The silver lining in Chinese Inflation

China has increased its Reserve Ratio Requirement (RRR, the amount required to be set aside by the banks, not to be used for lending) yet again...by 0.5% to mop up an additional USD 54 bn from the market with an intention to reduce liquidity and control inflation. Let's take a quick look at the different problems confronting China:

The Liquidity Problem:

Consider this, Chinese banks lent around USD 1.6 trillion (almost equal to India's GDP) in 2010, most of it for infrastructure, and lent almost around USD 160 bn in January alone (!), a figure that's almost twice that of December 2010.

The Inflation Problem:

Inflation in China is already quoting around 5%, according to official figures. I've covered Chinese Inflation issue in my earlier posts, consider reading Betting on China Crash and Understanding China and Japan. Also, while food prices are under control for now, the housing market continues to hog limelight. House prices rose in Jan 2011 in 68 out of 70 Chinese cities surveyed. This, despite the introduction of property tax (though a measly 0.6% to 0.8%) and frequent increases in RRR.

The Currency Problem:

China has been under pressure from various international organizations with sovereign members to let its currency appreciate. Currency appreciation will make its exports less competitive though it might play some part in checking inflation. Currency depreciation will boost its economy but increase the inflation problem. So China has constantly let its currency appreciate, and shows this as compliance to currency non-manipulation to better manage international relations. See the USD Yuan chart below which shows how yuan has appreciated against dollar:

Though the appreciation is there, but its too less, too slow...over the last 1 year, yuan has appreciated by about 4% against dollar.

Soft landing measures:

On the face of it, it looks like Chinese measures are failing to keep both inflation and real estate bubble in check. But just think about it, how difficult would it really be for the Chinese government to dictate terms and functioning to Chinese Banks if they really wanted to curb lending to infrastructure? And please bear in mind, Chinese Banking industry is considered by many investors as fairly opaque and government driven...(part of the reason why Chinese banks don't openly participate (except through proxies) during sale / purchases of various sovereign debt instruments). 

China cannot afford to have a real estate bubble crash now...and they know it pretty well. The introduction of property tax also reeks of a gesture to please foreign investors more than anything else. They're completely abstaining from increasing interest rates to avoid a "Yuan Carry trade" situation (read more about this here) which will further worsen the inflation problem. In essence, all efforts are being made to not shake-up the real estate bubble, which has long assumed the position of "too big to fail".

So liquidity control without raising interest rates is probably the best way they've got. And this they're doing not just by increasing the RRR, but even, to a smaller extent, by acquiring Gold mines outside and simultaneously promoting consumption / investment in Gold / Silver in China. So people are just converting their yuan into Gold / Silver, which eventually will go to the owner of these mines from where the metals are being procured...the Chinese government held companies. [This, by the way, is also helping them control inflation through currency appreciation - as yuan supply reduces, it appreciates against its basket of currencies.]

In fact, so strong has the demand been off late, that even China's appetite for Gold and Silver is making frequent headlines. Here's an article from Zero Hedge giving various news items (most of them recent). The result...take a look at the silver prices:

Now, if this is indeed the case, and encouraging gold and silver consumption domestically is indeed a strategy adopted by the Chinese government, it's only a matter of time before both break their all time high and surge further ahead...Now, that's a silver lining in a dark inflationary cloud...

Strong China Growth - Bullish / Bearish ?

Like I said in the last post - these are interesting times indeed...Please consider the two news articles given below.

The first one is dated 14th of December 2010, and talks about the day when Asian stocks rose due to China reporting strong growth numbers. It says:

"Asian stocks advanced on Tuesday, supported by optimism that China would avoid aggressive moves to curb inflation that could inhibit its strong economic growth and blunt its voracious demand for raw materials."

Compare this to the second one which is dated today, 20th of Jan 2010, and talks about how Asian markets tumbled when China said it grew by a robust 10.3% in 2010. It further says:

"China said its economy grew 10.3pc in 2010, marking the fastest annual pace since the onset of the global crisis but concerns about persistent inflation sent Asian markets tumbling."

What a difference 28 - 29 trading days can make ! Inflation was high then, is high now. Interest rates haven't been raised during this period, although liquidity has been sucked in through increases in RRR - the reserve ratio requirement which mandates banks to keep a certain percentage with themselves as cash and not give it off as loans.

It doesn't end here though. The first article goes on to say:

"A Reuters poll released on Monday showed economists still see a rate rise in China in coming months, but expect policymakers to rely more on lending controls in 2011 as its weapon of choice in the fight against inflation."

...while the second goes:

"Analysts said the pick-up in growth in the fourth quarter - partly driven by stronger exports - and the still-high inflation in December supported the case for further interest rate hikes and bank lending curbs."

Apparently now the markets are really sceptical about interest rate hikes coming up...quite a bit of change of view from the previous one !

Like I said before...interesting !

Global Inflation, local solutions

Inflation is making headlines globally again, and going by Google trends, is almost as worrying for most people globally as it was in 2008 !

Consider the following news pieces over the past few days:

• South Korea raises rates to tackle Inflation (here): S. Korea increased rates to 2.75%, about 75 basis points more than its low during Feb 2009 period, when it had slashed rates to tackle recessionary effects. This is its 3rd attempt since, to bring inflation back to under 3% from about 3.5% currently and for Korean PM to bring the growth back on track to at least 5%.

• Australia faces food-inflation risk with Tomato prices shooting up by 20% (here): Situation might get further aggravated due to floods in Australia, which reportedly could have caused as much loss as 1% of its GDP. Besides, with petrol prices inching up further in the coming weeks, the inflation is unlikely to come down anytime soon. Moreover, flood situation is likely to result in a delay in increase in rate hikes as well, to be able to offset the lack of growth in the flood affected region.

• China increases its RRR again in a bid to control Inflation (here): China (as also Taiwan) has increased is reserve ratio requirement (RRR) by 0.5 % which mandates banks to hold more money with themselves instead of lending it, in a bid to reduce the money in circulation and tighten liquidity. China is clearly refraining from increasing the borrowing interest rates as it might not only hit the growth hard, but even fuel the Yuan carry trade (wherein, people from foreign countries with lower interest rates can take loans in their countries and invest in China at higher interest rates - something similar, but in reverse order has happened in Japan for a long time due to its long bout of near zero interest rates). If a Yuan carry trade does happen, it'll negate all measures being taken to contain inflation as a whole lot of foreign money will come in into China's financial system.

• India's WPI inflation touched 8.43% in December (here): Indian markets are caving in due to better growth prospects from US and due to upward pressures on interest rates due to high inflation. Although onion prices in India have come down from its highs of over 2$ / kg to around 1$ /kg, its still high enough to be unaffordable to over 75% of India's population. Expect some interests rate hikes soon from India. Since moving money in and out of India is not easy due to various capital flow controls, unlike some other countries, India would not trigger a massive Rupee carry trade by increasing interest rates.

Its not just the emerging market economies / Asian economies which are facing teething troubles due to inflation, even UK and US are reporting increases in inflation. Besides, Compare the response to inflation in China now (@ 5.1%) as compared to in 2008, when it was over 8.3% and its RRR was about 16% as compared to 19.5% today ! Back then, it was a real problem with excess liquidity, now its not. Thus, at this stage one question that needs to be asked is not How to control inflation, but rather, What is causing inflation despite poor growth and high unemployment in most of the developed world?

Reasons for Global Inflation:

Inflation can be caused primarily due to 2 reasons - if liquidity / amount of money in the system is high (like in China), or if Supply and Demand dynamics of inflation causing elements change. For example, food - which contributes a decent chunk to inflation figure, and is fairly inelastic in nature (just because food prices have gone high, you'll not stop consuming food...may be make a temporary dietary shift, but still eat something). Or real estate, if everyone starts buying houses tomorrow, then considering the decent amount of weight it has in inflation figure, inflation will rise along with prices of other related commodities like steel, cement, etc.

Yet another way of looking at inflation is, like Mish says, to look at the supply and demand of money itself. But this time around, I think its primarily the supply and demand of commodities, which is causing inflation globally, and not the excess supply of money / poor demand for money (which might happen if interest rates are reduced to such low levels, that people do not have any incentive to save). 

If we look at the real estate bubbles forming across different countries like India, China, Singapore, Australia, Thailand, etc., its not very difficult to see why costs of some of the basic commodities is going up, which is further stoking inflation. Food prices globally are also on the rise, from basic food items to raw materials like soybeans and palm fruits, which are used to produce soy and palm oil (to be used in cooking). High energy prices (crude oil nearing 100$ - though now it has come back to 91$ / barrel) aren't contributing to reducing inflation in any way either. Just like Australia, India too is looking at higher petrol prices due to high crude prices globally...India will rise today to an approx. 5% hike in petrol prices...and how this will affect inflation is anybody's guess.

Its a combination of liquidity control and food / commodity production investments which are a key to controlling inflation right now, rather than just using text-bookish ways of taming it through fiscal / monetary measures. The former is the playground of central bankers, while the latter, that of the governments. China has already started investing big time in food production to tackle this issue, Singapore has started implementing roof-top harvesting concepts to reduce dependency on imports of essential commodities in future as also to reduce the fluctuations in food prices, heck, even Greenland is using greenhouse effect to increase its produce of agriculture.

Though these are baby steps towards future sustainability, and is surely unlikely to yield either results or fruits (literally !) in near future, but it looks increasingly likely that another Green Revolution is required in sync with liquidity control measures to tackle inflation from here on...

Indian Markets - down but not out, Trading Strategy

Its amazing to see a strong unidirectional trend in the markets...this time its down ! Consider this, from the start of this year, Nifty has gone down by nearly 7% while some others like Bank Nifty and CNX Realty have shed over 10% and 12% respectively !

Here's the chart for Nifty:

(click for a sharper image)

And for Bank Nifty:

(click for a sharper image)

The reasons for such drastic fall are apparently the flight of hot-money from India in the backdrop of strong consumption / demand and reduced unemployment numbers being reported from US and rising default risks in EU region again reminding investors further about the relative sustainability of the US.

The flight of money from India is also reflected in the USD INR Chart of the last 5 days (see chart below). Notice how INR has moved from 44.4 to nearly 45.4 in just 5 days...in currency markets, that's a HUGE movement.

(click for a sharper image)

China's inflation worries and its continuing stress on further rate hikes is keeping the entire Asia Pacific region on tenterhooks for an impending crash. Besides, China has been coming under increasingly higher pressure to let its currency appreciate in order to help US and Europe cope with their crisis better, which if it happens, would be disastrous for most markets as it will lead to China crashing.

However, I think given the strong 200DMA supports coming up for both Nifty and Bank Nifty, the fall should take a breather here. Moreover, with China reporting a trade surplus (net of Exports - Imports) of nearly USD 13 bn for Dec 2010, (which happens to be much lower than what it was last year in the same quarter), it is in a better position to bargain for slower / no increases in yuan (CNY) during meeting with Barack Obama on Jan 19 this year. [Keeping its currency weak will help China in boosting its export value, and thereby increasing its trade surplus. Ditto for US, which is going to be one of the points of discussion during the meet] Such a bargain (though US is unlikely to give it) will help China immensely in keeping itself from a crash, which will be a good boost to Asian markets.

Besides, with US pumping in more money into the system through its currently on QE II, China is going to find it tough to increase interest rates. This is because if it does, it'll boost what is known as the "Yuan carry trade". The term Carry trade was earlier associated with Yen, wherein, given the near zero interest rates in Japan, investors used to borrow in Yen and invest in foreign markets where interest rates were higher, thereby making a neat sum in this simple arbitrage. For China however, increasing interest rates will bring in even more from the US where the rates are currently near zero. This will further pump up the money supply in China boosting inflation further - which is the last thing China wants at this stage. This will, among other factors, keep China from increasing the rates too much, too often...and it is more likely to contain inflation by sucking liquidity out of the financial system (by increasing reserve ratio for banks, making loans to real estate more difficult, etc.).

Given this scenario, I'd suggest another trading strategy for this month...to sell a Strangle. Sell Nifty Jan 5700 put for 87 and sell Nifty Jan 6100 call for 15.4. This will result in a net inflow of (87+15.4) = 102.4 * 50 units = 5120. If Nifty ends up between 6100 and 5700, before 27th of Jan (another 12 trading days) the entire money is yours.  The break-even points would be 5598 and 6202. Beyond these points, you'll end up losing 50 bucks for every point. Keep your stop-losses in place and trade.

See my earlier trading strategy and its follow-up here.

Disclaimer: No positions as of now. But be aware of the risks...I'm not a trader by profession and don't claim to have any expertise in either trading or recommending trading strategies.

When Inflation plays Runaway Bride

India's Inflation is a lot like Julia Robert's role in "Runaway Bride"(1999) ...and is catching global attention for refusing to be tied down despite several measures over the last 9 months or so. I happened to read Mike's latest post on Indian Inflation...it talks about how India's inflation has been driven up by food and fuel prices, how faster growth in Bank credit (the amount banks give away as loans to corporates and individuals) than in Bank deposits (the amount banks receive as deposits) has led to liquidity crunch, and how India (along with China) is going to "overheat and crash or their economic growth is going to slow dramatically, quite possibly both."

Before we move ahead on this, please note that Mike Shedlock (popularly known as Mish) is one of the world's best and arguably the most read blogger on global economy. So much so that he was even covered in NY Times recently as one of the ideas / trends for 2010. Check that link out, it talks about how post 2007  DIY (Do-It-Yourself) Macroeconomics - ordinary citizens as econo-bloggers have flourished on the internet, many with their own hypothesis and conclusions on how global data should be read and understood !

Having said that, I think while the analysis is correct, the conclusion being drawn here that India and China are overheating and will crash, is flawed...(and no, I'm not taking it personally !) Let's first start by understanding where we're coming from... Here's a chart of interest rates movements over the last couple of years...

Understanding China and Japan

I usually don't put a post that's just a review of a post on some other blog...but I'll make an exception for this one...Here's a conversation posted in John Mauldin's Outside the Box section, with Vitaliy Katsenelson (VK), the Chief Investment Officer of Investment Management Associates Inc., and the author of Active Value Investing.

Long but amazingly well-done interview...real perspectives on China and Japan, put in a simple way, with applicability to the rest of the world, more specifically, the US.

I'll summarize VK's point of view on China, but this summary will be as much a substitute to the interview as a trailer is for a classic movie...so do watch the trailer, but don't miss the movie...!

China is a bubble which will burst eventually, due to the following reasons:

Uncertainity is the new trend

I spent quite some time thinking up the title for this post, 'coz the points I'm about to cover in this post are neither bullish nor bearish...and it all rolls-up so differently for different countries, despite being ever more interconnected with each other. Its' like playing a game of chess, but with 10 boards kept beside each other, with the possibility of moving pieces of one board to the other...imagine the possibilities...the inter-connections...the complexity of the game...

Something similar is at play here, and like I've said in my earlier posts as well, the players are central bankers and governments more than the usual market players...who'll decide which way the game goes.

How would you like your Markets - Shaken or Stirred?

Ok, this post isn't about connecting Markets and Bond, though Casino Royale did attempt that...Its about re-looking at major factors that can move the markets from here in either of the 3 directions (sideways is also a direction ;)).

Post QE II (where US released some USD 600 bn to induce growth into the system), everyone and their pets were bullish on the emerging markets and inflation in some pockets thereof. However, Chinese counter measures for preventing money flowing in freely into their system, combined with the Europe crisis, has clearly shown the world the other side of the coin. Where do we go from here, is a question people have started asking again now.

So I thought I'll compile a list of global and domestic (India centric) factors that can affect the markets significantly in either direction:

• European Crisis: 

Although Ireland has agreed to the bailout by IMF, Portugal and Spain have already started to look bad if we take cues from the bond markets. Ireland story is not done yet though; it looks like they got the raw end of the deal - IMF has gotten them to agree on spending their Pension Funds first (for repaying their debt which is coming due soon) and only after that they should touch the 1st dollar (or Euro) given by IMF. What this implies is by the time Ireland gets to spend IMF money, they are already bankrupt...and hence completely dependent for quite some time on IMF. Irish are not very happy with this...protests will happen, heads will topple, and may be, just may be, terms and conditions will be re-looked into.

Portugal is not as big an issue as Spain - given the massive difference between the size of their economies. Its like saying I have a tooth-ache...may be a tooth has gone bad and needs to be pulled out...and o yes...I have brain tumor too...but thats not aching so much...!

Spain is a bigger problem than Portugal, and this time around, the markets are not waiting for crisis to come up before it tanks again. Money is flowing out of Europe. And to top it all, there are some bank runs being planned as well (No, I'm not kidding!). December 7 is being planned as the day when civilians across Europe are getting together to take out all their deposits from various bank accounts...(read this article from Zero Hedge). That means banks had better spruce up their cash levels to meet sudden surge in requirements, and if they don't...well, we'll know which banks were naked behind the curtains ! Can't say how much support is there for this cause, but it's been on for quite some time now. [As an aside, Wikileaks has said that early next year, they're going to do a big leak on a major US Based bank...read here. So if we miss solid action on banks in Europe on Dec 7th, we can still look forward to action from US banking circles early next year.]

• Inflation:

India and China are reeling under severe inflation...(while US is praying it'll have some of it !) and are unable despite all their efforts to bring it down. They are also growing at a scorching pace...India has grown @ 8.9% last quarter as compared to 8.2% in the same quarter last year. Indirectly, the growth and inflation impact is even causing intermittent cash crunch in call-money markets in India (these are short term borrowing markets, in which companies borrow for 1-3 days to tide over their working capital gaps). In fact, RBI has recently made some temporary changes to CRR to infuse more liquidity in the market to cool down the lending rates in call-money market. Too much of inflation and uncontrolled growth always poses a risk of a hard landing...bringing in crash scenarios for markets to consider. If these scenarios persist, RBI is quite likely to raise interest rates / suck out liquidity from medium term perspective (especially by clamping down on lending to Real estate sector), which will further push the markets down (though not lead to a crash).

• Currencies

Dollar is clearly appreciating against all major currencies...very unlike what was envisaged just some time back. Euro is retreating...and no big support will come in till clarity comes in on the extent of crisis in the rest of Euro zone. China, Russia, Brazil, some other SE Asian markets have started trading in their local / preferred currencies apart from Dollar, as "Dollar is better than Euro" is not being seen as a convincing argument by markets. India is not a major market in the world, in fact, it is not even a significant part of the portfolio for many major funds, who, anticipating more scams, hard landing, might take money out of the markets, pushing rupee further down. Export lobbyists wont complain though. But its not that all's well for dollar from here, as soon as Europe crisis is played out / contained, dollar too will take a hit, 'coz fundamentals of US economy are not exactly confidence boosters.

• Interest Rates, Growth cooling

Interest rates are very likely to continue hardening in China and India, both to cool down inflation, contain growth, and avoid adverse effects of QE II money flowing in. Meanwhile, other SE Asian economies - Singapore, Thailand, Indonesia, Malaysia, are too cooling off. And "Japanese economic growth" has long been accepted as an Oxymoronic term, like Military Intelligence - the words exist separately, but sewn together, mean nothing. Every time high-growth economies like China increase their interest rates (there is already talk about another increase, after the recent one), commodity prices are going to take a huge hit, and so are equity markets (partially due to contagion effect, and partially due to prospects of reduced growth). A lot really depends on how central banks act at this stage...the question is no longer whether, rather how much, and when.

There are some other such factors, but I believe these are the ones with most far-reaching consequences. So while most of the factors are pointing towards a gloomy scenario, its still too early to write off the bullish scenario for the markets that we had envisaged earlier. It all really depends on how each of the above factors plays out...and how well or badly the central banks tread the thin line between inflation and growth. US too is not out of the woods yet...it just keeps postponing its problems, right from contingent liabilities of social security to medical expenses, from unemployment to huge fiscal deficit...

The time is running out for Europe, US,...at some point of time, something's gotta give...just then we'll know really how decoupled we are from the developed world...till then...stay tuned to the markets, and never forget to take cues from the Bond markets - for its him who'll tell whether the markets will be served shaken or stirred.

Rumblings of Markets bumbling, tumbling & crumbling

I don't know whats' scarier, that so much has happened to the markets in just a couple of days OR that this happens so frequently. This post looks like its gonna be a long one...so I'll start with listing down the dots, and then spend some time connecting them...followed by some philosophical discussion ;). Stay with me on this one, for its gonna have some links to very good documents and other blog-posts as well.

Some of my select picks among many data points:

• China Market tumble 5% on Interest Rate Increase:

The People's Bank of China increased its lending interest rates by 25 basis points (0.25%) to 5.56% - its first increase since 2007. The central bank is expected to follow suit this week-end or early next week. This is apparently being done to rein in inflation which is a major cause of concern in China. China has obviously timed it to offset dollars flowing in from the QE II release, and there are talks of another rate increase before the end of this year. Markets see this as a dampener to growth, and future investments in the markets so the markets tanked over 5%, its single biggest loss since Aug 2009. A snippet of what went on in the Chinese markets on 12th Nov (courtesy: Bloomberg)

• Commodity Markets tumble: 

Crude Oil, Sugar, Soybeans, Corn fell sharply on news of interest rate hike from China. The markets are expecting a slow-down in demand of various commodities due to increase in interest rates (interest rates are usually increased to rein in inflation, as people save more (to earn more interest) and spend less - thus this kind of move takes away free-money from the system, clamping demand and thus reducing inflation). If you would like to read more about this, read it on Mish's blog - here. As per LA Times, sugar fell 11%, gold 2.7%, copper 3.2%, and soybeans 5%.

• Ireland's debt crisis spooks investors:

The PIGS (Portugal, Ireland, Greece and Spain) are back in news. Apparently, investors are getting worried about Ireland's ability to repay its debt, and mirroring this sentiment are the bond markets worldwide, which sent the Irish bonds prices tumbling resulting in difference in yields between the Ireland and German 5-year bonds to a record 6.6% (yields on bonds increase when bond prices go down - which they do in such times when sovereign rating suffers (country doesn't seem to have money to repay its debt) or if prospects of interest rates reduction in future are higher - more on this in some other post). But EU was quick to come out with some reassurances (here - a post by Calculated Risk) which calmed the markets down to some extent. Read a good article on this from WSJ here. 

However, this news did cause quite some worry to global investors who pulled out their money from equity and commodity markets - not really because Ireland is a large economy but due primarily to the fear of contagion effect, i.e. If Ireland defaults, Portugal and Greece might get in a worse condition than they are now (since they hold substantial amounts of bonds from Ireland) and if they too default, so will Spain, and then so will France and Germany - the two biggest countries in the EU...and then down goes Euro - triggering a global currency crisis. (I know it seems like a doom's day scenario, but if markets are taking these thoughts into consideration, its scary to sense how close we might be to this turning into a reality). [Another good post for further reading by Mish here]

• Euro falls against Dollar, then pulls back some:

Spooked by the Ireland debt crisis, the Euro fell sharply against dollar but recovered a bit after the regulators made some reassuring statements. If the focus again moves towards evaluating the sustainability of the Euro-zone as a region, and Euro as a sustainable currency, dollar may not fall against other currencies as was widely believed post QE II (that's a release of USD 600 billion by US Federal Reserve into the banking and financial system to spur markets and growth).

Now, the essence of the above picks is that there is no single path post QE II - this path was thought to be something like this:

Fed Releases Money (QE II - USD 600 bn) ----> US doesn't have fundamental to absorb this cash ----> Money finds its way into other markets (China, India, Brazil, Russia, Korea, Singapore, etc.) and other asset classes (real estate, commodities) (as a result of all this dollar selling and buying of local currencies, the latter goes up against the former) ----> Markets worldwide move up, so does Gold ----> Inflation (as imported by US) increases in world markets ---->US starts exporting more to feed that growth (as with depreciated dollar, US goods become cheaper; also, US interest payments (huge now, even bigger in future with a strong dollar) feel lighter for the government)----> US economy recovers due to jobs returning, fueling demand ----> World markets increase interest rates to rein inflation ----> Markets tank ----> Dollar moves out ----> Local Currency appreciates ---> Exports pick up ----> Economy picks up....

Now, that's more or less the holy grail of the markets, and economics.

What has instead happened (from the little data unraveled so far), is that the cycle has skipped some middle steps ...

Fed Releases Money (QE II - USD 600 bn) ----> Fearing inflation and asset bubbles, China increases interest rates to rein potential / future inflation (a precautionary measure)----> Markets tank ----> ....???

Just like life, markets too are in a hurry to catch up with the end...but all said, this puts a big question mark over how things are going to unravel post QE II. An excellent post by Mish (again) on this here.

And with this, the age-old questions are here to haunt us again - Is this the end of the beginning or the beginning of the end? Have we topped out on markets? On Gold? Should we completely get out? But stay in cash ? Which Currency?

My take is, (atleast for Indian markets) hang-on...we have good supports coming up a little further down from here...domestic demand is still intact...asset bubbles (real estate, indices) aren't of enormous proportions as in other countries...Inflation is a concern but regulator is taking measures occasionally to rein it in, Gold - well, a good hedge for its strong fundamental factors is a possible depreciation of dollar against INR. We'll have to be cautious, alert, nimble...as things pan out better in the open.

Till now, the normal approach was seen as US Fed release money ---> US markets improve ----> US Economy recovers....(as expected by the US Fed)...

And the contrarian approach was that this will not happen....instead the dollar will depreciate, US will not benefit from releasing money, other countries will...and so on.

But with the developments in the markets during the last couple of days, the contrarian approach really seems that Gold will go down, emerging markets will go down, dollar will appreciate against most other currencies, etc. 

At the end of it, the funny thing with taking a contrarian approach is, if you're taking a contrarian approach without knowing how many contrarians are there in the market, and if there are too many contrarians in the market, which one is the contrarian approach, really? 

Think about it...I will...!

Leaving you with some food for your thoughts...