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Tuesday, November 4, 2008

Dollar-Gold-Silver-Equity & anyway Inflation

Dollar-Gold-Silver: what’s lying ahead?
The depreciation of the dollar is certain unless crude comes as a savior and starts behaving in the same way as it was a few months ago or some miracle happens. If you would recall, I have initiated a sell on the dollar few days ago. I was long on the dollar (keep dollar) when it was at 38 and now I am short at 50 (sell dollar). In The gold and the silver will give a lot of confidence to the investor community and will be part of safe bets.

I am of the opinion that one should start investing in the gold and the silver, of course along with equity. I am not saying that gold and silver will be moving sharply. But I am saying that in the event of downfall of dollar (if crude continue to dance below $80 then dollar will be under huge pressure and also remember that US has brought huge quantity of dollars in the system which will further put pressure on the value of the dollar) the natural choice will be gold and silver. I would like to protect myself in the event of topsy-turvy times ahead. It is always a good idea to have gold and silver in the portfolio to get right cushion.

A dirty word: Inflation
Inflation is coming down on a week-on-week basis and everyone is happy about it. But there is a strong possibility of inflation going to haunt the governments next year. We have increased the rate of interest sharply in last couple of months/years and that has put break on the growth of the economy. Of course, it was required because easy money (read loans) was chasing too few a goods. That has caused terrible impact on the health of the inflation. So you have had a time when the price of a home was increasing on a daily/weekly basis. But now in the new scenario when the inflation is coming down and so also the growth of industrial production (high rate of interest has made it difficult for industries to borrow money and set up new plants/think of expansions also it has brought down the ever bourgeoning confidence level), the excess liquidity in the system put by the governments world-over create a possibility of high inflation.

The absence of the liquidity was because of the lack of confidence in the system (world over banks have money but they are not forthcoming in landing that because they have lost the confidence in the borrowers’ credibility). But what will happen when the confidence of the financial system improves and all the extra liquidity comes in the market flowing freely. You will see INFLATION may be by March’09...

What is the impact on the Market?
Here is a word of caution while you are reading my views. I am not predicting that the equity market is heading for a doom in the next 6-9 months. In fact, I am of the opinion that collective act of various governments will help to improve the current market situation. It will be a much better place in next 6-9 months when the confidence in the system will improve many fold. There is another possibility that this extra dollar, flooded in the market/system, may make a way to the emerging countries again and that will take equity market to a new level.

That's why I have been saying that it's going to be very interesting time ahead which is going to present huge opportunities. The things are little complicated here, however, I tried to keep them as simple as possible so that we can get right gist out of what has been presented to us.

You may share your thoughts/opinion directly on the blog or write to me at niteen.dharmawat@gmail.com

Niteen S Dharmawat

IMPORTANT DISCLAIMER: Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective. The information contained herein is based on analysis and up on sources that I consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it & take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations above.