Markets down: time compression a killer

Wednesday, October 22, 2008

Time compression continues...Argentina is down 17% (recovered to only down 10+%) and all other markets are down 5% or more. The de-leveraging, unwinding of carry trades and liquidation for safety is creating havoc in countries which have been addicted to fund inflows. Hungary raised rates by 3% to stem the decline in its currency...every emerging market is hemorrhaging. Euro and Sterling are falling against the dollar...the realization is setting in that United States will have a balance sheet better than every other country regardless of the size of losses.

Wachovia lost $23.2 billion....goodwill write-off...more red ink for Uncle Sam...Regional banks losses mounting...cheque book is out...Paulson/Bernanke ready.

Since the beginning of October currencies losing against the dollar are:
Hungary(-25%), South Africa(-32%), Euro(-9%), A$(-16%), Poland(-21%), Czech(-15%)...and the beat goes on....and the beat goes on.

The TED spread is steady at 2.53% and FII net flows were sales of Rs 543cr. George Bush has called a meeting of G-20 to discuss the global financial crisis...two weeks after a new President-Elect will be announced. Lame he wants to talk to everybody. To the mattresses.

And in India the first sign of cracks in the economy: Unemployment to Soar

And it is all happening in compressed time. To provide a visual of this compression in India there are two charts below:

First Nifty from Jan 08 to today...a seeming gentle slope which has clipped 50% off the index..with a more pronounced downturn in the past month.

The years of gains have created an anticipatory climate. When will this turn? It always has before...those waiting are burning bright..heed the glow.

(click to enlarge)

The chart at left shows Nifty from Aug 2002-Oct 2008..a journey of over 6 years...55% of the gains made in the first 5 years have been wiped out in 10 months...and it is accelerating.

This is as vicious a bear market as has ever been seen...and the carnage is not over...the time compression has frozen the reactions of the broad economy..but it is now reacting...and there is bound to be an over-reaction.

Indian finance minister announced recapitalization of seven banks two days after claiming our banks are sound and over-capitalized.

Our leaders have large mouths with many orifices. One never knows which orifice they are it **it or truth...or something in between.

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