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'India tries to swat the gold bugs'

'India tries to swat the gold bugs' - I saw this headline in today's International Herald Tribune but could not access the otherwise interesting article online because it was produced by Reuters under another headline which I felt was even more misleading. You decide but here is the opening:

India's passion for gold is putting such a strain on state finances that the government may slap higher import taxes on the precious metal, but demand buoyed by heady inflation and meagre savings will blunt the impact of any rise in duties.

Initial success from a tax hike in March last year was stifled by the arrival of major festivals such as Diwali, when gold is a must-give present, and the winter wedding season.

That has scuppered New Delhi's goal of reining in spending on gold by around a third to $38 billion in the fiscal year that ends in March, prompting Finance Minister P. Chidambaram to say another tax increase could be on the cards.

But market participants say that would do little to dull gold's lustre for most Indians, especially with bullion prices heading north.

And the finance ministry would ideally like imports to be around $30 billion, an economic adviser there has told Reuters, with industry experts dismissing this as little more than wishful thinking.

India is challenged only by China in its appetite for gold, and with nearly all demand covered by imports, the country's purchases are a major factor in global prices.

The latest figures show the volume of imports jumped 48 percent in July-September from the quarter before and were only 8 percent down on 2011.

"It is the disease that needs to be cured rather than the symptom," said Munish Dayal, a partner at Baring Private Equity Partners India Limited.

With inflation above 7 percent and India's central bank keeping key rates at 8 percent, it's no wonder that a 13 percent rise in domestic gold prices in 2012 looked attractive to so many.

My view - Today, people buy and sell gold for all sorts of reasons, including relative performance and momentum.

However, for centuries people have favoured gold as a store of wealth, whether or not it was actually used as money at the time, mainly because it has the best record for holding its value over the longer term of any asset, let alone against fiat currencies.

For this reason Fullermoney has often described gold as hard money. People in India and anywhere else where they understand the history of money know that when paper currencies are not pegged to gold, they have always lost purchasing power over time.

Without a gold standard, every country is free to print its currency at will. Just ask Mr Bernanke. I would be surprised if any country returned to a gold standard because its currency would appreciate against all the others.

Meanwhile, an environment of low real interest rates and competitive devaluations, including quantitative easing (QE) by leading central banks, ensures that occasional talk of a gold bubble at today's prices (weekly & daily) is disingenuous nonsense.

Browning Newsletter: Natural Factors Shaping Winter's Weather -
My thanks to Alex Seagle of Fraser Management Associates, publishers of this fascinating publication written by Evelyn Browning Garriss. The January edition is posted in the Subscriber's Area but here is a brief sample from the concluding News Notes:

Shipping conditions in the Mississippi River are in danger of stopping. Ice on the northern Mississippi River is reducing the flow to the middle part of the river, which is already at the lowest level in decades due to drought Officials with two trade groups -- the American Waterways Operators and Waterways Council Inc.? warned that river commerce could essentially come to a halt as early as the first week in January in an area south of St. Louis. The Coast Guard remains confident that the nation's largest waterway will remain open. However, the long-range forecast from the National Weather Service calls for the river to keep falling, to a depth of only 2 feet in some areas by Jan. 23.

Experts say that if barges stop moving, the potential impact on shipments of essentials such as corn, grain, coal and petroleum could reach into the billions of dollars. The problem could be averted if the Army Corps of Engineers moves to increase the flow of water from the equally drought-stricken Missouri River to the Mississippi, but at the moment that appears very unlikely.

It may be dry in the US but conditions are very different across the Atlantic. The United Kingdom started 2012 with a drought and heat wave in March, but since April they have experienced record-breaking rains and floods. At press time, there were 88 warnings and about 225 alerts in force in England and Wales, with 21 alerts and warnings in Scotland. Experts say that it is probable that 2012 will be the wettest year in the UK since records began in 1910. Current estimates are that the insurance losses from flooding for the year could reach £1.33 billion ($US2.15).

The timing of the floods have been awkward, coming in the wake of the government's 2010 cuts to flood protection. Additionally the Government and the UK insurance industry are re-negotiating a deal to provide affordable insurance to flood prone homes. The current subsidy is due to expire in 2013.

The hurricane season is over in the Atlantic, but typhoons and cyclones are still active in other portions of the world. More than 20 serious tropical storms hit the Philippines every year, but on December 4, it was hit by an unusually late storm, Typhoon Bopha. The storm took an unusual path, striking remote inland communities not accustomed to such strong storms. The residents ignored storm warnings, since they had never been hit by a typhoon in living memory. The result was catastrophic. Widespread floods and landslides wiped out entire villages.

At least 890 people are missing while 714 were confirmed killed and more 1900 were injured. More than 5.4 million people were affected by the typhoon. Bopha damaged infrastructure and agriculture worth more than 7.11 billion pesos (about $172 million), including more than 70,000 homes. Areas in the path of the typhoon that heeded the warnings moved to high ground and not a single life was lost.

My view - There is plenty of interesting information in this report and the graphics are superb. It is very good at helping us understand what has caused our weather. However, I am not sure that it makes the weather any easier to forecast over the medium to longer term, because no one can predict the future on a consistent basis.

Meanwhile, the instant communication of extreme weather events, including their impact on a global population which is still rising, increases perceptions that we live in a less stable climatic environment.

Email of the day (1) -
On an investment policy for Asia:

"I am invested in blue chip dividend earning US stocks, but wonder if the same strategy applies to Asian equities. In your opinion, is a more aggressive investment approach warranted currently in the Asian markets? Thanks for your input."

My comment - I would prefer to answer this on the basis of what is appropriate for you. You probably know that better than anyone else.

This item continues in the Subscriber's Area.

Email of the day (2) -
More on climate change or consistency:

"I first came to the rather isolated place where I live 48 years ago and on arrival my questions about the climate reflected more the dislike or liking of the place rather than real observations. So since 1973 I have collected my own observations. The date the snow settles for winter is governed by more than one factor, temperature and also factors relating to precipitation so is not good indicator. The best is the date leave buds dehisce in spring which depends solely on temperature. My offerings are attached [Ed: Graph for 'The day that leaves come out' and additional supporting copy].

These additional notes were received today:

"Yesterday I submitted an item on leaves and forgot to mention it was in response to David's request for environmental change information from around the world. Second there is no information on the graph that it is a graph of five year moving averages. Third that the moving average is forward looking rather than the more conventional retrospective format. If you want it changed I will do so please let me know."

My comment - Many thanks for this survey from North Western Canada, and I am impressed by your methodology.

This item continues in the Subscriber's Area.

FAA Studying Bad Batteries as Possible Cause of 787 Fault -
This a topical article from Bloomberg. Here is the opening:

U.S. officials and Boeing Co. (BA) are investigating whether defective batteries from the same batch caused incidents in two 787 Dreamliners that triggered the plane's worldwide grounding, according to two people familiar with the incidents.

If that proves to be true, it could show a flaw causing the incidents was confined to a small number of 787s, rather than a systemic fault with the plane's engineering, design or manufacturing, and could speed the resumption of flights on the jet. The people, who weren't authorized to speak publicly, said the information is preliminary and investigators haven't yet ruled out other causes.

The Federal Aviation Administration, which certified the plane in 2011, ordered flights on the 787 halted until airlines can show the plane's lithium-ion batteries "are safe and in compliance," according to an agency statement yesterday. It didn't say how the carriers should accomplish that.

The FAA's move, its first in 34 years to ground an entire plane model, set off a race to find and fix whatever caused the battery-fault warning on a 787 operated by All Nippon Airways Co. (9202) and a fire on a Japan Airlines Co. jet. The two Japanese airlines yesterday parked their 24 787s, almost half the global fleet, after the battery warning forced pilots of an ANA domestic flight to make an emergency landing.

"Nobody knows what the fix is because they don't know what the problem is," John Goglia, a former member of the U.S. National Transportation Safety Board, said in an interview.

Accident investigative agencies in the U.S. and Japan, as well as the FAA, haven't said what started the fires.

Battery Flaws

The batteries were made by Kyoto, Japan-based GS Yuasa Corp. (6674), which has said the Dreamliner's faults may go beyond the batteries.

My view - It seems almost too good to be true, at least for Boeing and the reputation of US technology, if the main problem turns out to be a bad batch of imported batteries.


Additional commentary by Eoin Treacy

Tight global salmon markets next few years Thanks to a subscriber for this interesting report which details a supply elasticity meets rising demand theme in salmon production. This report is posted in the Subscriber's Area but here is a section:

The Norwegian salmon industry has during 2H 2012 been at full capacity utilization. In combination with advanced 2H2012 harvesting and subsequent fallowing of sea water capacity in 2013, we conclude that Norwegian supply for the first time in history will turn negative. Markets will turn even tighter than what had otherwise been the case. Simultaneously the Chilean growth for 2013 is most likely coming sharply down from very high 2012 levels. With all other major regions stable or contracting, we expect global supply to fall by around 3% in 2013 before stabilizing in 2014. This significant shift from global supply growth of 22% in 2012 should, in combination with strong demand, lay the foundations for a long positive cycle.

We increase our 2013 and 2014 salmon price expectations to NOK 33 (32.50) and NOK 33.3 (33) per kilo. We forecast prices to climb 19% for 2013. With expectations of a long positive cycle generating strong cash flow and dividend capacity, we maintain our positive view of the sector and calculate significant upside in several of the shares. We continue to prefer geared players with high upstream exposure. Our sector top picks are Cermaq ASA and Marine Harvest ASA, while some of the small/medium sized players could be potential takeover targets well above current share prices. The table below, and the company specific analyses later in this report, provide more details.

My view As a boy I remember curling up in the bow of my uncle's boat on cold January afternoons as we trolled the lakes for salmon using copper spoons and rapalas as lures. The monotony was relieved only by the scenery and the prospect of hearing the reels sing. We'd wait all day for the chance to play a salmon or two but it was worth it. I'll never forget the day that a 12lb salmon literally jumped into the boat. Back then there were still a few people on the lake who made a living from salmon fishing but even then it was a marginal business and the advent of farmed fish quickly made it totally uneconomic.

This section continues in the Subscriber's Area.

Iron Man Joins China's TCL to Challenge Apple Smartphones
This article by Tim Culpan for Bloomberg may be of interest to subscribers. Here is a section:

Lenovo plans to increase its marketing budget this year with a focus on consumer devices such as its K900 smartphone and Yoga touch-screen laptop, Yang said. The Horizon Table PC, another product unveiled at CES, features a 27-inch (69 centimeter) touch-screen panel that enables multiple users to play games.

We don't have a strong brand, Yang said. Particularly w i th smartphones, you need to expand into the telecom channels, you need to spend money.

Lenovo's handsets will break even soon as they are introduced in markets outside of China, including Russia and Vietnam, he said.

For ZTE and Huawei, the world's No. 4 and No. 6 mobile handset vendors, moving from low-end feature phones to high-end smartphones depends on convincing consumers and wireless carriers that their devices are just as good, reliable and functional as their more famous competitors.

ZTE is one of the best in terms of quality, Cheng Lixin, chief executive officer of ZTE's U.S. unit, said at CES. He estimates ZTE is ranked fifth with 5 percent of the U.S. market. Our return rate at AT&T is below 1 percent.

My view
The handset market remains highly competitive with rich rewards for companies that successfully appeal to an increasingly demanding consumer base. There is definitely room for expansion at the lower end of the scale, considering the premium price of many smartphone models. If Chinese companies are to capture additional market share they are likely to attempt to appeal to this sector. In this regard, the smartphone market is unlikely to differ from the rest of the consumer electronics or automobile sectors. Over the last few months there has been considerable movement within the handset market and I thought it might be an opportune time to review the sector. (Also see Comment of the Day on December 20th 2011).

This section continues in the Subscriber's Area.

Email of the day (1) on Yen hedged MSCI Japan ETFs:

This section continues in the Subscriber's Area.

Email of the day (2) on locating instruments in the Chart Library:

In Wednesday's commentary you kindly showed a chart of Total ETF gold holdings. I would like to add this to my list of favorites but when In searched for it received the answer that it wasn't there. What should I do?

My comment Thank you for this question which others may also have an interest in. When searching for anything in the Chart Library the most effect route is with the Bloomberg ticker. When using the keyword search, less is very often more so limit your search to a characteristic keyword. In the case of the Total Known ETF Holdings of Gold chart a useful keyword might be total, known or holdings. Alternatively, the instrument is located in the Commodity Indices menu.

U.S. programmer outsources own job to China, surfs cat videos
This article by Ramy Inocencio for CNN highlights just how fungible white collar work has become. Here is a section:

Bob was an "inoffensive and quiet" programmer in his mid-40's, according to his employee profile, with "a relatively long tenure with the company" and "someone you wouldn't look at twice in an elevator."

Those innocuous traits led investigators to initially believe the computer access from China using Bob's credentials was unauthorized -- and that some form of malware was sidestepping strong two-factor authentication that included a token RSA key fob under Bob's name.

Investigators then discovered Bob had "physically FedExed his RSA token to China so that the third-party contractor could log-in under his credentials during the workday," wrote Andrew Valentine, a senior forensic investigator for Verizon.

Bob had hired a programming firm in the northeastern Chinese city of Shenyang to do his work. His helpers half a world away worked overnight on a schedule imitating an average 9-to-5 workday in the United States. He paid them one-fifth of his six-figure salary, according to Verizon.

My view Any CEO reading this story and wondering how to cut costs has to be asking how much of their IT work can be outsourced to cheaper locations. Indian companies in particular have thrived on this trend and this may help to explain the recent strength of Indian IT companies I highlighted yesterday. 

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