2017: A year of bumper equity returns

Equity markets continued to defy logic throughout the year, posting their highest yearly gains since 2009. Like many analysts, I also failed to read the bullish undertone of the markets, especially in the last quarter of the year, post GST implementation. The Indian equity benchmarks closed the year at new highs (BSE Sensex crossed the 34000 mark whereas Nifty closed above 10500), clocking an annual growth of over 35% in US $ terms. The returns in Rupee terms were slightly muted at 28% as the INR strengthened against the US $ from a level of 68 to 63.75 by the end of the year. Overall Indian equity markets ranked among the Top 3 best performers along with Hungary & South Korea.

The spectacular rally was largely led by global factors and the continuing liquidity overhang. The perception about the rebound in the economy based on the reforms unleashed by the BJP Govt. also helped the cause of stellar performance of our markets. Yet again, fourth year running, Mid Cap and Small Cap stocks out-performed the front line indices. The sectors that led the rebound were Consumer durable and Real Estate, followed by Metals, whereas Pharma & IT proved to be the laggards. Domestic Mutual Funds contributed Rs. 1,15,000 crores to sustain the rally, their contribution outstripping the Foreign Funds flow.

With this stellar performance behind, the equity markets are poised for subdued returns in the year 2018 due to global factors:

• Liquidity tightening: With the Central Banks in the developed world led by US FED poised to raise interest rates, excess liquidity is likely to be sucked out
• The much awaited economic turn around may be delayed as emerging markets like China are likely to slow down
• The threat to global peace still looms large with North Korea & Gulf region still eluding permanent peace.
• Energy prices: The rise in energy pack could be detrimental to the growth prospects of developing nations like India, China

In addition, the Fiscal deficit target for India is unlikely to be met, the rising inflation could also be a major spoiler in the party. In such a scenario equity indices could at best give a modest single digit return for the entire 2018, they will probably struggle in the first half of the year, and a 10% correction from these levels may not be ruled out.

Economic Growth Nosedives: How long can the Liquidity sustain Equity markets!

Indian equity markets closed the August series at a comfortable level (9917 on the Nifty), after showing a meaningful correction midway through the series, in the aftermath of global uncertainty induced by North Korea. However, the economic data released on Thursday evening was a big let down. GDP growth of Indian economy has slowed to 5.7% in Q1 of 2017-18, the slowest growth in 3 years. Analysts are blaming the blip on the after effects of Demonetization and implementation of GST w.e.f. 1st July 2017. The major question now is: How long can our equity markets sustain at these inflated levels on the back of 'Liquidity overhang' with deteriorating economic factors and global uncertainty looming large on the horizon?

Let us first analyse the economic data in detail: Not only has the GDP dipped to its lowest since March 2014, but Gross value added (GVA) has also clocked a dismal 5.6% on a lower base. Manufacturing sector growth dipped sharply to 1.2% and mining sector growth showed a negative growth of 0.7% during June quarter. A major chunk of the GDP growth comes on the back of a massive boost from Govt. consumption spending. Expenditure on gold and jewellery contributed over 40% of consumption growth despite Govt. efforts to shift investment from physical assets to financial assets. Another worrying factor for the economy is that the Fiscal deficit of the Govt. during first 4 months of FY 17-18 has ballooned to 92% of the full year target as compared to a comparative figure of 73% of the previous fiscal. 

Global uncertainty continues to be high with North Korea and USA engaging in a war of nerves. The situation could worsen if any one of them blinks. Central banks in the west are trying their best to revive the sagging US and EU economic growth, but the risks of a major recession are fairly high. In the midst of the global uncertainty, BRICS summit will open at Xiamen, China on 3rd September 2017. China and India have done well to end their border standoff ahead of the summit, as BRICS countries are likely to arrive at important decisions on major global economic issues like Global free trade and are also likely to deliberate on introduction of an alternate global currency in the future.

Precious metals (Gold & Silver) have finally broken out of slumber and are now trading above the major resistance levels of $1290-1300/ ounce for Gold and $17.30-17.40/ ounce for Silver. With this the major trend for these precious metals has turned positive for the medium term. The demand for these metals is traditionally higher during fall season which also coincides with the festival season in India. Investors are well advised to increase their allocation to precious metals for handsome gains in the medium term, by investing through Gold ETF. Long term investors could wait for the next series of Gold bonds. Equity markets have more or less made an intermediate top for the year 2017 at 10138 on the Nifty. Nifty index shall continue to trade in the 9700-10000 range for a while till any major global unforeseen factor hits the markets. A dip below the 9700 level on Nifty could take it down towards the 9000 level or so. The next uptrend in equity markets could start only after an earning upgrade which is expected only after 2-3 quarters. The mayhem in mid cap stocks could be much higher in the meantime. Investors can fine tune their portfolio accordingly.

Global Currency Reset: Will Illinois be the epicenter of the upheaval?

With a majority of global stock market indices closing the last week of July at record highs, the bull run seems to have entered its final phase. While NSE Nifty index reached a historic landmark of 10000 during the week, Dow Jones Index inched closer to the 22000 mark. The stock market rally in the US has now run for over 7 years on the back of Quantitative Easing (QE) support from the FED. Finally, the bulls are now showing signs of fatigue indicating that the final top for this bull run is near, although the indices have already run up far ahead of economic fundamentals.

The unprecedented rally has been supported by an orchestrated liquidity push by major Central banks led by the US FED and supported by Bank of England, European Central Bank and the Bank of Japan. In a clear departure from the past, most of these Central banks today hold a major share of the Govt debt and the equity stocks in their respective countries, which is the primary reason for the non-stop bull run in world markets. It is not surprising that these Central banks are outside the control of the respective Governments. and are controlled by Jewish Community. In addition to the Central banks, top investment banks in USA and Europe also hold a substantial chunk of equity assets and have over leveraged positions in the F&O segment of equities as well as commodities. I was surprised to learn that one of the large US banks enjoys a leverage of 349:1 in the markets. One can well imagine what would be the plight of these banks if there was a sudden fall in the markets.

Now let us come to the issue of 'Global Currency Reset'. It would be interesting to understand the history of the 'Reserve Currency'. A reserve currency (or anchor currency) is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves. The dominant reserve currency has been changing over the past years. The Dutch Guilder emerged as a de-facto reserve currency in the 18th century due to dominance of trade by the Dutch East India company. By 1860, followed by the industrialization in UK, majority of the trade took place in British Pounds which became the Reserve currency during that period and it was based on the Gold standard. The Gold standard fell after the great depression of 1929. After WW II a formal currency system based on the Bretton Woods accord was put in place and US Govt. guaranteed a fixed rate of gold in lieu of US$, thus making US Dollar as the Reserve Currency. However, the Gold backed currency system was discontinued in 1971, but US Dollar continued as reserved currency in its new avatar as 'Fiat Currency' not backed by gold. In order to continue its status as the Reserve currency US Government made it mandatory for nations to do oil trade in US Dollars only.This led to the emergence of the term 'Petro Dollar', which continues till date. But there have been chinks in the armour of US as many countries have now decided to trade in their own currencies, the biggest such block being led by Russia and China, which includes India (BRICS). This is the reason why the search for an alternate global currency is on.

London based 'Economist' magazine came out with an interesting cover story 30 years ago, in its issue dated 1st September 1988, titled 'Get ready for a World Currency by 2018', they named this currency 'Phoenix'. And it is not a mere coincidence that Economist is owned by the Rothschild group which also have a substantial stake in major central banks world over. Does this mean that they had envisaged the end of the 'Fiat Currency regime' 30 years later, and will they slowly bring down the US economy to usher in the new era. This seems to be the most logical explanation of the impending crash of the debt ridden US economy and with it the 'Petro Dollar'.as a reserve currency.

Now another important issue: About the timing of the currency reset and how Illinois could be at the epicenter of this reset? Illinois is the 5th most populous and 25th largest state in USA. Chicago is a famous city in this state. Illinois has been in the news for quite some time due to its financial woes, and is on the verge of bankruptcy. It has not presented a budget for the past 2 years, and has a huge accumulated debt and $15 billion unpaid bills. The plight of at least dozen other states in USA is also far from good. How Illinois could trigger the great collapse? The answer to that lies in a celestial phenomenon that is going to happen in US on 21st August 2017, when a total solar eclipse will occur and the path of the eclipse would divide the USA into two parts. Many astrologers believe that the planetary configurations are not favourable for the USA and its President during this period. Some of the vulnerable spots on the path of the eclipse are the West coast of US, the Yellowstone national park, and of course South Illinois, all of which fall on the path of the eclipse. Interestingly USA came into existence after a total solar eclipse was seen in USA in 1776. Interestingly another total solar eclipse will be seen over USA on 8th April 2024, and the paths of the 2 eclipses will overlap each other at Carbondale (also known as Little Egypt) in South Illinois. This makes for a deadly combination: Natural calamity may strike US in the form of Tsunami on the west coast or Volcanic eruption at Yellowstone, combined with economic collapse of 'Illinois'. The effects of the Eclipse are normally felt for several weeks after the event.

A global Currency reset is now inevitable. Can the BRICS nations play an important role in providing an alternative global currency? The BRICS summit at Xiamen, China from 3-5 September could play an important role. We can only pray that the transition to a new World Economic order is peaceful and without much destruction. 

Markets hit new highs: 'Make hay while the sun shines'

On Thursday 13th July 2017 BSE Sensex scaled a new landmark: Mount 32000. Entire media went Gaga over the event, every newspaper carried the news as their headline. Maybe the media will have another event to celebrate soon: NIFTY hitting 10,000: it is only 100 odd points shy of the coveted mark. Now a flashback: NDA Govt. under PM Modi presented its first budget on 28th February 2015 and the Nifty touched 9129 that day, which became a headline the next day. We all know what happened thereafter. Again when NDA presented its 2nd budget on 29th February 2016, Nifty did a U-turn and touched 6826 three days later. The newspapers carried this as their headline on 4th April 2016. Rest is history: Nifty in July 2017 is at 9900 grabbing another headline. I need not tell you what is going to happen next: because history repeats itself.

That is why the title of this post is 'Make hay why the sun shines'. I had heard stock markets being labelled as 'Satta Bazar' or 'Casino' but never believed that stuff. But the way stock markets are being manipulated around the world today, we need to rethink. The major Central Banks around the world (US FED, ECB, BOJ etc) have colluded with one another to create a slush of liquidity to lift stock markets to unsustainable levels, having total dis-regard to the principles of economics. The artificial money created by Central banks has not helped the poor sections of society, instead they have created a greater rich-poor divide. They have also helped their respective Governments to pile up excessive debts which they are unable to service. Their game plan is now about to end, which will lead to the greatest asset bubble burst in history and the ensuing stock market collapse world over.

A global currency reset is inevitable: US Dollar will cease to be a global currency. We all know that the US economy is in a massive debt trap, so what will cause the bubble to burst. Today US is passing through one of the greatest political crisis in its history. The divide between the Democrats and Republicans has reached dangerous proportions. Democrats who thought that the post of President of USA was their right have not been able to accept Trump at the helm of affairs. Several stories are being cooked to implicate Trump and his family, and they might even try to get him impeached. On the other hand Trump is also collecting evidence against Obama and Hillary, and may open criminal investigations against them. All this does not auger well for an economy that is under serious threat of exploding. As I have mentioned in my previous post several US states are on the verge of Bankruptcy. US Dollar is fast losing its grip as a 'Reserve currency' with as many as 23 countries bypassing US Dollar as a medium of payment for international transactions. The fall of the Dollar, and along with it the Equity markets is a foregone conclusion.

What could be the alternative to the US Dollar? The Euro zone has its own share of problems, so Euro may not be looked upon as a viable alternative. A viable alternative can be provided by the BRICS (Brazil, Russia, India, China, South Africa) nations. Together these nations account for 43% of the world population and about 25% of the world GDP, which is equal to the GDP of USA. They have already launched their own alternative to the IMF called the New Development Bank (BRICS Bank). It would be in the interest of India & China to strengthen the BRICS agenda rather than fight over petty issues. The 9th summit of the BRICS nations is scheduled to be held at Xiamen, China in September 2017. This would be an opportunity for this group to provide global leadership in the aftermath of the US Dollar collapse.

Now coming to the markets and the behaviour of various asset classes in the aftermath of the global crisis. This is the last opportunity for the investors to book profits in the equity markets, as the markets may start correcting within the next couple of days. We are looking at a 40-50% erosion in US stock prices, which will lead to a correction of up to 20% in Indian markets as well. The crisis may also lead to softer energy prices, which will be good for countries like India. That is why we shall fall much less as compared to western markets. The best investment bet in these troubled times would be precious metals (Gold & Silver). The prices of Gold & Silver have been artificially suppressed by big US banks operating in the derivatives segment, whereas the physical demand for these metals continues to be high. Gold and Silver touched record highs of $1900/ ounce and $34/ ounce in 2011, and since then they have corrected substantially. They are likely to regain these levels, and even beyond, within the next one year. This translates into a return of 55% and 110% respectively from the current levels. Investors are advised to switch a part of their investments into Gold ETFs or Silver futures to make a killing in the emerging scenario. Please enjoy the last leg of the global rally in equity markets and await for the turn of the cycle, which may kick in sooner than most people expect.

Global Economic Meltdown: Its impact on Indian markets

In my last post I had discussed the prospects of a global economic meltdown likely to be triggered by a US economic collapse. I have got an overwhelming response to the post: It ranges from appreciation to disbelief, some of the readers have painted me as a doomsayer, some have questioned the legitimacy of the 'bombshell' I have dropped. I would like to assure my readers that whatever I have written is based on thorough research backed by hard facts. The reasons for the shock and disbelief is confounded on the fact that the information I have shared is being suppressed by mainstream US media, so most people are unaware of the activities of the 'Deep State'. However, a lot of information is available through private channels on 'Youtube', which includes serious warning by top economists, which has often been ignored by US administration. I would request readers to read about 'Deep State' in context of USA and you would understand how deep the conspiracy is.

The actions of the 'Deep State' and the 'Federal Reserve' have helped in creating the biggest bubble in the history of USA, which is now threatening to explode anytime. The 'Deep State' has become so powerful that even the US President and the US Congress are forced to tow their line on several occasions. About Federal Reserve it is said that the statement of FED chairperson has more impact on the US markets than the actions of US President. And this is the root cause of the malaise that has set in the US: The vested interests of Deep State have been responsible for trampling upon the rights of US citizens as well as the Sovereignty of Independent nations. The policies of the FED in the garb of 'Quantitative Easing (QE)' has led to creation of a debt monster which is now impossible to contain. In the process the number of billionaires has increased manifold in US and the middle class has been wiped out. These billionaires are now running the Deep State and the mainstream media, which serves their vested interests. The top 1% of US citizens hold over 50% of the wealth of US, According to estimates 40% of US citizens are living below poverty line, as they have no means to buy food beyond one week, if a calamity strikes. And this has the potent of a civil war engulfing the nation if any calamity strikes. Donald Trump has shown signs to challenge the Deep State which may create a conflict within the US administration. As is it, the mainstream US media (the likes of CNN & NBC) are against Trump and his policies due to their vested interests.

We all know that US is a Confederation of 50 states, each state enjoying very high autonomy. At least 9 out of these states are on the verge of bankruptcy as they have amassed huge budgetary deficits. They can levy taxes on their citizens, but they cannot print notes like the Federal Reserve. Further, US laws allow institutions to file for bankruptcy but states are not empowered to do so. Readers are advised to read about 'the plight of 'Illinois' a US state which is already bankrupt, it has not presented a budget for 2 years and has no money to pay its employees. The state of several other states is no good: to name a few: Connecticut, Massachussets, New Jersy other than Illinois. It may not be possible for the Federal Govt. to offer bail-outs to these states. Disaster will be the first to strike these weak states as soon as the stock market crashes and US Dollar goes into a tailspin.

What will be the impact of this crisis situation on the Indian economy. Let us analyse the performance of our economy and the state of our markets. The Indian economy is not in the pink of health. Our economic growth is over dependent on the services sector, the 'Industrial' and 'Agricultural' sectors being continuous under performers. Despite the slogans of 'Make in India' employment generation has been at the lowest in several decades. The golden lining has been the remittances from Indian diaspora working abroad. which keeps us going. But this phenomenon is now under serious threat due to the escalation of global tensions and inward looking policy decisions by developed nations. Notably, US and UK have announced policies to limit white collared jobs to expats. The conflict within the Arab world (Qatar being marginalized by powerful Saudi Arabia & UAE) does not auger well for our citizens working there.

Our stock markets have been artificially propped up by prospects of a good monsoon and the passage of GST bill. But the progress of monsoon is now showing serious faults in the distribution of rainfall across the country. Implementation of GST is again fraught with several risks: Slowing down of the economy, escalation of inflation. Our markets have been thriving on excess liquidity which has returned to the economy in first quarter of FY17-18 as money supply limped back to normalcy. FIIs have also pumped in huge amounts due to surplus liquidity available with them. The results for Q1 are not likely to give any comfort to the FIIs. The situation is likely to change soon. The first signs of the slowdown have given jitters to the stock market on 27th June. Investors are advised to book out from equity markets/ lighten their positions ahead of the impending crash. Indian indices are likely to correct on their own fundamentals, which has the potential to take NIFTY to sub 9000 levels in the next couple of weeks. In the event of a global meltdown we could see sub 8500 levels on NIFTY in its aftermath. Although we are better placed than US markets, the contagion effect will play out: If US falls 40% we may also fall 20% from the current levels. The only safe havens in the turmoil would be precious metals; Gold & Silver. Investors are advised to safeguard their portfolio in the event of the occurrence of a global meltdown, which is coming soon.

The countdown has begun: US economy faces a grave economic crisis, US Dollar will cease to be a global currency

The writing on the wall is crystal clear: US economy is heading for its greatest collapse in history, far more serious than the great depression of 1929 and the Stock market crash of 2008. But unfortunately the manipulators are busy rigging the stock market to dizzy heights, ignoring serous warning from several senior economists and legendary investors like Warren Buffet, George Soros, Mark Faber, James Davidson among others. But the endgame has begun, it is only a matter of time before it is all over.

What ails the US economy and what would be the timing of this much awaited collapse, let us try to understand. The biggest problem with US economy is the ever ballooning debt: The national debt of the US economy is over $ 20 trillion (up from $ 1 trillion in 1980's) However, this figure does not include unfunded liabilities like unemployment grants, retirement and social security expenses. If these are included the figure is well over $ 210 trillion. The average US citizen carries a debt burden of over $ 600,000, which the highest debt per person in the world. In the past two decades the Political class and the Federal reserve have moved from productivity linked growth to debt financed growth. In the process US now boasts of a most corrupt political class and a highly irresponsible media which have been hiding the truth from the US people. The figures of official unemployment rate are 5.5%, whereas the actual unemployment is a staggering 23%. The US Dollar has been artificially propped up and interest rates artificially pegged too low to avoid the catastrophe. But the more the FED prints notes more deeper it gets into trouble. The FED has financed/ bought 71% of the US economic debt by printing dollars. The latest figures reveal that many countries including Russia and China have been aggressively selling US treasuries, and buying Gold instead.

Rampant gambling is going on at Wall Street where the top US investment companies are propping up the markets by over leveraging the funds lent by US Govt. The average exposure of the Top 5 investment companies (includes Morgan Stanley, BOA Merryl Lynch) is over 30 times their net worth, any stock market hick-up can force them into bankruptcy. The argument that these companies are too big to fail does not hold good any longer. Politically also US is passing through a very bleak phase. Donald Trump is trying his best to revive the economy, but the corrupt administrators are busy thwarting his decisions. They have also hatched a conspiracy to malign Trump. Even the FED Chairman is not supportive of Trump's policies and is waiting to shift the responsibiliy of the economic failure on the doorsteps of Trump. 

The crash now seems inevitable. It will lead to:

• A stock market correction of up to 50% (The current PE of the market at 27 is well above the historical average of 16, despite stagnating performance by companies
• The real estate market may follow suit with a fall of over 30%
• The US dollar will cease to be a global currency and its value may fall by over 20%
• The unemployment rate in US may double from the current level
• The banking system may be shut for few days, and there could be shortages of food and essential items
• Other global markets may also fall in tandem with the US market

Now about the timing of the impending crash. Although fundamentally time is over for the US economy, but the actual timing of the death knell will be signalled through a peep into astrology.:

A Great American Eclipse is going to occur on Monday, 21st August 2017. It is the first Solar eclipse in 99 years that will engulf the entire USA, total eclipse will be visible in 10 states. This will likely trigger the collapse of the US economy. The impact of the eclipse will be felt one month before its occurrence, coinciding with the Leo moon cycle (July 23 - August 21, 2017). This period would likely produce earth shaking moments for the US, which may lead to startling revelations against the US President or radical moves by him causing public anger & violence.

In a nutshell, US economy is likely to face a severe shutdown between June 21 & September 21, 2017. As a matter of abundant caution please advise your friends and relatives living or working in US to prepare themselves for this catastrophe. Those of you planning a trip to US may also take necessary precautions rather than getting caught unawares.

(Disclaimer: The aim of this article is not to create panic but help readers to understand the situation and take informed decisions about their wealth and property. The impact of this US crisis on Indian economy shall be analysed in a separate post)

Uncertain Global scenario may lead to turbulence in equity markets

I have been cautioning investors about the risks in Indian markets over the past few months. Equity markets have corrected substantially to the levels of 7900-8000 on Nifty, which I had anticipated. However, our markets have not factored in all the immediate global risks and the negative impact of 'Demonetization'. So where are the markets headed in the next few months from now on? Let us try to find the answer to this question.

Global research houses are now coming up with their revised estimates for India's GDP growth, and most of them have painted a rather gloomy scenario. There have been serious downgrades for GDP estimates for second half of fiscal 2016-17. As equity investors always take a forward looking bet on the markets, they are likely to take a bearish view in the near term. The 2 most important factors that stunned the markets in November (Modi's Demonetization & Trump's victory) would continue to drive the fortunes of our markets in the medium term.

International Factors:

• US Monetary policy action of raising interest rates has led to the strengthening of US Dollar. The Dollar index has risen beyond 103 and is likely to test 105 in the short term, putting pressure on inflows into emerging markets
• After several rounds of negotiations OPEC and non-OPEC countries have arrived at a consensus on cutting global oil output, leading to a sharp uptrend in Crude oil prices. Crude is like to head towards $60-65/ barrel, which is negative for net importers like India
• Protectionist stance by global leaders: Britain & USA may impose restrictions on overseas workers leading to a shrinking in global trade, which is negative for countries like China & India

Domestic Factors:

• Economic activity has slipped to multi-year lows, leading to a sharp decline in GDP growth for next couple of months. India may clock a GDP growth of 5.5-6% for FY 16-17, a sharp decline over the previous year
• Large scale unemployment in SME sector and Rural sector will put adverse pressure on consumption demand from the rural markets, leading to a big blow to our 'consumption theme'
• Rupee would continue to decline, leading to further exodus of FII money from our markets. FIIs would take any new bets on emerging markets only after January 2017, after Donald Trump takes over as US president on 20th January
• There is also a likelihood of an escalation in Indo-Pak hostilities across the border, adding to the economic uncertainty.

Considering the above factors corporate earnings of India Inc. are likely to grow by a meager 2% during FY 2016-17. The markets are likely to take the final plunge sometimes in January 2017, after the inflow of Corporate results for Q3 ending December 2016. The markets may react to levels of 7500 or lower on Nifty during that period. But due to the 'Spring effect' we could see a U-shaped recovery thereafter. The upcoming Union budget to be announced on 1st February 2017 could prove to be a game changer for the markets. Investors are advised to buy aggressively in the 7500-7700 range on the Nifty to lock in handsome gains during the next year. Long term investors should continue to hold on to their investments in the market mayhem.