Investment Notes for Year 2013

Hi, this is Shankar here. Thanks for coming by. I wish you a happy new year. The year 2012 was positive for both investing and trading across the four (4) different markets we are tracking which is USA, UK, India, and China. Each market started the year 2012 at a relatively low level and closed the year 2012 at nearly the high point of the year. We were able to benefit from the trades made in 2012, and it rewarded our conviction to invest in undervalued stocks that we have identified for 2012 and 2013. The market movements in 2012 have given a good indication about what we can expect in 2013 and 2014, and what industries (and stocks within them) we can invest in while the global economic conditions and business climate improves gradually.

Yes, we still have very fragile economic recovery in the EU zone in Europe and it’s almost a recession in Europe, the unemployment level are at record high currently in the Euro zone Countries. But it could be seen that, maybe probably laggard in the economic recovery rather than a leader into global recession.

My first hypothesis for 2013 is that the EU Zone will take a bit longer to recover because of the way it is structured, with economic unity without political unity on how to move the entire EU as a single block. However, we should expect some more progress in the year 2013 on this front. I am very sure that the leaders of EU recognize that in unity lies their strength and that they won’t create weakness or holes in the EU to put their economy and the Euro currency at risk. So if anything, major market weakness in the year 2013 caused by worries from the EU region, must be used as very attractive investment and buying opportunities.

My second hypothesis is that global manufacturing and commodity sectors have been beaten down significantly in the last 2-3 years, expecting a continuous low global demand plus enough supply from China. However at some point, whether in 2013 or in 2014, the demand from both China and as well as other emerging markets for commodities will start increasing and we can also expect increased manufacturing demand from within the US, and these two demand factors together can be a good providers of global growth. To benefit from this hypothesis, one can make investments in natural resource businesses, either directly in the form of owning natural resourcess like farm lands, coal mines or copper mines or go for indirect ownership through owning the stock of a company in natural resources, like BHP Billiton, Rio Tinto, which are global mineral resource leaders, or it could be companies like the energy companies like Shell, BP etc, which will profit in the years to come because they are the leaders in energy resources. Another company in the same category is Gazprom of Russia, a global leader in natural resources and also ONGC of India, which also has joint venture with Gazprom and many other international energy companies. One can take investment positions in energy and natural resources which includes commodities like copper, coal, iron ore, copper. I think they can given 50-100% gain in 2-4 years from their current prices, which makes for an attractive investment opportunity if the markets correct midway in 2013.,GDP&scale=Left,Left&range=Custom,Max&cosd=1947-01-01,1947-01-01&coed=2012-09-01,2012-07-01&line_color=%230000ff,%23ff0000&link_values=false,false&line_style=Solid,Solid&mark_type=NONE,NONE&mw=4,4&lw=3,3&ost=-99999,-99999&oet=99999,99999&mma=0,0&fml=b-a,0&fq=Quarterly,Quarterly&fam=avg,avg&fgst=lin,lin&transformation=lin_pc1,pc1&vintage_date=2013-01-16_2013-01-16,2013-01-16&revision_date=2013-01-16_2013-01-16,2013-01-16

My third hypothesis is that there is still a 10-20% chance of seeing a global recession again by 2014, because historically we have seen that large recessions like the ones we have seen in 2008-2009, can have a ripple effect 4-5 years later and that’s around now. So if we have a minor recession and that would be a great investment opportunity because looking at the recession charts from 1940s, no major recession has led to another major recession. So I am confident that we have seen the worst part of the economic downturn already in 2008-2009 and if a new recession does occur, it would be a short one, which may last 9-12 months, and it would be a great opportunity to buy for future gains. Therefore whether we have corrections, or significant market fall due to recession — both scenarios will be opportunities to invest and the areas we must consider for 2013-2014 are those industries that have been beaten down because investors today are not seeing growth in those industries and that’s where we would get the best returns when the business cycle turns around, which it will surely do.

Gold: In addition, I would say that we should also not give up on gold because gold has been continuously moving up along with the international money supply that has been increasing with the money printing going on worldwide. So gold in that sense has been keeping pace with the increased money supply. It’s constantly beating inflation in most countries, including high inflation places like India and Brazil. So gold continues to remain attractive for any investment portfolio and cash can be parked in gold. So unless you are a specialist metal investor, it is better to stay away from other precious metals. If you want to invest in precious metals, then gold is the best way to go about it. Ideally, you can invest in natural resource stocks, which I think will give better returns.

Fixed Income: My view on fixed income in the year 2013 is that it is not the right time for choosing fixed income. If you want to play safe then do it using gold, otherwise it’s actually a good time having stayed out, if you have stayed out, from equities for the last two years, to buy undervalued equities at low prices and while keeping some amount in gold, because this combination can give better returns while beating inflation.

Real Estate: My view on real estate is that direct investment on real estate has become a difficult proposition in some countries, while real estate is undervalued in many places of the world even now because of the current economic climate. So my view on that is that any position that you are taking, must be taken for at least 5 years or more. Otherwise shorter positions in real estate could go wrong given the current conditions and if one doesn’t have the withholding capacity for such investments. I would urge some amount of caution, direct investment in real estate in the major cities because the prices have moved up sharply in anticipation of better economic conditions. Many large cities like London, New York, Mumbai, Singapore, etc never corrected much and quickly bounced back as well, so we doesn’t have much of a cushion or a buffer if the economy moves down for some time, because one surely needs the holding capacity in any metro real estate investment at current prices. However many cities in the USA, especially in the states of California and Florida continue to present opportunities because the prices are really being corrected significantly and even from the current prices we can see some good improvement even in the next three to five years. The places where direct real estate investment make sense today is farm lands in USA and India which are significantly undervalued, or real estate, especially land in the states of California and Florida. There are also select pockets of sub-urban land near Indian cities of Bangalore and Hyderabad which one can invest in. In general, land investments made anywhere in the world have given great returns over 10 year periods, so land remains one of the best investment opportunities available to everybody. Please make sure that the title is clear and all documents are original, so that your asset is of good quality, and you can confidently wait for multiple years to get gains. It will also help to keep some cash ready to buy in case of any market cracks.

If you have any questions, feel free to get in touch with me and I look forward to interacting with you during the year. Thanks for your time.

Best Wishes,
Shankar AVSB
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