November 8, 2007
Dear Sirs / Ma'am
As I write this to you, I look back at the last 75 days in complete bewilderment . I look back and ask myself would I had done what I did once again if I knew the final outcome . Given the circumstances at that stage my answer unfortunately is a resounding yes. Yes I would have pulled out and yes I would have sat out (believe you me I am not justifying my actions)
The market both in India and Globally is making me ponder all the time. When and not whether the impact in India shall arrive is now a guessing game. As indicated in my note of August 3, 2007 that interest rate cuts by the Fed are not the solution to the credit seizure in the United States of America (now globally). I had even stated that the said cuts will lead to problems which are bigger than what anyone can imagine. I think the first phase of that is playing out namely –
1) A weaker Dollar
2) High OIL Prices in Dollar Terms
3) Higher Commodity Prices in Dollar Terms
The second phase that will play subsequently is
1) Higher Inflation Globally – likely to affect countries like us who are trying to control the currency
2) Higher or stable Interest Rates both in India & Other Emerging Markets
3) Tighter Credit conditions Globally which shall eventually lead to liquidity drying up
4) The above three shall lead to Slowdown in demand Globally (in my opinion will not get set off from demand in India or China)
5) The final Capitulation of the Yen Carry Trade if $:Yen breaks below 110
The second phase consequences are that all Assets shall get repriced and in my opinion southward except for Gold and Oil.
In fact, I've been of the view that the Fed has been walking on a tightrope, or pushing water with a fork, for some years now.
What I will offer--and this isn't about the immediate reaction tomorrow--is that the pressures are cumulative and the agendas run deep. So, just because the lower dollar, or the multi-billion dollar write-downs or stealth stagflation isn't headline news, that doesn't mean that we're free and clear. And yes please spare me this decoupling story, I do not think that I can buy that argument.
I am all about respecting the price action rather than deferring to it, which is precisely what I attempt to communicate in my notes. Have I been too cautious? Sure, I own that, but it's a fine line to balance---the near-term opportunities versus the broader implications. That's why I muse on the big picture while consistently watching the daily tells. There is no single answer--no one audience--as each player has a unique time horizon and risk profile.
We can debate the merits of the equity gains (the "measuring stick") but that's an academic discussion until, well, until it's not.
These are unique and interesting times and history will view this juncture with the wisdom and clarity of hindsight. Our job is not as fortunate as we're dancing in real-time. We'll always put our clear reasoning out there, for better or for worse, with hopes that it adds value in your life.
We may have lost this “Price” battle for now but getting them wrong once in a while is something that we have to take in our stride as advisors.
The Irony is that we got the sub-prime correct, the yen carry trade spot on, the climb in both Oil and Gold Correct but Hey Indian Equity – well at this point I have to say –
Maa Tujhe Salaam…. You wear the crown.
As far as India is concerned we need to be slightly worried since
1) We have managed inflation – 2.9% the last i saw which is a statistical joke
2) Export Growth to be hugely affected since our manufacturers have not built economies of scale (except a Reliance)
3) ITES Companies to start scaling down employment of fresh recruits – whether it will be offset by the financial sector , I think not
4) Real Estate – likely to see lesser investment ahead especially in Housing.
5) Domestic consumption story – in my opinion overplayed.
6) No fresh issuance of P-Notes may ensure that inflows may dry up for the next two to three months.
The way forward in my wisdom is at corrections to target specifically Capital Goods , Power & Banking ..with a caveat that the above portfolio has to be hedged with INVESTMENTS in GOLD.
Wishing You all a Very Happy Deepavali and a Happy New Year.
Thanks and good luck!
Regds
Dinesh Khemlani
As I write this to you, I look back at the last 75 days in complete bewilderment . I look back and ask myself would I had done what I did once again if I knew the final outcome . Given the circumstances at that stage my answer unfortunately is a resounding yes. Yes I would have pulled out and yes I would have sat out (believe you me I am not justifying my actions)
The market both in India and Globally is making me ponder all the time. When and not whether the impact in India shall arrive is now a guessing game. As indicated in my note of August 3, 2007 that interest rate cuts by the Fed are not the solution to the credit seizure in the United States of America (now globally). I had even stated that the said cuts will lead to problems which are bigger than what anyone can imagine. I think the first phase of that is playing out namely –
1) A weaker Dollar
2) High OIL Prices in Dollar Terms
3) Higher Commodity Prices in Dollar Terms
The second phase that will play subsequently is
1) Higher Inflation Globally – likely to affect countries like us who are trying to control the currency
2) Higher or stable Interest Rates both in India & Other Emerging Markets
3) Tighter Credit conditions Globally which shall eventually lead to liquidity drying up
4) The above three shall lead to Slowdown in demand Globally (in my opinion will not get set off from demand in India or China)
5) The final Capitulation of the Yen Carry Trade if $:Yen breaks below 110
The second phase consequences are that all Assets shall get repriced and in my opinion southward except for Gold and Oil.
In fact, I've been of the view that the Fed has been walking on a tightrope, or pushing water with a fork, for some years now.
What I will offer--and this isn't about the immediate reaction tomorrow--is that the pressures are cumulative and the agendas run deep. So, just because the lower dollar, or the multi-billion dollar write-downs or stealth stagflation isn't headline news, that doesn't mean that we're free and clear. And yes please spare me this decoupling story, I do not think that I can buy that argument.
I am all about respecting the price action rather than deferring to it, which is precisely what I attempt to communicate in my notes. Have I been too cautious? Sure, I own that, but it's a fine line to balance---the near-term opportunities versus the broader implications. That's why I muse on the big picture while consistently watching the daily tells. There is no single answer--no one audience--as each player has a unique time horizon and risk profile.
We can debate the merits of the equity gains (the "measuring stick") but that's an academic discussion until, well, until it's not.
These are unique and interesting times and history will view this juncture with the wisdom and clarity of hindsight. Our job is not as fortunate as we're dancing in real-time. We'll always put our clear reasoning out there, for better or for worse, with hopes that it adds value in your life.
We may have lost this “Price” battle for now but getting them wrong once in a while is something that we have to take in our stride as advisors.
The Irony is that we got the sub-prime correct, the yen carry trade spot on, the climb in both Oil and Gold Correct but Hey Indian Equity – well at this point I have to say –
Maa Tujhe Salaam…. You wear the crown.
As far as India is concerned we need to be slightly worried since
1) We have managed inflation – 2.9% the last i saw which is a statistical joke
2) Export Growth to be hugely affected since our manufacturers have not built economies of scale (except a Reliance)
3) ITES Companies to start scaling down employment of fresh recruits – whether it will be offset by the financial sector , I think not
4) Real Estate – likely to see lesser investment ahead especially in Housing.
5) Domestic consumption story – in my opinion overplayed.
6) No fresh issuance of P-Notes may ensure that inflows may dry up for the next two to three months.
The way forward in my wisdom is at corrections to target specifically Capital Goods , Power & Banking ..with a caveat that the above portfolio has to be hedged with INVESTMENTS in GOLD.
Wishing You all a Very Happy Deepavali and a Happy New Year.
Thanks and good luck!
Regds
Dinesh Khemlani
No comments:
Post a Comment