HAPPY DEEPAWALI
Dear ALL
I WISH HAPPY DEEPAWALI TO ALL OF YOU.
MAY THIS AUSPICIOUS OCCASION BRINGS LOTS OF HAPPY WEALTH, HAPPY HEALTH AND HAPPY MOMENTS…
Dhaval, Jalpa, Khushi Shah
Baroda
October 26, 2011
investmentacademy
WHY INDIAN RUPEE FALLING PRECIPITOUSLY…..
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WHY INDIAN RUPEE FALLING PRECIPITOUSLY…..
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Dear Investor
I have been writing since last 3 months consistently pressing on my view that Dollar will go up and rest everything( i.e. everything be it Equity, Commodity, Precious metal or other currencies) will collapse miserably.
Today, we are witnessing the same since last 1.5 months, every asset class is crashing against dollar.
Refer articles
A Crash in Progress – http://investmentacademy.wordpress.com/2011/02/04/a-crash-in-progress/
Quick Update on A Crash in Progress – http://investmentacademy.wordpress.com/2011/02/12/a-quick-update-on-a-crash-in-progress-2/
Gold, Silver to correct 20-30%, Real Estate 40%, Commodities and Metals to follow – http://investmentacademy.wordpress.com/2011/03/15/gold-silver-to-correct-20-30-real-estate-40-commodities-and-metals-to-follow/
And few more articles, where I gave my detailed views on reasons of market correction and with precise targets.
In very short period of 2 months, Indian rupee fell sharply from Rs. 44/$ to Rs. 49.93 / $. It has created havoc amongst Exporters, Importers, Traders and Investors.
There are various reasons for that let us go through one by one
Let me take Technical parameters first..
Rupee has been forming base since April, 2010 around 44 level. And, below chart would clear much of your doubts that Why it went up ballistic Rs. 6 from 44 level to the level of 50. This is single most important reason for rupee’s sudden fall in value.
RBI vs Chinese Central Bank
To cool inflation, RBI raised interest rates but did not manage the rupee well. ( Your analyst was among the first to predict interest rate rise ). India is net importer. We import 30% more than what we export.
It has been evident since long that Commodity prices are up and going up more, it was RBI’s duty to keep check on rupee to ensure sustained exports and moderate inflation.
China has kept its currency tight under control and that has helped China to weather inflationary wave smoonthly.
Fiscal Disaster
For most part of this, Indian Govt is responsible. I had been warning since last 2 years thatWe need to keep our house in order. You can refer my article (http://investmentacademy.wordpress.com/2010/01/28/fiscal-disaster/ ) . It is seer insane mismanagement of finances which has brought us to this stage. Since 2008, Govt has been borrowing close to 4 to 4.5 lac crore from market for different budget schemes, it is close to 50-60% of Govt’s annual revenue.
It kills economy 2 ways, it keeps economy up artificially where real demand is replaced by Govt’s artificial temporary demand and It negates the effect of rise in interest rate.
I shall update this issue in detail next month.
What I Expect in Near term?
I feel Rupee should retrace some of its rise from recent high of 49.93. Should consolidate around 47.5-48 in short term and should head up again to conquer previous highs of 51.17.
Reasons are very apparent. Some rebound in stock markets and commodities from recent sell off will give respite to rupee for some time and then renewed Global sell off should push down all markets(Equity, Commodity , Bullion) and rupee ,too, will fall again sharply to lower levels of 52 and might be 54.
Regards
Dhaval Shah
Blog: http://investmentacademy.wordpress.com/
Mob: 98255 28815
New Product Launch –EQUITY TRADING ADVISORY SERVICES
Launching….
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Dear Investor
I have been writing about Markets since last 4 years and accurately forecasting about Market movements that Include World Economy and Markets, Indian Economy and Markets, Bullion, Commodities and Currencies.
In fact, these are intertwined markets. Movement of each market unintentionally affect others and their combined effects decides the future course of Economies.
Since long, there was a demand and even my personal interest to focus and forecast Indian markets more accurately and even to generate trading calls. This required me to focus more on several traditional and non traditional, technical and fundamental tools. That eventually ended up in a model designing which takes into consideration various TECHNOFUNDAMENTAL parameters and generates a call for short term i.e. 1 to 2 week.
Model has been tested in live markets and has given excellent results. Since, I had tools which I used in predicting US fall out in 2008, buy call on Gold in July 2007, buy call on markets in March, 2009,and many more very accurately in last 4 years, helped me lot to design it accurately.
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It is unique service provided to Investors to generate decent returns from market.
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§ Client will receive Trading Calls on Equity Market only.
§ We intend to give Short Term Trading Calls only which should achieve target in time frame of 1 to 2 week.
§ We do not intend to give Intraday Calls under this service.
§ We may give Intraday calls as Bonus Calls at our discretion.
§ 4 calls would be given a week. ( It may exceed 4 depending on market condition but minimum calls a week would be 4)
§ Calls would be largely from NSE future segment so that client can participate in Cash and Future both depending on his risk appetite.
§ We warn not to participate in Options ( Call and Put ) on our calls unless specified so while giving call.
§ We recommend ideally Client should not risk more than 5-8% of Trading capital on each call at a time.
§ We may give bonus calls on other market segments like Bullion ( Gold and Silver), Commodities and Currencies at our discretion but not as part of Equity Advisory Trading Services.
Subscription Criteria
Client can subscribe to the service for 1 month to 3 months.
Charges
1 Month – Rs. 2500/-
3 Months – Rs. 6500/-
To Subscribe, You can send Cheque in the name of Dhaval Shah at B-8, Vallabh Darshan Society-2, Near Parivar Cross Roads, Waghodia Road, Vadodara.. PIN 390019 or can deposit direct into HDFC Bank account No. 0416 114 0000010.
Please send me mail or SMS with primary details after sending cheque or depositing in account like Name, Address and Mobile Number to facilitate us to generate receipt and courier it to your address.
Please refer Terms and Conditions before subscribing to the Service
Terms and Conditions
1. Calls would be given depending on market conditions.
2. Our best endeavour would be to give 4 calls a week but if market condition warrants, we may not generate a call.
3. Equity Trading Advisory services are our opinions based on our experience and that does not guarantee achievement of price target.
4. Clients participating in Equity Trading Advisory Services are participating at own risk and Equity Trading Advisory Services does not hold responsibility of any losses arising out of it.
5. Calls would be given via SMS only
6. Calls would be from NSE Future segment only. We may give calls outside NSE Future segment at our own discretion.
7. Equity Trading Advisory Services would not entertain any calls regarding justification of price target.
8. We recommend 5 to 8 % exposure only of your total capital to a call at a time.
9. If market opens gap up or gap down and because of that if stop loss does not trigger, it would be client’s risk.
10. Equity Trading Advisory Services has right to change the terms and condition as and when required.
11. Sometimes, Depending on Market Condition, We may need to flash exit from call before achievement of Price Target and/or before hitting Stop Loss.
12. Due to network congestion if SMS reaches delayed to your Mobile Number would not be our responsibility.
13. Subscription once paid would not be refundable.
Regards
Dhaval Shah
Office: Investment Academy, E 314, Kashivishweshwar Township Tower, 3rd Floor, Besides Airtel Office, Above Swagat Restaurant, Jetalpur Road, Vadodara.
Mobile : 98255 28815
Updates….
Dear Investor
Since last many months, I have been predicting big bang market correction. Though, I was early in predicting and markets had gone up 5 to 10% from my forecasted level. It took just 13 days for Dow to correct full 17%, Europe corrected even worse full 25% in just 8 days. Indian market has been correcting since Jan, 2011 and with recent slide, it totals to 20% fall.
Meaning, sometimes it seems to investors that Predictions are not working but when you look into totality, it does work, but sometimes with time lag.
Let us cover World Markets first..
2011 -12 = 2008 + Higher sovereign debt + Lower consumption + Lower Employment + Lower GDP + Higher Inflation + Lower Consumer Confidence + Lower Business Confidence
Yes, You read it right. That is the present state of world.
In last 2 years, We have converted even favourable factors of economic growth into unfavourable and worst into anti recovery, de growth factors.
Wealth is more concentrated in developed world than it was 2 years before. Govt declared huge stimulus packages and bailout packages to prevent “ Too big to Fail” from failing. All at the cost of common taxpayer who is becoming poorer.
In 2008, big banks and institutions failed, their balance sheet had shrunken. Govt was in bad condition but at least not worst in 2008. To stem the fall and prevent big banks and institutions, Govt decided to expand its balance sheet to improve the balance sheet of private organisations. Recent data showed significant increase in private bank assets in last 2 years vs loss to Govt.
In next 2 yrs, the same problems are going to resurface repeatedly. Too much debt was the problem and with all great research the solution found by great nations on earth is much more debt. US, Europe, UK and Japan are in the same boat. Crisis in Europe is getting more acute and hence it may remain focal point giving relief to US for some time.
Emerging markets are no different. But, the differentiator is still good growth with good consumption and favourable demographics.
I Wrote in Feb, 2011 (Link: http://investmentacademy.wordpress.com/2011/02/04/a-crash-in-progress/ )
For emerging markets inflation stability is No. 1 priority and as I had indicated in my last column, Govt in EM would rather prefer to give up 0.5 %—1% GDP growth to control inflation. Because they have ample experiences on hands, How out of control inflation leads to social unrest, civil wars and finally political changes???
You heard ditto same from RBI governor last month.
How do I see markets shaping up in next few months?
We have seen 1st phase of correction. For next 1 to 3 weeks, markets may remain cool with some short covering. And then 2nd leg should start.
I expect Dow to correct up to 9600 at least and 9000 in worst case. Indian Sensex should find support somewhere between 15500 -16000.
Gold
I believe Gold is in distribution phase. Gold has made high of $ 1814 and from there it has corrected to $ 1740 as I write this article. Gold should find support between 1660- 1690 and should rally back to $ 1814 and may go up to %1840-50. I do not see run away Gold prices from here onwards except Dollar index breaks down below 72.60 level.
I expect Gold to correct 25-40% in coming months. I will give levels as correction progresses.
Silver
I had been warning, do not touch Silver even with 10 feet pole. It is world’s most manipulated metal. It corrected rather abruptly some 25% in a week. I see correction to continue in silver further breaching $ 28 level in coming months.
Oil
Oil too should continue downside. Support lies around $ 68. In worst case, can come down to $60.50.
Agri Commodities
Agri Commodities should remain subdued in next few months. For next 1- 3 weeks, it may rise just to facilitate short covering. Another leg down is still on cards. But, remember, that would be the best time to load up Agri stocks and commodities.
China
It has not performed as per my expectation in last 6 months. Though, fundamentally, China is still growing strong in all parameters. Demand is still strong. Exports also hitting new benchmarks and consumption story also breaking new records.
Recently , many banks and institutions have forecasted 40 to 60% rally in china market in next few years. Some are expecting even 25% return by year end. I will write in detail about it shortly.
In all, Picture is not perfect. It will take time to turn the tide.
Until next time
Bye
Dhaval
Update on A Crash in Progress
Dear Investor
I last wrote in Feb predicting virtual downside in every market barring Dollar and China.
We are witnessing exactly the same being played out. Virtually everything is falling, may they be Asian markets, European markets, commodities or bullions or crude against dollar.
Yes, China has not risen as per my expectation. But, I am yet not bearish on China and would like to remain invested. Shanghai Composite has formed some important bullish pattern, which should mark bottom on it.
What I expect in near term?
With every rise, sell opportunity arises. I remain bearish on all markets except dollar and china. You will have further fall in Silver and Gold in time to come. Commodities will correct further and Real Estate in India would be next driver for further downside.
Europe and US markets can correct further and with that weakness will persist in Indian and Asian markets, too. Policymakers are in dilemma , if they do not support the recovery which is hugely paid for, economies will sink in red again. The first qtr GDP of US dived down to 1.8% from 3.1% and that is the reason , you hear any policymaker from any nation, they continue to stay on their stance, that recovery is still fragile and view is cautious with downside bias. Scenario is very much same for all nations. India and China also lowered their growth targets for this fiscal.
And, If policymakers continue to support economy, it leads to higher to hyper inflation as witnessed by us in last 2 years.
Next 2 years are the policy adjustment years. Policy adjustment is very similar to adjustment of tectonic plates beneath the earth. It causes tsunami, earthquake and volcano eruption.
Hence, be ready for rides on both the sides of market.
Policymakers have said often in last 3 years that measures of this magnitude have never been tried and hence outcome of measures remain uncertain and unknown. Like, policymakers not anticipated that recovery will bring hyper inflation when recovery is still weak and fragile, Which has complicated policy actions.
Therefore, in next 2 years, policymakers will increase policy rates and then will wait for dilution of effect and will again raise and so on will continue…
During tightening period markets will remain soft and during waiting period markets will recover.
Where to invest in next 1 year?
Best instrument in such environment is Fixed Deposits. Do not risk your money in riskier assets. Yes, SIP(Systematic Investment Plan) can be done through Mutual Fund.
I had been warning that do not try silver, it will correct severely. It corrected 25% in a week. And, that is reason I had never asked you to buy Silver and instead I remained cling on Gold.
Silver is world’s most manipulated metal. Manipulators are mainly Newyork bankers and they have blessings of regulators. They buy futures in Newyork and then choose to take delivery instead squaring off positions. Delivery of silver is then sent to Switzerland and London creating artificial shortage in market. And, in end game those massive reserves are dumped on market creating havoc.
I also recommend to start investing in Indian Infrastructure stocks. I firmly believe that next rally in Indices will be led by infrastructure companies.
Until next time
Bye
Dhaval Shah
Gold, Silver to correct 20-30%, Real Estate 40%, Commodities and Metals to follow
Dear Investor
I have been saying about imminent correction in virtually every market except Dollar and China. I generally, used to be early in predicting turning points so that my investors get enough time to come out of the market.
As I pen this article most of the world markets are 8% to 12% down from the day( 4th Feb,2011) I predicted downside.
Believe me this is just beginning, situation like Gulf crisis leading to Oil crisis, tsunami followed by earthquake in Japan, European Central bank is mulling to raise interest rates, Emerging economies facing higher to hyper inflation, Sovereign crisis still lurking on European nations create perfect storm very difficult to weather by market.
Broad based correction is to continue to follow in next 6 months correcting markets by 20% to 30%. I do not rule out even 40% correction in some selected markets.
I wish, my investors heeded advise and encashed the profit off the table.
Why I am still short term bearish on Markets?
There are multiple reason for that. But let me be clear that I am not bearish on Precious metals in long term nor bullish on dollar.
I am talking here about short to medium term cycles which last typically 3-6 months.
Let me take one by one
Gold
Gold has tried no. of times to breach $1435 level, in fact did close above it for a day but next day was the Friday and on weekly closing day, Gold slide below $1435 level, all time high level. Again confirming that Gold is no mood to go up to make new highs, not even if Gulf crisis escalate and sends crude to $115.
Fundamental points also suggest that Gold started rally because of two chief reasons 1. Sovereign debt crisis, which shackled investor’s confidence in paper currency and investors found solace in yellow metal. 2. Reckless currency printing by central banks of the world which in turn will diminish the value of currency. So, to preserve the purchasing power investors flocked to Gold.
Now, neither of above two reasons are governing crisis in gulf. It is altogether different crisis. It is for democracy and equal rights. Currency is nowhere in the picture and hence resultant nil effect on Gold price.
Attached chart shows multiple failed efforts of Gold to cross the level of $1435.
IF Gold closes significantly above $1454, that would negate short term bearish trend.
Silver
Silver rallied beyond levels. But, one must note that Silver is high beta version of Gold and recent rally of Silver was not accompanied by Gold.
I expect Silver to correct along with Gold from current level around $36 level to close to $23 level. Yes, that is significant correction.
Commodities
Expect deep cuts in commodity prices. Some commodities may correct even 35% to 40%.
Yes, there were supply issues to some extent. But, I firmly believe that commodity prices were largely driven by dollar devaluation and dollar printing rather than supply woes.
After, 2008 crisis almost all nations were in damage control mode and did everything they could do to contain the damage. Chief measures among them were fiscal spending ( Govt declared huge packages to sustain the consumption level of the economy and thus sustaining GDP growth), slashing interest rates to the lowest possible levels.
Because of this fresh cash flooding the world markets, across the world currencies went down and prices of commodities soared.
But situation has changed now.
Since last one year, emerging economies have been facing hyper inflation and thus they are raising interest rates, normalising the policy they adopted in 2008-09 to stem the price fall.
Many Governments who spent way beyond are now starting to control the fiscal deficit since it had reached to alarming levels during crisis time.
E.g. In Budget 2011, Finance Minister of India, promised to control the fiscal deficit to 4.6% from around 6% of the GDP.
So, these are the exact opposite measures to those taken in 2008-09 to tackle the crisis.
Therefore, cost of capital will go up now, as interest rates go up and Govt spending will reduce to more reasonable level thus reducing liquidity in the system. Both these factors will lead to lower commodity and metal prices locally and Globally.
Dollar
I am bearish on $ in long term. But, in short term dollar needs respite. It is a pause for short to medium term before large decline resumes again.
I expect $ to take a pause and go up some 10% to 15% , causing massive upheaval in dollar denominated markets.
Real Estate (India) crash
Refer my earlier article to have detailed understanding http://investmentacademy.wordpress.com/2011/01/13/inflation-interest-rates-and-real-estate-crash/
I have no doubt that Real Estate is done and due for significant price correction. I continue to expect 40% price correction in real estate by end of 2012.
Indian Equity Market
I had written in my earlier article that Sensex could correct up to 16000 level. I continue to expect the said to be touched in next 2 months time.
Stay tuned
Dhaval
Blog: http://investmentacademy.wordpress.com/
Quick Update on A Crash In Progress
Dear Investor
Since, I wrote on A Crash in Progress, world markets and bullions and metals have remained up, some have even scaled new highs and some remained sideways.
Yes, It happens, sometimes market surprises you with counter cyclical trend with temporary aberrations but that does not change the trend.
Fundamentally, technically and even cyclically all indicators still point towards downside in asset classes may it be Gold, Silver, Metals, Equity markets or Agri commodities and currencies except dollar and China.
Yes, after recent decline Dow may go up a bit and may form a new high and even European markets may follow the same path but I will not buy.
Silver has made new high. But, I believe it’s a trap. Silver making new highs without Gold scaling new highs is a trap. History suggests this.
From the level, I thought Dollar will shoot up – Dollar came down from that level and now trades very close to recent low. But, Dollar has not lost strength.
Euro on the other side has tested its upper channel but with huge weakness. Hence, Do not be surprised if Euro experiences sudden downfall.
Oil has gone up suddenly with unrest in Arab nations. But do not buy, it is temporary aberration in short term downtrend.
Indian Market:
I believe the current downtrend will continue till mid of April to Mid of June with downside target of 16000. Market may show positive bias for next few days before downside resumes.
Regards
Dhaval
A Quick Update on “A Crash In Progress”
Dear Investor
On 4th Feb, I wrote to you in detail on “A crash In Progress” expecting correction in virtually every market except dollar and china.
Yes, Commodities have continued rally and Dow too remained in bull zone since then.
But, as I had said the deciding factors will be currency movement coupled with resurfacing fundamental woes.
And, In fact that movement is very much in action and should cast dark shadows on markets next week.
As I pen this article, Dollar index is at 78.62 up against all currencies.
Swiss Franc is down close to 4% against dollar in this week. Japanese Yen is down close to 3%, Euro is down 2.5%, Australian Dollar went down 1% yesterday.
I believe this is the beginning of short term cycle, where in all currencies will come down heavily against dollar forming significant base for long term rally in next 2-3 years.
Dollar will continue its up move targeting 80 first and then 84 level in short to midterm causing significant correction in commodities and developed markets.
Hence, if you are still in commodities and stocks or long on any other currency against dollar, come out now.
On the other hand, China has remained sideways with upside bias. I expect China to continue upside along with dollar.
For China, dollar’s up move and correction in commodities will be like God gift.
Dollar’s up move will reduce pressure of currency revaluation in short term. Correction in commodity prices will be huge comfort for china being world’s largest exporter.
Even investors will seek shelter in Chinese stocks as markets in other nation correct as China market is still cheap in valuation.
Though, I expect China to revalue its currency any time in this year. I will update at length later.
Regards
Dhaval
A Quick Update on “A Crash In Progress”
Dear Investor
On 4th Feb, I wrote to you in detail on “A crash In Progress” expecting correction in virtually every market except dollar and china.
Yes, Commodities have continued rally and Dow too remained in bull zone since then.
But, as I had said the deciding factors will be currency movement coupled with resurfacing fundamental woes.
And, In fact that movement is very much in action and should cast dark shadows on markets next week.
As I pen this article, Dollar index is at 78.62 up against all currencies.
Swiss Franc is down close to 4% against dollar in this week. Japanese Yen is down close to 3%, Euro is down 2.5%, Australian Dollar went down 1% yesterday.
I believe this is the beginning of short term cycle, where in all currencies will come down heavily against dollar forming significant base for long term rally in next 2-3 years.
Dollar will continue its up move targeting 80 first and then 84 level in short to midterm causing significant correction in commodities and developed markets.
Hence, if you are still in commodities and stocks or long on any other currency against dollar, come out now.
On the other hand, China has remained sideways with upside bias. I expect China to continue upside along with dollar.
For China, dollar’s up move and correction in commodities will be like God gift.
Dollar’s up move will reduce pressure of currency revaluation in short term. Correction in commodity prices will be huge comfort for china being world’s largest exporter.
Even investors will seek shelter in Chinese stocks as markets in other nation correct as China market is still cheap in valuation.
Though, I expect China to revalue its currency any time in this year. I will update at length later.
Regards
Dhaval
A crash in progress
Dear Investor
In very short time, I expect severe price correction in all world markets( both emerging and developed), in commodities including precious metals virtually in everything except dollar and China.
I had warned you on 6th January that Gold will correct up to $1250, it is already down $125 from its high of $1435. I continue to expect Gold to test $1250 and silver $25, this correction may accelerate further.
Why do I expect such move?
There are many reasons.
Chief of them is Gold & dollar’s movement. Yes, often Gold sets trend for world markets. If you can see world markets through lenses of Gold’s movement coupled with currency directions, probably you would be ahead of curve.
Dollar to Go up
Dollar index is at very crucial juncture. As I pen this article it is trading at 77.76 very very crucial point. I see dollar to sharply shoot up from here to the level of 81 first and subsequently 88.
If dollar continuous to trend down and closes below 75.60 for daily and weekly closes then my forecasts will be dead wrong and dead opposite movements will take place in markets.
But, I do not see it happening.
There are multiple forces working towards that.
First Europe crisis is not over and is expected to come back again on the screen. As like US, Europe ,too, has not solved the crisis yet but have added more problems to it.
Second, Commodities have run up sharply in last 1 year close to the price levels of 2007. Yes, there are genuine fundamentals behind that but sharp run requires sharp correction and consolidation for healthy long term run. But, neither World growth has reached to pre crisis level not consumption to support run away prices. Consumers of developed markets are still mired into debt and recent run up in commodity prices have worsened situation further for them. Egypt is classic example.
And in spite of incessant efforts of Mr. Bernanke to keep rates low, in recent times short term rates and mortgage rates have spiked up substantially.
Third nearly 1/3 of subprime loans are coming due to 1st quarter of 2011 for expiration of ARM. That will once again increase delinquencies and foreclosures in US.
And, we know from our previous experiences, World goes to dollar when uncertainty arises.
Yes, this trend is too about to change but not during this crisis.
Commodities
When dollar goes up coupled with markets coming down, it leads to sharp correction in commodities. It is viewed as slow down in economy and thus lower consumption and lower demand of commodities in the world.
All most all emerging markets have been fighting against inflation i.e. against high prices of commodities and latest entrant is European Union. Inflation rose to 2.4% in January quite above to 2.0% comfortable level of European central bank.
Almost all emerging markets are fighting hard against higher commodity prices(Inflation) via hiking interest rates and reserve ratios, reducing fiscal deficits, putting caps on capital inflow etc..etc..
For emerging markets inflation stability in No. 1 priority and as I had indicated in my last column, Govt in EM would rather prefer to give up 0.5 %—1% GDP growth to control inflation. Because they have ample experiences on hands, How out of control inflation leads to social unrest, civil wars and finally political changes???
I think, world and especially Govts in emerging markets have learned lesions from ongoing Egypt mess. China has been censoring Egypt news in Chinese media out of fear of parallel movement in China. Though no one expects it to happen in China. But, Govt is cautious and do not want to take risk.
Hence, I expect continued hard battle against demand and supply factors of commodity prices to curb inflation.
I suggest to come out completely from commodity positions.
World Markets
In 2010, people have almost forgotten that we had huge pull back in 2008. In my letters in year 2008 and in following years, I have been continuously saying that Crisis is not over yet.
Markets have been propped up by artificial liquidity pumping widening balance sheets of Central banks and Govts across the world.
Banks are still leveraged, foreclosures are still looming large, many Govts debt to GDP ratio has reached 85-100 escalating sovereign debt crisis. Even in 2010, 157 banks failed in US alone. Not a good data when indices were zooming up.
Japan downgraded and US warned
Recently, Standard & Poor’s downgraded Japan Thursday because it expects the country’s "fiscal deficits to remain high in the next few years" as it continues to deal with problems like debt, deflation and an aging population
Moody’s said a lack of US government action on its budget deficit and tax cuts has increased the chances of a negative outlook on the country’s rating. Moody’s report came shortly after the IMF warned of growing budget deficits in both the US and Japan, which was downgraded by financial market intelligence Standard and Poor’s.
Emerging markets too are facing large problem of How to withdraw stimulus without hurting economic growth?
I think, no such solution exist. Stimulus is a liquidity, Govt injected to help sustain economic growth and Indeed, that liquidity helped market to cover up.
But, let be very clear that stimulus was required because sudden collapse of markets across the world stopped liquidity flow. Companies stopped expansion, put current projects on hold and laid of people across the world.
Now the question is, Have we reached to project expansion, new investments, private consumption and Foreign investment to pre crisis level? Which was sufficient to carry economic growth forward without Govt intervention. Answer is heck no.
By no parameter, we have reached to 2007 level except to commodity prices which has worsened the situation further.
Hence, none of the stimulus withdrawal would be without consequences.
All above and many other factors are converging now in 2011 and I have no doubt that it should lead to higher volatility and sharp correction in markets. I shall continue to discuss other factors in next article.
Regards
Dhaval
investmentacademy
