On the Outlook for 2014 and Ayurvedic Lifestyle Recommendations – Part III !

From: aditya rana
Date: Sat, Dec 14, 2013 at 2:30 PM
Subject: On the Outlook for 2014 and Ayurvedic Lifestyle Recommendations – Part III !


As we head into the holiday season, it is important to look ahead to the next year in order to develop an outlook for markets and position investment portfolios accordingly. The team at BCA Research ("Bank Credit Analyst") have had a good track-record (since 1949!) in providing an independent and in-depth analysis of global economies as well as making investment conclusions. To summarise their most recent report:

-Recent global economic data has softened a little but growth is expected to pick-up next year as the fiscal drag diminishes and deleveraging slows down.

-While growth in the U.S. is likely to ultimately pick-up, and the labour market to improve in the coming year, due to a lower fiscal drag, easier credit conditions, improvement in household balance sheets, a continued housing recovery and a revival in corporate investment, the Fed is likely to maintain a "wait-and-see" approach until the data shows clear signs of growth picking-up. Additionally, inflation remains well below 2.0% (1.2%) making the case for a later taper.

-The criticisms of the impact of QE policies – i.e. the Fed’s policies have hurt savers, caused asset bubbles and lead to a misallocation of resources, are somewhat unfounded. With lack of demand holding back the economy, punishing savers could be the right policy. In addition, on average pensioners receive only 10% of their income from interest. While stock valuations are elevated, they are not at bubble levels, high-yield corporate bond still yield more than 6%, housing continues to be affordable and real treasury yields could be lower than they actually are – particularly if we are in a secular stagnation environment. Lastly, there are no signs of misallocation of resources as there are no sectors with excess investment, rather the U.S. economy has accumulated a massive output gap of $5.3 trillion (see graph below) which is expected to continue for a few more years.

-The real issue with the QE programs has been that the Fed made clear at the outset that these programs would eventually be reversed, effectively making them an asset swap of longer dated bonds for short-term bank reserves. Ironically, if the Fed had actually done what the critics feared- i.e. printed money by promising to rollover the purchased bonds in perpetuity- it would have (eventually) resulted in a permanent increase in broad money supply and hence inflation.

-However, given the unpopularity of the QE program, it is almost certain to be stopped next year, and replaced with a "forward guidance" approach which could imply a pushing ahead the first rate hike to 2017 by lowering the unemployment threshold to 5.5% (from 6.5%) and tolerating a slightly higher inflation rate.

-Following the lead of the Fed, in early November the ECB made the important (but largely symbolic) move to lower the official rate by 0.25%, reinforcing the view that short-term rates are likely to remain low for a very long time. Recent data supports the case for more easing – with real GDP falling to 0.1% in Q3 , bank lending declining, and inflation declining to 0.7%. If this trend continues, Europe could well be facing deflation towards the end of 2014 – possibly triggering another global financial crisis.

-However, this should be avoidable with the declining fiscal drag in the periphery boosting growth, inflation getting sticky at very low levels and the easing of financial conditions following Draghi’s "whatever it takes" pledge. The Euro is likely to keep rates lower for far longer than current market expectations and rebalancing will likely come from higher inflation in Germany than deflation in the periphery.

-The release of the market friendly Third Plenum Session master document in China provided a catalyst for a 11% move up in the stock market during the second-half of November. The speed of implementation of some of the policies has been striking – i.e. pilot rural land reforms in Anhui province, forthcoming changes to IPO regulations and establishing a goal for interest rate and foreign exchange liberalization. However, investor sentiment towards the stock market remains depressed, with the H-share market trading 44% below its 2007 highs, at only 8.4-times forward earnings and 1.3-times book. With recent data showing the economy still growing at over 7% and corporate profits accelerating (see graph below) the stock market is poised to make further gains.

Investment conclusions:

-With global growth likely to pick-up, the underperformance of global cyclical stocks versus defensive plays (see graph below) seems to suggest that there is still reasonable upside for equities.

-With the U.S. stock market trading at 19-times earnings, and profit margins at record levels the upside for the U.S. stock market is limited with a possible 4-6% growth rate over the next few years. Europe, Japan and China offer more attractive expected returns.

-High spare capacity and falling inflation ensures that monetary policy will remain easy for many years, and while treasury yields are likely to grind higher, a major bear market in bonds is still a few years away. Downside for the dollar will be limited due to other central banks pursuing higher reflationary policies, but the upside will continue to be constrained by a structural current account deficit and a desire by investors to diversify away from dollar assets. Commodities (oil and base metals) shouldalso outperform.

A helpful outlook on global markets, reiterating the view "bullish but cautious" theme I have emphasised in recent letters. It does not pay to fight the central banks, so stay long Europe, China & EM, and Japan stocks, global credit bonds with maturities around 5 years and global energy and resource stocks.

Ayurvedic Life Style Recommendations – Part III (Dr. Vasant Lad):

Ayurveda lays great emphasis on maintaining an appropriate lifestyle as a means to enjoying a long and mainly disease free life. Dr. Vasant Lad, a former professor of Ayurveda medicine at Pune University in India, is credited with being one of the pioneers in bringing Ayurveda to the U.S. by founding the non-profit Ayurvedic Institute in New Mexico in 1984 (http://www.ayurveda.com/). He has written numerous books on Ayurveda, and also writes on health in a quarterly publication produced by the Ayurvedic Institute. This is part 3 of a serialisation of a note he wrote a few years ago on the Ayurvedic recommendations on lifestyle

Pitta pacifying lifestyle:

-Pitta dosha is hot, sharp, oily, liquid and light. Pitta people have a tendency to develop a strong fleshy smell and pitta has a tendency to spread. These qualities are observed when pitta is out of balance.

-To counter the hot quality of pitta – the person should stay cool – both physically and mentally. Avoid going out under the hot sun (especially on an empty stomach) and hot, spicy foods and vigorous exercise on hot days.

-The main site for Pitta is the small intestine and it is therefore important to keep the eliminations regular and healthy to prevent a build-up of pitta. To enable this take 1 tsp of triphala (or one of its ingredients – amalaki) with room temperature water at night.

-Pitta people have sensitive skin, which tends to cause sunburn, acne, hives, rashes. To soothe the skin, coconut oil or neem oil can be applied before bath and avoid soaps with chemicals and take warm showers rather than hot showers.

-When pitta is elevated, avoid smoking and alcohol and avoid working under the sun and protect your skin, eyes and head from the summer sun by wearing sunglasses, hats and appropriate clothing. Stay cool and calm, drink cool water and swimming is a good exercise for pitta people. Running and all forms of vigorous exercise are to be avoided , particularly in the summer months.

-Pitta people love to read and solve puzzles which they can do during the day but not at night since it can aggravate pitta. They should go to bed at 10pm and get up at 5 or 6am. To aid sleep they can drink a cup of warm milk at bedtime with a pinch of cardamom. They can also rub cononut oil on their scalp and soles of the feet at bedtime to calm pitta.

-Pitta people are focussed and goal oriented, getting deeply absorbed in their projects. They should get a balance between work and play and do some meditation, gently yoga and yogic breathing daily.

-Pitta people should eat mainly sweet, bitter and astringent foods and minimize salty, sour and pungent tastes. They should start their day with cooked rice, oatmeal, wheat or corn cereal, make lunch their main meal and eat a moderate dinner.

-Good vegetables for pitta are lettuce, sprouts, parsely, okra, asparagus, broccoli, cauliflower, celery, cucumber, leafy greens, all beans and legumes, peas, zuchini, potato and sweet potato. Milk, ghee and butter milk are beneficial but avoid sour cream and cheese. Avoid excessive onion, garlic, horseradish, tomato, beets, spinach, chillies and other heating spices like cloves. The best oils are coconut, sunflower, olive oil and avoid sesame, peanut, almond and mustard oils. All sweeteners are good besides honey and molasses. Most ripe fruits are good for pitta – particularly sweet mango, grapes, apples, pears, peaches and melons – but they should avoid citrus and sour fruits. The best herbs for managing pitta are shatavari, guduchi, neem, aloe vera and manjistha.

To be continued.

I will be travelling for the next two weeks so the next newsletter will be sent on January 11. I would like to wish my readers happy holidays and the best for a great 2014!




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