Dow falls hard - Due to Human error?

Dow closed 348 down. But in intraday trades the market hit 998 points down before recovering. Typical reaction was something must have gone wrong with the system. An explanation given is that there were technical glitches. Another story doing rounds is that a trader placed a huge sell order by mistake when he actually intended to put a huge buy order.

Really?

Wonder why do these glitches/error occur only on one side. Ever heard of a glitch causing markets to rise 1000 points in a day. Wonder whether last year's 17% rise in Nifty in a single day was due to human/system error!

India's housing bubble

Is India going to follow the western nations in building a housing bubble? I fear yes. Take a look at how distorted the market really is. Prices are really high, with the yield from the rentals really low.

Yesterday, i was in Delhi. My friend who is living in a rented house at Safdarjung Enclave area told me that he is paying a rent of Rs. 30,000/- per month. The house is a three storied one build on a plot of 200 yards. With some area left for the front lawn the covered area on each floor is probably about 150 yards or 1500 sq feet approx. According to him each floor would sell for about Rs. 2 crore. From what i know about property prices in Delhi, he is not far off the mark. So lets do some simple calculations.

The rent would be a mere Rs. 3,60,000/- per year. On an investment of Rs. 2 cr. the rent yield works out to be a mere 1.8%. Now why would anybody buy a flat for Rs. 2 crore for putting it on rent? Well the answer is obvious, it is not rent but property appreciation that would prompt such buys. The stark difference in the rentals and the property prices point to this fact. The rentals not having kept pace with the rise in property prices point to the fact that the demand for residential accommodation is not as much as being projected. The speculative demand can keep property prices high and keep them going higher, a sign of a bubble building up.

In the short term, the argument on demographics of the country and hence thus the likely rise of housing prices may work. How long will prices keep rising? I have no idea. It may be a week, a year, a decade or much much longer. But the crash will come. Probably it will not hurt us but our children. We need to be prepared and prepare our children for it.

US GDP growth 5.7% ?

IS US GDP really growing and has it really grown 5.7%? If indeed so, it must surely rank as one of the fastest growing economies in the world. Or is it something else? Have not had the time to dissect figures recently, so just linking an article i came across. Cannot vouch for the analysis in the article. However, considering the doubts i have on the figures is likely to represent what is wrong.

The link is

http://seekingalpha.com/article/185433-u-s-gdp-when-a-slower-decline-equals-growth?source=feed

Optimism on economy

The stock markets worldwide continue to move up. Yet, nothing much has changed in the fundamentals of economies. Not much of the toxic assets that hit the economies have been written off. Whatever, "improvement" has happened is fueled by liquidity pumped in by governments. Some sense of optimism has returned about the economy. Yet it is this very sense of optimism without any fundamental backing that scares me. Something will give up one day and all the optimism shall soon turn to pessimism.

Have been waiting for the financial markets to fall again like a pack of cards. The wait has become a bit too stretched but i am convinced that markets across the world are likely to see much lower levels than the current levels in the coming months.

I shall continue to wait...

Inflation - A natural outcome of growth?

Economists would have us believe that a mild inflation is desirable for a growing economy? Is it?

As technology improves, the productivity goes up and the cost should come down. Do we not see this in electronic goods? Computers, as an example, are faster and better yet cheaper. Is that not a natural outcome of economic progress? If that is so, why are prices of most other goods continuously rising?

Where did the Electricity go?

I have always found it difficult to understand the IIP nos. Every month, i try to pour into the details of the nos to make sense out of them, yet i find it difficult to do so. One big example is simply the figures for Electricity. Broadly, the IIP is divided into three sectors, Mining, Manufacturing and Electricity. Now consider this..

Comparing August with June this year. Mining in August stood at 181.1 vs 181.3 in June, whereas Manufacturing in August stood at 313 vs 313.1. Both slightly lower as compared to two months earlier. Yet look at Electricity. It stands at 245.1 vs 234.4 in June, a good 4.5% jump. That should be good news but a question is where did this electricity go? If mining and manufacturing both were very slightly down, surely the 4.5% jump in Electricity should have eased the residential shortage. Did you notice fewer power cuts in August?

Now lets compare March with August. The figures for March were; Mining 209.8, Manufacturing 326.9. Both much higher than the figure for August. You bet Electricity must have been much higher than 245.1 in August! Did you bet? If you did, you have lost it. For Electricity in March was 241.3.

Ah! now, this is interesting. If with almost 1.5% less Electricity, we could mine and manufacture much more, it surely means that the much better performance in August on the Electricity front, must have meant much improved household supply (surely we needed less than 241.3 in August for the industrial production). If we did not notice much lower power cuts, then where did Electricity go? Any answers?

India's GDP $ 40 Trillion in year 2020?

Can you believe it? India's GDP will be $ 40 Trillion in the year 2020, that is 40 times what it is today!. You do not believe it? But that is what the stock market tells us.

From the lows of March 2009, Nifty has gone up by about 2500 points in about 6 and a half months (roughly 160 trading days). The rate is about 19 points per day. During the period 2003 to Sept 2007, in a period of four years, Nifty gained only about 3500 points at an average of 3.5 points a day. This was when there was no apparent problem with the economy and the GDP growth rate was touching 9%. Considering the rate at which stock market is growing, i.e. 16 points a day, which is about 4.5 times the rate of the previous bull run, it points to a 40% GDP growth rate. Over eleven years, this should translate into a GDP of $ 40 Trillion. WOW! And what about the market? At this rate of growth we shall see Sensex close to 2,00,000 by the year 2020..

Obviously, the above is most unlikely. This points to an absolutely irrational market today, which should see a correction sooner or later. We need to be patient.