Sunday, 22 April 2012

GAAR Effect

Not just the name but also the intent is fairly inappropriate. The finance secretary said that we are not a banana republic (forced me to think though) where anyone can come, make profit and leave without paying taxes. It beats me somehow why someone would pay taxes if he is not required to pay any under prevailing double taxation treaty. May be out of charity he meant. I believe supreme court found government's argument baffling and gave verdict in favor of a telecom which became the genesis of GAAR.

What I find banana republicesque and somewhat draconian in all this is how government is changing the tax rules with retrospective effect. Is it so that the rule of the game, if government is on one side, can change in past, present and future depending on whichever side they are rubbed?

The correct thing for government to do is to accept its mistake, learn and correct it with immediate effect. There is going to be more damage than benefit from penalizing someone else for your own past mistake. For equity markets, I think the flash crash of last two fridays gave a glimpse of what is in store for nifty going forward.

Wednesday, 18 April 2012

RBI tunes to FM

The finance minister explicitly mentioned about the policy reversal some 30 minutes before the RBI were to announce a 50bps cut.

Unlike other wise men, I dont think RBI was wrong to cut rates by 50bps, and it certainly hasnt let its guard down on inflation; 8% of repo rate is fairly high by itself. The problem is something else.

The rate cut is likely to bring the bitter truth in front of everyone and the markets. The bitter truth being that growth wasnt really slowing down because of rates, but for inherent structural reasons. The realization may cost Nifty its prized resistance of 5180 and some more

Monday, 16 April 2012

What to expect in RBI policy?

There are many who almost always hope that RBI may pull a rabbit out of its hat and markets will never have to worry about macro bull shit issues again. They buy bank stocks, probably the worst performing ones to get full bang for the buck, and bankex futures and on the policy day they begin to chant subba subba subah subah. The evenings are much different. They learn few more things about economy and headwinds that face the economy, and in the end they happily sacrifice their money bag dreams on the altar of growth inflation dynamics.

The process repeats itself in next policy.

Central bank in India doesnt have the luxury to give markets anything more than the bare essential. Its hands are tied with inefficient yet populist government, corrupt yet ambitious businesses, lazy yet vocal critics, high maintenance yet essential foreign capital flows etc etc.

I guess nifty will soon break its 5180 resistance

Sunday, 8 April 2012

Gold Fixed

The crackdown had been unusually stringent and exactly how our previous blog had envisaged. A first commendable action by Pranab da.Both RBI and Finmin had taken several steps notably

1. Raised customs duty on gold imports to 4% from 1% last year. Great step but need to do more, atleast 10-20%

2. Secondary purchases of jewellary to be taxed at 0.3% of value, and brought under the radar of income tax authorities.

3. Gold finance companies to lend only 60pc LTV

4. Reporting of gold imports to become more stringent

These regulations are powerful and completely justified, and most likely should help a bit in freeing our country from this expensive addiction. The country cant afford to indulge in this useless commodity. An interesting afterthought on why RBI is also worried- possibly because every household that stores gold becomes a mini central bank by itself and in a way becomes direct competition to RBI and INR together

Sunday, 26 February 2012

The Enigma Named Gold

Bubbles are no strangers for financial markets; they only burst after the last man had joined the party. The time for gold has come.

Gold and Oil present the most complex challenge for world as to what their fair value is. Doesnt matter if one of them is immensely useful and the other utterly useless as a matter; both sit comfortably in any smart fund manager's portfolio in fairly long position.This post will talk about gold and not oil, because that yellow metal is the biggest enigma to me. The only value in gold is that it has been considered valuable since generations before generations. A perception of value, not utility not productivity not cash flows, is the value of gold. Gold has been there since donkey's years, it is the veteran, the senior most investment class. Gold has been the currency of kings and gods. Buy gold and enjoy the sublime.


Gold is flawed investment class from both individual and societal perspective. Must admit though that it is fantastic as a jewelary item. Gold, unlike bond, stocks and real estate do not generate cash flows in INR or USD or any other currency. Investors who buy gold generally dont care about those lost cash flows which would anyways be worthless due to inflationary policies of governments and money printing by central banks. Therefore as a humble protest or hedge against incompetent economic system and policy makers, investors world over buy gold and have been served well so far. Little do they realize that to safeguard their priceless physical gold they are just as much dependent on the same incompetent governments and political system, thus rendering the hedge useless. And honestly who wants to hold the physical cash or gold in his lockers while the whole of ocean11 is out loose. I seriously believe that a treasure chest of gold may bring as much anxiety to the holder as it could bring prosperity.

From the collective standpoint, gold is a form of saving that destructs economic activity and increases societal inequality. Simply put, the $10bn amount that indians invested in gold this year could have been deposited with banks and lent onwards to productive parts of economy, or could have been invested in bonds that created infrastructure and jobs. Add up all the investments of past, and you'd know how handsomely gold has contributed to the pathetic infrastructure and the laggard economic system of country. Gold is an evil for economy like ours, and should be either banned like it was in US till 70s or taxed heavily at purchase i.e. upwards of 50%. High taxes are justified because an investment in gold will never generate any income and hence would hardly pay any taxes in future.

While gold is doing a great job of adorning our women, it has no business in strangulating the productive needs of our economy and hence it is the need of the hour to free our country from the clutches of enigmatic yellow metal.

Defence rests.

Tuesday, 9 August 2011

Telling the Tail

- Greek crisis
- Subbu’s half ton ( 50 bps)
- Debt ceiling and the politics and the last minute whimpy plan
- ECB crisis once again
- US of one less A
- ECB again

Above is the list of things that have happened in the last two weeks. When you say long tail, one of the above is enough. What do you call a succession of such events, right one after another – grandmother of long tails? I lost money in options and am going back straight in. Is above the normal world now, I would rather see it for myself.

Wednesday, 13 July 2011

test auto posting

Signal Triggered At 12/07/2011 15:02:53
Action: close short: short pnl(per share) = 2.60000000000002
Price: 332.4

Saturday, 25 June 2011

Friday, 4 February 2011

Triple Play

Bespoke Investment posted this article: 

Each earnings season we put an emphasis on the companies that have reported triple plays.  These companies beat earnings estimates, beat revenue estimates, and raise guidance.  We consider these stocks the cream of the crop of earnings season, and we find many of our new long positions from this group each quarter.
So far this earnings season, 55 companies have reported triple plays, which is 8% of the total companies that have reported.  A list of all 55 companies is provided on the last page of this report. Ten of the 55 stocks stood out the most to usNot only do these names have strong technicals, but they also have positive momentum on the fundamental side because of their strong earnings reports. 
The last line is the key i believe.

Tuesday, 28 December 2010

3G boon or bane

An extremely efficient auction of telecom spectrum brought out so many evils in the Indian economy that I now wonder how shaky foundation is our nation built on.
First the facts - Inspired by other nations who made a fortune from 3G auction, our government hired lazard to conduct the prized auction in similar fashion. The big hope was to generate 35,000 cr so as to fund the bloated expenditure bill of government. The auction collected 105,000 cr as Bharti.Vodafone Tata and Reliance fought the battle for exclusivity.

Consequences -
1. This was the genesis of 2G scam. The revenue department quickly realized that the license fee that it got for 2g was a mere pittance. With this realization, parliament stopped functioning, ministers head begin to roll and skeletons began popping out of closet. The political turmoil that followed was no great news for stock markets.
2. This sucked the life out of banking system. It took some months for banks to realize that it truly was a lethal blow and then they began pulling all levers raising all rates frantically. Meanwhile the lifeguard of monetary policies, RBI, was tightening at snail's pace.