In this issue:
» The best times to be buying Indian stocks
» World's largest bond fund going into cash
» Jim Rogers scorns the US Fed's actions
» The kind of innovation you should keep away from
» ...and more!!

India isn't another Dubai, and thus our property market will escape the kind of collapse that has impacted the Gulf nation. This is what Mr. Keki Mistry believes. Coming straight from the chief of HDFC, India's largest housing finance company, these words carry a lot of weight.

As Mr. Mistry says, "Dubai was very different from India. In India, the property market is largely end-user based; in Dubai, the property market is largely investor based." While we are in agreement with Mr. Mistry about his views on the nature of the Indian realty market, we believe certain pockets in the country like Mumbai and Pune do give a sense of a building bubble. And they seem like strong contenders for being the 'next Dubai'!

We believe homes are still out of reach of average buyers in these cities. And if greedy real estate companies, instead of getting punished for their misdemeanors, continue to get rescued by banks, they will not change their stripes in a hurry and will continue to bid up home prices.

So, while the Indian realty market might not crash like the one in Dubai, realty buyers' dreams of owning their own homes will continue to crash if property prices continue to surge.

00:54 Chart of the day
FII activity in the Indian stock market is a much tracked affair. When FIIs are busy loading up on stocks, it is quite normal for investors to intuitively feel like they too should be buying. But today's chart of the day seeks to dispel that very myth. For the best times for investors to be buying stocks have been those when FIIs have been least enthusiastic about Indian equities.



Source: Statistical Outline of India 2008-09

01:14

The word 'innovation' usually has only positive connotations. But add to that the word 'financial' and it brings to mind unpleasant images of the credit crisis. The offsprings of this financial innovation have played havoc with the world during the last two years. They are widely considered to be the genesis of the credit crisis.

Paul Volcker, former chairman of the US Federal Reserve, came out rather strongly at these financial instruments in a recent conference. In his view, there is not a shred of evidence that this particular innovation provided any kind of benefit. In fact, the credit default swaps and collateralized debt obligations (CDOs) took the US right to the brink of disaster.

Reminiscing the time when he held office, he said that the US economy was doing just fine in the 1980s without credit-default swaps, securitization and CDOs. Important lessons for India too! As India moves towards more developed financial markets, there will always be a tendency towards more and more complex products that will be hawked to unsuspecting investors. It would be wise to take a leaf out of this bad experience of the developed countries – if you can't understand something (an investment option), it's probably not for you.

02:06

At standard pressure, water boils at 100 degrees Celsius. This is an irrefutable law of nature. It does not matter to the boiling point if different people are conducting the experiment. It will still exhibit the same characteristic. But what about an experiment where the result is dependent on the how the participants think? Let us take the example of the most recent credit crisis. Here, the politicians, the most influential participants thought that financial markets should be completely de-regulated and left to themselves. And what is the result of the experiment that we got? Risk taking increased at a phenomenal rate and the global economy came to the brink of a collapse.

Thus, if an experiment leads to disastrous consequences, it only makes sense to abandon it and use some new rules. And this is exactly what Nobel Laureate Paul Krugman also seems to be thinking. In an article in The New York Times, Krugman has argued that the reason the US economy got into the current mess was because politicians got under the influence of free market ideology and gave bankers whatever they wanted.

Holding former US President Ronald Reagan responsible for the situation the US economy currently is in, he hoped that better sense would prevail and a major overhaul of the financial system takes place. As he so rightly said, "If politicians refuse to learn from the history of the recent financial crisis, they will condemn all of us to repeat it."

03:20

What do you do when you find markets to be expensive? You don't put in new money. And you start selling the existing investments. As a result, your cash holding goes up. That's exactly what the manager at the world's largest bond fund is doing.

As per Bloomberg, Bill Gross of Pacific Investment Management Co. (PIMCO) has boosted cash to the highest level since Lehman Brothers collapsed in September 2008. It may be noted that as a bond fund manager, one of Mr. Gross's main concerns is interest rates. 'Expected' interest rates to be more precise.

Higher interest rates imply investors will demand higher yields. That in turn means bond prices must fall. With the US economy expected to post some growth in 2010, its central bank is expected to increase interest rates from close to zero. That would make bonds less attractive. We'd like to add that a higher interest rate not only affect bonds but also stocks. In fact, it is like gravity that exerts a pull on the entire financial universe. To take a cue from PIMCO, it is perhaps time for equity investors to also moderate their expectations for 2010.

04:10

In a recent interview, Jim Rogers expressed concerned regarding the US economy. He felt the solution that is being given by the Federal Reserve for getting out of the recession is absurd. He pointed out that spending more money to get out of this crisis may not be the right thing to do specially since too much debt and too much consumption is what has led to it in the first place.

On a humorous note, it is like asking Tiger Woods to get 5 more girlfriends to solve his marital problems. Moreover, the government has tripled its balance sheet size with debt. The very same people who are expected to spend more are also expected to pay more taxes to bring down the deficit. He also believes that the government has stretched itself to thin in this crisis. In case of another slowdown the government may not have enough resource left to tackle it. In a lighter vein he added that there may soon not even be enough trees left to print money with.

04:35

Meanwhile The Indian markets traded in a narrow range today and the BSE Sensex was trading lower by 40 points at the time of writing. While stocks from healthcare, auto and consumer durable managed to garner investors' interest, stocks from realty, oil & gas and FMCG traded weak. As for global markets, Asia was trading in the red, while Europe began the day on a positive note.

04:50 Today's investing mantra
"We try to price, rather than time, purchases. In our view, it is folly to forego buying shares in an outstanding business whose long-term future is predictable, because of short-term worries about an economy or a stock market that we know to be unpredictable." - Warren Buffett

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The best way to find yourself is to lose yourself in the service of others.”
Mahatma Gandhi

Quote:

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Originally posted by gopalpai

As Mr. Mistry says, "Dubai was very different from India. In India, the property market is largely end-user based; in Dubai, the property market is largely investor based."

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The cowards never started,
The weak died on the way,
Only the strong arrived.
http://www.youtube.com/watch?v=_yK1i9cLAMM