Economist

This is Economist's response to points raised by bigbear.


Response : Please note Russia was not mentioned in my sentence as I was aware of there negative growth, their negative growth is directly liked to Oil & Gas price - Russia is one of the worlds largest O&G exporter and also Russia has lot of stake in currently depressed Europe.

• China (with resilient growth and commodities purchase)was the trigger that had ended the GFC.

Response : China has awakened the domestic market consumption in late 2008 (To counter potential export decline).China is stockpiling commodities and buying mines like no tomorrow to meet the needs of global recovery. Some of the hundreds of proofs are:

PLEASE ASK THE Canadians, Australians, Sub Saharan Africans and Brazilians about Chinese bullishness on commodities purchase.

In Nov 2008 no western investor wold have dreamed of investing in Indian money market or short term debt market ( The wheel that moves property market in India)

Can you elaborate how short term debt market moves property market. Are you talking about real estate companies?

Response:[/U] Short term debt Market (Ie: 90 day bank bill and short term bonds) are the fuel for world business and finance.

Short term debts are used by major lenders and banks (who also fund all development projects) to rotate major chunk (Billions) of there debt books.

Major lenders and Banks have to meet prudential regulation like Basel II Accord and local Reserve bank cash ratio requirements against lending book – Guess what do they depend on for that - short term debts – on daily basis.
How can they fund projects in ST debts are not available or very expensive?

I can e-mail you a details explanation on global credit movement and money market.

• Now there is renewed interest in the west to invest in Indian credit market due to stable INR and Interest rate arbitrage (ROI 2% US and 3.5% Australia against 7% India)

>Interest arbitage is there for long and not now only western world has found it out. Remember INR fell from 35 to 50 and now moved around 47.Is this stability.

Response: Have you heard of the following terminologies? Please google it.

• Currency Hedging
• Carry Trade (Japan)

The Indian credit wheel that runs runs the growth of India is now moving again.
>Have you seen the latest credit figures from RBI.It is saying the opposite.

Response: You did not understand what I was referring to, I was not referring to borrowing of the Indian citizens and Indian corporate. I was referring to the Credit market investment (Ie: Overseas investors investing in Government/RBI/Bank bonds)

Those investments are in turn used to fund major projects and lending.

NOW IS THE TIME TO BUY PROPERTY AT THE LOWER PRICE

>Is the price low now?
I am sure the vendors are negotiating, when I was in India in 2007 and 2008 there was no hope in hell. It was sellers market. (I have great stories I can narrate later) In my 2009 visit good properties were available and vendors were willing to talk.

Smart guys will buy sound properties and reasonable price now.
************************************************** **
The secret mantra I follow in relation to India is - if India falters badly , The advantage for property investor is INFLATION.

If the real property price (minus inflation) grows are not, Historically India’s Inflation will give you a lot more money than what you paid for in the first place (I know currently Inflation is at historic lows now but will return to the usual 8% to 10% - I am talking about RBI cover-up inflation rates published in the media)

Buy Indian property for long term 5-8 years you will be rewarded handsomely or else’s wealth will be out of reach day by day.

BigBear

China (with resilient growth and commodities purchase)was the trigger that had ended the GFC.
>Already China stock market is down 20% in August and already there are talks that China's stock and property market will burst soon.Have you seen the dry baltic index which gives the accurate picture of commodity movement.It is going down month by month.And already major commodities have corrected as China had stoped storing large inventories.

Short term debt Market (Ie: 90 day bank bill and short term bonds) are the fuel for world business and finance.
>Remember the root cause of the financial crisis.Short term money was borrowed to invest in long term assest like RE.Still you think people have not learned the lesson.

Response: Have you heard of the following terminologies? Please google it.

• Currency Hedging
• Carry Trade (Japan)

>Thanks for the advice,I already know about carry trade and currecy hedging.Carry trade has been there for decades how come this suddely affected Indian RE market?

Smart guys will buy sound properties and reasonable price now.

>property is said to be reasonble if it is around 4 times your gross income.So a person should be earning around 10 lakhs per year to buy decent one in Chennai around 40 lakhs.How much percentage of chennai population is earning above 10 lakhs?

Can you please give direct and concrete answers to my questions instead of elusive and generic ones.Please goggle all the stuff you mentioned and reply clearly.

wiseman

Economist and BigBear,

Everyone was pinning his/her hopes on China bailing out the world because of its huge appetite for consumption due to its population. But here are quite a few points of anecdotal evidence that China's "growth" story may not be all that its cracked up to be ...

First of all, China's recent 6.8% GDP growth looks rather like around 2.x% growth. This is because, the surrogate measures of growth, the Chinese Shipping Index and Electricity production/consumption have both failed to take off from their lows. PArticular is the Shipping Index. While the Baltic Dry (global index of shipping health) which had slipped from 11000 to under 1000 (over 90% drop) rose to 6000, the Chinese Index hardly bounced. This has given rise to speculation that the Chinese have gone back to cooking their growth books. Besides, the Chinese Economic Stimulus of over $700 Billion is nearly 14% of their GDP (as compared to $750 Billion of the US being only around 6% of its economy) and apparently a lot of this money has gone into Capital Goods purchases (when capacity is already hugely in excess) and into private hands to speculate in the stock markets. This apparently is the main reason for the Chinese Stock market rebound. The markets have already declined substantially from its recent rally peak.

About Chinese stockpiling of metals for consumption, here's a link about Chinese Pig Farmers speculating on Copper, Nickel and other base metals ...
http://www.nakedcapitalism.com/2009/...inese-pig.html
Hardly what you would call consumption!!!

Here are a few more links ...
http://www.nakedcapitalism.com/2009/...aiting-to.html

http://www.nakedcapitalism.com/2009/...mmodities.html

There is another interesting video taken by a successful and controversial british Hedge Fund manager who talks about brand new 100 storey buildings in the CBD of Gangzhou totally empty (maybe waiting for the 2010 Asian Games to fill up).

Its obvious that a few anecdotal stories does not make a watertight case! But, one needs to always see all sides of a story and especially not only the Govt side of it, since today, only the Govts of the world seem to be the real spenders and there is a net decline in private spending.

Just wanted to give some pictures into China's growth story! It now looks apparent that only Brazil and India can be depended upon to grow steadily in the near future ....

cheers

Sansei

The Indians and Brazilians are still consuming, but chinese figures can be more time consuming since they are cooked in a govt factory.

Jokes apart,the huge sales in autos,FMCG etc is due to the huge liquidity pumped by the Govt agencies. Juat see the credit growth vs saving rates at bank. It has forced all the banks to reduce their lending rates. Just when people were thinking of hardening of int rates, it is coming down indicating a slow offtake of credit and growth.

Economist

India to Avoid Stock Drop as Growth Leapfrogs China (Bloomberg 20/08/09)
“India’s economy will grow faster than China’s next year,” ="http://search.bloomberg.com/search?q=Puneet+Nanda&site=wnews&client=wnews&prox ystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:S:d1"]Puneet Nanda[/URL], executive vice president at ICICI Prudential.
India’s economy may expand this year at a faster pace than earlier forecast as business confidence rebounds, buoyed by government stimulus measures and record low ="http://www.bloomberg.com/apps/quote?ticker=RSPOYLDP%3AIND"]borrowing costs[/URL], the central bank said July 27.
Bigbear seems to be concerned about short term volatility in China's equity index, Well most worlds index are volatile at the moment as history has shown time and time again that it is not permanent. If the Chinese thought like Bigbear they wouldn't have signed a 50 Billion dollar deal YESTERDAY for gas from Australia in a reserve that has not been drilled as yet.
This come after petrochina previous successful 2008 deal 45 Billion deal Australians Woodside petroleum.
Swiss Banks shun US but Courts China & India (Bloomberg)
By the way - Today- DLF Wins Bidding in India’s Largest Land Sale in Two Years (for 17 Billion rupees from Hariyana Gov)
Guys In my country of residence we were bracing for a nasty GFC we were all set for it, but GFC only made a minor dent, now the everything is on the recovery and official declaration is GFC is over.
Triva for you guys:

• Which country has the worlds highest forex reserve?
• Who is the largest investor and holder of US treasury securities and Bonds?
• Who is the largest trading partner to
• Who was the largest client for worlds largest commodity producers in 2009 (BHP,RIO & CVRDS) ?

The fact is:
GFC has bottomed, recovery has began (albeit gently).Some minor spill over will remain for the next 6-12 months in India.
We will not see the mad corporate debt fueled growth like 2005 -08 but sustainable stable growth.
China & India will be the key and continue to attract large investments.
India’s stable government for another five years is already attracting global investors who wish to capitalize on the current value of Indian assets (equity, M&A and real) Moderate PE activities are commencing in India.

Economist

Wiseman I agree with your comments in relation to the above lagging reports on China’s Trade and economic situation.

The important point is those are lagging indicators, I am interested in leading indicators.

I agree that they haven’t done well since Nov 2008 to now, But things are looking good now (Obviously will not turn over night to 2007 levels)

You have pointed out on the slower growth and activity, but tell me who was not suffering from late 2008 untill mid 2009 – The key factor is:

• How bad was the hit for that particular country? - China - Minimal
• Do they have resources to prop up the economy – China – Yes, Trillions.
• If there trading partners are affected do they have alternate market – China – Yes, Virgin domestic market (That was untapped just to be used in these sort of situations)

Kindly ignore the short-term volatility of equity index of a country,19/08 Shanghai and Shenzhen was thrashed, but one day later on 20/08 at historical highs

By the way in the end you have agreed with me (albeit 70%) I bank on China,India & Brazil but you back India & Brazil.

Any case coming to Indian RE market, the current valuation is reasonable and any crash/major correction is unlikely.
Short-term (6-8 mts) – flat
Medium term (1-4 yrs) – reasonable upside
Long term (4-10) – Excellent returns.

Use the current situation to:
1.Identify the good properties on good location (On active market you want even hear about it, If you did you cant see the vendor)
2.Negotiate fair value (On active market fair value is what the vendor dreams)
3.Take your time arrange finance and complete the deal (On active market the vendor will Gazump you in 1 week)

Economist

I said:

• Now there is renewed interest in the west to invest in Indian credit market due to stable INR and Interest rate arbitrage (ROI 2% US and 3.5% Australia against 7% India)

Bigbear you said:

Interest arbitage is there for long and not now only western world has found it out. Remember INR fell from 35 to 50 and now moved around 47.Is this stability.

I replied:

Have you heard of the following terminologies? Please google it.

• Currency Hedging
• Carry Trade (Japan)

Now you are saying:

Thanks for the advice, I already know about carry trade and currecy hedging.Carry trade has been there for decades how come this suddely affected Indian RE market?

The answer to this is on the top (again)

Now there is renewed interest in the west to invest in Indian credit market due to stable INR and Interest rate arbitrage (ROI 2% US and 3.5% Australia against 7% India.

Buy the way I said renewed not new (the investor appetite for risk is slowly returning)

In relation to currency movement what I meant stability was that INR did come back to 47 If it was old India it would have stayed at 35.Short term volatility is nature of all currency, the key long term average weight of the currency - Please google Trade Weighted Index (TWI)

I don’t know your age –If you remember 1991 India’s balance of payment crisis – that is what I refer to a currency risk.