Equities: This Time Is Not Different

This should silence those who have doubted the current equity rally under the pretext that this time is different. Equities seem to rally despite the prospect of weak growth in the near-term. And that is the way it should be - equities are a claim to extremely long duration cashflows.




Source: Reinart and Rogoff;"Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison"

Going for Gold

It has been really busy. The call on Russian equities is working really well. Meanwhile, I have invested in gold miners. No, I am no gold bug. I am not a believer in hyper-inflation either. Yet, I think gold will prove to be a good investment over the next few years.

My reason is simple. The economic outlook that we face is fat-tailed. The private sector sector delevering underway is creating deflationary headwinds. The authorities are countering that by spending and keeping interest rates low for long; leading to long-term inflationary concerns.

The fat tailed economic outlook creates a skew in the expected inflation distribution. Democratic governments will go for inflation if pushed to the corner. And, that's all you need for gold to go up.

Russia to Play Catch Up

Bank of Russia was Hiking to Protect the Ruble When Everyone was Easing Policy...



...Not a Surprise that Russian Equities Lagged



I bought RSX eventhough it has rallied significantly from the lows. It is still cheap and will play catch up in the reflation theme. The ruble is now on firm ground and that should help the central bank to aid the recovery.

Cycle dominates Seasonals

No September Effect in 2003




No January Effect in 2008



A number of articles were floating around in August highlighting the negative seasonals for September. Looks like September 2009 will turn out just fine, just like 2003.

India's Water Crisis and the Stock that will Benefit

When the rains fail

Jain Irrigation is the stock I am betting on.

INR Looks Cheap on a Trade-Weighted Basis

INR: 36-Country Nominal Effective Exchange Rate




INR: 36-Country Real Effective Exchange Rate



My initial view was that the US recovers first. That is clearly not the case. In the initial phase of the recovery, both - rising risk appetite (equity rally) and interest rate differentials - should work against the US dollar. The rupee looks cheap and December 2009 forwards are pricing in rupee depreciation of about 1%. Both these factors should help if the dollar starts to strengthen.

Relative Value in Russian Equities

‘Dummy’ Day-Traders Whipsawing Russia Signals Buy

Completely agree. If this recovery is for real, Russian equities could deliver stellar returns.