"I have now disposed of
all my property to my family. There is one thing more I wish I could give them,
and that is the Christian religion."
— Patrick Henry (American,
1736-1799)
Word for the day
Prepossessing (adj)
That impresses favorably;
engaging or attractive, E.g., a confident and prepossessing young man.
(Source: Dictionary.com)
Malice towards none
How many politician in the
country feel that they would be better off doing something else to serve the
large cause of public service, rather than playing a mudslinging match every
day?
First random thought this morning
Every market cycle breaks a few myths. For example, the last
market cycle broke the myth that emergence of Emerging Market threatens the supremacy
of USA; BRICs are a formidable force; India could decouple from global economy
and keep growing sustainably at 8% plus rate; printing excess money leads to
hyper inflation etc.
The current market cycle is breaking the myth that cheap oil could
only be good for the global economy, especially importing economies like India
and Japan, large reserve accumulation is a guarantee to economic and financial
stability, peripheral Europe matters in the global economy (remember Grexit and
PIGS).
But one myth that you can multiply your money in no time by
investing in equities is however never broken! Bull Markets are dead. Long Live
Bull Markets!
Time to be greedy coming soon!
The global markets have once again proved the Newton's law of
gravity. All asset prices that were trying to defy gravity, without having
necessary escape velocity, are crashing back to the their respective ground
positions.
Now since the asset prices are rushing south at a reckless pace,
trampling the traders and investors coming in their way, the questions to
ponder are:
(a) When would the asset
prices hit the rock;
(b) Whether the rock will
be soft or a hard one; meaning whether the prices will jump higher immediately
after hitting the rock or they will get stuck there at the bottom, till the
next high tide comes to their rescue;
(c) Which assets are
flexible enough not to get damaged by hitting the rock and bounce back faster.
History could be a good guide in analyzing these points and
finding appropriate answers. However, 2008-2009 may not be a good reference
point in this context, in my view. Because I believe that the current market
cycle is nothing but a continuation of 2008-09 crisis.
The crisis began to hurt global asset prices from early 2008 as
the economic growth, fueled by a decade of exceptionally loose credit, started
to fizzle out and financial leverage became unsustainable.
However, the process of adjustment and correction was interrupted
by innovative and audacious monetary policies of large central bankers.
Surprised and enthused by the "whatever it takes" approach of central
bankers, traders and investors made large bets on a faster economic revival.
Consequently, many asset prices in fact scaled higher peaks than seen during
the bull market of 2005-2007.
However, as it turned out that the comfort was false. The central
bankers did manage to restore stability in the financial system; but the
economic recovery remained feeble and unbalanced. The side effects of
super-easy money are reflected in strengthening of deflationary forces,
deterioration in sovereign fiscal conditions, and rise in corporate debt to
beyond pre-crisis level.
Consequently, the asset prices are now rationalizing to factor in
the prospects of even slower economic recovery and rise in global imbalances.
The process is expected to be protracted and painful. Nothing will
be achieved in a year or two.
The good news, in my view, is that India may decouple once again.
As one of the worst sufferers of unfavorable terms of trade, India could be a
major gainer as the global imbalances get adjusted to more fair terms of trade.
The corporate results so far are encouraging. The companies have
in particular worked well in the areas of cost efficiencies. Raw material
advantage has also started to reflect in P&L. The ongoing correction will
also bring valuations closer to the "line of reasonability".
Therefore, I am not inclined to believe that Sensex might correct
to the extent it did in 2008-09. I feel 5% here or there, we are mostly done;
though a larger but unsustainable slide in sympathy with global sell off is not
entirely ruled out.
I am also not expecting a sharp bounce back like 2009-10, because we are
nowhere close to the line of distressed valuations as we were in March 2009.
No comments:
Post a Comment