April 2nd 2009 - The Day to Watch

What's so special about this day? Its a day when a new world order will be put into motion, either by agreement or by disagreement.

On this day the leaders of 20 nations are meeting in London. The meeting will be chaired by Gordon Brown (European leaders have already "unofficially" slammed Obama's latest Public-Private Investment Program (PPIP) for buying toxic assets). Wonder what their reactions will be when they meet face to face.

The interesting aspect of this meeting is that there will be participation from the developing nations as well. My predictions of the outcome are:

1. Neutral reserve currency or a basket of Dollar, Euro and a pan-asia currency (maybe yuan being the fourth currency in the basket) backed by Gold with a fixed exchange rate (rather than the current floating system)
2. Devaluation of all currencies together to re-inflate the asset value so that the debt becomes a fraction of the inflated asset prices
3. Back the new currency with Gold (not a Gold Standard as such)

What does this mean to you and me. Gold may be at USD 2,000/ounce to USD 10,000/ounce, who knows, but for sure it will rally higher. Make gold 20% of your ("investment money") portfolio, wait and watch, book profit or stay put.

Fingers crossed.

My Thoughts

Have been reading a few interesting things in the last few days and wonder what implications it will have over the long term.

Reserve Currency and Russian Army Modernization
Russia said it in Davos and now China too feels that the world should have an acceptable global currency as reserve currency than having the dollar standard. Both countries feel that the reserve currency cannot be from an economy which is going down. China has already started to reduce its dollar dependence by buying a lot of Asian currencies.

I recently read that Russia is beefing up its Armed Forces, by calling it modernization of the army. It has already hoarded all sources of natural resources under the government control.

Russia and China are allies, Europe is dependent on Russia for its Natural Gas needs. America needs China. So when the shit hits the ceiling, you know where this is headed......an out and out , once in a lifetime, geopolitical event. If you survive this one, maybe you would have enough left to pick up the pieces again and re-build your life. Definitely worth giving a thought.

On US consumer spending
The Obama government is ensuring that they leave no stone unturned to ensure the loosening of the credit system and consumer spending. I guess its a good plan for short term to get the economic engine revving again, but wait, what when this engine picks up speed? The mass of the US consumer spending will ensure there is enough acceleration for this vehicle to catch speeds beyond control again, and when that happens, the US govt. will be bankrupt by then and so will be the US consumer for sure (one due to debt and also due to taxes to fund the current bailouts).

So when the government is bankrupt where will it fund its security forces from? So with Russia and China beginning to drop hints on where we are headed in the future....i think its best you take a good look at your current cash and cash equivalents, and stay away from risky investments for sometime.

Long Term Capital Building

Building financial wealth in current stock market is not an easy task to do. Many people earn handsome salaries but they fail in creating wealth out of money they earn.

There is a saying “It takes money to make money”. It takes a mix of various products in the current environment to build a good portfolio. There could be N number of strategies for long term capital building.

Buy Low
While the picture may look gloomy and offer less conviction for investments, long-term investors need to use the current environment to buy. After all, those who buy cheap and sell high are the ones considered smart over a long period of time.

Sell High
While buying at a low is crucial, selling it at a high is an equally important component of wealth creation. The exit strategy could revolve around the market prices of your instruments, your liquidity needs or your allocation for a particular product.

On the other hand, the task of wealth creation can also be achieved if you have a long tenure at your disposal. In this scenario, risk management would be built into the investment process, as you would be staggering your investments, which in turn helps you in averaging out your costs.

Investment discipline
Another important component of the accumulation strategy is sustained focus and discipline. These are necessities though you need not stick to the same set of products at all times. For instance, if you have signed up for a systematic investment plan (SIP) in a smallcap fund for a period of five years, you can reduce the allocation in the current environment to that fund and shift it to a large-cap fund.

Monitoring
Irrespective of the choice of stock or mutual fund, no wealth creation is complete if you do not have the habit of monitoring the investments at regular intervals. With professional help being easily accessible, the task has become a lot easier.

Finance Gender Bias

Whether we like it or not, there continues to exist a gender bias when it comes to typecasting certain occupations. Women particularly are perceived to be inferior when it comes to mechanical work. The ladies in control of the wheels are not given enough credit for their driving skills. Interestingly, at a time when the entire world is trying to figure out the best way to manage money, Reuters conducted a survey to figure out which gender is better at it. The poll which comprised opinions of 4,500 women and an equal number of men from 12 countries, concluded that females did this job better. Simply because women prefer lower leverage and strive harder to become financially independent.

While money management goes way beyond financial independence and having a control on ones’ expenses, it also depends upon exposure to financial knowledge. Over the decades, increased financial independence has automatically brought in more exposure to financial knowledge amongst women. Having said that, we have yet to see more women holding the posts of CFOs, finance ministers, central bank governors, and treasury secretaries to lend more credibility to the result of the survey.

Books to Read

Recently i read two interesting books I would like to recommend:


The Kondratiev Cycle: A generational interpretation by Michael Alexander


The Fourth Turning by William Strauss and Neil Howe

Very Long Term

Interesting Thoughts on Investments

Today read an interesting post on Richard Russels website Dow Theory Letters. Some basic thoughts that we seem to have forgotten along the way as stock markets soared to dizzying heights and the trend spotters were predicting it to grow to infinity. I am sure there will be very few in the world who would not have burnt their hands in this melt down.

Here are some thoughts from Richard (nothing that i have written myself)...for details please visit the site..

Rule 1: COMPOUNDING
Start early, invest regularly...

Rule 2: DON'T LOSE MONEY
If you want to be wealthy, you must not lose money, or I should say must not lose BIG money. Absurd rule, silly rule? Maybe, but MOST PEOPLE LOSE MONEY in disastrous investments, gambling, rotten business deals, greed, poor timing.

RULE 3: RICH MAN, POOR MAN
In the investment world the wealthy investor has one major advantage over the little guy, the stock market amateur and the neophyte trader. The advantage that the wealthy investor enjoys is that HE DOESN'T NEED THE MARKETS. I can't begin to tell you what a difference that makes, both in one's mental attitude and in the way one actually handles one's money.

RULE 4: VALUES
The only time the average investor should stray outside the basic compounding system is when a given market offers outstanding value.