Oh what a great monday. A great start the new week. The markets once again sold off, taking its cue from poor performance in the US last friday. Worried or not? I spoke to a seasoned fund manager today and he was telling me that it was just a short term correction and there was nothing to really worry about.
He did however, say that the Euro Zone sovereign risk issue is going to drag on. Interestingly, he shared a fun fact with me on the Greeks. Did you know, that in Greece, you actually get a bonus if you turn up on time for work? Now that is just a great way to work isn't it? Now you know why they have to turn to austerity measures to cut their deficit. Can you imagine, living a life of excesses till this extend? I wish I lived in such an extent, then I would not be here thinking about the next big stock to buy.
Anyway, you might ask yourself why would I bother to find time on a monday to do another post? It must be something pretty urgent that has made me feel the need to post on a day which I was worked till my finger tips burnt from excessive typing. Well contrary to what you believe, I am writing this post to remind myself to keep monitor a particular stock.
Before talking more about the stock, I would like to state my reasons to why I think this is a stock to keep for the next year or so. You will be surprised by this post because for the first time, I am reiterating a buy on a stock I have called before.
When I was fingering through last week's papers (trust me, it was a ton, Wall Street Journal, FT, BT and The Edge), I saw 4 articles writing about the same topic, what was that? Diamonds. So I think there is no need to say anymore and you should be able to guess that the stock I am going to push for once again is Sarin.
Let me cite a few quotes to back up my case:
"De Beers believes the supply of diamonds is running out over the long term, prompting the world's biggest miner of the gems to reduce production in an attempt to extend the life of its mines."
"Assuming the move moderated production, rough diamond prices could rise by at least 5 per cent per year for the next five years, said Des Kilalea, analyst at RBC Capital Markets."
"For 20 years, the industry has found no new diamond deposit to match De Beers' two biggest mines in Africa or the best Russian mines of Alrosa, the other big diamond producer."
"Diamonds are a treasure of nature that should be properly protected, because there will be less to sell. The reality is that supply cannot keep up, and that will become very accentuated over the next 15 years."
"China's affluent urbanites are buying diamonds in droves and the country's share of the diamond jewellery market should double to 16 per cent by 2016."
While the whole world focuses on gold, silver, precious metals, energy etc but they have not looked at diamonds. The fact that diamonds are often considered the rarest of all gems and with every single woman in the world looking for one carat flawless diamond ring to put on their fingers, I would say that it is a way overlooked industry.
Unpolished diamonds have been surging in price over the past year, rising more than 50% while polished diamonds have lagged in price. Currently, an unpolished 1 carat diamond costs US$139 and a polished 1 carat costs US$5333. Why such a big difference? Because only after you polish the diamond, you can be sure about the colour and the clarity of the diamond. Once the uncertainty is taken away, the diamond is worth its true value.
Sarin's new Galaxy scanner will allow people to gauge the clarity of the diamond before its polished. Imagine how much would the gap of unpolished diamonds would narrow if the clarity of the diamond can be determined before its polished? Of course, the colour of the diamond still needs to be determined, thus the gap will always be there, but at least one of the variables is cleared. Sarin is the outright leader in Diamond grading technologies and what I love is the niche and the leadership position it is in. Thus I continue to call for a strong buy on this stock, especially with the diamond industry picking up quietly.
Thats all I have. If I type another paragraph, I will be peeling skin off my finger tips.
Best,
SVI
Monday, May 3, 2010
Saturday, May 1, 2010
Greece or Goldman? Which is the problem? Neither....
To begin, I would like to thank those readers of this blog for giving me words of encouragement over time and it has been a pleasure to write whatever thoughts I have in my mind for the benefit of all of you.
Over the past week, the market has moving sideways with 2 notable sell offs in the US market. The most talked about topic was the downgrading of the problem children of the Euro Zone. I guess my readers will know that I have always said that it was not something to be fooled by. Over and over, I have said that the global financial crisis in 2007 is definitely not the same as what is happening now. It is understandable that investors are worried about the possibility of a contagion effect from the sovereign risks from these countries.
Lets see what can possibly happen. Lets just say that Greece, Spain and Portugal all go into default...that is really the worse possible case scenario (I do not think it will ever be possible), what is going to happen? The Euro Zone banks which are holding these sovereign debts will all be hit and that could cause another confidence crisis in Europe. Will it be global? I seriously doubt it. Why? Because European bonds have never been the "in thing" for Asian investors. For the Americans, they tend to buy into their own treasuries and even if they go for European bonds, they would go for the leaders like Germany, UK and France, rather than Greece or Portugal or even Spain. Thus I believe that it will be confined in Europe.
Eventually, if the Euro Zone leaders feel threatened by these countries running into default risks, they have two options. They will either bail them out with financial packages or they could force them out of the Euro Zone. Which is better? I am not in the position to say because I am not a politician. But personally, I would prefer that they force them out of the Euro Zone because they were not supposed to be there in the first place. These countries fiscally were not up to the mark to be in the Euro Zone but yet they were admitted in. Bailing them out is not a long term solution and it may lead to moral hazard issues in the future.
If they push them out, the Euro Zone will only consist of only the fiscally stronger nations (except Italy, which is my only worry), this would spell a stronger Euro in the future. By expelling them, it will be a serve as a warning to the other Euro members to shape up their fiscal balances to fit into the Euro Zone. Having only one currency under so many different governments is already difficult, can you imagine with differing balance sheet strengths, what kind of risks would that bring to the Euro's well being?
One more reason to why I think that the Greece affair is not a big deal. When Greece got downgraded, their sovereign debt yield rose to 9.9% which is still a far cry to the 20% yield on US high yield bonds in 2008. Does that tell you anything? It just states that the fear is still a long way from what happened in 2007-2008.
I do not want to get too technical and it is not my style. Keeping it as simple as possible is the best way to analyse and understand things. In conclusion to this Euro debacle, I believe strongly that the fears are overblown and once again who should we blame? You got that right.....THE MEDIA.
This week, we did see two major sell offs in the US markets, but I would attribute those sell offs to the Goldman Sachs saga. While they were grilling the Goldman execs for 12 straight hours, the market was tumbling, but on the same day, Greece's sovereign ratings were cut to junk status. So the media got confused and thought it was the Greece issue that created the sell off. Why do I think that media got it wrong? Cos yesterday, the market sold off again, but this time, it was due to Goldman getting downgraded to a sell and falling more than 10%, the market tumbled another 150 plus points. Thus you can see it is the Goldman issue that is hurting the markets.
I do agree, that the Goldman saga could lead to a bigger crisis because of the fact that they are the most influential investment bank in the world. Whatever they touch turns to gold, whatever they short turns to shit. Imagine if they lose their clients and money starts flowing out from their management, that would mean the asset classes they are heavily involved in will drop like a rock from the top of Marina Sands. Now, that would really be hell. So forget about Greece and focus on the real player.....Goldman Sachs.
I would like to state here that in my personal opinion, Goldman Sachs is not going to fail. It is just a momentary glitch. I would buy the stock (US$148) if I had the spare cash now but I am just too heavily invested in everything else.
Ok have a good sunday ahead for all.
Best,
SVI
Over the past week, the market has moving sideways with 2 notable sell offs in the US market. The most talked about topic was the downgrading of the problem children of the Euro Zone. I guess my readers will know that I have always said that it was not something to be fooled by. Over and over, I have said that the global financial crisis in 2007 is definitely not the same as what is happening now. It is understandable that investors are worried about the possibility of a contagion effect from the sovereign risks from these countries.
Lets see what can possibly happen. Lets just say that Greece, Spain and Portugal all go into default...that is really the worse possible case scenario (I do not think it will ever be possible), what is going to happen? The Euro Zone banks which are holding these sovereign debts will all be hit and that could cause another confidence crisis in Europe. Will it be global? I seriously doubt it. Why? Because European bonds have never been the "in thing" for Asian investors. For the Americans, they tend to buy into their own treasuries and even if they go for European bonds, they would go for the leaders like Germany, UK and France, rather than Greece or Portugal or even Spain. Thus I believe that it will be confined in Europe.
Eventually, if the Euro Zone leaders feel threatened by these countries running into default risks, they have two options. They will either bail them out with financial packages or they could force them out of the Euro Zone. Which is better? I am not in the position to say because I am not a politician. But personally, I would prefer that they force them out of the Euro Zone because they were not supposed to be there in the first place. These countries fiscally were not up to the mark to be in the Euro Zone but yet they were admitted in. Bailing them out is not a long term solution and it may lead to moral hazard issues in the future.
If they push them out, the Euro Zone will only consist of only the fiscally stronger nations (except Italy, which is my only worry), this would spell a stronger Euro in the future. By expelling them, it will be a serve as a warning to the other Euro members to shape up their fiscal balances to fit into the Euro Zone. Having only one currency under so many different governments is already difficult, can you imagine with differing balance sheet strengths, what kind of risks would that bring to the Euro's well being?
One more reason to why I think that the Greece affair is not a big deal. When Greece got downgraded, their sovereign debt yield rose to 9.9% which is still a far cry to the 20% yield on US high yield bonds in 2008. Does that tell you anything? It just states that the fear is still a long way from what happened in 2007-2008.
I do not want to get too technical and it is not my style. Keeping it as simple as possible is the best way to analyse and understand things. In conclusion to this Euro debacle, I believe strongly that the fears are overblown and once again who should we blame? You got that right.....THE MEDIA.
This week, we did see two major sell offs in the US markets, but I would attribute those sell offs to the Goldman Sachs saga. While they were grilling the Goldman execs for 12 straight hours, the market was tumbling, but on the same day, Greece's sovereign ratings were cut to junk status. So the media got confused and thought it was the Greece issue that created the sell off. Why do I think that media got it wrong? Cos yesterday, the market sold off again, but this time, it was due to Goldman getting downgraded to a sell and falling more than 10%, the market tumbled another 150 plus points. Thus you can see it is the Goldman issue that is hurting the markets.
I do agree, that the Goldman saga could lead to a bigger crisis because of the fact that they are the most influential investment bank in the world. Whatever they touch turns to gold, whatever they short turns to shit. Imagine if they lose their clients and money starts flowing out from their management, that would mean the asset classes they are heavily involved in will drop like a rock from the top of Marina Sands. Now, that would really be hell. So forget about Greece and focus on the real player.....Goldman Sachs.
I would like to state here that in my personal opinion, Goldman Sachs is not going to fail. It is just a momentary glitch. I would buy the stock (US$148) if I had the spare cash now but I am just too heavily invested in everything else.
Ok have a good sunday ahead for all.
Best,
SVI
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