Dollar-Rupee (and crude) equation - new posting

Hi,

I was not active on my blog for a long time, due to some personal and professional reasons. However, I was, with my best abilities, replying to all the mails/calls I was receiving on stocks/economy/market.

One such conversation that was going on with Mr. Patel (name changed to protect the identity). This was started on July 28, 09 (actually it had a link with my earlier postings on gold, silver and rupee etc. but the latest conversation which is posted below was started in July 28, 2009).

I am reproducing this conversation for the benefit of everyone. Here, I was talking about the equation of Dollar-Rupee and crude. How it is going to change the direction of dollar which I had been anticipating for a long time.

Hope you will enjoy and get benefitted from thsi. As always, please keep sharing your views.

Happy investing.

Cheers,
Niteen S Dharmawat
http://dharmawat.blogspot.com/

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.

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Reply |Niteen S Dharmawat to Mr. Patel
Oct 20, 2009 10:33 AM (1 hour ago)

The equation of dollar and rupee is clear where some variables come into the play. The equation is dictated by a simple rule of economics taught in the very first year to MBAs and to anyone pursuing studies in economics. The rule is of demand v/s supply. Whenever we have an excess demand compared to supply the price gets appreciated and vice-a-versa. Here in dollar's case the dollar was printed in excess by the US government to support economy in general and various bailout packages in particular. But this excess supply of the dollar was initially consumed by the high price of crude. So we had a demand for the dollar to buy the crude oil.

But eventually crude came down to the levels of 30-40's and is now stabilizing around 70. The short time spurt in the crude helped in controlling the downward journey of dollar (who knows this might have been a conspiracy of the US government to help dollar, I wrote an article on this subject on my blog a long time ago).

But now dollar is again meeting the same fate and sliding as anticipated. So what will happen now? The price of crude is going to be deciding factor. Whatever one may say (about import/export), ultimately the crude bill is the largest import payment for any government (except oil exporting nations). So this will lead to a demand of dollar to buy crude at an astronomical prices. It is definitely going to happen else dollar may leave in peace forever and we may see some alternative currency emerging and ruling the world (though some people are talking about it but I see a very very bleak possibility of that). Dollar will find it's bottom again to consume all/most of the excess liquid available in the market thru' high crude price.

p.s.: I could not update my blog as yet. May be some the replies to/conversations with you may become a part of the blog now. :-)

Cheers,
Niteen S Dharmawat
http://dharmawat.blogspot.com/

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.

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Reply |Mr. Patel to Niteen S Dharmawat
Oct 20 8:45 AM (3 hours ago)

So, Niteen, are you saying that we are going to see the Rupee strengthen with the $ tumbling against Rupee? $ has been tumbling for a while against many currencies here, and if it also does the same against the Rupee then the exports from India to US will become more expensive. This is good for US, but not good for Indian companies. Are you saying that this will happen due to the GDP growth of India, the demand for the Rupee and the FII investments into India?

You blog is still not updated.....Must be busy!

Mr. Patel
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Reply Niteen S Dharmawat to |Mr. Patel
Oct 15

Just thought to drop this mail to you... the dollar downward journey is start...

Niteen S Dharmawat
http://dharmawat.blogspot.com/

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.
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Reply |Mr. Patel to Niteen S Dharmawat
Aug 31

Thanks Niteen.

I got your earlier reply also, but was wondering why you have not updated the blog.....Now I know.
Appreciate it much.

Mr. Patel
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Reply from Niteen S Dharmawat to Mr. Patel
Aug 31

Hi,

Due to some personal reasons I was really busy all these months... and may continue for next few months. So was unable to update my blog.

But I replied to you mail on Dollar-Rupee & investment in gold on July 28. I am not sure if you have received the same. I am pasting the same below FYI. Trust this helps.

Let me know if you have any more questions.

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Dollar is stabilizing at these levels of 48-49 but it has a high risk of slipping up to 45. The union government is not allowing this to happen due to obvious reasons of risk of job losses (export earning will come under enormous pressure as returns from export will be less attractive which will put pressure on bottomline of many export oriented companies including IT companies). But still it has a high risk to slip up to 45. The interest rates may get hardened after couple of months in India. Many have already written about the reason which is primarily high government spending and debt.

Gold and Silver is always good hedge and should be kept at 10% of the portfolio. Both should be bought from levels which are 10-20% lower from current levels.

Happy investing.

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Cheers,
Niteen S Dharmawat
http://dharmawat.blogspot.com/

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.

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from Mr. Patel
Aug 25, 2009

No updates on your Blog page.....You must be busy.

What do you think about Gold and $?

Thanks.

Mr. Patel