EveryBody Wants To Be Rich

Every investor/trader in stock markets want to be richer than his/her closest rival. That intense greed to outdo each other in this intense battle often lead to irrational exhuberance in the assets that they are struggling for and hence can take their valuations beyond imaginations, and that too within a very short span of time. As long as this intense greed keeps on rising with every passing moment, stocks will continue to remain expensive and volatile as compared to other assets. There has to be some corrective phase in order to restore sanity in the average investor/trader's mind. Who knows what can cause that corrective phase, but when it happens, it will be very painful for all the market participants.

Yen Is Weakning Against The US Dollar

Yen is trading at 117.20 against the US dollar after showing considerable strength in the month of August when subprime mortgage mess unfolded in the US and yen carry trade unwinding started. It seems at around 113 levels, lot of carry trade happened as japanese central bank doesn't increased it's benchmark interest rate and japanese as well as oversees investors/hedge funds/PE funds still wanting to have a pie of cheap funds available in yen currency, have them invested in riskier yet high yield assets of emerging economies lke India, China, HongKong, Taiwan, Russia. This is causing tremendous price rises in these assets and thus is a cause of concern in the short term.

Blow Out Phase In Emerging Equity Markets

Money flows from developed nations like US, UK, Europe is getting invested in fast growing economies like India, China, Taiwan, Singapore, HongKoong, Phillipines, Russia. This flow is very strong and there is almost herd mentality among them to enter these markets in a rush. This is causing extreme inflation in assets of these economies, notably in stocks. This money also is very reluctant to react to any adverse news and under such circumstances, making money at heightened valuations is an extremely challenging task for traders. Best to remain invested in excellent quality companies with excellent free cash flows and strongest of business fundamentals coupled with strong economic link.

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.

Volatility In Emerging Markets

Last week emerging stock markets saw volatile trading sessions with stocks of Hong Kong, Taiwan, India moving violently amid alternate bouts of buying and selling clearly signalling nervousness among investor/trader class at hightened levels. Also aiding the volatility is the fact that markets still are confused about the extent to which US fed might cut the rates or will he refrain from any rate cut this time around, and markets have discounted 0.5% rate cut by fed already in much advance. Any rate cut dissapointment might cause temporary selling in emerging markets.

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.

Dow Jones Erupts Again

Dow Jones staged a remarkable 200 point rally yesterday with a strong belief that US fed will again cut the interest rates by 50 basis points in October. Dollar also got support from stock rally. Crude oil also cools down a bit but still hovering around US$80/Barrel. US economy is still not out of deep problems and hence dollar investors are rushing to buy into riskier assets of emerging markets like India, Taiwan, Singapore, HongKong, driving valuations of assets(stocks) in these markets to absurd levels. Well so far so good, if US fed listens to market participants and don't follow economics rationale, then we may be heading for another rate cut and further inflated asset prices.

Asset Inflation

Due to continous money supply by central banks across major economies, asset prices have reached a point where it looks scary to justify this hightened exhuberance among so called value investors. This continous and extremely fast rise in asset prices is creating an asset bubble, which no body wants to burst, but still fears. The common casualty is layman person, or what economist love to term as Consumer, which bears the brunt of this artificial asset inflation and gets credit at high interest rates to buy that asset! This can't go on for ever, something might topple this top heavy giant from the cliff, what would that be, only time will tell.

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.

Case For Renewed Yen Carry Trade To Resume

After japanese central bank refused to increase the interest rates and with yen strenghtening against the dollar and risk perception of japanese investor/saver on an increase due to lack of investment oppurtunities in their own country, yen carry trade will begin to find favour among large investment banks and hedge funds. This will further give a boost to already over heated stock markets like India and other fast growing asian economies.

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.

Crude Is Boiling

Crude oil prices have surpassed important technical level of U.S.$77.50 per barrel mark today and is a cause for concern as it will along with rising food prices can give further boost to inflation, which has become central point for many central bankers across the world. Growth has not been dominating central banks monetary policy of late as excess liquidity is amply supplying credit to fuel growth, but rather asset inflation, especially food and fuel prices are grabbing their monetary stance.
U.S. markets are feeling pain after subprime mortgage mess and continue to suffer investor apathy. Asian markets are showing great resilience and are very close to their all time heighs.

Chinese Stocks

Chinese stock market has weathered the storm created by U.S. sub-prime mess, all other markets have fallen sharply. Prime reason behind the outperformance of chinese stock markets is that it's domestic investor/trader participation is much more than dependance on foreign institutional money flows in their markets. All other emerging markets largely depend on foreign flows to drive their markets especially Indian and south korean markets where foreign flows are an important barometer for market direction. Also with chinese economy growing consistently 10% and above for more than past one decade is reflective of investor confidence in that market.
It will continue to outperform all other markets if it continues it's growth outperformance as compard to other economies.

Volatile

U.S. stock markets are behaving extremely volatile with one day up and other day down, volatility index is moving 10-15% up and down on daily basis. This is cause of concern for investors as well as traders. Asian markets too dance on the tunes of U.S. markets and decoupling still hasn't happened for these markets with the U.S. market. Investors need to protect their profits as and when it happens and should not shy away from taking profits as further sharp falls will again give them those bargain prices.

For some time to come, volatility will be the name of the game.

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.

Not all money is credit

Markets have been bearing the brunt of mahem in the U.S. sub-prime mortgage with several U.S., Europeon and U.K. funds going burst.
Investors and traders believe that all markets have risen because of cheap credit pouring in the markets, however this is paritally true as people do have their own money to invest in case oppurtunity arises, because if all was borrowed money then markets for the past few trading sessions would not have been found the support of new buyers!

Smart buyers have been utilising this sharp fall in equities as a buying oppurtunity and are putting their own money.

Excessive borrowed money can only inflate the valuations of given assets to artificial levels but any cracks in that credit cycle can turn that tide against the borrower as he has to return the money to original lender and he does that in panic as we have seen for the past few weeks. Therefore investng with own money is the only rational strategy one must adopt.

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.

Investor Confidence Is Shaken

By looking at stock market behaviour for the past 3 days gives indication that investors/traders confidence has been shaken and they are using any rally in the markets to lighten their stock commitments. Cracks in the credit markets and subsequent pouring of around U.S.$550 Billion in the financial system by various central banks only indicates the intensity of underlying unresolved problem.
This is causing huge nervousness among investor/trader class who may not want to enter the markets unless and untill some assurance that problems with subprime mess has been contained.
This world runs on credit, so if that gets affected badly then we have a serious problem in our hands and smart market players knows this. Good luck with our investments.

Much Needed Bounce Back In Markets

Today stock markets bounced back after several days of sharp falls and closed pretty smartly anywhere between 3 to 5% up. Yen also is trading close to 115 levels against the U.S.Dollar. It's very difficult to ascertain the exact extent to which credit markets have been affected due to sub-prime mortgage mess and subsuquent defaults and several funds going burst due to this, one thing is sure that risk appetite of investors/traders has taken a severe beating and it will take a while before they can regain their confidence. It will be worthwhile to watch how markets do for the next few days before making a big financial commitment in the markets.