Sun, 28th May 2017

Anirudh Sethi Report


Archives of “double digits” Tag

Is This The Start Of China’s Gold Miner Buying Spree?

Back in October of 2012, Hugh Hendry proposed a simple investment thesis: ‘”I am long gold and I am short gold mining equities. There is no rationale for owning gold mining equities. It is as close as you get to insanity. The risk premium goes up when the gold price goes up. Societies are more envious of your gold at $3000 than at $300. And there is no valuation argument that protects you against the risk of confiscation. And if you are bullish gold why don’t you buy gold ETFs, gold futures or gold bullion.” Since then, anyone who listened to Hendry has made a substantial double digit return (yes, one can make double digits returns on gold even when gold is sliding: such is the “magic” of long gold, short GDX pair trades). However, following a massive, 50%+ selloff, there comes a time when even gold miner stocks become attractive to those with deep pockets filled with reserve fiat. For someone like China, that time may be now. The WSJ reports that China’s largest gold company, China National Gold Group Corp., has talked to Ivanhoe Mines “about buying a stake in or asset from the company.”


It is unclear where talks stand, but, if completed, such an investment would mark another step into international markets for the Beijing-based miner and further Chinese investment in African mining. It could also entail Mr. Freidland’s taking on a major international partner not long after he lost control of a major mining company to London-listed giant, Rio Tinto PLC.

The WSJ adds “on Monday, Toronto-listed Ivanhoe said it is selling $100 million worth of stock at $2 a share, a sharp discount to Friday’s closing price of $2.56. The stock fell 11% as investors digested news of the dilution and analysts said that the total falls short of the money that Ivanhoe needs to raise. In a release Ivanhoe said that it is in discussions with a number of international, private and state-owned mining companies about raising further funds through investments in its projects and the company. “Ongoing talks could lead to the formation of a significant strategic corporate partnership or syndicate for continued exploration and development of the company’s discoveries and associated infrastructure,” Chief Executive Lars-Eric Johansson said Monday. A spokesman for the company declined to comment on whether it had held talks with China National Gold.” Read More 

Jayati Ghosh: None of the Experts Saw India’s Debt Bubble Coming. Sound Familiar?

So now India is the latest casualty among emerging economies. Over the past 10 days, the rupee has slid to its lowest-ever rate, and the Indian economy may well be on the verge of a full-blown currency crisis. In this febrile situation, it is open season for rumours and pessimistic predictions, which then become self-fulfilling.

This means that even if there is a slight market rally, investors quickly work themselves into even more gloom. Each hurriedly announced policy measure (raising duties on gold imports, some controls on capital outflows, liberalising rules for capital inflows and so on) has had the opposite of the desired effect. Everything the government does seems to be too little, too late – or even counterproductive.

These are all classic features of the panic phase of a financial market cycle. This doesn’t mean that a crash is inevitable, but clearly it is possible. The real surprise in all this is that investors and Indian policymakers are surprised. For some reason, they apparently did not foresee this turn of events, even though the story of every financial crisis of the past, and many in the very recent past, should have caused some nostrils to twitch at least a year or two ago. Read More 

Black Clouds for Indian Economy



Morgan Stanley’s chief economist Chetan Ahya has warned that India is in real danger of slipping to a Hindu rate of growth that characterised the pre-liberalisation era. GDP growth could plummet to an abysmal 3.5 per cent to 4 per cent if the weak growth trend persists over the next four to five quarters.

The Hindu rate of growth — a term coined by economist Raj Krishna — was a derogatory term that referred to the 3.5 per cent growth witnessed in the socialist economy that India had before 1991.

The dire forecast of a throwback to those dark ages could spook markets but is unlikely to alarm the mandarins at Raisina Hill and Mint Street. Read More 

Inflation bond auction cancelled

The Reserve Bank of India (RBI) on Monday again tried to limit the impact of liquidity tightening measures on short-term rates by cancelling the inflation-indexed bonds auction. Though it is trying hard to restrict the impact of liquidity tightening measures to the shorter end of the yield curve, the efforts might not be successful, since economists expect some spillover effect even on long-term rates.

In the inflation-indexed bond auction for a notified amount of Rs 1,000 crore held on Monday, RBI cancelled all bids as traders were quoting very high yields. It was the auction of 1.44 per cent inflation-indexed bonds maturing in 2023. Short-term rates have been rising since RBI resorted to liquidity tightening.

Rates of short-term instruments like certificates of deposit and commercial paper breached the 11 per cent mark in the secondary market. Read More 

Macroeconomic and Monetary Developments – First Quarter Review 2013-14 (Full Text )

Overall Outlook

Amplifying macro-financial risks warrant cautious monetary policy stance

  • Growth is expected to improve slowly as the year progresses, but recovery is likely to be slow.
  • Various surveys indicate further drop in business confidence. The Reserve Bank’s Industrial Outlook Survey shows weakening of business sentiments in Q1 of 2013-14 to a three year low, though expectations showed improvement for Q2.
  • Headline inflation based on wholesale price index (WPI) has moderated to below 5 per cent, while consumer price inflation has remained at an elevated level of near double digits. Upside risks persist with recent rupee depreciation and rise in crude prices amidst political uncertainties in the Middle East.
  • Professional forecasters outside the Reserve Bank project modest recovery in 2013-14 at 5.7 per cent. The latest forecast is a downward revision from 6.0 per cent in May 2013. Their average WPI inflation projection of 5.3 per cent for 2013-14 marks a sharp downward revision from 6.5 per cent in May 2013.
  • Recent liquidity tightening measures taken by the Reserve Bank to curb volatility in the exchange rate provide, at best, some breathing time. This strategy will succeed if reinforced by structural reforms to reduce the current account deficit (CAD) and step up savings and investment. Read More 

Heading for elections in winter?

It is tempting to compare the current economic scenario with the situation that prevailed in 1991 – a landmark year that witnessed the confluence of three highly debilitating developments that gave rise to an unprecedented macroeconomic crisis in India. Fiscal indiscipline, a precarious balance of payments situation and political instabilitybrought the Indian economy to a grinding halt. The crisis eventually forced the government to introduce a series of reform measures that in the following few years brought the economy back on the path of fiscal consolidation and stability in the balance of payments.

The fear today, not entirely without reason, is that the current economic problems, aggravated by prospects of an uncertain political situation in the wake of a likely fractured mandate in the next Lok Sabha polls, could drive India to the edge of a 1991-like economic crisis. A comparison of the key macroeconomic numbers then and now would, therefore, be useful to judge if such fears are exaggerated.

The economic scenario in 1991 was quite grim. The growth in India’s gross domestic product, or GDP, fell to 1.3 per cent in 1991-92, down from 5.6 per cent a year ago. Industrial growth plummeted to 0.6 per cent, with the capital goods and consumer durables sectors showing a decline in production by 8.5 per cent and 10.9 per cent, respectively. Agriculture, too, recorded a contraction of over two per cent in 1991-92. Inflation, based on the rise in both the wholesale price index (WPI) and the consumer price index (CPI), was in double digits. Read More 

Early exit from economic stress?-Shankar Acharya

INDIA FLAGAs the government staggers from one corruption-related scandal to another, I am reminded of the title of an article I read some years ago, which characterised India as “a flailing state”. The epithet seems increasingly appropriate. It certainly applies to the economic policies of recent years which have ensured the collapse of economic growth from 9.3 per cent in 2010-11 to five per cent in 2012-13, the yawning external imbalance with the current account deficit (CAD) officially expected to exceed five per cent of GDP in 2012-13 and consumer price inflation in double digits for the fourth successive year.

Faced by such ugly official data, the government’s response – from the prime minister down – has been to speak soothingly about the worst being behind us and predict a return to eight per cent economic growth in three years and a reduction of the CAD to 2.5 per cent of GDP in a similar period. For this year, 2013-14, the finance ministry projects (via the Economic Survey, 2012-13) a growth revival to 6.1-6.7 per cent, a prediction dutifully reflected by last fortnight’s ‘Review of the Economy, 2012-13’ by the Prime Minister’s Economic Advisory Council (PMEAC) which foresees GDP growth of 6.4 per cent. The Reserve Bank (RBI), perhaps the most professional of extant official economic agencies, offered a more bearish forecast of 5.7 per cent in its Monetary Policy Statement, 2013-14 last week. Read More 

Reserve Bank of India Governor Duvvuri Subbarao tempers expectations of rate cut

DuvvuriSubbarao on Tuesday tempered expectations ofinterest rate cuts beginning this month, saying prices of consumer products and manufactured items are still rising.

Subbarao, who has refused to give in to pressure from industry and the finance minister to lower key rates, said though the rate of price increase has slowed, it remains elevated.

“Inflation has come down, (but is) still high,” he was quoted as saying by Bloomberg in his speech at the Indian Institute of Management, Lucknow.

The RBI governor said though India’s economic growth rate may be headed towards a decade-low, there is not much room for either monetary or fiscal stimulus. Read More 

2012 Key ETF Performance

As shown, US equity indices did well in 2012, but international markets did even better.  France (EWQ), Germany (EWG), Hong Kong (EWH), India (INP) and Mexico (EWW) were all up more than 20% for the year.  Mexico (EWW) was the best performing ETF in the entire matrix with a 2012 gain of 31.19%.  Germany (EWG) was the second best performer at +28.51%.

In the US, the Nasdaq 100 (QQQ) and S&P Midcap 400 (IJH) were the best performing index ETFs in 2012 with gains of more than 16%.  The Financials ETF (XLF) was the best performing sector ETF with a gain of 26.08%, followed by Consumer Discretionary (XLY) at +21.58%.  The Utilities sector (XLU) did the worst and actually declined 2.94% for the year.

Looking at commodities, oil (USO) was down double digits in 2012 with a decline of 12.44%, while gold (GLD) and silver (SLV) posted gains of 6.60% and 9.02%, respectively.  Finally, fixed income was down across the board in December and the fourth quarter, but the aggregate bond market ETF (AGG) managed to post a small gain for the full year.  The 20+ year Treasury ETF (TLT) ended down for the year after a rough month of December.

Falling growth, high inflation threats to stability: RBI

 Risks to India’s macro-economic stability have increased on the back of an economic slowdown, high inflation, and ballooning fiscal and current account deficits, the Reserve Bank of India said in a report on Friday. 

A slowdown in both domestic savings and investment demand, as well as a moderation in consumption have also emerged as threats to macroeconomic stability, the central bank said in its financial stability report (FSR). 

“The overall macro-economic risks in the financial system seem to have increased since the publication of the previous FSR in June 2012,” the RBI wrote in the report.  Read More