Category Archives: New Year Forecasts

Where to invest in 2014? Real Estate? Equity? Precious Metals? ….

Standard

Where to invest in 2014?

Real Estate? Share Market? GOLD & Silver? FD/Bonds? Or Cash?……??

2013 has remained highly volatile. Let us review few important instances of 2013…

Ø On 1st Jan, 2013, Sensex was at 19,580 and as we are near to year end, it is trading around 21000. Less than 10% gain in a year, a flat year for the market.

Ø India GDP dipped to decadal low of 4.4%.

Ø Indian Rupee dipped to low of 68.80 raising concerns of instability in trade and commerce.

Ø Govt bond yield dipped to 7.25% and rose back to over 9%.

Ø Inflation (WPI) fell to 4.58% from high of above 8% for most part of last 2 years. But, that bottom proved temporary. Inflation pulled back to range of 7-8% range of past few years.

Ø Gold prices made low of close to Rs. 25000, then went up over Rs. 32000 and now trades near Rs. 28300. Internationally, Gold price is 40% down around $1200 from high of $1920.

Ø India also witnessed many reforms in last year. FDI in retail was such a momentous decision. It took many sessions of parliament and vigorous efforts of Govt to pass it but even after long time, it did not receive any proposal.

Ø New Governor Raghuram Rajan soothes both the markets-debt & equity, contains rupee fall, takes dynamic steps to bolster financial market.

Ø Rating agencies downgrade India one notch above junk status and warns India, if Current Account and Fiscal deficits are not arrested, it will downgrade India to junk status.

Therefore, as we enter in 2014, we have hard pressed memories of high inflation, high real estate prices, high gold prices and high interest rates of 2013 in mind. Probability of trend reversal in these asset classes are very high in 2014.

Hence, the question resurfaces is

Where to invest in 2014?

Which investment carries higher safety and security in year 2014?

Which investment will outperform inflation in year 2014?

Let us assess each of asset class….

Real Estate

Real Estate is driven by Capital. At height of bull period, real estate capital gets into below vicious circle.

Vicious Circle of Capital

Capital Pushes the Prices Price pushes the land cost Requirement of Capital elevates the construction cost

Price Pushes Consumers away Investors with surplus money roped in Results in construction delay

Capital fails to generate the returns.

From common man to High Net worth Individuals, analysts to professional and builders, all agree that prices in Real Estate sector has zoomed to the moon, far from affordability.

Below Chart shows difference between Price and Affordability in MMR(Mumbai Metropolitan Region). Same picture mirrors in rest of the markets.

The widening gap between the prices and affordability is pointing towards the speculative market practices. Even if the interest rates comes down to 9% level, still the prices need to undergo correction to the extent of 33% to attain the efficiencies of June 2009 . – From report of Liases Foras

Today, Two views are prevailing in Real Estate market. First Bull period is over in Real Estate and Second Real Estate will see recovery post General Election. Ironically, in both the situations, possibility of earning from real estate is insignificant in 2014.

In 2014, few factors will resist price rise in Real Estate sector. They are…

v In 2006, the median Home price was 5 years median salary of an individual, that has reached to 12-15 years median salary now. Main culprit is inflation. In last few years, inflation has outrun the wage hikes and median salary rise(increments) and that has created large gap between price and affordability. Inflation was benign in 2004-2007 years.

v In 2014, huge money will flow out of Real Estate market towards election funding.

v Interest subvention scheme(80:20) has been banned by RBI. That helped to create artificial demand for some time in past year.

v Now, there are more sellers than buyers in market,. There is inventory overhang of 2-3 years in top 7 cities in India. (NCR, Mumbai, Chennai, Banglore, Hyderabad, Pune, Kolkata)

v New Governor is destined to disinflate markets contributing inflationary expectations.

v As per the report of Liases Foras, by end of 2012, 52% sales of properties were sold to Investors. Historical data shows us that in any real estate market when more than 50% of sales are absorbed by investors, it is a signal of coming downtrend in sales and prices. In immediate preceding year of Dubai & US real estate crash, investors owning assets out of total sales, had reached to above 50%.

v 31% of projects launched in past 12 months have already witnessed deferred possession dates compared to their earlier made commitments

Let me also present some quotes from recent Real Estate report published by Liases Foras & other inputs

“This has been one of the worst years in the realty sector… sales are down, inventory is high and prices have peaked,” says Pankaj Kapoor, managing director, Liases Foras, a real estate research firm. “There is a wide gap between affordability and pricing, which is why sales are not happening. There is no oversupply. It is just that supply has out-priced consumers.”

The absorption for the January-September 2013 period declined by over 11 per cent, according to the data provided by research firm PropEquity. Out of the committed supply for this year, only 46 per cent was delivered till September.

Inventory had never earlier been as high as this year. At the end of the second quarter this year, says a Liases Foras report, the Mumbai Metropolitan Region had an inventory of 58 months(Close to 6 years), NCR 41 months(Close to 5 years), Hyderabad 32 months(Close to 3 years), Pune 31 months and Bangalore 30 months. (Inventory denotes months required to clear the stock at the existing absorption pace. A healthy market maintains eight months of inventory.)

In an attempt to build their image, developers, whose credibility has been hit by delay in deliveries, have been focusing on advertisements this year. “Property and real estate witnessed 30 per cent growth in TV advertising during January-June 2013 in comparison to January-June 2012,” data by Television viewership measurement agency (TAM) show.

Read articles and reports, if interested in details..

http://www.business-standard.com/article/companies/real-estate-rebound-on-shaky-ground-113122500778_1.html

http://www.liasesforas.com/Reports/CapitalDrivenRealEstateanditsconsequenses.pdf

Therefore, I believe Real Estate is the sector you should avoid for investments in year 2014. Not only it will underperform but there are potential chances of negative returns to the tune of -20% to -30%.

Gold-Silver

After eleven years bull period, 2013 will be the first year for precious metals to close in red. It will be interesting to watch bullion market in 2014.

I recommended Gold in 2007 when it was trading around $700 and asked investors to exit when it reached above $1800( In Indian Rupee it was around Rs, 28000). Since then, I am bearish on Gold, expecting at least $1100 before next leg up.

You can read my past articles on Gold on my below blog links..

https://investmentacademy.wordpress.com/2008/09/08/lets-learn-from-crude-to-gain-from-gold/ – when I started recommending Gold

https://investmentacademy.wordpress.com/2008/09/05/over-sixty-economists-agree-gold-headed-above-2200/ – over 60 economists expected Gold to surpass $2000 level

https://investmentacademy.wordpress.com/ – refer my latest recommendations on Gold

Broad participation in Gold market started from 2007-08 and still continue to be, though at lower pace. But, it looks that fundamentals are weakening to support Gold-Silver’s uptrend.

Upon inspecting Gold’s historical bull runs, we find that under following circumstances Gold-Silver performs…

When Inflation is high

When Govt looses people’s trust and confidence in Govt.

 When currency depreciates more than expected and destabilises nations’ economy

When nation is at war

 When Central Bank prints too much money relative to the historical and economic growth standards.

There could be more reasons, too, but above are chief of them.

Above parameters somewhere in play since 2008 and were supporting Gold’s bull run. But, their strength has been weakening for some time now.

In developed world, inflation is less than 2% even after unprecedented printing, economies of western world have stabilised, showing slow & gradual recovery, confidence in Govt has been restored to some extend in developed economies and war situation between North Korea and South Korea and Iran-Israel have been averted at least for some time now. These developments have caused Gold to fall 40% in last 1 year and still continue to be in downtrend.

Gold may breach $1100 level but somewhere in 2014, I believe Gold will bottom out.

Hence, in 2014, Gold will either fall further or will remain in range.

Canadian Imperial Bank of Commerce expects Gold to fall to $1000 level from here, Goldman Sachs targets $ 1050 and Standard Chartered, UBS and Citi estimates it to be $1200-$1250.

Broadly, Gold and Silver does not have much to offer to investors in terms of returns in year 2014.

Read More:

http://www.business-standard.com/article/markets/gold-prices-finally-fell-in-2013-113122500530_1.html

http://economictimes.indiatimes.com/markets/commodities/gold-falls-set-for-biggest-yearly-loss-since-1981/articleshow/27796424.cms

http://www.business-standard.com/article/markets/gold-imports-likely-to-drop-40-to-500-tonnes-in-fy14-113111700214_1.html

http://www.business-standard.com/article/markets/global-gold-prices-likely-to-drop-further-in-2014-113122600198_1.html

Equity Market

Yes, after several attempts Sensex is back above 21000 level but portfolio of investors are still 40-50% down from last 21000 level seen in Jan, 2008.

Question is, Should we invest at this level?

Actually, discounting last 5 years inflation in Sensex, it should be anywhere around 30,000-33,000. It means, if Sensex reaches to around 30,000 level, it can be said that now Sensex has reached to 2008’s 21000 level.

Will Sensex reach to 24000? 28000? 30000?

It is very difficult to say, whether market will continue upside and will conquer 24000-28000 levels or not in 2014. But, I can say with confidence that we do not have yet proper conditions for sustainable bull market. For sustainable bull market, you should have low inflation and low interest rate. At present, both parameters are on opposite side.

Low inflation leaves higher disposable income in the hands of consumers and lower interest rates induce buyers to purchase capital assets. At present, higher inflation is leaving no or minimal surplus income to consume additional and higher interest rates are discouraging buyers from purchasing capital assets.

Therefore, it seems unless inflation cools and interest rate comes down to the level, where it generates risk appetite to start new businesses, employ more capital, expand capacity and enables higher consumption, market will keep gyrating in broad range. It may go up to form new and all time highs but sustainability will remain a question.

The best option is to keep investing small amount through SIP in large cap funds. But, do not invest lump sum in Equity at this level.

Selectively, I expect, after long downturn, commodities like Sugar and Coffee have prospects to outperform other assets in 2014..

Now, we are left with a question, where to invest in 2014?

I believe, 2014 is a year where safety and security will precede other parameters. Safe- money invested in sound company/asset/fund and Secure- the instrument of investment is liquid, redeemable.

Therefore, I recommend debt products this year. It includes Fixed Deposits, Bonds(many Tax Free bond issues are on offer), Secured NCDs.

But, the best option is short term bond funds of Mutual Fund, they are dynamic in nature.(i.e. they intend to offer accrual income but when interest rate falls, they have flexibility to capitalise gains).

Current YTM(annual return) is around 10.50% from short term debt mutual funds, it is quite higher than offered by Fixed Deposits coupled with tax benefit.

I prefer Debt Mutual Funds over Fixed Deposit from 2 perspective. One Debt Mutual Fund attracts lower tax(Flat 10% long term capital gains tax(after 1 year) or 20% with indexation benefit, in both the cases tax liability comes far lower than Fixed Deposit) and Second it does not deduct TDS.

Capital Protection Funds also look attractive from here. I will write on that shortly.

Please feel free to ask question…

Products on offer

Product Interest RateUpto Monthly Min. Inv Opens on Closes on Tenure Tax Status TDS Rating ListingOn Registrar
HUDCO Tax Free Secured NCB -II 9.01% 10-01-2014 10 yrs Tax Free NO AAA
IIFCL Tax Free Bond 8.66% 5000 09-12-2013 10-01-2014 10 yrs Tax Free No AAA BSE Karvy Computer
HDFC Recurring Deposit 8.75% 2000 12-23 months Taxable Yes AAA
9% 2000 24-36 months Taxable Yes AAA
HDFC Double Money Plan(Doubles Money) 9.15% 20000 95 months Taxable Yes AAA
NHB Tax Free Bonds 8.51% 5000 30-12-2013 31-01-2014 10 Yrs Tax Free NO AAA NSE Karvy
SREI Infra Secured NCD 11.50% |11.75% 10000 30-12-2013 31-01-2014 3years | 5 years Taxable No AA-(Stable) BSE,NSE
Indian Railway Tax Free Bonds 8.48% 5000 06-01-2014 20-01-2014 10 Yrs Tax Free NO AAA BSE,NSE
Network 18 Fixed Deposit 11.96% 10000 1 year Taxable Yes

.

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

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.

Advertisements

2010 – New Year Forecasts

Standard

Dear Investor

Let us review last year’s recommendations first.

I recommended new year investments, on 31st December, 2008 for Year 2009, were Gold and Sugar.(Link: https://investmentacademy.wordpress.com/2008/12/ ) You are aware of the How high prices of these two commodities have soared..

Gold has given 56 % return and recommended Shreee Renuka Sugar gave whopping 400% returns in a year.

I also timely informed you about the Stealth Bear Market Rally in march( Link: https://investmentacademy.wordpress.com/2009/03/ ) from where market got doubled.

2009 turned out very profitable year for my investors..

How the Year 2010 would be from the investment perspective?

Brief :

If, I am sure about something to happen in 2010.

There are 2 things 1. Dollar will fall and 2. Gold(Bullion), Agricultural Commodities will go up.

Central theme of 2010 would be Dollar’s fall and later all central banks will intervene to devalue their currencies to support exports. In short, all currencies would lose value, but against what? Against Gold, the Real Money, against natural resources, against tangible assets.

Risk would be redefined – holding dollar would become RISK. Yes, some emerging currencies would rise against dollar but they all will continue to fall against Gold. I have given detailed explanation and evidences on this topic in this letter.

I have also shown in detail about looming food crisis in 2010 across the world. With all probabilities, we will face severe hyperinflation in 2010.

Equity Markets

George Soros is expecting double dip recession. Mobius is expecting 20% correction because of large money raising by companies through IPOs in Asian Markets.

I believe, correction may come for short period and may not come. But, as long as , Governments and Central banks are committed to flood the world markets with Cheap currencies and large fiscal deficits, party should continue.

Like Citi bank CEO Charles Prince said before 2008 crisis—, … “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. …We’re still dancing”

Governments and Central Banks are committed to take all steps to keep stimulating economy at any cost. Their primary objective is to avoid deflation and recession. They will continue to take all aggressive and unprecedented steps to ensure that.

Forecasts for 2010:

1. US Dollar will continue to fall through out a year

2. Gold will continue upside, reaching a high of at least $1500 in 2010

3. A year 2010 will be remembered for hyperinflation

4. Looming risk of Interest rate futures

5. Treasuries and Bond market may fall badly in 2010 in US

6. Eastern European nations to face debt crisis

7. Easy money can drive markets higher unless interrupted by central banks

Now, let’s understand all forecasts in details

Forecast #1

US Dollar will continue to fall through out a year

Some statements from eminent personalities

Announcer:

America’s debts are unsustainable.

“The long-term deficit and debt that we have accumulated is … unsustainable. We can’t keep on just borrowing from China or borrowing from other countries. We have to pay interest on that debt … and that means we’re mortgaging our children’s future.”

— President Barack Obama

Washington’s favorite solution is to pay its debt with cheaper dollars.

“One way to solve the debt problem is to … devalue the dollar and … inflate the currency. That’s the cruelest tax of all.”

—Senator Judd Gregg

U.S. federal reserve chief Benjamin Bernanke has declared war on the dollar.

“The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Benjamin S. Bernanke,
Chairman, U.S. Federal Reserve

The entire U.S. government has declared war on the dollar.

“It’s the … official policy of the central bank and the United States and to … debase the currency.”

— Jim Rogers,
Co-Founder of the Quantum Fund

Foreign investors are declaring war on the dollar.

“The current crisis is not only the bust that follows the housing boom … it’s basically the end … of a 60-year period of continuing credit expansion based on the dollar as the reserve currency.”

George Soros,
The world’s #1 global investor

“Holding dollars today represents risk … without … reward!

Joseph Stiglitz,
Nobel Prize-winning economist

Global leaders are declaring war on the dollar.

“The costs of a dollar-dominated system to the world may have exceeded its benefits. The dollar should be replaced by a new global reserve currency.”

Zhou Xiaochuan,
Governor, China Central Bank

“The rise of emerging economies such as China and Russia will prevent the U.S. dollar from remaining the world’s only reserve currency.”

Nicolas Sarkozy,
President of France

The united nations has declared war on the dollar.

The United Nations has now issued a game-changing report that recommends a new … artificial reserve currency

Let us understand it in real economic terms: Why dollar will fall?

An explosive rise in debt

just in the last 12 months, the U.S. federal deficit has exploded from $454.8 billion in fiscal 2008 to $1.58 trillion in fiscal 2009 …

This year’s deficit is nearly 350 percent larger, three and one half times last year’s level, and last year’s deficit was already the largest in history, in dollar terms.

Power Shift from west to East

which is now being reflected in the all-critical shift out of the dollar as the world’s reserve currency. Put yourself in the shoes of an international investor. Even if you can choose the right dollar investment, the falling dollar is slashing your returns. You’re fed up. You’re anxious to diversify out of the dollar. But you’re not the only one.

Central banks are doing the same. Remember: The U.S. dollar is not only the money we keep in our bank accounts or carry around in our pockets … it has also been the money foreign central banks keep in their reserves.

Cycle studies

Study of Cycles, based on centuries of data, leads to the conclusion that the dollar won’t hit bottom until the end of 2012. That’s three more years of potentially traumatic declines..

Hidden Debts

(Larry of Uncommonwisdomdaily writes)

Everyone talks about US debts to Japan or to China. But US foreign debts go far beyond that. According to the U.S. Treasury Department, US’ total liabilities to foreigners are now 7.9 trillion dollars. Not just to countries like China and Japan, but also to eurozone countries, to countries in Latin America … not just to central banks … but also to private companies and individuals. It’s a massive mountain of foreign debts that everyone just takes for granted.

Another, even larger example of hidden debts are the true obligations of the U.S. government

But there again, the problem goes far beyond that. In addition to the gargantuan funded debts you see on the government’s balance sheet, Washington has another $104 trillion in unfunded obligations like Social Security, Medicare, Medicaid, Veteran’s benefits, government pensions.

That means that, for every dollar of debt on the government’s balance sheet, there are another nine dollars in debts that are not formally accounted for. And to make matters worse, the first wave of Baby Boomers are turning 63 this year. The trillions owed to those 76 million people are no longer just a balance sheet entry.

Washington is going to have to begin paying out that money starting now!

It all comes down to what President Obama himself admitted: The debts our country has racked up are gargantuan and unsustainable. Or more to the point, they are patently unpayable. It will simply be impossible for our government to ever get out of debt by any conventional means.

They have taken radical steps: Look at how they bailed out Bank of America, Citigroup, Merrill Lynch, and AIG. Look at the trillions they poured out in loans, investments, and credit guarantees. Look how they’ve given the Fed new superpowers

They have indeed eased the debt crisis, but only by creating still another crisis, the dollar crisis, which is just beginning

In other words, they’ve transformed the Wall Street debt crisis into Washington’s debt crisis.

All told, each and every household in America is now indirectly responsible for over 1 million dollars in government debts and obligations.

US’s got …

— The officially recognized national debt at $11.8 trillion.

— Unfunded national obligations of $104 trillion.

— Another $9 trillion in cumulative deficits over the next ten years.

— Plus, another trillion dollars for health care reform, no matter what bill finally makes it through Congress.

Grand total: $125.8 trillion.

Even the White House admits we’re looking down the barrel of one-trillion-dollar deficits for years to come. That’s why I say that, no matter how you look at it, this debt mountain is patently un-payable. It will never be paid off, other than through some form of default

There are two ways a government can default on its obligations:

The first way is simply to stop paying its bills and obligations. That’s highly unlikely, for obvious reasons.

The second is to default on the sly, by paying off creditors with something of cheaper value.

With cheaper dollars, dollars that are worth less … have less buying power than today’s dollars.

But this is not just theory. It’s practice. And the idea of debasing the currency in order to delay a debt collapse certainly was not invented by Washington. Default by devaluation is a recurring pattern of history.

Since the dawn of civilization, every major nation that has been saddled with un-payable debts and obligations has ultimately resorted to currency devaluations in some form.

In ancient Rome, the Roman denarius was the dominant currency not only of the Roman Empire but even beyond its borders. But when Rome began to fall so did its currency.

From its heights in the fourth century A.D., the Roman denarius plunged to 1/50 of its former value — in just 13 short years … and then ceased to exist.

More recently, the fate of the British Empire and the fate of the British pound were also intertwined. In the late 19th century, London devalued pound sterling and then did it again in the early 20th century. From its heyday at the height of the Empire to its low point in recent years, the pound ultimately gave up 80 percent of its value.

So you can see this is a well chartered path: The rise and fall of empires; the rise and fall of their currencies. What is most alarming, though, is what happens when countries lose all semblance of discipline and when they are ultimately punished by market panics.

In Germany after World War I, the government printed money in massive quantities to repay war loans and reparations with worthless currency, and to help industrialists to pay back their own loans. The Reich mark plunged from 4.2 to the US dollar at the outbreak of World War I to 1 million per dollar by August 1923 … and then to as low as three trillion to 1 in the final panic before the rise of the Nazi regime.

In the past 10 years, the dollar has progressively lost 36 percent of its value against other major currencies and 75 percent of its value against gold. And in the years to come, it’s bound to lose much more.

I repeat: A wholesale currency devaluation is the only politically expedient way to address a debt crisis as massive as we face today. Bush, Obama and Bernanke have already committed us to this path

Evidence?

Look at last year, when the U.S. economy was threatened by systemic risk from the credit crisis. Bush and Bernanke were faced with two simple choices: Either to step aside and allow a sudden, savage depression, or … to spend countless sums that the government didn’t have — that it would have to borrow and print and that would almost surely lead to a future erosion in the value of our money. They chose the latter. They chose to sacrifice our future for the expedience of the present.

And this year, when faced with similar choices, the Obama team did the same. They spent hundreds of billions of TARP money. They passed a second stimulus bill AND a $300 billion omnibus spending bill. And then, just for good measure, they bailed out the automakers.

There’s your evidence: Two very different presidents — one, Republican, one Democrat — chose the same path, the only politically viable path. The easy way out: Both presidents chose to fight the impending depression by borrowing and printing money … while both knew full well that this has set us up for an even more devastating future crisis, the crisis of the dollar, the crisis of inflation.

This isn’t just an economic discussion we’re having here. It has real and dramatic consequences for everybody right now. When the value of a nation’s currency falls by half, its people’s money goes only half as far; their cost of living doubles.

When a currency falls 70 percent … 80 percent … 90 percent or more as in the examples we just looked at, the people who earn it and spend it have to pay up to ten times more for many of life’s necessities. Food, energy and more.

The saddest victims are folks on fixed incomes — who worked scrimped and saved for a lifetime to ensure they’d have enough to live on in retirement, for instance. Suddenly, the nest egg they thought would provide a comfortable life for the rest of their lives is barely enough to keep body and soul together.

Any way you look at it, this kind of currency devaluation is like government-sponsored theft

Unfortunately, the majority of savers and investors don’t have a clue. They don’t believe it can happen … that it is happening right now.

John Maynard Keynes said it all 79 years ago …

“By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose.”

And this is precisely what I believe they’re doing.

Absolutely! In public, Washington will never admit to it, but both President Obama and Fed Chairman Bernanke are actively waging their secret war on the dollar right now as we speak.

And as an investor, you have no choice but to take defensive steps starting immediately.

Step one,

at a bare minimum, I believe that everyone should own a bare bones minimum of gold… I’d say 10 percent of your investment portfolio

Even if you want to be aggressive, I would not go beyond 25 percent. There are too many other contra-dollar opportunities you’d be missing.

How high do you think gold could go?

I have three gold price scenarios:

First,

I believe that, no matter what, gold is going to hit its inflation-adjusted high of $2,300 an ounce — at a minimum. But that assumes an orderly decline in the dollar, and an orderly process of phasing in a new world reserve currency of some kind

In scenario two,

that process is more chaotic and muddied, with rising global uncertainty regarding the outcome. In that scenario, despite sharp pullbacks, you could see gold reaching $3,000 an ounce.

In scenario three,

markets take over, panic sets in and investors lose any semblance of trust in process of transitioning to a new reserve currency.

In that scenario, all bets are off! The dollar could overshoot dramatically to the downside, while gold and other natural resources could overshoot dramatically to the upside. But I wouldn’t be shocked to see $5,000 an ounce for gold.

So in my lowest scenario for gold prices, I think your bullion has the potential to double; probably more. And in a worst case scenario for the dollar, you could be looking at a 500 percent return on your bullion positions.

Step 2

Is to diversify beyond gold to other natural resources. Washington’s war on the dollar will drive up a wide range of tangible assets and companies backed by those assets, assets that have intrinsic value and assets where the dollar crisis is manifesting itself.

Look! Over the last decade we’ve seen tech companies go bust … we’ve seen the leveraged mortgage markets go bust … and we’ve seen the financial sector collapse. So savvy money now wants tangible assets and resources that provide the world with the basic necessities of life. It’s where people like Jimmy Rogers are investing. It’s where the surviving hedge funds are going. And most importantly in my opinion, it’s where the giant sovereign wealth funds are shifting a lot of their money, especially China

Just look at the pace of China’s acquisitions of natural resource companies:

In 2002, it made only one deal. 2003, 3 deals. 2004, another 3 deals. 2005, 11 deals. It doubled again in 2006, more than doubled, to 25 deals. 2007, 33 deals. 2008, 53 deals.

And not only are there more deals, the average value of each deal is growing by leaps and bounds. These figures also include related companies, like railroads that ship resources.

These deals are being done all over the world, in Brazil, Peru, Venezuela, Australia, Africa — you name it … and in virtually all commodities — from oil … to soybeans … copper … to lumber, to rubber, wheat, corn, timber, you name it. Make no mistake about this. The combination of the disappearing dollar and the huge demand for natural resources from Asia is unlike anything this planet has ever seen before.

And it is a key reason copper has surged 94.6 percent this year … oil has roughly doubled from its lows in January of this year … sugar has exploded higher, up over 105 percent … even cocoa is jumping, up over 30 percent this year.

Forecast # 2

Gold will continue upside, reaching a high of at least $1500 in 2010

As I said in Brief, every nation is in process to cheapen its currency to sustain the exports. And, this is not the post crisis phenomenon. It has been in process since decades.

At any given time in the last few years, whichever currencies have been strongest have screamed about it. A year ago, with the euro at $1.60, Germany – a huge exporting country – basically said it wanted a cheaper euro. It got it: The euro fell to $1.23 within months. The UK wanted its highflying pound, then $2.10, to fall to boost domestic and foreign demand for its goods. It got its wish: Within months, the pound had plunged to $1.45. And on it has gone for a few years now.

As all the countries with unwanted strong currencies move to cheapen them by printing more money, slashing interest rates, or just “talking” it down, the question remains, just what are those high currencies declining against?

If you answer, “against the currencies of their main trading partners,” well, yes, this is true. But it is only temporary. If they are successful in this, then the trading partners don’t want their own currencies to go too high, so at some point they try to cheapen them.

It has become an endless round-table game, except to call it a “game” is a little perverse. All holders of currencies suffer in the decline of the purchasing power of their money. You go lower, but then your partners go even lower, and then you have to cheapen your money yet more… It’s an endless cycle that really doesn’t help the world economy in the long run.

But there has been one money that has benefited from this huge trend. Moreover, it has benefited by giving profits of hundreds of percent –minimum – to anyone on Earth who has owned it since 2000. It is the oldest money of all, a money that has been used long before any of the other currencies were even dreamed about and will be used long after all of them are memories in history books. It is a money that cannot be printed at will and artificially cheapened. And even though all central banks own it, it is the creature of none of them

Let us check, How Gold has performed in different currencies, strong and weak?

The South African rand has been the strongest currency so far this year. It is a big gold producer. Yet look the price of an ounce of gold since 2000 in terms of the rand.

Now let’s go to another currency which has risen sharply this year, the Aussie dollar.

You see the pattern. Now, gold has not gone up in value against the Chinese yuan (+200%) as much as it has against the U.S. dollar (+260%). Still as great as the Chinese economy has been over the past decade, as powerful as it has become, gold has still soared in terms of the yuan.

It has soared against the Canadian dollar (+178%), the Russian ruble (+360%), the Mexican peso (+417%), and even the Swiss franc (+155%), a currency that has long been regarded as the strongest on Earth.

In case of India

  2000 2009 % Returns
Nifty 1800 5000                   277..7778
Inr/usd 36 46    127.7778
Gold rate in US $ 280 1100 392.8571
Gold 1 gram Rate in INR 323 1620 501.548

 

Look at the above table, Gold has given the best return in last 9 years and still you have few believers. At the same time,this is an evidence of our currency devaluation efforts.

You can talk about or trade the merits of one paper currency against the other, but they’ve all been falling against gold.

Put another way, every person on Earth over the past decade, regardless of where they live, would have made hundreds of percent in terms of their own currency had they just owned gold.

Most people do not hold mostly gold and silver in their portfolios. With this fact, I believe that both have much more to rise before their bull markets are finished. Well into the future we’ll see the phenomena of the average person piling in, as happens towards the end of every bull market… We’ll see the same action in gold; it’s just a matter of time

Forecast #3

A year 2010 will be remembered for hyperinflation

India is facing severe draught situation. We had 22% less rain in 2009. Govt declared 252 districts draught hit out of 600. Our reservoirs are only at the 59% level of the capacity.

The kharif, or summer monsoon, crop output – mostly paddy – is projected to be down by 20%.

Our food inflation index is on 19.7% rise.

The rains have not been playing truant in India alone. Seven other countries have been severely hit by drought and are staring helplessly at the resultant agriculture crisis.

Parts of the United States, China, Australia, Cambodia, Argentina, Kenya and Somalia are reeling under its effects – the difference being only in their ability to cope. Even in Europe, television pictures show townspeople, driven to distress by temperatures in the 40s Celsius, using public fountains to cool down.

In September, Before the crisis management plan rolled out, even the economist and Prime Minister Manmohan Singh had shown signs of alarm. “No one can control drought and it is a severe drought,” he said in a public speech.

DNA india reports about India’s worst drought since 1918.

Worst drought, worse to come
Rajesh Sinha / DNA
Monday, September 28, 2009 2:10 IST

New Delhi: The monsoon season leaves India not just with the worst drought in decades but a sombre forecast for future.

In terms of affected area, this year’s drought is the worst since 1918. Conditions surpass the one in 1972, considered the worst post-independence drought year.

The Indian Meteorological Department (IMD) reported deficient monsoon, with rain shortfall at 22%.Moreover, the area under deficient rainfall covers 56% of the country’s districts,the IMD said.

When there is more than 10% rainfall deficiency, and more than 20% of the area is under dry weather, it is an “all-India drought”. A “widespread drought” is when there is more than 10% deficiency, affecting more than 20% of the geographical area of the country. This year, there’s 20% rainfall deficiency which has affected more than 50% of the area.

In the past 123 years, there have been 25 years of widespread drought. In terms of spread, the one in 1918 was the most severe, affecting more than 70% of the area, followed by 1899 (68.4%), 1877 (59.4%), 1972 (52.6%) and 1987 (47.7%). In 2002, rainfall deficiency was 19%, and 29% of India was under drought.

Recent studies predict that rainfall will deteriorate in the coming years. The melting of glaciers in the Arctic circle seems too far away to cause concern to Indians, but according to BN Goswami, director of the Indian Institute of Tropical Meteorology (IITM), Pune, freshwater melting from Greenland’s ice sheet could weaken the monsoon to the extent of threatening perpetual drought.The Greenland ice melt will add more freshwater to the north Atlantic Ocean, making it less saline. This could weaken the circulation of ocean waters and temperature variations over the Indian subcontinent — two key factors that could also weaken the summer monsoon, says Goswami.

Another study recently published in Nature said global warming may increase the frequency of a new breed of El Nino weather events, called El Nino Modoki, which would lead to rise in the frequency and intensity of droughts in India.

A study by Centre for Atmospheric Research at Indian Institute of Technology Delhi in May says the monsoon is weakening. Researchers found that long rainy spells — more than 2.5 millimetres of rain daily for more than four consecutive days — decreased across the country over the last 50 years while short and dry spells — less than 2.5 mm rain daily increased.

In March, an article in Down to Earth magazine said while parts of the country are receiving extreme rainfall, overall moderate rainfall that benefit crops, is decreasing. Another study in Current Science said the number of days of more than 12 mm rainfall have decreased by 78% in the past 53 years.

In March, a Purdue University found that climate change could influence monsoon dynamics and cause less summer precipitation, a delay in the start of monsoon season and longer breaks between rainy periods. The South Asian summer monsoon — critical to agriculture in Bangladesh, India, Nepal and Pakistan — could be weakened and delayed due to rising temperatures, it said.

Govts world across are showing reports of higher crops than expected. But, reality would put world in deep pain this year.

When i wrote last year about Agri commodity prices would soar and recommended was before the worst drought India, US, China and Australia faced. We had further worst snow fall and blizzards to make agricultural situation worse.

Drought situation across the World

The worst drought in half a century has turned Argentina’s once-fertile soil to dust

http://www.cnn.com/2009/WORLD/americas/01/29/argentina.drought/

Australia is suffering the longest running and most severe drought on the planet

http://www.circleofblue.org/waternews/2009/world/australia-drought-water-warning/

September 16, 2008
USDA said in a report: MIDDLE EAST & CENTRAL ASIA: Continued Drought in 2009/10 Threatens Greater Food Grain Shortages

http://www.pecad.fas.usda.gov/highlights/2008/09/mideast_cenasia_drought/

Droughts put north China on red alert

http://news.xinhuanet.com/english/2009-02/02/content_10753141.htm

No bumper wheat harvest in Punjab

http://www.indianexpress.com/news/no-bumper-wheat-harvest-in-punjab/450519/0

Food shortages loom in India

http://www.news24.com/Content/World/News/1073/507b5c3345b443c5b39ac7620db6b5a5/08-10-2009-06-10/Food_shortages_loom_in_India

There are many more reports and facts showcasing looming food crisis across the world. Even UN has reported that if proper plans and financial allocations not made, we will face food crisis for decades to come.

UN’s Food and Agriculture Department said Food crisis not yet over, warns top UN rights official

http://www.un.org/apps/news/story.asp?NewsID=30128&Cr=food+crisis&Cr1=human+rights

I will write about my last 4 forecasts in Forecasts 2010 – Part-2, shortly.

Updates on New Year recommendations

Standard

February 12, 2009 12:22 PM

Dear Investor

I believe you would have invested in recommended stock and commodity, I gave on 31st Dec as New Year Recommendations. Thus, it becomes imperative to have updates on the same.

Gold: Gold price was Rs 1322 per gram on 31st Dec, the day I recommended. As I am writing today, it is trading at 1440. Return of 8.9% .

Has anything changed since I recommended Gold, which can change the up path of Gold price? Absolutely not. Instead we have more reasons now to buy and hold gold.

Another package of $ 800 bn will be passed soon in US, increasing money supply. In Geithner’s own statement, he said “ This is a dangerous dynamic, and we need to arrest it” while unveiling banking rescue plan — admitting extreme uncertainty about financial stability . IF I say in Rogers words, US administrators are good friends of Gold. They design the policies assuring Gold is benefited out of that. Could it be declaring packages! Could it be spending tax payers’ money recklessly!! Could it be raising debt to unprecedented level!!

I still recommend buying Gold, if not entered yet and hold on it. Short term target is $1150 by June’09. Though do not stick to the time period since volatility and uncertainty can increase or decrease the time difference.

Sugar ( Shree Renuka Sugar) : Its price was RS. 73, on 31st Dec the day it was recommended. As I am writing today, its quoting Rs 85. Thus, return of 16.4%..

As I wrote in trail mail that sugar is the cheapest commodity on earth in inflation adjusted price terms. It’s trading at 1/10 of its high.

Latest updates from Agriculture ministry: India will produce 40 lakh tones less sugar this year reducing estimate from 220 lakh tones to 180 lakh tones and close to 100 lakh tones less than last year’s record production of 284 lakh tones. India’s domestic consumption demand hover around 230 lakh tones and do not forget that India is second largest producer of sugar, largest consumer of sugar and also has significant export share in world market. This year world is in major deficit of sugar. This is rare because India will be producing less sugar than it would need for domestic consumption, for the first time in four years.

I still recommend buying Shree Renuka Sugar, if not entered yet and hold on it. Sugar price is expected to go up to Rs. 25-26 from current price of Rs. 21-22 end of first half of 2009 and higher in second hald of 2009, once election is over.

G-sec Funds: G-sec long and Short term funds have delivered approx. 1-1.5% return. Further rate cuts are expected before govt. goes for election.

Crisis is still not over in the world. Though India has started resisting further decline in line with Global markets, but if situation in US deteriorates further as anticipated, govt. will have no option but to reduce rates further in line with other developed and developing nations to sustain the GDP rate of 6-7 % in next fiscal.

Regards,

Dhaval Shah

Investment Academy | Baroda | 09825528815

2009 can be highly rewarding!!!

Standard

January 12, 2009 1:53 PM

Dear Investor

I believe, we all wished that New Year start on Good note and even end with a good note. But as said, time and tide wait for none, things happen when they are due, unraveling from emotions, wishes and feelings.

We had fierce Israel attacks on Palestine , weak and gloomy economic reports for 2009 and in India a big time corporate scandal of Satyam Computers. These all events have fueled dismal outlook to become worse as we progress further in

2009.

I read many reports forecasting outlook : 2009.

Let me share with you some common forecasts for 2009.

  1. weak dollar- weak against precious metals. You may see $ maintaining its level against major currencies since all are in same boat of zeroing interest rates, stimulating economy and to do what ever it takes to fuel the purchasing power of consumer. But since production of precious metals have not been increasing with the pace the money is being pumped in the economies world across it will lead to higher prices of precious metals, in particular Gold.
  2. rally in first quarter across the markets as markets are extremely oversold and need relief rally
  3. precious metals will shine again in 2009 as real returns turns negative and dollar devaluation against precious metals
  4. consensus is gaining that this is a real global economic crisis, we will have –ve growth in US, UK and Europe . Emerging Asian economies will continue posting around 5% GDP growth, mainly India and China
  5. We also have started hearing on Oil prices. A crude price around $40 is not sustainable. For Oil producing industry, current price is not justifying the production cost.. For deep ocean exploration site, oil extraction cost is as high as $80 per barrel. We may see sharp upward revision in oil prices.

Gold Update

I believe, this year Gold should shine again. I have few more reports confirming my views. Attached are the reports of CLSA – Asia ’s largest and biggest research house, and Credit Suisse. In their 2009 forecasts, both research houses have unequivocally confirmed higher Gold prices. CLSA has forecasted $ 3360 price of Gold by end of 2010. Current price is $850. Almost 400 % absolute returns in 2 years.

We have Jim Rogers, Marc Faber, CLSA, Credit Suisse, World Gold Council, UBS, and do not forget those 60 economists whose reports I had sent earlier, all these eminent investors, research houses are bullish on Gold. Interesting outcome, consensus target for Gold is now touching to $ 3000 from earlier $ 2250.

I strongly believe, for my investors this year is going to be highly rewarding. Better than even 2008.

Regards,

Dhaval Shah

Investment Academy | Baroda | 09825528815

New Year recommendations

Standard

December 31, 2008 4:48 PM

Dear Investor

Today is the last day of the gone by year. As I always say, as an investor, one should keep asking, what next? Where is the next profit opportunity?

First, update on recommendations given in last year:

Gold outperformed all asset classes, in ETF terms it has given 27% returns.

G-sec funds have given 25 % returns.

It gives satisfaction to me for achieving intended results.

New Year Updates:

Remain invested in both the asset classes.

Gold : As US and world across, central banks are cranking money printing presses and against that the supply of precious metals have not increased with the pace of money pumping, it will drive the Gold prices much higher. If we believe to Marc Faber, he is seeing the price target of $ 3000 in next few years. Attached report elaborates the same.

G-sec Funds : US and Japan are done with interest rates cut, they reached to Zero to stimulate their respective economies, rest of the world will follow and since India has still very high rate of interest, almost highest in BRIC and developed economies, India has to lower interest rates further. This can yield higher returns in G-sec funds.

New Year Recommendation: Sugar

Why Sugar:

Sugar is extremely low priced commodity among all against inflation adjusted prices. If we compare the sugar with inflation adjusted prices of last 60 years, its quoting at 1/10th of its high. — Marc Faber’s attached report says.

There are other factors too, like we have sugar deficit in world this year, since wheat prices were high in last crop season and sugar prices were down to earth and since last year was the 3rd and last year of sugarcane season(normally sugarcane crop can be taken for three years in row and than farmer changes the crop) farmers have chosen to sow wheat on sugar this year thus leading to lower output of sugar for next 2 years at least.

I am not counting the other benefits of the sugar industry as its all products are in very high demand like molasses, ethanol, using waste to generate electricity etc etc.

There are demerits too, it’s a seasonal industry, industry has normally crushing season of 240 days a max, it is also subject to government intervention time and again and it’s a commodity.

Upon searching best sugar company, where crushing season lasts more than average and capacity utilization is done 365 days, having capacity and tie up for producing and selling ethanol, having very good relations with farmers thus ensuring enough sugarcanes with required quality on time and the geographical situation and also presence in politically least intervened state,

Shree Renuka Sugar is the company having all said characteristics, I believe it is poised to get the maximum benefit from coming upturn in sugar sector.

I recommend to buy Shree Renuka Sugar.

I wish you all Very Prosperous and Happy New Year

Regards,

Dhaval Shah

Investment Academy| Baroda | 09825528815