Readings: Making money, Appalling fundamentals, Pro-growth
- Financial Times: GaveKal’s four ways to make money
. . . how money managers can make money in the current conditions -
1. Run some kind of momentum trade
2. Run some kind of return to the mean trade
3. Run some kind of carry trade
4. Run some kind of negative carry-trade
- Via Big Picture, Welling @ Weeden: Inflation Not The Problem
The Royal Bank of Scotland Group Plc (RBS LN) has the largest rights issue in European history, and everybody cheers it! It makes no sense. As I wrote, it’s the financial equivalent of being mugged and turning around and saying, “Thank you. But should we head off to the cash point so I can give you some more?”
Emerging markets are trading on a 40 times cyclically adjusted P/E. Back in 2003, they were at 10 times cyclically adjusted P/E.
If you’re investing in commodity futures, which most of theses funds tend to do, it used to be that the market was generally in backwardation, so you collected a positive roll on your contracts. But now, because these guys have driven up the spot prices so much, a lot of these markets tend to end up in contango, which means you get a negative roll. That means that you’ve got to make 15%-16% per annum in price move — just to cover the negative roll.
The Associated Chambers of Commerce and Industry of India, which in October conducted a survey of chief executive officers and said the “stage is set for the RBI to relax monetary policy,” is now singing a different tune. Higher interest rates would hurt, it said in a press release yesterday, “yet the pinch will be less painful than double-digit inflation.”
. . . high prices are being passed on to the consumer because of strong local demand, which must be cooled with monetary measures.
. . . businessmen in India can’t get over the ghosts of 1997. Then, too, interest rates were high, and a fast- growing manufacturing economy had first slowed and then descended into a multiyear funk.
Say 7% GDP growth. Assume a generous 15% EPS growth - that would take the Nifty EPS from 235 to ~ 270. At a P/E of 14, that works out to 3800 - one year from now. Ouch!
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