Archives of what I wrote in The Economic Revolution - 7th March and 14th March 2009

14th March 2009

US markets are in the midst of a strong bear rally. This rally has two major underpinnings – 1…. Up-tick rule is likely to be re-instated next month 2… major changes are expected in mark to market rules applicable to banks and financial institutions.

This has resulted in massive short covering – thus the sharp rally. Both these measures were contemplated in October 2008 and later dropped. Obama administration has revived this ‘ BRAHMASTRA’ as nothing else seems to be working.

Revival of Up-tick rule is a technical matter and it is intended to moderate ‘bear raids’ but the changes in mark to market rules have dangerous fundamental implications. It is akin to overlooking patient's internal hemorrhage. If not treated / arrested immediately, this will kill the patient when the blood starts oozing from some hole. It is like taking a chance that, given the time, the rupture will self heal. But all of us no efficacy of such ‘wishful thinking’.

Back home we have replicated the rally with a bit of lag and that indicates markets reluctance to make a meaningful up-move. Macro-economic problems are overwhelming and political scenario is getting murkier by the day.

I will not recommend any serious investment in the coming 4/6 weeks till all political alignments and its implications become clear. We have a hope if Congress / BJP led government is in place but the case is lost if we have to face a third front experiment.

Please remember CAPITAL is always scarce no matter what you are and we must learn to respect it. That means you must learn to preserve it at all costs.


7th March 2009

Our market is in a hole and the hole is getting deeper. RBI announced a Repo and a Reverse Repo rate cut mid-week but market in-fact slid further on the following day. This clearly implies that the bulls are on the back-foot and market is firmly controlled by the bears. We have a reason to believe that whatever small rallies that are happening are engineered by the bears just to get better levels to sell.

US markets are in deep trouble with all three indices at more than a decade old lows and still falling. President Obama has lost popularity and the republicans are complaining that he is taking left of the centre stance on economic issues. Instead of leading the economic think tank, he is getting guided by them.

The US problems are persisting while the whole of eastern Europe funded by West European banks is on the verge of bankruptcy – threatening to pull down most of the European banking system.

The macro problems faced by our economy are also so huge that there is no quick-fix solution and we should be reconciled to have weak to moderate growth in the coming 6 / 8 quarters – irrespective of the form of the government the April / May elections may throw-up.

Please remember CAPITAL is always scarce no matter what you are and we must learn to respect it. That means you must learn to preserve it at all costs.