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Dear Investor

Since last many months, I have been predicting big bang market correction. Though, I was early in predicting and markets had gone up 5 to 10% from my forecasted level. It took just 13 days for Dow to correct full 17%, Europe corrected even worse full 25% in just 8 days. Indian market has been correcting since Jan, 2011 and with recent slide, it totals to 20% fall.

Meaning, sometimes it seems to investors that Predictions are not working but when you look into totality, it does work, but sometimes with time lag.

Let us cover World Markets first..

2011 -12 = 2008 + Higher sovereign debt + Lower consumption + Lower Employment + Lower GDP + Higher Inflation + Lower Consumer Confidence + Lower Business Confidence

Yes, You read it right. That is the present state of world.

In last 2 years, We have converted even favourable factors of economic growth into unfavourable and worst into anti recovery, de growth factors.

Wealth is more concentrated in developed world than it was 2 years before. Govt declared huge stimulus packages and bailout packages to prevent “ Too big to Fail” from failing. All at the cost of common taxpayer who is becoming poorer.

In 2008, big banks and institutions failed, their balance sheet had shrunken. Govt was in bad condition but at least not worst in 2008. To stem the fall and prevent big banks and institutions, Govt decided to expand its balance sheet to improve the balance sheet of private organisations. Recent data showed significant increase in private bank assets in last 2 years vs loss to Govt.

In next 2 yrs, the same problems are going to resurface repeatedly. Too much debt was the problem and with all great research the solution found by great nations on earth is much more debt. US, Europe, UK and Japan are in the same boat. Crisis in Europe is getting more acute and hence it may remain focal point giving relief to US for some time.

Emerging markets are no different. But, the differentiator is still good growth with good consumption and favourable demographics.

I Wrote in Feb, 2011 (Link: https://investmentacademy.wordpress.com/2011/02/04/a-crash-in-progress/ )

For emerging markets inflation stability is No. 1 priority and as I had indicated in my last column, Govt in EM would rather prefer to give up 0.5 %—1% GDP growth to control inflation. Because they have ample experiences on hands, How out of control inflation leads to social unrest, civil wars and finally political changes???

You heard ditto same from RBI governor last month.

How do I see markets shaping up in next few months?

We have seen 1st phase of correction. For next 1 to 3 weeks, markets may remain cool with some short covering. And then 2nd leg should start.

I expect Dow to correct up to 9600 at least and 9000 in worst case. Indian Sensex should find support somewhere between 15500 -16000.

Gold

I believe Gold is in distribution phase. Gold has made high of $ 1814 and from there it has corrected to $ 1740 as I write this article. Gold should find support between 1660- 1690 and should rally back to $ 1814 and may go up to %1840-50. I do not see run away Gold prices from here onwards except Dollar index breaks down below 72.60 level.

I expect Gold to correct 25-40% in coming months. I will give levels as correction progresses.

Silver

I had been warning, do not touch Silver even with 10 feet pole. It is world’s most manipulated metal. It corrected rather abruptly some 25% in a week. I see correction to continue in silver further breaching $ 28 level in coming months.

Oil

Oil too should continue downside. Support lies around $ 68. In worst case, can come down to $60.50.

Agri Commodities

Agri Commodities should remain subdued in next few months. For next 1- 3 weeks, it may rise just to facilitate short covering. Another leg down is still on cards. But, remember, that would be the best time to load up Agri stocks and commodities.

China

It has not performed as per my expectation in last 6 months. Though, fundamentally, China is still growing strong in all parameters. Demand is still strong. Exports also hitting new benchmarks and consumption story also breaking new records.

Recently , many banks and institutions have forecasted 40 to 60% rally in china market in next few years. Some are expecting even 25% return by year end. I will write in detail about it shortly.

In all, Picture is not perfect. It will take time to turn the tide.

Until next time

Bye

Dhaval

Blog: https://investmentacademy.wordpress.com/

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3 responses »

  1. Hi Part if my question ref gold is answered above. I have read veiws that gold can reach $ 5000 ounce & maybe more in coming 5 yrs.
    Your views

  2. Hi,
    Does Indian market has good Agri stocks. We do not have anything good and big related to Agri Business listed on Sensex. How to invest in Agri Commodities in India even through commodity exchange.We have something like Venky’s, Rallis India which are good and some fertilizer stocks.

    Please share if you have anything else in Agro ?

    I would like to now from you that why Gold will not cross $1814 if Italy , Spain and Uk face default risk.

    Thanks

    • Hi

      India does not have good-big Agri players. But, we still have means to take exposure which I shall write in next 2 months.

      Gold- My predictions are based on 2 factors. 1. Dollar’s movement and 2. Political developments in US and Europe. Gold had been factoring in recent events since last 1-1.5 months, since it started trading above $1660. To me, things would still worsen further in time to come but that woul not be favorable for Gold for next 3-6 months.

      America has started putting more cuts and we are still some time away from QE III. Europe and UK are under pressure to pledge more budget cuts. In last month or so, we have seen lower GDP growth across the devoped markets. These factors are putting presure on commodities and investors are flocking back to currencies. I have been expecting lower inflation for next few months.

      Generally, Gold is hedge for inflation or aggresive currency printing. Both of this factors, I believe would remain subdued for some time. Because, money printing and stiimulus packages have produced hyper inflatio without recovery in last 2 years, which has put pressure on policy makers to think differently. I firmly believe, they will continue printing but after a pause.

      Italy, Spain would not default very soon. Because, ECB has started accpeting soverign bonds of all member nations as collateral that has resolved problem to some extent. EU has also created EFSF ( European Financial Stability Facility ) backed by Germany to infuse funds in to member nation if required to prevent the crisis. Yes, there are no free lunched, Conditions are very strict to demand help from EFSF but bankupt nations do not have options.

      I also believe, Dollar is very over sold and would rally for next 2 months, would not be too significant but would give time commodities to correct, giving price stability and time to policymakers to find better options and that should help Gold to correct within its cycle, which is now ovedue.

      bye

      Dhaval

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