After the Recent Turbulence

Theme:

“When it’s market bottom, No one ever, (nor can ever, neither will ever) come to you and tell today is the bottom”. As everyone is dead scared to make a prediction about the positiveness of future, esp. when times are really tough. Even contrarians (who are aware of long-term cycles) make general statements about finding value during such tough times, as it is some of these situations, when the best long-term investments are made.

This theme drives this post. Although we are not claiming/declaring that current times are bottom times, yet we think it’s the time to share to the fact that “Such a perspective is very important to make successful long-term investments”.

US Markets:

Off recently the US market, went through some interesting turbulent (not unexpected) times, and various hyperinflated asset classes (and corresponding sector stocks) deflated causing indices to take some rest ( from flying high). I think for short run, NASDAQ’s @ 2200, DJIA’s @ ~11000 would provide some technical support points, and a decent bounce could easily happen. But we are not close to a long-term bottom, which might happen 6~9 months from now. So the upcoming bounce could be a good opportunity to unload short term/speculative investments, and keep cash ready for future long-term investments when markets show signs of decent weakening from long-term perspective.

US Dollar:

$ made some interesting run-up off recently. And I think the run-up was much higher than expected acutely from adjustment of valuations.

Even if dollar was undervalued compared to many to developed market currencies, this steep run-up smells unwinding and deleveraging of futures and not just international currency valuation adjustments.

So the $ should correct back to form some more bases, before it runs gradually back up against stronger world currencies.

OIL:

I think OIL I could correct to 99 or even to 85 (based on technical parameters – chart below), before forming decent base, before demand supply gaps and proportions stock to drive its long edge up.

Various OIL related stocks would start showing the uptrend before OIL’s upside movement.

Gold

Gold corrected under $800/ounce (to my surprise). And now various experts are predicting decent amount of correction in commodities during the second half of 2008, which means Gold could correct further (and all technical indicators stock to flaw out). So it’s a wait and watch times for Gold enthusiasts to see where it bottoms.

Various factors like $ valuation, OIL and hedge fund interests in commodities, would play in towards uptrend on gold.

Just like Oil, various gold mining stocks would start showing the uptrend before gold’s upside movement, as a leading indicator of what the large institutions/hedge funds – think on the future price of gold.

Savvy Investments (Rotation of Assets @ Right Time)

A few months back (July-2008) an friend (also an Indian) asked me – “what would I do in the investing arena at that time”. And my thought out answer was: “I would sell all the speculative investments in Indian real estate, at current market valuation, and rotate the money back from Indian Rupee to US dollar (it was 41 Rs/USD, then and now it’s 45.5 Rs/USD) and invest that sum into various foreclosure properties (ofcourse into cash-flow positive mode), considering the fact that USD could unwind back up and that the Indian real estate is fairly over-prized compared to international valuations of similar real estate. Time alone will tell, how wise with this thought process turns out to be. But considering how I see it future trends unfold this would provide a much safer compounding of wealth been staying in speculative Indian investments, even if supply of quality real-estate is low and demand for middle-class housing is not expected to go down.  The valuations and affordability are going to put an upper bar on price appreciations in Indian real estate.

After all it’s all about rotating in when something starts to makes some sense, and rotating out when something stops to make sense. in both directions it’s sometimes too late to wait for the trend to prove itself before acting to rotate in/out, the real money is made in timely action.

So enjoy the game.