Monday, September 30, 2019

Gold is still interesting as an asset to own

After a correction, the precious metals are still interesting because if you look at how the pension funds are invested, they own billions of dollars in Apple, in Amazon, in Netflix, in Google and the semi conductor stocks but billions, you ask them how much do you have in gold, most of them have not even 1% in gold. One day the trustees of these pension funds and endowment funds and family offices will ask the fund manager well gold shares are up 100% so far this year. 

Wednesday, September 25, 2019

Why some investors have been buying negative yielding bonds

I understand everybody is looking for the next big investment scene. As I said, you will make more money in emerging economies than in the US in the next few years but I would also like to introduce the thought and this thought is that 1980 to today we have had huge asset inflation; look at Mumbai real estate prices, 1980 and today, you look at Delhi real estate prices, you look at Chennai real estate prices, Bangalore, New York, London, Hong Kong, Singapore, you look at stock prices 1980 to today, you look at bond prices 1980 and today all asset prices had huge moves, huge moves and this asset inflation could come to an end. The question is not which group will do best in future but maybe the question should be how do I lose the least money over the next 10 years? 

A lot of people are wondering why someone would buy a bond with a negative yield, say you buy Swiss Franc bond you pay 105 and in 10 years it will pay you back say a 100. So it has a negative interest rate. Now the reason bonds in Europe trade at negative rates is that insurance companies and pension funds they are forced by government regulation to buy these bonds which is fraught to start with but in addition to that, if you are the salesman and you come to me say here is a bond, it has a negative yield, say 5% over 10 years. So, it is 0.5% per annum negative yield grossly. Then why should I buy it? But if you are a good salesman and say the whole world would likely collapse and stocks will be down 40%. Bonds will go down, a lot of currencies will collapse, the Euro may collapse, but maybe it is not all that bad to only lose 5% over 10 years on your money than to lose 40%! 

You understand the reasoning and there is a group of people that buy these bonds. If you had come to me and said buy these Austrian bond 100 years at 2.10%, I would not have bought it, but in two years, it has doubled in price. So, it was a great investment. 

via economictimes

Monday, September 23, 2019

Investors should not expect high return on stocks

I have to state that in my view if you are a prudent investor you are not going to make a lot of money in equities over the next three years. Maybe one company will go up 10 times and 900 companies would not. You have to take big risks if you really want to make a lot of money. My return expectations are very low. 

In Europe, in 2017, the Austrian government issued a 100-year bond. The coupon was 2.10%. It was issued at a 100, the interest the 2.10% which is not a lot but people buy these bonds and you are not going to make a lot of money out of these bonds. Now you made a lot of money by buying US treasuries over the last six months. The stock market in the US is not higher than it was in January 2018. In other words, 18 months ago we have been trading sideways and that maybe the pattern that we have to look for. So in terms of return expectations, investors have to really lower their long term expectations. 

via economictimes

Wednesday, September 18, 2019

Commodities can be viewed as another form of money

Most commodities do not have structural bull markets. They move from a situation of oversupply like we have in sugar and then the oversupply leads to inventory liquidation, the reduction of production and then prices go ballistic and as soon as prices go up strongly, new supplies come in. An individual can buy a stock and if the management is good, they will grow the company overtime. 

In the case of commodities, there is hardly anything as long term investing although and I do not consider precious metals to be commodities, I consider them more to be money. 

If you bought gold in 20 years ago in 2000, you have outperformed Berkshire Hathaway which is essentially controlled by Warren Buffett. Precious metals are from a longer term perspective relatively attractive but they do not perform as well as a stock market index over the long run. 

via economictimes

Monday, September 16, 2019

We might be nearing the end of the economic expansion and the stock market cycle

The conditions today are that investors are heavily invested in equities in the US. They are bullish, otherwise you would not have all these IPOs of companies that do not make any money and they immediately go up in the secondary market and you would not have the high valuations among FAANG stocks. There is a lot of optimism about US equities and cash levels are low. So, any disappointment could lead to a longer term decline in the market. 

I do not believe you will get the crash like in Argentina where essentially in dollar terms, the stock market performance was down 37% and the currency was down so altogether more than 50% in one day! That is a crash, 50% in one day. I do not think you will get that in the US. 

via economictimes

Wednesday, September 11, 2019

President Trump hopes to get re-elected in 2020

We have the election in a little more than a year and to be re-elected, he [Trump] has to show a strong economy and not a recession in the US. 

The US is an asset driven economy. We have an unusual situation in most western equity markets, .... where it is not the economy that drives the stock market but it is the stock market that drives the economy. If the stock market goes up, the economy has performed okay, if stocks drop 10-20%, we will have recession. We are not down 10% from the peak though we are down modestly. 

So Trump is very conscious about the stock market and he believes that the Federal Reserve by cutting rates could essentially boost equity prices. I am not so sure about that because the equity market nowadays looks at different factors than just monetary factors. If you just looked at monetary factors, the Japanese Nikkei should be the strongest stock market in the world and it is not or European markets that have had negative interest rates for a very long time, should be the strongest markets but they are not.

via economictimes

Monday, September 9, 2019

Emerging markets are probably a safer bet than US markets right now

The emerging markets overall, not India specifically, peaked in 2015 and since then, they have been in a bear market and have grossly under-performed the US. So regardless of what you think, I believe that an investor should rather look at emerging economies at the present time than at the US stock market which looks very expensive -- just the fundamentals of equities -- and the US dollar looks to be on the high side.