Somebody challenged my predictions on Sulekha Forums....

"Today is February 09, 2011. INR/USD = 45.47 Closing Sensex: 17592. In the blue corner, we have VG and in the red corner DC. We'll see who wins on Aug 15, 2011."

http://forums.sulekha.com/forums/finance/indian-stock-market-tanking-19472.htm

Just thought I'd post the link here just in case that forum closes down permanently.

ok..so where are we now? Let's line up the naysayers. Or should we postpone this discussion until Dec 31st. I do whatever makes you feel good about yourselves.

well the dollar is still ~ rs 45. sensex is still ~17k. i think you lost the case. or what am i missing? we are missing referee cro magnon?

Huzefa Kapasi wrote:well the dollar is still ~ rs 45. sensex is still ~17k. i think you lost the case. or what am i missing? we are missing referee cro magnon?

When the sensex was 20k, I recommended selling Indian equities. It fell to 17K. Then folks asked if they should buy at 17K. I said don't do that. Then folks got enraged for saying not to buy. They said that in 6 months, sensex would be back to 20k. I said the sensex is not going to get back to 20k without a matching loss in USR/INR exchange rate. In other words, in USD terms, the sensex would be down on Aug 15th and not up.

However, you have to consider the fact that the dollar index lost a lot of ground in the last 6 months. Inspite of that, the sensex is lower in USD terms. Inflation is at around 10% (official), which means that, in terms of purchasing power, you have lost atleast 5% of the value, even if the sensex is exactly where it was 6 months ago. Selling everything 6 months ago and putting it in a checking account would have given you a 5% return.

i will digest this with mysore rasam and thayir sadam tomorrow. tell then cyalater.

Huzefa Kapasi wrote:i will digest this with mysore rasam and thayir sadam tomorrow. tell then cyalater.

Let me know if you have any questions. Feel free to post your question on this thread and ill get back to you.

My call may have been a tad early but the trend has been spot-on!

harharmahadev


here is mms on the scenario: http://economictimes.indiatimes.com/news/politics/nation/manmohan-singh-confident-of-fdi-in-retail-after-state-elections/articleshow/11112865.cms

so, hold your breath. we might have general elections in '12, or, if we don't, we shall surely overcome.

harharmahadev wrote:

Huzefa Kapasi wrote:well the dollar is still ~ rs 45. sensex is still ~17k. i think you lost the case. or what am i missing? we are missing referee cro magnon?

When the sensex was 20k, I recommended selling Indian equities. It fell to 17K. Then folks asked if they should buy at 17K. I said don't do that. Then folks got enraged for saying not to buy. They said that in 6 months, sensex would be back to 20k.

Yeah. Those fools. The Sensex only went up to 19700 in April i.e. within 2 months and not 6 months. Morons who might have defied DC's oracular pronouncements and actually invested on Feb 9th, would have suffered a crushing 12% returns in those 2 months (i.e. 72% annualized). That'd be a life-long lesson never to cross the SuCH guru. Ever.

Merlot Daruwala wrote:

harharmahadev wrote:

Huzefa Kapasi wrote:well the dollar is still ~ rs 45. sensex is still ~17k. i think you lost the case. or what am i missing? we are missing referee cro magnon?

When the sensex was 20k, I recommended selling Indian equities. It fell to 17K. Then folks asked if they should buy at 17K. I said don't do that. Then folks got enraged for saying not to buy. They said that in 6 months, sensex would be back to 20k.

Yeah. Those fools. The Sensex only went up to 19700 in April i.e. within 2 months and not 6 months. Morons who might have defied DC's oracular pronouncements and actually invested on Feb 9th, would have suffered a crushing 12% returns in those 2 months (i.e. 72% annualized). That'd be a life-long lesson never to cross the SuCH guru. Ever.

You may have the divine vision to buy at the very bottom and sell at the top.

A mere mortal that I am, I can only identify the trend and the risks associated with an investment class.

harharmahadev wrote:

Merlot Daruwala wrote:

harharmahadev wrote:

Huzefa Kapasi wrote:well the dollar is still ~ rs 45. sensex is still ~17k. i think you lost the case. or what am i missing? we are missing referee cro magnon?

When the sensex was 20k, I recommended selling Indian equities. It fell to 17K. Then folks asked if they should buy at 17K. I said don't do that. Then folks got enraged for saying not to buy. They said that in 6 months, sensex would be back to 20k.

Yeah. Those fools. The Sensex only went up to 19700 in April i.e. within 2 months and not 6 months. Morons who might have defied DC's oracular pronouncements and actually invested on Feb 9th, would have suffered a crushing 12% returns in those 2 months (i.e. 72% annualized). That'd be a life-long lesson never to cross the SuCH guru. Ever.

You may have the divine vision to buy at the very bottom and sell at the top.

A mere mortal that I am, I can only identify the trend and the risks associated with an investment class.

It's equally divine a vision to successfully avoid buying at the bottom and extremely messianic to have such conviction in one's never-buy-at-the-bottom philosophy to actually advise others to stay away from the market at such times too, lest they become victims to corrupting wealth visiting them when the cycle turns. Truly Jesus-like, I must say.

Merlot Daruwala wrote:

harharmahadev wrote:

Merlot Daruwala wrote:

harharmahadev wrote:

Huzefa Kapasi wrote:well the dollar is still ~ rs 45. sensex is still ~17k. i think you lost the case. or what am i missing? we are missing referee cro magnon?

When the sensex was 20k, I recommended selling Indian equities. It fell to 17K. Then folks asked if they should buy at 17K. I said don't do that. Then folks got enraged for saying not to buy. They said that in 6 months, sensex would be back to 20k.

Yeah. Those fools. The Sensex only went up to 19700 in April i.e. within 2 months and not 6 months. Morons who might have defied DC's oracular pronouncements and actually invested on Feb 9th, would have suffered a crushing 12% returns in those 2 months (i.e. 72% annualized). That'd be a life-long lesson never to cross the SuCH guru. Ever.

You may have the divine vision to buy at the very bottom and sell at the top.

A mere mortal that I am, I can only identify the trend and the risks associated with an investment class.

It's equally divine a vision to successfully avoid buying at the bottom and extremely messianic to have such conviction in one's never-buy-at-the-bottom philosophy to actually advise others to stay away from the market at such times too, lest they become victims to corrupting wealth visiting them when the cycle turns. Truly Jesus-like, I must say.

You what now?? That went totally over my head.

Let me summarize what I have been consistently saying over the past few years. India is showing classical signs of hyperinflation. No matter what the short-term fluctuations are, the long term prognosis remains the same. INR is a doomed currency and there will be a lot of pain in the future. It is impossible to predict an exact date because governments can beg, borrow, steal to kick the can down a few years...but unless they take hard hard decisions to fix the economy starting today (which is not happening), the problems get exponentially bigger. Eventually, the economy will get crushed under it's own weight.

If you study the hyperinflationary economies of Mexico, Brazil, Wiemar, Zimbabwe, etc etc...they all share a common fate. India is heading down the exact path.

harharmahadev wrote:You what now?? That went totally over my head.

Ya, I guess the notion of buy-low-sell-high is too complex for pundits focused on making oracular predictions based on directional trends of asset classes.

harharmahadev wrote:Let me summarize what I have been consistently saying over the past few years. India is showing classical signs of hyperinflation. No matter what the short-term fluctuations are, the long term prognosis remains the same. INR is a doomed currency and there will be a lot of pain in the future. It is impossible to predict an exact date because governments can beg, borrow, steal to kick the can down a few years...but unless they take hard hard decisions to fix the economy starting today (which is not happening), the problems get exponentially bigger. Eventually, the economy will get crushed under it's own weight. If you study the hyperinflationary economies of Mexico, Brazil, Wiemar, Zimbabwe, etc etc...they all share a common fate. India is heading down the exact path.

Very profound. So Brazil and India are in the same basket as the Wiemar Republic and Zimbabwe. From your jumbled rhetoric about government begging and borrowing, I gather you blame fiscal deficit for the hyperinflation. Then kindly explain why you don't include the US and UK, with higher fiscal deficit but lower GDP growth in your list of economies "about to get crushed" under their own weight.

Merlot Daruwala wrote:

Very profound. So Brazil and India are in the same basket as the Wiemar Republic and Zimbabwe. From your jumbled rhetoric about government begging and borrowing, I gather you blame fiscal deficit for the hyperinflation. Then kindly explain why you don't include the US and UK, with higher fiscal deficit but lower GDP growth in your list of economies "about to get crushed" under their own weight.

Listen dude! Atleast take a moment to digest what I'm saying before sabre-rattling!

Brazil has already had periods of Wiemar-style hyperinflation in the 1990s. That's what I'm referring to. Okay?

I didn't include US/UK into this discussion because the US is a whole different bowl of wax. Yes, eventually US will also succumb to the same inflationary pressures, but that's not going to happen in the next year or so. On the other hand, India is facing an imminent economic threat of hyperinflation. So on relative terms, INR will fall against the USD. All currencies will fall against the only real currency known to mankind - GOLD. Okay?

Now let me get to your question on fiscal deficits causing hyperinflation and the answer is YES. Let me create a situation for you and you tell me what you would do.

Situation:
- Your income is say Rs 100,000 and spending is say Rs 120,000. The source of this income was from a few hard working members of your family and some foreigners who wanted to join your family. Your expenses are mainly welfare schemes, administrative offices, loss-making government enterprises, countless money-draining vanity projects, etc etc.
- Banks won't extend any long term credit to you since your credit rating is hosed
- You still have some credit left on your credit card but you are quickly approaching the credit limit
- The interest rate on the credit card is rising, which is jacking up your expenses
- Any time you discuss cutting expenses with your family, they get violent
- You have been selling family silverware to bridge the gap but now your saleable assets are quickly depleting. Not to mention, your family members are getting aggravated that you are selling their assets.
- Your family wants to go out on a shopping spree
- Your family wants you to solve world hunger
- Your neighbors are constantly pelting your house with stones and are waiting for any opportunity to break in and steal your silverware
- Within your family, some members are constantly stealing some money from the coffers
- The foreigners now want to go back home
- The hard working members are questioning why they are getting so little and why they are carrying the burden of the entire society on their shoulders
- The credit card company is constantly knocking on your door for interest payments and principal.

So what do you do?
- Do you take hard action to cut costs and bring down debt? Think about revolt
- Do you beg for money from your richy rich buddies? Think about national pride
- Do you borrow from your richy rich buddies? Think about national pride
- Do you steal from your richy-rich buddies? Not possible
- Will you use the stealth money printing machine tucked away in the corner of your garage to pay off your debts? Think about usurping wealth from your family in a devious way. The common man is unable to understand the nature of the problem so cannot blame the government.

Year after year, the debt is piling up which makes the interest payments larger and larger. At this point, the personal income tax is not enough to cover for interest rate payments alone. So let me, Mr Wise Guy, how you think India is going to shine when it is buried under this fiscal deficit?

We will discuss the US in a separate thread...don't go off on a tangent by saying, "The US is doing it, so it must be okay!".

Bottom line is - there are only 2 ways to solve a chronic debt problem - default or inflation. Take your pick!