Inflation in emerging markets

in many emerging-market countries, inflation is already running near the top of official target ranges. Indonesia and Turkey are seen at risk of falling behind in the inflation fight—if they haven't already—which could force much more aggressive rate increases down the road. This is especially bad news for bond investors, who see the value of their fixed-income returns eroded as inflation rises.

"We currently view overheating within the emerging-market complex as the greatest macro peril facing the global economy," Michael Shaoul of Oscar Gruss & Son wrote in a research note Friday.

Even before scenes of pitched battles in the streets of Egypt dominated the news, investors were growing nervous about inflation, turning tail on some markets. For the week that ended Jan. 26, emerging-market stock funds suffered their biggest spell of withdrawals since the third quarter of 2008, according to EPFR. The MSCI emerging-markets index has lost 2% this year even as the Dow Jones Industrial Average is up 2%.

While most of the moves in emerging markets haven't been big, they mark a change in the outlook from 2010 when their fortunes seemed much brighter than that of struggling developed markets.

Many observers are especially cautious about the near-term outlook for bonds denominated in local currencies. This had been a particularly popular investment in 2010.

With interest rates near zero in the West, investors bought higher-yielding bonds in places such as Indonesia, India and Brazil. As these economies grew, the theory went, monetary authorities would lift interest rates, which would attract even more investors, forcing up currency values and giving an added boost to returns.

Wall Street Journal

Global Median Age

I think the boundaries of economics and politics will redrawn and this map is just a glimpse of what will happen in next couple of decades.

World Economic Outlook-IMF

The two-speed recovery continues. In advanced economies, activity has moderated less than expected, but growth remains subdued, unemployment is still high, and renewed stresses in the euro area periphery are contributing to downside risks. In many emerging economies, activity remains buoyant, inflation pressures are emerging, and there are now some signs of overheating, driven in part by strong capital inflows. Most developing countries, particularly in sub-Saharan Africa, are also growing strongly

Rollover Analysis of February 2011 - Nifty

Rollover Analysis

Highlights

Nifty Futures started the current series with 2.00 crore shares in open interest.

The February series started the month with an open interest of Rs32,360 crore in stock futures, Rs11,209 crore in Nifty futures, Rs51,493 in index option and Rs1,961 crore in stock options.

The Nifty's current month rollover stands at 66.67 % vs last month?s rollover at 61.20%.

Market wide rollover was 83.65 % vs 84.56% last month.

The strongest rollover was seen in hotel, sugar, textiles and media sector stocks.

Trading, technology and FMCG stocks witnessed a poor rollover to the next series.

The highest price change on the positive side was recorded in Bombay Rayon Fashion, Jindal Saw, TV-18 and HCL Technologies.

IVRCL Infra, Bajaj Hindustan, LITL and Exide Industries were among the top price losers.

Rollover Stats

Cheap Money

The party is on

China Will Face Crisis Within 5 Years, 45% of Investors Say

Thus says Bloomberg

"Global investors are bracing for the end of China’s relentless economic growth, with 45 percent saying they expect a financial crisis there within five years.

An additional 40 percent anticipate a Chinese crisis after 2016, according to a quarterly poll of 1,000 Bloomberg customers who are investors, traders or analysts. Only 7 percent are confident China will indefinitely escape turmoil.

“There is no doubt that China is in the midst of a speculative credit-driven bubble that cannot be sustained,” says Stanislav Panis, a currency strategist at TRIM Broker in Bratislava, Slovakia, and a participant in the Bloomberg Global Poll, which was conducted Jan. 21-24. Panis likens the expected fallout to the aftermath of the U.S. subprime-mortgage meltdown.

On Jan. 20, China’s National Bureau of Statistics reported that the economy grew 10.3 percent in 2010, the fastest pace in three years and up from 9.2 percent a year earlier. Gross domestic product rose to 39.8 trillion yuan ($6 trillion).

Any Chinese financial emergency would reverberate around the world. The total value of the country’s exports and imports last year was $3 trillion, with about 13 percent of that trade between China and the U.S. As of November, China also held $896 billion in U.S. Treasuries. The trade and investment links between the two nations were underlined with Chinese President Hu Jintao’s visit last week to the White House for meetings with President Barack Obama.

Worried Neighbors

Fifty-three percent of poll respondents say they believe China is a bubble, while 42 percent disagree. China’s neighbors are the most concerned: 60 percent of Asia-based respondents identified a bubble in the world’s second-largest economy.

Worries center on the danger that investment, which surged almost 24 percent in 2010, may be producing empty apartment blocks and unneeded factories.

Jonathan Sadowsky, chief investment officer at Vaca Creek Asset Management in San Francisco, says he is “exceptionally worried” that the Chinese would eventually face “major dislocations within their banking system.”

Chinese authorities also raised interest rates twice in the fourth quarter in a bid to choke off inflation, a sensitive political issue since the 1989 Tiananmen Square protests, which followed uncontrolled price increases. Food prices last year rose 7.2 percent, according to the National Bureau of Statistics."

Correlation between US equity Market and USD

For the first time i have seen S&P 500 and USD moving in tandem. it may be aberration or it might be signals of tectonic shifts in world economy

World Economic Forum- Davos

Does the World Economic Forum represent the world?

THE World Economic Forum’s annual shindig begins on January 26th in the Swiss ski resort of Davos-Klosters. Now in its 30th year, the invitation-only event is a forum for around 2,000 delegates to discuss and even remedy the world’s ills, twice as many as came in 2001. The ostentatious location of the gathering is enough to earn it accusations of elitism, and indeed it has faced much criticism for appearing to act only in the interests of the rich world. But in recent years China and India have begun to take more seats at the proverbial table, advances that finally reflect their increasing economic prowess. The chart ascribes nationality according to place of work, so Switzerland's representation at the forum—disproportionate to its contribution to world GDP—owes much to the presence there of many non-governmental organisations.

The 10 Most Profitable Companies Over 2011

The Atlantic comes up with a list of companies which will be most profitable over 2011. Though i m not sure whow they predicted the corporate results, so i would take the list with a pinch of salt


Read More

http://www.theatlantic.com/business/archive/2011/01/the-10-most-profitable-companies-over-2011/69280/

The Third Super Cycle

For only the third time since the Industrial Revolution, the world may be entering a long-term growth cycle that will lift all economies simultaneously, driving bond yields and commodity

Gerard Lyons, the chief economist and group head of global research in London for Standard Chartered. Lyons has written a report detailing the new economic Super-Cycle, the third since the 18th century. Lyons is of the opinions that the first super cycle ensued were The four decades before World War I and the second super cycle were The three decades following World War II.

The Third super cycle, according to Lyons is about to begin

read more

The Third Super Cycle

Inflation and India

Ajay Shah's INteresting take on inflation in India

"I would argue that it was the currency policy from 2003 onwards (large purchase of dollars with partial sterilisation) which gave us this mess, which was then compounded by repeated RBI speeches saying that inflation is not important, and RBI actions which were soft on inflation.

The weakness of macroeconomic thinking in official circles is visible, with government actions including banning exports, sending the police to raid traders and hoarders, etc. I believe there is an iron law of economic policy: across each doubling of GDP, you have to reinvent government. The trouble in India is that we are getting each doubling of GDP in a decade or less, giving a very large gap between the structures of government and the underlying conceptual frameworks, when compared with the requirements of the economy. With agriculture at only 15% of GDP, one has to think differently about the role of food in inflation as a macroeconomic phenomenon."

Bull Market Durations

Energy Use Per Unit GDP

"Energy intensity is converging across the world

THE energy required to produce a unit of GDP is falling in most countries around the world. As countries industrialise, energy-intensive businesses make up a bigger share of the economy. Peaks generally correlate to the high point of heavy industry, before lighter industry and higher value-added businesses (such as services) begin to replace old-fashioned smokestack manufacturers. This often coincides with gains in energy efficiency, too. According to BP’s "Energy Outlook 2030", published on January 19th, globalisation will lead to a similar level of "energy intensity" across the globe by 2030, despite wild divergence in the past, as energy is traded freely and consumption trends and technologies spread."

The Economist

The pieces just don’t add up

The pieces just don’t add up.

Credit card debt outstanding has fallen 27 straight months for a total decline of $177.2 billion.

The unemployment rate has been stuck above 9 percent for 20 months.

Average hourly earnings rose 1.9 percent in 2010.

Personal income rose less than 4 percent in the 12 months ended November.

About 23 percent of homes with mortgages are worth less than the amount of the loan.

Faced with these not insignificant hurdles, what did the U.S. consumer do? Why, he spent like there was no tomorrow.

Retail sales jumped an annualized 14 percent in the fourth quarter, a spending pace that’s been equaled only once in the last 18 years. (The Census Bureau changed the methodology for calculating retail sales in 1992 and says the data aren’t comparable to earlier measures.) For the year, retail sales rose 7.9 percent, matching the 2004 increase and the biggest since 1999.

With inflation low, the gains in nominal retail sales should translate to a 3.9 percent increase in real consumer spending in the fourth quarter, according to the median forecast of a Bloomberg News survey of 62 economists.

Is the American consumer back to his old shop-’til-he-drops ways? It sure looks that way on the surface.

And who can blame him? All the incentives are urging him to spend, spend, spend. The interest earned on checking and savings accounts is so minute it’s hard to find on the monthly bank statement. Economic theory teaches that high real interest rates are an inducement to defer consumption. Low real rates encourage consumers to spend today.


Opinion piece on Bloomberg

The Growth Machines

The GDP growth rate of african countries continues to impress. I think the 2 reason which will continue to be in africa is 1) Natural resources and 2) Population

"MUCH has been written about the rise of the BRICs and Asia’s impressive economic performance. But an analysis by The Economist finds that over the ten years to 2010, six of the world’s ten fastest-growing economies were in sub-Saharan Africa. On IMF forecasts Africa will grab seven of the top ten places over the next five years (our ranking excludes countries with a population of less than 10m as well as Iraq and Afghanistan, which could both rebound strongly in the years ahead). Over the past decade the simple unweighted average of countries’ growth rates was virtually identical in Africa and Asia. Over the next five years Africa is likely to take the lead. In other words, the average African economy will outpace its Asian counterpart."

Says The Economist

Baltic Dry Index

Generally with commodity prices heading north, we see a lot of activity in bulk cargo shipping.. surprisingly Baltic dry index seems cold and not abuzz with activity. could it be a real lack of cargo moevement or another demand supply mismatch which might push commodities higher

10 REASONS TO STOP THE EURO BAILOUTS

Guillermo de la Dehesa, Chairman of CEPR says there 10 reasons why the bailouts should end with Ireland:


1. Eurozone leaders are supposed to have learned from their previous mistakes in the handling of the present Eurozone sovereign debt crisis.

2. Neither Portugal nor Belgium and even less Spain have net debt levels as high as those of Greece.

3. The actual bail-outs are not well designed and tend to make solvency problems worse for the bailed-out member country.

4. These confusing signals have led many investors to sell the debt of Eurozone countries and even a minority of investors to sell them short with a high leverage making huge profits.

5. As a consequence of reason number 4, an increasing number of investors will start to believe that this debt crisis will end breaking-up the Eurozone, threatening the survival of the euro.

6. Even Germany cannot exit the euro because, even though its exit would not lead it to default – on the contrary, its solvency would improve, it will stop growing or suffer another recession.

7. The Eurozone is almost in equilibrium versus the rest of the world, given that its current account shows a tiny surplus of 0.2% of GDP.

8. Spain is too big to be bailed out.

9. A euro crisis would produce very negative externalities for the rest of the world.

10. Finally, Eurozone leaders cannot dare to risk 52 years of European economic integration and 16 years of European monetary integration.

http://www.voxeu.org/index.php?q=node/6004

Commodity Inflation

Are we heading for another Commodity spiral. Bad news for the developing and under developed nations. They pay price for the inane economic policies of developed countries

Top 10 greatest trades of all time

1. John Paulson's bet against subprime mortgages

John Paulson is the famous hedge manager who correctly predicted the subprime mortgage crisis and profited enormously from it.

His trade made his hedge fund $15 billion in 2007 alone. It propelled him from relative obscurity to stardom and his hedge fund to become the third largest in the world.

Paulson does indeed deserve the title of having made the greatest trade ever.

First, he bet big on the largest economic event of the last 70 years and earned billions doing it.

Second, only a handful (less than 10, probably) of players on Wall Street profited enormously from this momentous event. Indeed, compared to other trades on the list, Paulson's prediction is one of the most exclusive.

Paulson isn't even a global macro trader (his background is in merger arbitrage) so it is highly puzzling but impressive that he came up with such an impeccable and spot-on analysis.

He should also be credited for being bold enough to believe in his analysis and ignore his oblivious Wall Street colleagues.


2. Jesse Livermore's call on the Crash of 1929

Jesse Livermore is a legendary speculator from early in the 20th century.

He is famous for correctly predicting both the 1907 and 1929 stock market crashes. The 1929 stock market crash and the subsequent Great Depression was the most significant U.S. economic event in the 20th century.

For his 1907 call, Livermore made $3 million, which is equivalent to almost $70 million today. After his 1929 trade, he was worth $100 million, which is equivalent to over $1.2 billion today.

Like Paulson, Livermore scores points for the high impact of the events he predicted and the amount of money he made.

Furthermore, he made his fortune without the benefit of having a hedge fund (i.e. massive amounts of money from investors) and using fancy derivative instruments.

One last point in Livermore's favor is that he became successful with less educational resources and mentors than modern speculators.

In fact, Livermore is considered a pioneer in the art of speculation and top traders still swear by the Reminiscences of a Stock Operator, a book based on his trading philosophy and career.


3. John Templeton's foray into Japan

Sir John Templeton, born in 1912, is a pioneer of the mutual fund industry and a legendary investor.

In the 1960s, when Japan was beginning its three-decade long economic miracle, Templeton was one of the country's first outside investors. At one point, he boldly put more than 60 percent of his fund in Japanese assets.

Before his brilliant call on Japan, Templeton also correctly assessed the economic impact of World War II, which was the second most important economic event of the 20th century.

In 1939, he put $100 each in 104 U.S. stocks that were trading below $1. In just 4 years, this portfolio quadrupled.

In addition to the fact that he predicted important events, Templeton gets points for being a true pioneer.

Back in the 1960s, people weren't really familiar with the concept of investing in Asia and Japan's export-driven model wasn't yet proven. It took someone of Templeton's ingenuity, courage, and foresight to lead the way.

4. George Soros' breaking of BOE

George Soros put the hedge fund industry on the map in 1992 after he broke the Bank of England (BOE) by shorting 10 billion worth of pound sterling and forcing the U.K. to withdraw from the European Exchange Rate Mechanism (ERM).

Soros made $1 billion in the process, which was an unimaginable sum back then.

Why isn't Soros, probably the most (in)famous trader in the world, and shorting the sterling pound, his most famous trade, ranked higher?

Not to belittle Soros' accomplishments, but the analysis behind it wasn't as difficult as some of the other trades on this list.

Indeed, there were copycats that made the same trade as Soros. Also, far more people recognized the unsustainability of the ERM than those that saw the dangers of the subprime mortgage market.

Moreover, it was Soros' partner Stanley Druckenmiller who came up with the trade idea in the first place. Soros' contribution was agreeing with it and taking a large position.

Still, Soros deserves credit for having the boldness to make the trade. He also gets 'coolness' points for being the catalyst that ushered in a new currency regime for a major country. This level of impact from a single trade is matchless to this day.


5. Paul Tudor Jones' shorting of Black Monday

Paul Tudor Jones correctly predicted and profited handsomely from the Black Monday of 1987, the largest single-day U.S. stock market decline (by percentage) ever.

Jones reportedly tripled his money, making as much as $100 million on that trade as the Dow Jones Industrial Average plunged 22 percent.

In the weeks leading up to Black Monday, many traders were on edge about the market. Some also recognized the danger of portfolio insurance, which was partly responsible for the magnitude of the fall.

Consequently, many had short positions going into Black Monday or advised their clients to get out of the stock market shortly before it happened, so Jones wasn't unique in predicting the crash.

Nevertheless, Jones deserves to be #5 because Black Monday was such a momentous market event and he was the person who made the most money from it.


6. Andrew Hall's $100 oil prediction

Back in 2003, when oil was trading at $30 barrel and the economy had just recovered from the dot-com crash, Andrew Hall wagered that prices would top $100 per barrel within five years.

When oil prices blew past $100 five years later in 2008, Hall's employer Citigroup made a bundle and Hall took home $100 million as a part of his compensation for this and other successful trades.

According to Time Magazine, Hall structured the contracts so that if oil prices didn't hit $100 within 5 years, they would expire worthless.

Therefore, it took a tremendous amount of conviction and probably some brilliant analysis on Hall's part to make that trade.

Traders know it's hard enough to predict the direction of an asset and find a good entry point. What Hall did was actually pinpoint a timeframe and price level of the move.

Hall is known for doing these brilliant (but risky) types of trades. In 2009, for example, he thought spot oil was cheap. However, oil futures were expensive, so he couldn’t buy them. Instead, he actually bought 1 million barrels of real oil and physically stored it.

So while Hall's calls weren't about monumental events in history, he makes up for it by his brilliance and creativity.


7. David Tepper's 2009 bet on financials

In early 2009, David Tepper bought severely depressed shares of big banks like Bank of America (NYSE: BAC) and Citigroup (NYSE: C). By the end of 2009, Bank of America quadrupled in value and Citigroup tripled in value from their bottoms earlier in the year.

That was good enough to earn Tepper's hedge fund $7 billion. His personal cut was $4 billion.

Tepper's background is in investing in distressed assets and that's exactly what he did in his biggest score to date.

In early 2009, everyone knew Bank of America and Citigroup shares were cheap, but they were too afraid to buy because, among other concerns, they were afraid that these banks would be nationalized.

Tepper bet they wouldn't be. While this trade seems like a wild gamble, Tepper's excellent track record in distressed investing proves otherwise.

A more likely explanation is that Tepper kept his cool while everyone else lost theirs with worries about a coming depression, a collapse of the global financial system, and other 'the-world-is-ending' scenarios.

What's not so impressive about Tepper's trade is the caliber and exclusivity of the analysis because everyone knew about the factors at stake, i.e. whether big banks would be nationalized.

But Tepper deserves credit because he did what one else dared to do and made a lot of money doing it.


8. Jim Chanos' prescient shorts

Jim Chanos is the best short-seller in the world.

He correctly predicted, and profited enormously, from the demise of Enron. Other examples of his successful shorts include Baldwin-United, Tyco International (NYSE: TYC), Worldcom and recently homebuilders like KB Home (NYSE: KBH)

Chanos started to look into Enron as early as 2000. When he found red flags, he dug deeper, discovered more discrepancies, alerted the media, added to his short position, and eventually got rich when the Enron scandal was revealed in October 2001 and the company went bankrupt.

The Enron scandal was highly impactful because it was the biggest bankruptcy to date, led to the dissolution of accounting firm Arthur Andersen, and brought about new regulations like the Sarbanes-Oxley Act.

In a way, Chanos' short of Enron is like a miniature version of Paulson's short of the subprime mortgage market; both reached strongly held convictions by painstaking and thorough research and very few people were aware of the landmines these traders discovered.

Chanos is now setting his sights on China because he believes its economy is just a giant bubble.

There are limited ways he can short the Chinese economy, so Chanos won't make as much money as Paulson if he turns out to be right. However, if he is indeed right, he would cement his status as one of the most brilliant analysts of all time (and this list would be revised to reflect that).


9. Jim Rogers' early call on commodities

Jim Rogers spotted the secular bull market for commodities way back in the 1990s. In 1996, he created the Rogers International Commodity Index. Subsequently, he worked on ways to make that index investable.

Since 1998, the index has returned 290 percent through the end of 2010. This compares to the 10 percent return of the S&P 500 Index during the same period.

Rogers expects commodities to continue to rally ferociously for the long term as paper assets become more worthless and demand (for certain commodities) picks up worldwide. If he is indeed correct, the importance of his call will be elevated and this list would be revised to place him higher.

Back in the 1990s, on the heels of a long bear market for commodities, it was difficult to make a bullish case for them. In fact, few people did.

It is therefore highly impressive that Rogers pretty much called the bottom of a market that went on to rally tremendously for the next decade and more.


10. Louis Bacon's geopolitical play

Louis Bacon made a killing in 1990 by anticipating that Saddam Hussein would invade Kuwait. Bacon went long on oil, short on stocks, and helped his new hedge fund return 86 percent that year. In the following year, he also correctly bet that the U.S. would quickly defeat Iraq and the oil market would recover.

Aside from the eye-popping returns, this feat is included on the list because Bacon ventured outside the field of finance and correctly anticipated a geopolitical event.

Granted, his analysis likely centered on the financial difficulties of the Iraqi government, so it wasn't entirely outside his area of expertise.

But Bacon's feat was impressive because he likely anticipated the invasion better than the people who are supposed to be good at this stuff, like the U.S. President, director of the CIA, and top government officials of other countries. These government people also had better information and access than Bacon did.

http://www.ibtimes.com/articles/98377/20110106/greatest-trades-of-all-time.htm#

Commodity Cycles at a crucial Level

Purchasing Power of Dollar

Leaders and Laggards of 2010

YTD performance of various assest classes. perhaps one of the best years for commodities overall