The following is a guest post by our own resident Mad Scientist, Dr. Saif K. Lalani.  The opinions and views are entirely his.

"This is in reference to my earlier post from May 11^th when IFN (India Fund) was at about $48

http://americanenergycrisis.blogspot.com/2008/05/straight-shooting-mad-scientis.html

I said

“Indian stock market will dive at least 20% from this point in absolute terms and at least 60% in Gold terms, i.e measured in ounces of gold, in 2 years. Infrastructure stocks will hold up better than other stocks. P/E compression will prove incredibly painful. Unless GDP can grow without increased oil consumption all of this is certain. Emerging markets may collectively limit how much foreign investor’s can sell in any given time frame as all the dumb “hot money” chasing “growth” simultaneously realize the oil GDP conundrum. “

Here is a chart.

Was that a lucky call? Probably in terms of timing. That said, it does not take a genius to figure out what happens when expectations of infinite growth in a finite world are not met.

(Disclosure: No positions at present time. Covered Shorts)

The Indian stock market is now incredibly oversold. The s

hort term trend is much more tricky to call at this point than it was about 2 months back. Oil is going to be the factor that decides where it goes in the short run. Seeing oil break out over $140 tells me that I would use any short term bounce to get the hell out of it if I am not already.

I would also like to refine my definition of emerging markets. Any country that is self-sufficient in their energy usage is going to be much better off than any country that is not. Considering India imports a significant portion of their oil, it would fall in the latter category. Russia and Brazil would obviously fall in the former.

BRIC outlook.

6 months back I was informed by my uncle that he knew of a fund that was going to exclusively invest in the BRIC countries. I told him that anyone investing in India and China would be bankrupt within a year. Both markets are now down an average of 45% since the beginning of the year. Many individual stocks and mutual funds have fared much worse. People have attributed this to fear of emerging markets.

Not true. If it is a fear of emerging markets than why this? (Disclosure: Small long position)

Investment themes need not be complex. Oil is going higher.

Oil exporters make money.

Oil self-sufficient countries do ok.

Oil importers lose money. Duhh"

Stock charts courtesy Stockcharts.com