Weekend Musings

Dear Readers,

I am here after a long time and now is the time to be regular, regular after a hard and testing three and a half month time. During this period I used to think so many things about economy, markets and public (read masses) sentiment and I thought when I am free from this work on hand, I'd miss a lot of things in the course. I did miss many things but looking in retrospective, there are hardly any big changes out there. Things turned out as they should have.

I shouted here once that there is NO BOTTOM in sight yet and I did give a good reasoning behind that. I believed both the US Markets as well as the Emerging Markets to remain in downtrend and the contemporary optimism is only a manifestation of continuation of prior trend, which is bearish.

Manifestation? why? Well, the simplest gauge to guess market direction is mass sentiment. Whenever masses are exuberant it is a sign of TOP and whenever masses are gloomy is a sign of recovery. Masses were over exuberant in the end of 2008 and markets reversed direction. Masses need to be all gloomy if this downtrend has to come to an end (bottom) and so far there are still so many hopeful souls that anyone who says (so many have so many times said) its a bottom is under an effect of some strong intoxicating agent. People still hope. People still believe that govt or some Messiah will turn things around. People en mass, aren't good in economics, but, even if we take a survey of elite economists, many would bet its a bottom and this makes case as strong as titanium for continuation of bear market. If you turn history pages you will find this is a perfect example of start of a depression - perpetual hope.

I will turn bullish on stocks when I see people around me, the media and most economics say things like "stocks are bad things, economy can't recover, stocks at 5 PE are so expensive etc etc." Unless masses are depressed there can't be a bottom in sight.

In My Humble Opinion, Obama, the God of Big Things, will be most unlucky presidents ever happened on the soil of US of A. Its not that he didn't have a chance. The fact is he has kicked this opportunity to revive world economy by continuing the mistakes of Bush & Co. and he will repent in 2012 if he continues with what he is doing today. I repeat for the sake of recalling my view that the only solution to this crisis can be "Let the mistakes of Irrational Exuberance Era Correct by Itself". If the mistakes of that era are let alone, we would definitely have a shock across the globe, but sooner we would ride a new sustainable recovery and growth and better sense of economics. BUT, these politicians have decided to keep playing their games.

I warned my dear readers when Indian Markets were going Gung Ho after govt announced a number of measures to stimulate growth. I doubted the interest rate cuts, I doubted the fiscal stimulus plan of spending huge sums of money on infrastructure projects. Today, the rating agencies are nodding with my view. Where were they then? sleeping? or partying on the announcement? Indian govt can't afford big fiscal or monetary stimulus as its currency is not the reserve currency of the world. And, at a time when questions are being raised even over the US govt's stimulus plan, whose currency is the reserve currency of today's world economy, the act by our Harvard graduate erstwhile finance minister causes doubt in my mind - what do they teach in Harvard? Then, all of a sudden I get the answer - they may be teaching good things but its the politics that is forcing our own Harvard graduate FM to act like this. He has only few days remaining in power and he has pressure from his party, his coalition and then MASSES. He needs to show that he "did act" in time.

Let me come to the markets. The Indian S&P CNX Nifty is in fresh downtrend after a bearish rising pattern which I warned about in my last analysis. Same is the case for S&P 500 of US. In my next post I will put my analysis with more insight.