Markets up: What has changed?

Tuesday, October 14, 2008

The bear market trap is in full swing. The counter rally has a full head of steam. The presses are printing and central bankers and finance ministers party is underway. As I said in my earlier blogs the bear trap rally could be 8 to 10% and could go to 3800 + nifty.

Normally these rallies take weeks but now it is is a matter of hours or days.

But what has changed? Has a single impaired asset improved in value? Every single leader from Bush to Paulson to Bernanke has acknowledged this crisis is due to the reduced value of homes in the United States.

The robust action by the authorities has averted for now a meltdown of the global financial system and the pre-eminence of the US dollar. Economically, the outlook has not changed; asset values are impaired. Quick stock market gains will not replenish the capital of financial institutions. Consumers have been hit; A recession is certain for 2009 which will have its impact on India through a lack of foreign investment.

As the Indian stock market is rising, it is a classic chance to cash out, wait and re-invest in a few months. Risk is very high and the returns are not commensurate; do not jump into the pool, there is no water just the blue tile and it will hurt.

The market will test lows and go below..but for now drink from the punch bowl and forget that there are troubles. NOT!

On a positive note, MLynch's new report gives the following as the underlying strengths of the United States which will allow it to emerge stronger after this crisis:

1. Constitution
2. Check-and-balance political system
3. Property rights
4. Stable legal system
5. Quality education system
6. Highly skilled work force
7. Enormous wealth
8. Natural resources
9. Population that is both diverse and unified in purpose
10. Strong infrastructure
11. Strong productivity
12. Labor mobility
13. Military might
14. Strong work ethic (our finance officials work weekends

Which of these stengths can be professed about India? Something to ponder while you stay away from these markets and have your cup of coffee.

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