Cheap Speculation In Indian Stocks

There is huge low/cheap level speculation happening in the Indian stock markets where some stocks are up 35% in single trading session upon some rumours! This is a red flag for serious market participants as large number of stocks are witnessing excessive specualtion and extremely sharp price movements without any solid business fundamentals. Time now for extreme caution as market is ignoring any possible trouble signs and taking a break for couple of weeks from markets will prove healthy.

Asian Stocks Close To Their Old Highs

Asian stock markets are close to re-claiming their heighs they have made prior to stock meltdown due to subprime mortgage mess in the U.S. This shows their resilience towards global shocks because unlike previous shocks like in the late ninetees when Asian financial crisis hit them very hard, this time around they have plenty of foreign exchange reserves with solid backing of a growing economy.

U.S. markets too are stabilising with european markets too following the suit. As mentioned earlier in the blog during the crash that smart money was busy buying strongest businesses in panic moments, their strategy paid off very well this time too.

Real Estate

Almost every asset class has seen sharp correction over the past few weeks, be it stocks, commodities, currency like the dollar, even Art has seen some softening in resale prices, but real estate prices have so far remained over heated in most commercial parts of the world. Even residential property rates in the emerging markets like India, China, Taiwan are over heated. Continued over heated prices is a cause of concern for business as well as genuine home seekers.
Huge money flows have gone into real estate segment, be it PE funds, massive loans from financial institutions and banks to builders and home buyers, black money has also flown with great intensity in to this area. Rentals are also ruling high making the business operations and other commercial activity less profitable or even viable to run. This has caused inflationary pressures in the final product prices. This real estate segment has to undergo a major price correction in order to restore affordability and investment viable proposition.

Markets Fall Again

Markets have now again started showing signs of weakness with Dow Jones falling 280 points in yesterdays trading session with renewed fears of sub-prime mortgage defaults and bankruptcy among large hedge funds and financial institutions, also aiding the fall is low consumer confidence among U.S.consumers.
Asian stocks are also trading lower on the back of weak signals from U.S. markets. U.S.Fed now has to take several rate cuts this year so as to restore market and consumer confidence.
It seems worst hasn't come out from U.S.sub-prime mortage mess. And till then stocks will be hugely volatile. This credit crack can have potentially a drag on world economic growth which so far has been very good.
Uncertainty will prevail till then in the financial markets.
Buying in sharp falls in sectors and stocks with the strongest of business fundamentals will pay eventually. Yen is gaining strength against the dollar and is trading at 114 against it, it seems the yen carry trade un-winding is still underway and thus causing volatility in the financial system.

Bonds are rallying

U.S. bonds for the past two weeks are rallying due to carnage in the stocks, as investors/traders flock to safer money avenues in these highly uncertain and volatile times in order to protect their capital from any sharp drop in stocks.

They are not bothered at the moment about low returns from bonds but rather concerned about capital erosion from risky assets like stocks. They are right in their approach as sometimes remaining in cash can give excellent buying opportunities in blue chip stocks in case they fall sharply because of some external reasons not related to their business performance.

Gold Is Stable Amid This Stock Carnage

There is a old saying that in troubled times rely on Gold, well, that's seems to be the choice investors are choosing amid sell off's in stocks across the world. Gold is trading stable at U.S.$660 per ounce and so far escaped the carnage from stocks melt down. This precious commodity will continue to out-perform stocks in the short term as investors will consider it as a safe investment bet in these nervous and volatile times. As their is a serious erosion in the risk appetite of investors/traders, safer investment avenues like Gold and currency like Dollar will find favour. For the few weeks, stocks will bear the brunt of this yen carry trade un-winding currently under way. However, some very selective buying can be made in extremely resilient business fundamentals, but in very small quantities.It's however an individual choice and decision.

Yen Carry Trade Unwinding

For two days running, stocks across the world are bearing the brunt of a credit crack that first started in U.S. sub-prime market and now has spread to other credit instruments. This collateral damage has prompted hedge funds, PE funds, large financial institutions to pay back the capital that they have borrowed from Japan very cheaply. With the losses mounting on their mortgage books, they will now have to withdraw from risky assets like stocks and return the borrowed money and this is causing Yen to strenghten against the Dollar, now trading at 114.32 after touching a high of 113.55 against the Dollar. Serious downward stock price adjustments had happened in the last few days, dow jones has re-traced all the gains it had made during this fiscal year and all other emerging markets are also follwoing the suit. For the first time in the last four years, serious credit squeeze is happening and this is not good for assets like stocks. Only selective buying can be made in stocks which are having the strongest of fundamentals and business momentum. Commodities are also correcting and this is good news for commodity user industry and hence to some extent for Inflation.

Business And Inflation

I don't know how many people know about this that Businesses love Inflation for the reasons i believe are root cause for their profit growth.
We all know that biggest borrowers are Goverments and Big/Medium Businesses and they suck out very large portion of available credit (and that too very cheaply)in the market, leaving small players to borrow at hight Interest Rates.
Well they say:- Money is sufficient but there are very few things to buy!
Businesses can create artificial demand-supply situation(sometimes it's geniune), raise their product prices citing inflation as reason even though they are not facing input cost pressures, thus earn huge profit with similar sales growth.
And these same businesses also run banks and financial institution which give credit at high interest rates to small entities, thus further making credit costly. Cost of money is the Inflation in the hands of the borrower, more it is more it hurts.