If Japan Bounces Back in the New Year, Investors Will, Too

Japan has been an infuriating country for U.S. investors for almost 20 years now, since its benchmark Nikkei 225 index hit its trading high of 38,957 in late December 1989. The market then dropped steadily to a third of its peak value by the end of 1998, zoomed back up to 20,000 in March 2000, fell to a low of 7,600 in March 2003, and then recovered to 17,600 in June 2007.

Now, however, it has swooned to 8,695, infuriating global investors. And there’s two ways to look at it.

You can regard it as hopeless case, a market stuck in permanent recession.

Or you can look at the money investors made in 1998-2000 and 2003-2007 and say: “It’s down close to 8,000 again, lads. Time to pile in!”

On the whole, I’m inclined to the second view.

Burst Bubbles

Japan made a number of mistakes in the 1990s – most notably in allowing its public sector to grow so much that it delayed the recovery from the inevitable downturn brought on by the huge Japanese stock market and real state bubbles of 1985-1990.

However, the Japanese economy’s productivity hasn’t stopped growing: According to The Conference Board Total Economy Database, the world’s second-largest economy grew at an average annual rate of 2.0% from 1990 to 2007, outstripping the U.S. productivity growth rate of 1.8%, and the 1.6% rate of Germany, for instance. Thus, Japan’s economy retains considerable dynamism, and being almost two decades from its bubble excesses, has worked the bad debts and overvaluations out of its system.

One factor that tends in the opposite direction is the September ascent to power of new Japanese Prime Minister Taro Aso.

Back in 2003, before Aso came to power, then-Prime Minister Junichiro Koizumi had finally (it seemed) quelled the public spending barons in Japan’s Liberal Democratic Party and cut back infrastructure investment. Koizumi’s two successors were both similarly committed to spending restraint – highly necessary in a country whose debt had peaked at 180% of gross domestic product (GDP). However, Prime Minister Aso also is a believer in “stimulus,” and with so many bad examples internationally (and others – such as China’s – so new that we can’t yet pass judgment on them), it seems inevitable that he will relax Japan’s budget discipline. This may help the country’s slowing economy in the short run, but in the long run it threatens to return Japan to its stagnant state of the late 1990s.

Sign up below… and we’ll send you a new investment report for free: “Credit Crisis Report.”

Nevertheless, Aso’s first stimulus program – announced Oct. 31 – was a fairly modest $30 billion (about 27 trillion yen), or roughly 6.0% of GDP. What’s more, only $5.56 billion (about 5 trillion yen) of that outlay represents actual new spending, with the rest represented by tax rebates and service-charge reductions. So, while Japan’s deficit and debt will increase, the government’s share of the economy won’t increase much. This brings hope that Aso will remain sufficiently restrained in new public spending programs to allow the Japanese economy to start growing again.

The financial markets seem to think the outlook for renewed growth is quite good; the yen has been very strong in the last few months, reaching a level of Yen 92 = $1 that it had only touched in the middle 1990s (Yesterday, Yen 95.95 = $1 USD).

Of course, it doesn’t hurt that Japanese banks – restrained from rapid expansion in the 2003 to 2007 time frame because of their previous bad debt problems – had been lucky enough to avoid most of the U.S. subprime mortgage mess. This is all bodes well for carefully chosen Japanese stocks.

Reaping Profits

With faster productivity growth than the United States, a reasonably valued stock market, and some degree of shelter from the storms afflicting the rest of the world, Japan is an essential home for a portion of your international investments. While Tokyo will most definitely be affected by a continued decline in the worldwide stock markets, if viewed solely on its own merits, the Japanese stock market seems more likely to rise than fall. You never know: We could be close to the beginning of a long, secular bull market – it has been a full generation since the last one. More likely, the market will just bounce a bit. Still, even bounces are worth buying.

In terms of which Japanese shares to buy, the major electronics and consumer goods exporters should be avoided – their earnings have been decimated in the past few months. One exception to this is in the auto sector: Honda Motor Co. Ltd. (ADR: HMC) has a better model range and is better aligned for a world marketplace plagued by expensive fuel and environmental pressures than any other manufacturer on the planet. But it too has been knocked back by the problems of auto manufacturers in general.

Honda’s American Depository Receipts (ADRs) are down about 36% from their 12-month highs. But at about 9.0 times estimated earnings to March, with a dividend yield of 3.6%, they seem a good value.

The profit problems of the major Japanese high-tech companies have caused the entire tech sector to suffer earnings reverses – except the domestically oriented cellphone company NTT DoCoMo Inc. (ADR: DCM). Naturally, DCM’s sales and earnings have been growing only slowly in Japan, because the wireless-communications market is saturated. But the company addressed this problem on Nov. 12 by shelling out $2.7 billion for 26% of the Indian cellphone company Tata Teleservices Ltd., entering into a technical cooperation agreement.

As of Sept. 30, India had 315.3 million cellphone subscribers, up 51% in the year and surpassing the overall U.S. population for the first time. With a forward Price/Earnings (P/E) ratio of 13 (based on earnings to March), and a dividend yield of 3.0%, DCM is also a bargain – given the technological improvements in the sector and its new growth potential in India.

Finally, a “fundamental” product – and one that’s primarily domestically oriented – is the chief business of Wacoal Holdings Corp. (ADR: WACLY), the world’s largest manufacturer of intimate apparel. Wacoal dominates the Japanese market, which accounts for 85% of its sales. Any economic recovery in Japan is likely to be domestically based, thanks to sluggish export growth and the strong yen. Hence, Wacoal is well positioned to benefit. The stock is trading at about 20 times forward earnings to March, and has a dividend yield of 2.2% – pricier than the other two, but worth a modest investment.

G-20 to Back Stimulus, Smooth Over Regulation Split

ov. 15 (Bloomberg) -- World leaders meeting in Washington today are moving to shore up the deteriorating world economy, while papering over differences on additional regulation of financial markets.

Members of the Group of 20 will endorse steps already underway to fight a global recession by pursuing active monetary and fiscal policies and propose ways to bolster the role of the International Monetary Fund, French officials told reporters on condition they not be named.

They will hide disagreements between the U.S. and European governments over the future shape of the international financial system. Leaders will commit to toughening domestic market regulations before the end of April and meet again to discuss joint efforts by May after U.S. President-elect Barack Obama takes office, the French officials said.

``It's difficult to imagine the heads of state getting together on the worst financial crisis since the Depression and announcing only baby steps,'' said Tony Crescenzi, chief bond market strategist for Miller Tabak & Co. in New York. ``The G-20 will almost certainly want to give the impression that broad and coordinated actions will be taken to combat the financial crisis.''

Tumbling stock markets and forecasts for global recession are putting pressure on the G-20 leaders, who last night met for a dinner of quail, roast lamb and pear torte at the White House. They will release a statement after further talks today.

A Recession

Statistics released yesterday showed the euro area entered a recession in the third quarter for the first time since the single currency was introduced a decade ago, and retail sales in the U.S. fell by the most on record in October. The Standard & Poor's 500 index fell 38 points yesterday to close at 873, a loss of 6 percent for the week and 41 percent for the year so far.

``Obviously this crisis has not ended,'' President George W. Bush told reporters as he arrived at the summit. ``There's more work to be done.''

Their first step is raising government spending to boost growth as the credit crunch delays the effect of recent interest rate cuts. G-20 countries including the U.K., Japan, China and Germany are rolling out stimulus packages. Democratic lawmakers in the U.S. are signaling they will enact a second round of stimulus legislation.

Cooperation

``I've been pressing for cooperation on fiscal and monetary policy,'' U.K. Prime Minister Gordon Brown said today. He acknowledged the ability to ease policies differs between economies.

Several other initiatives, in the works for some time, were announced on the eve of the summit.

The first central clearinghouse for the $33 trillion credit- default swap market should be in operation by year-end in the U.S., under an agreement signed yesterday by three U.S. financial regulators.

The Federal Reserve, Commodity Futures Trading Commission and Securities and Exchange Commission agreed to provide consistent oversight of credit-default swaps, which are unregulated contracts that are traded privately.

The clearinghouse would back trades and absorb losses in case of a dealer failure. Some in Europe have been pushing for a clearinghouse under government control, or within the IMF. Investors, supported by the Fed, want it to be independent. The New York Fed has been meeting with groups including CME Group Inc., Intercontinental Exchange Inc. and NYSE Euronext on plans to create a privately run organization.

Aso's Offer

The IMF will have a role, along with the Financial Stability Forum in conducting ``early warning exercises'' and issuing joint risk assessments of financial markets, the two organizations said yesterday. The FSF includes officials from the Group of Seven nations along with Australia, Singapore, Switzerland and the Netherlands.

Separately, Japanese Prime Minister Taro Aso's office said his government will offer up to $100 billion in lending to the IMF at the summit and ask other nations to give further resources. Ways will also be discussed today to widen the role of emerging markets in the Fund.

The leaders are also likely to agree on the need for improving oversight of banks whose operations, and problems, cross national borders. The so-called Basel accords, developed in 1988 and 2004 to create international standards for regulation, risk management and disclosure, failed to prevent the current crisis.

College of Regulators

European Union nations, led by the U.K.'s Brown, want the world's top 30 banks to be placed under the supervision of a panel of regulators.

At a Nov. 7 meeting in Brussels, EU leaders called for the creation of regulatory ``colleges'' that would bring together bank regulators from various nations to coordinate oversight.

Still to be discussed is how much, if any, power those colleges might have. The U.S., under Bush, has rejected international supervision of its banks. Some European governments, particularly in smaller and Eastern European nations, also don't want to cede oversight of their own banks and insurers to authorities in financial centers such as London, Paris and Frankfurt.

Also likely to be left for another day will be European calls for more international market regulation, with curbs on executive pay and hedge funds. The statement will set a deadline of March 31 for authorities to implement measures at home such as extending surveillance of hedge funds and toughening rules for credit rating companies.

European Cracks

Discussion over cross-border policies will wait until later talks. Bush argues in his weekly radio address today that government intervention in markets is not a ``cure-all.''

There may also be cracks emerging in Europe's position. German Chancellor Angela Merkel favors a more gradual strengthening of regulators and existing rules rather than the sweeping revamp of controls favored by French President Nicolas Sarkozy, according to a German government document obtained by Bloomberg News.

It states that governments should forego setting up a new ``architecture'' to control in favor of improving the tools of existing institutions to stave off crises. Still, Merkel said yesterday that she'll do ``everything to ensure that there are more rules to prevent us from ever having to face such a situation again.''

The leaders have already signaled they plan to hold additional meetings after Obama takes office. The president-elect won't attend this week's meeting, sending former Secretary of State Madeleine Albright and former Republican Representative Jim Leach to meet delegations instead.

G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.

The Netherlands and Spain are also represented, as are the IMF, World Bank, and United Nations.     

The euro zone's first recession

Shutterstock

WITH hindsight, the European Central Bank’s decision to raise interest rates in July looks unfortunate. On Friday November 14th the European economy officially fell into its first recession in the ten years since the euro was introduced. Economic output among the 15 countries that share the euro fell by 0.2% in the third quarter from the previous one, marking a second consecutive quarter of falling output, the usually accepted definition of a recession.

The turn in Europe’s fortunes is sharp: in July economists only saw a roughly one-in-three chance of a recession, according to a poll by Bloomberg. It is also worryingly broad-based: a lack of credit is cramping consumer spending, business investment and exports in economies all across the region. One of the worst affected is Germany, the world’s biggest exporter and Europe’s biggest economy, where gross domestic product slumped by 0.5% in the quarter, after falling 0.4% in the previous quarter.

Germany’s woes owe much to cooling demand for the machine-tools, heavy equipment and other capital goods it churns out. Demand for these had been strong in recent years as emerging markets soared and high commodity prices spurred investment in mines, railways and ships. But with emerging economies slowing and commodity prices falling, new infrastructure projects are being shelved and ship orders cancelled. With orders and industrial output falling fast economists now expect a prolonged slowdown in Germany. Those at Commerzbank, a German bank, now expect output to contract by about 0.8% in the fourth quarter and perhaps by another 1% next year.

The ferocity of the downturn in Germany should cause it to consider using fiscal policy more aggressively to boost domestic demand in an economy that, until recently, has been powered largely by exports. It is well placed to do so. Its government bonds are prized by investors fleeing risky assets and it is entering the recession with a small budget surplus. A modest package unveiled on November 5th seems too small to provide much of a lift. “While we are sceptical that simply spending more money would help very much, the case for tax cuts, notably for aggressive cuts in the job-destroying payroll taxes, has never been stronger,” says Holger Schmieding, an economist at Bank of America.

Across most of the rest of Europe, the outlook is also grim. Output of all of Europe’s 27 economies, not just those sharing the euro, also slid by 0.2% in the quarter. The economies of Spain, Italy and Britain all shrank in the third quarter. Britain and Spain are likely to be hurt particularly by downturns in household spending as consumers worry about collapsing house prices and high levels of debt. In Britain and Italy there is little room for fiscal easing.

One country that has so far dodged recession is France. Its economy unexpectedly grew by 0.1% in the third quarter, buoyed by consumer spending and corporate investment. Most economists had expected it to shrink by 0.1%. Yet France may have merely postponed the inevitable, with many expecting its economy to shrink in the fourth quarter. Some signs of this are already emerging in the car industry where Renault and PSA Peugeot Citroën have both suffered falls in car sales and will cut production.

Amid the gloom there are however some grounds for hope. One is that the euro has plunged by over a quarter against the dollar in the past four months. The long preceding period of euro strength may have left European firms stronger, by forcing them to be more efficient. Its fall should now give exporters a better shot against American rivals in emerging economies (although exports to Britain, where the pound is weak, may be harder to achieve). European firms have also been quicker to gain a foothold in these markets. The euro area’s exports to oil-producing countries, for instance, are more than three times bigger than America’s, according to the European Central Bank.

Another is that inflation is now falling sharply. Consumer-price inflation slipped to 3.2% in October from 3.6% a month earlier. Some economists now expect it to fall below the ECB’s target of 2% next year, allowing the bank to cut rates forcefully. That earlier caution may now be thrown to the wind.

Social Games Jump To iPhone

ike a flock of geese, game developers migrate to the hottest new trend or platform. It happened when the Nintendo DS launched, then with the Wii and Facebook games, and now the iPhone.

But while most iPhone developers are dreaming up ways to take advantage of the phone's (or the iPod Touch's) graphical capabilities, touch screen and accelerometer, apps maker Zynga is looking to make games more fun. 

Mark Pincus' San-Francisco-based social gaming start-up launched its first iPhone game, "Live Poker," Thursday. There are already a handful of poker games hosted on Apple's (nasdaq: AAPL - news - people ) App Store, but "Live Poker" is the first to take advantage of Facebook Connect, which will allow mobile game players to play Texas Hold'Em poker hands, in real-time, with their Facebook counterparts.

Social games, which are still in their infancy and most often associated with social networks, rely on players' social spheres to encourage and engage their audience. That principle has pushed Playfish's games into the top tier of applications available on Facebook. The urge to top friends' high scores pushes people to play more. "It is just more fun when you play against your friends," said Playfish Chief Operating Officer Sebastien de Halleux in an interview with Forbes.com in August.

"Social gaming will become by far the most important segment in digital gaming," says Pincus, chief executive of Zynga. He predicts it will some day rival the traditional console business, pointing out that much of the Wii's success is due to its ability to get families playing games together. More people will wind up playing social games than videogames, contends Pincus, because such games are more accessible to mass audiences and use social circles to constantly pull players back to the games.

Inflation at 8.98%: Experts see rate cuts

So, What do experts read into this single-digit number?

 

Yes Bank feels that the week-ended November 1 inflation below 10% has come in sooner than expected. "We see a 50 bps repo rate and 25-50 bps reverse repo rate cut in the near-term. We expect RBI to infuse more liquidity."

 

Saugata Bhattacharya, Economist at Axis Bank, sees the inflation number at 8.98% as a pleasurable shock. 

 

 

 

 

 

Arvind Sampath of Standard Chartered Bank feels the market would start preparing for a repo rate cut as well as as for a reverse repo cut.

 

 

 

 

Indranil Pan, Chief Economist with Kotak Mahindra Bank is not sure about the RBI action since liquidity at present is more or less stabilizing.

 

 

 

 

A Prasanna of ICICI Securities said, "This number has come out mainly because of the fuel price updation and it is not a surprise we were just expecting it to happen over the next week."

 

 

 

Are any rate cuts on the anvil?

 

Saugata Bhattacharya feels the RBI can cut repo rate as well as the reverse repo rate without even waiting for a fuel price cut from the government as it has a lot more headroom than they had just about 15 days back. Given the way that other price indexes have been falling probably then these will again get reflected in the domestic price indexes.

 

Arvind Sampath sees repo more in terms of being phased out and feels that one would probably look for an immediate target of around 7.40% on the ten-year within few days and then we look at medium-term probably 7.35% or even lower than that. He sees a repo rate cut possibly in December with more liquidity coming into the market through spending.

 

Indranil Pan said, “Even if they reduce the repo rate I don’t think there is any significant scope immediately for the borrowing cost of the corporates to come down,” he said. He added that the lower inflation number definitely provides that much of scope for RBI to react given the fact that global conditions are also not conducive enough.

 

Pan said by the end of the year we could also see another 100 bps point reduction in CRR and another 50 bps in the repo.

 

Yes Bank feels the time is ripe for RBI to further cut rates. "We see a 50 bps repo rate and 25-50 bps reverse repo rate cut in the near-term. We expect RBI to infuse more liquidity."

 

A Prasanna of ICICI Securities sees inflation at 4.5% by March. It expects inflation to continue its downturn trend.

Indian IT gets a 'French kick'

LONDON, INDIA: IT workers employed by French IT service provider Steria in Manchester and Skelmersdale have recently announced to go on strike over compulsory redundancies and the offshoring of their jobs to India.

The workers, who provide IT support to co-operative financial services, are members of the Unite Trade Union and 31 of them are facing compulsory redundancy because of Steria's offshoring policies, said a press release.

They also fear that more jobs would be lost to India once those currently under threat have gone. The strike witnessed the participation of 93 workers in the Union ballot, with 71 per cent voting for strike action and 89 per cent voting for action short of a strike.

Unite has planned to meet Steria next week in a last-ditch attempt to save the jobs of those who wish to remain with the company and to seek assurances for future job security, it added If the attempt fails, it has anticipated that industrial action would follow at an early date.

Richard Lynch, Unite's negotiating officer for the IT Sector, said, "The vote for industrial action is a clear reflection of our members' anger that their jobs are being offshored to India at a time of increasing economic uncertainty in the UK."

He added that they believe that this export of jobs is unacceptable in the current climate and they would urge Steria to halt the compulsory redundancies and to reconsider its plans to offshore 70 per cent of the work on this account.

NTT DoCoMo buys 26 pc stake in Tata Teleservices

MUMBAI, INDIA: Japan's telcom major NTT DoCoMo got a foothold in Indian telecom market as it acquired today a 26 per cent stake in the Indian telecom major Tata Teleservices, for $2.7 billion (approximately Rs 13,000 crore), valuing the company at 10.4 billion dollars.

As per Indian regulatory laws, DoCoMo will also have to make an open joint tender offer with Tata Sons, the holding firm of the group, to buy up to 20 per cent in a listed unit of the Indian mobile operator.

"As a result of the capital alliance, the partners expect to expand mobile communication operations in the fast-growing Indian mobile market aiming to increase operating revenue and achieve steady business growth," a press statement from Tata said.

Tata Teleservices has 30 million subscribers, making it the sixth-largest telecom company in India on that parameter.

DoCoMo had earlier made a $350 million investment in a Bangladeshi cellphone carrier.

India is the biggest mobile market in the world, after China and has a customer base of around 320 million, almost three times the size of Japan's market of 109 million subscribers.

According to Gartner India's mobile user base will more than double by 2012.

Tighten belt, says Ratan Tata

Meanwhile, another report said that Tata Group Chairman Ratan Tata has asked CEOs and managing directors of the 98 group companies, gear up to face the situation emerged after the global financial turmoil, and tighten belts.

In a letter to the top executives Ratan Tata has reportedly asked them to review business strategies outlining a six-point action plan keeping in mind the worsening credit crisis.

He suggested them to focus on conserving cash and put off expansion through the inorganic route unless the acquisitions were strategic in nature.

Make your Diwali bonus last till christmas!

FESTIVE season is here again.

And it is that time of the year when you would normally expect a sudden spike in your bank balance, thanks to a fat bonus from your company. Well, this year may be different. The slowdown has ensured that your company might not splurge this diwali (read: not give away a fat sum as bonus)!

Nonetheless, if you get a neat little sum as diwali bonus, what do you intend to do? Blow it up? Put it in a Fixed Deposit? Or simply keep it in the cupboard?

Certified financial planner Gaurav Mashruwala, finds that the majority of people blow up their bonus. "They feel it is free cash they have got," he says. Through the years, and with the entry of multinational companies and an international work culture, the emphasis on Diwali bonus has lessened and year end appraisal driven bonus has increased. Nonetheless, a large part of India still thrives on a substantial Diwali bonus culture.

wealth suggests three ways to make your bonus stay with you for a long time.

i. Spend but don't splurge

Earlier, Diwali was a time for big household purchases. To top that, money was spent on holidaying. Today, shopping has become an all round the year recreational activity. If you need a washing machine you will not wait till Dhanteras to buy it.

However, the joy of Diwali is still very strong. With so many great offers on consumer durables and household products it makes sense to buy at Diwali time. Of course there are some necessary purchases like crackers, clothes and sweetmeats.

Do spend and enjoy Diwali. But take care not to burn up the entire bonus. There's a lot more you can do with it.

See video: My monthly expenses double in Diwali!

ii. Investments for the wise
Diwali bonus means you have a lump sum amount at hand. It is not often that one has a lump sum to invest. You can invest the money in good quality stocks or in high growth mutual funds. Mashruwala advices, "According to me, it's best to save the entire bonus. If that is not possible then make a compromise. Also if you have outstanding loans, pay that first."

Be wise and invest some part of it.

Read: Investing in equities

iii. Tax planning for Diwali
Your Diwali bonus is taxable. Basically, your bonus is taxable in the year of receipt if it has not been taxed earlier on due basis. It forms part of ‘income from salaries’ in tax computation/statement of income. So, do account for it in your taxable income.

It will also make sense to put away some of the bonus into tax saving instruments. It will help you start your tax planning early so that you do not make rushed and imprudent decisions at the end of the year.

Read: Section 80 C tax saving instruments

The author, Shalini Amarmani, is a freelancer.

Photograph: Charley Gallay/Getty Images

Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.

e-mail: Shalini Amarnani     

4 reasons why you should buy while FIIs sell

LET’S assume that you have invested in both, the US and the Indian stock markets. Now, it turns out, while your Indian investments are doing exceedingly well, the US portfolio suffers acute losses.

What is the most obvious thing you would do?

You would book profits in India, in order to make up for the US loss. Right?

This, in a nutshell, is the current scene today. The only difference is that the investors are foreign institutional investors (FIIs). These are institutions that operate mutual funds, hedge fund and portfolio management services abroad and invest the fund money in other countries. FIIs by definition, have world wide investments. So, not only India but other Asian markets are also facing a sell off.

What happens when FIIs sell?
FIIs have a huge exposure to the Indian market. Due to this, their buy and sell actions have a considerable impact on the market.

Recently, FIIs have been on a selling spree. This is one of the reasons for the markets to register steep falls.

If FIIs are selling, should you buy?

The US is in turmoil but there is nothing wrong with us. The following factors just reaffirm this:

1. Toxic securities (such as MBS and CDOs) are conspicuously absent in our market, thereby preventing us from catching the infection.

Mortgage Backed Security (MBS) and Collateralized Debt Obligations (CDOs) are securities which are backed by a pool of mortgages that are paid by home loan takers in the US. So, if a home owner defaults on his repayment, the MBS holder suffers. Read all about these instruments and how they caused the big collapse .

2. As far as domestic operations of banks are concerned, RBI has been extremely strict by continually increasing the risk weights to real estate and housing loans, thereby discouraging banks to get ahead of themselves, in a bid to increase business.

See: Why Indian banks are safe

3. Unlike the West which has a negative savings rate, our domestic savings rate is more than 35 per cent, that means, on an average, Indians save 35 per cent of their income. So, even if there is a protracted slowdown, we would still have considerable demand for products and services, which in turn will help the economy to achieve good growth.

4. Amongst all emerging economies, our export to GDP ratio is the lowest. This means that even if our exports went down, our growth won't be significantly impacted. Therefore, even a full blown US recession will shave only around 40 to 60 basis points off our GDP growth rate. So, we will still have the capacity to chug along at an 8 per cent plus rate.

India - a safe haven
The fundamentals of our economy make our market nothing short of a safe haven during such turmoil. So, I don’t care if the market falls to 9,000 or even lower. Once this storm blows over, things will be back to normal.

In the meanwhile, your fortune as an investor would depend on how you react or, rather, don’t react to the situation.

The great fall of the market isn’t going to suddenly reverse the quality of the companies listed. If anything, I am looking forward to picking up some cheap but quality stuff.

Buy It Like Buffett

It took him long enough.

At the end of 2004, Warren Buffett's Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) had around $44 billion in cash. Ditto for 2005. And 2006. And, yes, 2007 as well.

At one point, more than 20% of Berkshire's assets were earning money-market returns. While armchair investors complained that the company had amassed too much capital to continue its market-thrashing ways, Buffett simply sat on Berkshire's enormous pile of cash. And waited. And waited. And waited some more.

He refused to buy until the time was right.

The time is right 
Buffett has called the current mess an "economic Pearl Harbor." He has also said, "In my adult lifetime, I don't think I've ever seen people as fearful economically as they are now."

These aren't just words. Mr. Greedy-When-Others-Are-Fearful has been stuffing money where his mouth is.

That $44 billion Berkshire had at the beginning of this year? By the end of June, Buffett had spent it down to $31 billion in deals including Berkshire's purchase of Marmon Holdings, the Mars purchase of Wrigley, and the Dow Chemical (NYSE: DOW) takeover of Rohm & Haas (NYSE: ROH). He even bought up auction-rate securities at bargain prices.

And lately, he's been accelerating. It's nice to have cash when the credit markets are frozen.

In just the past month, he has committed:

• $4.7 billion to purchase Constellation Energy (NYSE: CEG) for $26.50 per share. (It had been trading above $100 at the beginning of the year.)
• $5 billion to purchase perpetual preferred stock in Goldman Sachs(NYSE: GS). He not only gets the hefty 10% dividend but also receives warrants allowing him to buy $5 billion of common stock at $115 per share.
• $3 billion to General Electric (NYSE: GE) under terms similar to the Goldman Sachs deal -- except the preferred stock is callable for a 10% premium after three years. The warrants allow him to buy stock at $22.25 per share.

That's more than $20 billion spent this month if he chooses to exercise those warrants. Buffett's back, baby!

Buffett's buying. Should you? 
Historically, average investors could simply ride Buffett's coattails to huge returns (think double the market's returns). But this time is different.

Buffett got sweetheart deals on both Goldman and GE. In the case of GE, he's earning 10% dividends on a company rated AAA -- and if he buys the warrants and they pan out, he'll earn even more.

When Buffett made these deals, he was providing much more than just capital. He was lending his credibility -- and that meant Goldman and GE were willing to give him great deals in the hopes that his name alone would stabilize their stock prices for follow-on offerings.

In other words, don't buy into Goldman or General Electric just because Buffett has.

Learning from Buffett 
Instead of buying what Buffett is buying, we should look to what his strategy has to teach us. So what can we learn from Buffett's shopping spree? Two things:

• Invest for a lifetime.
• Compile a watch list of attractive companies.

Buffett's pushing 80, but he hasn't been panicking and trying to make a quick buck, no matter what the market has done. Rather, he's been investing for the long term, and in the past few years, that's meant waiting for opportunities to present themselves. Now that they are, he's striking with a vengeance.

And because of his patience, he hasn't had to compromise -- and he's getting great companies at great prices. When Constellation Energy's price dropped so precipitously in mid-September (from above $60 to the $20s), he was ready to pounce. Goldman and GE may have approached him, but you can be darn sure that he'd already done the bulk of his research beforehand.