No Delhi Belly…Yet

by Dan Denning

Mumbai, India I’m checking in this week from Bombay. Last week was research week in Tokyo. I’d meant to go to the fish market, and back to Shibuya, and maybe to the Sony store. Instead, I spent the week looking at capital investment figures for Japanese small and mid-cap firms. The government came out with a raft of revised first quarter GDP numbers. The bond market looks to have topped out. And the recovery story is gaining traction.

I don’t buy it, even though it was a story I was fully prepared to believe when I went to Japan. Japan is still a country built on an export mentality. Domestic demand (household spending) WAS up in the first quarter. But a long-term, strategic view of the population tells me that robust domestic demand isn’t sustainable.

Japan is old and getting older…

Throw in the little to no immigration, a high savings rate, and the emergence of China, and I think you get the picture of a Japan content to export capital goods and high-tech finished goods to the rest of the world at a surplus, while it continues to move down the road to a gray future.

This is exactly the case I made in my CNBC interview. And while I think the falling bond market in Japan may give stocks an added boost through the calendar year, I’m not fundamentally convinced there really is an investable recovery in Japan.

One or two quarters are hardly a long-term trend. And when the animal spirits of capitalism are dulled and dimmed by one of the most monotonous and relentless bear markets in history, they aren’t likely to recover simply because business investment was up in one quarter.

In any event, more on Japan’s ‘recovery’ later this week…

Bombay meanwhile is rainy, colourful, pungent, and humid. Spent today finalising my appointments for the rest of the week. India is styling itself the China of the next five years, an emerging giant that’s just beginning to hit its investment stride.

As you may know, it’s also just elected a new government. The government is led by a reformer who was the architect of many of India’s financial reforms that led to the current prosperity. But the partners in his ruling coalition are also looking to roll back plans to privatise the economy. And India, like China, faces an enormous rural agrarian population that’s failed to enjoy the benefits of the country’s recent prosperity.

In other words, now is a pretty good time to be on the ground in India to find out just where things stand. Is it the next China? Is it even better?

Do the facts support the investment hype?

I’ll find out. I’m meeting bankers, brokers, central bankers, stock market directors, private equity investors, and economists. And just to keep it all real, I’ll be meeting up with some Daily Reckoning and Strategic readers, too.

My first impression, after driving in the hour from the airport to the Taj Mahal hotel here on the water, is that India, like China, will probably see a huge boom in fixed capital investment. Its comparative advantage in low-cost service jobs is well documented. But like any emerging market, it needs more physical infrastructure, not least to support such a large population. I’m talking about roads, water treatment plant, and rural electrification.

In the meantime, the driving conditions are a free for all. The roads are filled with black and yellow cabs that look like miniature versions of old Nascar hot rods. In fact, the roads even feel like a giant racetrack. It wasn’t surprising to learn that India accounts for one-tenth of global traffic fatalities. I’m buckling up.

So far so good on the food front…

I had a nice chicken dish with some colorful sauces for lunch, although I couldn’t pronounce what it was. I admit to being a barbarian when it comes to food. But my rebellious stomach has been mostly cooperative on the trip, so I decided to push it a little and up the spice factor. In the short term, the lunch was good. In the longer term, the heartburn was worse.

It’s been raining fairly steadily out. And as James Boric and I found out, one of the disadvantages of being a big tall white guy is that you stand our like a sore thumb in some places (Tokyo for example, and here.) It’s hard to step outside the hotel without getting a dozen instant offers for food, balloons, or salvation.

Combine the humid drizzle and the human onslaught and we’ve been diligently preparing for our busy schedule this week. But don’t worry, I’ve scoped out the nightlife scene here. Bombay is the nightlife capital of the country, and I’m looking to get some Bollywood stars to autograph an old issue of the Daily Reckoning for Bill Bonner.

The game might be up for India out-sourcing stocks

For now, I’m off to read up a little more on what the Indians think of outsourcing. I’m beginning to think a top is in for offshoring/outsourcing stocks. The public interest is reaching a tipping point…which might mean there’s a full year of headlines and stock stories on the way.

An item in one of the local papers reported that Catholic priests are even out-sourcing memorial masses and services to India. Do you have a loved one you want to have a mass said for in Des Moines? Could be your local priest is dialing up Delhi to have it said there.

God does indeed work in mysterious ways…

The Daily Reckoning