MANIC MARKETS – THE BLIND LEADING THE CLUELESS!

It’s been a while since my last post. Here’s the market roundup.

Not in a long while have I seen so many Financial Market Analysts absolutely puzzled by the current state of markets. Incredible intraday volatility and a total loss of confidence have resulted in a very lackluster dead cat bounce and then continued unrelenting selling.

With due respect to Warren Buffett and some other cash rich value investors who recently came up with ‘BUY’ calls; these are dangerous times in the investing world. Even prior to this crash, most investors were either fully invested or overexposed to equities. Many investors especially those nearing retirement may now realize that large exposures to the equity markets was a grave mistake!

TO BUY OR NOT TO BUY?
While I would say that there has been a panic led forced selling across world markets (including gold bullion), many stocks are now trading at attractive valuations. I would think that we will see more downside before an uptrend emerges.

Firstly, forced liquidations and realignment of risk profiles could intensify the sell off.
Secondly there is currently a great threat to the earnings growth momentum ( albeit propelled by cheap money) that the world has seen over the last 5 years. If earnings begin to stumble, cheap stocks could get cheaper.

I have been a Bullish Bear for over a year now, and although I have been conservative in my investment decisions and cautiously adding to gold positions on declines, the current crash has been incredible. I clearly wasn’t bearish enough.

GOLD & the USD
Gold has tanked over the last week on forced liquidations, margin calls and panic selling as gold was sold to raise cash. After finding support near $680, it has stabilized at $734.30.
I continue to maintain my stance on adding to gold positions on declines, buying in stages as the sell off intensifies. The rate, at which EVERYONE is being bailed out, clearly indicates that we are headed straight into a financial hurricane! AC-DC said it best; we are on the highway to hell!

Coming to the USD, as the global sell off intensifies, investors pile into the USD, and the currency has appreciated against almost all currencies excluding the Japanese Yen (which is rallying due to the unwinding carry trade).

The Litmus test of the current USD strength will occur in January next year, when USD Holders must ask themselves if they are actually safe in the currency of a ‘bankrupt nation’ whose Asian creditors are perplexed and now annoyed by the chaotic manner in which the US Leadership has let their ship run aground.

ACTIONS & CONSEQUENCES

• The US is dealing with a toxic combination of record high debt, rising unemployment and rapidly slowing growth.
• Can you really have a recovery not led by savings and investment?
• Is it not weird that the FED is asking banks to lend aggressively (even as asset prices are collapsing) to people who are already way too indebted? Weird or just crazy?
• Can the FED keep buying toxic assets at their face value – given that no one in the private sector is willing to step up to the plate. How come the Sovereign Wealth Funds are not value buying even after this crash? Do they know of coming government actions that we are not aware of?
• The fallout from the Financial and Real Estate Sectors is spreading like a cancer to the broader economy. Bailouts and rescues for Auto Loans and Credit Card loans will be next on the agenda. Basically guarantee and back stop all liabilities and defaults, so that we can get back to normal.
• Bailout after bailout; the inflationary impact (albeit with a 6-12 month time lag) of all the money supply growth currently occurring will be disastrous.

More updates on specific markets in coming posts.

BALTIC DRY INDEX : SLOWDOWN DEAD AHEAD!

ICELANDIC STOCK MARKET CRASH !

The currency has collapsed, banks have gone bust and the market closed down 77% to a level of 678.4, its lowest levels since April 2006.
http://www.independent.co.uk/news/business/news/icelandic-stock-market-crashes-on-reopening-961419.html
The reason I put this chart up, is to remind readers, that no matter what THEY tell you, despite reassurances about how everything is undercontrol, you must be aware of some simple facts.
Excessive Speculation coupled with leverage ALWAYS ends in a collapse! yes always!
Deleveraging with counterparties spread across the world is complicated and will take time to run its course.
So, do not try to call a bottom in stock markets at the moment, and consider your risk profile and investment time horizon before jumping into the ring. Don't Invest in anything that you don't understand!
For those that are ready to catch falling knives, intermediate rallies and dead cat bounces will provide exit opportunities, and expect things to get volatile (read: crazy) as the earnings season progresses.

SUSTAINABLE OR NOT ??

The DJIA soared 936.42 points, its biggest 1-day percentage gain since 1933!!!
Now that's a dead cat bounce!!

Removing all limits on Central Bank currency-swap arrangements (to meet USD demand), Governments buying Equity stakes in 'bankrupt' banks and endless liquidity infusion arrangements to solve problems of 'insolvency'.

Meanwhile, Housing numbers show no signs of improvement, unemployment numbers will rise, the auto sector bailout comes through, and quarterly results will show signs of deteriorating fundamentals.
We may not realise it yet, but the era of cheap money is over! and the perma-bulls are going to be '''stress tested.'''
As some wise commentators have pointed out,
Marc Faber - the current bailout does not address the problems of overleveraging which went unsupervised under the watchful eye of the US Fed & Treasury.
Jim Rogers - In the long term, bailing out weak and insolvent players at the expense of conservative and prudent players , defeats the very principle of free markets, & he fears the coming Inflation Holocaust more than the short term turmoil caused by letting insolvent firms go bankrupt!http://www.cnbc.com/id/27097823

ARE WE THERE YET ?

Have we hit a bottom (albeit a temporary one) for now?

And is this the dead cat bounce that everyone was waiting for?

Short these markets at your own risk!

The Nikkei 225 has really tanked!!!!

The PIRATES OF WALL STREET & PANIC + PANDEMONIUM + CRASHES + QUICK FIXES !

WHAT THE HELL IS GOING ON ?
A $700 Billion bailout FAILS and a co-ordinated global rate cut FAILS, so I guess they are working overtime on a new plan.
In the meantime, nothing has really changed -

President Bush says the economy is innovative, industrious and resillient!
The Credit Market is frozen, and the LIBOR just won't come down.
Billions and now possibly trillions of USD, and no liquidity injecting measures are working yet.
The G7 will 'take necessary steps' and has been calling for'urgent and exceptional action'

The declines in stock markets have been incredible! Whats been really surprising and rather worrying, is that there has been no dead cat bounce yet!

CATCHING FALLING KNIVES:
In the coming weeks, if total panic sets in, even conservative and unleveraged firms could fail or at least see their stock values crash if things don't stabilise soon. Be careful while bottom fishing in equities, and although you may have a long term investment horizon; focus on your risk profile and your necessary 'margin of safety' before you buy in.

My call would be for the onset of deflation, and as prices of overvalued and leveraged assets fall, the Central Banks will continue to flood the system with liquidity, and bailouts for all the PIRATES OF WALLSTREET.
As poor quarterly results and upcoming layoffs add to the woes of Wall Street in the coming weeks , the bailouts are going to get larger and larger.
Ultimately this will destroy the currencies of all participating Central Banks, and we could be in for a dose of hyperinflation as a result.

My next post will focus on charts of crashing stock indices, currency graphs, and Gold prices

POPULAR STOCKS & MARKET MELTDOWNS

Given all the turmoil in global Equity Markets, I thought I would look at some stocks that until recently were popular holdings of Foreign Institutional Investors, Traders, Hedge Funds and the investing public.

US STOCKSUntil recently Fertilizer stocks were skyrocketing ( Potash & Mosaic), as fertilizer demand and food grain prices rose sharply. You had to buy coal stocks(Peabody Energy), as Chinese demand was growing exponentially and crude oil prices were going to $200. The bankers/finance people and their BlackBerries (RIM)were taking over the world, as were the Apple iPhone & iPod. And last but not the least you had to own Goldman Sachs- the one firm that could survive and thrive no matter how bad things got.

INDIAN EQUITIES Punter favourites like Jaiprakash Associates ( which rallied despite no significant change in its fundamentals) are now back to square one. Real Estate Developers like HDIL and DLF have crashed over 73% from their 52week highs - These were a must own at one stage, as India needed housing, and surging property prices appeared to have no effect on end user & investor demand. Anil Ambani's Reliance Industrial Infrastructure ( and other group companies like Reliance Power) tanked- as irrational valuations were pricing in projects to be executed years down the line. ICICI BANK is down over 65% from its 52week highs!! MTM losses from its International operations and solvency fears are driving the stock price still lower. Analysts had prevoiusly valued the sum of parts valuation of its Asset Management + Insurance + Banking businesses at well above the current stock price.

MORAL OF THE STORY : Avoid investing in the most popular sectors, without doing your own research first, and do check that valuations leave you with an adequate ''margin of safety''. Markets have the tendency to overshoot both on the upside and the downside, so buying stocks that are expensive market favourites is never advisable.

BBA LIBOR : STRESS IN THE CREDIT MARKETS

Source: http://sharedata.lloydstsbsharedealing.com/en/money/interest/index.html

Banks are unwilling to lend, and despite the massive liquidity infusions and bailout packages, LIBOR rates are not backing down. This is raising the cost of borrowing for solvent and conservative businesses and borrowers the world over.

SO WHATS NEXT ?

Stock markets around the world are tanking, Banks are not lending, and immense wealth destruction is taking place. It is almost unreal-- as Large capitalisation stocks around the world are down 10-20% in a single trading session.

Imagine if they allow the short sellers back!

Considering how sharp the selloff has been, could we be in for a dead cat bounce?

GOLD prices have been slowing creeping upward amidst fears of imminent deflation.

I wonder if a US Fed rate cut might kick off a USD selloff despite the usual flight to safety, just as news of the $ 700 Bn Bailout kept the markets afloat for a while.

HAPPY BIRTHDAY !

THE BULLISH BEAR BLOG - Is now a year old.

And what a year it has been.

Since the Credit Crisis intensified in July-August 2007, the 'experts' have been reassuring us that things were under control, and that everything was going to be fine!!

While I was bearish on the prospects of the US Economy even a year ago, I underestimated the ferocity of the downturn. May be the delaying tactics of those in charge are no longer working.

The process of deleveraging in an interconnected financial web has been a DISASTER.

Regulators supervising undercapitalised institutions that underestimated risk, encouraged by the Monolines and Credit Rating Agencies ---> All estimating that home prices would rise forever.

Meanwhile, the currency markets are chaotic, as everyone scrambles for US Dollars! A safe currency they say! Well at the rate the bailout fiasco is going (with Bailouts III & IV to come I guess), things don't look all that good.

GOLD - SHELTER FROM THE STORM

While the recent volatility in Gold prices has been startling, the long term story is intact. As I have said before, when all is said and done, GOLD will be the one true store of value. So if there is one permanent holding in anyone's portfolio this has to be it. Use the volatility to buy on declines.

BOTTOM FISHING IN INDIAN EQUITIES

Equity Markets in India, like the rest of the emerging markets have seen continued selling.

Large capitalisation stock are down over 50% in some cases, and the once 'Long Term India Investors' have vanished.

While I am still holding on to my core holdings, paper profits are evaporating.

At the same time its important to remember that India is not an export oriented economy, like some markets in the Asian region, so its worthwhile keeping an eye out for attractive buying opportunities in companies with strong fundamentals.

Its going to be a real test of conviction especially for those that were buyers in Indian Equities recently. For long term investors who are ready to sit out the storm, there will be plenty of buying opportunities.

A year ago, it was difficult to find value in Indian Equities. Today there is panic and that value has re emerged.

Tread lightly for now - and be selective while making a list of stocks you want to buy. Not every stock that has fallen is worth looking at. Midcaps and Small Caps may provide higher returns from current prices, but are going to find the going a lot harder in tighter credit markets.

Also consider the fact that the recovery when it comes, is going to be slow and hesitant, so theres going to be no easy money now.

Interest rate sensitives in the Financial, Real Estate and Auto sectors have had a really hard time as have the Metal stocks - as Metal prices have corrected globally.

Lastly, know your own risk appetite - Investment time horizon - and the extent of volatility that you can tolerate for your portfolio

& BEFORE I FORGET = IGNORE THOSE EXPERTS!