Archive for June, 2008

A lot is being said and written about high international crude oil prices. Let’s have a closer look at it. Currently international crude oil prices are hovering around $130/barrel. The last time the petrol & diesel prices were revised was in June 2006, almost 2 years ago [Obiviosly I am not considering the recent hike! Adds to the dramatic effect ;) ]. At that time crude was trading at $63/barrel. Now the price has more than doubled but the petrol and diesel prices remain untouched due to the underlying political sensitivities. With a string of embarrassing defeats in successive legislative assembly polls, the government thinks that it can ill-afford to raise the retail prices of petrol & diesel. However the losses of Oil Marketing Companies [OMC’s] are mounting by the day. Just a couple of weeks ago, IOC chairman Sarthak Behuria said that the company has cash available only till September to fund imports. This statement bodes ill not only for IOC but also for India as a whole. With the nation almost on the verge of an oil crisis, the government has limited options before it. Let’s have look at them. As a first option the government can raise the retail prices substantially to reduce or even expunge the under recoveries of these OMC’s. But this is highly unlikely given that general elections are just round the corner. Besides the already fired up inflation numbers will get further stoked. So this option is ruled out. Secondly, the government can rationalize the oil duties to reduce the impact of high crude prices on the balance sheets of the OMC’s. However the finance ministry is strictly opposed to it as it will hamper it’s revenues given that oil duties make up for more than 30% of government’s revenues. It is demanding for the imposition of additional cess or surcharge to make up for these losses. However even this is unlikely to be accepted both by the government as well as the Left parties. As a third option, the government can use a combination of 1st and 2nd options to provide some sort of relief to these oil retailing companies. This proposal is expected to pass the political muster of both- the ruling UPA party as well as it’s Left allies. Whichever option the government chooses, one thing is for sure- that the days of low petrol and diesel prices are gone for good. The government must quickly get its act together and tackle this issue with utmost urgency rather than postponing it. As it is said that a government can either be good one or populist one. Hope it chooses the former option

– Abhinandan

Here are Dennis Gartman’s 10 Rules of Trading.
1. Never, under any circumstance add to a losing position…. never!

2. Trade like a mercenary guerrilla. We must fight on the winning side and be willing to change sides readily when one side has gained the upper hand.

3. Capital comes in two varieties: Mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two. Holding to losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.

4. The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is “low.” Nor can we know what price is “high.”

5. In bull markets we can only be long or neutral, and in bear markets we can only be short or neutral. That may seem self-evident; it is not, and it is a lesson learned too late by far too many.

6. “Markets can remain illogical longer than you or I can remain solvent,”. Illogic often reigns and markets are enormously inefficient despite what the academics believe.

7. Sell markets that show the greatest weakness, and buy those that show the greatest strength. Metaphorically, when bearish, throw your rocks into the wettest paper sack, for they break most readily. In bull markets, we need to ride upon the strongest winds… they shall carry us higher than shall lesser ones.

8. Try to trade the first day of a gap, for gaps usually indicate violent new action. We have come to respect “gaps” in our nearly thirty years of watching markets; when they happen (especially in stocks) they are usually very important.

9. Trading runs in cycles: some good; most bad. Trade large and aggressively when trading well; trade small and modestly when trading poorly. In “good times,” even errors are profitable; in “bad times” even the most well researched trades go awry. This is the nature of trading; just accept it.

10. To trade successfully, think like a fundamentalist; trade like a technician. It is imperative that we understand the fundamentals driving a trade, but also that we understand the market’s technicals.

More of them to be put up soon…

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for Rs10. The villagers seeing that there were many monkeys around, went out to the forest and started catching them. The man bought thousands at Rs10 and as supply started to diminish, the villagers stopped their effort.

The man further announced that he would now buy at Rs. 20. This renewed the efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further and people started going back to their farms. The offer rate increased to Rs25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at Rs50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him. In the absence of the man, the assistant told the villagers–

“Look at all these monkeys in the big cage that the man has collected. I will sell them to you at Rs35 and when the man returns from the city, you can sell it to him for Rs50.”

The villagers squeezed up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant, only monkeys everywhere!!!

Welcome to the “Stock” Market!!!

—Pranay Jain