Commentary on Markets

Finally long-awaited interest rate cut is here and that also came with big bang. For many folks and even for stock market which tracks every word of Ben Bernanke, this looked like surprise. IMO, this was very much expected move and one of the reasons I wrote my previous article "is it time to buy", it was clear that mid-Aug provided ideal opportunity to make some bets. Here is report-card on how my recommendations did over 5 weeks - pretty good record considering one returning over 50% and only one in negative (which is housing stock and looks like we have yet to find the bottom of housing market)

Symbol	Price on Aug 17	Price on Sept 21	% Gain
UUPIX	33.56	52.57	56.6%
FXI	119	168.48	41.6%
IBN	38	50	31.6%
APPL	117	144.15	23.2%
AA	32	37.4	16.9%
LLNW	7.56	8.47	12.0%
VGTSX	18.02	20.16	11.9%
BX	23	25.32	10.1%
FISMX	25.58	27.98	9.4%
FLVCX	30.96	33.57	8.4%
WCI	7.76	6.96	-10.3%

When I was watching CNBC, my 9-yr old son Yash asked me question about who is Ben Bernanke and why they keep on talking about him. I explained to him that after President Bush, Ben Bernanke is the most powerful person in the world and how his talk can move markets around the world. I was telling him that uncle Ben is going to give a gift on Tuesday Sept 18 (and I ended up explaining him how:-)

So now that rate cut is behind us and markets around the world has responsded enthusiastically, what's next ? Is it still time to buy or sell ?

Here are my predications:

1. US markets would close at least another 5% higher by year end putting DOW above 14000 and S&P closer to 1600
2. Emerging markets would continue to head higher with BSE Sensex closing above 17000 and Shanghai Index closing above 5600
3. There would be few more causalities due to subprime and housing markets but by year end, housing market would start showing some trend reversal with housing stocks rebounding by at least 10-15 % from today's levels
4. Technology and Internet stocks are going to have a great year-end finish
5. And most importantly, Fed interest rate remaining at 4.75% for rest of year

So with these macro-economic predictions, it is upto individuals if they still want to take fresh positions.

Now coming to India stock recommendations:

Reliance companies keep on marching higher and higher. Every company with Reliance name and Ambani connection is going higher. I won't be surprised if Ambani brothers become world's richest men in 10 years. For now, here are two recommendations from Reliance group:

1. Reliance Petroleum: This is building biggest refinery in the world and did IPO at Rs 60 about 10 months back. Today it is at Rs 154. Since there is so much under-investment in refinary around the world, this company has great potential. It is supposed to be going online in 2009 and I won't be surprised if it hits Rs 250 in 18 months (for 64% return)
   
2. Reliance Natural Gas: This is little-bit speculative play which have tripled from Rs 24 to Rs 76 in last 6 months (with 35% coming in on Friday Sept 21). However due to its Reliance and Natural Gas connection, it would easily cross Rs 100 in 12 months (for 31% return)

On US my recommendations are same as Model Portfolio I published at start of year in previous arcticles. I will be providing YTD returns next week when Q3 ends. Despite ups and downs of summer, I promise that it would be a positive surprise.

Reading wise, I am waiting for my Amazon delivery of Greenspan book - Age of Turbulence

/Shyam