>GOLD BULLS ON ROLL (GLOBAL MARKET RESEARCH)

Gold awakens from Summer Slumber, Eyes $1,000 /oz

The value of gold has been the subject to intense debate for centuries. Baron Nathan Rothschild, the richest man in Britain and probably in the world during his lifetime once commented, “I only know of two men who really understand the true value of gold – an obscure clerk in the basement vault of the Banque de Paris and one of the directors of the Bank of England. Unfortunately, they disagree,” he remarked.

Nathan Rothschild, who used to lean against the famous “Rothschild Piller” at the London Stock Exchange, hung his heavy hands into his pockets, standing silent, motionless, and with implacable cunning, said, “I care not what puppet is placed upon the throne of England to rule the Empire on which the sun never sets. The man that controls Britain’s money supply controls the British Empire. Whoever controls the volume of money is the absolute master of all industry and commerce.”

His brother Mayer Amschel Rothschild, operating the banking house in Frankfurt, Germany concurred, “Give me control of a nation’s money, and I care not who makes her laws,” he said.
From 1809, the Rothschilds began to deal in gold bullion, and developed this as a cornerstone of the family dynasty.

The gold market is shrouded in mystery, and many conspiracy theories surround it, but eyeing the volume of the money supply offers the most helpful clues.

Several other wise men have advised investors to be on the lookout for politicians who commit fraud upon unsuspecting citizens. “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. And while the process impoverishes many, it actually enriches some, and not one man in a million will detect the theft,” wrote John Maynard Keynes in his book, the Economic Consequences of the Peace, 1919.

“You have to choose between trusting the natural stability of gold and the honesty and intelligence of members of the government. With due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold,” advised George Bernard Shaw in 1928. “When you or I write a check there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Fed writes a check, it is creating money,” explains the Boston Federal Reserve Bank.

To see full report: GOLD

>Economic Cycles (GLOBAL ECONOMIC RESEARCH)

CONSUMER OFFERS HOPE......
..... CAPEX ORDERS SUGGEST DESPAIR

Manufacturing activity continues its plunge. By the end of February, US industrial production was down 12% from its peak, Eurozone production by 12% and Japanese production by a significant 38%.

The March US manufacturing ISM index of 36.3 suggests that the rapid fall in manufacturing output is continuing. Historically, manufaturing stablises when the ISM survey reaches the high 40s. The ISM new orders index is picking up, as consumer demand has modesty improved in Q1` following two atrocious quarters, but the level of the new orders index is only 41.2, held back by the severe slump in machinery orders.

US consumer real disposable income is up 2.5% yoy as falls in energy prices, unemployment insurance and rising social security payments have substantially ameliorated the impact of the sharp rise in unemployment. Small-ticket purchases are up 1% yoy.

Big-ticket purchases, more important for Western manufacturing are bouncing from their lows, by february up 2.8% from the lows in December. The pick-up are ebbing, but a substantial rebound in confidence and in postponed demand, are unlikely until corporate restructuring finishes and the pace of job cuts lessen, most probably in Q3. In Europe too, car sales are posting strong rebounds, helped by government subsides on new car purchases.

To improve US credit availability, for when demand recovers, the New York is lending through the TALF facility to purchasers of new AAA asset backed securities (ABS), at 1% above LIBOR for three years, non-recourse to the borrower, and only secured by eligible ABS.

To see full report: ECONOMIC CYCLES

>Indian Financial Sector (GLOBAL MARKET RESEARCH)

Fundamental, Industry, Thematic, Thought-leading
Deutsche Bank Company Research's Investment Policy Committee has deemed this work FITT for investors seeking differentiated ideas. While credit quality risks in Indian banks are undoubtedly on the rise, we remain below-consensus on the extent of the likely NPL increase. Our analyses suggest that stock prices now offer compelling selective investment opportunity across the India financial sector. This includes paired or hedged ideas as the credit quality impact is likely to be materially different across the sector.

Fundamental: Strong headwinds, but corporate preparedness generally high We estimate our coverage universe will report a ~50% increase in NPLs in year to Mar’10E over Mar’09E. This is significantly lower than consensus that expects closer to a doubling in NPLs. Sharp credit controls and portfolio seasoning should result in NPLs peaking sooner and less severely than most think. We also derive comfort from sizeable unrealized gains, lesser global dependence of the economy, comparatively modest GDP deceleration and subsequent lower risk of job losses.

Industry: Favourable regulatory regime, but transparency risk increases Institutional frameworks such as the foreclosure law work not just as postdelinquency tools, but also as a deterrent to willful defaults. Prudential exposure guidelines and transition to Basel II function as effective self-control mechanisms. We are concerned, however, that aggressive bank restructuring – an otherwise necessary and positive trend – could make bank balance sheets more opaque and evoke investor skepticism over reported NPLs.

Thematic: Sensitivity analysis reveals primacy of private banks Detailed scenario analyses of rising NPL conditions reveal that private sector banks hold a clear advantage over PSU banks and underscore the importance of adequate capitalization levels. Valuation analysis suggests that the market has already priced in 50% higher than our increased NPL estimates, with many banks now trading at valuations closer to periods when NPLs were 3-4x higher.

Thought leading: Rising default risks but retail seasoning data positive Our detailed analysis of corporate India’s conventional default risk indicator ratios, Altman Z scores across sectors and Merton’s methodology indicate rising default probabilities in general with expectedly greater degree of stress in export-oriented sectors. We conclude that the ‘tail risk’ is still increasing, but our seasoning analysis also reveals lesser-known, positive aspects of retail loans.

To see full report: INDIAN FINANCIAL SECTOR