The Sovereign Society's  Instablog

Despite fears plaguing the dollar and a questionable financial system in Western countries, the Indian subcontinent isn’t just soldiering on; it’s already thriving.

And we’re seeing this growth story play out in all the right places. This progress has gone further than the pre-crisis levels of September 2008 when it comes to Industrial Production.

Let me show you what I mean…

As you can see above, we’ve seen increase in both Industrial production and the consumer sector during the early parts of summer. This is an essential part of the growth story of India, and a key factor as to why India – and not China – will meet with the greatest emerging market success in the years to come.

You see, as I’ve discussed recently in my blog, one of the most formidably problems plaguing China has been low internal consumption.

This low consumption has forced China to become overly reliant on exports. As a result their fate is closely tied to that of the United States through currency pegs and a host of convoluted agreements and practices. India, meanwhile, has been far more self reliant except for its need for oil. And the internal consumption story continues to be robust in India.

In the latest release of data, Industrial Production relating to Capital Equipment is now on a tear.

In turn, that means Capital Goods – the biggest hurdle for growth of Industrial Production in any society – are now joining in and moving along at a speedy clip. This is an especially healthy sign, since it clearly indicates that Industries are confident of continuing growth in the economy and are spending on long-term capital equipment.

Within the industrial classification, manufacturing, mining and electric components each have shown double-digit growth rates of 10.2%, 12.9% and 10.6% on a year over year basis.

And this is not the only impressive headline coming out of the Indian economy. There are expansionary signs all over the economy:

• The August Infrastructure Index shows a robust growth rate of 7.1% YoY.
• The Purchasing Managers Index (PMI) printed at 55 for September (remember a print over 50 indicates expansion).
• Motor Vehicle Sales have continued to remain very strong, growing at 22% YoY.

In my opinion, these factors will mitigate any slowdown that the Indian economy would be facing due to a poor monsoon there this year.

Further, I continue to believe that the Indian Growth for 2011 will come in around 7.8% after a robust growth of around 6% for 2010. And that’s only the beginning…

Stay long Indian Rupees and Indian Economy!

Sincerely,

Ashish Advani
Editor of Dalal Street Insider

By Eric Roseman

In late 2008 I made the compelling case for high quality investment-grade bonds. In 2009, high-grade debt has gained 16.4%, according to the Dow Jones Corporate Bond Index compared to 18.6% for the S&P 500 Index, including dividends.

Cash is now trash. At least that’s what the market is telling investors since March. The appeal of near zero percent money is forcing Mom and Pop out of T-bills and into bond funds, and to a lesser extent, stock funds. Fixed-income funds continue to attract the bulk of total mutual fund sales this year as investors lunge for safety and income. Recently this month, Bill Gross of PIMCO – the world’s largest bond fund complex – raised his allocation to Treasury bonds.

But is cash really trash?

That depends on your view of the global economy and the prospects for corporate earnings. Ultra loose monetary policy might be a strong argument for throwing liquidity out in favor of risk. Nobody wants to earn nothing on their cash balances. Yet with deflation at 1.5% the real adjusted return on cash is closer to 1.6% right now – not a bad alternative for those investors worried about a double-dip recession in 2010 and another steep stock market decline.

Corporate bonds, however, should be avoided at this time until a correction or back-up in yields occurs. The entire spectrum of non-Treasury securities has rallied sharply since March with barely any profit-taking; at some point, corporate bonds will take a brief hit and that’s when I’ll resume my purchases.

By Eric Roseman

Gold is rising because the post-Breton Woods exchange rate system doesn’t work.

More than ever, governments are loading up on debt as a result of bailing-out their respective banking systems. And there’s a price to pay for this profligate spending. Gold sniffs trouble.

Gold has traditionally been viewed as the best inflation hedge since the creation of fiat coins under the Roman Empire. When deficits became too large – namely to fund foreign conquests – the Romans simply chipped-off parts of the coin…de facto inflation.

Now inflation leads to the debasement of our purchasing power and ultimately reduces our long-term standard of living. No other monetary phenomenon has plagued central bankers more than inflation – except for deflation – the worst of two evils…

And deflation – not inflation – has gripped the world economy since the asset “bubble” pricked in July 2008. Stocks, bonds, commodities, real estate and even fine art and the most expensive French red wine vintages have all declined sharply over the last 20 months. Despite a massive recovery since March for most of these risk assets, investors are still sitting on double-digit losses since January 2008.

If gold prices are tied to inflation then why has spot gold risen a cumulative 300% this decade compared to just 25% for U.S. CPI? Something doesn’t give. True, gold should exceed inflation but that rate of excess performance belies a different story behind this rally.