Sharp Drop In The Ericsson Share Price

Sharp Drop In The Ericsson Share Price in the yesterdays trading session due to poor earnings show and weak future guidance clearly vindicates the fundamentalist point of view that no matter how irrational stock markets can get, company's results and future outlook still commands respect from the markets. It's therefore in one's own interest to be extremely vigilant about the company's performance and future outlook.

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.

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.

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.

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.

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.

Markets Cheer Rate Cut!

Stock markets are cheering 0.5% rate cut by US federal reserve but i believe Fed must have punished defaulters of subprime mortgage borrowers and lending institutions by raising interest rates rather than cutting them. Instead Fed has revisiting same starting point which started this whole cheap credit phenomenon across all asset classes. By printing more and more dollars, Fed is again pumping more cheap money into the financial system and re-assuring the market participants that in any adverse event like default mess the fed will bail them out by printing more money, thus inviting more defaulters to do default at will and get away! That's the way systemic problems linger on and system makers continue to drag them for their pity interests like to help very large lending and investment banking institutions.

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.

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.

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.

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.

Derivatives And Risk

In extremely volatile times like we have presently, it's very prudent NOT to have leveraged positions through stock futures and options. Controlling risk should be the prime motive behind any move in these volatile markets, also remaining in cash in times like this gives better buying oppurtunities as and when markets take a sharp drop. Playing stock or commodity markets on borrowed money should also be avoided. After all it's not only about making profits, it's also extremely important to protect the capital.

Some Stability In The Dow Jones Is Good News

Dow Jones closed 233 points higher on the back of some bottom fishing by market players. Dollar also climbed to 114.20 against the Yen, after falling continously for the past few trading sessions amid yen carry trade un-winding. History is evident that volatile currency movements can play havoc with stock and commodity markets, as seen this time as well. So keeping a very close watch on important currencies is very much desired if one wants to succeed in financial markets.

Reason For This Carnage

Market players always try to find reasons for market falls as and when it happens, this time around excessive credit lending to not--trust-worthy people(having very low credit score) in the sub-prime mortgage market is sited as the main culprit behind steep stock market fall as they have de-faulted on their loan obligation. But i say excessive GREED was, is, and will always be the biggest culprit behind every melt down in the asset prices.

Manic Selling In The Markets

Markets today fell very sharply fearing more bad news from the cracks in the credit markets and yen carry trade un-winding. Yen got further strength and breached 112 mark against the dollar, creating more panic among investors and that caused japanese stocks to drop very sharply by 850 points. All other asian markets traded extremely weak and later in the trading session got some respite because of lowering of discount rate by U.S.federal reserve and some short covering. European markets opened in the positive territory and this will have good sentimental impact when U.S. markets opens later today.
Keeping extremely close eye and ear on credit markets will be they key going forward. Any bad news from this front in future will significantly damage already brittle investor/trader confidance.

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.