Tuesday, March 31, 2009


The markets have rallied swiftly since early March. Lack of clarity on the mega bailouts does not appear to concern the markets at the moment; and everyone seems optimistic ahead of the upcoming G20 meeting.

Speculators, Traders and Investors:
Bear Market rallies can be quite convincing as they can occur without any fundamental change for the better. The markets were oversold with the S&P500 well under 700 and panic stricken traders were forecasting the DJIA at 5000 levels.
The current market volatility is almost impossible to trade, with huge intraday directional changes, as hopes and dashed hopes (read: bailouts and failing instant fixes and solutions) keep traders on their toes.
Some make money buy buying markets when the sell off sharply, others get stuck in losing positions when the markets resume their decline.
For now, this market appears to be a traders market - where only the extremely lucky and nimble traders stand a chance of coming out ahead.
Longer term investors would do well to watch out for the coming earnings season and signs of further stress in the economy before jumping in right away.
It's painful to watch a market rallying away without reason ( especially when you are not in it - & the fundamentals don't justify a rally !), but its more painful to jump in too early; only to get stuck in a losing position in a chaotic market.
The market can stay irrational a lot longer than you can stay solvent!
It important to remember that bear markets can be irrational at times and last longer than people expect. As an Indian analyst Ramesh Damani recently commented : Equity returns are never linear - i.e. a stock can stay undervalued for an extended perid of time before suddenly turning into a multi bagger.
Good companies and solid balance sheets are not immune to bear market declines.

My caution at this stage is mainly due to worries that market regulators and the authorities are busy with just stabilizing the market and averting a near term 'panic collapse' rather than solving long term fundamental flaws that caused this mess in the first place.

As someone recently said; a recession is part and parcel of the economic cycle, but a depression is a collapse of the system of debt.
At this stage though, its all about stabilizing the ship, so as the Fed and US Treasury say - take on more credit, go out and spend it and hope that we can get the party started again.

No comments: