Friday, July 17, 2009


We live in challenging times.

I’m not just talking of ‘once in a generation shocks’ in the financial markets, but also of the uncertainties and turmoil on ‘Main Street’.
As jobs are being lost and earnings are declining, people worldwide are struggling to keep up with servicing their loans. It’s never easy to cut back on one’s spending and adjust your standard of living downwards; a task that’s made all the more difficult after the ‘speculative boom’ of recent years. It’s bound to be a tough re-adjustment!

While there’s disbelief and pain on Main Street, the guys at Goldman Sachs are back in business; earning massive profits this quarter from ‘trading activities’
There’s one thing I’m certain about; it’s that you can’t get your trading calls right 100% of the time. I just hope the guys at Goldman Sachs are not taking ‘wild risks’ to earn these profits. We all know where that got us last time. Trading in commodities is always tricky, yes even for the guys at GS.

I wonder if the Fed and the US Treasury will bring back the ‘tough mark to market rules’, now that the banks are turning profitable again.

Does GS still need to be a regular bank or will it now conveniently choose to become an i-bank again?

Coming to some India specific news -
India’s credit rating ‘could’ be lowered by S&P, because the budget deficit is now nearing 6.8% of GDP. Reckless spending?
Government spending has also been stressed out by subsidies for the Oil and Fertilizer sector.
The recent stimulus packages – that included excise duty cuts and export promotion handouts, have reduced government revenues. This comes at a time when individual and corporate income taxes aren’t in the best of shape either.

While I think that S&P are over reacting ( I mean there are many countries in far worse fiscal shape), the government here really has no choice.
Given the inadequate social security system and large number of people living below the poverty line, the government must do everything it can to prevent layoffs in the manufacturing sector.
It helps that Indian economy is not an export oriented one, and can depend on domestic consumption demand that has held up fairly well so far.

US Government spending:
Meanwhile the US government continues on its spending spree, bailing out insurance companies and car companies. Is CIT next? Let’s not forget the ‘other’ liabilities of the US government – Healthcare and Pension Liabilities!
Wait!!! No signs of an S&P downgrade here??

The US could also be planning another round of stimulus packages, something that may occur sooner than expected if other states follow California and issue ‘I.O.U.s’

Investing in this volatile and listless market:

Many investors are now puzzled as to what exactly their next move should be.
Step in and buy something or is it too late?

Before following anyone’s recommendations, I would advise readers to first analyze their own risk profiles and ability to withstand market volatility.
Don’t forget that this is a market that moves sharply on analyst buy/sell calls rather than fundamentals, and intraday fluctuations can torment expert traders.
It’s important to realign stock portfolios, and to use this rebound to weed out stocks with weak fundamentals.
Also don’t forget to book profits in stocks that may have seen spectacular rallies.

Lastly, hold on to your precious metals positions, and don’t be panicked by the ‘summer volatility’

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