About

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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Monday, 16 March 2015

Behind the tantrums of QE withdrawal lies a very grave deflationary threat

Last week most risk assets sold of on the prospects of QE withdrawal following strong job numbers out of the U.S. Here's how things shaped up:
The S & P 500 was down well over 1%
Gold  was down close to 1%
Oil was down close to 10%
Copper was up about 2.5%
Emerging markets were down close to 3%
The clear winner was the dollar which surged nearly 2%

If markets were really bothered about inflation, gold and oil would be going through the roof instead they have absolutely collapsed over the past year:
SPDR Gold Shares (GLD)
United States Oil ETF (USO)

In addition the flight to quality trade that surfaced during the recession of 2008 into the dollar seems to have emerged with a vengeance:
PowerShares DB US Dollar Bullish ETF (UUP)
While one may want to brush aside the emergence of deflation which has already started to surface in recent PPI and CPI numbers, let's not forget what it did to Japan since the early 90's. Despite the all out war to contain deflation in Japan interest rates are still negative and the stock market which has rallied off late is still down over 50% from the highs it set in 1989.

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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.