Emails (1-2) of the day
Comment of the Day

August 28 2013

Commentary by David Fuller

Emails (1-2) of the day

On India, Autonomies and bonds

David Fuller's view My thanks to a subscriber for this link to The Indian Express: India 'least favourable', makes sense to exit, Nokia tells govt.

The global market place is highly competitive and India's bureaucracy makes it a less attractive destination for foreign corporations. This problem will need to be addressed by India's next government, due to be elected in 2014, before India can once more begin to fulfil its considerable long-term economic potential.

"Thank you again for yet another very well done Friday audio. I am eagerly waiting for the upgrade of the Chart Library.

"I have two questions:

"1. You often mention the dividend aristocrats who are also, autonomies as the favourite theme for both of you. Would you consider listing maybe your top ten of such companies. I do realise that these would be different for each indiviual investor; but I am curious about what Fullermoney would consider their favourites especially for long-term investors.

"2. If I read you correctly, you think we are in for a long bear market in government bonds. Do you think the timing now is right, to buy a fund that plays the short side of US government bonds?"

My comment - Thanks for your opening comments on the service and two questions of general interest.

Eoin also commented on the Autonomies yesterday but I will just add that while they are our favourites for the long term, not least because they profit from the global economy, stock markets are often volatile so the chart action is extremely important. The good news is that the current downward reset in stock markets will create some attractive opportunities, which will be commented on in coming weeks.

You do read us correctly in terms of a long bear market in government bonds. However, the funds which sell bonds short are not a long-term hold, in our opinion. There are two problems: 1) yield, which increases as the bond bear market progresses, and more importantly: 2) rollover expenses as short positions in futures are rolled forward on expiry. When bonds range for a lengthy period, rollover expenses and contangos can considerably erode profits. Therefore, the optimum time to short bond funds will be after an upward correction in bond prices (downward correction in yields). I would prefer to wait for that next correction because although bonds have only begun their bear trend (US weekly & daily), yields have risen quite sharply since the beginning of May and only seen small setbacks at a time when the Fed is still a major buyer.

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