Forex (short for Foreign Exchange) is trading where the commodity is currency.
The return for the investor is rather the relative exchange value of one currency against another currency. Therefore forex trading is always expressed in currency pairs such as us dollars and uk sterling or us dollars and euros.
A Beginners Guide to the Forex Markets and the Euro
We all have heard of the European Union's adoption of the euro currency. This radical change has had tremendous impacts on the various financial markets. For instance, the different countries that have begun using the euro have seen substantial increases in their currency profile strength. They each had exhibited weaker economies than they do now.
Simple Tips To Target Bigger Gains Instantly
Enclosed we are going to give you a simple tip that many forex traders ignore in their pursuit of profits but if you learn it, you will increase your profit potential and enjoy greater currency trading success.
If you want bigger forex profits now then read on.
If you have a forex trading strategy it should have one aim and one aim only -
Making bottom line profits
To do this you need to get catch and hold the big currency trends that offer you the big profits and have the odds heavily in your favour when you enter them - and they don't come around often.
These trades only come around a few times a year in each currency, so the rule is:
Cut down your trading and bet big on the trades that offer you the most favourable odds.
Where Most Traders Go Wrong!
How To Make Money In Forex
As you might already know, forex is an acronym for foreign exchange -- is the international currency market where money is being sold and bought. Forex certainly is a new and exciting way to make money in the huge global currency market.
Making money in forex is very similar to stocks, options, or futures. You will be provided with a list of currency pairs each is coming along with graphs which you can select and trade. You can sell (or short) if you expect the graph to go down and you can buy (long) if you expect the graph to go up.
How Can I Make Money in Forex Trading?
When you buy a currency in the forex market, you are actually doing two trades. You are selling one currency and buying the other. You have known what currency you are betting for/against, as opposed to the stock market where you only need to know one stock.
Unlike stock trading, most online forex firms don't charge commission. They make money by giving you a worse spread then they get and by charging you interest on margin. This spread is usually two or three pips (explained below).
Margins are huge in currency trading; you can easily be accepted for 200 to margin on-line. Some forex firms will give you up to 400:1 margin. To be honest, there is very little regulation in this industry, which means you can move $2,000,000 worth of currency with only $10,000 in your account. You can even open an account with as little as $300.
Profits in forex are measured in "pips" or "points." A pip is 1/1000 of dollar. For example if you buy the dollar (USD) against the euro (EUR), and it went in your direction from $1.300 to $1.299, you have made a 1 pip profit. On a $10k order at full margin (200:1), this is equivalent to $50 in profit.
How To Make Money In Forex
As you might already know, forex is an acronym for foreign exchange -- is the international currency market where money is being sold and bought. Forex certainly is a new and exciting way to make money in the huge global currency market.
Making money in forex is very similar to stocks, options, or futures. You will be provided with a list of currency pairs each is coming along with graphs which you can select and trade. You can sell (or short) if you expect the graph to go down and you can buy (long) if you expect the graph to go up.
How Can I Make Money in Forex Trading?
When you buy a currency in the forex market, you are actually doing two trades. You are selling one currency and buying the other. You have known what currency you are betting for/against, as opposed to the stock market where you only need to know one stock.
Unlike stock trading, most online forex firms don't charge commission. They make money by giving you a worse spread then they get and by charging you interest on margin. This spread is usually two or three pips (explained below).
Margins are huge in currency trading; you can easily be accepted for 200 to margin on-line. Some forex firms will give you up to 400:1 margin. To be honest, there is very little regulation in this industry, which means you can move $2,000,000 worth of currency with only $10,000 in your account. You can even open an account with as little as $300.
Profits in forex are measured in "pips" or "points." A pip is 1/1000 of dollar. For example if you buy the dollar (USD) against the euro (EUR), and it went in your direction from $1.300 to $1.299, you have made a 1 pip profit. On a $10k order at full margin (200:1), this is equivalent to $50 in profit.
How Much I Can Earn?
Virtually, the limit is the sky. As much as how long you trade and keep earning. Trading will be within 24 hours 5 days a week. How fast you can earn is depending on the volatility of the market. If it is very volatile (moving ups and down quickly), you probably can earn a lot of pips if you are lucky.
However, average earning for professional trader is 100 to 200 pips a day that is equal to 100% to 200% return on investment. George Soros, the heart of inspiration for every forex trader, made a history in September 22, 1992 when he bagged US$1 Billion and ruined the Bank of England. This called The Black Wednesday.
What Do I Need to Trade?
The first thing you need to trade is a broker. Register with any of them and they will provide you a software platform that equip with a list of currency pairs, graph, technical indicators free to use. The broker usually provides you free practices by providing virtual money for you to practice enhance your skills.
There are two schools of thought like in stocks about how to make money in forex trading. On one side you have the technical, which are basically charts and other statistical methods that used to try and guess the market. On the other side you have the fundamentals, which study things like countries domestic product, interest rates, economic output, etc. to try and forecast currency movements based on these criteria.
Of course the best answer is always in the middle, using a combination of graphs and charts along with real world knowledge of political events and economic statistics to make the market more predictable for you.
If you want to learn more about mainstream technical analysis tools, in my experience, the most honest person who teaches mainstream technical analysis in the best way is Peter Bain (Forex Mentor). Whether Peter trades himself, and whether Peter ever made money in forex is definitely questionable. But if you want to get good education and overview of many different mainstream technical analysis tools, I think Peter is good for that.
Is It a Risky Business?
Is there any risk involved? Yes. Everything has risk whether it is involve time, life, money, etc. Risk unfortunately can not be avoided. No absolutely not, that's impossible for everything. But as any other thing else you can minimize risk and increase profit, that's how to make money.
I feel so grateful and lucky to be able to trade forex full time. Not only is it fun, and I feel passionate about it, but it's also monetarily rewarding, and it gives me freedom to do it from almost anywhere in the world. I hope to be able to share some of this luck and gratefulness with you. And truly from the bottom of my heart and my being, I am wishing you tremendous success and abundance in forex or any other business you do.
READ MORE........
TOMMOROW
Monday, March 1, 2010
Friday, February 12, 2010
"Subscribe to Large Cap Recommendation Service
You can sign up for StockSelect for juSo why are we doing this?
Because we have come to know that there are a lot of people who want to try StockSelect... but are hesitating just because of the "Rs 5,000" price tag.
We believe that once you sign up for StockSelect and start making money from our recommendations, you will see for yourself that what you pay for StockSelect is a tiny fraction of what you can make from it.
And there's absolutely no risk!
You can try StockSelect for 30 days. If you don't like it, get in touch with us before the 31st day, and we'll refund the full fee you paid. Fair enough?
For most investors, this by itself would make a good reason to subscribe right away.
But since we want to make it even better for you, we're now also giving away a lot more stuff (as you will see below) to make sure you benefit IMMENSELY from our service.
For starters...
st Rs 5000
This stock actually rallied after we put out a Sell recommendation!
We would like to point out that it is impossible to time the market, let alone the fact that someone can be perfect at it! We instead focus all our efforts on identifying stocks that offer an attractive investment opportunity as determined by our time-tested investment process.
When we do come across such a stock, we will tell you about it.
And when the same process tells us that the stock is over-valued, we will not hesitate to put out a Sell report, even though the market momentum is not in our favour!
From our experience we know that a disciplined investment process is far more likely to yield the kind of returns you and us are looking for than any other approach to investing.
Because we have come to know that there are a lot of people who want to try StockSelect... but are hesitating just because of the "Rs 5,000" price tag.
We believe that once you sign up for StockSelect and start making money from our recommendations, you will see for yourself that what you pay for StockSelect is a tiny fraction of what you can make from it.
And there's absolutely no risk!
You can try StockSelect for 30 days. If you don't like it, get in touch with us before the 31st day, and we'll refund the full fee you paid. Fair enough?
For most investors, this by itself would make a good reason to subscribe right away.
But since we want to make it even better for you, we're now also giving away a lot more stuff (as you will see below) to make sure you benefit IMMENSELY from our service.
For starters...
st Rs 5000
This stock actually rallied after we put out a Sell recommendation!
We would like to point out that it is impossible to time the market, let alone the fact that someone can be perfect at it! We instead focus all our efforts on identifying stocks that offer an attractive investment opportunity as determined by our time-tested investment process.
When we do come across such a stock, we will tell you about it.
And when the same process tells us that the stock is over-valued, we will not hesitate to put out a Sell report, even though the market momentum is not in our favour!
From our experience we know that a disciplined investment process is far more likely to yield the kind of returns you and us are looking for than any other approach to investing.
Markets are correcting. What to do?
So what should you do in an uncertain market like this?
The best thing will be to avoid selling the highest quality stocks in your portfolio for a fear of correction in their prices. Over time, good quality stocks bought at low valuations always go up in price. The only way to participate in their growth is by being invested at a level that does not cause you to lose sleep.
The worst seems to be over for the Indian IT sector. That is what we can infer from the performance of the top four IT companies during the quarter ended December 2009. These witnessed a sequential growth of 2% in their combined topline. And their profits grew by 6% QoQ.
As we have heard from these companies' managements, improving volumes coupled with stable pricing has infused a new confidence. Better customer sentiment emanating from previously plagued industries and geographies is also fueling new hopes.
However, when it comes to the stocks of most of the IT companies, valuations do not paint a rosy picture. With a sharp rise in stock prices over the last 9-10 months, most of the stocks from the sector are already factoring this recovery. Additionally, there is a looming concern of currency volatility impacting IT companies' margins going forward. Thereby it would be wise for investors to tone down their expectations from these stocks over the short to medium term.
Anyways, in a sharp turnaround of sorts, Indian markets were trading with gains at the time of writing. From being down around 265 points at one time, the BSE-Sensex recovered smartly. At the time of writing this, the Sensex was trading higher by around 100 points (0.7%). IT and realty stocks led this sharp upward move of the markets today. Other key Asian markets closed in the red, with losses seen in Hong Kong (down 0.6%) and Japan (down 1%).
As for the Indian markets, we at Equitymaster believe that after the sharp rise in stock prices in 2009, some uncertainty (correction) this year should be expected and not feared. Investors will do themselves a world of good by treating corrections as just a normal part of stock markets that will not do much in altering the long-term bull market that is India.
What would an economy be left with if the government encourages land prices to go up 10 times in 10 years? A property bubble would be the simplest answer. But for the Chinese economy, the problem is much deeper.
As per economist Andy Xie, more than 50% of the fiscal revenues of the Chinese state governments depend on the sale of land for new construction. Little wonder then that the banks have been induced to lend for purchases of the third and fourth houses by Chinese households. This has made new properties in China almost 100% overvalued, says Xie. Although the Chinese central bank has now resolved to tighten its monetary policy, the impact would be in terms of bringing down loans from 20 trillion yen last year to 17 trillion yen this year. Although significant in absolute terms, Xie believes that the tightening needs to get more aggressive. Otherwise, the Chinese property bubble could well go out of control.
Marc Faber is at it again. One of the most vocal critics of the US Fed's expansionary policies has once again argued that the US could default on its debt obligations or monetize debt and reduce it through massive inflation. "I'm convinced the US government will go bankrupt, but not tomorrow. And before they go bankrupt, they'll print money, and then you get high inflation rates, you have a depression and eventually they'll go to war," Faber is believed to have said in his most recent report.
And as a natural corollary to this scenario, Faber backs precious metals like gold as amongst his most favored investments. As he advices, "The risk is really not to own any precious metals at all."
Thus, while gold could be going through a bit of a lean patch currently, it might just be a temporary phenomenon and it is only a matter of time before it returns to its trend of being in a long-term bull market!
An interesting article in a leading business daily points out to the fact that it is not true that oil price deregulation will stoke inflation. If anything, it will lead to efficiency in consumption and a greater search for alternatives. In fact, there was a time in India when steel was controlled and oil was not. When steel was subsequently decontrolled, the market adjusted. Sooner or later, crude oil prices will start their march towards the US$ 200 per barrel mark. On the supply side, hardly any major oil reserves have been discovered in the last several years.
In our view, no matter which way you look at the future of crude oil prices, it is clear that prices of the commodity are headed upwards. The recent Kirit Parikh Committee recommendations will help us deal with that scenario. The question is - will politicians bite the bullet. After all, this is the third such committee. At some point, they will have too. Imagine the amount of subsidy burden if crude prices touched the US$ 200 per barrel mark. It would be wise for us to make systemic changes much ahead of that eventuality.
Today's investing mantra
"If you have trouble imaging a 20% loss in the stock market, you shouldn't be in stocks." - John Bogle
The best thing will be to avoid selling the highest quality stocks in your portfolio for a fear of correction in their prices. Over time, good quality stocks bought at low valuations always go up in price. The only way to participate in their growth is by being invested at a level that does not cause you to lose sleep.
The worst seems to be over for the Indian IT sector. That is what we can infer from the performance of the top four IT companies during the quarter ended December 2009. These witnessed a sequential growth of 2% in their combined topline. And their profits grew by 6% QoQ.
As we have heard from these companies' managements, improving volumes coupled with stable pricing has infused a new confidence. Better customer sentiment emanating from previously plagued industries and geographies is also fueling new hopes.
However, when it comes to the stocks of most of the IT companies, valuations do not paint a rosy picture. With a sharp rise in stock prices over the last 9-10 months, most of the stocks from the sector are already factoring this recovery. Additionally, there is a looming concern of currency volatility impacting IT companies' margins going forward. Thereby it would be wise for investors to tone down their expectations from these stocks over the short to medium term.
Anyways, in a sharp turnaround of sorts, Indian markets were trading with gains at the time of writing. From being down around 265 points at one time, the BSE-Sensex recovered smartly. At the time of writing this, the Sensex was trading higher by around 100 points (0.7%). IT and realty stocks led this sharp upward move of the markets today. Other key Asian markets closed in the red, with losses seen in Hong Kong (down 0.6%) and Japan (down 1%).
As for the Indian markets, we at Equitymaster believe that after the sharp rise in stock prices in 2009, some uncertainty (correction) this year should be expected and not feared. Investors will do themselves a world of good by treating corrections as just a normal part of stock markets that will not do much in altering the long-term bull market that is India.
What would an economy be left with if the government encourages land prices to go up 10 times in 10 years? A property bubble would be the simplest answer. But for the Chinese economy, the problem is much deeper.
As per economist Andy Xie, more than 50% of the fiscal revenues of the Chinese state governments depend on the sale of land for new construction. Little wonder then that the banks have been induced to lend for purchases of the third and fourth houses by Chinese households. This has made new properties in China almost 100% overvalued, says Xie. Although the Chinese central bank has now resolved to tighten its monetary policy, the impact would be in terms of bringing down loans from 20 trillion yen last year to 17 trillion yen this year. Although significant in absolute terms, Xie believes that the tightening needs to get more aggressive. Otherwise, the Chinese property bubble could well go out of control.
Marc Faber is at it again. One of the most vocal critics of the US Fed's expansionary policies has once again argued that the US could default on its debt obligations or monetize debt and reduce it through massive inflation. "I'm convinced the US government will go bankrupt, but not tomorrow. And before they go bankrupt, they'll print money, and then you get high inflation rates, you have a depression and eventually they'll go to war," Faber is believed to have said in his most recent report.
And as a natural corollary to this scenario, Faber backs precious metals like gold as amongst his most favored investments. As he advices, "The risk is really not to own any precious metals at all."
Thus, while gold could be going through a bit of a lean patch currently, it might just be a temporary phenomenon and it is only a matter of time before it returns to its trend of being in a long-term bull market!
An interesting article in a leading business daily points out to the fact that it is not true that oil price deregulation will stoke inflation. If anything, it will lead to efficiency in consumption and a greater search for alternatives. In fact, there was a time in India when steel was controlled and oil was not. When steel was subsequently decontrolled, the market adjusted. Sooner or later, crude oil prices will start their march towards the US$ 200 per barrel mark. On the supply side, hardly any major oil reserves have been discovered in the last several years.
In our view, no matter which way you look at the future of crude oil prices, it is clear that prices of the commodity are headed upwards. The recent Kirit Parikh Committee recommendations will help us deal with that scenario. The question is - will politicians bite the bullet. After all, this is the third such committee. At some point, they will have too. Imagine the amount of subsidy burden if crude prices touched the US$ 200 per barrel mark. It would be wise for us to make systemic changes much ahead of that eventuality.
Today's investing mantra
"If you have trouble imaging a 20% loss in the stock market, you shouldn't be in stocks." - John Bogle
Monday, February 8, 2010
The lesson investors cannot afford to ignore
Economists and authors have their ways of contradicting popular notions. And during times of a heated economic debate their contradicting views make a very interesting read. In yesterday's issue of 5 minute Wrapup we had quoted Nassim Taleb's view on US Treasuries. He says that if there is one trade that every human should have, it should be shorting US Treasuries.
Interestingly, Nobel Prize winning economist Paul Krugman has a pretty conflicting view on this. He believes that the US Treasuries would continue to find buyers. And that the federal budget deficit is not a looming disaster for the US economy. In an op-ed in The New York Times, Krugman writes that "contrary to what you often hear, the large deficit the federal government is running right now isn't the result of runaway spending growth." Rather, Krugman contends, more than half of the deficit was caused by the ongoing economic crisis, which has led to a plunge in tax receipts, federal bailouts of financial institutions. We believe that whether or not the US Treasuries find takers, the US economy is certainly digging its grave by not paying sufficient heed to its burgeoning deficit.
Legendary hedge fund manager George Soros was quite emphatic in his endorsement of the US dollar recently. He's known to have said that the US dollar is not about to lose its status as the world's primary reserve currency anytime soon. This is because there is no attractive alternative to the US dollar currently. With the debt woes of European nations such as Spain, Greece, Portugal and Italy that have come to light recently, even the Euro's image, which was seen as the number-two choice, will now take a beating. And so, it seems like 'flight to safety' will continue to mean 'flight to the US dollar' for some time to come.
After the battering that US banks received due to the subprime crisis, one bank has decided to adopt a conservative stance. Even if that means foregoing US$ 1 bn in returns. We are talking about Wells Fargo, which bet US$ 1 bn on rise in US interest rates. The bank chose to cut down its bond holdings last year betting that the interest rates will rise. This is in stark contrast to what the other 3 biggies did, notably add on to their holdings. While Wells cut its bond portfolio by US$ 34 bn in the second half of last year, JPMorgan Chase, Bank of America and Citigroup increased their holdings by an average of US$ 35.5 bn.
The strategy is clear. Wells Fargo is in no hurry to make immediate profits and is waiting for the right time for the returns to accrue to them. On the other hand, the others are looking to make profits before the rate hike occurs. Therefore, will the rate hike happen anytime soon? Given that the US economy has displayed some signs of recovering, raising interest rates does seem like the right thing to do. After all, it is the prolonged expansionary monetary policy followed by the US Fed which sowed the seeds of the crisis in the first place. But with the US unemployment showing no signs of abating as of yet, raising rates does not seem a priority to the government. Therefore will Wells' long term strategy bear fruit? Only time will tell.
Lately, the primary market has been buzzing with a slew of IPOs and follow-on public offers. However, most of them, including NTPC's follow on offer, turned out to be a flop show. Almost none of the issues this week managed to garner significant interest from retail investors. As institutional investors saved their day, they managed to get fully subscribed. Most experts attribute the poor performance of IPOs to very high valuations. There are others who consider negative cues from global markets responsible for the fiasco. All said and done, given the volatility in the secondary markets, government's disinvestment plans could certainly run into rough waters. It would be most prudent for the government to price the issues at reasonable valuations rather than get carried away by the prospects of milking its stake in the PSUs.
With the European crisis taking its toll on global markets, benchmark indices across major markets saw declines this week. Asian and most European stocks were amongst the worst hit. There was no escaping the selling, even for India. Concerns that some European nations may be on the verge of defaulting on their debt payments was on top of investors' minds. India's benchmark index, the BSE-Sensex ended lower by about 3.5%, making it amongst the top losers.
investing mantra
"If you can find a company that can get away with raising prices year after year without losing customers (an addictive product such as cigarettes fills the bill), you've got a terrific investment." - Peter Lynch
Interestingly, Nobel Prize winning economist Paul Krugman has a pretty conflicting view on this. He believes that the US Treasuries would continue to find buyers. And that the federal budget deficit is not a looming disaster for the US economy. In an op-ed in The New York Times, Krugman writes that "contrary to what you often hear, the large deficit the federal government is running right now isn't the result of runaway spending growth." Rather, Krugman contends, more than half of the deficit was caused by the ongoing economic crisis, which has led to a plunge in tax receipts, federal bailouts of financial institutions. We believe that whether or not the US Treasuries find takers, the US economy is certainly digging its grave by not paying sufficient heed to its burgeoning deficit.
Legendary hedge fund manager George Soros was quite emphatic in his endorsement of the US dollar recently. He's known to have said that the US dollar is not about to lose its status as the world's primary reserve currency anytime soon. This is because there is no attractive alternative to the US dollar currently. With the debt woes of European nations such as Spain, Greece, Portugal and Italy that have come to light recently, even the Euro's image, which was seen as the number-two choice, will now take a beating. And so, it seems like 'flight to safety' will continue to mean 'flight to the US dollar' for some time to come.
After the battering that US banks received due to the subprime crisis, one bank has decided to adopt a conservative stance. Even if that means foregoing US$ 1 bn in returns. We are talking about Wells Fargo, which bet US$ 1 bn on rise in US interest rates. The bank chose to cut down its bond holdings last year betting that the interest rates will rise. This is in stark contrast to what the other 3 biggies did, notably add on to their holdings. While Wells cut its bond portfolio by US$ 34 bn in the second half of last year, JPMorgan Chase, Bank of America and Citigroup increased their holdings by an average of US$ 35.5 bn.
The strategy is clear. Wells Fargo is in no hurry to make immediate profits and is waiting for the right time for the returns to accrue to them. On the other hand, the others are looking to make profits before the rate hike occurs. Therefore, will the rate hike happen anytime soon? Given that the US economy has displayed some signs of recovering, raising interest rates does seem like the right thing to do. After all, it is the prolonged expansionary monetary policy followed by the US Fed which sowed the seeds of the crisis in the first place. But with the US unemployment showing no signs of abating as of yet, raising rates does not seem a priority to the government. Therefore will Wells' long term strategy bear fruit? Only time will tell.
Lately, the primary market has been buzzing with a slew of IPOs and follow-on public offers. However, most of them, including NTPC's follow on offer, turned out to be a flop show. Almost none of the issues this week managed to garner significant interest from retail investors. As institutional investors saved their day, they managed to get fully subscribed. Most experts attribute the poor performance of IPOs to very high valuations. There are others who consider negative cues from global markets responsible for the fiasco. All said and done, given the volatility in the secondary markets, government's disinvestment plans could certainly run into rough waters. It would be most prudent for the government to price the issues at reasonable valuations rather than get carried away by the prospects of milking its stake in the PSUs.
With the European crisis taking its toll on global markets, benchmark indices across major markets saw declines this week. Asian and most European stocks were amongst the worst hit. There was no escaping the selling, even for India. Concerns that some European nations may be on the verge of defaulting on their debt payments was on top of investors' minds. India's benchmark index, the BSE-Sensex ended lower by about 3.5%, making it amongst the top losers.
investing mantra
"If you can find a company that can get away with raising prices year after year without losing customers (an addictive product such as cigarettes fills the bill), you've got a terrific investment." - Peter Lynch
Markets are correcting. What to do?
Anyways, in a sharp turnaround of sorts, Indian markets were trading with gains at the time of writing. From being down around 265 points at one time, the BSE-Sensex recovered smartly. At the time of writing this, the Sensex was trading higher by around 100 points (0.7%). IT and realty stocks led this sharp upward move of the markets today. Other key Asian markets closed in the red, with losses seen in Hong Kong (down 0.6%) and Japan (down 1%).
As for the Indian markets, we at Equitymaster believe that after the sharp rise in stock prices in 2009, some uncertainty (correction) this year should be expected and not feared. Investors will do themselves a world of good by treating corrections as just a normal part of stock markets that will not do much in altering the long-term bull market that is India.
What would an economy be left with if the government encourages land prices to go up 10 times in 10 years? A property bubble would be the simplest answer. But for the Chinese economy, the problem is much deeper.
As per economist Andy Xie, more than 50% of the fiscal revenues of the Chinese state governments depend on the sale of land for new construction. Little wonder then that the banks have been induced to lend for purchases of the third and fourth houses by Chinese households. This has made new properties in China almost 100% overvalued, says Xie. Although the Chinese central bank has now resolved to tighten its monetary policy, the impact would be in terms of bringing down loans from 20 trillion yen last year to 17 trillion yen this year. Although significant in absolute terms, Xie believes that the tightening needs to get more aggressive. Otherwise, the Chinese property bubble could well go out of control.
Marc Faber is at it again. One of the most vocal critics of the US Fed's expansionary policies has once again argued that the US could default on its debt obligations or monetize debt and reduce it through massive inflation. "I'm convinced the US government will go bankrupt, but not tomorrow. And before they go bankrupt, they'll print money, and then you get high inflation rates, you have a depression and eventually they'll go to war," Faber is believed to have said in his most recent report.
And as a natural corollary to this scenario, Faber backs precious metals like gold as amongst his most favored investments. As he advices, "The risk is really not to own any precious metals at all."
Thus, while gold could be going through a bit of a lean patch currently, it might just be a temporary phenomenon and it is only a matter of time before it returns to its trend of being in a long-term bull market!
An interesting article in a leading business daily points out to the fact that it is not true that oil price deregulation will stoke inflation. If anything, it will lead to efficiency in consumption and a greater search for alternatives. In fact, there was a time in India when steel was controlled and oil was not. When steel was subsequently decontrolled, the market adjusted. Sooner or later, crude oil prices will start their march towards the US$ 200 per barrel mark. On the supply side, hardly any major oil reserves have been discovered in the last several years.
In our view, no matter which way you look at the future of crude oil prices, it is clear that prices of the commodity are headed upwards. The recent Kirit Parikh Committee recommendations will help us deal with that scenario. The question is - will politicians bite the bullet. After all, this is the third such committee. At some point, they will have too. Imagine the amount of subsidy burden if crude prices touched the US$ 200 per barrel mark. It would be wise for us to make systemic changes much ahead of that eventuality.
Today's investing mantra
"If you have trouble imaging a 20% loss in the stock market, you shouldn't be in stocks." - John Bogle
As for the Indian markets, we at Equitymaster believe that after the sharp rise in stock prices in 2009, some uncertainty (correction) this year should be expected and not feared. Investors will do themselves a world of good by treating corrections as just a normal part of stock markets that will not do much in altering the long-term bull market that is India.
What would an economy be left with if the government encourages land prices to go up 10 times in 10 years? A property bubble would be the simplest answer. But for the Chinese economy, the problem is much deeper.
As per economist Andy Xie, more than 50% of the fiscal revenues of the Chinese state governments depend on the sale of land for new construction. Little wonder then that the banks have been induced to lend for purchases of the third and fourth houses by Chinese households. This has made new properties in China almost 100% overvalued, says Xie. Although the Chinese central bank has now resolved to tighten its monetary policy, the impact would be in terms of bringing down loans from 20 trillion yen last year to 17 trillion yen this year. Although significant in absolute terms, Xie believes that the tightening needs to get more aggressive. Otherwise, the Chinese property bubble could well go out of control.
Marc Faber is at it again. One of the most vocal critics of the US Fed's expansionary policies has once again argued that the US could default on its debt obligations or monetize debt and reduce it through massive inflation. "I'm convinced the US government will go bankrupt, but not tomorrow. And before they go bankrupt, they'll print money, and then you get high inflation rates, you have a depression and eventually they'll go to war," Faber is believed to have said in his most recent report.
And as a natural corollary to this scenario, Faber backs precious metals like gold as amongst his most favored investments. As he advices, "The risk is really not to own any precious metals at all."
Thus, while gold could be going through a bit of a lean patch currently, it might just be a temporary phenomenon and it is only a matter of time before it returns to its trend of being in a long-term bull market!
An interesting article in a leading business daily points out to the fact that it is not true that oil price deregulation will stoke inflation. If anything, it will lead to efficiency in consumption and a greater search for alternatives. In fact, there was a time in India when steel was controlled and oil was not. When steel was subsequently decontrolled, the market adjusted. Sooner or later, crude oil prices will start their march towards the US$ 200 per barrel mark. On the supply side, hardly any major oil reserves have been discovered in the last several years.
In our view, no matter which way you look at the future of crude oil prices, it is clear that prices of the commodity are headed upwards. The recent Kirit Parikh Committee recommendations will help us deal with that scenario. The question is - will politicians bite the bullet. After all, this is the third such committee. At some point, they will have too. Imagine the amount of subsidy burden if crude prices touched the US$ 200 per barrel mark. It would be wise for us to make systemic changes much ahead of that eventuality.
Today's investing mantra
"If you have trouble imaging a 20% loss in the stock market, you shouldn't be in stocks." - John Bogle
Monday, January 18, 2010
What to buy when the markets correct?
» What can lower Indian markets' dependence on FIIs
» Why is Jim Rogers hot on commodities?
» IEA expects oil demand to recover in 2010
» PSU divestment to get clarity by March
» ...and more!!
So if you are also one of those, and are expecting stocks to correct, what are you doing now? What about preparing a watch list of stocks you'd buy once the correction really happens?
Indian markets have made a huge recovery from their March 2009 lows. While we don't think they're anywhere near bubble territory, good values have become harder to find. Does that mean you should stop researching for new stock ideas? Not really!
What you rather need to do is make a list of good quality stocks - ones with good operating margins and return on equity, manageable debt levels, strong growth prospects, and selling expensive. In other words, you must prepare a list of strong companies worth buying if the markets crack.
One of the fundamental rules of investing is that great companies, even if bought at high valuations, don't always make great investments. Take Infosys' case. The company has multiplied profits 20 times over the past ten years. But the stock has gained just around 2.5 times during this period. That's because investors were paying too much for the company's prospects during the dot-com bubble.
It's very important to buy great companies only at the right prices. The next correction can give you that opportunity. Are you preparing yourself with a good watch list?
Data Source: RBI
Even after so many years into existence, Indian stock markets are still largely driven by FII sentiment. And this tends to hurt sometimes, and hurt big. Take the case of the recent financial crisis. India's fundamentals were far better than the developed world. And still its stock markets came in the firing line. Needless to say, FIIs did not figure out India's fundamentals properly. And it was mostly the smaller investors who paid the price for it. This may not be an isolated case though. Similar situations would play themselves out again and again as long as FIIs remain kingmakers.
An article in Financial Times has perhaps a solution to this problem. It correctly argues that the time has come for India to kick-start a process whereby equity mutual funds could overtake bank deposits in a few years time. Since India has a very high savings rate, the gush of liquidity that would flow into the equities as a result of this transition would certainly make the Indian middle class and not FIIs the primary drivers of the market.
Plus, we also have the benefit of learning from the experience of countries like US as to what the best and worst practices could be and hence, make the entire exercise even more beneficial to investors. As the article rightly concludes, there are indeed risks, but even the prize, if we could avoid western mistakes, would be great. And only then, the Indian stock markets could be called as wealth creators in the true sense of the word.
Anyways, Indian markets had a strong start to this week. The BSE-Sensex was trading 75 points (0.3%) up at the time of writing. Mid and small-caps also had their day in the sun. Indian markets were in fact the best performers across Asia. Other gainers included China (up 0.4%) and Singapore (up 0.3%). European markets have started on a mixed note.
After last week's fall, gold prices have started this week on a positive note. An ounce of the yellow metal is currently trading at US$ 1,134 an ounce, up by US$ 4 over last Friday's close.
One of the biggest economic worries going forward is inflation. Simply put, the huge amount of cash that has been pumped into the economic system will chase all asset classes. And this includes commodities. Add to that, the economic recovery has meant the demand for basic commodities is recovering rapidly.
As per the International Energy Agency (IEA), global oil demand this year will reach the highest level since 2007. After falling for the last two years, consumption will be expected to rise to 86.3 m barrels per day. We are not surprised about predictions of higher crude oil demand. The lifestyle of the developed world is dependent on crude oil. And emerging nations are also on their way towards that lifestyle!
Data Source: BP; Note: 2010 demand forecast is from IEA
Investors are keen to know where various economies are headed. The quality and substance of the economic recovery in major countries around the world is a much debated topic. And justifiably so! After all, the performance of one's investments depends on the same in a big way over the short term.
But there is one discerning investor who has carefully chosen an asset class that will perform well in either scenario. This class of assets, according to him, will perform well if economies recover, and will also perform well if they don't!
The asset class is commodities and the investor is none other than Jim Rogers. According to him, stock markets are up a lot in all emerging markets including India. Thus he is not investing in them currently, but is in fact just sitting and watching how things are panning out.
But Rogers' attitude towards commodities tells a different story. In his words, "The way I am playing is mainly with commodities because if the world gets better they will get better and if the world economy doesn't get better then most stock markets are going to suffer. It's not necessarily true of commodities, if the world economy does not get better. In fact if the world economy does not get better they are probably going to print even more money. Hence, commodities will be the place to be."
Pretty convincing argument, isn't it?
India's PSU divestment picture will get clearer by March. This is if one were to go by the words of Sunil Mitra, the disinvestment secretary. In an interview with a business channel earlier today, Mr. Mitra clarified that the government will first focus on listing unlisted profit-making companies.
Anyways, one of his statements that was intriguing was - "Availability of good-quality stock in the market will mop up some of the surplus liquidity, which is presently available and which will therefore help in stabilization of markets."
Well, while some PSUs that are on the block might be good companies. But whether they'll be good stocks (valuation wise) is what investors need to decide. Not the government!
Today's investing mantra
"There's no reason we should become fearful if a stock goes down. If a stock goes down 50%, I'd look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month." - Warren Buffett, 2008 Berkshire Hathaway shareholders meeting
» Why is Jim Rogers hot on commodities?
» IEA expects oil demand to recover in 2010
» PSU divestment to get clarity by March
» ...and more!!
So if you are also one of those, and are expecting stocks to correct, what are you doing now? What about preparing a watch list of stocks you'd buy once the correction really happens?
Indian markets have made a huge recovery from their March 2009 lows. While we don't think they're anywhere near bubble territory, good values have become harder to find. Does that mean you should stop researching for new stock ideas? Not really!
What you rather need to do is make a list of good quality stocks - ones with good operating margins and return on equity, manageable debt levels, strong growth prospects, and selling expensive. In other words, you must prepare a list of strong companies worth buying if the markets crack.
One of the fundamental rules of investing is that great companies, even if bought at high valuations, don't always make great investments. Take Infosys' case. The company has multiplied profits 20 times over the past ten years. But the stock has gained just around 2.5 times during this period. That's because investors were paying too much for the company's prospects during the dot-com bubble.
It's very important to buy great companies only at the right prices. The next correction can give you that opportunity. Are you preparing yourself with a good watch list?
Data Source: RBI
Even after so many years into existence, Indian stock markets are still largely driven by FII sentiment. And this tends to hurt sometimes, and hurt big. Take the case of the recent financial crisis. India's fundamentals were far better than the developed world. And still its stock markets came in the firing line. Needless to say, FIIs did not figure out India's fundamentals properly. And it was mostly the smaller investors who paid the price for it. This may not be an isolated case though. Similar situations would play themselves out again and again as long as FIIs remain kingmakers.
An article in Financial Times has perhaps a solution to this problem. It correctly argues that the time has come for India to kick-start a process whereby equity mutual funds could overtake bank deposits in a few years time. Since India has a very high savings rate, the gush of liquidity that would flow into the equities as a result of this transition would certainly make the Indian middle class and not FIIs the primary drivers of the market.
Plus, we also have the benefit of learning from the experience of countries like US as to what the best and worst practices could be and hence, make the entire exercise even more beneficial to investors. As the article rightly concludes, there are indeed risks, but even the prize, if we could avoid western mistakes, would be great. And only then, the Indian stock markets could be called as wealth creators in the true sense of the word.
Anyways, Indian markets had a strong start to this week. The BSE-Sensex was trading 75 points (0.3%) up at the time of writing. Mid and small-caps also had their day in the sun. Indian markets were in fact the best performers across Asia. Other gainers included China (up 0.4%) and Singapore (up 0.3%). European markets have started on a mixed note.
After last week's fall, gold prices have started this week on a positive note. An ounce of the yellow metal is currently trading at US$ 1,134 an ounce, up by US$ 4 over last Friday's close.
One of the biggest economic worries going forward is inflation. Simply put, the huge amount of cash that has been pumped into the economic system will chase all asset classes. And this includes commodities. Add to that, the economic recovery has meant the demand for basic commodities is recovering rapidly.
As per the International Energy Agency (IEA), global oil demand this year will reach the highest level since 2007. After falling for the last two years, consumption will be expected to rise to 86.3 m barrels per day. We are not surprised about predictions of higher crude oil demand. The lifestyle of the developed world is dependent on crude oil. And emerging nations are also on their way towards that lifestyle!
Data Source: BP; Note: 2010 demand forecast is from IEA
Investors are keen to know where various economies are headed. The quality and substance of the economic recovery in major countries around the world is a much debated topic. And justifiably so! After all, the performance of one's investments depends on the same in a big way over the short term.
But there is one discerning investor who has carefully chosen an asset class that will perform well in either scenario. This class of assets, according to him, will perform well if economies recover, and will also perform well if they don't!
The asset class is commodities and the investor is none other than Jim Rogers. According to him, stock markets are up a lot in all emerging markets including India. Thus he is not investing in them currently, but is in fact just sitting and watching how things are panning out.
But Rogers' attitude towards commodities tells a different story. In his words, "The way I am playing is mainly with commodities because if the world gets better they will get better and if the world economy doesn't get better then most stock markets are going to suffer. It's not necessarily true of commodities, if the world economy does not get better. In fact if the world economy does not get better they are probably going to print even more money. Hence, commodities will be the place to be."
Pretty convincing argument, isn't it?
India's PSU divestment picture will get clearer by March. This is if one were to go by the words of Sunil Mitra, the disinvestment secretary. In an interview with a business channel earlier today, Mr. Mitra clarified that the government will first focus on listing unlisted profit-making companies.
Anyways, one of his statements that was intriguing was - "Availability of good-quality stock in the market will mop up some of the surplus liquidity, which is presently available and which will therefore help in stabilization of markets."
Well, while some PSUs that are on the block might be good companies. But whether they'll be good stocks (valuation wise) is what investors need to decide. Not the government!
Today's investing mantra
"There's no reason we should become fearful if a stock goes down. If a stock goes down 50%, I'd look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month." - Warren Buffett, 2008 Berkshire Hathaway shareholders meeting
Sunday, January 3, 2010
Can this asset of the decade go higher still?
Wish You A Very Happy & Prosperous New Year! >Will gold turn out to be the asset class of choice in the next decade as well?
» S&P 500 could jump 200%, says Faber
» Value investing has given killer returns in India
» Corporate India on improvement path after Satyam
» ...and more!!
One of corporate India's worst scams seems to have taught managements a wise lesson. Or so it seems. Internal controls have improved in corporate India since Satyam fiasco came to light. This is if one were to go by DNA Money's interview with Porus Doctor. Mr. Doctor is a partner with Deloitte India, one of the auditors of the government-appointed board of Satyam. He also believes that independent directors need to invest more time in companies they direct. As he says, "Two hours in a quarter in a meeting in a board does not necessarily give them the right equipment to direct company affairs."
We at Equitymaster believe that independent directors are not the only ones to blame for the Satyam fiasco. Look at the evaluation systems that boards, auditors, credit rating agencies and bankers apply to judge companies. You will find glaring loopholes! The role of companies must be to find creative and productive ways to help build societies. Frauds like Satyam and its chairman is definitely not what we want.
Value investing works and works big time! Numerous studies have proved how value investing - a method of creating a portfolio of stocks that are trading at the cheapest valuations when measured on conventional valuation parameters like price to book value and price to earnings - have given market beating returns over a long-term period. And what's more, the same approach has given Indian investors stellar returns in the current Bull Run.
As per DNA Money, companies from the BSE 500, which had single-digit P/Es during March 2009, when the market was trading at its lows of the most recent bear market, have on an average, tripled investor wealth since then. This is way better than the Sensex, which managed to gain a little over 100%. Infact, some companies have risen as much as nine times over March lows, adds the article. Clearly, if one follows the simple strategy of being fearful when others are greedy and greedy when others are fearful and invests in companies with sustainable business models, he may not learn any other investing lesson in his entire lifetime and still achieve better returns than most financial experts.
The S&P 500, the US stock market index, could jump 200% in the next decade, says the maverick investor Marc Faber, in his most recent Gloom, Boom and Doom report. "I suppose this will happen over the next 10 years or so. Eventually, the U.S. government will have no other option but to print massively to finance the growing fiscal deficit", observes Faber. Certainly. If the US Federal Reserve keeps providing the economy with truckloads of cash, the economic activity is likely to pick up, thus giving a boost to the stock markets as well. But please bear in mind that there is no such thing as free lunch in economics. The US dollar could also depreciate appreciably in the coming years, making most of the gains that could come from the S&P 500 nearly worthless. Hence, for an US investor, gold and other hard commodities could still prove to be a better investment.
Fresh into 2010, many experts are positive on global economic recovery and rise in asset prices. And then many aren't. One amongst them is Paul Krugman, the Nobel Prize winning economist and a noted writer on economic matters. In his latest post in the New York Times, Krugman sees China as posing a major risk to world (mainly the US) economy in the current year.
With the dragon nation keeping an almost fixed currency, it puts other exporting nations on a negative footing. This is because if China were to free its currency, the same would appreciate on the back of huge foreign capital inflows that the country absorbs and its huge trade surplus. This would be detrimental to its exporters who otherwise benefit from a pegged currency. And with its currency pegged, manufacturers in other nations (including the US) will never be able to compete against it. This would continue to impact their economies that are showing initial signs of improvement after last two year's crisis. Krugman's solution? China will have to appreciate its currency otherwise it faces the prospect of increasing protectionism.
Stockmarkets across the world continued to be in a celebration mood as majority of them ended the week on a positive note. While the Indian stock markets were not amongst the top gainers this week, they did manage to end the week on a positive note. India's benchmark index, the BSE-Sensex ended with weekly gains of 0.6%. Last week, the Indian markets were amongst the top gainers with the BSE-Sensex ending higher by about 3.8%. The US stock market was amongst the few major markets to end the week on a negative note, as it edged lower by around 1%. Amongst commodities, while gold continued to be in a price correction mode, crude oil advanced nearly 2%.
Source: Yahoo Finance, Kitco, CNN Money
Weekend investing mantra
"The most common cause of low prices is pessimism. We want to do business in such an environment, not because we like pessimism, but because we like the prices it produces." - Warren Buffett
» S&P 500 could jump 200%, says Faber
» Value investing has given killer returns in India
» Corporate India on improvement path after Satyam
» ...and more!!
One of corporate India's worst scams seems to have taught managements a wise lesson. Or so it seems. Internal controls have improved in corporate India since Satyam fiasco came to light. This is if one were to go by DNA Money's interview with Porus Doctor. Mr. Doctor is a partner with Deloitte India, one of the auditors of the government-appointed board of Satyam. He also believes that independent directors need to invest more time in companies they direct. As he says, "Two hours in a quarter in a meeting in a board does not necessarily give them the right equipment to direct company affairs."
We at Equitymaster believe that independent directors are not the only ones to blame for the Satyam fiasco. Look at the evaluation systems that boards, auditors, credit rating agencies and bankers apply to judge companies. You will find glaring loopholes! The role of companies must be to find creative and productive ways to help build societies. Frauds like Satyam and its chairman is definitely not what we want.
Value investing works and works big time! Numerous studies have proved how value investing - a method of creating a portfolio of stocks that are trading at the cheapest valuations when measured on conventional valuation parameters like price to book value and price to earnings - have given market beating returns over a long-term period. And what's more, the same approach has given Indian investors stellar returns in the current Bull Run.
As per DNA Money, companies from the BSE 500, which had single-digit P/Es during March 2009, when the market was trading at its lows of the most recent bear market, have on an average, tripled investor wealth since then. This is way better than the Sensex, which managed to gain a little over 100%. Infact, some companies have risen as much as nine times over March lows, adds the article. Clearly, if one follows the simple strategy of being fearful when others are greedy and greedy when others are fearful and invests in companies with sustainable business models, he may not learn any other investing lesson in his entire lifetime and still achieve better returns than most financial experts.
The S&P 500, the US stock market index, could jump 200% in the next decade, says the maverick investor Marc Faber, in his most recent Gloom, Boom and Doom report. "I suppose this will happen over the next 10 years or so. Eventually, the U.S. government will have no other option but to print massively to finance the growing fiscal deficit", observes Faber. Certainly. If the US Federal Reserve keeps providing the economy with truckloads of cash, the economic activity is likely to pick up, thus giving a boost to the stock markets as well. But please bear in mind that there is no such thing as free lunch in economics. The US dollar could also depreciate appreciably in the coming years, making most of the gains that could come from the S&P 500 nearly worthless. Hence, for an US investor, gold and other hard commodities could still prove to be a better investment.
Fresh into 2010, many experts are positive on global economic recovery and rise in asset prices. And then many aren't. One amongst them is Paul Krugman, the Nobel Prize winning economist and a noted writer on economic matters. In his latest post in the New York Times, Krugman sees China as posing a major risk to world (mainly the US) economy in the current year.
With the dragon nation keeping an almost fixed currency, it puts other exporting nations on a negative footing. This is because if China were to free its currency, the same would appreciate on the back of huge foreign capital inflows that the country absorbs and its huge trade surplus. This would be detrimental to its exporters who otherwise benefit from a pegged currency. And with its currency pegged, manufacturers in other nations (including the US) will never be able to compete against it. This would continue to impact their economies that are showing initial signs of improvement after last two year's crisis. Krugman's solution? China will have to appreciate its currency otherwise it faces the prospect of increasing protectionism.
Stockmarkets across the world continued to be in a celebration mood as majority of them ended the week on a positive note. While the Indian stock markets were not amongst the top gainers this week, they did manage to end the week on a positive note. India's benchmark index, the BSE-Sensex ended with weekly gains of 0.6%. Last week, the Indian markets were amongst the top gainers with the BSE-Sensex ending higher by about 3.8%. The US stock market was amongst the few major markets to end the week on a negative note, as it edged lower by around 1%. Amongst commodities, while gold continued to be in a price correction mode, crude oil advanced nearly 2%.
Source: Yahoo Finance, Kitco, CNN Money
Weekend investing mantra
"The most common cause of low prices is pessimism. We want to do business in such an environment, not because we like pessimism, but because we like the prices it produces." - Warren Buffett
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