Rally all across: Base & precious metals, treasuries prices, Equities, OIL all rallying at the same time, signaling debate over flight to safe heavens taking centre-stage, which might make equities all across the globe to move sideways and volatile: A TAKE ON GOLD, CURRENCIES, INTEREST RATES, INFLATION, EQUITIES

1. 1 Rally across all investment avenues to make markets more volatile and move sideways
Rally all across: Base & precious metals, treasuries prices, Equities, OIL all rallying
at the same time, signaling debate over flight to safe heavens taking centre-stage,
which might make equities all across the globe to move sideways and volatile: A
TAKE ON GOLD, CURRENCIES, INTEREST RATES, INFLATION, EQUITIES
Gold: The Golden Saga Continues and in my view will continue; USD weakness
might end much sooner than late despite FED exit strategy expected to be ‘too late
than soon’; debate over Interest rates hike and Inflation to heat up following
Australian Royal Bank move; Equities to move sideways, though with a positive
bias, due to Earning season and continued good news flows on macro front but
continued debate over Interest rates, Inflation, currencies and subsequently flight to
safe heavens might make markets volatile .
Even though Gold is up 17% Year-to-date, I continue to believe that Gold will further
strengthen and should emerge as one of the safest alternative investment avenues
going forward. The confidence stems more from the debate building around investors
concerns over Inflationary environment somewhat on the back of rising interest rates
going forward and its position as a perfect hedge against currency and being
projected as emotional trade. (Refer my article on Gold: Golden Fortune, dated March
8, 2009). A continuing weakening USD will further attract more investors (including
treasuries around the globe in order to safe guard deteriorating investment in USD
denominated assets), which should keep GOLD firmly in limelight in coming days.
Excerpts from my article on Gold: Golden Fortune dated March 8, 2009
“I strongly believe that GOLD will continue its shine in years to come, though the caveat
7th October, 2009
is that it might not see the sharpest of run (in price terms) it has seen in recent times. But
increased attention by Investors (both domestic, international, sophisticated investors
etc), Households, Treasuries around the globe, and further its position as an Inflation
Hedge, a perfect hedge against Currency or in Short “A Safe Heaven”, in my view will
continue. It will continue due to FEAR embedded in everyone‟s mind; the fear of losing
investment value in any of the asset class mainly in Equities. With GOLD being termed
Vinit Tulsyan http://vinittulsyan.wordpress.com

2. 2 Rally across all investment avenues to make markets more volatile and move sideways
as one of the safest heaven and is being projected as “TRADE OF EMOTIONS” in the
western world; it was evident that money from Equity Markets was getting diluted to
GOLD.”
RBA move: Is it signaling the end of era of Cheap Money (at-least in countries not
as adversely hit as western world)
A surprising move by Royal Bank of Australia (RBA) to officially begin an exit
strategy by hiking Interest rates (though marginally by 25 basis point) has added fuel
to the expected debate on Inflation and beginning of exit strategy by central bankers
all around the globe to begin early; which I thought will take some time. I had this
confidence that the debate around Inflation and Interest rates will actually step up only
after earning season (refer my article on September 29, 2009 titled Earning Season,
Movement in Interest rates and Inflation to make markets move SIDEWAYS and
VOLATILE in near to medium term. I firmly believe that Australia's move won't lead to a
stampede of other banks to get into reverse gear mode but yes it has certainly
sparked off much needed fuel for a much bigger and continuous debate over Interest
rates and Inflation in weeks to come. This move also signals the end of era of cheap
money at smaller central banks and in countries not on similar lines with western world.
Reverse Gear: Why Australia can? Western Countries Can’t
Australia didn't experience a contraction to the extent that Western countries have and
is fortunately tied to economic stimulus in China. However, this tie comes at a cost as the
massive Chinese loan stimulus has bled out to commodities, stocks, and real estate. In
August, Australia saw retail sales, building approvals, mortgage lending, and property
7th October, 2009
all increase significantly. Home prices have risen almost 8% this year. Though, one
statistic that has not improved: unemployment.
Is everything seems to be looking so good now? Well the good news seems to
suggest so: But everything rallying all together: Equities, Base & Precious Metals,
Vinit Tulsyan http://vinittulsyan.wordpress.com

3. 3 Rally across all investment avenues to make markets more volatile and move sideways
Oil, Bond Yields; suggesting this expectation of economic recovery is still backed
up with caution; investors around the globe are still looking for safe heaven to
fight the problems which might be ahead of us
1. Rate hike by Australia revitalizing hope for the global recovery,
2. Gold soaring nearly $20 to a record $1,040 an ounce, though not an all time
high; the all time high was in 80s, if we adjust for Inflation, translating into a
price of ~$2,250 at today‟s prices.
3. BofA –ML upgrading European banks to "overweight" ,
4. Research firm Gartner saying that it expects global semiconductor revenue
could grow about 10 percent next year, after a two-year slide, amid increased
demand for computers and smart phones,
5. Bond Prices Remain Lower Following Successful 3-Year Auction,
Dollar unprecedented fall to end much sooner than later
I believe Dollar weakness will end much sooner rather than later; or only action on
monetary policy front would put an end to Dollar unprecedented fall. With most of
developing nations foreign reserves performance closely tied up with USD i.e.,
performance of more than 50% of Chinese foreign reserves tied up to value of USD, a
deteriorating Dollar would only worsen the situation. In my opinion, before this
continued debate over finding an alternative currency heats up (as rumors that oil
producing nations are in talks to replace the USD with a basket of currencies for
trading oil further added to Dollar weakness) and debate over emerging nations‟
starting to look for an alternative currency starts, US FED will have to step in and
provide a support to the falling Dollar (Dollar Index now at 76). In order to further
7th October, 2009
provide incentives to developing nations to continue buying foreign debt denominated
in USD, US will have to support the USD. As rates hike in view in US is still away, either
the announcement regarding ending of Quantitative easing program or buying back
treasuries should be good enough to put a temporary stop to this free fall. And when
that happens, in my view there is going to be a trade-off between equities, dollar, and
interest rates. Money flowing into dollar would simply mean, lower allocation for
Vinit Tulsyan http://vinittulsyan.wordpress.com

4. 4 Rally across all investment avenues to make markets more volatile and move sideways
equities, interest rates moving northwards, and in-turn treasury securities will start
looking as a safe haven investment once again; ultimately leading to a more
inflationary environment. Please refer my article dated September 28, 2009, titled
“New theories emerge as the markets heads higher. Does M&A activities signal
something? Will currencies play the spoilsport for this rally in medium to longer term?”
for more on Currencies.
BUT, by the time 2010 is over, higher interest rates around the globe and lower
interest rates in US, might put added pressure on USD in long term, so I believe, US
FED will have be in sync with global regulators in deciding on its exit strategy not „too
late than soon‟. If it does not happen, the debate USD alternate would at centrestage
in later part of 2010.
Excerpts from my article on Interest rates & Currencies, dated 30th September 2009
INTEREST RATES and CURRENCIES to become the biggest reason for the equities
markets to move SIDEWAYS and have VOLATILITIES; leading to money moving
into Safe Heavens as well i.e. GOLD, TREASURIES
In my previous article, I discussed whether currencies will play the spoilsport role in
equities rally all around the globe especially US; here I focus on Interest rates and
impact of its movement on equities.
I personally believe that once the euphoria around earning season ends in developed
economies and in India, debate and focus on action to be taken by the federal banks
all round the globe with respect to Interest rates and subsequently its impact on
7th October, 2009
INFLATION will take center stage. And the speculation around reversing the low
interest rates policy by federal banks (especially US, followed by European
economies) and subsequent expectation of an inflationary environment in the medium
to longer term will make markets volatile and move sideways (but with a positive bias).
Vinit Tulsyan http://vinittulsyan.wordpress.com

5. 5 Rally across all investment avenues to make markets more volatile and move sideways
I expect that the decision to reverse policies on Interest rates could take place sooner
rather than expectation of market participants. I also believe within emerging markets
India could be one country where the RBI, starts increasing interest rates much sooner
than other emerging or developed markets. Couple of reasons could be; RBI position to
remain ahead in the curve than others in formulating policies on macroeconomic front,
RBIs comfort and confidence of having enough liquidity with in Indian financial system,
providing a helping hand to Indian Rupee against US Dollar, RBIs comfort with respect
to expected inflationary environment etc.
US might become the laggard on the front, with Federal Reserve intentionally wanting
to keep the interest rates low in order to inflate home prices. I actually expect the
dollar to be lower for now, but will start stabilizing once FED reverses its policy on
Interest rates or on quantitative easing. At the same time I strongly believe, US will
have to support the dollar in order to attract debt investors, and when that happens, in
my view there is going to be a trade-off between equities, dollar, and interest rates.
Money flowing into dollar would simply mean, lower allocation for equities, interest
rates moving northwards, and in-turn treasury securities will start looking as a safe
haven investment once again; ultimately leading to a more inflationary environment
(about which most of the experts on US economy feel that Inflation will start kicking in
starting next year).
***
Thanking You,
7th October, 2009
Warm Personal Regards,
Vinit Tulsyan
http://vinittulsyan.wordpress.com
Vinit Tulsyan http://vinittulsyan.wordpress.com