The signs are ominous. Housing collapse goes unabated. Credit cruch continues to plague the market. Stifling regulation and reform is in process. This is going to cause major upheaval in the financial sector, causing the derivatives time bomb to explode.
Let me try to explain some of the major factors that are impacting the market in a big, big way. There is no quick solution and turnaround to this problem:
- Bond reinsurers (MBIA, AMBAC) were downgraded last week. This will cause further writedowns in financial stocks (citi, fifth third,etc). Over the next few months, several banks might be forced to close down.
- Retailing has begun to slide and this quarterly earnings will start showing the cracks. Surprising, today JC Penny was upgraded today by Deutsche bank..THIS IS JUST A SHAM TO DUPE POOR SAP RETAIL INVESTORS!!
- Emerging markets are sliding. Technically, India is extremely vulnerable. If you are an investor in India, be mentally prepared to lose another 10% in one day! I can see a 1000-point drop in one day coming in the next few weeks. Chiddu will shut down the exchange and RBI will intervene in earnest. Yet, it won't help. Inflation is out of control, the government is in chaos, RBI is sabre-rattling about raising repo rate...the situation is ripe for a stock market (or a Rupee devaluation) in India. Don't get caught in this mob frenzy.
- US planning to attack Iran..Israel causing problems with Lebanon. The global political situation is getting tense, causing oil to remain at elevated levels; which in turn, will aggrevate the stock market problems.
- US city, state and federal organizations are in dire straits. Do not overestimate their abilities in intervening and protecting the small retail investor.
Protect your own wealth. Don't try to wander on the beach when is tsunami is headed your way. Even if the stock market doesnt crash, it is highly, highly unlikely that you will get returns higher than a bank CD. So why take all this risk for no reason?
The fall in the market can be directly attributed to tight monetary conditions. There are three entities that spend - consumers, corporations and government. Right now, all three entities are clamping down on spending. High repo rates are clamping down on consumer spending on discretionary items (real estate, autos, etc) and spending more on essentials (food, oil, EMI payments, etc). Corporations are clamping down (slowing FDI flows, high oil prices, salaries) because borrowing costs have increased dramatically and equity markets are stalling. Government is clamping down on spending because it could trigger a balance-of-payment crisis. All in all, there doesnt seem to be a ray of hope - other than unalloyed speculation from a naive investor.
Real estate stocks are the canary in the coal mine. Look at Indiabulls Real Estate Index and you will see where the market is headed in the not-too-distant future!
Let me try to explain some of the major factors that are impacting the market in a big, big way. There is no quick solution and turnaround to this problem:
- Bond reinsurers (MBIA, AMBAC) were downgraded last week. This will cause further writedowns in financial stocks (citi, fifth third,etc). Over the next few months, several banks might be forced to close down.
- Retailing has begun to slide and this quarterly earnings will start showing the cracks. Surprising, today JC Penny was upgraded today by Deutsche bank..THIS IS JUST A SHAM TO DUPE POOR SAP RETAIL INVESTORS!!
- Emerging markets are sliding. Technically, India is extremely vulnerable. If you are an investor in India, be mentally prepared to lose another 10% in one day! I can see a 1000-point drop in one day coming in the next few weeks. Chiddu will shut down the exchange and RBI will intervene in earnest. Yet, it won't help. Inflation is out of control, the government is in chaos, RBI is sabre-rattling about raising repo rate...the situation is ripe for a stock market (or a Rupee devaluation) in India. Don't get caught in this mob frenzy.
- US planning to attack Iran..Israel causing problems with Lebanon. The global political situation is getting tense, causing oil to remain at elevated levels; which in turn, will aggrevate the stock market problems.
- US city, state and federal organizations are in dire straits. Do not overestimate their abilities in intervening and protecting the small retail investor.
Protect your own wealth. Don't try to wander on the beach when is tsunami is headed your way. Even if the stock market doesnt crash, it is highly, highly unlikely that you will get returns higher than a bank CD. So why take all this risk for no reason?
The fall in the market can be directly attributed to tight monetary conditions. There are three entities that spend - consumers, corporations and government. Right now, all three entities are clamping down on spending. High repo rates are clamping down on consumer spending on discretionary items (real estate, autos, etc) and spending more on essentials (food, oil, EMI payments, etc). Corporations are clamping down (slowing FDI flows, high oil prices, salaries) because borrowing costs have increased dramatically and equity markets are stalling. Government is clamping down on spending because it could trigger a balance-of-payment crisis. All in all, there doesnt seem to be a ray of hope - other than unalloyed speculation from a naive investor.
Real estate stocks are the canary in the coal mine. Look at Indiabulls Real Estate Index and you will see where the market is headed in the not-too-distant future!
