I have no doubts about the intelligence of Indians and the fact that the vast majority of us are against corruption and interested in the nation's growth and prosperity. However, despite all the attempts being made by the Citizens and the various political parties in the country, I read a lot of gibberish & see no major ideas coming forth that could vanquish Corruption & Black Money from India in a short period of time.
May I suggest 3 simple measures that, if implemented, would bear results in no time?
#1. Give the nation 5 days to deposit all currency notes in denominations of Rs.500 & Rs.1,000 in Banks, prior to demonetizing these notes. Banks would be required to issue Debit Cards of equivalent value against the deposits received to the respective depositers. PAN Nos. of all depositers must be taken prior to issue of Debit Cards, and those without PAN Nos. should go through the UID process viz. biometrics, photographs, residence proof etc. prior to being given a claim on the funds deposited by them. The list of all deposits and depositers (with PAN Nos.) must be furnished by the Banks to the RBI (Reserve Bank of India) and the Income Tax Deptartment. Thereafter, no currency note of a denomination exceeding Rs.100 should be put back in circulation, as all transactions involving higher amounts would be through Debit/Credit Cards only and through Banking Channels.
Result: End of Black Money, Inflation & Counterfeit Currency in one stroke; while GDP & Tax collections would shoot up.
#2. Any payments made in excess of Rs.1000 in Cash should be subject to TDS & must be accompanied by the PAN No. of person/party receiving the money. Issuance of a Cash Receipt should be made mandatory and in case such a receipt is not furnished, it should be considered a Crime & made punishable under the provisions of the IPC (Indian Penal Code).
Result: End of bribes & corruption.
#3. A last chance be given to any resident Indian with deposits in overseas accounts (largely Swiss Banks with an estimated US$1.5 trillion of deposits from Indians) to bring back the funds to India through a Special Amnesty Scheme whereby all the Funds would go into "Zero Coupon 10 Year Infrastructure Bonds" failing which all deposits/depositers would be investigated & imprisoned (if & when proven guilty) apart from such funds being seized. Upon maturity i.e. after 10 years, such amounts would be returned in Indian Rupees at the US$:INR parity prevailing then. This could take RBI's Forex Reserves up to US$1.8 trillion from the US$ 290 billion currently, thereby affecting the exchange rate of the Indian Rupee. I suspect that the US$ after 10 years may not be worth more than Rs.20 (hence, the Government would borrow at a current exchange rate of around Rs.50 to a US$, but, redeem close to Rs.20 to a US$), as with these funds & infrastructure in place India could record GDP Growth in excess of 15% per annum consistently, and become the second largest (if not the largest) economy in the world by the next decade.
Result: Huge build up of infrastructure at a very low cost & consistently high GDP growth accompanied by the strengthening of the INR and bridging our balance of trade position.
WHERE THERE IS A WILL THERE IS A WAY!
Saturday, March 24, 2012
Wednesday, July 13, 2011
Modernites show us the way to a cleaner environment
A Group of students from Modern School, Barakhamba Road displayed that they are as aware of the problem of urban waste management as they are concerned about preserving their environment.
Each year the Vinod Dixit Foundation - named after late Mr. Vinod Dixit, himself a Modernite and a member of the Indian Administrative Service, son of noted independence activist, a former Governor and Cabinet Minister, Shri. Umashankar Dixit and husband of Delhi Chief Minister, Mrs. Sheila Dixit- selects a few projects undertaken by groups of students from Modern School that broaden the horizon of the students beyond the confines of the syllabus and classroom and take them into the wider areas of enquiry, understanding and knowledge. For this purpose, projects on a wide variety of topics are considered ranging from science exploration to music and theatre to social service.
This year one such group of students from Modern School, Barakhamba Road decided to do something meaningful about the challenge that solid waste disposal presents in urban metros. Led by Aditya Bhavnani, the group also comprised of Akshat Arora, Padmavathy Ramanarayanan, Meher Tandon and Parnika Mehra, all students of XI Standard. Aditya’s idea of undertaking a project that was self sustaining and helped reduce the menace of solid waste, hence, protecting the environment was agreed upon by his team and selected by his School before being given the go-ahead by the Vinod Dixit Foundation in May 2011.
With a sanctioned budget of a mere eight hundred rupees, these school children went ahead with a six week long project in their Summer Vacations despite Delhi’s soaring temperatures. The project essentially involved identifying a Housing Society wherein the residents were made aware of the threat posed by non-bio degradable solid waste to the environment, as a first step. Garbage from houses contains a large component of plastic through milk pouches, plastic containers, P.E.T. bottles, caps etc. which are not bio degradable and hence pose a major threat to the environment.
The students identified The Yamuna Co-Op Group Housing Society Ltd. near Alakhnanda in South Delhi as the one where they would undertake their project. After getting the approval of the Society, they interacted with the residents and distributed plastic bags to each of the 195 apartments in the complex, with a request that all plastic waste be collected in these bags. Thereafter, they collected this waste from each of the apartments on a weekly basis and consolidated it in a room given to them by the Society for this purpose. At the end of the six weeks project duration, these environmentally conscious students managed to gather 103 kg of plastic waste, which they transported and sold to a plastic recycler for a sum of one thousand and fifty rupees. This amount was then donated to the Society after demonstrating that this was a self sustaining exercise and beneficial to the residents of the society and the environment, both.
If Resident Associations across the country were to adopt the model that these young students have built and proven, it would clearly lead to a cleaner and greener environment while simultaneously making residents more environmentally conscious and reducing the strain on already stretched municipal resources. It is clear that our youngsters are concerned about their environment and want to do something about its further deterioration before it is too late. Organisations like the Vinod Dixit Foundation and its patrons and schools like Modern School need to be lauded at their efforts in getting youngsters to think and act on evils plaguing our society and environment. As citizens of this country, we need to start that change rather than waiting for it to happen!
Each year the Vinod Dixit Foundation - named after late Mr. Vinod Dixit, himself a Modernite and a member of the Indian Administrative Service, son of noted independence activist, a former Governor and Cabinet Minister, Shri. Umashankar Dixit and husband of Delhi Chief Minister, Mrs. Sheila Dixit- selects a few projects undertaken by groups of students from Modern School that broaden the horizon of the students beyond the confines of the syllabus and classroom and take them into the wider areas of enquiry, understanding and knowledge. For this purpose, projects on a wide variety of topics are considered ranging from science exploration to music and theatre to social service.
This year one such group of students from Modern School, Barakhamba Road decided to do something meaningful about the challenge that solid waste disposal presents in urban metros. Led by Aditya Bhavnani, the group also comprised of Akshat Arora, Padmavathy Ramanarayanan, Meher Tandon and Parnika Mehra, all students of XI Standard. Aditya’s idea of undertaking a project that was self sustaining and helped reduce the menace of solid waste, hence, protecting the environment was agreed upon by his team and selected by his School before being given the go-ahead by the Vinod Dixit Foundation in May 2011.
With a sanctioned budget of a mere eight hundred rupees, these school children went ahead with a six week long project in their Summer Vacations despite Delhi’s soaring temperatures. The project essentially involved identifying a Housing Society wherein the residents were made aware of the threat posed by non-bio degradable solid waste to the environment, as a first step. Garbage from houses contains a large component of plastic through milk pouches, plastic containers, P.E.T. bottles, caps etc. which are not bio degradable and hence pose a major threat to the environment.
The students identified The Yamuna Co-Op Group Housing Society Ltd. near Alakhnanda in South Delhi as the one where they would undertake their project. After getting the approval of the Society, they interacted with the residents and distributed plastic bags to each of the 195 apartments in the complex, with a request that all plastic waste be collected in these bags. Thereafter, they collected this waste from each of the apartments on a weekly basis and consolidated it in a room given to them by the Society for this purpose. At the end of the six weeks project duration, these environmentally conscious students managed to gather 103 kg of plastic waste, which they transported and sold to a plastic recycler for a sum of one thousand and fifty rupees. This amount was then donated to the Society after demonstrating that this was a self sustaining exercise and beneficial to the residents of the society and the environment, both.
If Resident Associations across the country were to adopt the model that these young students have built and proven, it would clearly lead to a cleaner and greener environment while simultaneously making residents more environmentally conscious and reducing the strain on already stretched municipal resources. It is clear that our youngsters are concerned about their environment and want to do something about its further deterioration before it is too late. Organisations like the Vinod Dixit Foundation and its patrons and schools like Modern School need to be lauded at their efforts in getting youngsters to think and act on evils plaguing our society and environment. As citizens of this country, we need to start that change rather than waiting for it to happen!
Thursday, April 7, 2011
India comes together!
What a week this has been! Soon after India came together as one on the 2nd of April when MS Dhoni & his Men in Blue lifted the World Cup, within a span of 48 hours we have the nation standing as one behind Anna Hazare. The World Cup victory brought out the patriot in every Indian across the world regardless of caste, creed, language, state, religion, financial standing or political affiliations. Electronic media kept everyone updated and connected as events unraveled. Maybe a hangover of that euphoric feeling of victory coupled with bubbling patriotism amongst 1.2 billion Indians, have driven the same lot to now achieve another victory – this time against corruption.
A series of scams involving politicians and bureaucrats in high offices had shaken the conscience of the nation over the past few months. Despite public outcry, it was felt that no worthwhile investigations were being conducted and that the offenders would get away scot free. This is because of several systemic deficiencies in our anti-corruption systems and because for several decades now, politicians have controlled the system itself to their advantage, as such the enforcement and legislative checks have lacked teeth. A Lok Pal Bill has been languishing in Parliament for 43 years and even if it is finally passed, will again lack the teeth to effectively discourage or punish offenders in high positions. With an estimated USD 1.5 trillion of unaccounted deposits in Swiss Banks, Indian politicians and bureaucrats are possibly the richest of the most corrupt in the world. Recent scams include the Common Wealth Games, 2G Telecom scam, UP rice scam, Cash for Votes, Adarsh Housing, LIC Housing, Karnataka Land scam etc. which have shocked Indian citizens by the sheer greed of our public servants.
Enter Anna Hazare, a 73-year-old Gandhian, who decided it was time to end corruption in India by pushing through a bill that would give an independent body the power to punish corruption even in the highest public offices of the nation. This “Modern Mahatma” is taking the utmost act of courage and determination selflessly by commencing his fast-until-death unless he gets the powers that be to accept his version of the Jan Lok Pal Bill as an Act in Parliament. His fast has entered its third day today and suddenly citizens across the country (and non-residents settled abroad) who had possibly never heard of Anna are standing up in his support in millions.
Anna Hazare’s campaign is not aligned to or against any political party, as he feels that every political party has misused its position whenever they have been in power. Therefore, it is extremely important that the citizens of this country unite to demand systemic changes. Towards that goal he, along with noted social activists & leaders including Sri Sri Ravishankar, Kiran Bedi, Prashant Bhushan, Arvind Kejriwal, Reverend Vincent M Concessao, Swami Agnivesh, Mufti Shamoon Qasmi, Mallika Sarabhai, Maulana Kalbe Rushaid Rizvi, Justice D S Tevatia, former joint director of CBI B.R. Lall-and several others’ have designed a citizen-developed bill called the Jan Lokpal Bill which has strong measures to bring all corrupt people to book, whether they are corporates, bureaucrats or politicians.The Bill aims to create an independent body, selected by judges, citizens and constitutional authorities, with enough power to investigate and punish all politicians. No minister or bureaucrat will be able to influence its investigations. Since 1968, when this bill was first introduced, greedy politicians have thwarted its passing. Now the government is pushing for a watered down Lokpal with no hope of ending fraud, vice and dishonesty -- it gives politicians overriding power to decide who will be investigated, and is a complete sellout.
Pressure is mounting on India’s cleanest Prime Minister Dr. Manmohan Singh to endorse the "Jan" Lokpal. Members of the opposition party have begun to make the right noises in support of Anna Hazare. And even the National Advisory Council, a powerful advisory body to Mrs. Sonia Gandhi have come out in favour of the bill. But corrupt politicians and vested interests are doing all they can to kill it, for obvious reasons. The rate at which people are signing petitions in support of “India Against Corruption” , Tweeting and finding support for the Cause on Facebook apart from the several thousands who are swarming Jantar Mantar at New Delhi where Anna is fasting, or those doing candle walks in several cities across India or the Dandi March from San Diego to San Fancisco, goes to show that the cause has become a movement in less than sixty hours. If the demands are not accepted soon, it may just become a Revolution!
So, is India going to go the way of Egypt, Yemen, Libya, Bahrain etc.? Not really. Anna Hazare is protesting the Gandhian way, peaceful and non-violent. The Government cannot afford to let his fast continue and as such, I believe that an amicable solution will be reached by discussion by the weekend. With a clean PM like Dr. Singh in place and a selfless social activist like Anna Hazare on the other side, the Jan Lokpal Bill will soon become a reality, paving the way for a new India where development, inclusive growth and the well being of its people become the driving engines, replacing the misguided self-interest of corrupt public servants.
Here’s to a new found hope and the well being of Anna Hazare… ,
A series of scams involving politicians and bureaucrats in high offices had shaken the conscience of the nation over the past few months. Despite public outcry, it was felt that no worthwhile investigations were being conducted and that the offenders would get away scot free. This is because of several systemic deficiencies in our anti-corruption systems and because for several decades now, politicians have controlled the system itself to their advantage, as such the enforcement and legislative checks have lacked teeth. A Lok Pal Bill has been languishing in Parliament for 43 years and even if it is finally passed, will again lack the teeth to effectively discourage or punish offenders in high positions. With an estimated USD 1.5 trillion of unaccounted deposits in Swiss Banks, Indian politicians and bureaucrats are possibly the richest of the most corrupt in the world. Recent scams include the Common Wealth Games, 2G Telecom scam, UP rice scam, Cash for Votes, Adarsh Housing, LIC Housing, Karnataka Land scam etc. which have shocked Indian citizens by the sheer greed of our public servants.
Enter Anna Hazare, a 73-year-old Gandhian, who decided it was time to end corruption in India by pushing through a bill that would give an independent body the power to punish corruption even in the highest public offices of the nation. This “Modern Mahatma” is taking the utmost act of courage and determination selflessly by commencing his fast-until-death unless he gets the powers that be to accept his version of the Jan Lok Pal Bill as an Act in Parliament. His fast has entered its third day today and suddenly citizens across the country (and non-residents settled abroad) who had possibly never heard of Anna are standing up in his support in millions.
Anna Hazare’s campaign is not aligned to or against any political party, as he feels that every political party has misused its position whenever they have been in power. Therefore, it is extremely important that the citizens of this country unite to demand systemic changes. Towards that goal he, along with noted social activists & leaders including Sri Sri Ravishankar, Kiran Bedi, Prashant Bhushan, Arvind Kejriwal, Reverend Vincent M Concessao, Swami Agnivesh, Mufti Shamoon Qasmi, Mallika Sarabhai, Maulana Kalbe Rushaid Rizvi, Justice D S Tevatia, former joint director of CBI B.R. Lall-and several others’ have designed a citizen-developed bill called the Jan Lokpal Bill which has strong measures to bring all corrupt people to book, whether they are corporates, bureaucrats or politicians.The Bill aims to create an independent body, selected by judges, citizens and constitutional authorities, with enough power to investigate and punish all politicians. No minister or bureaucrat will be able to influence its investigations. Since 1968, when this bill was first introduced, greedy politicians have thwarted its passing. Now the government is pushing for a watered down Lokpal with no hope of ending fraud, vice and dishonesty -- it gives politicians overriding power to decide who will be investigated, and is a complete sellout.
Pressure is mounting on India’s cleanest Prime Minister Dr. Manmohan Singh to endorse the "Jan" Lokpal. Members of the opposition party have begun to make the right noises in support of Anna Hazare. And even the National Advisory Council, a powerful advisory body to Mrs. Sonia Gandhi have come out in favour of the bill. But corrupt politicians and vested interests are doing all they can to kill it, for obvious reasons. The rate at which people are signing petitions in support of “India Against Corruption” , Tweeting and finding support for the Cause on Facebook apart from the several thousands who are swarming Jantar Mantar at New Delhi where Anna is fasting, or those doing candle walks in several cities across India or the Dandi March from San Diego to San Fancisco, goes to show that the cause has become a movement in less than sixty hours. If the demands are not accepted soon, it may just become a Revolution!
So, is India going to go the way of Egypt, Yemen, Libya, Bahrain etc.? Not really. Anna Hazare is protesting the Gandhian way, peaceful and non-violent. The Government cannot afford to let his fast continue and as such, I believe that an amicable solution will be reached by discussion by the weekend. With a clean PM like Dr. Singh in place and a selfless social activist like Anna Hazare on the other side, the Jan Lokpal Bill will soon become a reality, paving the way for a new India where development, inclusive growth and the well being of its people become the driving engines, replacing the misguided self-interest of corrupt public servants.
Here’s to a new found hope and the well being of Anna Hazare… ,
Friday, March 5, 2010
US Dollar Strength: Is this the recovery of confidence?
I have just returned from a reunion dinner (after over two decades) with some of my former colleagues at what was then India’s largest IT Company. The occasion was the visit of one such colleague who has been living in the US (Washington DC, to be more precise) for the past thirteen years. A few shots of Johnny Walker Swing down, brought the discussion to the IT industry, economy and the future of the world. My eyes popped open in disbelief at my dear friend’s belief in the US Government and the US economy. According to him “all is well” as the US dollar has been gaining strength (and hence is secure) and that the US has a future that India will take years to reach. I assured him that India would certainly not be either that debt-ridden nor that over-leveraged ever. We ended up making a bet – in the true “3 Idiots” way – to see who was correct exactly 5 years from now.
The US Dollar Index (also called USDX or Dollex) has been exhibiting unusual strength over the past couple of months, having risen from a level of 74.5 to almost 81.4 and thereafter refusing to budge below 80 for any reasonable period of time. I get to meet several people who have started believing that the recent strengthening of the US$ is due to the recession in the US having ended and a harbinger of good days that lie ahead. Unfortunately, few people (and even fewer Americans) really understand what is responsible for the US Dollar’s current strength.
To understand the reason’s for its recent strength, one must first realize what the US Dollar Index actually is. The US Dollar Index (USDX) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies. It is a weighted geometric mean of the dollar's value compared only with:
• Euro (EUR), 57.6% weight
• Japanese Yen (JPY), 13.6% weight
• Pound Sterling (GBP), 11.9% weight
• Canadian Dollar (CAD), 9.1% weight
• Swedish Krona (SEK), 4.2% weight and
• Swiss Franc (CHF) 3.6% weight.
USDX started in March 1973, soon after the dismantling of the Bretton Woods system (in 1971) wherein, the United States unilaterally terminated convertibility of the dollar to gold, thereby making the US Dollar the reserve currency of the world. At its start, the value of the US Dollar Index was 100.00. It has since traded as high as the mid-160s and as low as 70.698 on March 16, 2008, the lowest since its inception in 1973. The makeup of the "basket" has been altered only once, when several European currencies were subsumed by the Euro at the start of 1999.
The recent strength of the USDX is more because of the massive erosion in the value of the Euro on account of the infamous sovereign defaults of the PIGS (Portugal, Ireland, Greece & Spain) and the recession in the UK and the consequent fall in the Pound Sterling. Also most traders who had earlier shorted the US$, have covered their positions and gone long, while creating shorts in the Euro - to add to the woes of the European Union. These longs would give way to fresh shorts, once the traders realize that there is more to lose than gain in carrying forward these positions.
The Western world is still in a state of disarray and it is highly unlikely that it will come out of this mess by printing more fiat currencies and creating further debt. The basket of currencies that determined the USDX in the seventies, itself is today more representative of financial turmoil that these so called developed nations have created for other nations. I don’t see much hope of any sustainable long term financial order coming from most of the countries that form either the basket of currencies or the reserve currency. The answer will have to come from Asia, whose demographic & GDP growth coupled with internal consumption and high savings rates will have to provide the world with an alternate to dying Western economies with high deficits.
There are some fundamental reasons as to why the US dollar is in trouble long term and why the precious metals sector and the commodities sector stands to benefit from these dollar woes.
1. The US has a massive current account deficit since 1990s, which only seems to be getting bigger. Economists may play with the numbers by stating that one month is less than the other and so forth, but the trend is visibly up. It now comes close to 6% of the total economic activity in the US.
2. The US needs to attract a whopping 1.8 billion dollars a day to compensate for the current account gap. A trend that is simply unsustainable.
3. The US has a national debt of $12.4 trillion and increasing. However, this does not take into consideration several unfunded liabilities such as Social Security and Medicare. If these are combined, the debt levels soar to well unimaginable levels and clearly present a picture that the ablest (most corrupt) of men in the Treasury or the Fed would not be in a position to defend.
4. 44 states out of the 50 in the US are facing budget shortfalls. California is leading the way as it is expected to spend 50% more than it will generate this year. Since 2007, US states have collectively spent 300 billion more than they have generated. These deficits mean higher taxes and so far 33 states have raised taxes, but collections have plummeted to their worst levels in 46 years; as you cannot squeeze water out of a rock! No jobs means no revenues but states are selling new bonds at record rates to raise funds. If this is not a sure recipe for long term disaster, what is?
5. Eventually the Fed is going to have to raise rates to continue attracting the huge amounts of money it needs to function. Overseas investors are going to start demanding higher rates. Higher rates will kill any fragile economic recovery that the US may be beginning to see. Precious metals thrive in a high interest rate environment. From a long term perspective the bull market in precious metals has only just begun.
6. While Government officials talk big about a strong dollar policy, they actually favour a weak dollar. This serves two purposes, it helps increase exports and it allows the government to pay its debt with lower valued dollars. As long as the Government continues to borrow at these mind boggling rates, it is going to unofficially favour a weak dollar.
7. By inflating the money supply, the government is imposing a nefarious silent killer tax on the masses. The only way to hedge against this outright theft is to hedge yourself by getting into hard assets (meaning precious metals, oil, agri-products etc).
Watch your step & de-risk your investments. If you have to play stocks, move into markets that have local consumption along with high savings & GDP growth rates. If it is paper currencies, stay away from the Euro, the US$ & the Dhiram – You may want to look at the Swiss Franc or the Australian $ or even the Singapore $. If it is precious metals & commodities that you favour, do look closely at whether your EFTs actually hold physical bullion or they are relying on paper trades through COMEX etc. You may just be safer holding physical Gold & Silver.
The US Dollar Index (also called USDX or Dollex) has been exhibiting unusual strength over the past couple of months, having risen from a level of 74.5 to almost 81.4 and thereafter refusing to budge below 80 for any reasonable period of time. I get to meet several people who have started believing that the recent strengthening of the US$ is due to the recession in the US having ended and a harbinger of good days that lie ahead. Unfortunately, few people (and even fewer Americans) really understand what is responsible for the US Dollar’s current strength.
To understand the reason’s for its recent strength, one must first realize what the US Dollar Index actually is. The US Dollar Index (USDX) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies. It is a weighted geometric mean of the dollar's value compared only with:
• Euro (EUR), 57.6% weight
• Japanese Yen (JPY), 13.6% weight
• Pound Sterling (GBP), 11.9% weight
• Canadian Dollar (CAD), 9.1% weight
• Swedish Krona (SEK), 4.2% weight and
• Swiss Franc (CHF) 3.6% weight.
USDX started in March 1973, soon after the dismantling of the Bretton Woods system (in 1971) wherein, the United States unilaterally terminated convertibility of the dollar to gold, thereby making the US Dollar the reserve currency of the world. At its start, the value of the US Dollar Index was 100.00. It has since traded as high as the mid-160s and as low as 70.698 on March 16, 2008, the lowest since its inception in 1973. The makeup of the "basket" has been altered only once, when several European currencies were subsumed by the Euro at the start of 1999.
The recent strength of the USDX is more because of the massive erosion in the value of the Euro on account of the infamous sovereign defaults of the PIGS (Portugal, Ireland, Greece & Spain) and the recession in the UK and the consequent fall in the Pound Sterling. Also most traders who had earlier shorted the US$, have covered their positions and gone long, while creating shorts in the Euro - to add to the woes of the European Union. These longs would give way to fresh shorts, once the traders realize that there is more to lose than gain in carrying forward these positions.
The Western world is still in a state of disarray and it is highly unlikely that it will come out of this mess by printing more fiat currencies and creating further debt. The basket of currencies that determined the USDX in the seventies, itself is today more representative of financial turmoil that these so called developed nations have created for other nations. I don’t see much hope of any sustainable long term financial order coming from most of the countries that form either the basket of currencies or the reserve currency. The answer will have to come from Asia, whose demographic & GDP growth coupled with internal consumption and high savings rates will have to provide the world with an alternate to dying Western economies with high deficits.
There are some fundamental reasons as to why the US dollar is in trouble long term and why the precious metals sector and the commodities sector stands to benefit from these dollar woes.
1. The US has a massive current account deficit since 1990s, which only seems to be getting bigger. Economists may play with the numbers by stating that one month is less than the other and so forth, but the trend is visibly up. It now comes close to 6% of the total economic activity in the US.
2. The US needs to attract a whopping 1.8 billion dollars a day to compensate for the current account gap. A trend that is simply unsustainable.
3. The US has a national debt of $12.4 trillion and increasing. However, this does not take into consideration several unfunded liabilities such as Social Security and Medicare. If these are combined, the debt levels soar to well unimaginable levels and clearly present a picture that the ablest (most corrupt) of men in the Treasury or the Fed would not be in a position to defend.
4. 44 states out of the 50 in the US are facing budget shortfalls. California is leading the way as it is expected to spend 50% more than it will generate this year. Since 2007, US states have collectively spent 300 billion more than they have generated. These deficits mean higher taxes and so far 33 states have raised taxes, but collections have plummeted to their worst levels in 46 years; as you cannot squeeze water out of a rock! No jobs means no revenues but states are selling new bonds at record rates to raise funds. If this is not a sure recipe for long term disaster, what is?
5. Eventually the Fed is going to have to raise rates to continue attracting the huge amounts of money it needs to function. Overseas investors are going to start demanding higher rates. Higher rates will kill any fragile economic recovery that the US may be beginning to see. Precious metals thrive in a high interest rate environment. From a long term perspective the bull market in precious metals has only just begun.
6. While Government officials talk big about a strong dollar policy, they actually favour a weak dollar. This serves two purposes, it helps increase exports and it allows the government to pay its debt with lower valued dollars. As long as the Government continues to borrow at these mind boggling rates, it is going to unofficially favour a weak dollar.
7. By inflating the money supply, the government is imposing a nefarious silent killer tax on the masses. The only way to hedge against this outright theft is to hedge yourself by getting into hard assets (meaning precious metals, oil, agri-products etc).
Watch your step & de-risk your investments. If you have to play stocks, move into markets that have local consumption along with high savings & GDP growth rates. If it is paper currencies, stay away from the Euro, the US$ & the Dhiram – You may want to look at the Swiss Franc or the Australian $ or even the Singapore $. If it is precious metals & commodities that you favour, do look closely at whether your EFTs actually hold physical bullion or they are relying on paper trades through COMEX etc. You may just be safer holding physical Gold & Silver.
Monday, December 14, 2009
Gold: Is the dream run over?
The fall in Gold prices (from US$ 1225 to $ 1115 levels) over the last few days, has got a lot of people worried that maybe, Gold was a bubble and that its dream run is now over. With that in mind, I wanted to take a few minutes today to map out my thoughts and readings on this subject.
So where is Gold going from here?
This actually is a very tricky subject to analyze because there is such a confluence of factors. Indeed, even if we go from what history shows us, we get mixed messages.
For starters, Gold has outperformed every asset class on the planet for the last 10 years. The last bull market in Gold lasted roughly ten years, running from 1970 to 1980. So strictly looking at Gold from a timing perspective (with no eye to fundamentals, inflation forecasts, etc.) this current Bull market is looking a little like close to ending by 2010.
In contrast, from a gains perspective, Gold looks like it’s just getting started. During the last bull market in gold, the precious metal rose 2,329% from a low of $35 in 1970 to a high of $850 in 1980. From mid-1971 to December 1974, gold rose 471%. It then fell 50% from December ’74 to August ’76. After that, it began its next leg up, exploding 750% higher from August ’76 to January 1980.
In its current bull market (2000 to today) Gold has followed a similar pattern albeit at a much slower pace. The precious metal took nearly twice as long to complete its first leg up (2000-2007) rallying 300+% ($250 to $1,032).
Then, just like during the last Gold bull market, the precious metal staged an 18-month correction (Feb 2007-September 2009) though this time around it only fell 30% rather than the full 50% retracement in the ‘70s. Gold then erupted into its second major leg up a few months ago, tearing through the $1,000 price point and soaring to over $1,200+.
Here’s a chart detailing the two decades:
GOLD Bull market of ‘70s Current Bull Market
First leg up 1971-74 (471%) 2001-07 (312%)
Correction 1974-76 (-50%) 2007-09 (-30%)
Second leg up 1976-80 (750%) 2009-? (?%)
If Gold were to follow the historic trends of its last Bull Market, one could argue, from a gains perspective, that the precious metal has only just begun its second leg higher. And if history is any guide, this leg will be the big one (last time around Gold rallied 750% which would forecast a move to $7000 per ounce in today’s Dollars).
Thus, history is showing us two very different points of view. In terms of timing, this current Gold bull market is looking pretty old (if history serves as a guide it will end in 2011). However, from a historic gains perspective, Gold’s bull market is still very much in its infancy.
Another way of looking at the price of Gold is simply as a reference point for fiat currencies. If your currency is strengthening (e.g. AUD), gold prices quoted in your home currency will decline. If, on the other hand, your currency is weakening (e.g. USD), gold prices quoted in your home currency will rise. Much of gold's move in USD terms is due to the depreciation of the USD. So in real terms, gold hasn't actually appreciated as much as it seems till now. Several experts have claimed that Gold would hit the US$ 2300 mark by 2011, which is the inflation-adjusted price of Gold in 1980.
In his book “Sub Prime Resolved” Anil Selarka reasons, based on evidence and official figures compiled from the Fed & the US Treasury that, “United States has lost almost 78% of its gold through covert lending practices to certain banks, investment banks and hedge funds to depress the gold prices with intent to control the inflation numbers to help them justify lower interest rates”. An excerpt from his book follows:
“The FED and Treasury appear to have been concealing lending of gold to hedge funds by camouflaging transactions through various central banks. When those Central Banks lend to these hedge funds to short the gold, they appear to claim the gold from Fed and Treasury who earmark the gold in its balance sheets. In other words, the earmarked gold shown in Fed / Treasury balance sheets is in fact owned by foreign Central Bankers and is no longer owned by the United States. If the shorted gold does not return to Fed / Treasury, they will be obliged to show it as “sale” one day. That day of reckoning will come when the Foreign Central Banks start demanding the gold physically.
According to my own research almost 6100 tons of gold earmarked in the Fed/Treasury balance sheets are non-returnable. The hedge funds who shorted it at prices $260 to $360 can not buy back at today’s prices. If they can not return, their deposits will be at the most forfeited. In other words, the Fed/Treasury will be forced to recognize the forced sale of gold @ $260 to $360 or more, but not more than $430 at the most. That is, Americans have lost their most valuable and prized asset – Gold – due to fraud perpetrated by the Fed/Treasury officials. It happened without their knowledge because the Fed/Treasury balance sheets were never audited. The office of OCC (Office of Controller of Currency) conducts only physical verification of the gold, not the true ownership. This is why Ron Paul, Senator, introduced a bill to audit the books of Fed. That is not enough. The gold is handled mainly by US treasury – Fed merely manages the operational part.”
Building on the theory, he goes on to justify a price target of US$ 6400 per oz. for gold!
Taking a closer look at US history, the 70's bull market in gold seems to have been a result of a currency crisis that resulted from President Richard Nixon dropping the gold standard – an act which many refer to as “unconstitutional”. The ensuing increase in gold prices was a result of the excessive printing of the fiat currency (namely the US$) that had taken place prior to dropping the gold standard (while US citizens were prohibited from trading their dollars for real money i.e. Gold). Once it was legalized again, there was a decade long rush for the exits. This was also reflected in the inflation rate. Volcker put an end to the currency crisis by raising interest rates above the inflation rate.
That bought the US ten years of prosperity, which were then followed by ten years of excess under Greenspan, which resulted in the currency crisis that the US is facing now. The difference between 1980s and today is that now the US has a huge debt to deal with, which will prevent it from raising interest rates. Once the monetary inflation that has already taken place starts hitting prices, look out! There won't be a way to stop it. The dollar is on the verge of death, and the only way that individual investors are going to be able to avoid the knockout blow is to get into gold, silver, or some other tangible asset or commodity.
Happy investing!
So where is Gold going from here?
This actually is a very tricky subject to analyze because there is such a confluence of factors. Indeed, even if we go from what history shows us, we get mixed messages.
For starters, Gold has outperformed every asset class on the planet for the last 10 years. The last bull market in Gold lasted roughly ten years, running from 1970 to 1980. So strictly looking at Gold from a timing perspective (with no eye to fundamentals, inflation forecasts, etc.) this current Bull market is looking a little like close to ending by 2010.
In contrast, from a gains perspective, Gold looks like it’s just getting started. During the last bull market in gold, the precious metal rose 2,329% from a low of $35 in 1970 to a high of $850 in 1980. From mid-1971 to December 1974, gold rose 471%. It then fell 50% from December ’74 to August ’76. After that, it began its next leg up, exploding 750% higher from August ’76 to January 1980.
In its current bull market (2000 to today) Gold has followed a similar pattern albeit at a much slower pace. The precious metal took nearly twice as long to complete its first leg up (2000-2007) rallying 300+% ($250 to $1,032).
Then, just like during the last Gold bull market, the precious metal staged an 18-month correction (Feb 2007-September 2009) though this time around it only fell 30% rather than the full 50% retracement in the ‘70s. Gold then erupted into its second major leg up a few months ago, tearing through the $1,000 price point and soaring to over $1,200+.
Here’s a chart detailing the two decades:
GOLD Bull market of ‘70s Current Bull Market
First leg up 1971-74 (471%) 2001-07 (312%)
Correction 1974-76 (-50%) 2007-09 (-30%)
Second leg up 1976-80 (750%) 2009-? (?%)
If Gold were to follow the historic trends of its last Bull Market, one could argue, from a gains perspective, that the precious metal has only just begun its second leg higher. And if history is any guide, this leg will be the big one (last time around Gold rallied 750% which would forecast a move to $7000 per ounce in today’s Dollars).
Thus, history is showing us two very different points of view. In terms of timing, this current Gold bull market is looking pretty old (if history serves as a guide it will end in 2011). However, from a historic gains perspective, Gold’s bull market is still very much in its infancy.
Another way of looking at the price of Gold is simply as a reference point for fiat currencies. If your currency is strengthening (e.g. AUD), gold prices quoted in your home currency will decline. If, on the other hand, your currency is weakening (e.g. USD), gold prices quoted in your home currency will rise. Much of gold's move in USD terms is due to the depreciation of the USD. So in real terms, gold hasn't actually appreciated as much as it seems till now. Several experts have claimed that Gold would hit the US$ 2300 mark by 2011, which is the inflation-adjusted price of Gold in 1980.
In his book “Sub Prime Resolved” Anil Selarka reasons, based on evidence and official figures compiled from the Fed & the US Treasury that, “United States has lost almost 78% of its gold through covert lending practices to certain banks, investment banks and hedge funds to depress the gold prices with intent to control the inflation numbers to help them justify lower interest rates”. An excerpt from his book follows:
“The FED and Treasury appear to have been concealing lending of gold to hedge funds by camouflaging transactions through various central banks. When those Central Banks lend to these hedge funds to short the gold, they appear to claim the gold from Fed and Treasury who earmark the gold in its balance sheets. In other words, the earmarked gold shown in Fed / Treasury balance sheets is in fact owned by foreign Central Bankers and is no longer owned by the United States. If the shorted gold does not return to Fed / Treasury, they will be obliged to show it as “sale” one day. That day of reckoning will come when the Foreign Central Banks start demanding the gold physically.
According to my own research almost 6100 tons of gold earmarked in the Fed/Treasury balance sheets are non-returnable. The hedge funds who shorted it at prices $260 to $360 can not buy back at today’s prices. If they can not return, their deposits will be at the most forfeited. In other words, the Fed/Treasury will be forced to recognize the forced sale of gold @ $260 to $360 or more, but not more than $430 at the most. That is, Americans have lost their most valuable and prized asset – Gold – due to fraud perpetrated by the Fed/Treasury officials. It happened without their knowledge because the Fed/Treasury balance sheets were never audited. The office of OCC (Office of Controller of Currency) conducts only physical verification of the gold, not the true ownership. This is why Ron Paul, Senator, introduced a bill to audit the books of Fed. That is not enough. The gold is handled mainly by US treasury – Fed merely manages the operational part.”
Building on the theory, he goes on to justify a price target of US$ 6400 per oz. for gold!
Taking a closer look at US history, the 70's bull market in gold seems to have been a result of a currency crisis that resulted from President Richard Nixon dropping the gold standard – an act which many refer to as “unconstitutional”. The ensuing increase in gold prices was a result of the excessive printing of the fiat currency (namely the US$) that had taken place prior to dropping the gold standard (while US citizens were prohibited from trading their dollars for real money i.e. Gold). Once it was legalized again, there was a decade long rush for the exits. This was also reflected in the inflation rate. Volcker put an end to the currency crisis by raising interest rates above the inflation rate.
That bought the US ten years of prosperity, which were then followed by ten years of excess under Greenspan, which resulted in the currency crisis that the US is facing now. The difference between 1980s and today is that now the US has a huge debt to deal with, which will prevent it from raising interest rates. Once the monetary inflation that has already taken place starts hitting prices, look out! There won't be a way to stop it. The dollar is on the verge of death, and the only way that individual investors are going to be able to avoid the knockout blow is to get into gold, silver, or some other tangible asset or commodity.
Happy investing!
Friday, December 11, 2009
Global Economic Factors
The Global Backdrop:
US Dollar
Currency markets have been pretty volatile right through 2009, with the Dollex (US$ Index) moving up from a level of 79 in mid-Jan to a level of 89 by March’09 and then moving down steadily to a level of 75 till last Friday. The 50 DMA currently lies at 76 while the Dollex is at 75.72. An attempted breakthrough from its 50 DMA gave the US$ some strength for a couple of days, but, proved short lived. Currently the Dollex is struggling to break through 76 convincingly, which can give strength to the US$, while a fall through 74.5 levels might quickly take it to 71 levels. Watch the Dollar, as its strength will bring down markets & commodities, while a Dollar weakness will give markets the strength to breakout of their current range bound scenario.
Bail-outs
With the Fed having pumped in at least US$ 1.7 trillion on several bail-out packages and Governments all over having followed suit with varying amounts, there are plenty of funds in the markets chasing a limited number of assets, leading to what is commonly being referred to as the asset bubble.
Interest Rates
With the Fed having brought down interest rates to near zero levels, the weak US Dollar is also chasing assets that can provide returns over the short term. As such since the fall in the Dollex starting March ’09 stock markets globally have been attracting a lot of investment and have all turned in phenomenal returns in excess of 50% till date already. Considerable funds have also flowed into emerging markets and commodities.
Commodities
With the flow of excess liquidity in global markets, commodities have risen sharply, even though industrial recovery and consumption have yet to turn up significantly. Crude on the other hand after a quick recovery from US$35 to US$ 82 per barrel levels, has lost ground and currently is struggling at US$ 70 per barrel owing to slack demand and an inventory build-up in western markets. Metals and bullion (Gold & Silver) have however commanded centre-stage in the commodity price rise. If industrial production & consumption does not pick up any further (which is a strong possibility), base metal prices may soon run out of steam. Gold & silver, however, continue to look attractive both as investment and insurance in a period when fiat currencies continue to get printed at will. Also, several Central Banks including the RBI clearly intend to bolster their gold reserves, in order to protect their currencies from further devaluation.
GDP Growth
India surprised the world with its 7.9% GDP growth rate for its Second quarter (July-September ’09) announced a week ago. The US is trying to tell the world that it is out of its recession (a fact that it did not concede till 6 months after it was in one). Australia & Norway have started increasing interest rates - a message that their woes are now a thing of the past. China’s jugglery of figures and balance sheets continues, as it continues to give messages to those within & outside that all is well. The question here is that once the interest rates are raised & liquidity pulled out of the system, will there still be any real growth? Guess we need to wait another two quarters (at least) before we are clear that we are not in for any unpleasant surprises again.
Inflation
Excess liquidity has got the inflation monster rising again. Unfortunately, with the masses having lost a record number of jobs and a majority of their savings (apart from homes) in the recent crash, this is not the time any Government would like to battle inflation. The Food Index has shot up dramatically since 2007 even though the WPI and CPI are not looking alarming, as yet. The interesting thing to note in all this is that the very same liquidity and low interest rates that help industrial recovery work against inflation. So, if inflation is to be controlled, then industrial recovery will have to be put on the back-burner for a while.
US Dollar
Currency markets have been pretty volatile right through 2009, with the Dollex (US$ Index) moving up from a level of 79 in mid-Jan to a level of 89 by March’09 and then moving down steadily to a level of 75 till last Friday. The 50 DMA currently lies at 76 while the Dollex is at 75.72. An attempted breakthrough from its 50 DMA gave the US$ some strength for a couple of days, but, proved short lived. Currently the Dollex is struggling to break through 76 convincingly, which can give strength to the US$, while a fall through 74.5 levels might quickly take it to 71 levels. Watch the Dollar, as its strength will bring down markets & commodities, while a Dollar weakness will give markets the strength to breakout of their current range bound scenario.
Bail-outs
With the Fed having pumped in at least US$ 1.7 trillion on several bail-out packages and Governments all over having followed suit with varying amounts, there are plenty of funds in the markets chasing a limited number of assets, leading to what is commonly being referred to as the asset bubble.
Interest Rates
With the Fed having brought down interest rates to near zero levels, the weak US Dollar is also chasing assets that can provide returns over the short term. As such since the fall in the Dollex starting March ’09 stock markets globally have been attracting a lot of investment and have all turned in phenomenal returns in excess of 50% till date already. Considerable funds have also flowed into emerging markets and commodities.
Commodities
With the flow of excess liquidity in global markets, commodities have risen sharply, even though industrial recovery and consumption have yet to turn up significantly. Crude on the other hand after a quick recovery from US$35 to US$ 82 per barrel levels, has lost ground and currently is struggling at US$ 70 per barrel owing to slack demand and an inventory build-up in western markets. Metals and bullion (Gold & Silver) have however commanded centre-stage in the commodity price rise. If industrial production & consumption does not pick up any further (which is a strong possibility), base metal prices may soon run out of steam. Gold & silver, however, continue to look attractive both as investment and insurance in a period when fiat currencies continue to get printed at will. Also, several Central Banks including the RBI clearly intend to bolster their gold reserves, in order to protect their currencies from further devaluation.
GDP Growth
India surprised the world with its 7.9% GDP growth rate for its Second quarter (July-September ’09) announced a week ago. The US is trying to tell the world that it is out of its recession (a fact that it did not concede till 6 months after it was in one). Australia & Norway have started increasing interest rates - a message that their woes are now a thing of the past. China’s jugglery of figures and balance sheets continues, as it continues to give messages to those within & outside that all is well. The question here is that once the interest rates are raised & liquidity pulled out of the system, will there still be any real growth? Guess we need to wait another two quarters (at least) before we are clear that we are not in for any unpleasant surprises again.
Inflation
Excess liquidity has got the inflation monster rising again. Unfortunately, with the masses having lost a record number of jobs and a majority of their savings (apart from homes) in the recent crash, this is not the time any Government would like to battle inflation. The Food Index has shot up dramatically since 2007 even though the WPI and CPI are not looking alarming, as yet. The interesting thing to note in all this is that the very same liquidity and low interest rates that help industrial recovery work against inflation. So, if inflation is to be controlled, then industrial recovery will have to be put on the back-burner for a while.
Wednesday, December 9, 2009
The Roller Coaster
Global Markets have been on a Roller Coaster ride like never before since 2005. The period 2005 – 2007 saw us pulling up slope after slope, with occasional minor drops which helped gather momentum and added to the thrill, all along. A period that had all the Bulls enjoying as they speedily raced away from the Bears, left waiting at the lows. And then, came the big one…
Pushed hard by FIIs, DIIs, HNIs, Hedge Funds, momentum players & retail investors the Roller Coaster made a big steep climb all the way to a top of 21000 by early January 2008 – a level that needed a lot more momentum to cross, which the system could not provide. And that led to a steep fall, all the way to 8000. While all Bulls were gasping for breath the Roller Coaster hit a bottom and started climbing again…
This time the climb was propelled initially by DIIs, Hedge Funds and an unprecedented Election outcome. Soon enough FIIs and ETFs joined in gleefully. Any surviving HNIs and Retail investors, looked skeptically at the slope ahead and felt that it was too early to have a big rise again and that having woken up to the reality of the next slope only around 16000 levels, this could not be as big a climb as the last one. And so they sat around to watch the gyrations around 16000 to 17000 levels, each thinking that the ride was almost over. However, now almost everyone can see one more slope ahead, and wants to enjoy the thrill of being on this one…
So where do we stand on this one? We are at 17200 and are seeing more participation again. Practically everyone who was riding in 2007 is back to enjoy the ride. The one missing participant since the last descent from 21000 has been the retail investor. The Roller Coaster has waited long enough in a range, for him to regain consciousness & enjoy the ride. Volumes and momentum have been built selectively and pockets of opportunity are visible amongst mid-caps & sectors that have either not performed or have burnt out in this rise. IPO plans in Realty, PSU, Power, Telecom - promise to take away whatever savings might still have remained with the Retail investor. The stage is hence set for the Retail investor to enter and Cats & Dogs are set to fly…
Fasten your seat-belts and prepare yourself for 2010. If you thought that the Roller Coaster ride was over, think again!
If my intuition and reading of the market forces is correct, 2010 will leave the world gasping for breath and only those with guts of steel should venture into areas they have not mastered. We are in for a ride of a lifetime…
Pushed hard by FIIs, DIIs, HNIs, Hedge Funds, momentum players & retail investors the Roller Coaster made a big steep climb all the way to a top of 21000 by early January 2008 – a level that needed a lot more momentum to cross, which the system could not provide. And that led to a steep fall, all the way to 8000. While all Bulls were gasping for breath the Roller Coaster hit a bottom and started climbing again…
This time the climb was propelled initially by DIIs, Hedge Funds and an unprecedented Election outcome. Soon enough FIIs and ETFs joined in gleefully. Any surviving HNIs and Retail investors, looked skeptically at the slope ahead and felt that it was too early to have a big rise again and that having woken up to the reality of the next slope only around 16000 levels, this could not be as big a climb as the last one. And so they sat around to watch the gyrations around 16000 to 17000 levels, each thinking that the ride was almost over. However, now almost everyone can see one more slope ahead, and wants to enjoy the thrill of being on this one…
So where do we stand on this one? We are at 17200 and are seeing more participation again. Practically everyone who was riding in 2007 is back to enjoy the ride. The one missing participant since the last descent from 21000 has been the retail investor. The Roller Coaster has waited long enough in a range, for him to regain consciousness & enjoy the ride. Volumes and momentum have been built selectively and pockets of opportunity are visible amongst mid-caps & sectors that have either not performed or have burnt out in this rise. IPO plans in Realty, PSU, Power, Telecom - promise to take away whatever savings might still have remained with the Retail investor. The stage is hence set for the Retail investor to enter and Cats & Dogs are set to fly…
Fasten your seat-belts and prepare yourself for 2010. If you thought that the Roller Coaster ride was over, think again!
If my intuition and reading of the market forces is correct, 2010 will leave the world gasping for breath and only those with guts of steel should venture into areas they have not mastered. We are in for a ride of a lifetime…
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