My name is Jai Bala and in this blog you will find my view on financial markets and trading from a chartist's perspective. Im a trader & market technician (MSTA, CFTe) and a very large part of my market knowledge was gained through trading for a living between 2002 and 2008. I have been investing in the markets since 1994, took up trading as a full time pursuit in 2002 and went on to manage portfolios of a few high-net individuals. Between Jul 2008- Jan 2010, I lead the technical strategy for the instituitional broking arm of Reliance Capital, advising hedge funds and other instituitional clients. I'll be covering the Indian markets mainly but will also touch upon other markets including the world indices, commodities, currencies and bonds. Within the Indian markets, my posts will focus on the Nifty index and the equities segment of the market. Through this blog I hope to keep in touch with my friends in the trading community. At the same time, writing and collecting my thoughts helps me stay disciplined and this blog is aimed towards that end.

Buffett’s Gold bashing is misplaced… once again

 Commodities  Comments Off on Buffett’s Gold bashing is misplaced… once again
May 092018

At Berkshire Hathaway’s annual meeting 2018 this weekend, Warren Buffett revealed that $10,000 invested in an S&P 500 index fund in 1942 (there were none at the time, he noted) would be worth $51 million today. However, $10,000 invested in Gold would be approximately $400,000. (This is not the first time Mr Buffett has taken a potshot at Gold, he did the same back in 2012 and I had a blog post

When one is a Billionaire, one can say whatever one wants and try to pass it as wisdom or gospel truth. Let us examine these words of Avuncular Warren a little closer.

First, as Mr Buffett has rightly noted, there were no index funds back in 1942. What is unsaid and absolutely critical is that the first index fund was not around until the 1970's. So an investor would have needed all the sophistication to track the key stocks by market value, assign/reassign weights, balance/re-balance the portfolio and all that jazz that an index fund or an ETF does these days.  Remember, at its 50th anniversary of formation, the S&P500 had just about 80 odd of the original 500, and the 400+ companies had either gone bankrupt, been taken over or dropped off the index. So for 30 years! Was a normal investor expected to do that? How do you think that would have gone? Marquee Company's like Sears, Lehman, Radio Shack which were on the index for 50+ years went bust. Bear in mind, that when an investor looses 10% he/she needs 11.2% to break-even, 25% loss needs 33% to break-even and so on.

Second, it is very very important in the present world of QE, to understand what exactly is a Dollar. Only then can one understand the true value of the $51 million Mr Buffett is talking about. For millennia, real money was backed by tangible goods. Gold and Silver served this purpose. We know from history that President Roosevelt in 1933 and President Nixon in 1971 obliterated the US$ from being honest money. So what exactly is a Dollar backed by? Government bonds. Which is nothing but a promise to pay dollars. A promise on a promise and nothing tangible. Does "I promise to pay the bearer a sum of Rupees..." ring a bell? (And the central bankers call Crypto currencies as a scam!! )

What is a Dollar then? The US Congress describes the Dollar as 1/44.22 an ounce of Gold. That is if you pay $44.22 you can get an ounce or 28.35 gms of gold OR 1kg of gold for $1,560!!  Compare that to actual value of 1kg of gold as on date - $ 42,346!!

Now, why don't someone try taking these fiat dollars to the Treasury or the Fed and try to exchange it for 1kg gold per $1,560? After all these notes are the obligations of the United States of America. You would probably be dispossessed of your money and sent to a mental institution. The dollar had such value once upon a time. Today it has lost somewhere between 85% to 97% of it's value  - don't take my word, pull out the data from Federal Reserve and see for yourself. (From the St Louis Federal Reserve, Title: Board of Governors Monetary Base, Not Adjusted for Changes in Reserve Requirements, Series ID: BOGUMBNS, Source: Board of Governors of the Federal Reserve System, Release: H.3 Aggregate Reserves of Depository Institutions and the Monetary Base)

It is exactly this kind of dilution and dishonesty that Gold stands to protect. And it has. An ounce of gold will fetch a fine Louis Vitton or Hugo Boss suit.

Finally, here is a chart of Gold's performance vs Berkshire Hathway since 2002.

In 2012, gold was crushing the performance of BRK by 420%. Also one can see, Gold is still delivering 70% better returns than BRK since 2002, even after a steep drop from record highs. Buffett's BRK has completely missed the commodity boom. Hence, maybe he has a reputation guard?

Also, Berkshire has a cash reserve of over $100Bln. This reserve needs to go into something productive otherwise this poses a big problem for Buffett, especially if the dollar is going to loose value in the future.



 Posted by at 3:35 am
Jun 212011

In yesterday's market action, India's Nifty breached an important trendline in a convincing fashion. All the corrections since Nov 2009 stopped right at this trend-line (see chart below) and kept the up trend intact.

Nifty breaches a 20 month trend-line

The weight behind this breach was ONGC, which also happened to complete a Head and Shoulders top on its weekly chart.

ONGC completes a head and shoulder pattern

Though Nifty is yet to break the February low of 5177, considering the fresh weakness in top four Nifty stocks (ONGC, Reliance, TCS, Infy), it looks like it would just be a matter of days before this level is violated. Relief rallies if any, are likely to come under pressure between 5400-5485.

Bonds breaking out

 Uncategorized  Comments Off on Bonds breaking out
Jun 292010

The chart below is that of  US bond ETF.  The breakout here is quite obvious and significant.

20+ year Treasury Bond fund - Source Bloomberg

Looking at India's 5yr interest rate swaps - a downward trend seems to have been established.

5year Interest rate swaps - Source Bloomberg

The message is quite straight forward:  investors are seeking the safety of bonds and hence another wave of selling in the equity markets is likely.

 Posted by at 6:49 pm  Tagged with:
Jun 282010

As can seen from the chart below, a gravestone Doji formation is visible on Nifty's weekly chart.

Nifty weekly chart - Source Bloomberg

This pattern is moderately bearish and a follow up selling this week(Friday's close) that takes Nifty below the low of 5259 would draw in more sellers.  Aggressive strategy would be to sell below the low of last week while a conservative approach would be to wait for this week's close to see if there is a bearish reiteration. A close above the high of 5366 would nullify the bearish signal.

Jun 132010

Here is the chart of India VIX. A reverse head and shoulder seems to be under construction.

What is important to note here is that the pattern formation is taking place after a very low reading on the VIX (read complacency). Once the reading crosses the neckline (35-36 level) a lot more volatility may be on the cards. A chart to keep tabs on.

Trade Idea – 2 Stocks set to make new 52 week highs

 Uncategorized  Comments Off on Trade Idea – 2 Stocks set to make new 52 week highs
Mar 182010

Data Courtesy: Bloomberg.
Disclaimer: This is not an investment advice, please seek the advice of a registered investment advisor before putting real money to work.

Charts are for educational purpose only if you would like to know the names of these 2 stocks, please email me.

One more reason to be bullish

 Uncategorized  Comments Off on One more reason to be bullish
Mar 172010

The Dow Theory "buy signal" that was in effect from last July, got another reconfirmation today with the Dow Industrials closing above its January high of 10725. With this, all the three Major US Indices(Dow, S&P and Nasdaq) are clocking higher highs and higher lows thereby implying that the primary up trend that began in March 2009 remains in good health.

While markets might pull-back in the near term, today's move has further increased the odds of Dow Jones Industrial Average scaling 11200. ( I have been holding this view since last July - see my Bloomberg report dated July 24th)

Nifty still down YTD

 Uncategorized  Comments Off on Nifty still down YTD
Mar 172010

Though Nifty is on its sixth week of back-to-back gains, the benchmark is still marginally down on YTD basis if measured in local currency. The benchmark is up 2.35% if we take the base currency as USD or 4.35% if we take the base currency as Swiss Franc.

Interestingly, China is the worst performing index and Colombo's All Share Index is the best performing index in the Asian region.

 Posted by at 12:01 am

Transports at 52 week high

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Mar 102010

After Russell 2000 and Nasdaq, the Dow Transportation Index has scaled a new 52 week high on improved volumes. Certainly a shot in the arm for the bulls.

 Posted by at 10:11 am