Friday Podcast 1st November 2013
Transcript of Podcast
Diwali 2013 has brought out the best in the Sensex and Nifty that closed at record highs. The last time the indices touched record highs was in Diwali 2010. Diwali signifies hope for the future and team Zephyr Financial Publishers that run the much acclaimed websites, Investors are Idiots.com and INRBONDS.com wishes all our subscribers and followers a very happy Diwali and many great years of prosperity ahead.
Equity indices in the US, Germany and India are trading at record highs as of end October 2013. These indices had first seen record highs in 2007-08, at the peak of the US mortgage led asset bubble. The burst of the bubble led to severe economic consequences and countries are yet to recover from the bubble burst.
The record high levels of equity indices as of October 2013 is not prompting any comments of asset price bubbles simply because there are no bubbles to be seen on the horizon. Commodity prices are way down from peaks seen in 2007-08 while real estate prices in the US are just limping back from lows. There has been a technology led boom in the US but the leaders such as Apple and Google have tonnes and tonnes of cash to support any kind of valuations.
India has seen a property bubble that is yet to burst given property price to income ratio rising multi fold over the last five years. On the equity side, valuations of strong cash flow companies such as ITC, HUL and TCS have risen sharply over the last five years but they are not in any kind of bubble territory as seen in the tech boom in the late 1990’s.
The fact that there are no bubbles building on the horizon, at least we cannot see it from our own analysis, brings down expectations of returns from markets. Bubbles are basically built on markets taking up valuations to levels that are unsustainable but the foundations of bubbles have deep fundamentals backing it. For example, post the tech bubble burst in the early 2000’s, tech companies have emerged bigger and stronger and are now dominating the world.
Spotting bubbles early and investing in them at the right time is a sure fire way of making strong gains in markets. Markets follow boom and bust cycles and at present it is a bust cycle rather than a boom cycle even though equity indices are trading at record highs. This is a great time to spot the beginnings of the next bubble. Bubbles can arise from anywhere and it is up to you to spot where they are coming from.
We are starting a series called “Spot the Next Bubble Series” where we will focus on where potential bubbles could build up. This series will be available only for paid subscribers of Investors are Idiots.com. In this series we will invite subscribers to contribute their analysis on where the next bubble is building and we will then analyse each contribution to take it to the logical conclusion.
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Thank you for listening in. Have a great Diwali.