Category: Your Money

Wife loves Gold. Mom loves Real Estate. Stocks are for Gamblers.

Risk taking is inherently failure prone. Otherwise, it would be called sure-thing taking. –Jim McMahon (American Football Player)

The most favored assets for the Indian middle class remains gold and real-estate. And this is not a post-global-financial-crisis story, it has remained so since my grandmother’s time. The oft cited reasons are that these are “safe” i.e.: they will not depreciate in value. And evidence over the past 20 years suggests that it has indeed been so. But will it be forever into the future?

So lets see what happened over the last few years:

Devaluation: in 1980 1 USD bought about 8 INR. Now it buys about 50 INR.

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The stock market had its share of controversies, roller-coasters and outright fraud.

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Increasing urbanization post 1990 lead to a real estate boom in the cities.

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And Gold went parabolic.

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So basically, if you ask your mom, wife or uncle, the underlying belief would be that these trends are going to continue forever.

Please allow me to make a counter-point: What is the bid-offer for all these “investments”? For gold ornaments it about 20% (try selling a bunch of old jewelry). For real estate (land) it’s a 3-6 month process and trying to sell a 5 year old residential flat might give you a heart attack.

Stocks and ETFs, on the other hand, are liquid. If you want to buy gold as part of an investment portfolio, buy GOLDBEES or if you want to buy real estate as an investment, buy a basket of RE stocks. I am not advocating an “either/or” scenario. Its just that conventional wisdom has such a strong recency bias that you need to verify why it so by taking a step back every once in a while.

Sunder’s List

Mascotte Air India / Air India Mascot

Image via Wikipedia

Our banks are stuffed with loans to KFA, Air India and Microfinance that ain’t gonna be paid back (Govt to infuse Rs 7,900cr into SBI). In the US, the credit bubble bust is a gift that keeps on giving (Over 750 Banks at Risk of Failure over Next Two Years). In Europe, banks weren’t required to keep capital aside for sovereign debt (EU Sovereign debt was risk free, until they weren’t). Quelle Différence?

Mark your calendars: March 20 – Greece has no shot in hell of paying the 14.5 billion euro bond coming due, as things stand right now. (MarketWatch)

Avoidance of significant losses is generally worth accepting even long periods of defensiveness. The Baron Rothschild investment philosophy.

FT’s interactive PMI tracker: Every country tracked excepting China looks to have bottomed out in the last quarter. (FT)

Good luck!

Spotted: Some Golden Crossings!

golden cross • swirl

Image by origamidon via Flickr

The January rally has sprouted some Golden Crosses that investors should take note. A Golden Cross is when the 50-day moving average edges atop its 200-day moving average. It indicates that the intermediate-term uptrend has overtaken the longer-term trend. Here are some stocks that formed the Golden Cross the past month: CAIRN, PIRHEALTH, TATACOMM, WIPRO.

The GC marks the spot when a bounce within a bear market transitions to a bull market. All sustained bull markets, by definition, come with the 50 DMA above the 200 DMA.

It looks like the NIFTY has some ways to go before the cross, so its not time yet to break out the champagne. However, Hang Seng index (tracked by the HNGSNGBEES) seems to have crossed over to the bull camp.

Go Bulls!

High-Frequency Trading is Hitting the BRICs

in India, the BBC noted that nearly a quarter of all trading is now done using algorithms, a number that’s virtually assured of an exponential jump as well. The Bombay Stock Exchange, a $1.5 trillion marketplace, said it expects such trading to double over the next three years, which would put that nation on par with Europe and the U.S.

via High-Frequency Trading is Hitting the BRICs – Advanced Trading.

Sunder’s List

The US is expected to grow only 1.1% in 2013, says Congressional Body. (BK)

Low cost of debt (ZIRP) encourages substitution of labour with capital in the production process. Given that 60-70% of activity in developed economies is driven by consumption, this shift reduces aggregate demand as employment and income levels decrease. (FT)

Yale’s Swensen: Index Funds Best Plan for Most (Bloomberg.) May I suggest NIFTYBEES and JUNIORBEES?

Scary European unemployment chart du jour:

And a must see infographic.