Saturday, March 15, 2008

Well It has been a long time since I last wrote on this blog. Since my last blog lot of events have happened. The raging bull market has suddenly seem to become inverted. The same analysts (One of the most dumb & useless post in market) who not long back were tomtoying the great Indian bull story and taking this index into 30000 in next two months are now talking of four figures on sensex. Ofcourse this is market and anything can happen but my point is that no one no matter how succesful he or she has been in this market is better or worse than any guy on the street in predicting the future, if it sounds surprising just believe it.

Well this fall in the index has made my job slightly easier, as I wrote in my last post about explaining the market bubble; well I don't have to do it now so basically saved of some gruelling work in preparing excel sheets.

Now what I think about the months ahead well even I am looking forward for the drama to unfold but one thing is clear and since I started writing this blog I have been shouting this--- Sack the Fed Committee. Look what has happened now and these morons still have the tenacity to say that the inflation expectations of the people are intact. Well in that case either these people are completely stupid, are in a state of self denial, or bigtime liars. Well all is still not lost and the situation can still be salvaged in my opinion by going for one of the three ways:

1. The Fed must stop cutting rates. I know the markets across the globe would tumble for a couple of days but they would recover. More importantly the bubble in commodity markets would burst. I am sure that as you have the seen some hostoric rises in oil and bullion prices similarly you would also see the biggest ever fall recorded to date in these prices. But I doubt the Fed would have the teeth for this. Ideally in my opinion this is the best option.

2. The EU and BOE must cut rates. Today the most preferred trade is go short on dollar and long on oil or gold. With ECB and BOE cutting rates the expectation of dollar weaking would reduce and this trade would fall apart. Ofcourse with more excess liquidity there is a likelihood of bubble reforming in Emerging markets and again in commodities. However as a temprory measure this option can be utilised. I must also add the position the ECB chairman is taking is too textbookish. Economics is not Physics. Everyone knows what Fed cutting interest rates would do to the dollar. So this commodity inflation will not aggravate because of ECB or BOE rate cuts as this inflation id because of a hedge against weak dollar. The key in economics is to be creative and not do things which are written in textbooks as everyone is well aware so such scenarios and hence these things get discounted in markets.

3. A coordinated effort by main Central Banks of the world US, UK, Europe and Japan is needed to strenghten the dollar. This would break the back of speculators in the forex and commodity markets.

Out of the 3 options discussed the third one seems to be the most likely, I hope its excersised soon enough before its too late. We are living in uncertain ( well life is always uncertain) and interesting times. Hope this time would write soon and let's see how things pan out.........

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