FROM 28TH FEB GOLD WILL START ITS CLIMB TO 2200/OUNCE

The price of Gold will beyond 2200/ounce There is nothing to get surprised and it might sound unbelievable but once you go through the insight you will fall within the lines. Yes, the recent policy actions related to swift and sudden restrictions and more stringent checks and balances for the Russian economy the price of gold will soar.  RUSSIAN CENTRAL BANK: SAYS TO RESUME PURCHASE OF GOLD AND PRECIOUS METALS FROM THE DOMESTIC MARKET STARTING FEBRUARY 28. The Russian government will now trigger a significant supply crisis by buying gold and creating problems on the currency front for the global economy.

 The matter has now shifted from the cold war to a financial and asset class war with Russia and the rest of the world. Further any Nuclear related act will create more volatility for the global markets where precautionary steps of pulling out funds from invested asset lass for rainy days might be adopted as a strategy. Emerging markets might find significant outflow of capital and winding up from risky assets to safe assets hence GOLD supply will get short since every corner of buyers will buy the yellow metal. All gold-related products will find significant investors demand and hence the buying by other central banks will also begin.

The Nuclear standby claim announced by Russia itself is a significant alert for the global markets. Many countries have started supplying war items to Ukraine and hence it now seems like half of the world is at the back of Ukraine fighting Russia under disguise.

 The risk of the sentimental aspect has gone up significantly. Due to SWIFT, the global liquidity landscape will now change and this will trigger spill over to other asset classes.  The transaction which is currently live will witness a significant change of route due to the current policy actions. Now if the nuclear story comes into play then the more stringent sanctions and more policy actions will come into play which h will create more volatility for the equity markets.  Russia's central bank said on Sunday it was temporarily easing restrictions on banks' open foreign currency positions after the West decided to block certain Russian banks' access to the SWIFT international payment system over the fighting in Ukraine.

Coming to India those who are thinking of investing in Sovereign Gold Fund or Gold ETF well jump in and increase their allocation into the same taking the advantage of the best of the time based on the current situation. But don’t forget to book profits when required.   Globally as the demand for Gold ETF increases the physical demand will also increase which will lead to a significant jump in prices as Gold is a demand and supply game. One can look for investing in the Sovereign Gold Bond (SGB) Scheme in India 2021-22 - Series X will open for subscription on Monday, February 28. We have seen Oil Futures plunging to zero now we will witness Gold scaling new highs and also Bitcoin.

At the same time, this doesn't mean that one will forgo its own asset allocation and risk profile and will jump into buying gold. Maintain your asset allocation but you might increase your allocation to Gold keeping other asset classes intact.  These wars are diplomatically driven and hence one needs to take action carefully. 

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BENEFIT OF MARKET FROM WAR...NIFTY Opportunity

 You create war asset prices fall. You create synthetic inflation and the world becomes expensive. You create asset bubbles and now suddenly everything is on street. The Russian war may end but the crude prices will not cool off so easily. Yes mark my words and make note of the same. The sanctions whatever you impose will create more inflation and there will be a scarcity of products.  Diplomatically the U.S is strong but reflects weakness, china on the other hand is awaiting exporting opportunities and emerging economies are the ones who will be suffering the pain.

 The biggest boon of the war is that all Equity valuations have come down and stocks are becoming under BIG Billion day Sale offer Tag now. Those who said that markets are overvalued, overstretched and always busy in timing well don’t expect them to become investors now since they belong from that domicile only.  This war will now force many economies to increase more on war abilities which will drive manufacturing abilities and will attract inflows into the bonds for these types of manufacturing. Nifty might break more and might come down to 15000 or  14000 levels even depending upon the length of the conflict and on the sanctions based projections and cut down in outlooks.  But there is nothing to panic. It is a buying opportunity for the market.

Foreign broking houses will come up with GDP cut downs and stories of slowdown so that their institutional clients can buy when you sell out of fear. Well, the same group will raise the bar of buying when their clients have already built the exposure. 

In Russia, the costs of the conflict are estimated to be in the tune of 1% of GDP, primarily on account of increased investment risks. GDP growths will fall and hard-earned forex reserves will deplete faster for emerging economies which will create currency and bond volatility. European assets are significantly going to face massive losses which are having exposure in Russia. Restrictions like travel, tourism, freezing of assets and stringent checks on cross country transactions and trade will get into place followed by actions for G7, OECD etc. These might turn out to be an opportunity for emerging countries but crude is the secret weapon to will those opportunities for countries like India.  Faster depletion of Forex reserves needs no clarifications.

Europe is already battling with high inflation and now energy cost and other commodities across the globe will become expensive. The poor will suffer and the consumption will take a hit. The emerging economies' weaknesses will create more problems for offshore investments. Russia accounts for 40% of EU imports of natural gas, and about 30% of its crude imports. Energy prices will drive people crazy. Underinvestment in crude and also in the alternative is the major issue now and now the topping on ice is the war.  Sanctions on Russia will also be strategically designed so that the countries that are imposing the same are benefitted at the cost of high inflation.

The Fed rate hike might take a setback and may get delayed.  One of the probable reasons for FII’s selling is due to the anticipation of high energy cost and also inflation getting shot out of hand which creates massive problems for adjustment. We have seen that Annual yields on rouble-denominated debt skyrocketed above 200% last time and the history might repeat.  

 The journey from cheap to cheapest now depends on how long the battel and sanctions are imposed. The media will flood with growth opportunities identification steps. Investor behavioural change is the most important aspect to be identified at these times. Few investors will be scared to invest, but the truth is that they are basically always scared and make others nervous too.  Few investors are always busy timing the market and in the end, they did not invest at Sensex 45000 levels and not at 60000 levels. Other segments of investors are still busy timing the market and they only give 80% effort in timing and rest in execution.

Many of these investors will pretend to become analysts for a short period of time. Now the strangest part is that all these investors the ones who will do investment will never tell the other investor to invest.    Arbitrage options followed by hedging will play a big role in portfolio management.    Stay invested and avoid rumours.  Focus on your portfolio advantage and don't copy paste someone else risk profile. Invest with vision and please don't try to become a Fund Manager. Remember Cheap might become cheapest.  Follow your rules of asset allocation and don't time the market and most importantly  before giving advice on investments to others get your investments executed. 

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CRUDE POLITICS ..HIDDEN TRUTH

  

 It's better not to be fooled and have an open eye and open insight on the crude and capitalist minds gameplay. The biggest mistake while going ahead with traditional economic theory is that Fed will be going ahead with an interest rate hike which will be going to extreme pressure on the struggling society. Europe has already a done blunder and it seems that they have got into the sudden interest rate hike. The Eurozone wages and salaries index rose by 2.3% YoY in 3Q21, compared with a pre-pandemic high of 2.9% YoY reached in 2Q19. 

Now the pressure of the interest rate hikes will be felt across the society and particularly for those who are just above the poverty line. As for Germany, the index of agreed hourly earnings rose by only 1.1% YoY in January, the lowest growth rate since March 2011.

For example, in Europe, the energy cost has gone up where it is being found that Benchmark European gas prices at the Dutch TTF hub rose by 330% last year, while benchmark German and French power contracts have more than doubled. This energy crisis should also be taken in another way round where the Paris climate proposal is being humiliated creating pressure on the citizens.  Yes, it is an indirect way of squeezing the intellectuals and those who think about climate to place pressure through exorbitant fuel costs which creates massive problems for society.

 Further the capitalist mind of oil rigs and investors who have been challenged that crude demand will be brought down by 2050 or 2060 well for them it’s a quick time to make more returns within those many years left. God Bless Them. We all know that the UAE plans to introduce a 9 per cent tax on corporate profits from June 2023 as part of an ongoing plan to diversify the economy from oil and gas revenues and ease fiscal pressures.

Hence one can get clarity about the other way round of making money for the capitalist mind.  The policy related to transmission to zero is not only inflationary but also going to be a painful act. In short, it’s the cost of an attack on the political favors of fossil fuel.

Europe and the U.S and many other countries across the globe, it is being found that energy suppliers pass on higher wholesale costs to consumers through their retail tariffs. In Britain, for example, on a dual fuel bill (electricity and gas), the wholesale cost can account for 40% of the total.

 So now comes the biggest question when do you expect the crude prices to come down? Well as the capitalist mind story mentioned above is going to play its dice but aggressive interest rate hike might cut down consumption and hence demand might fall which might bring some relief for the crude. But the irony is how low the crude prices can be kept low which gives balance to the society. Well, that is not going to happen so easily.  Crude prices will remain elevated despite Ukraine or Russia war. If the war happens it’s a boon for oil rigs. More storage demands more price increases and more profits for govt at the cost of the society.  The race for storage will drive prices into the crazy zone.

Taxes might come down like VAT so that goods become cheaper and people could buy. Yes, that is another aspect that will happen when aggressive interest rate hike along with exorbitant fuel prices pulls down the household and corporate consumption.  This will further bring down the earning projections of the macro numbers across those countries where the balance of activities will come into play.

As it has been projected by the Bank of England that Britain's inflation will soar to 7.5% in the next 6 months makes only one thing scary about cutting down on consumption and its ripple effect on the economy and society. Well very well planned punishment for the Paris climate supporters.  By 2050, the world population will expand by 40%, and the energy demand will at least double.

But there is a boon among all these fiascos.  The pace of investments in alternative energy will now be the top priority for many economies and they will now deploy trillions faster energy independence from fossil fuels. It’s now a game of speed between old capitalist and the new capitalist minds.

Hydro and Nuclear energy will come into play and these segments need significant capital and also they have economic growth factors and demands creators. For example, China is driving growth in the global nuclear sector. It plans to build 150 new reactors by 2050 — an effort that will cost $440 billion. More than 40 nuclear plants are now under construction there.

 Asian countries are the ones who will find more poverty numbers increasing and more re-adjustment in household expenses due to rising crude prices.   This will get captured in the coming quarters of FMCG and other segments of the industry. The more crude prices increase the more stock market will feel the pinch. Ignorance has also limited days. 

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EXPECT THE UNEXPECTED FOR THE MARKETS AND ECONOMY..

It might be harsh to read but sorry can't bluff. It’s time for free money to get to pockets from where it came. 50bps hike seems imminent and consumer sentiment is expected to be down for Feb and might get worse if the war breaks out. Crude is at an all-time high $100/barrel is not easy to accept for the consumer market. The middle class across the world will find it hard to swallow and that is another replacement for consumers to cut down on consumption.

Many people were under the notion that Feds tapering will not be like 2013 well every free money withdrawal comes with pain and if the speed of withdrawal is fast enough then the pain will double. A 40-year hike in inflation and consumer confidence blowing up to 11 years low is a matter of concern for the business and GDP growth for the economy.

But the real problem is going to come when the GDP slowdown will trigger due to massive interest rate hikes. This will turn the table for cutting down on production as consumers will leave with more costs and fewer jobs.  Yes, this is what is being ignored currently.   With a higher rate of interest comes pressure on those debt papers that will face problems that have low credit ratings. Since corporate earnings will take set back and the same will get reflected on these papers.  Mortgage and corporate loans followed with the retail loans will get into pressure placing more consumption to fall which leads GDP and other macro numbers to be poor.

 Consumer debt is going to be unbearable going ahead and particularly for BNPL products.  Across macro and economic numbers will be cut down and reduced in the coming two months which will reshape the investment thesis for the year 2022.

In emerging markets, all asset classes will find redemption and only redemption. The rebalancing of equity portfolios will be faster rather would be much steeper compared to previous historical trends. It not only saves for the doomsday but for the long term.  Now cross country debt instruments and currency all gets into a musical chair round where volatility will drive the sentiments and portfolios into an upside-down.

Rising interest rates, cut down and rebalances the forward profit guidance, and when one does not have clarity about the changes in the consumer demand pattern the cut-down projections will not portray the correct decision for equity investing. Some funds, he noted, may also seek to buy into private debt and less-liquid fixed-income securities for higher carry, lower duration, and less correlation with other more liquid asset classes. Some large pension plans underwent significant changes in their exposures to actively and passively managed bonds last year.

Short-term bonds will be sold off and people will jump from scary junk bonds as corporate will struggle will higher interest rates.  As we told earlier that portfolios will now face faster rebalancing. Sovereign wealth funds, hedge funds, pension funds, and all those fixed income products will be heading for massive change in portfolios which is bound to create an earthquake for equity markets across the globe.

Currency volatility will drive depreciation across another country which is a double gain for the FII’s to sell emerging equities and other asset classes.

Now back to India it is being found that is the test for all those new breeds of investors who came to invest in the last 24 months of Covid. Now it’s going to be the test of nerves.  Today’s cheap might become tomorrow’s cheapest hence all those so-called fund managers sitting in every house is now going to give the biggest test. Many investors might be wiped out for the next 3 years from the market.   INR depreciation cannot be stopped and if the war gets into place the inflation will shoot up and hence it will be unbearable across the globe.  

The journey of the market from 16000 to 17000 well you enjoyed that ride now enjoy the reverse. This is learning for all those newly joined market participants. The irony is your trading cost can be a zero-sum game but not the guidance or advice required to deal in these uncertain times.  Currently, the market is in the mood of accepting all the premiums of the worst of the global market, and hence the red line will be long guests before the Green one comes up.

Any 4^th wave or new variant entry might only change the game for placing Breaks on the Fed interest rate hike. The best advice at this point of time when one does not have clarity towards the direction and due to more fog on the street it’s better to wait and wait silently till the fog disappears.  It's time to accept you are not a fund manager and let the expert work only.

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