Gold, Apple and a Coal Monopoly

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Gold is all charged up ….. again !! 

  • After some steadiness in the last 6 months, Gold prices are rising sharply once again, see graphs:
Gold Prices, 1 year, JainMatrix Investments

Fig 1 – Gold Prices, 1 year, JainMatrix Investments

  • The Gold Price has broken above 2900 after several attempts.
  • Over the last 10 years, the price path is an accelerating rise.
Gold Prices, 10 year, JainMatrix Investments

Fig 2 – Gold Prices, 10 year, JainMatrix Investments

  • Fundamental strength in Gold comes from worldwide demand by Consumers, Central Banks and investors. Supply will only increase 4% in 2012.
  • Reports claim that demand in India has fallen, and Indian gold imports in Q2 2012 plunged 56% to 131 tonnes (source World Gold Council). However, this is official data, and news reports on customs hauls indicate that of late unofficial import channels (smuggling) is up.
  • Part of the gold appreciation in India has been due to INR weakening against the USD. Its possible that the big INR slide of 2012 can be arrested if inflation and current account deficits are tamed over the next one-year.
  • Having said this, the economic/ debt troubles of USA and Europe are still at large. This strengthens the gold case.
  • Gold prices may rise sharply in the next 1-2 years, I feel. Then the global economy may truly start recovery, and there will be better avenues for cash, so price graphs may flatten or even fall.
  • You can read an article of mine – Gold as an Investment
  • My preferred investment mode is Gold ETFs. Selling is easier and cheaper.

Apple V/s Rest of World

  • Apple’s just won a case in the US courts over Samsung. The case was over copying of patented technologies, shape, size and user navigation aspects. Both Apple and Samsung accused each other of infringements.
  • Apple won, and was awarded over $1 billion in damages. More importantly, Samsung may be restricted in selling its products in some regions. Samsung is also a proxy for Google and its Android operating system. So the loss may have wider ramifications for other Android based producers of mobile phones. Of course, Samsung is appealing in the Supreme Court.
  • It’s an amazingly complex subject, IP and patents protection. But somewhere in these legal battles, common sense is being lost. How can a consumer design aspect be patented? It is only technologies that can be either open source or patented. So any unique new technology that Apple’s R&D has created – wireless, software code, application, sync tool, etc. should not be copied or built upon, competition has to redevelop in order to match features.
  • But a shape, color, design or navigation feature that is consumer and visible to all may be popular, and can become a standard and be copied. As long as Samsung sells the product by prominently branding it as Samsung, it cannot be mistaken as an Apple. In consumer products, the product developer only has the advantage of being first in the market, nothing more.
  • Lets see if better sense prevails, or Apple wins again and gobbles up the global mobile phone market :-)

Coal India and the Coal Monopoly

  • India’s rapid economic strides in recent times are attributed to the opening up of the economy and dismantling of the license and permit Raj. Conversely, the negative effects of this Raj, even today, are apparent in a sector not yet opened up, of Coal.
  • Ever since coal nationalization in 1973, Coal India has a monopoly over mining of coal. It also lords over India’s coal riches, and with estimated reserves of over 200 billion tons, India has the world’s third-largest reserves.
  • What have we actually got from this monopoly?
    • A 5% per annum growth in Coal production over the last decade. At a time when power demand is galloping at 10-12 %. The result is expensive Coal imports and stressed power production assets working below capacity. See graph 3.
    • Coalgate – an issue that is rocking Parliament as of now, as political parties blame each other for essentially the inefficiencies of Coal India.
Coal Production in India, JainMatrix Investments

Fig 3 – Coal Production in India, JainMatrix Investments

  • In today’s times, the monopoly of Coal India has outlived its usefulness. Coal mines and mining in India are no longer an issue of national importance to be protected by PSU ring fencing. In fact they are an inefficient and poor utiliser of these assets.
  • Private firms are quite capable of mining coal. Many have already been allotted mines.
  • Coal India needs to be broken up, perhaps like the breakup of the telegraph giant in USA AT&T into Baby Bells. This ushered in a telecom revolution in USA over decades after 1984.
  • The breakup of CIL should be followed by a lifting of monopoly, opening up to the private sector and a re-listing of the breakup Coal PSUs.
  • This will be easier as CIL is a holding company with seven coal producing subsidiaries and a mine planning and consultancy company.
  • Coal pricing should be based on open market and eAuctions mode. Let the real aspects like coal quality, logistics, demand and supply decide coal prices. Market forces will provide answers, and drive improvements.
  • A Coal sector regulator needs to be set up that oversees the CIL breakup, pricing deregulation, opening up to the private sector, R&D and technology improvements in the sector and environmental oversight.

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