Category Archives: Indian Macro

Where to invest in 2015?

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Dear Investor

SUMMARY

Globally, Deflation ( declining demand and prices)has emerged as imminent threat. Developed economies (Govt and Central banks) have been attempting every possible option like –ve interest rates & debt to GDP raising in excess of 100%, to stimulate demand. But, it seems efforts are not paying targeted results and economies are sleeping into deflation.

If Deflation spiral will continue in 2015, developed economies would be in huge trouble as Govt and Central Banks have already used all available options( Rate cut to Zero, Quantitative Easing and Govt expanding Fiscal muscle in excess of 100% Debt to GDP). In Deflationary Spiral Asset Prices, Commodity Prices and Gross Demand of Economy precipitate to the trough. Persistent low Demand and low Prices squeezes the margins of the company and thus lay off starts. Which further aggravates the economic situation. In extreme Deflationary conditions, Banks starts defaulting and may go bankrupt as happened during 1929 Great Depression. Even Some nations with Debt to GDP more than 100% and foreign Debt forming much of the debt part can default on sovereign obligations, like Greece and Argentina recently.

Global Geopolitical situation, where one eye should be fixed of investors in 2015 as it has reached to very critical stage. Israel could be dragged into fight against ISIS and Russia can exert more pressure on bordering nations.

Indian Economy has been struggling hard to recover from last 2 years slow down. Though Stock market has been scaling all time highs, hoping fundamentals will reciprocate with the help of aggressive reforms done by the Govt at the Centre, situation on ground has not improved much. Credit demand has come down to 9.6% from as high as 21%, 3-4 years back. Partly also due to RBI’s tight monetary policy. But, lack of investment is proving to be tough bottleneck to get over. Govt is still running high fiscal deficit, private companies are leveraged( latest report shows, may take 15 months to deleverage) and Banks are running large NPAs from Infra and Capital goods sectors hence not willing to lend them.

Therefore, Investors need to fix eyes on one parameter in 2015 and that is Investments. It will require either Govt flexing Fiscal expansion again till the time Private economy readies itself or bringing Foreign Investments, which has been aggressively tried by both PM and FM. To start the Growth Engine of Indian Economy, it needs 1 to 2 lakh crore of investments initially.

Therefore,

Investor Portfolio should Have some Gold, Have reasonable Cash, Reduce Equity and Real Estate, Have some long term Govt Bonds( GILT) to align your portfolio with prevailing dynamics.

In Detail…

Global Situation

“ It is inevitable for investors, in 2015 ,to remain closely updated with Global Situation. 2015 can be another 2008, wherein India had collapsed though crisis did not origin in India. Global factors will remain main driver of year 2015, with greater focus attached to Deflation in developed economies, geopolitical tension in Gulf with Israel jumping in at some time and Russia exerting more pressure. “

It seems, Globally, 2015 is going to be very chaotic, confusing, surprising, shocking and noisy year with significant developments on Economic and Geopolitical front. Asset classes will also collide with each other then ally with each other and then depart from each other. It is so confusing and complex to predict what will happen in Global markets and economy in 2015, that Very smart investors and big hedge fund managers are adopting simple diversification strategy to preserve the Capital. And their strategy is, invest evenly(25%) in each asset class, which goes up when 1. Inflation is more than expected 2. Inflation is less than expected 3. Growth is more than expected and 4. When Growth is less than expected.

Therefore, if there is one important advise, I can suggest to investors is

“ You should not be overly invested in any one asset class, except Cash”

The main threat to Global economy in 2015 is Deflation. Let me explain the dangers attached to Deflation. We will have to go back some years to understand it.

Till 2008, almost all nations on the earth were going high. Economies were expanding, Demand was on continuous rise, Commodities were zooming to the sky, New investments were initiated in many large projects with the expectation of future price rise, all most all companies were expanding their current capacity expecting higher demand in time to come. Ever increasing Global demand was driving this expansion and borrowing.

But, in 2008, Suddenly crisis enveloped this burgeoning Global economies. People, Institutions and Companies, who had borrowed massively in past years, expecting perpetual demand rise, were unable to pay off the interest, even. Because , Demand collapsed. And, in all these boom years, they had spent whatever they earned, not leaving anything for rainy days. Saving rate of US was -7% before crisis. It means, People were deep in debt by 2008, they had borrowed much more they can afford to. They were leaving on borrowed money. Similar was the condition of Companies and Institutions, they had undertaken massive expansion, overestimating future demand.

In brief, Developed Economies had gone far ahead of realities.

Therefore, When crisis( Reality) struck in 2008, Many companies and Banks went bankrupt. Companies expansions were underutilised or unutilised and people were unable to pay off the debt. Lakhs of employees were laid off in US, Europe and other advanced economies. This collapsed Demand substantially. But, yes , People learned not to overspend and to save.

Now, Advanced Economies depend on Consumption by Citizens to the extent of 60 to 80% for economic growth. But, this demand has come down. Due to low Demand and higher Capacity to produce, it has forced companies to lower the prices. With lower prices and margins, Companies can not afford to keep large work force and thus Company reduces workforce to remain lean and competitive. This is start of Deflationary spiral, wherein low demand caused low price and it further feeds to low demand.

But, now the situation turns grim because Commodity prices fall 40 to 65%. This feeds further price fall of assets and goods. Continuous low price environment also induces Consumers to postpone the buying decision.

With continuous price fall and demand fall, it becomes difficult to sustain business and pay down the debts as Income level keeps going down in low price and low demand situation.

Commodity price fall also indicates low current and future demand.

Now, question arises, How low price and demand can fall?

Govt Bonds are the best measure of that. Govt Bond always discounts and reflects expected Inflation or Deflation in the economy. Like India’s bond yield was close to 9% in 2014 showing elevated inflation expectation, which dropped to near 8% now, indicating Inflation expectation has softened to some extent. Which is visible also in Inflation numbers.

Now, It is shocking and surprising to learn that most of the European nations bonds for 1 to 4 years are quoting negative yields! It means for next 1 to 4 years, Investors and Institutions are seeing low price-low demand scenario ( negative inflation i.e. deflation) in these nations!

Height is Switzerland, where even 10 year Govt Bond is trading at -0.008, It had gone down to -0.80!

Let me explain the effect of –ve Bond yield. Say Rs. 100 bond yield is 1% that means you will get Rs. 101 after a year. If same bond yield is -1% means you will get Rs. 99 after a year.

Now you understand, Investor are lending trillions of dollars to European nations and to Switzerland at –ve interest rates. Why? Do they love to loose money? Heck no.

They are lending at –ve yield because they know that price and demand(inflation ) is going to fall much more. It means, if bond yield is -1% then price and demand are expected to fall more than 1% in bond tenure. It means, inflation will fall to such an extent that even lending money at -1% will make them money.

In last 1 month, Inflation has fallen in almost all developed economies with almost no exception. It means, Deflationary spiral is not limited to Europe but is quickly spreading to US and other parts of the World including major Emerging nations. For example, Thailand’s latest CPI (Inflation Index) fell to -0.41% against expected 0.25%.

To stimulate Demand and to see rising inflation, Central Banks of the world have printed trillions of Dollar. Govts have also expanded fiscal limits to the extreme. But, Inflation(Demand) is still not on the horizon. Instead it(Demand or Inflation) is sinking and sinking fast. The matter of concern is, If inflation continuous to sink fast and deflationary spiral aggravates, there is limited room for counter attack.

Having printed trillions of Dollars, Euros, Yens and Yuans and Sterling, capacity to accommodate further monetary expansion is very limited. Fiscal constraints will force Govts to walk tight on Fiscal discipline else rating downgrade is feared like France downgraded recently by Fitch.

Let us see in below table the Fiscal position, Debt to GDP ratios, Unemployment rate and Current Bond yield (as on 30/01/2015) to understand the larger picture.

Country Govt Bond Yield % (10 yr) Debt to GDP Ratio % GDP Growth rate ( YoY) % Unemployment rate %
Japan 0.290 227 -1.20 3.40
Germany 0.304 76 1.20 4.80
France 0.547 92 0.40 10.40
UK 1.33 90 2.70 5.80
Spain 1.43 92 2 23.70
US 1.63 101 2.5 5.6
Italy 1.66 132 -0.5 12.90

Hence, It is easy to understand that When smart investors and big institutions of the world are lending trillions of Dollars to Japan, Germany and France at less than 0.50% for next 10 years, they are expecting negative inflation in these economies for next some years. Bond yield in the vicinity of 1 to 1.50% in rest of the developed economies also clearly suggest that Inflation will remain near 0% to –ve for a period.

And, as I have said earlier, in Deflationary spiral, highly leveraged( deep in debt) Institutions, Corporations and individuals go bankrupt as real debt becomes much difficult to pay in.

Therefore, I recommend investors to remain evenly allocated to major asset classes.

Some exposure to GOLD is must. And, some higher allocation to Cash (Treasuries – 90 days Govt Bond) is compulsory.

If you are overly allocated to Equity and Real Estate, reduce it as soon as possible.

Deflationary spiral will lead to more currency war as it is visible, started by Japan and then by Europe and now by Switzerland and China. Hence, if you are overly allocated to international assets, reduce it within your risk limits.

India

India is on better footing, now. Rupee is stable and has shown great resilience against dollar’s recent strength. Current account deficit ( Exports-Imports) is contained now at 1.7%, Commodity prices have come down significantly helping to ease inflation pressure, rapid pace of reforms by Central govt are aiding India’s prospects. Most significant positive for India is stable and majority government to expedite decision making process. Decisions taken by Modi Govt since May, 2014 have very long lasting positive effects on Indian economy, its real effect and results will be seen 3-5 years later when implementation would have completed.

But, yes we have our share of problems too. Problem is Investments. As a nation, we need huge investments in Infrastructure to jump start the economic engine. It has been said time and again that poor infrastructure is one of the major reason behind stubborn and periodical rise of Inflation. The total need to spend on Infrastructure is close to $500 bn (Rs. 30 lakh crore).Due to ill governance and opaque policy environment, close to Rs. 18 lakh crore projects are pending for approval for lat many years. This is legacy of last Govt, Which will be cleared as laws are amended and reforms take place. But, many projects, even if approved, will fail to start as Banks are not ready to finance Infra projects as they are running very high NPA from these sectors.

Therefore, we need major sources of finance. In economy, you have two major sources of investments one is Govt and Other is Private companies.

Now, Govt is running very high Fiscal deficit. With cost cutting, cutting planned expenditure and selling off some PSU stake, Govt would be barely able to reach 4.1% fiscal deficit target. And even this would have not been possible, if Crude would have stayed around $100. The Point is, Govt is in tight situation and has very limited fiscal space to expand and spend in the economy.

Private Corporation and Conglomerates of our economy are still buried under large debt. And according to recent FICCI and CII estimate, it will take 15 months to deleverage.

From Business- Standard (23-12-2014)

“ Assocham (Associated Chambers of Commerce and Industry of India) President Rana Kapoor said: “It will take another 15 months before a significant deleveraging of the private sector can happen. By March 2016, they will be back in action.”

Barring a few large conglomerates, there was high leverage in the private sector, especially in the infrastructure and core segments, he said.”

Third option is, we bring foreign investments in our key infrastructure projects like Metros, Delhi Mumbai Industrial Corridor and Smart Cities and others. Mr. PM and Mr. FM are trying hard to bring foreign investments in these projects and they have been successful also. But, it too has limits.

We are getting some indication that Govt is trying fusion option. In bold step, we may see Jaitly expanding Fiscal boundary to accommodate Infra spend and all Govt machinery try hard to bring foreign investments. This was visible at Davos,too. Make in India was marketed very aggressively there.

Interest Rate Scenario

After keeping interest rates very high for long-long period, we could contain inflation. Yes, Commodity price decline has also played its role into it. And finally, Mr. Tough/ Wall – Mr. Raghuram Rajan( RBI Governor) has cut the interest rate by 25 basis points.

Change in the stance seems to have come from slide in Crude prices. The straight landing of Crude flight from $105 to $45 should have convinced Mr. Rajan that this is structural shift in Global demand and deflation will be greater threat and that should have prompted him to cut the rates. Domestically, too, He could see the Govt taking all necessary actions to increase the productivity and to boost the supply and at the same time reining in inflationary expectations by deregulation Diesel subsidy, small or no hike in MSP, approval of projects crucial to expand the supply side and promise to achieve fiscal deficit target of 4.1%.

I firmly believe that rate cut will become aggressive and it could be 100 to 150 basis points cut in this calendar year. The assumption and that has been highlighted by RBI, too , in its Financial Stability Report that Credit Demand in India has come down significantly from 21% to 9.6%. This shows that in last few years, People of India have either postponed buying or consumption decision or their income have come down and hence Credit limits. In both situations, it is very likely that demand will go down further and that will prompt asset price correction. We are already hearing of large inventory in Real estate sector in Metros and even price correction at some places.

I firmly believe, Real Estate will see major price decline in 2015.

Therefore, I expect Demand to slow down in India, too, in 2015. To stem the economic fall, Govt’s major thrust would be on Infrastructure spending, to generate large employment opportunities and to start the growth engine.

With above assumptions,

I believe one should keep investing in Equities through Mutual Fund route(so that portfolio remains adequately diversified). I recommend to invest SIP(Systematic Investment Plan-Monthly fixed investments)way in Mutual Fund not lumpsum.

One should also have exposure to Precious metals(Gold & Silver).

One must have reasonable proportion in liquid assets( Cash Management fund, liquid fund).

One must have some investments in log term Govt Bonds(GILT), which goes up as Interest rates are cut.

I wish Wealthy and Prosperous 2015.

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 288 a15

Office – Khushi Investments, GF-1, Shivalay Complex, Near Bank of India, Manjalpur Gam Road, Manjalpur, Vadodara.

Disclaimer: This is a free daily investment newsletter published by Investment Academy. This publication does not provide individual, customized investment or trading advice. All information is based upon data whose accuracy is deemed reliable, but not guaranteed. Performance returns cited are derived from our best estimates, but hypothetical as we do not track actual prices of customer purchases and sales. Author might have open positions in the stocks and Indices recommended above.

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Urgent Update on Gold and a note on Infrastruture

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Dear Investor

In my last Update on Gold, I had shown two possibilities that either Gold will breach recent high of $1432 and will scale up newer highs or will drop below $1360 and that can lead to accelerated downside in Gold up to $1250.

Tracing last 2 days movements largely confirm me that the later scenario has higher possibilities to occur in next few weeks. Hence, I advise investors to take out the profits from the investment. An acute downside pressure may take gold down below $1200 for brief period.

If Gold closes above $1453 any time, I would reverse my position but that seems a faint possibility.

A note on Infrastructure

In 2010, largely stock market performed well. Nifty returned close to 18% in calender year 2010. Category wise FMCG returned 36%, followed by Banking 34.5%, Pharma 33.85%, Technology 26.83% followed by other categories.

In that least return was earned by Infrastructure category mere 6.87%. And, if I look at the funds, which posted negative returns in Worst Fund categories, there were 2 categories– Mid and Small cap category posted -2.57% worst fund return and Infrastructure category posted -5.27% worst fund return.

Fundamentals

The problem in Infrastructure companies was never winning contracts or order books. Almost all Infra companies have healthy order books. The challenge was to convert it into profitability for companies. In 2010, companies order books increased by 30% and crossed 2,00,000 crore marks first time.

Largely all Infra companies carry huge debt loads on their balance sheets. Shortage of labour, higher wages, sharp rise in metal prices accentuates the problem. Further, the larger problem is capital availability at lower rates for longer periods.

But, some efforts have been made in this matter. In last 6 months, many state owned companies including IFCI, L&T and SBI raised sizable funds for Infrastructure project financing. That will help in solving problem.

Some help also been extended by RBI by way of allowing Infra companies in Power, Road, Port and Airport sector to refinance their domestic loans through ECB( External Commercial Borrowing). Through ECB companies can raise debt at the rate of 4-5% against domestic base rates 7.75 to 8%. This measure has also helped companies in reducing their interest part.

According to the Planning Commission, the projected investment in the sector is set to double to US $1025 billion in the 12th plan where in the private players are expected to contribute 50percent.

Initiatives by Indian government which have spurred augmentation of private players include introduction of sector specific policies, providing incentives and tax holidays, public-private partnership approach as well as permission of 100% FDI in infrastructure sector.

According to Goldman Sachs, the country would need investments of more than $1 trillion in infrastructure from 2010 to 2019, with roads entailing $427 billion, power $288 billion and railways $281 billion.

Govt is also in process to start up Multiple Infrastructure debt funds aimed to raise $1 tn to bridge the funding gap for large infra projects.
Finance Ministry has taken initiative to allow foreign venture capital funds to enter into India Infrastructure market. It has also instructed RBI and SEBI to change policies accordingly to facilitate the entry of these funds.
News Link: http://economictimes.indiatimes.com/news/economy/finance/multiple-infrastructure-debt-funds-mooted/articleshow/7142643.cms

I feel, Govt is at critical juncture and never before our inability to build infrastructure has been exposed than in recent times. Could it be hosting Common wealth games or building road at the pace of 20km/day or building power plants to meet shortage of 20,000 megawatts??

And, now, Govt has no option but to pull out all stops and do serious work on infrastructure shortage.

Our Inflation is at 9.7% vs China’s 5.10%. Why our rate of inflation is double than China? China has more population than India. China had also severe rainfall and severe floods last year and had very severe drought year before in many parts as was the situation in India.

The difference is Infrastructure. China has built roads and bridges of more length than USA with similar quality checks. China is building world’s largest ports and airports to facilitate bulk cargo handling across the nations. The list can go on and on…

Lack of infrastructure is leading to higher and persistent inflation in India— this point has been stated by many economists and think tanks in last several years.

If I quote from today’s economic times front page storyCrisil says” IF progress on Infrastructure stumbles, even maintaining 8.4% growth would be difficult”.

Pressure is also mounting from outside world. India’s large middle class is attracting slew of MNCs to start up business in India. But, our poor state of infrastructure hesitate them from taking bold business decisions.

I believe, pressures from inside and outside are now weighing high on Govt and pressing it to pull out all stops to ensure infrastructure development at rapid pace.

I recommend to invest into Infrastructure stocks along with telecoms stocks with 2 years perspective. I do not rule out possibilities of 80-100% return in both categories in next 2 years.

Best wishes

Dhaval
Investment Academy | Baroda | 098255 28815
Blog: Http://investmentacademy.wordpress.com

Market Review Part I

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Dear Investor

There was a long break in between. I wrote last on 6th March.

In my last latter, I said, technically Dollar may rally further and can consolidate around 85-87.[ Link: https://investmentacademy.wordpress.com/2010/03/06/dollar-euro-pound-gold/ ].

Dollar:
Dollar did breach 81 after jostling there for prolonged period. Since than, it is in narrow range.
In last 2 days, it has closed below 81 but I would wait for Dollar to close below 79.53 (first support)
and further below 78.3 ( Strong second support) to initiate any short dollar or contra dollar trades.

Gold:
Gold is moving along support line. If dollar strengthens with sharp up leg, there is a possibility of corrective action in Gold. In such case, Gold may pull back up to 1060 for further consolidation and may up to 1000 for very very brief period before leg up. This does not negate the bullish scenario of Gold. It is part of natural up and down price cycle of securities.

Hold your long term gold. Nothing has changed. Fed is still printing massive money and will continue to do so and same is the case for European nations and for England.

Why all central banks will continue to flood the market with cheap money?
The obvious reasons are
1. Real Economies are still mired into recession
2. Jobless rates are still hovering around 10%
3. Debt to GDP ratios are exploding higher than 100% and for some countries like Japan,
it is more than 200%
4. Banks are flooded with cheap money but instead lending to consumers, banks are busy in writing off bad debts. Confidence of Banks is low in recovery and same is reflected in their action.
5. Consumers confidence in recovery is equally low. Consumers have shut their wallets for abysmally high consumption. They are learning to leave within the means and have started saving more.

Now. let me take you to GDP numbers to showcase the real effect. Hereunder, we are considering real GDP numbers not the nominal GDP numbers to analyze true picture.
For that, first understand difference between Nominal and Real GDP.

Gross domestic product is defined as the market value of all final goods and services produced in a geographical region, usually a country.

Nominal GDP equals to volume of goods and services multiplied by price.
Nominal GDP= Volume x Price

Nominal GDP does not show true picture when there are sharp rises in price or say in periods of high inflation.

Real GDP measures only volume for current year and takes the price of base year so that year on year real rise in goods and services can be known.

Real GDP growth rate of major nations in calender year 2009(est..).

Country Real GDP %
US -2.4
Euro Zone -4.0
Germany -5.0
France -2.1
England -4.3
Russia -7.90
Japan -5.70
India +6.50
China +8.70
World – 1.0

I believe, now picture gets clear. Across developed nations, there is a negative growth from -2.4% in US to -4.0% in Europe to as high as -7.90 in Russia.

Here is a reason to worry.

If picture is still not clear. Let us look at the size of GDP of developed nations.

Rank Country GDP
World 57.53 trillion
European Union 16.00 trillion
1 US 14.27 trillion
2 Japan 5.04 trillion
3 China 4.75 trillion
4 Germany 3.23 trillion
5 France 2.63 trillion
6 England 2.19 trillion
7 Italy 2.09 trillion
8 Brazil 1.48 trillion
9 Spain 1.43 trillion
10 Canada 1.31 trillion
11 Russia 1.25 trillion
12 India 1.24 trillion

Out of total 57.53 trn world GDP, developed nations GDP( European Union, US, Japan and England) contribute 35.7 trn dollars and in % terms, developed nations accounts for 65% of world GDP.

When 65% GDP contributor countries of world are deep into debt, experiencing negative growth rate, unemployment rate is in double digits, real recovery is far far from near.

Then , why markets are going up?
Because of massive stimulus packages declared in 2008, massive money printing, massive current account and budget deficits and interest rates at nearly ZERO percent.

These massive money is finding way into stock market, commodity market and even in bullion market.
With help of this massive money, two great institutions Goldman Sachs and JP Morgan, posted highest ever profit in calender year, last year. Same is the story for large European institutions.

None of this organization posted profit through lending last year. It was blessed by their trading activities. Never in history they could profit so much through their natural business activity of lending.

But, then Why Prices are rising of everything be it commodity, be it energy… I mean everything, when developed economies are in recession????
Because of massive printing, massive deficits, massive money infusion through various stimulus packages and massive debts, currency is loosing value.

Price rises because
Supply is short or
Demand is high or and third element which rarely people think about is
Currency devaluation ( Currency loosing value ).

Example: IF you had lent Rs 100 to someone without interest for 9 years in year 2000. He pays back Rs. 100 in April 2010. Are you really getting back Rs. 100? Heck no. Probably, you are getting back just Rs. 50 or may be Rs. 30 only. How?

With Rs. 100 in year 2000, you could buy around 10 liter milk(Rs.10 per liter). Come 2010, same Rs. 100 buys 3.8 liter milk. So, in purchasing power terms you lost 60% value of currency in last 9 years. Or say, you got just Rs. 40 back from Rs. 100 lent in year 2000.

So, What next? Will economies come back to pre crisis level? Will markets take out their pre crisis highs?

About Economies

Consumption of European and US consumers was a big driver for the growth of world economy. Rest of the world were producing to feed these fat consumers.

Consumers were over purchasing because of the easy access to credit.

Now, neither easy credit is available nor consumers are willing to shop at pre crisis level. They have learnt lessons very hard way.

Hence, it looks extremely difficult, whatsoever action may be taken, for developed economies to return to pre crisis level any time soon. It may take years more if not decades.

Kenneth Rogoff, former chief economist at IMF, and Reinhart writes in his recent book “This Time is Different”

“…highly leveraged economies, particularly those in which continual rollover of short-term debt is sustained only by confidence in relatively illiquid underlying assets, seldom survive forever, particularly if leverage continues to grow unchecked…”Reinhart and Rogoff analyzed 800 years of economic history, including 250 financial crises in 66 countries. They looked for patterns, similarities and differences. Put simply: this time is not different. Their prediction is simple: Pain.

About Markets

I like the quote of Citi’s former CEO Charles O. Prince, he said before crisis — In terms of liquidity “As long as the music is playing, you’ve got to get up and dance, when music stops things would be difficult. We are still dancing.”

In Part II, I will write about effects of currency devluation.

Regards,
Dhaval
Investment Academy | Baroda | 098255 28815
Blog: Http://investmentacademy.wordpress.com

FISCAL DISASTER

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Do not expect goodies, extra spending, tax cuts, subsidies and any kind of relief from this budget.

Expect more levies, more taxes, reforms which can generate money for govt but would not benefit common man.

Expect tight Fiscal policy.

Because, India has reached to FISCAL DISASTER.

Dear Investor

First, about Market

Technical View

Market could not meaningfully cross 5280 after several tries.

Sure, valuation was ahead fundamentals. We were up more than 100% in a year and breather was needed.

It is not sudden and surprising because Chinese market topped out in August and since then it is in correction. It corrected close to 22% from top and since then it is into consolidation.

Indian market remain costly since end of September when I wrote that Rally is about to end ( https://investmentacademy.wordpress.com/2009/09/23/alert-a-fat-rally-is-about-to-end/ ) and further I wrote in December that Dollar’s rise should prompt market to take a pause( https://investmentacademy.wordpress.com/2009/12/07/alert-imminent-decline-in-market-with-rally-in-dollar/ ).

It took more time than expected to correct but since September Market is trading in a narrow range between 17000 and 17700.

As an investor, we always ask a question, what next?

I feel this was badly needed correction for further meaningful value based investments.

Will market correct more?

Unless Market gets back above 5008 in next few days and trades above it comfortably, there are strong technical bear forces, which would make market to test 4633. I believe, 4633 should act as strong support technically.

If Market extends correction breaching 4633, then there are all possibilities that Market would correct up to 4200.

Click on the below link to get a technical view of Nifty.

https://investmentacademy.files.wordpress.com/2010/01/nifty112.jpg

Fundamental view

But, I would not leave it up to technical parameters only. Correction was anticipated from fundamental viewpoints also.

Let me brief you about fundamental part of it

This budget is going to be a tight rope walk for our Finance Minister.

Our deficits have soared to 16 year high, put together revenue and fiscal deficits it is now 12.86% of GDP.

Our GDP is of 53 lac crore

Our budget deficit is 4 lac crore and revenue deficit is 2.86 lac crore, put together it reaches around 6.86 lac crore.

Below table shows it. It’s taken from finance ministry web site.

Don’t forget to look at last column, which shows that our revenue deficit has ballooned 137% year on year and Fiscal deficit has widened 109% year on year.

Click on link for large image: https://investmentacademy.files.wordpress.com/2010/01/govt-finances.jpg

If you are under impression that world across Govt’s have built up deficits to stem economic and market fall, why do we need to worry?

Let me show you another picture, which should open your eyes.

Look at below table( if image is not clear, click on the link).

Central Gov’s total obligations including last several decades debt to finance fiscal deficits and revenue deficits, Govt’s pension, retirement obligations towards employees, Liabilities towards paying maturity benefits for Small Saving Schemes and PPF — put all these together.

It is gargantuan debt —–    30,62,912 crore

 It is 5 times of Govt’s revenue and 56 % of GDP.

 If I add States liability together it is gigantic 43,56,781 crore

 It is more than 7 times to Govt’s revenue and 82 % of GDP.

 In 2000-01 Centre’s liability was 11.68 lac crore, from there it has tripled to 30.62 lac crore in last 9 years.

   Click on link for large image: https://investmentacademy.files.wordpress.com/2010/01/cetnters-obligations.png

Even after studying above figures you are unclear about how this would put us in trouble and why it would be difficult for our Finance Minister to continue with such a large deficits?

Have a look at below table

IMF says debt-to-GDP ratio of advanced countries to rise by 20 percentage points in 2009 – – biggest upturn in decades

June 21, 2009

 

Click on the link for large image: https://investmentacademy.files.wordpress.com/2010/01/debt_gdp-ratio_us_china_uk_june112009.jpg
   
       

Our debt to GDP ratio is 5th largest among G20.

 And look at our neighbour China, its debt to GDP ratio is mere 21.6% against are gargantuan 88.9%. I do not think we deserve to be named along with China.

 If we get into second phase of crisis, Can govt come out with spending spree? Surely not.

 Such a dire state of finance hardly leaves any space for extra spending.

 In coming years, Govt would be willing to sell more of her assets to generate the liquidity.

 I believe the Picture is clear to you. This is a FISCAL DISASTER.

 I have no hopes from Budget and recent market correction may extend if some courageous actions and policies are expected.
 

Regards,
Dhaval
Investment Academy | Baroda | 098255 28815
Blog: Http://investmentacademy.wordpress.com

Fat 50 % in a month!!!!

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April 17, 2009 6:54 PM

Dear Investor

Indeed, my core client group made fat 50 % -70 %( in last 1 month), since I wrote you on March 20. I wrote to all of you on 20th March that Bear market rally is approaching faster. Sensex was 8950 on that day, it delivered fat 26 % returns from that day in less than 1 month. But, stocks have run up a lot. Especially, Midcaps, got doubled in 1 month!!!! Yes, 100 % return in a month.

Did you miss the bus??

No. Heck no. Opportunities are there. The only condition is, you need to be ahead the curve.

It leads to again the same old but new question: What next?

Will this rally last longer? Or Will fizzle out from recent high?

Any short answer is difficult now at this level. To answer let us have a look at facts first

n rally started when very few could anticipate hence lots of money waiting outside for 10-15 % dip to enter

n market has reached to overbought zone

n market has rallied 39 % from the base of 8100

n fundamentally, as I had explained in last mail, some raw data has started showing improvement on the back of effects of stimulus packages declared last year and on easing credit situation. China has shown significant improvement in credit expansion, this has raised hopes that growth engine may resume again

n We have also seen improvement in commodity prices on the back of market recovery and news that US, UK and Japan started printing currency.

Now, What Next?

Those, who missed the entire rally expecting it would be a 10-12 % rise from the low and will again come down, should wait, now. There could be 2 scenarios going forward. (1) As market has run up a lot, it may correct now in next week and may come down to the level of 9900 and in further correction upto 9500 in 15 days to 1 month and from there market may resume uptrend again. (2) since lots of money waiting outside, any minor correction may tempt them to enter the rally and hence fuelling the rally to next highs and this may help market to extend the rally up to 12000 -12500 before it corrects significantly.

In both the situation, market is likely to remain in uptrend and on lower side, market may go up to 12500 and on higher side up to 14500. Hence, use the said levels to enter in the market keeping potential risk and volatility of the market in mind, keep hawkish eye on trend and price instead of value and what analysts are saying, you may mint good money.

Which scenario we are into right now that only market can tell us as days unfold next week.

Does this mean that we are out of recession, deflation and bear market? Why those big terms are out of focus suddenly?

For sure, world is not out of economic problems. I had explained reasons in my March mail, why a rally will resume even in bad economic situation? I have attached my March mail for your reference.

Updates on recommended investments:

GILT fund: G-sec yields have come down hence those who invested on top might have reached to break even or in profit. Use this opportunity to exit from G-secs. Govt has unprecedented borrowing

schedule this fiscal, of the historical amount of Rs. 300000 crore. This plus fiscal deficit generated by new govt. will put pressure on yields.

Gold: Gold has come down from the high of $1000, there are strong supports at $835 and $ 820. Use this as an opportunity to accumulate it. Do not think for a moment that Gold’s bull market is over.

Gold is correcting on the back of news that IMF will sell gold, but it is very small amount just 400 tones, just 20 % of only India ’s yearly consumption. Also, IMF need permission from several authorities,

Will IMF get that nod this year or not, is also to be seen.

Renuka Sugar: It went up to 111. Nice fat 54 % return in 3 months from the day of recommendation. I recommended it on 73.

More updates in next mail.

Regards,

Dhaval Shah

Investment Academy | Baroda | 09825528815

Alert: A Fat rally is about to end

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September 23, 2009 4:35 PM

Please Note that You will now get mails from my personal ID: investmentacademy

Dear Investor

You must have made bundles in the past 1 month rally, if heeded my advice.

I expected 17000 level by end of September, when I wrote on 12th August 2009. Market is just 100 points away from that level.

I advice you to exit at this level with whatever profits you have.

As per my expectation, Sensex has given 17 % return. If you followed my stock specific advice, which I mailed on 18th August (attached here for your reference), has given very good returns in 1 month, as shown in below table.

Stock Current price Target 1 Target 2 Stop Loss Current Market Price % Return
ICSA 171 190 277 155 202 18 %
Orchid Chemical 104 142 167 96.80 170 63 %
Satyam 102 129 170 95 120 17.6 %
Everonn Systems 355 368 400 – 499 315 400 13 %
Alstom Projects 504 540 646 473 570 13 %
DLF 378 385 547 349 430 14 %

What Next?

I believe, Globally markets have run up a lot and may correct in Oct and Nov. We may see another leg of rally in 1st Calendar quarter of next year. But, it is too early to predict that because in between we have many crucial events and data to watch for. Meanwhile, keep your cash in Liquid G-sec only mutual funds.

As per the cycle studies, another round of fierce downside should start any time from end of 2009 to mid of 2010, which may take markets back to 2008 level and even below that. But, do not jump to short the market, wait for my signals.

Dow : As per my expectations, Dow is very near to 10000 mark. I would advise NRI clients to be cautious and may start exiting as there will be plenty supply near 10000.

Regards,

Dhaval Shah

Investment Avade,y| Baroda | 09825528815

A big Fat Rally- stock recommendation

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August 18, 2009 1:05 PM

Dear Investor

I promised in last letter, last week, to give my stock recommendations, which can rise 30% to 50 % in next 1 to 1.5 months.

Below mentioned are my recommendations.

Stock Current price Target 1 Target 2 Stop Loss
ICSA 171 190 277 155
Orchid Chemical 104 142 167 96.80
Satyam 102 129 170 95
Everonn Systems 355 368 400 – 499 315
Alstom Projects 504 540 646 473
DLF 378 385 547 349

Pl Note: I expect these targets to get achieved by the end of September. You can buy at Current Market price, ideally you should book 50% profit on achievement of 1st target. If market goes down and Sensex breaches the level of 14480.90, exit from all the stocks. Otherwise, you can remain long with the stop loss mentioned in table for stocks.

I will post my updated strategy further as and when required.

Dow : I expect Dow to reach close to 10000 mark into mid of September.

Regards,

Dhaval Shah

Investment Academy| Baroda | 09825528815

A Fat rally

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August 12, 2009 12:26 PM

Dear Investor

I wrote in my 22nd Jun letter about the uptrend in the market and predicted 16500 level of sensex. Market reached close to 16000 level, just 500 points away from my target and pulled back.

Today, I am going to write about the most bullish scenario, I see unfolding, you have ever experienced in short time frame.

I expect, Sensex(market) reaching 17000 to 17500 level in as short as 2 months time. That is a fat 13% to 18% rally in 2 months. It may become fatter, if market corrects further to the level of 14500 before resuming uptrend. This is a possibility. But, in all you have next 2 months to make bundles out of the market.

But, what if you can earn 30% to 50% and even more in next 2 months!!! I know, what is going in your mind. Dhaval, are you mad? 50% in 2 months!!!. Is this a ponzy scheme? Heck, no.

Where does this opportunity lie? Why would it be so fat? And, How to earn oodles of money in this big move?

Some Facts, First

World Economy

First, let’s talk about World Economy, where the mouth of this big bull run, within Bear Market, is. : Lately, Economy, banking, blue chip companies 2nd quarter results and Housing data have started showing that Economies world across have started stabilizing and govt’s stimulus packages have been able to hold the decline. It is difficult to judge, for How long economies would remain stabilized? But, In short term, we will have more such data reveling that stimulus packages worked and recession is behind us. Unemployment rate would fall less and would look stabilized. Back on this reports, markets across the boundaries can stage a big rally.

Economists studying cycles suggest that short term cycle has turned positive. It is a 5 to 8 weeks cycle and signaling bullish trend. From long term cycle study analysis, now is the time when this bear market rally should enter into last legs, most probably after this leg which should end somewhere end of sep or 1st week of October, an another leg may be left. But, I would not advise to play that last leg as it would be severe in volatility and a sharp rally would be followed by sharp decline too.

When Bears will strike back?

I know, you are worried most about them. You are scared before putting every long trade of bears eating out your capital even.

I believe, we are about to enter into severe bear market after this rally followed by a few sideways days. For sure, 2008 was a welcome drink, a full course will be served in 2010. Fall may extend into 2011 and 2012 taking DOW as low as 3500. You read it right. Sounds illogical?

We have started experiencing stimulus money into many asset classes, which have started driving commodity and stock prices up. Very soon, you will see Central Banks hiking interest rates to curb inflation. Rising commodity prices and Oil will lead us back to inflation era for short while, followed by Great Depression. From Cycle study point of view, this time we have oil & commodity cycle of 30 years and depression cycle of 80 years, both are ending in late 2009 to early to mid 2010. This is brewing perfect storm for markets. We may see surge in all commodities and oil as commodity cycles are peaking out in late 2009 to early to mid 2010.Oil may peak out at around $100 and may rally a bit more. Increase in commodity price will spike the inflation, which may end the easy liquidity available due to rise in interest rates, which in turn will spoil the party giving way to depression.

I will write at length on that when it will be due some months down the line..

Now, coming to the opportunity of earning 30% to 50% in next 2 months!!!!!

I see this opportunity in Midcap stocks. Most frontline stocks have run up to their 50% to 65% retracements of entire fall. Sensex has retraced close to 60% of fall. But, many quality midcaps, with robust order book, relatively good QoQ results are trading even below 23% retracement or just tad above 23% and below 38% retracements!!! Remember, stock which has fallen 50%, requires 100% upside to recover the fall. Stock which has fallen 80%, Rs. 100 stock has fallen to Rs. 20, requires 500% rise to recover fully. Opportunity lies here. Even just 20% retracement could mean a fat 30% to 50% rally.

Wait for my hot recommendations until next week.

Updates on Recommended investments:

Gold : I alerted last week to hedge or exit positions for short term as Gold may correct to the level of $808 to $820 before resuming great bull run.

Shree Renuka Sugar: You are sitting on 153% return. Hold on it. Sugar has now started catching fire. It is still 70% down to its inflation adjusted peak.

Check your mailbox, next week, for my stock specific recommendations.

ABOVE MENTIONED ARE MY PERSONAL VIEWS.

Regards,

Dhaval Shah

Investment Academy | Baroda | 09825528815

Fat 50 % in a month!!!!

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April 17, 2009 6:54 PM

Dear Investor

Indeed, my core client group made fat 50 % -70 %( in last 1 month), since I wrote you on March 20. I wrote to all of you on 20th March that Bear market rally is approaching faster. Sensex was 8950 on that day, it delivered fat 26 % returns from that day in less than 1 month. But, stocks have run up a lot. Especially, Midcaps, got doubled in 1 month!!!! Yes, 100 % return in a month.

Did you miss the bus??

No. Heck no. Opportunities are there. The only condition is, you need to be ahead the curve.

It leads to again the same old but new question: What next?

Will this rally last longer? Or Will fizzle out from recent high?

Any short answer is difficult now at this level. To answer let us have a look at facts first

n rally started when very few could anticipate hence lots of money waiting outside for 10-15 % dip to enter

n market has reached to overbought zone

n market has rallied 39 % from the base of 8100

n fundamentally, as I had explained in last mail, some raw data has started showing improvement on the back of effects of stimulus packages declared last year and on easing credit situation. China has shown significant improvement in credit expansion, this has raised hopes that growth engine may resume again

n We have also seen improvement in commodity prices on the back of market recovery and news that US, UK and Japan started printing currency.

Now, What Next?

Those, who missed the entire rally expecting it would be a 10-12 % rise from the low and will again come down, should wait, now. There could be 2 scenarios going forward. (1) As market has run up a lot, it may correct now in next week and may come down to the level of 9900 and in further correction upto 9500 in 15 days to 1 month and from there market may resume uptrend again. (2) since lots of money waiting outside, any minor correction may tempt them to enter the rally and hence fuelling the rally to next highs and this may help market to extend the rally up to 12000 -12500 before it corrects significantly.

In both the situation, market is likely to remain in uptrend and on lower side, market may go up to 12500 and on higher side up to 14500. Hence, use the said levels to enter in the market keeping potential risk and volatility of the market in mind, keep hawkish eye on trend and price instead of value and what analysts are saying, you may mint good money.

Which scenario we are into right now that only market can tell us as days unfold next week.

Does this mean that we are out of recession, deflation and bear market? Why those big terms are out of focus suddenly?

For sure, world is not out of economic problems. I had explained reasons in my March mail, why a rally will resume even in bad economic situation? I have attached my March mail for your reference.

Updates on recommended investments:

GILT fund: G-sec yields have come down hence those who invested on top might have reached to break even or in profit. Use this opportunity to exit from G-secs. Govt has unprecedented borrowing

schedule this fiscal, of the historical amount of Rs. 300000 crore. This plus fiscal deficit generated by new govt. will put pressure on yields.

Gold: Gold has come down from the high of $1000, there are strong supports at $835 and $ 820. Use this as an opportunity to accumulate it. Do not think for a moment that Gold’s bull market is over.

Gold is correcting on the back of news that IMF will sell gold, but it is very small amount just 400 tones, just 20 % of only India ’s yearly consumption. Also, IMF need permission from several authorities,

Will IMF get that nod this year or not, is also to be seen.

Renuka Sugar: It went up to 111. Nice fat 54 % return in 3 months from the day of recommendation. I recommended it on 73.

More updates in next mail.

Regards,

Dhaval Shah

Investment Academy | Baroda | 09825528815

Cheers:Stealth bear market rally approaching faster

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Dear Investor

In my trail mail, I had shown the 2 probabilities for market from here.

  1. markets continue their decline from here and may fall further 20-25 % from here
  2. markets turn positive on the back of winding of record short positions built across the world and pose a decent recovery and than again decline sharply to form newer lows

since then markets have rallied.

Gradually, perspective is building up for the interim rally ( Bear Market rally) in the market. What is bear market rally? If we track the history, in 1930’s depression, US market fell sharply in 1929, in 1930-market staged bear market rally going up by 44 % and again formed newer lows in 1931.

Fundamentally – we have seen many measures taken by govt. world across in 2008. And normally there is lag of 8-10 months between announcements of measures and real effects seen in economy. Now is the time, when we will soon start observing the effects of stimulus packages and relief packages. ON the news of that markets will recover from here. Like auto sales has gone up, SBI’s home loan at 8% and car loan at 10% alluring buyers. This and temporary halt of more negative news flow will prepare a ground for bear market rally. This rally may last for 3-5 months and may retrace 35 % to 50 % of its decline. It’s a nice fatty profit opportunity. But, Crowd will make a mistake, considering it a bull market and participating with both the hands.

Most important recent development, making even stronger case for the rally, is that central banks have started printing money. UK announced it in 1st week and now US confirmed announcing buy back of $300 bn treasuries. What is the effect of printing money? Since, world’s credit conditions are like neighbor thy beggar. To get big stimulus packages financed from rich countries and financial institutions is becoming difficult and practically impossible. The only other way is to print money to meet the committed announcements.

Now, when you print more money that means more money in the financial system and to spice it up, we have very low rate of interest(like US has 0.25 %) that means more money and lower interest rates will raise the demand for goods and commodities that will result into higher commodity prices and lower value of currency. When commodity prices go up, with that all commodity linked assets’ prices also tend to move up and with that we see those higher prices of assets(like products of companies, real estate etc…) getting factored in market, staging a bull rally.

Has this point come? Has market resumed for bear market rally?

My take- for sure we are very near to start of bear market rally. There are 2 possibilities. First, we could be well in the bear market rally wherein the recent bottom stays and market keeps on going up to stage bear market rally. Second, market dips again to retest the recent lows or to form the new low and then resumes the rally. I will confirm as the levels are breached.

Also read the techno-fundamental perspective:

As stated in last weekends analysis and newsletter, following the Dow’s Friday close at 6626 that the Dow Jones Index had now fulfilled its bear market target of 6,600 as per the analysis of 20th Jan 2009 and illustrated by the chart below. The primary focus hence forth was to “position for a bullish spike higher” that would CONFIRM the bear market low, and negate the secondary far less probable overshoot target of 5,700 to 6000. This occurred on Tuesday which saw the first of a series of BUY TRIGGERS both on the Intra day charts and then on the Daily time frame chart that confirmed the preceding weeks Bear Market Low and set in motion the anticipated spike that took the Dow up 12% by the end of the week to close at 7,224.

Charts Courtesy of Stockcharts.com

The Stealth Bull Market is Born

As I warned of several months ago, do NOT pay attention to the fundamentals, they are IRRELEVANT AT MARKET JUNCTIURES. Stock markets that rally on bad news are SENDING you a STRONG SIGNAL, for the market MOVES AHEAD of any POSITIVE fundamental news or data, which is why stocks have soared by 12% in just one week despite the catastrophic economic data that many now see as the beginnings of the Great Depression II, which my analysis of October 2008 discounted and contained the strategy for accumulating towards the final stages of the current bear market that was forecast to extend towards 6,600 in terms of price and Mid 2009 in terms of time, which hence brought into play the possibility of a downside overshoot to 6,000 which I more or less discounted last weekend on Dow close of 6626.
However You Do NOT BUY a Falling Market, You wait for the Buy triggers as illustrated by last weeks price action, and warned off in last weekends analysis.
“Having now fulfilled the primary target of 6,600 the next phase of the strategy is therefore towards accumulating on buy price triggers in advance of what I consider will become a multi-year bull market, which appears contrary to many analysts.”8th March 2009 – Dow 6626.

Now watch ! How this STEALTH bull market will consistently be recognised as just a bear market rally to sell into and NOT to accumulate into. All the way from 6,600 to 7,600 to 8,600 and even beyond, the move will be missed by most as consistently bearish rhetoric and data will ensure only the smart money accumulates, for the small investor has now become Conditioned to the Bear Market Rallies of 20% and subsequently plunges to fresh lows. Many, many months from now, with stocks up 30%, investors will then WAIT for THE BIG CORRECTION, THE RE-TEST to buy into the apparent BULL Market , Well these investors will still be waiting as stocks pass the 50% advance mark, AGAIN only those that will have profited are the hedge funds and fund investors (Smart Money) WHO HAVE BEEN ACCUMULATING , as I elaborate upon next.
Hedge Fund Fraud on Investors and Tax Payers

The markets ARE manipulated, once you as a small investor come to agree with this statement then you can take the necessary steps to prevent yourself from being wiped out by ALWAYS keeping this in mind that Manipulated markets WANT you to act in a certain manner at certain times, they want you to buy into the latter stages of a bubble as the manipulators distribute, and the market manipulators want you to SELL into Market Bottoms and early bull rallies when the manipulators are accumulating.
Who are the market manipulators ? Today it is the Investment banks, investment funds, CEO’s (stock options) and last but not least HEDGE FUNDS that created the stocks bubble through leverage of X20 or more that subsequently bankrupted the banks that were driven insane by short-term greed with trillions of dollars of liabilities which have NOW been fraudulently dumped onto the tax payers. I have not heard a single story of a hedge fund manager losing money, not one! They have BANKED their profits ! The losers are their investors who held on and the banks who leveraged them up to the tune of tens of trillions, and in the final instance the Tax payers who are being FORCED to bail out the bankrupt banks to the tunes of tens of trillions!

The hedge funds HAVE PROFITED FROM THE CRASH – Because they manipulated the bubble higher and then manipulated the crash, HOW ? Its in plain sight, they sold the banks short into price oblivion, remember Bear Stearns ? Hedge funds shorted the stock and then pulled their money out i.e. caused a run on the bank and its collapse. Hedge funds manipulated the markets by magnifying the crisis of confidence. Targeting bank after bank after bank whilst raking in huge returns as I have repeatedly warned over a year, as our very own HBOS fell victim to hedge fund shenanigans in March 2008. Unfortunately whilst the FSA regulator talked the talk about doing something about it they in actual fact did NOTHING! as March, turned into April, April into May and eventually along came Septembers CRISIS. Had the regulators acted then the close call with Financial Armageddon of September 2008 could have been averted as Hedge funds would have been forced into a strategy other than picking off the banks one by one! This just confirms that the regulators on both sides of the Atlantic do not have a clue as to what they are doing and probably never will as they are always playing catchup to the market manipulators.
The bursting of the bubble after the pools of manipulated monies have taken their cash off the table has subsequently wiped out the value of the all stocks to bargain basement levels. However this now means that the unregulated hedge funds are at it again accumulating towards the NEXT mega STEALTH bull market. Why is it a stealth bull market ? Because everyone, and I MEAN literally everyone is CALLING THIS A BEAR MARKET RALLY TO AVOID BUYING INTO ! Everyone has given up. When in effect THIS IS HIGHLY PROBABLY THE MARKET BOTTOM !
Stealth Bull Market Targets

My original analysis called for an initial 30% rise from the bottom into year end 2009 , so far we have seen a 12% spike higher in one week, therefore despite the inevitable correction from an overbought state, the forward overall trend will continue to maintain an UPWARD BIAS, off course 30% was a best guesstimate made BEFORE the market bottomed, so we may see a substantially higher year end level which will become much clearer once we witness the quality of corrections against the trend and how the market copes with inevitably much worse economic news. To get the latest state of the Stealth Bull Market – Make sure to subscribe to my free newsletter. Most investors memory is at this moment in time fixated on drawing upon the experiences of last October and November’s volatile price action, where 10% rallies soon evaporated into fresh bear market lows, which is exactly the kind of mind set necessary for a STEALTH Bull Market, which allows the STEALTH BULL market to stealthy continuing rallying whilst only the manipulators and smart investors accumulate.
Yes I am aware of the on-going corporate earnings contraction forecasts that SUGGEST stocks should be going MUCH lower, though some of the estimates of where the market should be heading to are pretty ridiculous, were talking ridiculous price levels of as low as DJIA 400! However the stocks bull market was also elevated to Dow 14,000 on the basis of corporate EARNINGS forecasts that suggested that Stocks should go MUCH HIGHER. So what does that tell you ? It tells you that what you tend to read is always suggestive of the JUNCTURE being FAR AWAY, NOT imminent. IT IS ONLY LONG AFTER THE FACT, AFTER MARKET’S HAVE ALREADY MOVED THAT THE JUNCTURE IS RECOGNISED AND ANALYSIS PRESENTED AS TO WHAT WENT WRONG WITH THE SCENERIO THAT CALLED FOR MUCH LOWER PRICES.
Similarly wide spread consensus today exists for SHARPLY LOWER CORPORATE EARNINGS going into 2010 THAT MUST MEAN MUCH LOWER STOCK PRICES. However this earnings analysis that is so abundant today, should have been presented OVER A YEAR AGO ! in October 2007 I.e. at or near the market peak! So that ordinary investors could actually ACT on the information. NOT NOW AT THE MARKET BOTTOM ! We are again seeing REASONS as to WHY INVESTORS should avoid investing INTO the Stealth Bull market!, precisely as we all witnessed what was effectively Bullish propaganda during the final stages of the Stocks Bull Market, so we are NOW witnessing what is effectively BEARISH propaganda in the final stages of the Bear Market. Now, don’t get me wrong, I am not saying that the analysis is not genuine, what I am saying is that IT IS IRRELEVANT! As it is always much easier to build a scenario in favour of a trend that has been in force for sometime that has generated much data and analysis in support of why it exists and therefore it should continue for much longer, then to “Think Out side of the Box” to disregard bearish data that has been magnified by the growing consensus that really should have been known more than a year earlier in favour of the technical picture that as the analysis of October 2008 stated, that a. we are NOT heading for a Great Depression (as I will further elaborate upon in the Q&A below) and b. The stocks bear market HAS fulfilled its bear market objectives in terms of price and time, more than anyone could have been imagined a year ago!
But now, even after the stock price wipeout to below Dow 6,600. The analytical weight bearing down of overwhelming information is that in support of a continuing meltdown for even as long as several more years towards Dow targets such as 4,000 or even as low as 400 by what can only be termed as perma-bear psychology. Remember Dow 14,000, NO ONE PAID ATTENTION to the perma-bears at that time. As the market was firmly in grip of the perma-bull psychology which was eyeing Goldilocks levels of 18,000. There were even calls that China ‘s SSE at 6,000 should go much higher, despite being on a P/E of about 60. The uber bullish media played on the fact that the NASDAQ peaked on a P/E north of 100, so much for the earnings factor! In fact I pointed out in November 2007 that investors should get out of china AT SSE 6,000 and to forget SSE 9,000, its going straight down towards an initial target of 4,000. Instead today earnings is brought to the fore to support a further collapse of stock prices to what is commonly referred to as reversion to below the mean, AS AN EXCUSE TO FALL FOR THE TRAP OF PERPETUATING A DISTANT JUNCTURE BOTH IN TERMS OF PRICE AND TIME. Therefore repeating the same mistakes that occur at ALL market Junctures ! Which is DATA is PUT AHEAD of PRICE ! To which my answer is this – What are you trading ? Are you trading the Corporate Earnings Data or the actual Stock Index ?
The only thing that actually matters is the PRICE ! NOTHING ELSE! and I mean NOTHING ! Not earnings, Not fundamentals. Listen to the PRICE or you WILL miss the Stealth Bull Market!
Down Side Risks

Off course there is a downside risk to the new fledgling bull market, as I warned of in February 2009 that their exists the chance of a overshoot to the downside towards a target of 5,700 to 6000, forecasting is a measure of probabilities where you watch to see of if the market shows strength or weakness against the original forecast which is the primary purpose of the forecast. However, as I pointed out last weekend at Dow 6626, this secondary target is an overshoot to the existing target which has been fulfilled, and therefore the expectations were for a bullish spike higher that would give the necessary buy triggers. The buy triggers and bullish spike higher OCCURED during the subsequent week which CONFIRMED the market bottom. Now what the stealth bull market needs to do is put an even greater distance between itself and the market low to further reinforce the market bottom. Therefore the strategy is of accumulating on reinforcing buy triggers, whilst liquidating on non confirming bearish triggers that reinforce the secondary target. I am afraid there is no crystal ball, therefore one needs to rely on re-acting to the actual price movements as manifested by the buy and sell price triggers and price trend against the forecast scenerio. At this point in time the market is strongly confirming the bear market low. However the short-term overbought state does necessitate corrective action towards the support zone illustrated above to provide for a healthy stealthy bull market.
In Summary – We have in all probability seen THE stocks bear market bottom at 6470, which is evident in the fact that few are taking the current rally seriously instead viewing it as an opportunity to SELL INTO , Which is exactly what the market manipulators and smart money desires. They do not want the small investors carrying heavy losses of the past 18 months to accumulate here, No they want the not so smart money to SELL into the rally so that more can accumulated at near rock bottom prices! Therefore watch for much more continuous commentary of HOW this is BEAR MARKET RALLY THAT IS TO BE SOLD INTO as the Stealth Bull Market gathers steam.
By Nadeem Walayat