javascript hit counter Garam Masala: Where to invest?

Garam Masala

Thursday, May 06, 2010

Where to invest?

With Greece, Portugal, Spain in the firing line, the immediate impact on India is something of a worry. 150 billion is what will be given to Greece. Just a comparative figure, the total remittances into India this year was 54 billion!! (anyway, that's besides the point).

Read (past tense) about the simplified reason for sovereign default. It goes - Govt expenditure is considered as the proven option to get out of recession. This is done by governments taking huge loans to kick start projects, which in turn generates employment. In effect the govt manages to increase GDP enabling the country to pay back the debts. But when the cycle does not complete, and the projects do not convert to employment, everything falls apart. (ah! so it is a project management issues!)

This "govt expenditure to kick start economy' works most times. It worked in the two recessions US went through. May be that is what is meant when you hear - It works most of the times. We know that Japan could not do it and piled on huge debts which, after 20 years, is still deflating. And now it is the EU countries.

So here we are - Markets are going down. Goverment bonds are not reliable. Banks are defaulting. Real estate in China is predicted to be on a collapse. Analysts (Analyst is a make believe position created. They think that the world functions based on the formula they derive by crunching some apparently useful information. Beware!) have predicted that China might collapse in a decade (or was it a year?), which will either leave India as a only prospective super power (yay!) or cause India (and the world) to collapse. So, I wonder, even for a risk taking individual (unlike me), what does one hedge his risky investments against? Gold, may be! Or keep it under the pillow!


  • As to India being a survivor in the ruins of the world. I am not positive. India‚Äôs debt to GDP ratio although being in decent shape ( 60% ) it has a lot of liabilities in NREGA, subsidies in power, oil products ( except gasoline ), fertilizers. If the world around India collapses, exports will drop which would mean tax revenues will drop and they will not be able to fund these. Politicians would rather borrow and fund these, than cut them ( for their political future ). So India will be forced to borrow more and they will be slowly moving towards where US is right now.

    As to where to park your money. This is what I think will happen. As default risks in Europe spreads, the EU will be under pressure ( which will eventually break up ). The US $ will strengthen against the Euro ( as a safe haven ) which would mean commodity prices in US will drop. This will cause a deflationary spiral in the US with already high unemployment rates, which will cause companies to lay off more. Gold which has been invested as a bet against inflation will now become a liability. So gold prices will drop. But to kick start the economy, the US will borrow more and spend. As the Debt to GDP ratio will cross 110% ( it is at 84% right now ), treasury investors will start pulling out creating pressure on US borrowing rates. More money will then start pouring into Gold again, fearing imminent US $ collapse. This will eventually cause the US $ collapse, and there by starting the next great depression.

    The timing is the difficult part to predict. By my calculations it is between 2012-2015.

    By Blogger Abhishek, at 6:17 AM  

  • investing in companies that have a worldwide presence and with stable income ( even if not very high) are the companies i look for when investing. Gov bonds too for solidity

    By Anonymous Maaya, at 1:26 AM  

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