The rise in stock markets world over must be baffling the
investors as well analysts alike. At this time - when the world is staring at a
high probability of deepest ever recession in global growth, disproportionate demand
destruction; severe financial stress for households, prolonged disruption in
global trade; colossal debt defaults; unsustainable monetary expansion; and
total collapse in consumer sentiments - rise in prices of high risk asset like
equity is definitely perplexing. It is however neither unprecedented nor
surprising to me.
During July 2007 to December 2007, Nifty had recorded its
highest ever levels, despite the sword of sub-prime collapse hanging on its
head.
What we are witnessing is a similar phenomenon, commonly known
as distribution pattern in technical analysis parlance.
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As an investor, I need to persistently remind myself the following and many other similar things:
- Many tenants are refusing (are unable) to pay rent worldwide
- Many employers have either refused to pay salaries or cut the payout materially.
- Farmers have been unable to harvest their crop.
- Borrowers are refusing (are unable) to pay EMIs and interest.
- Trade creditors are refusing (are unable) to settle their accounts.
- Temples are closed and Deities are refusing to meet devotees.
- 2008-09 Global financial Crisis was mostly about liquidity. This time it is equally about both liquidity and solvency.
What else I need to remind myself is that the seed of next big
bull market will be laid during this autumn of the market only. Like every time
before, the next bull market will be much bigger than the previous one. We
shall see a large bubble building in the market that will change many things in
the real economy as well.
Tomorrow, I shall share some of my random thoughts on what could
possibly drive the next bull market in equities.
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