Ahead of the Curve provides you with analysis and insight into today's global financial markets. The latest news and views from global stock, bond, commodity and FOREX markets are discussed. Rajveer Rawlin received his MBA in finance from the Cardiff Metropolitan University, Wales, UK. He is an avid market watcher having followed capital markets in the US and India since 1993. His research interests includes areas of Capital Markets, Banking, Investment Analysis and Portfolio Management and has over 20 years of experience in the above areas covering the US and Indian Markets. He has several publications in the above areas. The views expressed here are his own and should not be construed as advice to buy or sell securities.

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Is a Recession Imminent?

Definition of a Recession: The textbook definition of a recession is two quarters of negative GDP growth. Some examples of recessions in...

Tuesday, 20 January 2015

Bear Market Lessons from History

While the financial media tends to be absolutely infatuated with stocks hitting new highs every day, we would do well to pay attention to some ongoing bear markets, Charts are courtesy yahoo finance and marketwatch.com:
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1) Japanese stocks continue to languish under the effects of deflation following a well over 26 year old bear market, down over 45% from the highs set in 1989.

2) Despite some great innovation out of the U.S from the likes of Apple, Google, Facebook e.t.c the #NASDAQ continues to remain in a 15 year bear market near its highs set in 2000.

3) Despite going parabolic yet again, Chinese stocks continue to remain in a 7 year bear market down well over 50% from the highs set in 2008.
SSE Composite Index (000001.SS)
4) US bank stocks are entering a 7 year bear market despite all the #QE money and super low interest rates down over 30% from their highs set in 2008.

5) The #Euro is also in a 7 year bear market down over 25% against the dollar from it's highs set in 2008.

6) #Gold and gold ETF's continue to be in bear markets down well over 35% from their highs set in 2008.

7) The more recent casualty #oil and oil ETF's are down well over 60% from their highs set in 2008.

It is well worth noting that it is no strange coincidence that there are major bear markets in several key asset classes and despite recent bear market rallies caused by the FED's QE for ever policies the hibernating bear is all set to emerge with a vengeance.

Tuesday, 6 January 2015

Earnings Yield Suggesting Nifty still overvalued

The #Nifty currently sports a #P/E ratio (trailing) in excess of 20 (Data courtesy Sanjay Jaiswal at Market Pulse):
Nifty p/e

Invert this and you get an earnings yield of 5.0%, you can add about 1.2% for dividends bringing the total to 6.2%, the current risk free rate which is the return on 1 yr bonds is about 7.5%, so why bother investing in risky stocks to generate 6.2% when you can earn 7.5% in the bank risk free?

So despite the recent correction the market is still overvalued and will most likely fall further in the near term.

Friday, 2 January 2015

Predictions for 2015

Dollar strength continues after a brief pause against all major currencies except the yen. With the Euro decisively breaking the long term support of 1.20.

Yen strength should result in a bout of carry trade liquidation that is a major negative for risk assets such as emerging market currencies and commodities.
SPDR Gold Shares (GLD)
Despite slowing growth in most emerging economies, policy makers have their hands tied and spend a whole lot of resources defending their weak currencies unsuccessfully with higher interest rates.

This in turn sparks a major exodus of FII money flows out of emerging economies like the BRIC countries which causes their stock markets to significantly under perform despite their terrific performance in 2014 and greedy analysts calls for more.
Volatility surges in 2015 as the Vix index doubles following a major take down of stock market indices across the globe.
Risk free assets will be among the safer bets in 2015 as risk appetites significantly wanes with treasury yields continuing to plummet with QE forever still continuing but without the desired outcomes.
CBOE Interest Rate 10 Year T No (^TNX)
Treasury Yield 30 Years (^TYX)

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My Asset Allocation Strategy (Indian Market)

Cash - 40%
Bonds - 20%
Fixed deposit - 20%
Gold - 5%
Stocks - 10% ( Majority of this in dividend funds)
Other Asset Classes - 5%

My belief is that stocks are relatively overvalued compared to bonds and attractive buying opportunities can come along after 1-2 years. In a deflationary scenario no asset class does well other than U.S bonds, the U.S dollar and the Japanese yen, so better to be safe than sorry with high quality government bonds and fixed deposits. Cash is the king always. Of course this varies with the person's age.