Thought for the day
"It usually takes me more than three weeks to prepare
a good impromptu speech."
-
Mark Twain (American, 1835-1910)
Word for the day
Bafflegab (n)
Confusing
or generally unintelligible jargon.
(Source: Dictionary.com)
Malice towards none
Being Human!
Shivering at 41°C
The popular commentary may be seeking to associate the recent
fall in stocks prices with local issues like retroactive taxation of the past
income of certain foreign investors; prospects of a deficient monsoon;
legislative logjam; uninspiring corporate performance; etc.
Inarguably these factors are weighing on the investor's
sentiments. But focusing only on domestic issues may not be prudent from
investment strategy perspective.
There are some distinct signals emerging from global market
place indicating that global economy might just be preparing to hit a rough
patch. These signals must be sending creepy jitters down many spines.
The people who follow global trade as an indicator of the health
of global economy, the picture has become as gloomy as it was during 2008-09.
The global container freight rates have just plummeted in past
couple of months to much below the cost of ship operations. The US inventories
are piling up. Manufacturing data is worsening in China, EU, India and Japan.
Australia has cut the rates to lowest level ever.
The markets are clearly showing massive unwinding in short
commodities and long bond trade. The correction in equity prices seems to be
incidental only. This in my view is in preparation for the US Fed
"Lift" expected later this summer.
Chinese bulls are tired
As per recent Bloomberg
report - "For Chinese investors with a sense of history, the nation’s
world-beating equity rally is looking long overdue for a reversal.
The bull market turned 883 days old on Tuesday, topping China’s
previous record by 56 days, after a 119 percent surge in the Shanghai Composite
Index since December 2012. Even if the advance is measured from June 2013 --
when the gauge narrowly avoided a bear-market drop of 20 percent -- it’s still
the second longest since Chinese bourses opened for trading in 1990.
The rally’s age is concerning in a market notorious for how
quickly it can turn from boom to bust: the 194-day average lifespan of Shanghai
bull markets is the shortest among the world’s 10 biggest bourses and compares
with the 1,625-day mean for the Standard & Poor’s 500 Index since 1965. The
Chinese measure lost 4.1 percent on Tuesday as traders sold some of this year’s
top-performing shares.
“There’s no need to chase stocks at this level,” said Wei Wei,
an analyst at West China Securities Co. in Shanghai. “Lots of stocks are not
justified by current prices.”
This is happening despite Monetary stimulus, reform speculation
at state-owned companies, record margin trading, and largest ever retail
participation."
...as global economy struggles
Indian equities to continue struggling
As I suggested a few days ago (see here),
the Indian equities are currently undergoing a normal correction. In this
correction Nifty should find the rock between 7860-8096 range.
In this case the benchmark indices should move in a downward
sloping channel making a lower top - lower bottom formation over next six
months.
The large cap will materially outperform the mid and small cap
in this phase.
The probability of a full 20% correction that would end the
current bull market looks remote at this point in time. But may need some
allowance to be made, should Nifty closes below 7860 in next 10 trading
sessions.
Trivia
Received the following message form a dear friend and regular
reader:
"Was reading yesterday's ET - feedback from industry in
Modi's one year in Govt.
Didn't know whether to laugh or cry.
The major cribs:
1) We can't meet him
when we want to.
2) He doesn't let us
influence the appointment of ministers or bureaucracy.
3) He is not fixing
our problems.
4) He is no longer
pro-industry.
5) There is
concentration of power and decision making at the PMO
Imagine, the top industrialists of the country requiring to meet
the PM so that they can run their business and clean up their balance sheets!
Essentially they don't want the government to interfere as long
as things happen their way and want the government's help the moment things get
difficult."
That is why I say, the effort to bring Achhe Din for the country
on sustainable basis may be really painful for stock markets in the short term.
The sadistic relief is that this government continues to remain
market centric and may not do much to disturb it.
This is however only that - a sadistic relief.
Because we all know too well that by focusing too much on financial
markets by compromising on the necessary corrections (or reforms if you like)
in the real economy would inevitably bring down the stock and bond prices as we
approach the dénouement.
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