Archives of what I wrote in The Economic Revolution - 21st and 28th March 2009

28th March 2009

Obama is putting all his might and he is doing it in rapid steps. On last Monday, he further announced one trillion dollar public / private partnership programme to buy toxic assets from banks / financial institutions. The steps taken by him so far are such that he dare not go to congress for any additional funds. So this time the gun is on the shoulders of FED and FDIC as well as 350 billion dollars from earlier congress approved TARP funds.

His 8,000 dollars tax rebate for new house buyers seem to be working as February sales figures were a tad better than expected. Mondays announcement + better housing figures + further short covering gave more than 10/12 % boost to DOW in first four trading days followed by a small profit booking on Friday.

According to me the coming week will be a make or break week for this rally as well as further course of this 17 month old bear market. So I am going to watch with lot of interest.

Back home the US rally was replicated one to one and for the time being market seems to feel that the worst is over and this is the beginning of atleast a medium term bull run. Politics is not giving good signals at all and making may bear spreads – which are still cheap - will be the order of the day.

My monthly levels will be out on 1st April which should give a better clue to what the next two months hold out for the markets. They have rarely failed to gauge the mood.

I will recommend profit booking on any trading / investment positions that you may have. It is too late for a fresh long entry.

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.


21st March 2009

Obama fired one more salvo on Wednesday – 1.3 trillion dollar liquidity infusion by way of FED buyback of mortgage based securities issued by Freddy Mac and Fannie May – both govt-owned reinsurers as well as other gilts / govt bonds . This resulted in surge in govt bond prices - weakening of US Dollar and corresponding huge spike in all commodities.

US equity markets also surged on the day of the announcement but retreated on the two following days on the back of the fear of inflation. Meanwhile certain quarters in US congress and the corporate auditors are resenting the changes mooted to mark-to-market rules existing now. The developments on this MTM front need to be watched carefully as the fate of the entire bear rally witnessed so far is hanging on this one thread.

Back home, we are now staring at ‘deflation’ as WPI will soon move in negative territory. This is worrying some economists since deflation normally reduces borrower’e repayment capacity further. Unfortunately, no further stimulus by way of increased government spending can be envisaged as we are now in election mode and ‘code of conduct’ is in place. I must reiterate that our 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.