Collapse of the Dollar - A Mathematical Certainty???

Collapse of the Dollar - A Mathematical Certainty???

Take a look at this video:

• Collapse of the Dollar - A Mathematical Certainty???

The video presents a very interesting "Black Swan" moment.

After 2008, After Lehman Brothers, it is difficult to totally ignore the above video as something that's "Impossible".

Obviously, if something of that sort materialises in reality, the share markets will go into a tailspin. A true and total disaster. Globally. And, when the US catches a cold, all of us get a fever.

How do we prepare for it? Really speaking, we can't be fully prepared.

Some quick suggestions:

• Review your Asset Allocation.
• Ensure that at least a certain portion of your total assets are allocated to real assets rather than paper assets. Some potential ideas could include
• Precious metals like Gold, Silver, Platinum, etc.
• Agri-Commodities or companies that invest in Agri-commodities
• Companies that derive a strong percentage of their revenues from domestic markets (Especially those who have taken large dollar loans, as when the dollar goes for a toss, repayment will become child's play)
• Real estate in high growth economies like India, China, Brazil, etc. Certainly not in US, West Europe, etc.
• Pray

As the video clip says,

• While it is possible to ignore reality, it is impossible to ignore or escape the consequences of ignoring reality.

Take care!

Regards,

N

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High-risk Low Return Opportunities

High-risk Low Return Opportunities

All of you must have heard a lot about fly-by-night "blade companies" which promise extremely high returns and disappear after your friends invested their hard-earned money.

Some of you must have a first-hand experience with one or more of such companies from the past.

Typically, such companies offer returns which are too good to be true.

Often, indeed they are too good to be true! Simply because they are false!

To be more precise, when such companies offer "assured" returns significantly in excess of the kind of returns offered by bank deposits, you know that you should run from them at the first available point.

Taking this on a global plane, I'd invite you to take a look at the following yield curve that I got from the net:



If a finance company offers a return of anything over 14-15% per annum, I'll have grave doubts about whether I'll get my principal back!

When the yield of a sovereign nation scales levels of 30% and above per annum (as the above figure shows), essentially it indicates the high probability of soverign default.

When a company defaults, people who had invested their money in it and a few stakeholders like employees, suppliers, etc. suffer to a certain extent.

When a bank defaults, (like Lehman Brothers did in 2008) a lot more people suffer, because of the impact of "linkages". This is what so-called experts call a "systemic risk".

When an entire nation defaults, believe me, all hell is likely to break loose.

And the danger of highly indebted nations like Greece actually defaulting is increasing every day.

If something like that happens, all bets are off as to how the world markets would be impacted.

That's one of the reasons why traditional "safe" assets like Gold & Silver are going up so much these days.

Take care of your portfolio.

Regards,

N

Timing the Market - Quotable quote from Templeton

Timing the Market

John Templeton says: "I do not know anybody who knows anybody who has been able to time the market EVERY TIME!"

Regards,

N

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Why Investing in Equity makes a lot of sense - Prashant Jain

Why Investing in Equity makes a lot of sense - Prashant Jain

Here's an absolutely delightfully written article on why Equity investments makes sense:

• It is always darkest before dawn - Prashant Jain, HDFC Mutual Fund

I especially liked the following lines:

• And finally for the pessimist, if you don't believe that markets will perform over a reasonable time and if indeed that turns out to be true, then, it is even better for your long term wealth provided you are a saver. This is so because, the longer the markets stay low, the more is the money that can be invested in equities and therefore higher will be the wealth whenever the markets finally move. This is important, since nearly everyone in India is a saver!

Hope you find the time to read the whole article. This one is a gem. Don't miss it.

Regards,

N

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S & P Cuts US Credit Rating

S & P Cuts US Credit Rating

On July 19, 2011, I'd posted in these columns a short note:

• Egan Jones cuts US Credit Rating

In that post, I'd clearly mentioned, "Wonder when (not whether) the other major credit rating agencies are going to actually downgrade the AAA rating for USA???"

Apparently, I didn't have to wait for long. On Friday night (on August 5, 2011), after market hours in US, S & P dropped the bombshell. The USA is no more a triple-A economy.

As I'd mentioned in my earlier post, all bets are now off.

Optimistic Scenario:

• If strong reformist measures are quickly announced by both US & Europe AND
• If actual implementation of such measures quickly - very quickly AND
• If strong financial empires led by folks who put big-time money behind their prediction that the world economy would go into a double-dip recession leading to an outright depression, Then & only Then
• Things may stabilise and there can be a semblence of calm in the markets. In which case, we may end up with a sideways market with a gradual shift in financial power to the markets which are still somewhat stable and showing growth. Which could possibly be a positive for India. Obviously, all this would take time. In months, certainly not weeks.

Pessimistic Scenario:

• If any of the elements of the Optimistic Scenario mentioned above does not play out, the result would naturally be utter chaos.

In addition, we can have chaos if one or more of the following events occur:

• Crude Oil and / or Food Grain prices go crazy
• Any of the "minor conflicts" erupts into a full-fledged war (which can be a diversionary tactic adopted by some crazy politicians somewhere in this globe) - Potential areas where such conflicts can erupt: Southern Europe (from among the PIIGS countries), West Asia (due to Oil), Indo-Pak border (due to Kashmir), the China Factor (conflicts due to border skirmishes with India or the problems in the South China Sea or border issues with Japan), the Korean problems, etc.
• Many of the funds around the world which are "Compelled by their mandates" to invest exclusively in AAA rated securities may dump the US bonds and treasuries.

Virtually any of the above can result in all the above negative scenarios falling in place and occuring forthwith.

All I can say is:

• The situation is fluid and complex at the same time
• Any action by any of the players can have completely unintended consequences
• More "negative unintended consequences" are likely than positive ones
• There will certainly be violent swings in markets all over the world.

Take care and keep lots of your cash ready for some amazing buying opportunities in the months ahead.

Regards,

N

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