Investment Outlook for Year 2008

We made the following predictions for the Investment Outlook for Year 2008:

1. Rising Inflation is here to stay;

2. Gold prices might exceed historical high of US$850 and might even breach the US$1,000 level;

3. Oil prices are expected to continue to go higher

4. U.S. economy is expected to slow down further and might even slip into a recession;

5. India's economic growth rate is expected to slow down in year 2008;

6. U.S. would continue to cut interest rates; However, lower interest rates might result in US dollar falling further;

7. The Stock Market Bull Market is coming to a bubble, investors should consider reducing exposure to stocks;

6 months later, all the 7 predictions we made have already materialised.

U.S Fed has cut interest rates from 5.25% to 2%. Indian inflation for June 2008 was historical high of 11.5%; If you had put money into Fixed Deposits earning 10% returns (post tax of 6.66%) , with inflation at 11.5%, it means you are "poorer" by 5%!

In High Inflation and Slow Economic Growth environment, how would I invest my money?

If you think that stock prices are low, think again.

When stock market crashed in March 2000, it took 3 years before stock market bottomed in March 2003.

U.S stocks just fell below the psychological important 12,000 points, the next important support is at 10,000 points. China Shanghai stock index just fell below 3,000 points, the next important support is at 2,000 points. BSE has broken 13000 support and now Nifty has broken 4000 levels.

IMF estimates that total losses from sub-prime Crisis is about US$1 trillion. So far, only about US$395 billion have been provided by banks. Renowned Hedge Fund Manager John Paulson thinks that the total losses should higher at US$1.3 trillion and that we are only 1/3 through the sub-prime crisis.

In the past, when U.S. cut interest rates, you can make money investing into bonds. This time round because of the credit crisis, people are losing confidence in bonds, as a result Bond prices fell when interest rates were cut.

In current uncertain economic climate, I would personally invest some of my money into Investments that are less affected by market volatility, these investments include:

1)Property / Land - Properties in outskirts of Chennai like the GST Road (near Mahindra City) and in Chengalpet offer good investment options for those in South India.I would avoid investing inside the Cities as prices are expected to cool down.
2) Gold - Indian stock markets are down by -38% since January 2008.

Fortunately GOLD as an asset class has historically being a good hedge against falling stock markets and rising inflation. Therefore, Gold gives investors a "Double Hedge Advantage" against both falling stock markets and rising inflation.

Table: Returns of Sensex & Gold
Year Sensex Gold INR
1982 4% 21%
1986 -1% 29%
1987 -16% 22%
1995 -21% 13%
1998 -16% 8%
2000 -21% 1%
2001 -18% 6%
2002 4% 24%
2008* -38% 18%

Protect yourself today against both falling stock markets and rising inflation… Buy Land / Gold.