Over the past few years, real estate prices have pretty much gone straight up across India; this meant that buyers & builders were buddies, with both parties minting money.
Now that we have reached somewhat unsustainable price levels, interest rates (and EMIs) have gone up, registration fees / taxes are increasing, and renting is waaaaaay cheaper than buying, it’s time to see some friction between builders and buyers.
If a builder is in the midst of completing a project but hasn’t managed to sell off all the properties, what is he/she to do? Given the cash-intensive nature of this business, he has to adopt a go-slow approach (to minimize cash outflow), and figure out a way to get the existing buyers to fork out more. And what of promised “deadlines” to customers. Well, those can go to h*ll!
Here’s an example (perhaps others can corroborate this) at Bangalore Craigslist:
What next? It seems that some of the people who booked apartments are trying to get together & initiate action against the developer. Any bets on their chances of success? How many of them are going to think of the money that they have already put in (sunk cost)?
I came across the book Our Brave New World published by the partners at GaveKal Research; downloadable here. It talks about how companies today are more efficient with their use of capital and labor than they have ever been in the past - and how this translates to good times ahead for financial markets.
We have witnessed the birth of a new breed of company that we shall call the ‘platform company’. Platform companies know where the clients are and what they want and where the producers are. Platform companies then simply organise the ordering by the clients and the delivery by the producers (and the placing of their logo on the product just before delivery).
Platform companies keep the high added-value parts of research, development, treasury and marketing in-house, and farm out all the rest to external producers. Typical examples include Dell, Wal-Mart, IKEA, Hennes & Mauritz, Li & Fung and many others.
We would therefore argue that a private investor should build his portfolio around four key asset classes:
- Cash or Gold,
- Emerging Markets or Commodities,
- Platform Companies,
- High Quality Government Bonds.
An interview with Louis Gave via Financial Sense:
Also check out Brave New World Or Bust, where Marc Faber debates with Louis Gave on the above concepts.
Finally, here’s a recent presentation by one of the authors, Anatole (Trend & Cycle: When They Diverge, Watch Out) Kaletsky. The slides cover the state of global economies, financial markets, and where they might be headed.
Sony Pix - in my opinion one of the better cable TV channels in India - has recently been showing Inside The Actor’s Studio with Clint Eastwood interviewed by James Lipton.
I highly recommend it - Clint’s biography is absolutely fascinating, and you can’t ask for a better syle of interviewing than that of Lipton. Clint talks about things such as the art of listening, the effective use of silence, taking chances, and of course all his blockbuster movies as actor & director.
It hasn’t yet hit Youtube, but you can find several others (Al Pacino, Angelina Jolie, Kevin Spacey, Robert Redford, etc.) there.
Not a single country anywhere – emerging or developed – out of 42 listed by The Economist grew its GDP by less than Switzerland’s 2.2%!
. . . if we are correct, the process of moving all asset prices smoothly to fair value over 7 years which is how we do our 7-year forecasts) will have resulted in a world where investors are paying for the privilege of taking risk!
Most bubbles go hrough an exponential phase before breaking, usually short in time but dramatic in extent. My colleagues suggest that this global bubble has not yet had this phase and perhaps they are right. (A surge in money fl owing into private equity might cause just such a hyperbolic phase.)
The second half of the essay goes on to talk about commodities, venture capital, hedge funds & such. Must read!
Also check GMO’s Quarterly Update; note the substantial weight of the Indian rupee in GMO’s Emerging Currency Index:
Given that Indian interest rates aren’t likely to drop anytime soon, the rupee will continue to be a “high yielding” currency. Moreover, with its recent appreciation & visibility, and the introduction of rupee-based financial instruments, we might see other FIs follow GMO.
It happened most recently in Thailand, in December, when the baht rose so steeply and so fast that authorities clamped down clumsily on capital flows, which spooked the stock markets.
As in Thailand, the currency is much more likely to strengthen in the late cycle period, when current account constraints are fading and interest rates are at a cyclical high.
The article goes on to assure us that the Indian case is different enough to avoid a plunge in stock markets; but try telling that to Indian exporters!
Meanwhile, gold prices in India haven’t gone anywhere inspite of gold hitting $690 in the US - again thanks to the strength in the rupee. Apparently, demand isn’t keeping up with supply - and Indian gold ETFs such as the Benchmark Gold ETF (GOLDBEES) and the UTI Gold ETF (GOLDSHARE) are at their lowest levels since launch.
As many as eight Indian real-estate firms which had plans of listing on the Alternative Investment Market (AIM) of the London Stock Exchange have put their plans on hold for the time being . . .
. . . we feel this is not the right time to list. Stock prices are way too low now. We do not think we will get a fair deal.
A handful of operators ensure that stock prices shoot up and stay high on the day of listing, as also over the next few trading sessions. The intent is perhaps to corner a chunk of shares intended for retail investors and sell them when demand shoots up . . .
. . . the stocks manipulated on the day of listing are Mindtree Consulting, Shree Asthavinayak Cine Vision, Pyramid Saimira, Pochiraju Industries, Cambridge Technologies and Al Champdany Industries.
A grey market exists whenever there is a strong response for a public issue. Investors who want a certain number of shares, but know that they are unlikely to be allotted that quantity because of the strong demand, turn to grey market brokers . . .
There are those who have applied for the issue and want to lock in their profits as soon as possible. But the grey market brokers are more interested in a new breed of investors they themselves have created for this purpose alone.
DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.
