not sure of the time frame. We have been talking of a “L” shaped recovery in the US Economy since the past six months to our valued associates, friends and clients. We have come across only one fund – our principal (M/s. Astrologers Fund Inc. New York , USA ) who is in line with our thought process that US economy will have a “L Shape” recovery in the years 2013 thru 2017. Most of the global economists and global pundits are not in line with our prediction – complete collapse of the US Banking System in USA as during Great Depression in 1930 and then recovery and rebuilding of US economy starting 2013 thru 2017. The whole world has been talking of a “V” or “W” shaped recovery in the world’s largest economy- USA since the past six months. We wish to put it on record that US economy will see a real economic recovery after recovering from “ashes” in December 2012 thru March 2013. We repeat our forecast, after going broke by end December 2012 or latest by March 2013 end– the US economy will recover from the year 2013 to 2017. We predict serious financial difficulties in Japan in tandem with the US economy by the end 2012 thru March 2013. India is insulated as its holds very nominal value of US Bonds and also India is not an “ export oriented” economy. India exports only about 18.00 % our GDP unlike these four export oriented economies.

We predict ^ DJIA to be in the region of about 3000 to 1500 around between December 2012 to March 2013. All our associates and clients think that we are ”too pessimistic” on the ^DJIA. Only one of our associates in Switzerland agrees with us on the ^DJIA levels and is even more pessimistic than us. His target for ^DJIA is 1000 in a few years. Bob Prechter founder of M/s. Elliot Wave International says that ^DJIA can test 3000 to 2000 levels in a few years. One can imagine the plight of other global equity indices during the said period when ^DJIA is in the region of 3000 to 1500. We have mentioned earlier that US economy will recover from the year 2013 through 2017. There will be a new world economic order with a new global reserve currency which will be linked to or be a part of Gold post this financial crisis as predicted in December 2012 through March 2011 in the US economy.

BSE SENSEX will also correct during the said period and may test 6500 to 5000. India will be the third largest economy in the world by the year 2020. Somewhere in 24 months period during the years 2013 thru 2017 – BSE SENSEX will double from 22500 to 45000+ or from 30000 to 60000. As of now we predict that in 2014 to 2016 – BSE SENSEX will double from 22500/30000 to 45000/60000 respectively. It is too early to predict accurately on the said two year golden period for Indian Equities, but we will reconfirm at an opportune time well in advance as usual !

In India – inflation is a cause of worry and RBI again hiked Repo rates by 25 bpts – from to 5.75 % to 6.00 %. It also surprisingly hiked Reverse Repo rates by 50 bpts from 4.50 % to 5.00 % on 9/16. CRR remained unchanged at 6.00 %. Dalal Street was expecting this and equity markets did not tank on this interest rate hikes by RBI although hike in Reverse Repo rates by 50 bpts was higher than what the Street expected. India ’s Central Bank – RBI has been hawkish to tame inflation and hiked interest rates periodically since March 2010 till September 2010.

In view of the above “Sovereign” fears and “Banking” risks in the developed world we are giving a “pass” to the fresh investments into Indian Equities for the month of October 2010. We will focus on investments in Gold and Debt MFs in India .

Special Update on Crude Oil and Gold - 2nd July 2010

We are posting a special update on two commodities which we track since the year 1980.

These happen to be two commodities which are now most actively watched by the investor community globally - Crude Oil and Gold.

We start with Crude Oil. Our predictions are "too early" vis a vis" actual events. We had earlier predicted (in January 2010) that Crude Oil prices will test US $150.00 pbbl by June 2010. We did not mention the reason or the background of the said prediction in January 2010. We wish to share that this prediction was based on" surgical air attacks" by USrael ( USA plus Israel ) on all the nuke assets of Iran. We had predicted that the said air attacks by USrael will take place in the month of June 2010. These air attacks were then postponed to sometime in the year 2011. In view of some developments in Riyadh we are predicting on air strikes as per under.

We predict with certainty that USrael will attack Iran's nuke assets anytime from 11th July 2010 thru 22nd September 2010. In view of this the Crude Oil prices will spike to US $ 150.00 pbbl to US $ 180.00 pbbl. If the said attacks are contained within the boundaries of Iran - then the Crude Oil prices after spiking to US $ 150.00 to 180.00 pbbl, will settle down at US $ 100.00 pbbl in a matter of a few weeks. If the situation gets out of hand and US cannot control Iran's retaliation by way of missile attacks on US allies in West Asia including Israel - then we are heading for a "chaos" in the fragile West Asian region. Consequences will be addressed at an opportune time post the said attacks. In this scenario - prices of Crude Oil could stay well above US $ 100.00 pbbl level till the situation is brought under control by the US. As per our information - the said attacks already have the approval of POTUS and it is up to Washington and Tel Aviv to decide the time frame of the said attacks.

We have given the time frame as above for the said attacks. The attacks will by Israeli 'F-16s' and US 'F 22 Raptors' and will be initiated from Israeli soil and US Aircraft carriers somewhere in West Asian waters. These air attacks have the blessings of America's richest ally in West Asia - Saudi Arabia. Saudis have given approval to USrael to use their air space for the said attacks till end September 2010. The Pakistani nuke assets may also be attacked during the said mission on Iran by USrael. The 'F-22 Raptors' have just to fly eastwards after attacking Iran and then attack Pakistani nuke assets. US will once for all - will annihilate complete Pakistani nuke assets, as it cannot afford Taliban to get a hand on any type of nuke weapon.

In event of these attacks - we advise investors not to "short" Crude Oil after 11th July 2010.

Crude Oil technically becomes bearish after it breaches US $ 56.25 pbbl level. There is a very strong support at US $ 68.00 pbbl. If this level is breached in July and August 2010 - the next important support is at US $60.00 pbbl. This too is a very strong support. We advise investors not to short Crude even if it breaches US $ 60.00 - 56.25 pbbl levels. This will be a 'classical bear trap' by the illuminati as post testing these levels - the said air attacks will happen. We hope we have made our view point clear on the price movements for Crude Oil.

Gold is becoming a "headache" for the bears since the past four and half years. We have been getting messages (since the past four years or so) when the Gold price was around US $ 570.00+ pto that the prices will correct to US $ 500.00 pbbl. When the prices moved to US $ 750.00+ pbbl - we started getting messages that Gold prices for sure will correct to US $ 500.00 pto. This kept on till the prices tested a lifetime high of US $ 1261.00 at LME Spot in end June 2010. We stuck to our stand that Gold prices will not come down to US $ 500.00 pto levels since the past four years. We stuck to our stand that buy Gold on dips since the past four years or so. We were dead right.

Analysts are now predicting at around US $ 1250.00 pto levels that prices of Gold are in a 'bubble zone" and the bubble will burst anytime. We repeat - There is no bubble in Gold prices worldwide. We stick to our target for Gold prices @ US $ 1500.00 pto latest by end December 2010, if not earlier. Our target price of US $ 3000.00 pto by end December 2011, is already on our webpage.

We predict China and Russia to stop exporting Gold to the world markets, latest by Q1 2012, if not earlier. There will be a shortage of physical Gold delivery on the world markets for buyers/investors by end of the calendar 2011. This will be "trigger point" of Gold prices shooting from US $ 3000.00 pto levels to US $ 4500.00 pto levels in Q1 thru Q2 of calendar 2012.

Further - Gold prices will continue to rise (with corrections on the way ) till end December 2012 wherein our predicted price is @ US $ 6000.00 pto. This price could be even higher as we predict - arson, looting, labour strikes etc by workers in the major Gold mines in South Africa. The labour unions will ask for 'their pound of flesh' by way of hefty bonuses, as these mining companies make super profits. Almost all major Gold mining companies in South Africa have majority "foreign ownership". The total cost of production of Gold is around US $ 300.00 to US $ 700.00 pto depending upon where the mines are located around the world. Hence the fair price of Gold is US $ 1000.00 pto. We agree with this costing but Gold prices will not move on this 'cost plus pricing method'. They will move on the alternative pricing method -what the "market can afford". Global market prices will as mentioned above.

This predicted labour unrest in South Africa will lead to complete shut down of the major Gold mines in South Africa by Q2 thru Q3 of calendar 2012. We predict that the Govt of South Africa will step-in and nationalize all Gold mines before the end of 2012 and ban all exports of Gold by Q2 thru Q3 2012. This will lead to Gold prices touching levels in excess of US $ 6000.00 pto. It is worth while mentioning that as of date South Africa is no longer the world's largest producer and exporter of Gold. South Africa is the world's second largest producer and and exporter of Gold marginally behind China. South African production and exports of Gold as of calendar 2009 were at approx. 268.00 mt marginally behind China's like to like figure of approx. 271.00 mt.

The other factors for Gold prices to test levels in excess of US $ 6000.00 pto levels by end December are "hyperinflation" in USA by early 2012. Yes - we understand there will be a serious "deflationary period" in the US economy in 2011 but this will be followed by "hyperinflation" sometimes towards Q2 2012. Hyperinflation will cripple the US economy with a complete collapse of the banking infrastructure in the world's largest economy by end 2012. Just on the lines of 1930 after the 'Great Depression" of 1929. We expect a repeat of the situation in America in 2012. US Dollar will lose its 'Aaa rating' sometimes in early 2012. This will be another trigger for Gold prices to rally. Gold is a hedge against inflation. As per us Gold is also - "Sum of all fears' !

Where does one invest as Euro will also be a 'doomed currency' by end 2011. The concept of Eurozone might 'fail' as Germany might say that expel - Spain Greece and Portugal from the EU or else we will leave the EU and go back to our old currency. These are distinct possibilities as Greece and Spain will again come with "begging bowls" in hand in six to nine months as of today, for more alms ? Plus do not forget Portugal and Italy followed by Austria and Ireland.

Hence in view of all these developments - Gold prices are not going to come down till the end of 2012. Somewhere in early 2013 - there will be a 'new economic world order' with US Dollar no longer being the "world's reserve"currency. The new currency will be strongly linked to the Gold standard. We will see as the events fold in the next thirty months.

We expect a "L" shaped recovery in the US economy from 2013 thru 2107. When US sinks - so will China, Japan, South Korea and Taiwan in that order in 2011 thru 2012. Brazil and Russia will also tank but with a smaller beta. Indian economy will be least affected with a smallest beta. This does mean that Indian equity markets will not correct when the above said equity markets correct respectively. Indian equity markets are heavily dependent on FII inflows as this information is in public domain and the inflow figures are published by SEBI.

We again strongly recommend to all investors to prune their exposure to equities. Only have in your kitty - Crude Oil and Natural Gas producing stocks ASAP. Balance cash to be deployed to buy Gold on dips from date till end 2011.

In view of the above - we need not say much what will happen to global equities in July thru September 2010 on the back of the said air strikes. We expect ^DJIA to test 6750 to 6470 levels in August 2010 and BSE SENSEX to test 12500 level. Indian analysts are expecting BSE SENSEX to rally in the next three months - July, August and September 2010. Our view is totally the opposite with due regards to established pundits in India. We expect global equity markets to recover marginally in Q4 2010, if the Iranian situation is contained.

JUNE 2010

We predicted on 7^th January 2010 that Crude Oil will test a level of US $ 150.00 pbbl in June 2010. We also predicted a level of US $ 96.00 pbbl in Q1 2010 in the same update. There have been “major technical” developments on the Crude Oil prices on account of a “strengthening” of the US Dollar versus the Euro and other major currencies. The level of US $ 82.80 pbbl has been breached as of close at NYMEX on 5^th May 2010 . Also it has made a “double top” at the price level of US $ 87.00+ since our last update. These are two important “technical” factors which we cannot ignore. In view of the same – we are changing our prediction regarding the price of Crude Oil for the balance months of the calendar 2010.

Crude Oil can test a level of US $ 75.00 pbbl in the months of June through December 2010 – if the prices do not stay convincingly above US $ 82.80 pbbl in the same period. If this level of US $ 75.00 pbbl is also breached then we can see Crude in a trading band of US $ 60.00 to US $ 75.00 ppbl. As per our analysis it looks difficult that US $ 75.00 pbbl will be breached. But we cannot rule this out due to “turbulent” times expected around the globe in the months of June through August 2010 based on astro-factors. We however stick to our prediction of Crude Oil at US $ 150.00 pbbl but the time frame could be some time in the calendar 2011. We will update accordingly. We are for the first time “moving the pole” due to factors as explained.

We are bearish on the Indian Equities on account of financial problems in China and Europe. In the Eurozone - Greece , Portugal and Spain remain a cause of worry on account of their ratings of their Euro denominated “Sovereign Debt”. The issue with China is that their GDP growth figures could be drastically lower for the calendar 2010 on account of lower exports to Europe and tightening of liquidity by the Central Bank. China also has a problem with the “booming” Real Estate Sector which could see a major correction in the balance months of this calendar.

We feel that BSE SENSEX could test a level of 16000 in the months of July through September 2010. If this level is breached then one can witness “bull capitulation” and BSE SENSEX could test 14450 in Q4 2010. We advise investors to trim their exposure to Indian Equities ASAP to only fifteen percent. Balance eighty five percent - invest in Gold at every dip. Gold will not breach the level of US $ 1020.00 pto in the balance months of this calendar. It will in fact test US $ 1500.00 pto by end December 2010 as predicted in our last update.

Gold will “out-perform” all asset classes in the calendar 2010.

JANUARY 2010

I wish all the investors and my associates a prosperous and a profitable 2010 !

Our research for Indian Equities is taking some time and hopefully will be over by the end of the month. In any case we are not very bullish on Indian Equities for the calendar 2010 like most of the respected analysts in the business. But having said this - Equities as an assest class in India will give good returns on "recommended stocks" as in the past. Our recommended stocks have been multi-baggers since the year 2000. We will post our forecast on Indian Equities as mentioned above. Please bear with us.

We are clear on the trends and price points for Gold and Crude Oil - the commodities which we track since the past decade or so.

Gold - we stick to our earlier prediction of a price level of US $ 1500.00 pto latest by December 2010 if not earlier.

Crude Oil - we stick to our ealier predictions of US $ 150.00 pbbl in June 2010. We can see a price level of US $ 96.00 pbbl within a span of a week or so if NYMEX Crude can close above the level of US $ 82.80 for fifteen consecutive trading sessions. This can happen in calendar Q1 2010.

DECEMBER

BSE SENSEX closed today- Monday 30^th November 2009 at a bullish level of 16926 up 6.48 % from the last reference close of 15896 as of 30^th October 2009. The intra-month low and high for the BSE SENSEX for the month were 15331 and 17290 respectively.

We were bearish for the month of November for BSE SENSEX and for once our call was incorrect. The primary reason was the “big bang” confirmation on 6^th November’09 from Govt. of India of its “Disinvestment Program”. Govt. of India in a surprise move confirmed sale of equities of Public Sector Units ( PSUs) both – listed or unlisted over the next three fiscal years to raise approx. Rs. 500.00 to Rs. 650.00 billion ( US $ 10.87 to US $ 14.31 billion ). This was a big “bull trigger” for the Indian Equity markets for the month of November’09 and the BSE SENSEX never really looked back again except on 26^th and 27^th November’09 – Dubai default jitters ! Also global equity markets after Mid November’09 lead by ^DJIA were bullish. Hence BSE SENSEX was bullish for the month of November’09.

Indian economy did show some good “macro economic” indicators in November’09 confirming that India is the second fastest growing economy in the world after China. This further pushed BSE SENSEX to above 17000+ levels. IIP number for September’09 at 9.10 % versus 6.80% for the same month in 2008 was a good indicator for the economic activity in India. The GDP figure for Q2 for the current fiscal ( July thru September’09) at 7.90 % surprised everyone. This translates to H1 GDP ( April thru September ) growth figure of 7.00 % for the current fiscal. Hence BSE SENSEX turned bullish. We have to see what will be Q3 ( October thru December’09 ) GDP growth figure for the Indian economy as we feel it would be lower than Q3 figure as above on account on poor Kharif agricultural output. Govt. of India feels that the Indian GDP will grow at around 7.00 % for the current fiscal year which ends on 31^st March 2010. We have doubts on this figure. Let us see in May 2010 when the annual GDP figure is announced ?

On the agriculture front it is now official from the Govt. of India that the shortfall in Refined Sugar production in India during the current fiscal would be 7.00 million mt. Output for Rice would be around 15.00 million mt. These are on account of deficient SW Monsoon in India in the summer of 2009 – poorest since 1973. This was no dampener as India has been witnessing huge FII inflows into the Equities since March’09. The FII inflows in fact have been so large in calendar 2009 till November’09, that it is being assumed that FIIs in calendar 2009 would cross the earlier record of US $ 17.65 billion as in calendar 2007. As per official data from SEBI – FIIs have pumped in US $ 15.60 billion into Indian Equities in calendar 2009 till 16^th November’09.

Govt. of India’s “Disinvestment Program” as mentioned above needs a little more attention in this update. It is a big development to raise funds to bridge the huge fiscal deficit. The Govt. of India approved that in the next three years to 2012 – all PSUs ( Listed or Unlisted on the stock exchanges in India ) will have a minimum free float of 10.00 %. This was a landmark approval given by the Union Cabinet keeping in view that the current UPA Govt. in New Delhi, India is a “coalition” formation with a few partners having objections to disinvestment of equity of profitable PSUs. PSUs shortlisted for disinvestment of equity should have positive net worth, no accumulated losses and should have made profits for the past three consecutive years. For the current fiscal year – there are unconfirmed reports that NTPC, SAIL and NMDC will be Disinvestment candidates with fresh public offerings. The amount to be raised before the end of the current fiscal year i.e. by 31^st March 2010 is anywhere between Rs. 140.00 to 250.00 billion. This translates to US $ 3.04 billion to 5.43 billion. These are very encouraging numbers. The target of the Govt. of India is to bring down the whopping fiscal deficit of around 11.00 to 12.00 % as of the current fiscal year down to 3.00 % by the year 2012. This is a very ambitious figure as far as we are concerned because as we still “dole out” huge subsidies in India in the Farm and Petroleum Sectors. It must be mentioned here that this level of disinvestment calls for kudos to the current Indian Prime Minister and his experienced Finance Minister.

Sixteen Nation EU, USA and Japan declared that they were “officially out of recession” as for two consecutive quarters their GDP growth figures were positive as announced around Mid November’09. The quarters were Q2 and Q3 2009 calendar. This confirmed end to the sharpest recession in the globe since World War II in 1945. This set the tone of global equity markets to be bullish. This was in spite of announcement of the largest bankruptcy in corporate America on 2nd November’09 – M/s. CIT Group in USA filed for Chapter 11 bankruptcy with US $ 71.00 billion in assets and US $ 65.00 billion in debt as of June 2009. Wall Street had factored in this bankruptcy and hence ^DJI did not tank in the month of November’09. It is believed by Wall Street analysts that M/s. CIT Group will emerge out of bankruptcy latest by 31^st December’09. The official unemployment figure for the month of October’09 for the US economy was at 10.30 % - highest since 1983 and this news also did not affect the liquidity driven rally in ^DJIA.

There is too much easy and cheap money available in the USA which is now causing asset bubbles in Asia and other Emerging Markets – Equities, Real Estate and Commodities. The weak US Dollar is especially leading to life time high prices of Gold. Spot Gold tested a new life time high price of US $ 1195.80 pto in New York on 27^th November’09. In view of this we are revising the time frame of our target price of Gold of US $ 1200.00 pto from latest Q1 2010 to latest by 31^st December 2009. In the month of November’09 Central Banks of Sri Lanka and Mauritius bought 10.00 mt and 2.00 mt of physical Gold from IMF. Indian Central Bank-RBI has shown keen interest to purchase the balance 190.00 mt of Gold from IMF.

We have heard of the famous “Yen Carry Trades” during late 1990s. This was on account of very low i.e. near zero interest rates in the Japanese economy. We all know what happened in October 1998 on account of this hugely popular and profitable “Yen Carry Trades” in the international equity markets especially in USA. In just two months –Japanese Yen appreciated by about 20.00 % versus the US Dollar. The market operators had to “unwind” these trades and it lead to collapse of M/s. Long Term Capital Management Group ( LTCM ) in USA. Also there was a Sovereign Default in Russia in 1998. These “Currency Carry Trades” can go horribly wrong as no one can “predict for sure” the cross-currency exchange rates. Currently what we are witnessing are very strong “US Dollar Carry Trades” just like in Japan in late 1990s when there in Japan the interest rates were near zero. The situation is now the same in USA – interest rates are near zero. Market players are borrowing cheap US Dollars from US Banks and Institutions and are converting the same into currencies of Brazil, India and China. Then they are buying Equities and Bonds in these said BIC Markets. The same holds true for Indonesia, Thailand and Malaysia etc in the Emerging Markets universe. Things can go “horribly wrong” if there is a sudden interest rate hike in USA or the US Dollar appreciates suddenly by 15.00 to 20.00 % say against the basket of five important global currencies. The trend is that US Dollar is weakening and the trend is towards further weakening but one “cannot be sure” that the sharp reversal cannot happen. In view of this it is advised that one should be careful while investing in Indian Equities at these 17000+ levels.

We feel BSE SENSEX will be range bound in the month of December 2009 with an “upward bias”. BAER Capital predicts that BSE SENSEX will test a level of 20000 by end December’09. As per our analysis the levels to watch for BSE SENSEX for December 2009 are :

R1 17030 R2 17500 R3 18000

S1 16500 S2 16000

We feel BSE SENSEX will top out at 18000 in December’09.

R1 10350 R2 11000

S1 9500 S2 9150

^DJIA closed today at 10345. ^DJIA tested a new 52 week high of 10514 during the month..The levels to watch for ^DJIA in December’09 are :

R1 10350 R2 11000

S1 9500 S2 9150

If above support levels are breached on account of Dubai crisis we will post a “Special Update”.

Crude Oil – If the NYMEX prices of US $ 82.00 ppbl is convincingly breached then the price will zoom to US $ 96.00+ pbbl as on the charts there is no resistance from US $ 82.00+ till a price level of US $ 96.00 pbbl.

Gold – we have made our position clear. We stick to our price prediction of US $ 1500.00 pto latest by end December 2010if not earlier.

No Stocks are being recommended. Take your profits when BSE SENSEX rallies to 18000+.

SPECIAL UPDATE 4^th NOVEMBER 2009 – GOLD

This update is being posted as our Gold levels predicted in our forecast for November 2009 need to be revised on account of sale of 200.00 tonnes of Gold by IMF to India’s Central Bank – Reserves Bank of India (RBI).

IMF reported on 3^rd November 2009 that it “quietly” sold 200.00 tonnes of physical Gold to RBI in hard currency between 19^th through 30^th November 2009 at an average price of US $ 1045.00 pto to raise US $ 6.80 billion. IMF had put 403.30 tonnes of Gold on the block for sales to raise cash to lend funds to the “poorest nations” of the world. It only got the approval of its Board to sell 403.30 tonnes of Gold in end September 2009. This was a couple a months behind schedule. Out of 403.30 tonnes – IMF decided to first sell only 200.00 tonnes. IMF’s total Gold holding prior to this sale was in excess of 3225.00 tonnes as per IMF’s official data.

We had predicted to our associates that in September 2009, IMF will sell 403.30 tonnes of Gold on the world markets and that China or Russia will “grab” this Gold on offer. We had mentioned to our associates that if the sale of Gold by IMF in September was “gulped” by China or Russia – it would be huge positive for the prices of Gold. To everyone’s surprise RBI offered to buy the first lot of 200.00 tonnes at US $ 1045.00 pto for US $ 6.80 billion in hard currency. Please note RBI did not ask for any discounts from IMF towards purchase of this lot of 200.00 tonnes of Gold. This sale has sparked a “rally” in Gold prices in the world markets as predicted.

Spot Gold in New York tested a new life-time high of US $ 1085.30 pto on 3^rd November 2009. At the time of printing this update on 4^th November 2009 – Spot Gold tested a new life-time high of US $ 1090.60 pto in Asian and European commodity. US Commodity markets are yet to open as we are posting this update. In view of this sudden Indian Government’s decision to purchase the entire lot of 200.00 tonnes of Gold by IMF ahead of China and Russia – there has been a paradigm shift in the world scenario of Gold as regards Central Banks are concerned. This purchase by RBI is signaling that Central Banks in the world are in favour of owning “hard forex assets” i.e. Gold, Platinum etc than holding “paper assets” viz US Bonds. We have been waiting for this day to drive home our point that “Gold is the best asset class” for investment for the years 2009 through 2012. We mentioned this in our January 2009 update in bold alphabets !

India’s Gold holding as of 3^rd November 2009 now stands *tenth largest in the world at about 558.00 tonnes. India’s Gold holding prior to this purchase from IMF was only 11.50 million troy ounces. This translates to about **358.00 tonnes. Total now stands at 558.00 tonnes valued at about US $ 16.80 billion. As of 3^rd November 2009 India’s total foreign exchange reserves were to the tune of about US $ 285.50 billion. Hence India’s Gold reserves now stand at about 6.00 % of its total foreign exchange reserves. ( 16.8 divided by 285.50 multiplied by 100 ). This is a very small amount as far as we are concerned but it is four times better than China.

Total Gold reserves of China as of 3^rd November 2009 were 1054.00 tonnes valued at US $ 30.00 billion. China’s total foreign exchange reserves are at a staggering US $ 2.00 trillion. Hence China’s Gold reserves as a percentage to its total foreign exchange reserves stand at a pidly 1.50 %. ( 30.00 divided by 2000 multiplied by 100 ). China is now world’s ***fifth largest holder of Gold reserves at 1054.00 tonnes behind France, Italy, Germany and USA. Just for information for our investors - USA still is the world’s largest holder of Gold reserves at about 8133.00 tonnes.

We are now even more worried about China and Japan’s “paper holding” of their foreign exchange reserves by way of worthless US Bonds in the years to come. This purchase of Gold by India has confirmed that US Dollar “Sovereign Bonds” are no longer a “safe haven” for investment over the next few years and hence RBI is hedging its US Dollar forex holdings against inflation and depreciating US Dollar by buying physical Gold.

What was RBI doing in October 2005 when we predicted that Gold will test US $ 800.00+ in the year 2007 ? That time the ruling price in the world market was around US $ 454.00 pto. That time in Q4 2005 analysts were laughing at our predictions on Gold prices for Mid 2007 ?

We will not be surprised if RBI again buys the balance 203.30 tonnes of Gold from IMF if no other Central Bank comes forward with bids. Even if RBI or Chinese or Russia Central Banks do not bid for this next lot of 203.30 tonnes and IMF sells this in the world market via the auction route – we believe this quantity will be lapped up in a matter of minutes by Gold ETFs like SPDR etc. This will add further fuel to the rally in Gold prices globally.

In view of this development we are changing the price levels of Gold for the month of November 2009 upwards as under:

Please read as under instead of the November 2009 update:

Gold will also correct in November when ^DJIA corrects. We feel Gold can correct to US $ 1020.00 pto levels in November. This level will hold in November as per our analysis. On the flip side Gold can test US $ 1110.00 to 1140.00 pto in November 2009. Our target of US $ 1200.00 pto now stands revised to latest by Q1 2010.

______
* and *** Source: World Gold Council
** Assumption: 1.00 million troy ounces equals to 31.01 tonnes of Gold.

NOVEMBER

BSE SENSEX closed today 30^th October 2009 at a level of 15896, up 7.80 % from the last reference date of 17^th July 2009. We once again regret that we could not update the webpage for the month of August and September 2009. BSE SENSEX was bullish even though SW Monsoon has been deficient in the year 2009.

Kharif Crop output which constitutes about 60.00 % of nation’s agricultural output is hurt on account poor monsoon rains. It is unfortunate that about 60.00 % of Indian agricultural output still depends on monsoon rains after more than six decades of our Independence from the British rule. Kharif Crop in India is the main crop with Rice, Oilseeds, Pulses and Sugarcane under cultivation. Even the balance 40.00 % Rabi Crop is expected to show a decline in output due to the poor monsoon. Main Rabi crop is Wheat and Soyabean in India. There is an estimated shortfall of about 10.00 to 12.00 million mt of output of Rice in the current Kharif season and about 6.00 million mt of Refined Sugar. India will have to import huge quantities of Rice soon to meet the shortfall. Inspite of all this negative news Indian Equity markets were near their 15 month highs ! Markets discount the future but here in this case even Rabi Crop output is also estimated to be 15.00 % lower this fiscal in India. Such are the equity markets ?

Global and Indian Equity markets were bullish in September and October 2009 with ^DJIA hitting a high of 10027 and BSE SENSEX hitting a high of 17457. The global equity markets were liquidity driven and on hopes of a recovery in the US Economy. The results from corporate America were a mixed bag with TARP assisted large Banks declaring record profits for Q3 calendar 2009. The US Economy GDP figures for Q3 calendar 2009 showed an increase of 3.60 % for the same period as compared to last calendar in 2008. Equity markets in Asia and Europe were also bullish on account bullish ^DJIA.

We have doubts on the recovery of the US Economy and hence are bearish for ^DJIA for the month of November 2009. On the back of this we predict that global equity markets will also be bearish in November 2009 including BSE SENSEX.

Corporate India declared a mixed bag of results for Q2 of the current fiscal (July- September’09). Results from the Telecom and Metal sectors were disappointing. Banks, FMCG and Two Wheelers companies in India declared good results for the said quarter. IT and Capital Goods sector results were flat. Overall the results were not spectacular and even then BSE SENSEX raced to 17400+ levels. This was on account of liquidity flows from FIIs who till date in calendar 2009 have pumped nearly US $ 13.00 billion into Indian Equities. This is a huge inflow of funds into Indian Equities as was the case with other emerging markets too including Brazil and Russia. FIIs poured in excess of US $ 1.20 billion into Indian equities in the month of September 2009 alone.

^RTSI Index in Moscow has risen from 23^rd January 2009 low level of 493.00 to a whopping level of 1461.00 on 14^th October 2009 – up 196.35 %. By far the best performing market in the BRIC pack. BSE SENSEX registered a gain 117.00 % from the March low of 8047 to 17457 as of 20^th October 2009. ^DJIA for the similar period registered only a gain of 55.00 % - clearly underperforming the equities from the emerging economies including the BRIC pack. Equity markets in Europe too underperformed the emerging markets.

We are bearish for BSE SENSEX for the month of November 2009 as we are bearish for ^DJIA for November 2009. We feel FIIs will pull out funds from Indian equities in November 2009. The levels to watch out for BSE SENSEX for November are as under:

R1 17030 R2 17500 R3 18000
S1 15600 S2 15000 S3 14450

If BSE SENSEX cannot close above 16050 in the next fifteen consecutive days – then we are heading for a crash to 14450 levels in the month of November 2009. If this level of 14450 is breached convincingly – I will post a “Special Update” as then we are heading for a serious trend reversal and will be in medium term “bearish” mode.

The levels to watch for ^DJIA for November 2009 are:

R1 10030 R2 10350
S1 9500 S2 9150 S3 9000 S4 8760

If ^DJIA cannot hold 8760 then it will crash to 8500 and then to 8270 in November 2009. A lot of analysts have predicted that the worst is over for the US Economy. As we said in our July 2009 forecast we have to wait for at least two to three quarters in a row with positive GDP growth, lower Unemployment numbers and stable Residential prices in USA to come to this conclusion that the US Economy is on a road to a recovery. As far as we are concerned the recovery in the US Economy will be “L” shaped till end 2012.

Gold closed today Spot at US $ 1045.70 pto. The yellow metal tested a new life-time high of US $ 1066.00 pto – Spot and US $ 1070.40 pto in the Futures market in USA on 14^th October 2009. Gold will also correct in November when ^DJIA corrects. We feel Gold can correct to US $ 980.00 pto levels in November. US $ 960.00 pto is the “inflexion point” for Gold. This level will hold in November as per our analysis.

Crude Oil tested US $ 82.00+ ppbl in October 2009 and closed today at NYMEX at US $ 77.00 pbbl in Futures market. We think Crude Oil will correct with a “higher beta” than Gold when ^DJIA corrects in November. A closing below US $ 75.00 pbbl can take Crude Oil to sub US $ 70.00 ppbl levels. We have maintained in the past that the fair price of Crude Oil till December 2009 is between US $ 60.00 to US $ 75.00 pbbl.

In view of the above prediction please book profits on any rally in BSE SENSEX and stay in cash so that we can further increase our exposure to Gold and Crude Oil at the right time. No new Indian equities are being recommended for investment for November.

AUGUST

Dear Investors,

Due to some personal reasons at my end I will be un-able to update my webpage till further notice. Inconvenience regretted. I hope to return soon !

Cheers !

JULY

The forecast for July 2009 is delayed as the Union Budget for the current fiscal (1.4.2009 to 31.3.2010) announced by the Indian Finance Minister on 6^th July 2009 was not well received by Corporate India and by the Indian equity market participants. BSE SENSEX tanked on 6^th July 2009 by 5.83 % to close at 14043 level (in absolute terms a fall of 870 basis pts at close). The index corrected further in the following week till 13^th July 2009. The Government of India then quickly went into “damage control exercise” in the next three weeks and announced bold disinvestment initiatives to shed equity in Public Sector Units to bridge huge “fiscal deficit” as estimated in the Budget. Secondly the South West monsoon’s progress was slow from first week of June 2009 onwards. Today, Friday 17^th July 2009, the Indian Met Department declared that - Cumulative seasonal rainfall was 27.00 % below normal levels on account of South West monsoon in India. I was waiting for the data on monsoon and the funds to be raised by Govt. of India through the “Disinvestment of Govt. Equity” in various PSUs. These figures for the latter have been varying since 6^th July through 17^th July 2009 and hence the delay in my forecast.

BSE SENSEX closed today – Friday 17^th July 2009 at 14745 down 2.37 % from the last reference close of 15103. The intra-period lows and high were a whopping 13220 and 15600. I had predicted BSE SENSEX to be bullish in June 2009 but BSE SENSEX fell short of 16000 mark. The Union Budget estimated a “Central Fiscal Deficit” of 6.80 % of projected GDP for the current fiscal - which was perceived to be too high by Dalal Street. If we add “State’s Fiscal Deficit” and “Off Budget Expenses (farm and petroleum sector subsidies) to this figure the “Total Fiscal Deficit” would be to the tune of around 11.6 to 12.2 % of the GDP. This figure was perceived to be high and global rating agencies like M/s. Standard & Poor’s commented that these estimated levels of “Total Fiscal Deficit” of excess of 11.00 % could leave a window open for further “De-rating of India’s Sovereign Debt”. Currently India’s Sovereign Debt Rating as per M/s. S & P is at “BBB negative” as of 24^th February 2009. Also the rating agency is concerned about Indian “Outstanding Debt”. Govt. of India’s gross outstanding debt is estimated at 85.00 % of its GDP as of the end of last fiscal year i.e. as of 31^st March 2009. Other factors having a bearing on Sovereign Credit Ratings are:

i) Medium Term Growth Prospects

ii) Inflation Rates and Interest Rates

iii) Progress in Structural Reforms

iv) Net Inflow of Foreign Funds

The second issue which rocked the markets was Govt. of India’s estimated borrowing of Rs. 4500.00 billion (US $ 93.75 billion) in the current fiscal as announced in the Union Budget to fund spending on building Roads, Power Plants and Aid to Poor population through various Govt. Welfare Schemes. This level of borrowing was considered a “choking factor” for the Corporate India. Govt. of India borrowing so heavily, will there be enough funds for the “Private Corporate” India ? This level of Govt. of India’s borrowing is an un-precedent and is estimated at about 8.90 % of GDP. The fears of the financial markets were justified with Indian Bond yield crashing on 6^th July 2009.

Govt. of India moved swiftly to announce measures to bridge the said soaring levels of fiscal deficits to calm the shaky equity markets and also to restore confidence amongst the FIIs. The major input to bridge this fiscal deficit was by way of “Disinvestment of Govt. Equity” in listed and un-listed PSUs. The Economic Survey mentioned a figure of Rs. 250.00 billion (US $ 5.21 billion) by way of disinvestment for the current fiscal, a few days before the Union Budget. The Union Budget announced a very small amount to be raised by way of disinvestment – only Rs. 11.20 billion (US $ 233.30 million). Equity markets tanked. Then the Finance Secretary – Govt. of India announced that this figure would be around Rs. 100.00 billion (US $ 2.08 billion). Today the Finance Ministry spokesman announced that this figure could be as high as US $ 5.00 to 7.00 billion. Indian Equity markets were “euphoric” after the announcements of revised figures as above. BSE SENSEX jumped about ten percent in the last five trading sessions in spite of monsoon figures being below normal.

I am not going into the details of the Union Budget parameters and announcements but the Budget overall was a “big disappointment” as it did not address any major reforms issues. Details of the Union Budget can be viewed at MoF, Govt. of India’s website.

For the balance days of July 2009 – I expect BSE SENSEX to be bullish on the back of the above said announcements and on the back of global cues. The economic data on the US Economy is mixed but ^DJI has staged a “sharp rally” of 4.94 % in the last five trading sessions. Equity Markets in Asia and Europe too have rallied “strongly” on the back of the rally in ^DJI. Almost all economists and analysts are now saying that “worst is behind us” as regards to the US Economy. I have my doubts as it is too early to come to this conclusion as regards world’s largest economy. I feel more stable data should emanate from the US economy and then one can make this statement that the “worst is behind us”. This could take maybe a couple of more quarters or on the “flip slide” – the US Economy could slip into a deeper recession in the Q4 2009.

The levels to watch for BSE SENSEX for the balance days of July 2009 are:

R1 15000 R2 15600 R3 16000

S1 14463 S2 14000 S3 13500

As long as BSE SENSEX stays above pivot 14463 – the “uptrend is in tact” for the long-term as per my analysis. I am not recommending any new Stocks to be bought at these overheated BSE SENSEX levels.

^DJI closed today at 8744 marginally lower (0.22 %) from the last reference level of 8763. The ^DJI has been very choppy in the period under review. ^DJI is dangerously flirting with an all important “pivot 8760”. The levels to watch for the balance days of July 2009 are :

R1 8760 R2 9000

S1 8500 S2 8270

As long ^DJI can stay above “pivot 8760” the “inter-mediate trend” is up. The next level is all important 9000. Above 9000 to 9150 - ^DJI enters a “long-term uptrend”. Looks difficult in July 2009 but you never know as anything can happen in US Economy these days. The Obama Administration can announce another “stimulus package”.

I am bullish on Gold and my next target is US $ 960.00 pto. I am also bullish on Crude Oil with a target of US $ 66.00 pbbl by end July 2009.

JUNE

The update is late by a week as we were waiting for the effect of GM’s bankruptcy filing on the ^DJI as of 1^st June 2009. How is that for prediction that – GM will be bankrupt by June 2009 ! ^DJI rallied post 1^st June’09 GM bankruptcy. Third largest US bankruptcy since 1980 at US $ 91.00 billion behind WORLDCOM’s at US $ 103.90 billion in 2002 and LEHMAN’s at US $ 691.00 billion in 2008. LEHMAN’s is the biggest bankruptcy filing in corporate America !

BSE SENSEX closed today Friday 5th June 2009 at a very bullish level of 15103 up whopping 32.44 % from the last reference close of 11404 level. The intra month (4th May to 5^th June’09) low and high were 11621 and 15257 respectively. My prediction was correct that UPA will form the next Government in New Delhi in May 2009 after the results of the General Elections are declared by 16^th May 2009. But – the mandate for UPA was much larger than my prediction and hence the BSE SENSEX was locked in 20.00 % upper circuit on Monday 18^th May 2009. There was no “correction” in the BSE SENSEX on 18^th through 21^st May’09 as predicted as the mandate was loud and clear in favor of UPA. The markets expect all major reforms to be back on track as there are no Left Front partners supporting the Congress led UPA Govt. Another big plus for the equity markets was return of the earlier Prime Minister – Dr. Manmohan Singh and his core team of cabinet ministers with key portfolios.

This 18^th day of May 2009 will be remembered by “bulls” in the Indian equity markets as a golden day – BSE SENSEX locked in daily upper circuit limit of SEBI at 1155 hrs at 14284. From this day on there was no looking back for the BSE SENSEX and it pierced my second pivot of 14463 with ease. FIIs pumped in a whopping US $ 3.65 billion into Indian equities in May 2009. I had predicted on 1^st May’09 forecast that if UPA forms the next Government in New Delhi, BSE SENSEX will see a level of 14500 in June 2009. In fact it tested 15250+. My prediction was again - Bingo ! It is now to be seen that can BSE SENSEX close above 14463 for fifteen consecutive trading sessions? BSE SENSEX has closed above this 14463 pivot for six consecutive trading days from 29th May till today. If BSE SENSEX can close above this level for nine more trading sessions i.e. close above 14463 till 18^th June 2009 – bulls will be on the rampage at Dalal Street. I predict this is a foregone conclusion and BSE SENSEX will close above 14463 for the next nine trading sessions unless some catastrophe happens in US financial markets from 8^th June through 18^th June 2009. There are early signals of revival in the Indian economy.

The levels to watch for BSE SENSEX for the month of June are:

R1 15300 R2 16000 R3 16500

S1 14463 S2 12500 S3 11300

I had recommended investment in three stocks on 1^st April 2009 as under :

NELCO: It closed today at Rs. 58.00 up 75.00 % from last reference price of Rs. 33.00. I advise investors to sell fifty percent of their holdings at around Rs. 60.00 to Rs. 63.00. Balance one can hold on for long term for the next twelve to eighteen months for a target price of Rs. 120.00 to Rs. 180.00+

ASTRA MICROWAVE: It closed today at Rs. 88.00 up 83.00 % from last reference price of Rs. 48.00. My first target price Rs. 80.00 has been tested in a short span of time. I recommend that investors should sell fifty percent of their holdings at Rs. 90.00. Balance one can hold on for long term for the next twelve to eighteen months for a target price of Rs. 120.00.

BHARAT ELECTRONICS: It closed today at Rs. 1393.00 up 54.00 % from the last reference price of Rs. 900. My target price for the next twelve months was - Rs. 1400.00. The stock has zoomed in a matter of two months from Rs. 900.00 to near Rs. 1400.00. I advise investors to hold on to this stock and book partial profits at Rs. 1800.00. I am revising the next ten months price level to Rs. 2100.00 to Rs. 2400.00.

I am recommending one additional stock for investment for long term – KIRLOSKAR BROTHERS Ltd. It closed today at Rs. 170.00. This company is an acknowledged leader in fluid handling and India’s largest manufacturer of pumps. It is a market leader in turnkey Irrigation projects. The new Government has put growth in “Infrastructure” as a priority sector. Agricultural infrastructure is a special focus as farmers are “vote banks” in India. My target price for this stock is Rs. 300.00 to Rs. 450.00 in the next twelve to eighteen months.

^DJI closed today at a bullish level of 8763 up 6.71 % from the last reference close of 8212 level. The intra month low and high were 8214 and 8839 respectively. ^DJI pierced R4 8670 but it remains to be seen if ^DJI can hold this important level of 8670. It has closed above this level for five trading sessions and if it can manage to close above the same for another ten consecutive trading sessions then ^DJI will zoom to an all important level of 9000. There are mixed signals regarding revival in the US Economy.

The levels to watch for ^DJI for June 2009 are :

R1 9000 R2 9150

S1 8760 S2 8670 S3 8500 S4 8270

The current rally in ^DJI and in global equities is primarily liquidity driven. It remains to be seen how much more liquidity is diverted to the equities as an asset class. I think at 9150+ levels for ^DJI – the equity markets in US could take a breather. Large amounts of funds have entered emerging equity markets around the world with BRIC and Asia being large recipients. In some countries including India – valuations of index stocks already seem expensive. Hence the investment of funds into quality mid-cap stocks in Indian equities and also in some other emerging markets in Asia.

Gold closed today at New York spot at US $ 954.00 pto up 7.67 % from last reference price of US $ 886.00 pto. Spot Gold tested US $ 988.00 pto on 2^nd June 2009. I continue to be bullish on Gold and expect a price of US $ 1050.00 to 1080.00 pto in July 2009. Gold can flare up to US $ 1200.00 pto by December 2009.

Crude Oil futures tested US $ 70.00 pbbl today ay NYMEX to settle at close at US $ 68.44 pbbl. Up 7.67 % from the last reference price of US $ 53.20 pbbl. I have been saying for a long time that fair price of Crude Oil is between US $ 60.00 to US $ 75.00+ pbbl. I still stick to my prediction that Crude Oil prices in June 2010 will be in the region of US $ 150.00+ pbbl.

Cheers to equity markets for June 2009!

MAY

BSE SENSEX closed today Friday 1^st May 2009 at a bullish level of 11404 up 15.18 % from the last reference close of 9901 level. The intra month low and high were 10107 and 11492 respectively. I was correct in my prediction that BSE SENSEX will be bullish in April 2009 on the back of global cues. I had predicted that BSE SENSEX could test an important level of 11300 in April 2009. It went past this level and then re-traced from an intra month high of 11492 to close today at 11404. SENSEX was bullish as FIIs pumped in a whopping Rs. 55.60 billion ( US $ 1.10 billion ) into the Indian equities in the month of April 2009. DIIs were however net sellers of equities to the tune of Rs. 7.82 billion ( US $ 153.34 million ) during the month.

There was hectic short covering by operators as the SENSEX rallied beyond expectations as FIIs pumped in funds again in the emerging markets during the month. During calendar Q1 2009 – FIIs were net sellers of Indian equities to the tune of Rs. 86.90 billion ( US $ 1.70 billion ) and DIIs were net buyers for Rs. 104.45 billion ( US $ 2.05 billion ). This sudden “volte face” by FIIs caught the bears “off guard” as FIIs were net sellers of Indian equities for the first three months of calendar 2009 and then in April FIIs pumped in a whopping US $ 1.10 billion. In addition India’s Central Bank – RBI on 21^st April 2009 cut its “Repo Rates” by 25 bpts to 4.75 % and “Reverse Repo Rates” also by 25 bpts to 3.25 %. RBI left CRR unchanged at 5.00 % and PLR at 6.00 %.

BSE SENSEX pierced R4 11300 ( 200 DMA ) but could not close above 11300 for ten consecutive trading days in April 2009. So as far as I am concerned – BSE SENSEX is an “intermediate uptrend” but there is no indication as yet for a start of a secular long term “bull market” for Indian equities. The current rally in BSE SENSEX which started from 8047 level as of 6^th March 2009 to a high of 11492 translates to an upswing of 42.82 %. This was a spectacular rally without any doubt but as per my analysis BSE SENSEX has two important resistance levels, which are “pivots” – 11300 and 14463. I stick to my views as mentioned in last month’s update – “ I will be convinced of the trend reversal if BSE SENSEX can close above 11300 for ten consecutive trading days.” Then the next level is 12500 – which can be tested in May 2009. As per my analysis - BSE SENSEX will be in a “long term” bull phase if it can close convincingly above 14463.

This can happen in June 2009 – provided UPA led alliance forms the new Government in New Delhi in May 2009. I predict that UPA will form the next Government with its allies in New Delhi but there will be “major” uncertainty around 17^th through 20^th May 2009, after the election results are announced on 16^th May 2009. BSE SENSEX will tank around these dates but the allies of UPA will re-group swiftly to prevent BJP led NDA alliance to form the Government. BSE SENSEX will then zoom to 12500 in a matter of a week or so by end May 2009. We can then expect BSE SENSEX to be extremely bullish in June 2009 to see a level of 14500 as UPA Government will be credible and the Indian Met Department has predicted a ‘near normal” SW Monsoon for 2009. Cheers !

I would like to highlight one very important fundamental issue regarding this rally in BSE SENSEX in April 2009 which was primarily liquidity driven. The Q4 results of last fiscal year in India i.e. January through March 2009 were not spectacular except for Cement companies. The corporate India’s results start pouring in for the last quarter of the preceding fiscal by around 10^th April. In India fiscal year is April to March. Some “Group A” Indian companies which posted substantial lower profits and some even whopping losses in Q4 as per above also witnessed their share prices zoom from a low as of 6^th March 2009 to date defying fundamentals. RELIANCE CAPITAL was up by 87.00 %, SUZLON 83.00 %, ICICI BANK 82.00 %, TATA MOTORS 78.00 %, UNITECH 78.00 %, STERLITE 68.00 % and DLF 66.00 % from 6^th March to date. Anything that defies fundamentals gives me ‘jitters’ in the medium term. I fully understand – Markets discount the future and a few analysts expect the Indian economy to bottom out by June 2009. But these levels of share price appreciations ( 60.00 to 90.00 % ) in a matter of six weeks on the back of weak fundamentals are difficult to digest. IMF expects Indian GDP in the current fiscal year 2009-2010 to grow only by 4.50% whereas RBI expects Indian GDP growth in the current fiscal at 5.60 %. India will only be next to China in the world as regards GDP growth. China’s GDP growth is expected to be about 6.0 % in calendar 2009.

UBS has predicted that Indian economy will bottom out by June 2009. Complete recovery will be in the fiscal 2010-2011. CLSA has similar views. UBS’s twelve-month view is that they are “overweight” on Autos, Metals, Banks and Real Estate. Indian economy is showing “firsts signs” of revival as Steel consumption has shown a marginal increase in fiscal year ending 2009 versus 2008 – 53.5 million mt vs 52.60 million mt. Steel consumption in calendar 2008 in EU-27, Russia, USA, and Brazil was sharply down between 28.80 % to 14.50 %. Indian “Core Sector” growth is back on track. The index for six Core Industries – Crude Oil, Petroleum Refined Products, Coal, Electricity, Cement and Finished Carbon Steel has turned in a growth of 2.90 % in March 2009 over March 2008. This is the highest growth rate of this index since the past six months. These are positive signals but only for one month. Let us see the figures for another couple of months before jumping to a conclusion. I would wait for end September 2009 to give my views on a “confirmed economic recovery “ in India.

A few reputed global analysts have confirmed that BSE SENSEX has started its “bull market” journey, which will last for four to five years i.e. till 2013 to 2014. As per Mark Galasiewski of M/s. Elliot Wave International Inc. USA – “If the price and time proportions between the waves in the 2003-2008 rally continue, the BSE SENSEX should hit 1,00,000 in about 15 years”. Yes – a magical figure of ‘One hundred thousand” for BSE SENSEX by 2025. Nearly ten times from the current BSE SENSEX levels. Mark Galasiewski is EWI’s Asia-Pacific Editor. EWI has also classified Japan, Singapore, Hong Kong, China and Australia as long-term bear markets. I am not in a position to forecast over such a long period of time and hence would like to reserve my comments on EWI’s long-term forecasts as above.

I expect BSE SENSEX to “tank” from between 18^th through 20^th May 2009 and then recover by end of May 2009. Punters or traders can buy ‘momentum trading’ stocks during this expected sharp dip and sell in June 2009. The levels to watch for BSE SENSEX for the month of May 2009 are :

S1 11300 S2 11000 S3 10600 S4 10200 S4 10000

R1 11800 R2 12000 R3 12500

I am not recommending any new Indian stocks to be bought in May 2009.

^DJI closed today at a bullish level of 8212 up 5.80 % from the last reference close of 7762 level. The intra month low and high were 7764 and 8308 respectively. ^DJI pierced R2 8270 but could not close above this level even for a single day in April 2009. This is not a good sign for ^DJI. This is level of 8270 as per my analysis is a “pivot” for ^DJI. ^DJI should close above this level for nine consecutive trading days so that it can then zoom to a 9000 level. Looks very difficult to me for this to happen in May 2009, as CHRYSLER’s Chapter 11 bankruptcy filing on 30^th April 2009 will have serious repercussions in the next two weeks in USA. By the way my prediction on 27^th February 2009 was Bingo !

I am re-printing a part of the text from March 2009 forecast which was posted on 27th February 2009 :

"I predict that GM will be ‘bankrupt’ by June 2009 and so will be CHRYSLER. The US Govt. will go in for a ‘managed bankruptcy’ under Chapter 11 protection. There is no way these two auto giants can survive.

GM too will file for Chapter 11 bankruptcy protection as predicted. GM is history !

The rally for ^DJI from a low of 6^th March 2009 at 6470 to a high of 8308 on 30^th April 2009 – an upswing of 28.40 %, is the best rally in this time period in the history of ^DJI since 1933. I repeat for the rally to sustain – it should make a ‘higher top’ i.e. ^DJI should convincingly close above 9000. It looks difficult in May 2009 as CHRYSLER’s bankruptcy will have far reaching effect on the US economy as was projected by the analysts. The prime reason being that no one projected that CHRYSLER will shut all its plants in North America for a period of thirty to sixty days after filing for bankruptcy protection in order to complete its reorganization and finalize a combination with FIAT SpA of Italy. On top of this GM is planning to shut almost all its plants in North America in June or July 2009 for a period of eleven weeks due to excessive vehicle inventories. I am not sure if GM will exist in its present form by even June 2009.

Many failures are expected in USA in the Auto Parts Sector in the coming two weeks. This will affect production of cars at Ford, Toyota and Honda. Aftershocks are going to be huge. American auto parts companies may file for bankruptcy protection in the next two to three weeks. As per an American Auto analyst - John Henke, as mush as thirty percent of auto supplier base in USA could end up in bankruptcy in the next few weeks. CHRYSLER owes its auto parts suppliers about US $ 5.30 billion and the figure for GM is much higher. John Henke feels that auto component companies viz M/s. American Axle & Manufacturing Holdings ( AXL ) and M/s. Johnson Controls (JCI ) are potential bankruptcy candidates in May through July 2009. This is bad news.

American GDP contracted in Q1 2009 by 3.26 %. At this rate the annual GDP contraction in the American economy in calendar 2009 could be as high as 15.00%. Seven more banks failed in America in April 2009 taking the figure to 32 for failures in calendar 2009 till date. I am not bullish on ^DJI for May 2009 on account of the above parameters and also affect of “HIN1” Flu prospects. In addition the results of the “stress tests” on the nation’s nineteen banks are to be made public in a week or so. I expect that CITI, Bank of America and a couple of other banks may need additional capital. Also almost all the bank’s “Credit Card” divisions will show huge losses. Also there could be huge "mtm losses" on books of some banks due to their exposure to "commercial real estate sector" in America which is showing signs of cracking. There is evidence of substantial correction in commercial real estate price across America. I trust US Govt. is transparent in the results of the "stress tests". But there maybe surprises in store too ! There could be a fresh “stimulus package” announced by the US Govt. to assist the ailing banks. Anything can happen in America if GM can be nationalized.

The levels to watch for ^DJI in May 2009 are :

S1 8000 S2 7500 S2 7390 S4 7000

R1 8270 R2 8400 R3 8500 R4 8670 R5 9000

I will post a “special note” on Asian and Eurozone equity markets in two weeks as I am studying some data as regards the trends for these markets in the long term. Eurozone looks week but almost all Asian equity markets I track are giving signs of “trend reversal”. I also track equity indices of Russia and Brazil and will cover these markets in the said note as above.

Spot Gold closed today in New York at US $ 885.80 pto down 4.34 % from the last reference level of US $ 926.00 pto. US $ 880.00 pto level was breached but the prices recovered as investors are now flocking to Gold as a safe haven.

Crude Oil futures at NYMEX closed today at US $ 53.20 pbbl up 9.92 % from the last reference level of US $ 48.40 pbbl. Crude looks bearish in May 2009 due to problems with the Auto industry in USA.

Let us hope that US economy does not go into a “tail spin” on account of problems in the Auto Sector and the Banking Sector capitalization in May 2009. I am sure US Govt. can handle the "H1N1 Flu" problem.

God bless America !

APRIL

BSE SENSEX closed today Wednesday 1^st April 2009 at a bullish level of 9901 up 11.35 % from the last reference close of 8892 level. The intra month low and high were 8047 and 10127 respectively. SENSEX zoomed past R5 level of 10000 and on the lower side breached S3 level of 8000. I had predicted that Indian equity markets will be range bound in March’09 till the all important level of 8100 for SENSEX holds. SENSEX breached 8100 level on an “intra-day” basis and did not close convincingly below this level. My prediction was close as I had predicted SENSEX to be in the range of 7700 to 10000 !

^DJI closed today at 7762 up 9.90 % from the last reference close of 7063 level. The intra month low and high were whopping 6470 and 7931 respectively. ^DJI breached all important level of S1 7000 in the month and closed six consecutive days below this level but then smartly recovered but could not pierce S3 8000 level. I had predicted last month :

“In the coming few months we may see a massive ‘sell off’ by FIIs in Asia as they need to raise cash for ‘redemption’ pressures back home in US and Europe. I feel that there is this last leg of ‘unwinding’ by the US based Hedge Funds which can drag the Asian markets including India and China to their October and November’08 lows. This can happen anytime around and I feel that this will happen after a ‘brief technical rally’ in global equity markets led by ^DJI. The said rally could be triggered in March’09. Looks difficult but not ruled out.

My prediction was correct was but the chronology was reverse. I had predicted the ‘sell off’ by FIIs would be after a ‘brief technical rally’ in ^DJI. Actually the reverse happened - there was a massive “sell off” by FIIs in Asia, Europe and USA in early March’09 and then ^DJI rallied in mid March’09 onwards. This rally in ^DJI was on back of the US $ 1.00 trillion package announced by the Obama administration to buy “toxic assets” from ailing commercial banks in USA.

The predicted “sell off” by FIIs in March’09 was very severe but BSE SENSEX and SSE COMPOSITE in Shanghai did not test their October and November 2008 lows of 7697 and 1665 respectively as mentioned in the last update. In fact nor did other major Asian equity indices test their October and November 2008 lows viz ^HSI – 10676, ^KOSPI – 892, ^N225 – 6995, ^STI – 1474 and ^TWII – 3955. On the contrary ^DJI breached its October 2008 low of 7392 in March’09 to lest a fresh thirteen year low of 6470. ^FTSE in London tested 3460, ^CAC in Paris 2465 and DAX in Frankfurt 3589 respectively – fresh twelve year lows. This is inspite of ECB cutting its ‘short term’ key interest rates on 5^th March’09 by 50 bpts to 1.50% only – lowest since 1996 when it was set up and BoE cutting interest rates also by 50 bpts to only 0.50 % -lowest since 1694 when it was set up. The FII selling was equally severe in UK and Europe. Banks in the Euro zone are in much worse state than banks in Asia.

Global policymakers are struggling to stimulate economic growth by cutting interest rates to near zero levels now. This has not worked in Japan in the last decade or so. How will it work in other parts of the world ? Japan is in fact slipping into ‘deflation’. Other measures like increased spending and pumping money into the financial markets may have short term gains but in the long term inflation will spiral out of control. One will see inflation crippling the world’s largest economy in 2012 as they are now pumping the maximum funds into their financial markets directly.

Indian banking system is robust with PSU banks which are well regulated. In addition India’s Central Bank on 4^th March’09 cut “Repo Rate” by 50 bpts to 5.00% and cut “Reverse Repo” rates also by 50 bpts to 3.50%. There is still some further scope of cutting interest rates in India. I presume that the new government in India in June thru September 2009 will further cut interest rates as the global economy will show no signs of recovery as predicted by American economists. The economists are predicting a recovery in the US economy from June 2009 onwards. This will not happen as per my understanding. On the contrary – US economy may slide into a deeper recession from June 2009 onwards and hit a trough in September 2009.

The current rally in the global equity markets led by ^DJI will sustain in April 2009 as there is a ‘perception’ that Obama administration’s US $ 1.00 trillion “bank bail out plan” will work in the coming few months till June 2009. I also feel that ^DJI will be bullish in April 2009 and so will be global equity markets including BSE SENSEX. But I have serious doubts if this US $ 1.00 trillion plan will actually work in America and that banking system would start to function normally. Brief details are mentioned later in this update.

The levels to watch for BSE SENSEX in April 2009 are :

R1 10200 R2 10600 R3 11000 R4 11300 ( 200 DMA )

S1 9630 S2 9400 S3 9160 S4 9000

The ‘long-term’ trend of BSE SENSEX is bearish but the ‘intermediate trend’ now has turned bullish. Trend reversal is possible if BSE SENSEX closes convincingly above its 200 DMA of 11300. I will be convinced of the trend reversal if BSE SENSEX can close above 11300 for ten consecutive trading days. We are then heading towards a BSE SENSEX level of 12500 by June 2009. There is a “caveat” here as we have general elections in India from 13^th April to May 15^th 2009. If we cannot get a stable government led either by UPA or NDA in New Delhi after the results on 17^th May’09 - then SENSEX will crash 7700 level or lower by June’09.

The levels to watch for ^DJI in April 2009 are :

R1 8000 R2 8270 R3 8400 R4 8670 R5 9000

S1 7500 S2 7390 S4 7000

The ‘bear market rally’ for ^DJI in October thru December 2008 started from the low of 7392 and lasted till 8924 level – 20.73 %. The current rally for ^DJI has started from a ‘lower bottom’ of 6470 and for the rally to sustain – it should make a ‘higher top’ i.e. ^DJI should zoom past 9000. This means a rally of about 39.10 % in ^DJI from the lower bottom of 6470 level. This is possible in April 2009 but I feel ^DJI has a very major resistance at 8270. Generally ‘bear market rallies last about 30.00%. Once R2 8270 is pierced - ^DJI can test 9000 level by June 2009.

BSE SENSEX is showing a much stronger recovery in this current rally. The ‘bear market rally’ for BSE SENSEX in October thru December 2008 started from the low of 7697 and lasted till 10189 level – 32.38 %. The current rally for BSE SENSEX has started from a ‘higher bottom’ of 8047 level. This current rally will sustain and BSE SENSEX could zoom to 10600 levels in April 2009. This means a rally of about 31.72 %. This is more or less within the ‘bear market rally’ norms.

There are a few ‘macro-economic’ factors which are reaching alarming levels in India. For the fiscal year ended as of 31.03.2009 – India’s fiscal deficit will be around 6.00% of GDP against a ‘budgeted figure’ of 2.50% as in February 2008. Second – the GDP growth figure has been further revised downwards from 7.10% to 6.50% by Planning Commission of India. For the current fiscal starting today thru 31.03.2010 the GDP growth figure has not been announced but analysts feel that the Indian economy will only grow @ 5.50%. Some analysts are predicting this figure to be around 4.50%. This will mean that there will be a considerable slowdown in the Indian economy in the current fiscal. India and China are only countries in the world which will have positive GDP growth estimates for the year 2010. India’s fiscal deficit for the current fiscal ending 31.03.2010 is estimated at around 12.00% of its GDP. This is a disastrous figure. In addition India is not in a position to deliver on healthcare, family planning, railways, water resources, roads, power generation and port infrastructure projects. This is not a good sign. I have mentioned this is the past also that unlike China – we in India are not able to complete infrastructure projects on time. Prime reasons are – fund constraints, litigation in awarding contracts, delays in acquiring land and law & order problems in some States. According to MoSPI, Govt. of India – Road, Port & Shipping projects are running late by one to ninety six months. Some social infrastructure projects from the above are running late by more than sixty months. India has to improve on the implementation failing which we will slip further on our GDP growth. Infrastructure provides the ‘rails’ for the GDP engine to roll on !

I am of the view that Obama Administration’s US $ 1.00 trillion “bank bail out” plan will not work on the ground. One will witness this euphoria in the US equity markets die down in June 2009 when the plan is in the actual implementation stage. Primarily two reasons as per my understanding :

i) Commercial Banks may not agree to sell “toxic assets” at a discount.

ii) The “write offs” by the banks may be so large that capital of the banks maybe eroded. This will push the banks to ‘insolvency’. I feel that this amount of US $ 1.00 trillion is ‘not sufficient’ to ‘bail out’ all the large commercial banks in America. Why the US administration cannot come out in public and announce the correct figure – how many trillion dollars have the American banks lost ?

Please mark my words – You will see more American banks going burst in Q3 2009 as this “bail out” plan will not work. Omni Bank of Atlanta, Georgia was declared bankrupt on 27^th March 2009 and put under ‘receivership’ of FDIC. This is the twenty first bank to fail in USA in calendar 2009. FDIC has taken a hit of US $ 290.00 million by “bailing out” this bank. FDIC has merged this bank with Sun Trust Bank also in the state of Georgia in order to protect the depositors. God bless America !

American Express Bank and GE Capital will be ‘bankrupt’ latest by December 2009. GE Capital going burst will seriously affect the parent company GE. Jeff Immelt should right away “spin off” GE Capital and sell it to the US Government at 'book value' as of date.

GM is heading towards “managed bankruptcy. My prediction was correct. Bingo !

Crude Oil tested US $ 54.30+ pbbl on NYMEX for May’09 deliveries on 26^th March 2009. It however closed today at US $ 48.40 pbbl up 8.19 % from US $ 44.76 as of last update. I still maintain that fair price of Crude Oil is in the region of US $ 65.00 pbbl. Venezuela and Iran need an Oil price of US $ 90.00+ pbbl to balance their budgets. Inflation is running high @ 26.00 % in Iran. Russia has spent about one third of its forex reserves ( US $ 558.00 billion – third highest in the world after China and Japan ) in the last six months to arrest the drop of its currency ‘Ruble’ from 25.00 to now about 35.00 to one US Dollar. Inflation too is running high in Russia @ 20.00+ %. Russia has major problems apart from low revenues from Crude Oil and Natural Gas. Russia has acute shortage of skilled labour, low worker productivity, dilapidated infrastructure, rising corruption and high inflation. Russia needs Crude Oil prices to be above US $ 75.00+ to remain in a positive budget territory. I feel it is a matter of time and Crude Oil prices will stabilize at US $ 60.00 to US $ 75.00 pbbl in 2010. My target price for Crude Oil for June 2010 is revised downwards to US $ 75.00+ pbbl. However I stick to my target price for Crude Oil @ US $ 300.00 pbbl for 2012.

Gold spot closed today in New York at US $ 926.00 pto down marginally 1.49 % from the last reference price of US $ 940.00 pto. I am revising my target price of Gold for the year 2012 from US $ 3000.00 pto to US $ 6000.00 pto. The prime reason is that by 2011 – there will be no physical Gold available on the world markets. Hence target price for 2011 is also being revised upwards to US $ 3000.00 pto from US $ 1500.00 pto as of my prediction of 9^th January 2008.

On popular demand from small investors I have decided to give them ‘free advise’ for investment in Indian Equities and Gold as was the protocol in the years prior to 2005. I have been getting a lot of messages from small investors since the past one year+ that I should recommend which stocks to buy or sell as was the case in the years prior to 2005. These small investors are not in a position to pay my consultancy fee under PMS. It seems they have lost money over the eighteen months or so in the Indian stock markets. So here come the free bees !

I am recommending three Indian Equities for investment till June 2009 and maybe even for long term investment till 2010.

NELCO : This is a TATA Group company and is currently running in loss. It is a ‘turn around story’ and the current market price is Rs. 33.00+. Target price Rs. 120.00 to 210.00 in the next twelve to eighteen months.

ASTRA MICROWAVE : A defence hardware sector share currently trading at Rs. 48.00+. Target price Rs. 80.00 to 120.00 in the next twelve months. It is a supplier to Indian MoD for missile sub-systems.

BHARAT ELECTRONICS : Again a defence hardware stock. Currently trading at Rs. 900.00. Target price Rs. 1400.00 in the next twelve months.

Buy these stocks when the SENSEX corrects to around 9600 levels with suitable stop losses for end May 2009 as BSE SENSEX may crash if a stable government is not formed in New Delhi after the results of the general elections.

Buy UTI’s ETF “GOLDSHARE” on the NSE when the price of Gold in the international market is around US $ 880.00+ pto in April 2009. Hold this investment in Gold ETF till 2011 thru 2012. I recommend to sell fifty percent of the GOLDSHARE holding in the year 2011 and the balance fifty percent in the year 2012. Triple your money by 2011 and multiply your money by more than six times in the year 2012.

I trust small investors are now happy and I wish them luck especially with Gold !

MARCH

BSE SENSEX closed today Friday 27^th February 2009 at 8892 down 5.64 % from close of 9424 as of 30^th January’09. The intra month low and high were 8619 and 9725 respectively. S3 8310 was not breached by BSE SENSEX although global equities tanked in February 2009 led by ^DJI as predicted.

^DJI closed today at a twelve year low of 7063 down sharply 11.72 % from close of 8001 as of 30^th January’09. The intra month low and high for ^DJI were 7035 and 8281 respectively. ^DJI breached the Nov’08 low of 7392 convincingly in February’09. ^DJI was very close to my predicted S3 7000 level in February’09. Bingo ! These are not good signs for ^DJI. The US Economy is slipping into ‘deeper recession’ by the day. Economic data coming out of the US is ‘shocking’ by the week. There seems to be no end to the negative data from the world’s largest economy. The broader - S & P index tested a new low of 735.00 today at close which is a tad lower than November’08 low of 741.00. Brief details on the US economy and my predictions are given later in this update.

The economies in Europe were also been hit hard in February’09 on account of crash of ^DJI to twelve year lows. There is ‘gloom’ all over Europe. ^CAC in Paris tested 2669 and ^DAX in Frankfurt tested 3817 - fresh six year lows. These levels are lower that those tested in October and November’08. Banks have been hit hard in Germany with Deutsche Bank – the largest in Germany, posting an annual loss of Euro 4.00 billion in calendar 2008. Banks in France and Switzerland are also struggling. UBS posted its biggest ever-annual loss in the history of banking in Switzerland at CHF 19.70 billion for calendar 2008.

The British economy is also trying to rescue ailing Banks. British ‘budget deficit’ hit a record high in 2008. The ‘banks bailout’ could raise the total Govt. Debt by a record Pound Sterling 1.50 trillion. On 4^th February’09 – Bank of England cut ‘short term’ interest rates by 50 bpts to 1.00 %. This is the lowest in the history since BoE was set up.

Asian markets also corrected on the back of a sharp cut in ^DJI but the indices have still not tested the lows of October and November’08. ^HSI, ^KOSPI, ^N225, ^SSE COMP, ^STI and ^TWII corrected sharply in February’09 but are still above their October and November’08 lows. NIKKEI Index (^N225 ) in Japan saw a massive correction in February’09 as the economy shrunk by a whopping 12.70 % in 2008 – highest since 1974, post the “Oil-Shock” in 1973. ^N225 tested a low of 7269 just shy of the October’08 low of 6995. NIKKEI 225 was the worst performing index in Asia. Japanese economy is an ‘export oriented’ economy with a large dependence on the US consumers. Maybe it is a matter of time that in the coming few months we see a massive ‘sell off’ by FIIs in Asia as they need to raise cash for ‘redemption’ pressures back home in US and Europe. I feel that there is this last leg of ‘unwinding’ by the US based Hedge Funds which can drag the Asian markets including India and China to their October and November’08 lows. This can happen anytime around and I feel that this will happen after a ‘brief technical rally’ in global equity markets led by ^DJI. The said rally could be triggered in March’09. Looks difficult but not ruled out.

FIIs have been net sellers of Indian equities but the sales have been ‘sterilized’ by aggressive buying by Indian DIIs led by LIC. The provisional figures from SEBI indicate that FIIs till date have sold equities worth Rs. 6926.00 crores ( US $ 1.39 billion ) in calendar 2009. DIIs have purchased equities worth Rs. 5000.00 Crores ( US $ 1.00 billion ) till date in calendar 2009 as per provisional data from SEBI. My target for SENSEX at S4 8100 would have been hit if DIIs were not aggressive buyers of Indian equities.

Indian economy is showing signs of a slow down with the Q3 GDP growth figure of only 5.30 %. At this rate the annual GDP growth for the current fiscal ending 31^st March 2009 may slip below the revised estimated figure of 7.10 %. The silver lining for the economy was a lower inflation figure of 3.36 % for the week ended 13^th February’09. The fiscal situation in India is worsening. Govt. of India announced a surprise third ‘Stimulus Package’ on 24^th February’09 cutting ‘excise duty’ and ‘service tax’ by 2.00 % on majority of bulk products and select services. Major beneficiaries of the latter being ‘Financial Services’ sector and Crude Oil ‘Exploration and Production’ sector. This ‘fiscal stimulus’ announced would lead to a shortfall in ‘direct tax’ window of about Rs. 30,000.00 crores ( US $ 6.00 billion ) in Govt. of India’s house. India’s fiscal deficit situation is already alarming. India’s total Fiscal Deficit ( Central and States put together) will be about 11.00 % of its GDP in FY2010. Sensing this M/s. Standard and Poors downgraded India’s “Sovereign Debt” rating from ‘Stable’ to ‘Negative’. This level of fiscal deficit as per this rating agency is not sustainable in the ‘short term’.

India is precariously poised with its ‘Debt’ situation too. For the current fiscal year 2008-09 ( FY2009), the budgeted borrowing of Govt. of India was at pegged at Rs. 1785.75 billion (US $ 35.71 billion). On 11^th February’09 – this figure was revised by whopping 41.00 % to Rs. 2521.54 billion ( US $ 50.43 billion ). This increased borrowing by the Govt. of India will put pressure on the Indian ‘Bond Markets’ as additional supply of Bonds will depress prices. Yields shot up today in the Bond Markets as the announcement was made for increased borrowing by the Govt. of India.

One positive issue for the Indian equity markets is that – RBI may soon announce a cut in its ‘Repo Rates’ by 100 to 150 bpts and a commensurate cut in the ‘Reverse Repo’ rates. I think this is already priced in the SENSEX at 8900.

I am of the opinion that the Indian equity markets will be range bound in March’09 till the all important level of 8100 for SENSEX holds. The charts suggest that a convincing breach of 8100 level for SENSEX will lead to a ‘sharp correction’ and SENSEX can test October’08 low of 7700.

The levels to watch for SENSEX in March’09 are as follows :

R1 9000 R2 9160 R3 9300 R4 9600 R5 10000

S1 8670 S2 8400 S3 8100 S4 7700

In fact convincing close of SENSEX below 8100 is a ‘sure sign’ of a protracted bear phase in the SENSEX which could last as long as the next twelve to eighteen months.

My views are contrary to the views of many analysts who believe that ‘worst is over’ for the Indian equity markets and one should start building portfolios for the long-term. I repeat as per my views - There is nothing valid as investing for ‘long-term’ in equities from now till 2012 except for investing in Gold ETFs. This holds for good for global equities as well including Asian equities. Invest in equities as pure ‘short-term’ trading calls. Please do not allocate more than 30.00 % of your funds for investment in equities in 2009. Please allocate 20.00 % of your funds in Debt – the best for global investors as per my view is ‘Swiss Sovereign Debt”. Balance 50.00 % invest in Gold ETFs or physical Gold through March’09, if one has no investments in Gold. I have been vocal about investing in Gold since October 2005, when the prices were in the range of US $ 450.00+ pto range.

In my view - the only sector to invest for the ‘long-term’ is in physical Gold or Gold ETFs for Indian and all global investors. One can lock-in around 50.00% of one’s funds in Gold through 2009 for liquidation in 2012. In India - I only recommend UTI’s Gold ETF called “GOLDSHARE” listed at NSE. Yes, Gold can correct from the current US $ 940.00 pto levels to US $ 880.00 pto levels. But I do not agree with analysts who are predicting that Gold ‘bubble’ will burst like the Crude Oil ‘bubble’ from July’08 levels of US $ 147.00+ to US $ 32.50 pbbl levels in December’08. There is no ‘bubble’ like scenario in Gold, as per my views. In fact ‘delivery’ is short on the market. Yes now when every Tom, Dick and Harry is buying Gold – Operators will dump the commodity in the ‘derivatives segment’ to scare the new Gold bulls.

I repeat - Gold will outperform all asset classes from now to 2012. My price targets for Gold for the year 2012 are well known to my associates, clients and friends – US $ 2400.00 to 3000.00 pto.

The American economy is showing signs of a deep malaise. The “US Auto Sector” bail out could cost US $ 130.00 billion. President Obama has unveiled US $ 275.00 billion ‘Housing Rescue’ plan. Plus the US $ 787.00 billion ‘Stimulus Package’. Many analysts feel that this ‘Stimulus Package’ will not ‘stimulate’ the US economy, as the problem is ‘structural’. The overall leverage ratios are still way above the norms in US. The current view among the policy makers in the US Government is to end the downturn by intervention and by aggressive spending. There is no realization of the fact that ‘excess debt in the system’ needs to be liquidated. This would entail sacrificing growth in the short term for long-term economic revival. This issue is missing from public domain in DC and needs to be addressed on war footing.

I predict that GM will be ‘bankrupt’ by June 2009 and so will be CHRYSLER. The US Govt. will go in for a ‘managed bankruptcy’ under Chapter 11 protection. There is no way these two auto giants can survive. They might be merged and some parts sold under ‘re-structuring plan’. Japanese – HONDA and TOYOTA may buy these units of GM and CHRYSLER.

The US economy is expected to decline at a rate of 5.00 % in Q1 2009 – even sharper than the 3.80 % drop in Q4 2008. There is a need to generate more jobs in the US economy. Nearly half a million jobs are being lost per month for the past few months. The banking system needs complete overhaul – maybe complete nationalization of CITI and BoA etc till normalcy is restored.

Total “Banks” bail out package may cost about US $ 2.00 trillion. This ‘too big to fail doctrine’ is not going to work as per a few learned economists in the US. I agree one hundred per cent with these economists. But Paulson and Bernake still stick to this program.

Look what is happening to AIG and CITIGROUP in US. They are again back with a ‘begging bowl’ in DC. US Govt. took 36.00 % equity stake in CITIGROUP today. This is after CITI received US $ 45.00 billion under ‘TARP’. What to talk about AIG – it has already received US $ 150.00 billion under ‘TARP’. It needs additional US $ 30.00 billion to ‘stay afloat’. AIG will soon announce a Q4 2008 loss of US $ 60.00 billion – the largest in US Corporate history.

In 2008, twenty-five banks failed in the US. In 1993, forty-two banks failed in US. Sixteen commercial banks have so far have failed in calendar 2009 with FDIC shutting down two today – Security Savings Bank of Henderson, Nevada and Heritage Community Bank of Glenwood, Illinois. At the current rate nearly 100 institutions with a combined assets of US $ 50.00 billion will collapse by end 2009. Mr. Gerard Cassidy – Managing Director of bank equity research at M/s. RBC Capital Markets Inc. warned today that he anticipates 1000 financial institutions in USA could fail in the next three to five years i.e. 2012 to 2014. Another analyst in DC predicts that the Bank failures in USA could cost FDIC fund US $ 65.00 billion by 2013. This is something in-line what I predicted in November 2008 under the Special Note “Timing is Everything in Investing”. I am reproducing some text from my said note as follows :

“Quote

The banking system will collapse in America in the year 2012, exactly the way it happened in 1930 after the Great Depression of 1929. Hyperinflation will cripple the American economy by 2012.

“Unquote

The other bubble waiting to ‘burst’ is the “Bond Bubble” in USA. Yields at historic lows already signal that the demand for further US Govt. Debt through Bonds is going to be dismal in 2009-2010. Needless to mention the debacle of floating of fresh Corporate Bonds by companies in USA ? A disaster waiting in the wings !

Now let us perceive the worst-case scenario for the US economy in the near future. Firstly the Govt. Bonds do not find enough buyers and secondly US $ 787.00 billion ‘Stimulus Package’ proves ineffective. US economy will continue to contract through 2009 at the pace witnessed in 1929 during the ‘Great Depression’ and with this choking the world’s economies with it. S & P broader index will head towards 500 to 600 levels. ^DJI will head towards 6000 to 5350. In the panic bottom stage - ^DJI can test 5025 level too.

The only silver lining for the US economy so far there is still a strong demand for US “Treasury-Bills” by the Central Banks all over the world. There is no currency in sight for the years to come, which can replace the US Dollar. Come 2013 – and the world will see a ‘New Economic Order’. The US Dollar will not be the reserve currency for the world’s Central Bankers. It will be Gold and only Gold. In addition CHF.

For the month of March 2009 the levels to watch for ^DJI are as follows :

R1 7390 R2 7500 R3 8000 R4 8270 R5 8400

S1 7000

If in March 2009 - ^DJI cannot hold a level of 7000, then exit from all your equity holdings completely and switch to Gold and CHF Sovereign Debt. For Indian investors – if the above ^DJI level des not hold, jettison the “Equity Ship” and keep an eye on SENSEX 8100. If SENSEX 8100 holds – I will put a ‘Special Update’ on which stocks to buy as ‘pure trading calls’.

Crude Oil closed today at NYMEX at US $ 44.76 up 7.21 % from the close of US $ 41.75 pbbl as of 30^th January’09. Short term Crude looks bullish with a target of US $ 48.00 pbbl for April’09 delivery at NYMEX.

Gold Spot NY closed today at US $ 940.00 pto up nominal 1.40 % from the close of US $ 927.00 pto as of 30th January’09. It tested Spot NY price of US $ 1007.50 pto on 23^rd February’09 on an ‘intra-day’ high basis. Gold can correct to US $ 880.00 pto in March’09. A good level to buy for ‘fresh’ investors who have no exposure to Gold in their portfolio.

March 2009 is a very ‘tricky’ month for American Equity Markets. If ^DJI does not hold 7000 level – then God help America !

FEBRUARY 2009

BSE SENEX closed today Friday 30th January'09 at 9424 down 2.31% from close of 9647 as of 31^st December’08. The intra month low and high were 8632 and 10470 respectively. I was bearish for the SENSEX for the month of January’09 but SENSEX did not breach S3 8310 level. India’s fourth largest IT company – SATYAM COMPUTER’s Chairman, wrote a letter to the SEBI on 7^th Jan’09 morning that it had ‘siphoned off’ Rs. 7000.00 Crores ( US $ 1.43 billion ) in cash over the past few years. This was a ‘bomb shell’ for corporate India. SENSEX tanked 7.25 % on close at BSE to 9587. Govt. of India and SEBI quickly moved into action to rescue this tainted company. The damage control was done swiftly by SEBI and the entire management was changed at SATYAM. Their auditors – PWC also were sacked. The hunt is on by the new Board of Directors of SATYAM to appoint a new CEO and CFO. This is the first time in history of corporate India that the promoters of a company have admitted in black and white that they ‘siphoned off’ money from the company. This is the biggest corporate fraud till date in the history of corporate India.

Q3 results for the current fiscal were dismal from corporate India and hence the equity markets were bearish in Jan’09. Also global cues were weak but SENSEX outperformed ^DJI as per details as under. Only a few blue chip stocks in the Pharma and FMCG Sectors declared good results for Q3 current fiscal in the Indian equity markets. FIIs were net sellers of Indian equities in Jan’09 to the tune of approx. Rs. 5146.00 Crores ( US $ 1.05 billion ). DIIs were active buyers of Indian equities. M/s. Life Insurance Company of India ( LIC for all future reference ) was a large buyer of Indian equities in the month of Jan’09. Hence the SENSEX did not correct in a direct co-relation as ^DJI as has been the case in the past one year or so.

LIC is the largest life insurance company in India and is State owned. LIC was a buyer of equities under a “dictat” from Govt. of India to protect the slide of the Indian Stock Markets. This was on account of the forthcoming General Elections in India in April and May 2009. Govt. of India decided in the month of Dec’08 that LIC should invest additional Rs. 17000 Crores ( US $ 3.47 billion ) in the Indian equities in January thru March’09 so that the sentiment should not be ‘gloomy’ during election times. This is a sham. Playing with taxpayer’s money ! But that is what India is all about. The current UPA coalition Govt. in New Delhi wishes to be back in power again after the General Elections. So tell LIC to invest additional US $ 3.47 billions in Indian equities in three months and keep the SENSEX afloat. Stinks of sleaze ! But this is happening all over the world thru ‘Economic Stimuli’ programs to save banks, financial institutions etc. I think India is the only country where the State is directly buying equities in the open market and this news is now in public domain. If FIIs press 'sell button' in Feb’09 as I suppose they will – LIC will make losses on its PMS Portfolio. But then who bothers in India about taxpayer’s money ?

^DJI closed today at 8001 down 8.83% from close of 8776 as of 31^st December’08. The intra month low and high were 7909 and 9035. SENSEX outperformed ^DJI in Jan’09 as Govt. of India thru LIC was directly involved in buying of equities.

There are all kinds of predictions in the world markets regarding ^DJI testing 7000 to 6000 to even 4000 in calendar 2009. Same is true for the SENSEX. Analysts are predicting levels of 8100 to 7000 to 6000 to even 5000 in 2009. But now this news regarding LIC is in public domain and hence I am revising my ‘extra bearish’ views on the SENSEX for February 2009.

Global markets are also gloomy on the back of ^DJI. Russia’s benchmark Index - ^RTSI tested a new two year low of 493 on 23rd Jan’09. France’s benchmark Index ^CAC 40 also tested a new two year low of 2770 on the same date. There are talks about “Sovereign Defaults” of Debts of – Greece, Portugal, Spain, Ireland and Norway. This is bad news about the equity markets in Europe.

Economic indicators are weak from USA. News from the world’s largest economy continues to be gloomy as from Japan, Germany, and UK. There are concerns of a massive slowdown in the Chinese economy. CITIBANK is being re-structured in USA after massive losses for Q4 2008. Bank of America needs ‘more’ financial aid from the American Govt. RBS in UK announced the largest yearly loss by any company so far in the history of England. HSBC Bank needs fresh capital. DEUTSCHE Bank in Germany and MITSUBISHI UFJ Bank in Japan also reported losses for Q4 2008 and record losses for the calendar 2008. The whole world is grappling with the financial crisis which shows no sign of ‘tapering off’. One hears one bad news after the other in some part of the world or the other in the media.

On 8^th Jan’09 – Bank of England lowered its ‘short term’ key interest rate by 50 bpts to only 1.50%, lowest rate since the Bank was set up in the late 17^th century. On 15^th Jan’09 – ECB cut its ‘short term’ key interest rate by 50 bpts to 2.00 % in response to the global economic crisis which is casting a fresh doubt on the ability of the top Banks to survive. There is a very strong rumour going around in Wall Street that one big Bank in USA will go down under in Feb’09. As per a leading US analyst – a sum of US $ 1.50 trillion is needed to save the Banks in USA. The situation is worse than in 1929. The current global crisis is ‘structural’. It reflects a serious misallocation of money in the recent years. This had created many “bubbles” that have now gone burst. Pumping in more money will not solve the problem, since it will amount to ‘reflate’ the old bubbles. Instead a painful ‘structural change’ is needed. This could take a few years. I feel American economy will go downhill till 2012.

I am bearish for the SENSEX for the month of February 2009. But I am revising my support levels on the back of LIC’s investment plans. The levels to watch are :

R1 9860 R2 10200 R3 10600 R4 11000

S1 9160 S2 9000 S3 8310 S4 8100

If BSE SENSEX closes for six consecutive trading days below the critical level of 8100 then I will post a ‘Special Update’ as then SENSEX can test my original levels of 7500 to 7210. This can happen but looks difficult as LIC is a buyer of Indian equities as mentioned above.

^DJI looks weak as mentioned in the last month’s update. The levels to watch for ^DJI for Feb’09 are :

R1 8270 R2 8400 R3 8670 R4 9000

S1 7500 S2 7390 S3 7000

I feel ^DJI will test a level of 7000 in Feb’09 and this for the time being will be the low for this Index for 2009. On the back of this global markets will also test their yearly lows in Feb’09.

Crude Oil closed today at NYMEX at US $ 41.75 pbbl down 6.40% from the close of US $ 44.60 pbbl as of 31^st Dec’08. As I have mentioned in the last month’s update that Crude will only be bullish above US $ 57.00 pbbl. Below this Crude can test any level as low as US $ 30.00 pbbl. Global analysts predict an average price of Crude Oil to be in the range of US $ 50.00 to 75.00 pbbl for 2009. I still hold my view that the fair price of Crude Oil is US $ 60.00 to 75.00 pbbl. I still stick to my long term target price of Crude to be US $ 180.00 to 300.00 pbbl in 2010 and 2012 respectively.

At prices below US $ 55.00 to 60.00 pbbl the Russian economy ‘goes for a toss’. Hence the crash of their benchmark Stock Market Index ^RTSI in Moscow to a new two year low of 493 as against 550 earlier.

Gold Spot NY closed today at US $ 927.00 pto up 5.34% from the close of US $ 880.80 pto as of 31^st Dec’08. I expect Gold to correct in Feb’09 when ^DJI corrects as predicted above. Gold might test US $ 820.00 pto in Feb’09. This is a golden opportunity for an investor who so far has no Gold holdings. Buy physical Gold when the prices correct in Feb’09.

February will be the toughest month in 2009 for the global equity markets. Stay away from the equity markets in February !

Special Update : India’s Economic Stimuli - Friday 2^nd January 2009

Government of India announced it’s first economic stimulus package on 5^th December 2008 but I did not cover this on my January 2009 forecast as I was waiting for the second bigger stimulus package. I wanted to cover the combined impact of both the stimulus packages on the Indian financial markets – especially the Equity Markets. The second stimulus package was announced by Government of India on Friday 2^nd January 2009. As the investors are aware – almost all the economies in the world have announced fiscal and monetary stimuli packages in the month of December 2008 to fight ‘slowing down’ of their respective economies as a result of the onset of a ‘deep recession’ in the biggest economy of the world – United States of America. I am not listing the details of the specific stimuli packages announced by various countries in the world as the details are now in public domain. So are the details of Indian stimulus but I am getting a lot of e mails from my associates, friends and a few clients regarding my opinion and views on the impact of the various policy measures announced. As if my opinion matters !

I am covering brief details of the Indian stimuli packages with a very brief reference to the Uncle Sam’s stimulus package.

1. Govt. of India on 5^th December 2008 announced the ‘First Stimulus’ Package. Brief details are as under along with the impact of the same on the economy and financial markets :

i) India’s Central Bank – Reserve Bank of India ( RBI ) cut “Repo Rates” by 100 bpts to 6.50 %. This is RBI’s key interest rates on lines of the American economy’s ‘ Federal Funds ’ interest rate. This is the window for the Indian banks to borrow ‘short term’ funds from RBI. The cut in “ Repo Rates ” signals commercial banks in India to lower their PLR for corporate and individual customers. A direction to the economy – Interest rates are going to be lowered by the commercial banks. Indian is today one of the highest interest rates economies in the world.

ii) RBI announced a 100 bpts cut “ Reverse Repo Rates ” to 5.00 %. This is the interest rate the commercial banks get from RBI when they park their ‘surplus funds ’ with the Central Bank. A cut in this interest rate ‘discourages’ the commercial banks to park their ‘surplus funds’ with RBI and rather lend to corporates at a better interest rate. This enhances the liquidity with the banks to ensure that the corporates get access to bank financing to run their businesses smoothly.

iii) Home Loans – National Housing Bank can now ‘refinance’ home loans for customers upto Rs. 40.00 billion. Thi entails Indian housing finance companies to provide additional funds to the buyers of homes in the tight financial conditions. Banks were not very keen to lend money to actual property buyers due to liquidity crunch and risk profiling of home buyers.

iv) Loans for Small and Medium Enterprises ( SMEs ) – SIDBI can now ‘refinance’ loans for Indian Small and Medium size companies upto Rs. 70.00 billion. This is a very important stimulus. In the chain of economic activity in India these SMEs provide back-end work to large companies by way of ‘sub-contracts’ and ‘providing other services which are niche’. These SMEs were not getting bank finance due to the size of their ‘balance sheets’ or ‘lack of capital’ with the promoters of these SMEs. This was having a massive effect on operations of especially the large infrastructure companies in India . These handful of large infrastructure companies engaged in construction of Roads, Highways, Bridges, Ports, Power Plants, Steel Plants etc were facing delays as their ‘sub-contractors’ i.e. SMEs were not able to meet the deadlines on account of working capital constraints. Very positive policy announcement by RBI but in India for SMEs to get loans from their bankers is not an easy job. Too much of paper work and delays. Plus ‘palm greasing’ ! We have to salute the spirit of the Indian engineering entrepreneurs that they are still able to run the show inspite of a ‘deep red tape’ in the entire system and provide support to these large infrastructure companies in India . RBI has worked in the right direction to provide additional funds to SIDBI to ‘refinance’ the PSU Banks to lend to SMEs.

v) FCCB buyback – RBI announced that companies which had raised forex loans in 2006 and 2007 by was of issuing Foreign Currency Convertible Bonds (FCCBs) to FIIs can now ‘buyback’ these Bonds provided they are at a discount of at least 25.00 % of their book value. Maximum value of ‘repayment’ prior to maturity was fixed by RBI at US $ 50.00 million per company. Balance to be paid by the Indian companies in forex on maturity as per terms of the loan. When the going was good – Indian corporates raised forex loans at cheaper rates through the FCCB route. Let us assume an Indian company issued US $ 400.00 million worth of FCCBs to a FII in December 2007 with a maturity date of December 2009. Each FCCB was of face value of US $ 1,00,00.00 ( United States Dollars One hundred thousand only ). So 4000 such US Dollars denominated ‘Convertible Bonds’ were issued by the Indian Company to the FII. The pricing of the said Bond was on the basis of a ‘premium’ over the market price of the Indian company’s share price in December 2007. Say – the market price of the share of the Indian company in December 2007 was Rs. 100.00 per share. FCCB was issued to the FII at Rs. 35.00 premium at Rs.135.00. At maturity in year December 2009 the FI lender has two options – Either he gets ‘Converted Equity’ in the borrower’s company at the 'premium' at explained above or can ask for ‘Cash back’ with a nominal coupon interest. No one could ever predict that in the year 2008 – stock prices of Indian companies will correct to 50.00 % or more of their value in 2007. Hence the FI lender would not like to have a substantial ‘Converted Equity’ stake in the Indian company in December 2009 as the market price of the share maybe still is 50.00 % lower or more in December 2009. The FI lender will for sure ask for ‘Cash back’ with nominated coupon interest in December 2009. Hence RBI made this important announcement regarding ‘Pre-payment of FCCBs’ with a cap at US $ 50.00 million per company. Buyback has to be funded in Indian Rupees by the Indian Company to the RBI who in turn will pay in US Dollars to the FIIs. This was a welcome move as it ‘reduces’ the forex debt of the Indian company. Indian corporates quickly latched on to this opportunity as ‘share prices’ across the sectors have slumped due to market meltdown in 2008. The companies which paid back their part FCCBs to the tune of US $ 50.00 million equivalent were – RCOM, AMTEK AUTO, MAN INDS, ORCHID CHEM, BHART FORGE and UNITED PHOPHORUS. As per SEBI estimates Indian corporate's total exposure to the FFCB is approx. US $ 20.00 billion with maturity dates ranging from end 2009 to end 2011.

vi) Government of India has allowed State owned M/s. Indian Infrastructure Finance Company Ltd. ( IIFCL ) to raise Rs. 100.00 billion thru ‘Tax Free Bonds’ to ‘refinance’ commercial banks for Infrastructure Projects. A positive move to push funding for the cash starved sector. These were the important ‘monetary stimuli’ announced by RBI in the first Stimulus Package on the 5^th December 2008.

vii ) On the ‘Fiscal Stimulus’ - The first Package announced a cut of 4.00 % in Central Value Added Tax ( CentVat ) on almost all the industrial products. The products which affect the consumer directly were - Consumer durables, Building materials, White goods, Two wheelers and Cars etc. This was done to bring down the price of the said products to ‘boost’ consumer demand. A welcome step but all manufacturers did not pass thru this 4.00 % cut to the consumers.

Indian equity markets welcomed the stimuli as above and the stocks were bullish from 8^th Dec thru 12^th Dec’08. There was some disappointment as ‘no sops’ were announced for the beleaguered ‘Export and Textile Sector’. Also no ‘Special Interest Rate’ cuts for the Auto and Real Estate Sector.

2. The ‘Second Stimulus’ Package was announced by RBI on Friday 2^nd January 2009. Brief details of the ‘monetary stimuli’ are as under :

a) RBI cut key “ Repo Rate ” further by an aggressive 100 bpts to 5.50 %. An eight year low and a surprise move by the RBI. This clearly indicates that RBI realizes that India is a ‘high interest’ economy and that commercial banks should cut their PLRs with immediate effect. The commercial banks cut PLR by 50 to 75 bpts in the week starting 5th January 2009. Also th is interest rate cut gives room to the banks to lower lending rates for Housing and Auto Financing Sector but there was no ‘Special Directive’ from RBI on the same. Thisdisappointed the Housing and the Auto Industry. The cut in the 'Repo Rate' lead to a crash in the Bond yields. The yield of the ‘10Y 2018 Govt. of India Bond’ fell to the near record low of 4.80 % as witnessed in October 2003. The yield tested an intra-day low of 4.86 % on Monday 5^th January 2009 and closed at 5.16 % level. The ‘Price’ of the Bonds follows an ‘inverse ratio’ with the percentage ‘Yields’ of the same. If the Yield of a Bond goes down - then the Price of the Bond goes up. The ‘Gilt Funds’ are one hundred percent Debt Mutual Funds which only invest in Government Securities also called ‘G–Secs’. These are basically Central and Sate Govt. Bonds with a fixed maturity which are backed by a Sovereign Guarantees. There is still some steam left in investment in ‘Gilt Funds’ in India as advised on 31^st December 2008, as the interest rates can fall further by another 50 to 150 pts basis over the next six to nine months in 2009. In USA the yields on the ‘10Y Benchmark Bond’ are as low as 2.00 to 2.50 % as the “ Federal Funds” interest rates are in the region of 0.00 % to 0.25 %. Similar is the case in Japan where the similar key short term interest rate is as low as 0.16 %.

The Bond prices are at their life time highs in USA . Some analysts are predicting that the next bubble to burst in USA is the ‘Bond Bubble’. They expect the biggest "Bond Bubble" in the history of America to go burst in 2010. On the same lines as the crash of the ‘Housing Bubble’ in USA in 2007 and crash of ‘Equity Markets’ in 2008. I am not a ‘fixed income’ or a ‘debt instruments’ or a ‘Bond investment’ specialist. I have seriously started tracking Debt Instruments in India only in the past one year or so. My core area is investment in Equities. On the basis of logic – it seems that there should be a correction in Bond prices in USA as interest rates cannot be ‘negative’ and hence yields are at their historic lows. With Uncle Sam’s stimulus package now touching about US $ 8.00 trillion – the US Govt. will have to raise this kind of money from the financial markets and substantial amount could be thru Bonds worth trillions of Dollars. Please exit from your investments in US Bonds – advice for an American Bond investor !

b) RBI announced a further 100 bpts cut in “ Reverse Repo ” rates to only 4.00 % now. An eight year low. This is a sure signal from RBI that commercial banks should not park their ‘surplus funds’ with it @ mere 4.00 % and rather lend it to corporates at higher interest rates to boost the economy. Large infrastructure projects need funding at low interest rates as the gestation period of all these projects – Highways, Roads, Ports, Power Plants etc. is long. Capital is scarce in the world markets but the interest rates are lower.

c) RBI in a surprise move slashed "CRR" by another 50 bpts to now at 5.00 % - a twoyear low. This adds further liquidity to the financial markets. RBI is worried that due to liquidity crunch the Indian GDP growth should not suffer in this fiscal.

d) The ECB norms have now been relaxed to allow 'Real Estate Developers of Integrated Townships' and 'NBFCs' to raise funds from overseas. The policy announcement also removed the ‘interest rate’ cap for the said ECB by the Developers and NBFCs. As of now there is a ‘cap’ on the interest rate for ECBs by both ‘Automatic’ and by 'FIPB Approval' route. The interest ‘cap’ for an ECB for a maximum of five years is @ 6.0 months LIBOR + 300 bpts and for a period beyond five years the cap is @ 6.0 months LIBOR + 500 bpts. Both these ‘caps’ have been abolished till 30^th June 2009. This will give a fillip to Housing Sector which is facing an acute shortage of funds. A large numbers of developers will raise funds from the international markets directly at very low interest rates.

e) The Government of India has allowed NBFCs to raise funds thru the ECB window for lending directly to the ‘Infrastructure Sector’ under the ‘FIPB Approval’ route. NBFCs will lend to the infrastructure companies in India in INR. At present , NBFCs are only permitted to avail ECB for a minimum maturity of five years, to finance import of ‘Infrastructure Equipment’ in US Dollars for leasing the same to the companies engaged in infrastructure projects in India . This also is a positive monetary stimulus but the NBFC will have to professionally hedge their forex exposure.

f) Government of India has increased the ceiling of FIIs investment in the ‘Corporate Debt’ from the earlier cap at US $ 6.00 billion to now US $ 15.00 billion. This is also called the Corporate Bond (CB) investment. The yields are generally higher in case of CBs vis a vis GoI’s Bonds. The spreads are higher FIIs flows will increase into Corporate Bonds as the Indian interest rates are still higher than interest rates in USA , UK and EC. This is also a welcome move. Indian corporates can now ra is e funds at lower interest rates. There is a little advantage here for the Indian corporates – the forex fluctuation risk lies overseas as the FIIs will invest in CBs in INR. My apprehension is – globally there is a liquidity crunch. Will FIIs invest in Indian Corporate Bonds in INR ? What happens if the INR depreciates against the US Dollar substantially till the maturity period of the Bonds ? I presume that the FIIs for sure hedge their US Dollar investment in India in INR. But the insurance or premium on this ‘hedge’ will go up which can marginally negate the higher interest rates the FIIs get on their investments in CBs in India.

g) The Government of India has allowed various State Governments to raise ‘additional funds’ thru market borrowings ( State Bonds ) to the tune of Rs. 300.00 billion ( US $ 6.10 billion ) in the current fiscal to boost ‘public expenditure’. This has been done to meet shortfall in the ‘State’s Revenue’ collection on account of economic slowdown. My view is – will the State Government’s be able to raise this sum of Rs. 300.00 billion thru Bond auctions in this tight liquidity scenario with the investors in India ?

h ) The State Govts. Will be encouraged to release land for ‘Low and Middle Income Housing’ schemes. Real estate companies will be encouraged to increase construction activities for this Sector in housing industry. Real estate companies will get ‘liquidity support’ from the NBFCs, who will get Rs. 250.00 billion ( US $ 5.14 billion ) funding from a ‘Central Govt. SPV’ specially to be set up for this purpose. NBFCs will give ‘Investment Grade Paper’ ( CBs or GoI Bonds ) as collateral to the said SPV. My view is that on paper this proposal is fine, but in India there is too much of ‘red tape’ to get ‘actual funds d is bursal’ in hand plus ‘palm greasing’ at every level. Another apprehension is that do these NBFCs have the funds to buy CBs and/or GoI Bonds ? In addition there is a real problem of implementation of projects on the ground due to various operational bottlenecks.

i) Govt. of India has increased the limit for M/s. IIFCL to raise additional Rs. 300.00 billion ( US $ 6.10 billion ) thru ‘Tax Free’ Bonds. In the ‘First Stimulus’ Package – IIFCL was allowed to ra is e Rs. 100.00 billion. Now in total – IIFCL is allowed to ra is e Rs. 400.00 in total to ‘refinance’ the banks for lending to ‘Infrastructure Sector’. After Rs. 100.00 billion has been ra is ed by IIFCL and d is bursed then only it can raise the additional Rs. 300.00 billion and then disburse in tranches of Rs. 100.00 billion. I have two is sues. Firstly my view is that large infrastructure projects need funding at low interest rates as the gestation period of all these projects – Highways, Roads, Ports, Power Plants etc. is long. Financial closure of many of the large infrastructure projects in India is a handicap. Only a very few five star companies viz L & T, TATA Group, ADAG RELIANCE Group, GAMMON, IVRCL, SIMPLEX etc are capable of arranging the requisite funds from various sources including ECBs for the said financial closure for large projects. The total amount of funds required for the infrastructure projects is only Rs. 400.00 billion from the ‘Refinance’ window of IIFCL. This quantum of funds is far too less to meet the Govt. of India’s targets for Infrastructure development by ‘Private’ companies and/or in ‘Private + Public Partnership’ model. JFI - For Roads and Highways Indian Private companies require approx. Rs. 500.00 billion for the NHAI Tendered Contracts. In addition it is estimated that Rs. 2000.00 to 2500.00 billion is required for the Ports, Power Plants etc under the Public+Private Partnership model. This kind of money can only be accessed by FDI window. In India our FDI is not even a fraction of the FDI into China for the past ten years. China has attracted FDI to the tune of US $ 60.00 billion i.e. Rs. 3000.00 billion per year on average for the past ten years. Plus in China – funds disbursal is much much faster after ‘financial closure’ of the said Project. Unfortunately India ’s FDI for the past ten years on an average is around US $ 15.00 billion i.e. Rs. 750.00 billion/year. That is the reason that China ’s humongous infrastructure is in place since the past ten years. Just note that China has added 1,00,000 Mw of Power ( Coal, LNG, Naptha and Hydel ) every year 'on the trot for the past five successive years' to its ‘National Power Grid’. In India in the last five years we have only added merely 74,000 Mw of Power ( Coal and Hydel ) to our National Grid against a target of aprox. 2,00,000 Mw. The same is applicable to China in the Roads and Highways, Ports, and Housing Sectors. We need to put our house in order if we have to meet the budgeted figures for the next five years. I have my serious doubts. Secondly - the SMEs form a very important part of this ‘infrastructure projects’ chain. These companies do not have the requisite funds to do jobs on the sites for prime contractors for the infrastructure projects. These companies get funds at much higher interest rates from the Banks. For expansion of their working capital limits and capex limits the promoters of these SMEs have little capital and collateral to pledge to the banks. Plus the equity option to raise money is a difficult issue in today’s turbulent times in the Stock markets. How do these SMEs raise money to service the prime contractors ? This is an important is sue which Indian policy makers need to address.

j) ECB norms have been relaxed for the ‘Services Sector’ by the Govt. of India. At present Hotels, Hospitals and ITES/Software companies are allowed to avail ECB upto US $ 100.00 million per fiscal year to import ‘Capital Goods’ under the ‘FIPB’ approval route. Now this amount can be raised under ‘Automatic’ route for both Forex and INR expenditure. This is a welcome move as now, no FIPB approval is required. The ‘monetary stimuli’ have been welcomed by one and all in the industry. Equity markets were extremely bullish on Monday and Tuesday 5^th and 6^th January 2009 on account of these aggressive 'monetary stimuli'.

k) The 'fiscal stimuli' were not that attractive. Import duties were cut on Cement, TMT Bars, Ferro-Alloys to protect the domestic industries in this sector. Fine print is available at the MoF’s website. The 'fiscal stimuli' was a disappointment as perceived by the industry. The problem is that "Indians Fiscal" situation is not at all healthy and hence the GoI could do little on this front. India's Fiscal Deficit for FY09 will be around 5.00 % of the GDP as against the budgeted figure of 2.50 %.

3 ) Uncle Sam's stimulus package is now worth US $ 8.00 trillion ! Just imagine the amount of US Dollars circulating in the American economy in 2010 thru 2011. God save America !

Special Note - Hyperinflation in USA by 2012 and Crude Oil – 12^th January 2009

I have been getting a lot of messages from my associates, friends and clients since the past few months regarding the removal of the “Peg of Gold from the US Dollar in 1971” and its impact on the global Crude Oil market. I am briefly explaining the so called biggest ‘Petro-Dollar Scam’ in the history which will nearly cripple the American economy by 2012. Some astrologers even predict that the American economy will be ‘bankrupt’ in 2012 like Iceland, Ukraine, Hungary, Zimbabwe etc in 2007 thru 2008.

I mentioned on my website in November 2008 under a Special Update – “ TIMING IS EVERYTHING IN INVESTING ” that the US Federal Reserve in 1971 recommended to President Richard Nixon to remove the ‘Peg of Gold from the US Dollar’. President Nixon signed the proposal and in my view made the biggest blunder in the history of American politics.

i) People do not realize the reason of the Iraq war and the current war threats to Iran. It is not the Nuclear arsenal, nor Terrorism and its not Crude Oil. It is about the US Dollar.

ii) Post 1971 – USA has printed and spent far more ‘paper money’ than it could buy Gold deposits. As explained above the peg of US Dollar to Gold was scrapped in 1971. Gold prices saw an unprecedented nine year rally in its history from 1971 thru 1980. The average price of Gold in 1971 was US $ 40.80 pto. In 1980 the average price of Gold zoomed to US $ 675.30 pto. The prices of Gold spiked by 1555.00 % over this nine year period. On 18^th January 1980 – Gold tested a high of US $ 835.00 pto which was breached only in 2007. This rally in Gold prices caused alarm bells in Europe – France, Germany, UK and Switzerland.

iii) In the Mid 1970s – these four countries in Europe converted their paper i.e. US Dollar holdings into Gold. USA did not as it actually did not have enough Gold for the Dollars it had already printed and spent all over the world. This was the biggest blunder and an act towards bankruptcy by America.

iv) So America went to the Saudis and cut a deal – OPEC denominate all sales of Crude Oil in US Dollars.

v) From that point – every Nation that needed to buy Crude Oil had to firstly hold US Dollar. This meant that all countries exchanged their goods and services for US Dollar – which the American just happily printed.

vi) American bought Crude Oil for their consumption almost ‘free of cost’ by printing those Dollars. Cost of security paper, green and black ink, metal etc was minimal.

vii) However the problem started when Saddam Hussein started selling Iraqi Crude Oil directly ‘on the sly’ in Euros, abrogating the cozy amongst the Americans had with OPEC. Thus Saddam had to be stopped. How ???

viii) The Americans concocted up a pretext to wage a war and invade Iraq on account of possession of ‘Weapons of Mass Destruction (WMD)’. Intelligence was all ‘botched up’ by the Americans. They cheated even Tony Blair. The Americans removed Saddam in Baghdad and the first thing they did was to revert the sales of Crude Oil back to the US Dollar. The currency crisis was averted for the moment.

ix) But Hugo Chavez – America basher, also started selling Venezuelan Crude Oil for currencies other than US Dollar. It is a well known fact that there were a number of attempts on his life and ‘regime change’ attempts traceable to CIA.

x) Iranian President (Mohd. Ahmedinejad) watching all this decided to kick the US Dollar and do the same thing – sell Iranian Crude Oil for every currency except the US Dollar. He has been partially successful.

xi) The game is coming to an end for the Americans – as Nations of the world find that they can buy Crude Oil for their own currencies instead of holding paper US Dollars. More OPEC nations will abandon the US Dollar and even the Non-OPEC Crude Oil exporting countries will follow suit.

xii) The worst thing for the Americans is that eventually they will also have to buy Crude Oil for themselves in Euros, GBP or Rubles instead of just printing paper money ( US $ ) to import Crude Oil.

xiii) That will be the end of the American Empire, the end of funding for the US Military and destruction of the US Economy. This game is coming to an end and there is not a lot that USA can do about it, except to start another World War !

xiv) Wait and watch – 2012 !

xv) There will be a new ‘World Economic Order’ after the year 2012. I will provide details of the same in the year 2012, if I am around !

JANUARY

I wish a happy and a prosperous 2009 to all my clients, associates and investors !

The year 2008 will be remembered for a long time by equity investors as a terrible year as most of the investors have not seen this kind of carnage in their life time. This type of global correction in equities and commodities was only witnessed in 1929 to 1931 in USA during the Great Depression of 1929. The American economy is slipping into ‘deflation’ and this has an effect on the whole world. All major economies of the world are in a fire fighting mode and are ‘pumping money’ into their respective economies. They are resorting to ‘fiscal stimuli’ to tide over this financial crisis not witnessed since 1929. The collapse of Lehman Brothers in USA has triggered a ‘systemic failure ’ of the financial markets in USA and has led to a global financial crisis of unparallel dimensions.

BSE SENSEX closed today Wednesday 31^st Dec’08 at 9647 up 6.09 % from 28^th Nov’08 close of 9093. The intra-month low and high for BSE SENSEX for Dec’08 were 8601 and 10189 respectively. I was bullish for the SENSEX for Nov’08. SENSEX and ^DJI were both in ‘oversold territory’ in Nov’08 and a ‘bear rally’ was expected in Dec’08. Bear market rallies can be very severe and punters put ‘stop losses’ or hedge their ‘shorts’ by buying respective ‘calls’. The rally in BSE SENSEX from the low of 7697 as of 27^th Oct’08 to 10189 as of 19th Dec’08 was very sharp – up by 32.38 % from the 7697 level.

^DJI closed today at 8776 down marginally 0.60 % from 28^th Nov’08 close of 8829. The intra month low and high for ^DJI for the month of Dec’08 were 8149 and 8924. The bear rally for ^DJI was equally severe – 20.73 % up from low of 7392 till 8924.

I have mentioned in my last update that for the year 2009 – BSE SENSEX will take cues from ^DJI. Hence the details for ^DJI are being posted. I have no choice till BSE SENSEX is ‘decoupled’ from ^DJI. Both ^DJI and BSE SENSEX are still in a ‘long term’ bear phase. For the ‘short term’ both ^DJI and SENSEX are in an ‘uptrend’ but they will find a very stiff resistance at 10000 and 11000 levels respectively. The support level for ^DJI is 8270. If ^DJI closes for three consecutive days below 8270 – then the journey towards its 52 week low of 7392 will resume. The support level for BSE SENSEX is 9630. It will start its journey towards its 52 week low of 7697 if BSE SENSEX closes below 9630 for three consecutive days. I predict this may not happen in the month of January 2009 but can happen within Q1 2009. I am bearish on Indian equities for January 2009.

The levels to watch for ^DJI for Jan’09 are :

R1 9000 R2 9300 R3 9600 R4 10000 R5 10500

S1 8670 S2 8400 S3 8270 S4 8000 S5 7390 S6 7000

The levels to watch for BSE SENSEX for Jan’09 are :

R1 9860 R2 10200 R3 10600 R4 11000 R5 11800

S1 9630 S2 9000 S3 8310 S4 7650 S5 7500 S6 7000

I am not giving details of what is happening around the world in the field of equities and commodities. Also I am not giving details of what individual countries are doing to fight this financial crisis as the whole data is available in the print and electronic media.

I am advocating investment in the Debt instruments for the first time seriously since the year 2000. The reason being that by the Grace of God – I am able to generate much better returns in the equity markets as compared to debt. Debt instruments give very little returns. But now are no ordinary times. Very difficult year ahead of us – 2009.

I do not know how much funds FIIs will allocate to India for investment in equities. FIIs still hold US $ 45.00 to US $ 50.00 billion worth of Indian equities. Instead of investing funds in Indian equities, if FIIs pull out US $ 15.00 to US $ 20.00 billion from Indian equities in Q1 2009 one cannot forecast the level of BSE SENSEX by 31^st March 2009. In 2008 FIIs have pulled out US $ 13.00 billion from Indian equities. We all know BSE SENSEX crashed from 21207 to 7697 - down whopping 63.71 % in 2008. FIIs can pull out US $ 15.00 to US $ 20.00 billion from India as they are also ‘cash strapped’. Please note FIIs pulled out US $ 35.00 billion from South Korea in 2008. See what happened to their currency – Won and their equity index KOSPI ? Won was the worst performing currency in the world down 30.00 % in 2008. KOSPI – South Korea’s benchmark equity index tested a three figure multi-year low of 892.00 on 28^th Oct’08 down 57.22 % from its Dec’07 life time high of 2085.

M/s. Barclays Capital Plc. UK predict in their report of 5^th December 2008 that BSE SENSEX can test 6000 - 5000 level and INR to depreciate to 52.00 to 53.00 level by 31^st March 2009. They also predict Indian GDP growth to moderate to only 5.20 % for FY2010. My target for SENSEX is 7000 by latest 31^st March 2009 if not earlier.

I recommend Indian investors to invest 25.00 % of their ‘investible funds’ in Gilt Funds with immediate effect. Invest 50.00 % in physical Gold. Keep 25.00 % as cash to invest in equities. I will advise when to buy and what stocks to buy. The calls for equity investment will be pure ‘trading calls’.

Gold – It closed today in New York Spot @ US $ 880.80 pto up 7.90 % from 28^th Nov’08 closing of US $ 816.30 pto. I stick to my target of US $ 3000.00 pto latest by December 2012. CITIGROUP in a report to its investors dated 17^th Dec’08 has forecast a price of US $ 2000.00 pto for Gold in the coming years. They do not specify the time frame. CLSA in a report to its investors have forecast a price of US $ 3360.00 pto by December 2010 ?

Crude Oil – It closed today at NYMEX for February 2009 Futures @ US $ 44.60 pbbl down 18.06 % from 28^th Nov’08 close of US $ 54.43 pbbl. In fact Crude Oil tested a whopping low of US $ 33.17 pbbl at NYMEX on 19^th Dec’08. My prediction that Crude Oil will hold US $ 50.00 pbbl in Dec’08 was again incorrect. In fact I have made a ‘grave error’ on Crude Oil. I regret this ‘technical error’. I do not know how did I make this blunder on Crude Oil price forecast ? Crude Oil has a major resistance at US $ 56.26 pbbl. Below this price Crude Oil can go to any level. Some analysts are predicting a price for Crude at US $ 15.00 pbbl in 2009. Merrill Lynch is forecasting an average price of US $ 25.00 pbbl for 2009. I again repeat Crude Oil below US $ 56.26 pbbl can go to any level. I will buy Crude Oil futures only when Crude Oil Futures trade at US $ 57.00+ pbbl at NYMEX.

I am again advising investors to be cautious in January 2009. There could be sharp cuts in ^DJI and BSE SENSEX if the levels as above are breached. Gold will outperform all asset classes in 2009.

Only Gold and Gold for 2009 to 2012 !