GalaTime

One of the many experiments at galatime.com was the idea of Virtual Portfolios - where Rs 500,000 is deployed in the Indian markets - virtually! The whole thing has been dead for a while, and my portfolio contains only 1 position - Short Gold.

With gold hitting highs throughout the year, this position couldn’t have had worse timing! But what the heck - it’s a new year and I feel fine! So if I was trading the portfolio, I would double up on the position and short the MCX Gold Future at ~ 15850. Call me crazy - what with Harrods getting into gold sales - but I think the time is ripe for a major reversal in gold over the next 6-12 months.

Just look at the awful dollar sentiment everywhere and the ‘I love gold’ mania. No shortage of optimism in emerging or commodity markets, US markets at/near 52-week highs, oil at a new yearly high, the list goes on … seems to me that ‘long gold’ is an over-crowded trade by far.

This seems like a good occasion to resume blogging - the Hindu New Year - Samvat 2066. Fire-crackers all over in Pune, 52-week high in the Nifty-50 index and renewed economic optimism across the globe.

Grant’s Interest Rate Observer: Opportunists apply here

China channels ‘Monkeybrains’: Now unfolding is a preview of the next, the future, credit collapse. Such methods as China is employing—a borrowing binge centrally planned and directed—will eventually come to grief, as the readers of Grant’s know full well. Indeed, in money matters, nearly everything seems to come to grief sooner or later. However, it is equally true that, before the grief, comes the laughter and levitation. Massive injections of money and credit are always unsound. But for stocks, commodities and credit, they are bullish before they are bearish. In the fad for “quantitative easing,” when might the laughter turn to tears? How to prepare for that inflection point? How to see it coming?

Read the whole thing.

Outlook India: The Sequoia Way

They have invested nearly $400 million in 49 start-ups, the most by any VC. That is also 15% of all VC investments made in India since 2004. They have exited with profits from seven of the 18 investments made from their first $135 million fund, even though it was launched on the eve of the dotcom crash of 2000. In just a few months, this fund will exit all remaining investments and return money to its limited partners (companies like Goldman Sachs, among others, that gave Sequoia India money to invest). Incidentally, this will be the first successful VC fund closure in India.

Many firsts.

Over the years, two qualities have distinguished Sequoia India’s investment strategy—adaptability and a strong hold on ground realities. However, it did not always get it right. In the initial years, with Fund I, the investment thesis was to put 50% of the corpus in technology product companies and the other half in services. Both would involve companies that targeted the US as a market. The cross-border focus was bang on. But the product bet came a cropper. “We were wrong,” says Chadha. “When we set up the fund in early 2000, people were rushing to buy software products. At the end of 2000 and early 2001, they stopped buying.” The firm shut down most of the seven product companies it had invested in and put more money in services. “It was the best decision we took,” he says. Products, luckily, were just 6-7% of the fund’s investments. But it was a painful lesson to learn. “It is tough not to get emotional about young companies,” says Balaraj.

Janet Tavakoli: Where Were Drama Pundits [Whitney, Taleb and Gasparino] When It Mattered?

Taleb’s Empirica Kurtosis “black swan” fund had negative returns in 2001, the year of the 9/11 black swan event. Taleb later claimed he only called it a hedge fund “in May‐Oct 2001.” Perhaps he meant something else, because Empirica Kurtosis wound up at the beginning of 2005 with lackluster returns , and performance specifics are not public, but it may have been a stranded swan.

Taleb has appeared in public with Arianna Huffington who has credited him with courage, yet he plays the victim and resorts to unwarranted name calling when asked legitimate questions. He has said Myron Scholes belongs in a retirement home and called Nobel Prize winners charlatans. Viciousness isn’t the same as courage. It takes courage to be transparent not just when results look fabulous (temporarily or otherwise), but when they don’t make you look as favorable.

Taleb taking it from all sides. Time to disclose performance data?

China Stakes: Real Estate Developers, Strapped for Cash, Resort to “Irregular” Tactics

Statistics show that from May 1 to July 24, which seemed to be good days for Shanghai’s real estate market, many housing projects were seeing over 30% cancellations, and the cancellation rate of some projects was as high as 125%. Behind the “boom” of the housing market are irregular behaviors such as getting bank loans by cheating and making fake housing purchasing contracts.

Can you say NPA?

Also, here’s the latest missive from Jeremy Grantham of GMO: Boring Fair Price!

… let me point out that China is showing every sign of being a country ahead of the curve. There has been a whiff of panic – which I believe is justified– in China’s last 5 years of behavior regarding resource limitations and possible mitigation through truly dramatic increases in alternatives, desperate attempts at resource acquisitions, and the fostering of special foreign relationships.

Neutral US, long emerging markets, short China.

Mint: Debt funds from VCs for infrastructure financing soon

In a bid to boost investments in the infrastructure sector, capital market regulator Securities and Exchange Board of India, or Sebi, may soon allow venture capital companies to launch specialized debt funds for infrastructure financing.

Insurance companies, provident and gratuity funds, and pension funds are likely to be allowed to invest in these infrastructure debt funds.

“Equity capital is not sufficient for implementing infrastructure projects. Given the increasing demand for infrastructure projects, raising $500 million-1 billion should not be a problem for venture capital debt funds. Returns on such funds will depend on investment managers, but investors can expect yields in the range of 10-13%,”

Interesting that VCs in India are moving further out in terms of fund size and amount per investment. Debt (not startup equity) is acceptable, as are sub-15% returns! And of course, the fact that the VCs are paid management fees as % of AUM doesn’t hurt.