Infosys reported earnings that missed estimates today. In addition the industrial production numbers came in at around 11% while the market and analysts were expecting 15%.
Other signs are also beginning to appear that the Indian economy is slowing down. Obviously this is a case of glass half full or half empty. The Indian stock market has avoided the doldrums faced by U.S., European and Chinese markets and has performed relatively better compared to these markets.
However, I see today's news out of Infosys as a sign that we are witnessing the exporting of a crisis as we have in the past. In addition, BMW Audi and other German exporters are hiring due to an unexpected rise in demand. This is exactly what was forecast to happen, the Europeans are exporting their recession to the Asian countries.
The Indian export model cannot survive a 20% devaluation of the Euro relative to the local currency. The Indian economy has already started decelerating. It is only a matter of time before the stock market acknowledges this.
The market can remain oblivious to bad news for longer than your account can stay liquid. Making money in the market requires patience, or a microphone in the offices of Goldman Sachs and the Fed.
Today's Indian market is a product of greed by investors that are jumping back in (capitulating) as they see 18000 on the index and fear being left out. Investing based on greed and fear usually results in losses. This time will be no different. Now is not the time to be investing in equities.
Tuesday, July 13, 2010
Tuesday, July 6, 2010
A Massive Rounding Top in the Indian Stock Market
From a technical perspective the Indian Stock Market is building a massive rounding top which ties in well with the sentiment prevailing in the market.
We are going to spend the next few years going down. Each time the market looks like it is off to the races, investors will jump in and subsequently get killed. It's going to be a very long decline.
Every time the bottoms and rallies, people are going to say "OK, that's enough; it's over." But it won't be over. It's just going to be a long, long process. It will take a long time for Indian optimism to break down and reality to set in that the Indian story is closely linked, like every other country now, to global growth.
Optimism should actually remain dominant through the next two years and even as prices will be edging lower, most people are going to think it's a buy, and you shouldn't get out of your stocks, and recovery is just around the corner, probably for the next three years. And then, for the final half of the cycle, the final three years, that's when you'll get the capitulation phase when everyone finally gives up.
This is a non consensus view, as today the prevailing sentiment in the market is strongly optimistic.
We are going to spend the next few years going down. Each time the market looks like it is off to the races, investors will jump in and subsequently get killed. It's going to be a very long decline.
Every time the bottoms and rallies, people are going to say "OK, that's enough; it's over." But it won't be over. It's just going to be a long, long process. It will take a long time for Indian optimism to break down and reality to set in that the Indian story is closely linked, like every other country now, to global growth.
Optimism should actually remain dominant through the next two years and even as prices will be edging lower, most people are going to think it's a buy, and you shouldn't get out of your stocks, and recovery is just around the corner, probably for the next three years. And then, for the final half of the cycle, the final three years, that's when you'll get the capitulation phase when everyone finally gives up.
This is a non consensus view, as today the prevailing sentiment in the market is strongly optimistic.
Traxis Partners - Getting It Wrong.. Consistently - Perfect Contrary Indicators
In the summer of 2008, many of you may not remember this, Cyrille Moulle Bertaux of Traxis Partners came out with a WSJ article telling us that housing had bottomed and he had charts and data and analyses that convinced Traxis that the bottom in housing and the market was near.
Barton Biggs was consistently bullish through S&P 880 and the market bottomed at 666.
Then in May of this year, we had Barton Biggs on Bloomberg when the S&P was around 1180 telling us that the economic recovery was strong and he saw another 15% upside in the markets.
As more of these bull market gurus fall, all it does is convince me that the entire pay structure for fund managers and Wall Street is skewed and this will be corrected before all is said and done.
Less than 1% of these guys has any skill. The overwhelming majority are idiots and clueless about the markets and should not be managing money.
The only bigger idiots are the institutions that buy into their pitches and invest with them.
Barton made his name with the bull market of the 80s. What is it that they say, do not confuse a bull market with brains?
Interestingly, Charles Reinhardt of Morgan Stanley is another uber bull equity whore that was predicting a multi year bull market at precisely the top on the S&P 500 in May.
Wall Street has truly become a wasteland and is being exposed for what it is - a bunch of talent less over paid back stabbers that will do anything to make a buck.
You would do well to ignore ALL advice you receive from investment companies, whether in the U.S. or India.
Barton Biggs was consistently bullish through S&P 880 and the market bottomed at 666.
Then in May of this year, we had Barton Biggs on Bloomberg when the S&P was around 1180 telling us that the economic recovery was strong and he saw another 15% upside in the markets.
As more of these bull market gurus fall, all it does is convince me that the entire pay structure for fund managers and Wall Street is skewed and this will be corrected before all is said and done.
Less than 1% of these guys has any skill. The overwhelming majority are idiots and clueless about the markets and should not be managing money.
The only bigger idiots are the institutions that buy into their pitches and invest with them.
Barton made his name with the bull market of the 80s. What is it that they say, do not confuse a bull market with brains?
Interestingly, Charles Reinhardt of Morgan Stanley is another uber bull equity whore that was predicting a multi year bull market at precisely the top on the S&P 500 in May.
Wall Street has truly become a wasteland and is being exposed for what it is - a bunch of talent less over paid back stabbers that will do anything to make a buck.
You would do well to ignore ALL advice you receive from investment companies, whether in the U.S. or India.
Friday, July 2, 2010
A Bubble In Optimism While the World Is Sinking
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We are bombarded from all corners of the country, the media, the television, the neighbors, the internet about how India's growth is unstoppable.
The World Is Flat is a classic and bible of business. Business titles about management, creativity, success dominate bookstore displays. Thomas Friedman is the God of Business in a country that is comfortable with many Gods. Consensus thinking rules and to be skeptical is akin to being unpatriotic. It is a reasonable and understandable sentiment pervading the country.
Indians spent 50 years of being mauled by government policies that promoted corruption while suppressing the entrepreneurial spirit of the people. India is finally an arguably open market.
The populace is bought into the growth story. As with all bubbles, this one will only be evident after the fact. Property prices have risen almost a 100 fold in many instances. Not 100%, a 100 fold. Yet the prevailing sentiment is that property prices will continue to rise. An apartment in Gurgaon costs roughly $400,000 which would be enough these days to buy a mansion on the ocean in California. Prices in India are no longer cheaper than the rest of the world. Purchasing power parity has arrived for goods. Compensation however is not keeping up. Average salaries still hover under $25,000 a year for all except the businessman and higher level corporate executive.
India's success came about as a result of India's cost advantages and economic reform. Economic reforms continue but the cost advantages are starting to disappear. Companies are now turning to villages to find cheap sources of capital. But incremental business on the margin is being lost to the Phillipines and South America, Romania.
No country is an island. Particularly not today. Europe is struggling with massive debt and potential sovereign defaults. The U.S. is not far behind but benefits from the ability to print unlimited amounts of the world's reserve currency and have debts denominated in dollars. Yet I am told that Africa and islands in the southeast are growing and flourishing and will pick up the slack.
The most worrisome aspect is that Europe and the U.S. - the major markets for Indian exports - are in a deflationary vortex and a double dip recession is likely in the cards the second half of this year. Europe has had a devaluation of its currency by around 20% which is another way of saying Indian exports just got 20% more expensive to that region. China is slowing down dramatically as it is becoming apparent to the rest of the world that the growth story there was really a bubble that owes its origins to the now moribund U.S. consumer.
Worry not, I am told. Government spending and domestic demand will pick up the slack. Unfortunately, the lesson of the past 2 years from the U.S. and countless other countries over decades is that government spending is rarely an efficient use of capital and its effects are temporary and usually not multiplicative. Much depends on the monsoon and optimism about the monsoon is justified by the weather forecasters, which may be the only profession with predictive powers worse than those of economists.
Investing is about the future, not the past. The market already recognizes the growth of the Indian market over the past few years and it is priced in the valuation of stocks. The future however seems far more doubtful.
Japan was anointed the new superpower before a dramatic 20 year decline that continues. The Tiger economies were dominant in the 1990s and anointed kings untill a dramatic collapse in 1997-1998. China was anointed the next heir to the throne but the fall from the throne looks to be quite nasty. It is India's turn. Will India deliver where others have failed. The consensus thinks so. The consensus is usually wrong.
Apple We are bombarded from all corners of the country, the media, the television, the neighbors, the internet about how India's growth is unstoppable.
The World Is Flat is a classic and bible of business. Business titles about management, creativity, success dominate bookstore displays. Thomas Friedman is the God of Business in a country that is comfortable with many Gods. Consensus thinking rules and to be skeptical is akin to being unpatriotic. It is a reasonable and understandable sentiment pervading the country.
Indians spent 50 years of being mauled by government policies that promoted corruption while suppressing the entrepreneurial spirit of the people. India is finally an arguably open market.
The populace is bought into the growth story. As with all bubbles, this one will only be evident after the fact. Property prices have risen almost a 100 fold in many instances. Not 100%, a 100 fold. Yet the prevailing sentiment is that property prices will continue to rise. An apartment in Gurgaon costs roughly $400,000 which would be enough these days to buy a mansion on the ocean in California. Prices in India are no longer cheaper than the rest of the world. Purchasing power parity has arrived for goods. Compensation however is not keeping up. Average salaries still hover under $25,000 a year for all except the businessman and higher level corporate executive.
India's success came about as a result of India's cost advantages and economic reform. Economic reforms continue but the cost advantages are starting to disappear. Companies are now turning to villages to find cheap sources of capital. But incremental business on the margin is being lost to the Phillipines and South America, Romania.
No country is an island. Particularly not today. Europe is struggling with massive debt and potential sovereign defaults. The U.S. is not far behind but benefits from the ability to print unlimited amounts of the world's reserve currency and have debts denominated in dollars. Yet I am told that Africa and islands in the southeast are growing and flourishing and will pick up the slack.
The most worrisome aspect is that Europe and the U.S. - the major markets for Indian exports - are in a deflationary vortex and a double dip recession is likely in the cards the second half of this year. Europe has had a devaluation of its currency by around 20% which is another way of saying Indian exports just got 20% more expensive to that region. China is slowing down dramatically as it is becoming apparent to the rest of the world that the growth story there was really a bubble that owes its origins to the now moribund U.S. consumer.
Worry not, I am told. Government spending and domestic demand will pick up the slack. Unfortunately, the lesson of the past 2 years from the U.S. and countless other countries over decades is that government spending is rarely an efficient use of capital and its effects are temporary and usually not multiplicative. Much depends on the monsoon and optimism about the monsoon is justified by the weather forecasters, which may be the only profession with predictive powers worse than those of economists.
Investing is about the future, not the past. The market already recognizes the growth of the Indian market over the past few years and it is priced in the valuation of stocks. The future however seems far more doubtful.
Japan was anointed the new superpower before a dramatic 20 year decline that continues. The Tiger economies were dominant in the 1990s and anointed kings untill a dramatic collapse in 1997-1998. China was anointed the next heir to the throne but the fall from the throne looks to be quite nasty. It is India's turn. Will India deliver where others have failed. The consensus thinks so. The consensus is usually wrong.
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