Crude Oil At US$88/Barrel

Crude Oil is breaking all records and hence is a major cause of worry for nations dependent on their energy needs. Oil rich nations are making huge profits out of this run away rally in crude prices, therefore they will now have more free cash to deploy in stocks, commodities, real estate across the emerging economies, causing further asset inflation in already highly inflated assets in these economies.

Equities Took Rest While Commodities Shine

Last week saw emerging market Equities taking a breather after a steep rise from August month lows, while commodities like Gold and Crude Oil scaled new highs. It will be worthwhile that emerging market equities take some consolidation before they start upword march again, it seems stock markets want to see what the US federal reserve does on the interest rate front on October 30. This will be crucial factor in deciding ongoing sharp rally in emerging markets. Also with Japanese central bank deciding to hold rates at 0.5%, implying that deflation might re-surface in the absence of any solid economic growth on consistance basis, money from japanese investors will now look for growth which is happening outside their country, especially in India, China, Taiwan, HongKong, Russia. Having said that, emerging economies will be the key beneficiaries of this huge money flow.

RestLess Markets

For the past 4 years which saw unprecedented bull run in stocks and commodities, participants have become restless due to extremely hightened greed prevailing in their mind set as they try to outdo each other with a wide margin. This greed feeds irrational exhuberance among investors/traders and hence cause extreme inflation in assets and consumer articles. Coming times will no be different and hence stocks will continue to outperform any other asset class for a long time to come.

Gold And Silver Have Corrected Sharply

Precious commodities like Gold and Silver have corrected over the past few days as investors took profits from these commodities after a descent run in them. Crude oil is also facing selling pressure at higher levels. Copper and Zinc prices too face possibility of profit booking from their recent hefty run. Agri commodities too look strong especially Wheat and Maize from long term point of view. Stocks in Hong Kong market took a much needed correction yesterday as well as today. Volatility in stocks among emerging markets especially in Hong Kong, India, Taiwan is rising due to extremely sharp rise in valuations in a very short span of time.

Industrial Commodities

Industrial commodities like copper, zinc, nickel, lead, has been rising over the last few weeks as world GDP is growing handsomely at 4.8/9%. Emerging countries continue to grow over 7% and this is also helping bullish run in these commodities. Speculative hot money is also chasing returns in these commodities and stocks related to them. Crude oil is also on a secular bull run of it's own due to several reasons. As long as world runs on ever increasing greed to acquire more and more wealth and industrial growth, commodity bull run will remain intact.

Will He Or Won't He

I believe this time US federal reserve will not cut interest rates as turmoil in financial markets from US subprime mess has been contained well and all the stock markets are either re-claiming their old heighs or making new heighs. If he does cut the rates then it will pump more dollars into the riskier assets like stocks and commodities, with more weakness in dollar. This will further create inflation among already hyper inflated riskier assets and make them more vulnerable to sudden shocks resulting in huge instability in the credit and financial markets. Thus for the sake of overall health of financial markets, US fed must not cut rates this time around, we already have enough of cheap money roaming around.

Inflated Equities

Falling dollar is inflating riskier assets like stocks and commodities. Emerging market stocks especially in china, India, Taiwan, Singapore are amid tremendous upward momentum due to huge flow of dollars from dollar investors and this has created extremely expensive equity valuations in some of these markets, especially in India and China. Crude oil too is continously trading above US$80/Barrel and stock markets are ignoring this important commodity price completely. History is evident that whenever crude oil has skaled a new peak, equity too has formed new high! As long as financial markets expect US federal reserve to cut interest rates, equity valuations will continue to be very expensive.

Gold And Crude Oil

After subprime mortgage mess happened in the US, gold is seing consistent buying and is ruling around all time highs of U.S.$736.
Crude oil is also creating new records with trading above U.S.$80 per barrel for the past few trading sessions. Both these commodities are expected to do well in the medium term as in case of gold, investors are seeing it as alternative investment avenue along with riskier stocks, and for crude oil, depleting oil stocks and continous demand from a growing world GDP and with winter approaching in the northern hemi-sphere crude oil will remain warm.

Falling Dollar Is Creating Asset Inflation

After US Fed had cut interest rates by 50 basis points, dollar has been falling steadly against major currencies. This will further lead to rise in other assets like commodities, stocks. Again for the past few trading sessions, gold, copper, zinc, lead, agri commodities and crude oil are rising and are at their all time highs. Stocks across the globe are rallying for the past few days. Dollar investors are pulling their money and pouring it into these assets. This is creating inflation in stocks, commodities and thus central bankers job is now much more difficult to manage inflation. This hightened levels of asset inflation does not agour well for growth and interest rates. Investors have a tough time managing their portfolio as volatility will rise along with hightened greed of market participants.

Wheat, Maize And Crude Oil Prices

Price of commodities like Wheat, Maize And Crude Oil is rising continously for the past few months and they are creating new records. From inflation point of view, it's a cause of concern for monetary policy makers as they have to strike a balance between growth and inflation. Already financial markets are facing a fall out from slower growth expectation in the US, Japan, and Europe.
Asian countires like china are raising interest rates in order to contain a rapidly growing economy and India is also far away from softer monetary policy. Volatile times ahead for stock markets as they have to face lot of uncertainty ranging from elections next year in the US to slower world GDP growth to rising crude oil and food prices to rising fears over a possible attack on Iran and also tighter credit markets across developed nations and narrowing interest rate spread between developed countries and Asian tigers.
Happy Investing.

Agri Commodities

Agri commodity like wheat is breaking all price records due to fall in the crop production around the world because of bad weather and global warming. This has sent price of this very important commodity to inflated levels and hence is a cause of concern.

In the years to come, prices of agri commodities will continue to remain firm as global warming will take a toll on crop production along with growing demand due to ever growing population.

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.

Asian Markets Are Taking A Breather Today

Today all Asian markets except China, are taking breather after moving up for the last couple of days. It seems investors and traders are back again in buying riskier assets like emerging market stocks, currencies and bonds. Crude oil is also trading below U.S.$70 per barrel mark and is a welcome sign. Yen seems to be stabalising around 116 mark against the U.S.Dollar. Agri commodities are however, ruling strong due to inevitable reason that population is growing and due to global warming, floods and other natural peril's will keep demand far more than the actual supply of these farm outputs.

Japanese Central Bank Keeps Rates Unchanged

Today japanese central bank kept the interest rate unchanged at 0.5%. That's good news from yen carry trade perspective. Yen is trading at 116.27 against the U.S.Dollar and thus fear of dollar falling further against the yen is well contained at the moment. Equities are consolidating across the world after sharp sell off, commodities like copper, alumunium, lead, nickel, zinc, crude oil are also cooling. This is good news from inflation perspective but also raises the concerns about slowing economic growth in the developed world.

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.

Markets Are Down Again

Dow Jones fell again by 200 points yesterday and asian markets are follwing the downward trend early this morning.
Yen is trading at 117.20 against the U.S.dollar as of now, this is also a cause of concern as this will further increase the yen carry trade unwinding by levearaged players and insitutions and hence pulling out of funds from riskier assets like stocks and commodities.
Volatility is back again in the markets and is a cause of concern for those who are planning to invest. Investors hate huge uncertainity surrounding the markets and thus postpone their buying decision and prefer to park their money in safe assets like U.S.dollar and Goverment securities thus making stock markets deprieve of much required funds.
Unless and untill this nervousness fades away, investors will not be in a rush to buy riskier assets like stocks.

Look Credit Score Before Giving Credit

Sub-Prime Mortgage mahem in the U.S. has taught one very important lesson for lenders across the globe that a lender must check the applicants credit score before sanctioning the loan.
Markets across the globe are tanking for the past few days as investors/traders are now very much concerned about health of the credit system in major economies in the developed world and hence taking a very cautious and selective approach towards financial markets.
In 2004, 2005 stock markets crashed by fears that chinese economy will slow down and that lead to sell off in both commodities and stocks.
Now in 2007, Financial stocks are causing the sell-off.
One is left with guessing what's next.

Problem Of Plenty

For the past two and a half decades, U.S. federal reserve has done nothing but to print more and more dollars and that has created the problem of too much money chasing few asset classes and hence bubble like situation in each and every asset.
Asian countries are holding U.S.treasuries worth trillion of dollars just to finance U.S. consumer's shopping list and keep their growth going.
This never ending credit cycle has turned financial markets across the globe at very risk of un-sustainable inflated levels. After all where does that huge sum of money goes other than stocks, bonds, real estate, currency, they have to park it somewhere. And thats the problem for these markets.

Mutual Funds

I have always believed Mutual Funds are the best way to approach Financial Markets. Mutual Funds offers diversification, expert approach, cost optimization, spreading of risk etc.
One can invest in stocks, commodities, real estate, bonds etc through Mutual Funds.
They are the best suited in a volatile market like stock markets.
One should examine the past performance of a Mutual Fund scheme before making a investment decision, it gives a fair idea about its consistancy in past performances, dividend pay-outs, performance in bad market conditions etc.
More about mutual funds on my next post.

Currency And Stocks

We have come a long way seeing how Commodities and Political events can influence the stock prices, but i believe contraction and expansion in the value of Dollar can play havoc in the stock markets as can be seen in present correction in stocks across the world. So it will be very prudent to have always a close eye on the movements of important currencies.