Dear Investor

Almost all markets have been rallying for quite some time. Sometimes, it went against fundamentals. It rallied equally strong in weak data and news, too.

In last 1 year because markets have been rising, investors ignored the problems which grappled markets in 2008.

It is important to remember, nothing has been solved in last 4 years, which caused crisis at first place.

But, I think Good time is over and Markets are about to fall off the cliff realising resurfaced problems.

Markets rallied in 2009 and after that, barring some period of sideways and minor correction, expecting the monetary easing would continue and inflationary environment would last longer. US followed monetary easing plan very aggressively. But, Europe did it in very limited way and instead relied on budget cuts, reducing fiscal deficits kind of austerity measures. And, Now US Central bank is also acknowledging that his efforts have not yielded intended results. Central bank wanted to boost Housing market so that banks and investment banks can bridge the mark to markets losses on their balance sheets and can be placed back to pre 2008 level. Housing was close to 60% of US economy in years 2005-07. But, Housing markets kept falling and monetary easing caused unintended consequences like high crude prices, high commodity prices and higher prices for services, all when people are being laid off and business activities are on decline.

And, that is the reason, Bernanke said yesterday that they would review and rethink on the policy they have been following since 2008.

My technical models are signalling imminent sale on equities and commodities barring some.

There are all chances now surfacing that world is about to enter into deflationary period where prices of everything goes down and currencies go up. We are very near to that period.

India, China and other emerging markets may slide with developed markets but recent FII flow and other data signals that emerging markets would show better resilience this time compared to 2008 and on opportunities would keep rising erasing losses.

Best Efforts…

Dhaval Shah



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