India in Antarctica

One of the really good things that Indira Gandhi did was authorize exploratory expeditions to Antarctica in 1981. Forget about the scientific hoopla surrounding these expeditions. Those are just side benefits. To me, Antarctica is the last unexplored continent with abundant mineral resources.

Mrs. Gandhi did right by laying the foundation for India's claim for a stake in a future scramble for the vast uninhabited continent's riches. This is an investment in the future and it is heartening to see that India is mounting another expedition to the Antarctica. The 230 crores to be spent for this is a good investment for India's future generations.

Getting it right

Here is a snippet from a letter by Casey Research:

Imagine you’re in America, back in 1970.
Richard Nixon is president. The Beatles have announced their breakup. And the average weekly wage is around $170.
Out of your $170, you’ve managed to save $35, and you want to invest it… but you’re not sure of the best place to put your hard-earned money.
And then, in 1971, Richard Nixon takes the country off the gold standard…
… which means the dollar is no longer tied to the price of gold.
It also means the price of gold is no longer fixed, and can go up according to demand.
You recognize what this change means. So you take your $35 and you buy one ounce of gold.
That’s in 1971.
Thanks to worries over the stability of the economy, and inflation galloping along at around 15% annually… by 1974, your single ounce of gold has risen from $35 an ounce to $195.
That’s a 557% return in just 3 years.
Then, in 1979, the price of gold more than doubles in 12 months – to $400 an ounce.
By 1980, it more than doubles again, to $850… before settling back to $627.
Your $35 has gained 1,719.42%, in one decade.

At the end of 1980, you sell your gold…
… and you’re looking for a new place to invest your money.
One of the things you’ve noticed over the years is that something odd is happening to the balance of the world economy.
You noticed that in the ‘70s, the people who did the best during the oil crises of ‘73 and ’79… were the Japanese car manufacturers. Their smaller, more fuel-efficient vehicles were quickly becoming more popular than the heavy, gas-guzzling American cars.
You also notice that everywhere you look, people are listening in on a new kind of personal stereo… the Walkman… made by Sony.
Confident that Japan is the place to put your investment capital, you invest your $627 into the Nikkei Index in Japan… in 1981.
In the early ‘80s, the Nikkei more than doubles – bolting from a 1975 high of 4000… up to 8000.
From 1983 to 1985 - the Index jumps again, from 8000 to 18,000.
You get the feeling that you should strap yourself in well for this ride, because it’s only going to get more exciting.
And indeed it does.
From 1986 until early 1989, the Nikkei catapults from 18,000 to 28,000…
… and reaches its peak on December 29th, 1989 – at a whopping 38,194.
The $627 you originally invested into the Nikkei is now worth $3,548… that’s an increase of 565.86%.
You jump out of the Nikkei market at the end of 1989 (just before the market collapses, losing 63.5%)… and look around for a safe place to land.

It’s now 1990… and there’s another market starting to make a lot of noise.
In the early ‘90s, there’s a lot of talk about bio-tech companies, and scientific and medical-device firms that are promising to do everything from cloning humans to curing cancer in our lifetime.
Most of the companies at the center of this talk trade on the smaller, electronic stock market called NASDAQ… and you like what you hear.
So you take your $3,548 and move it all into the NASDAQ Index.
The NASDAQ exchange is doing okay – but in 1994, the computer age takes firm hold… and soon after that, the Internet revolution takes the market by storm.
In 1996, the NASDAQ is sitting at 600.
On March 10th, 2000, the NASDAQ peaks at 5132.52.
Your’ $3,548 is now worth $35,105.

But you’re hearing a lot of talk about the Internet and the “New Economy,” and how the old business models are no longer applicable to the new Internet age… recessions and market corrections are a thing of the past…
This “irrational exuberance” makes you nervous… so you take your money out of the market – just before the meltdown.

Now what?
You look for another vehicle, and realize there is only one place to put your money for the new millennium… and you set your sights on energy.
Specifically, crude oil.
This final investment of your four-decade adventure proves to be one of your finest.
The crude markets are fairly tame in the early part of this century…
… but we all know what happens next.
Your $35,105 invested in crude oil gives you one of the great moon-shots of all time…
That humble $35 you began with originally in 1970 – has ballooned to $159,591.

Here’s how it would look all laid out on a chart:

That’s a return on investment of 455,971%.

Provided you get it right four times in a row and entered and exited the market at the perfect times. Which is just not possible for average Joes like you or me.

Show me just one example of someone who has succeeded in doing so and I will show you a million failures.

Though, I have to say, it looks good on paper!

The Sum of All (economic) Fears

The FIIs are withdrawing money from India because they need it to meet margin requirements back home. This demand for the USD has meant a weakening in the INR-USD exchange rate, which is actually good for the Indian economy. Because they are getting less and therefore are repatriating less bucks for their rupees.

The Indian economy is not as export oriented as China's or South Korea's, and that is why perhaps we will not experience the full impact of the US recession that those economies will. The US system has so far been able to stave off the worst, yet there is still a chance that the worst case scenario could be realized. Here is a snippet of a crisis scenario from the September 19 Martensen Report:

Day 1:  Four major banks are suddenly revealed to be insolvent, and money begins to be withdrawn from these banks at increasing rates. That night, foreign investors quietly begin to retreat from a stricken US banking system, and the withdrawals spread beyond the four stricken banks. As bank servers begin to log more and more withdrawals, alarm bells go off, and late-night emergency meetings are convened. 

Day 2:  The next morning, US government and banking officials assure the world that everything is fine and that a new program has been put in place guaranteeing the solvency of the US banking system. Behind the scenes foreign money continues to flee as wealthier individuals and institutions with a better view of the real state of affairs retreat to the safety of their home countries. 

Days 3-7:  The expatriated money is converted into anything other than dollars, resulting in a dollar slump that confuses all but the most astute of observers. Simultaneously, US interest rates begin to climb, as US bonds are sold off in preference for non-US assets. 

Day 14:  Fearing a massive run on the dollar and a collapse of the capital markets, the US imposes an emergency order, requiring a 2-week delay in money flows out of the country. This is, of course, nothing more than a capital control, a favored but ultimately inflammatory tactic of countries suffering a currency run. Around this time, a growing proportion of domestic bank account holders realize that, because of the interlocked nature of the banking system, simply moving money from one bank to ‘a better one’ is not a fool-proof strategy. 

Days 15-21:  Over the next week, cash is demanded with increasing frequency, exacerbating the troubles of an already beleaguered banking system. A cash shortage rapidly develops, leading the Treasury Department to make a high profile show (on television, of course) of armored trucks pulling up to banks with large bags of cash. Assurances are made that everything is fine and that there is enough cash for everyone. Commentators on television make snide comments about the people lining up for cash, suggesting that they are over-reacting. But the Treasury is caught off guard, and even a 24/7 printing regimen cannot keep pace with cash withdrawals.

Day 25:  Currency controls are announced over the weekend, limiting cash withdrawals to no more than $250 over every 48 hour period. A few days later, the government announces that the US banking system, and, by extension, the US stock markets, will be closed for a period of two weeks while the situation is “evaluated” and solutions are identified. 

Day 50+:  A month later, the markets finally open up again, with the Dow down several thousand points, the dollar worth 50% of its pre-close price, and people everywhere suddenly trying to convert their cash holdings into things. Rampant inflation ensues. The dollar continues to fall.

Remember that this is a worst case scenario. The chances of this actually coming to pass are remote. But if it does happen, the shock waves will be felt around the world and people everywhere will be affected.

P.S. Gold had a trading range in excess of a hundred dollars yesterday, 10-10-2008, breaking all previous records.

Is this it?

Jimmy boy has shouted 'this is it' so many times that the warning has lost the impact and the urgency. Still it is time we took stock of the current market situation especially regarding gold, the king of commodities.

"There is only a relatively small group of investors who very seriously believe that there is a high level of risk that the (financial) system could break down. You only need a relatively small group to believe this to move the price of gold. In other words, the metal's price behavior reflects the trivial obsessions of a discredited fraction of investment opinion."  -Alan Greenspan

And just what is happening out there? Rumours are flying around that Comex might default on Gold contracts and settle in cash instead of physical delievery.  Further weakness being signalled around the world financial markets and rumours of a bank holiday to give the markets some breathing space. Bernanke signalling rate cuts in an effort to calm down US markets and yet they tumble. The UK pumping 50 billion pounds into its fiscal system to shore it up and Hong Kong and Australia slashing rates to increase liquidity.

'Extaordinary' and 'Historic' are the words being used by Gordon Brown and Ben Bernanke in describing the current state of the financial system.

In the gold market if the buyer is paying the effective interest rate for committing the trade, the market is said to be in 'contango'. The 'basis' is the effective interest rate being paid. The shrinking contango and the persistent fall in the gold basis is a measure of the vanishing of gold into private hoardings according to Fekete. Well, the bad news is that the basis has taken a beating in the last few days. His arguement is that when the basis approaches zero, it is goodbye time for the world's fiat currency system.

Gold could see an exponential rise in price in case of an actual meltdown in the financial markets, due to a flight to safety by panicky participants in the world's exchanges. Because, after all, gold is the world's ultimate reserve currency.

Sic Transit Gloria Americani

The 700 billion dollar financial bailout plan has been passed and the money will soon be available to the system to purge it of toxic assets. But is that going to be enough? And what effect will it have on the world at large? And even if it is, how long will it take for the world's financial system to recover? And what are the long term ramifications it will have on America's superpower status? It is time to take a look at the larger picture.

The cause of the current financial crisis lies in the US's lack of proper financial regulation and monetary policies which have driven up inflation and sent the price of commodities skyrocketing. The US will pay the price by going into an economic recession which has already started. But this will have a domino effect on the world at large. Poor folks around the world in pursuit of a better life are already feeling the pinch and will have their dreams shattered if the world plunges into recession.

The days of a unipolar world are over. Economic might is as much essential to being a superpower as is military might. Don't get me wrong. America is going to remain a superpower and the major player on the world stage for still some time. But what has transpired in the past few years has decided its fate of being relegated to a less prominent role in the family of nations.

The US has a lot of critics and enemies around the world. And that is expected since it took on the job of the world's policeman. What has made things worse is the current meltdown in the US financial system and its reverberations being felt throughout world economies. The financial rot has spread throughout the global financial system and people the world over are feeling the pain. Vladimir Putin and German Finance Minister Peer Steinbrueck have lashed out at the US for its greed and for its irresponsible policies which have led the world to the brink of a global recession.

The current bailout plan will lead to an increase in money supply and would be inflationary in nature. Which will in turn lead to an erosion in the value of the US currency. This would lead to a long term bull market in commodities and will perpetuate the inflationary cycle. Because a currency's value in today's economy is decided by the faith the foreign holders of that currency place in it, the USD will not face a drastic weakening but a gradual reduction panned out over a long period of time.

In the long run, this will lead to the USD being replaced by a basket of currencies in major financial transactions. The USD has been the world's reserve currency and the US having the power to print as many of those as it wishes, has enjoyed economic superpower status. When it no longer has that status, its financial regulatory regime and economic policies will have to be answerable to the world at large and this will mean an end to its superpower status in the military and political sphere as well. Instead of seating at the head of the table in the family of nations, the US will have to learn how to behave sitting at a round table, where all have an equal say.

The United (Socialist) states of America

Okay. Capitalism and 'free market economy' are officially dead as of today. 

President Bush and Treasury Secretary Poulson announced a plan 'that would cost hundreds of billions of dollars' to shore up the ailing US financial system. This was necessiated by the fall of Lehman and Merril Lynch and the resulting loss of faith in the system by investors. The US Federal Reserve had to pump 85 billion dollars earlier into AIG, the world's largest insurer, to keep it afloat.

Where is this extra money going to come from? Of course by printing more of it and increasing the money supply. And what else does that lead to if not increased inflation?

In a true free market economy, sick entities would be allowed to die a natural death and others would learn from their mistakes and avoid the route to disaster. But with government handout programs like this, you can be sure that if you are big enough, you will come to no harm, no matter what you do.