The Commodity Age

Let's talk about commodities. The telecommunications and technology rally ended with the dot com crises in 2000. The financial and banking sector came to a halt in 2008. Currently this is the age of Commodities.

You will notice that the commodity price trends have been increasing over the years. There were some dips but overall the trend has shown constant growth. A lot of hedge fund managers invest in commodities to hedge their investments. It provides them a safe passage if an investment went bad. This technique has been successful. Let’s not get into the working of how a hedge fund works. You can find many articles on the internet.

As the crises unfolded there was a huge need to balance the economy. China’s number one consumer is the US. Obviously China’s concern is the possible erosion of its trillion dollars reserves. To offset the effect of erosion China has opted to restructure US dept obligations to give support to the economy. It then took another dynamic step which increased the Gold prices. According to World Gold Council’s statistics publication; China had increased its gold reserve from 600 tonnes to 1054.1 tonnes which was an increase of more than 75% in the 2^nd Quarter of 2009.

When reviewing that publication I saw some interesting facts. Right after China’s decision of increasing its Gold reserves, India had also decided to do the same by increasing its reserve from 357.7 tonnes to 557.7 tonnes which was an increase of more that 55% in 4^th Quarter 2009. In 2011 the major buying was done by Korea where it increased its reserves by 14.4 tonnes to 39.4 tonnes which was in increase of 173%.

Why does a country accumulate Gold reserves? In the earlier times currency value was determined by the country’s gold reserve. Now it’s determined by the Economy and Monetary Policy. I would agree with you WHAT A SCAM!

Anyway, this was the reason for rising gold prices and more or less if you look at the gold price trend it has been increasing since 2000. I am including the Gold price trend from Reuters.

Analyst and Stock gurus are all placing their bets on Gold going to unchartered territory. They foresee a bullish trend for the long run.

Gold has always been a safe haven for investors.  The problem is it’s too expensive. As a saving habit I always give advice to my friends and colleagues invest small but do invest in this commodity. Another option is Silver. As they say very cloud has a silver lining. 

Get Good Grades (GGG)

Why do we strive so hard to get good grades in colleges and universities? Good grades mean good job, good job means inflow of money, which concludes to building of wealth. Why do we build wealth? So we can have a good life. Get married and have kids. Some might say we need wealth to have power.

What is power? Let's classify it in three classes. We have financial power, physical power and intellectual power. Each one of these classifications is dependent on each other. But in my opinion the intellectual is the most powerful element which can help you build on money and health. So the conclusion, improve on your intellectual.

Mr. Kiyosaki said don't go to a business school to get a good job, go to a business school to acquire a corporation. 

Everytime I read this line in his book it knocked me off my feet. Many of us go to universities and end up giving all our time and effort just to learn finance. Our basic objective is to learn to get a good job. Why don't we learn finance and accounting with the objective to acquire a corporation?

For those of you who still want to get employed I would recommend to get a sales job. A sales job will give you the insight that you need. Try to investigate this point in your CEO or look at any successful businessman and see his background. All successful business men have great selling skills.  They all have been salesmen in one time or another.

You don't need a flashy degree for a sales job. Yes but a degree will increase your intellectual power.

What's a good deal?

In reality we are always searching for good deals. Some of us are searching for deals offered by promotion advertising campaigns. Well there is nothing like buy two cans of coke and get the third one for free or buy a pair of Dockers pants and get a 50% off on purchase of another. Sounds like a good deal but I am not talking about those deals.

 

My interest is to find a good deal that will give my early retirement dream. At the age of 45 I would like to be free of any responsibility. Imagine this, having a Pina Colada on the golden sand beach, feeling the sun and cool wind, I am in my shorts and Hawaiian shirt with a straw hat and hugging my new found freedom. This is not a vacation my friends, this is the deal I'm searching for.

 

Now a few things that are always starring at our face but we don't bother with them because we are always in the hope of getting a better job, a promotion or a fat bonus. After that we will just spend it in a day or pay off our debts and then buy another piece of worthless junk to get into more debt.

 

The irony is that the world's economy is following such a system which is highly flawed to the extend that people, organizations, corporations and even countries have fallen into their own death trap. The 2008 crises is the aftermath of some sadistic people sitting at Capital Hill who are still finding ways on how to screw the world over and over again. That is another topic.

 

My point is that why am I saying that the current system is ironic, this system has made us human slaves pursuing an intrinsic value that will never coexist in reality. That is also the beauty of it. You have to understand that there are always two sides of a coin. If we are slaving for this system we can make this system slave for us.

 

Now consider this simple example just to get you thinking. We take a mortgage loan for 20 years and the interest come to about 10% which makes a monthly payment of Rs. 15000. The situation is that you want to accumulate your wealth and you think the best way to do that is to buy an apartment or house which is an asset. Chances are that the market value will not depreciate but rather it would appreciate. (At least that's what you think and look what happened in the 2008 crises. That is a different issue and will be covered later). 

 

So anyway you buy an apartment on mortgage and pay Rs 15000/month for 20 years thinking that it is an asset and accumulation of wealth. Well, sorry to say it is not your asset but just a huge liability. Now the trick is on how to turn your liability working for you. It's simple "PUT IT ON RENT!"

 

If you put your apartment on rent for Rs 18000 to 20000 per month now look what has become of this flawed concept of lending and borrowing. You borrowed money from a bank and the objective of the bank was to lend money and get interest which is its income. Now you let someone borrow your liability and get an interest on it. Now isn't that just ironic!

 

What has happened over here. You now have a liability which is giving you a return. At the end of 20 years you will get your house and the market value has appreciated so that's good and you put it on rent all these years to repay your mortgage loan and also earned an extra. That my friends is called a Good Deal!

 

 

 

Whats the big deal?

I am really inspired by Rich Dad Poor Dad by Robert Kiyosaki. This is one man who got me thinking in another dimension.

There was no doubt that in my university days I knew that if I you study hard and get good grades, you end up having a good job. Which meant job security, climbing up the corporate ladder, fat bonuses, owning latest tech gadgets, fast cars, etc etc. Now that I have a decent job. Got the exposure. Life is good. At least that's what I think!

It was not that long that I realized that I have to pursue higher education. So I got enrolled for a MBA Finance program that everyone was doing. Again the theory goes have a masters degree get ahead of the race and be noticed by potential employers. Notice I used the word Race.

I have to thank Mr. Kiyosaki for giving an adjective to the word Race. He said its a "RAT RACE". We all are the victim of the Rat Race.

Now on a serious and professional note, the dimension that I was referring to can be summed into one word. Entrepreneur. As a risk analyst I know that greater the risk more the awards. So therefore an Entrepreneur is a risky business. Don't take me wrong, just because its risky you should hang on to your Job security and not look around. The upside to this is GREAT AWARDS. We are talking about being your own boss. Establishing you own Brand. Who knows if you work hard and be constant then you might have a corporation!

When this happens you have stepped out of the race and now you own rats doing the racing for you. 

People say that working for the financial or banking sector has its security. Well they are wrong. The truth is that there is no stability in any line of work you do. If you are looking for stability or a secure job then you are wasting your time because your approach is all wrong.

The right thing to do is find a good deal! You find the secure job just to earn money. So you are running after money. But if you turn it around. Make the money do all the running around then you have a good deal!

I know you must be thinking that we've heard this invest your money in fixed income or treasury bills or put them in some saving scheme. The question is if you haven't then you should and if you have then you should take half of your savings in put in some business venture. There is always a good deal happening everywhere you just have to be open towards it. 

For now I will leave you with this perspective. Think about it. I shall continue writing more. If you agree or don't agree leave a line or two to Broadcast Yourself! 

Hello World

Dear Readers,

Since my first blog in 2008 I had stopped blogging. Actually alot has changed since then. I had to leave media to understand that. I will be talking about that in a bit.

So for now just for testing. This is my blog for today.

Broadcast Yourself.
Imad

Yet another lackluster day and capital gains tax (Gold UPDATE!)

KSE 100 down by -24.53 (-0.17%) to close at 13993.92KSE 30 down by -57.12 (-0.34%) to close at 16710.43

Volumes did show an increase but again when the index reached high levels we did see selling.

As again the technicals for the time being are showing that 14000 is a resistance level and a physiological level for investors to take a cautious stance.

Today dealers were of the point of view that the market will show a consolidation but after election the index will show a bull run irrespective any party wins the elections 08. The bull run can also breach 15000 level make an all time high and then the market will go down near about budget 08-09. In a way this does make sense as the market does react in these ways and has also acted in this ways in the past just to give pressure and creates a whole suspense for the audience.

The reason why the market can take a u-turn down near the budget is because the issue of capital gains tax. The exemption is said to finish on FY 08-09 (July 01, 08). Looking internationally in 2007 the Chinese market had taken a one day tumble of over 11% just when there was a rumor that the Government of China will impose capital gain tax. When the rumor was clarified the market then pulled itself up.

Earlier in Pakistan when the issue of capital gains tax was raised we saw that the market had taken a panic turn. The same kind of reaction can be accepted and maybe this time again the KSE management will be bold enough to tell the Government of Pakistan to extend the capital gain tax.

But the situation looks different if you compare the past 7 years.

The FBR might just show figures not encouraging when it comes to HOW MUCH TAX has been collected for the FY 07-08 and with the subsidies that the Government of Pakistan has given in this year alone has risen the twin deficit to alarming numbers.

With that the Federal Finance Minister, Dr. Salman Shah has said that the next government form will have to pass the effect to the people of Pakistan and would also have to ensure that Pakistan has ZERO SUBSIDIES for the FY 08-09!

This can be a more of a direct statement that in the months to come we should prepare that capital gain tax will not be exempted and the Insurance and Banking companies will now have to look for other ways of getting a higher income provided that there is always the issue of discount rate 10.50%!

These are some of the early insights that we have at this time and one can just judge that what kind of a challenging time will be coming for the companies, investors locally and internationally.

On the other hand we can also expect the Privatization Commission to wake up from the dead and not act like a zombie. Maybe we should expect that later on Government of Pakistan should notice that issuing more bonds and GDR’s might be way out just to manage the GDP by 7% that is MAYBE!

Today’s major contributors for the market:

Oil and Gas Exploration companies
Food and personal care products
Investment banks, companies and securities
Oil and gas marketing companies

Major sector decline:

Power Generation and distribution
Commercial banks
Insurance
Cements
Automobile parts and accessories
Refinery
Fertilizer


On the commodities front:

WTI Cushing Oil is buying at $ 87.13 and selling at $ 87.18
Gold is trading at 909.20 on the international front.

Gold is again taking the lead. Gold Relative strength index is 58.15 which is indicating that the RSI is now slowly moving into the neutral zone towards the overbought zone. But 70 being the overbought zone is still a long way for Gold to come. This might indicate that Gold will be on the bull run with this rise coming in today.

Along with that Oil declining will also push the Gold prices up as fund managers want to invest in a solid commodity for a safe heaven.

It won’t be far for Gold locally to come at a level of 25000 per tolla by the mid of this current year. Always invest heavily in Gold as it is a safe investment being a Muslim do also pay Zakat for your gold holding as well.

Recommendations:
No recommendations for today.
Invest in long term dividend paying companies if want to invest in the market for the time being.

results and elections 2008

Today the Karachi Stock Exchange closed in the positve zone.

KSE 100 up by 23.45 (+0.17%) to close at 14018.45
KSE 30 up by 7.62 (+0.05%) to close at 16767.55

Volume was 67.22 mn shares, the lowest since April 02, 07

Experts were of the view that the KSE 100 can witness range bound activity with low trading volumes untill elections Feb 18, 08.

This was expected as experts, dealers and market punters were of the view that the market can get into a consolidation phase.

As for the results market participants are optimistic and holding on to their expectations high as these reasons will show growth in terms of dividend yield and as well as capital gain.

According to newspapers on the economic scenario, President Musharraf has rejected the idea of cutting the Public Sector Development Program (PSDP) for the budget 08-09.

On the other hand, Federal Minister, Dr Salman Shah has also said that Pakistan will launch Global Depository Receipts (GDR) for National Bank of Pakistan, Habib Bank Ltd and Kapco and plus Euro bonds to narrow down the current deficit gap.

Along with that government officials have also stated on unofficial news that Privatization Commission will now be playing a more active role in the future and pick up its agenda that it left in the last quarter of current year 07. It will be a matter of time to see how the Privatization Commission comes up with new tricks and measures to sell strategic public holdings to the private sector.

The tightened monetary policy for the next 6 months has been put into foreplay to curtail core-inflation. Dr. Shamshad Akhtar, governor SBP has said that real interest rates are the lowest in the region as well. Increasing the discount rate and increasing the cash reserve requirement by 100 basis points is just the step that SBP had to take to control inflation as a high inflation can hurt the economy more compared to with a high discount rate.

Questions are being raised that what are the other incentives that government is offering to the foreigners to do business in Pakistan. In an attempt President Musharraf also did his Europe tour which hopefully should be fruitful in the months to come if everything is in accordance.

Talking in a more broader prospective the social economic indicators are not pleasant as well. Fears have grasped the Pakistanis especially in the mega cities (Karachi, Islamabad and Lahore) that suicide bombs are a major treat to the society and as well to the economic activities.

High net worth individuals, army personnel, white collar job and retail people are all in the state of mind that Pakistan is a perfect breading ground to cultivate suicide bombers. This is the image that we have internally let alone external. I personally believe that we need to get rid of this image. It’s not me but many individuals are stuck in this lope on how to find ways to educate and make everyone believe that working together we can make a difference.

Anyway coming back to the stock exchange, today we saw a different set of volume leaders.

Major contribution to KSE 100 index was seen in the following sectors:
Investment Banks, companies and securities
Commercial Banks
Tobacco
Pharmaceuticals

Major decline contributed to KSE 100 was seen in the following sectors:
Power generation and distribution
Oil and Gas Marketing Companies
Oil and Gas Exploration Companies
Insurance
Cements
Fertilizers
Refinery
Telecommunications

Looking at the Oil sector decline was seen and it can be mainly related to the international oil prices that are trading below the $90 / barrel.

There is no reason yet why Banks are taking the lead for the time being.

Some of the top news was that old news is gold when dealers were of the point of view that last year in November 07 Oman Telecommunications Co had offer to acquire 60% of Worldcall at Rs 25 per share. We did see a rally in WTL today.

Recommendations:
Buy on high dividend paying stocks in particular, OGDC, FFC, FFBL and KAPCO for a one year tenure.
Investors should avoid heavy leveraging as technically the 14000 level is a major resistance level. If 14100 and 14200 levels are breached then the index 100 will be technically charged to breach 14500.