Continuing from last week's my posting of liquidity trap and W shape recovery, I am of the opinion that every region, state or country undergoes a broad macroeconomic cycle of different time frame depending on their structural issues in terms of age, gender, income/saving/spending nature, export/import oriented, regulations in financial systems and etc.
Here I would like to give comparison between US and Japan because they are World's largest economies (except China overtaking Japan recently) and almost they are in same position now.
Japan experienced rapid growth from 1960s to 1990s, helped by post 2nd world war massive US investment, high savings led to high investment in their own country due to currency appreciation, low interest rates & etc. Japan witnessed an average GDP growth of 10% in 1960s, 5% in 1970s & 4% in 1980 indicating a slowdown in real growth after 1980s. It experienced asset price bubble in late 1980s followed by Bank of Japan's sudden increase in interest rate & crash of Nikkie in 1989 when it was around 39000.
Many economists feel, after crisis Japan didn't act quickly, it took 5 years to boost money supply in real economy, which was definitely very late reaction. Out of ten years from 1990 to 2000 Japan witnessed 9 times deflation measured by WPI, Nikkie has given 4 times negative annual return, 4 times less than 10% and just 2 times positive.
Now coming to US, it witnessed the Great Depression in 1930s which produced great economists like Sir John Maynard Keynes and in turn the great Keynesianism theory. From 1945 to 1970s US witnessed higher growth helped household income increased 55% or 1.6% annually but since 1973 household income growth rate fell to 10% or 0.3% annually due to various reasons like fall of Bretton Woods System(Nixon Shock) in 1971, followed by Oil shock or crisis in 1973, Recessions in 1981-1982 and after that several economical cycles of recessions in successive intervals.
In 1980, the US Debt was equal to 33.3% of America's GDP, by 1990 it became 56% of GDP. Debt levels rose quickly in the following decade and based on the 2010 US Budget, total national debt will grow to nearly 100% of GDP, versus a level of approximately 80% in early 2009.
Present financial crisis caused by sub prime mortgage, securitization structures and financial engineering along with FED's low interest rate policy to avoid the 2001 dot com bubble effects. Between 1997 and 2006, the price of the typical American house increased by 124% and at same time household debt v/s annual disposal income was 127% at the end of 2007, versus 77% in 1990.
So both the countries experienced rapid growth for 2-3 decades and after that they are feeling the heat of slowdown in their respective economies due to different reasons, which is nothing but natural economical cycle.
Prof. Raghuram Rajan, economic adviser to Prime Minister Mr. Manmohan Singh, in an interview about Currency conflicts mentioned same structural issues in US which I pointed above. Click here to read the full interview. I read an article in mint on similar note (about Japan & US similarities & differences of crisis, advise of Mr. Bernanke to Japan in late 1990s and he being at top job at present crisis!) its good article, click here to read. The paper presented in late 1990s from present FED chairman Ben Bernanke to Japan about its crisis. It contains lot of important data & structural issues with good explanation, click here to read that.
Showing posts with label FED. Show all posts
Showing posts with label FED. Show all posts
Saturday, October 16, 2010
Thursday, December 25, 2008
How the FED feeds India
Today when I was browsing through the papers I saw this article from Bhattacharya Saugata. Where in he has given the interlinkage between two countries in this globalised era. How a developed country's operations can hamper a country like ours... I am just providing the 2 paragraphs that article...
The Federal Reserve’s balance sheet operations will impact India’s growth prospects A fall of 20 percentage points in export growth in 2008-09 means a drop of Rs 2 lakh crore in potential income, far beyond anything that our stimulus packages envision
This last week, the US Federal Reserve cut its target rate more than expected to an unprecedented level close to zero. A few days later, the Bank of Japan sought to move in tandem and go on to Act 2 of its nineties’ quantitative easing (QE). What were the motives, why a shift in stance now, and what will be the consequences?
It might seem an academic exercise to analyse the Federal Reserve’s monetary policy actions last week, but it is not. It will have a deep impact on India’s economic future in the next year, even more than the measures now being taken by India’s policy authorities. Calculation shows that India’s exposure to global markets (exports of goods and services) in 2007-08 was $223 billion (or about Rs 11 lakh crore; India’s GDP was Rs 47 lakh crore, for reference). A fall of 20 percentage points in exports growth in 2008-09 means a drop of Rs 2 lakh crore in potential income, far beyond anything that our stimulus packages envision.
Bottom line:
By this we can say that no country can say that it is decoupled from the rest of the world at least at the time crisis!!!
The Federal Reserve’s balance sheet operations will impact India’s growth prospects A fall of 20 percentage points in export growth in 2008-09 means a drop of Rs 2 lakh crore in potential income, far beyond anything that our stimulus packages envision
This last week, the US Federal Reserve cut its target rate more than expected to an unprecedented level close to zero. A few days later, the Bank of Japan sought to move in tandem and go on to Act 2 of its nineties’ quantitative easing (QE). What were the motives, why a shift in stance now, and what will be the consequences?
It might seem an academic exercise to analyse the Federal Reserve’s monetary policy actions last week, but it is not. It will have a deep impact on India’s economic future in the next year, even more than the measures now being taken by India’s policy authorities. Calculation shows that India’s exposure to global markets (exports of goods and services) in 2007-08 was $223 billion (or about Rs 11 lakh crore; India’s GDP was Rs 47 lakh crore, for reference). A fall of 20 percentage points in exports growth in 2008-09 means a drop of Rs 2 lakh crore in potential income, far beyond anything that our stimulus packages envision.
Bottom line:
By this we can say that no country can say that it is decoupled from the rest of the world at least at the time crisis!!!
Wednesday, December 17, 2008
U.S. Stocks Rally, Led by Banks, as Fed Cuts Rate to Record Low
U.S. stocks and the S&P’s 500 Index rallied after the Federal Reserve cut its benchmark interest rate to a record low(which was more than expected by the market) and said it will employ “all available tools” to revive the economy.
The S&P 500 added 5.1 percent to 913.16. The Dow Jones Industrial Average gained 359.61 points, or 4.2 percent, to 8,924.14.
The Federal Reserve cut the main U.S. interest rate to as low as zero and said it will buy debt as the next step in combating the longest recession in a quarter-century and reviving credit.
The Fed “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the FOMC (Federal Open Market Committee) said today.
9 rate cuts in the prior 14 months and $1.4 trillion in emergency lending failed to reverse the economic downturn. Today, the Fed said it will target a federal funds rate of between zero and 0.25 percent.
“The focus of the committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level,” the FOMC said.
Fed lowered the rate on direct loans to banks and securities dealers to 0.5 percent. It set the payment on the reserves that commercial banks hold at the Fed at 0.25 percent, down from 1 percent.
The Bank of Japan has been the only major central bank in modern times to mix a policy of steep rate reductions with quantitative easing, or the strategy of injecting more reserves into the banking system than needed to keep the target rate at zero.
Japan’s central bank kept its main rate at zero from 2001 to 2006 while flooding the banking system with extra cash to encourage lending, spur growth and overcome deflation.
The S&P 500 added 5.1 percent to 913.16. The Dow Jones Industrial Average gained 359.61 points, or 4.2 percent, to 8,924.14.
The Federal Reserve cut the main U.S. interest rate to as low as zero and said it will buy debt as the next step in combating the longest recession in a quarter-century and reviving credit.
The Fed “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the FOMC (Federal Open Market Committee) said today.
9 rate cuts in the prior 14 months and $1.4 trillion in emergency lending failed to reverse the economic downturn. Today, the Fed said it will target a federal funds rate of between zero and 0.25 percent.
“The focus of the committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level,” the FOMC said.
Fed lowered the rate on direct loans to banks and securities dealers to 0.5 percent. It set the payment on the reserves that commercial banks hold at the Fed at 0.25 percent, down from 1 percent.
The Bank of Japan has been the only major central bank in modern times to mix a policy of steep rate reductions with quantitative easing, or the strategy of injecting more reserves into the banking system than needed to keep the target rate at zero.
Japan’s central bank kept its main rate at zero from 2001 to 2006 while flooding the banking system with extra cash to encourage lending, spur growth and overcome deflation.
Tuesday, December 16, 2008
FED in Dilemma
Presently FED(whose meeting is going on now) may be Dilemma!!!
Again whether to go for FED rate reduction or not?
There are 2 ways of looking at it.
One is why they need to reduce the rates? There are many answers for this to avoid the deflation, to boost the market sentiments and etc.
Second is why they should not? Because of possibility LIQUIDITY TRAP, about which I already posted so will not discuss same again.
Today they may reduce the FED rate by 25 or 50 basis points. Since their CPI of November month fell by 1.7%, surpassing the previous record decline of 1% set in October. It was the largest one-month decline dating to February 1947. A record plunge in consumer prices in November puts pressure on the Federal Reserve to act decisively to guard against a possibility of deflation.
Again whether to go for FED rate reduction or not?
There are 2 ways of looking at it.
One is why they need to reduce the rates? There are many answers for this to avoid the deflation, to boost the market sentiments and etc.
Second is why they should not? Because of possibility LIQUIDITY TRAP, about which I already posted so will not discuss same again.
Today they may reduce the FED rate by 25 or 50 basis points. Since their CPI of November month fell by 1.7%, surpassing the previous record decline of 1% set in October. It was the largest one-month decline dating to February 1947. A record plunge in consumer prices in November puts pressure on the Federal Reserve to act decisively to guard against a possibility of deflation.
Thursday, December 4, 2008
Liquidity Trap
Guys, from nearly two months, I am writing in my blog that US may be heading for liquidity trap. Also many time I mentioned about helicopter money.
Today, in Financial Express, Editor also expressed the same thing. Here is what Financial Express says…
ECONOMIC recession is usually defined in textbooks as two consecutive quarters of declining output. On Monday, the NBER (National Bureau of Economic Research) has said that the US has actually been in recession since the end of 2007. What is worse is the consistent decline in economic performance despite a slew of proactive policy measures—fiscal and monetary—initiated by the US government.
There is now a serious danger of the US being in a liquidity trap, where interest rates and monetary policy lose all potency. Interest rates have been slashed to as low as 1% and there isn’t long to go before they hit zero. Still, borrowing and lending are in a stall. People are simply hoarding up on cash in a low-confidence environment. Japan suffered for almost a whole decade because of a liquidity trap. The US and the rest of the world can ill-afford such a prolonged slowdown in the world’s largest economy. In the absence of monetary policy—we are yet to see Ben Bernanke offload helicopters of money to ward off a liquidity trap—fiscal policy gains additional importance. Unfortunately, the US presidential transition has come at a bad time from an economic point of view. The new President and his team don’t take office until January 20, 2009, still a month-and-a-half away. The current government doesn’t have the authority to plan and implement a large fiscal stimulus. Under the circumstances, things could deteriorate rapidly in the interim if a fiscal package is not announced. In the meanwhile, there is no consensus on the future of Detroit’s carmakers either. Given the extraordinary circumstances, American politicians from across the aisle in Congress and across two presidencies must get their act together faster. The global economy may pay a heavy price for US inaction.
On 27/09/2008 I expressed the same thing in blog. Here is what I said at that time…
Day before yesterday I said that now RBI should start thinking about interest reduction. What do you think about US guys? What FED should do? Whether to keep it same as of present 2% or increase or decrease? Since while browsing through Bloomberg, I read that FED Chief Mr. Bernanke is hinting about reduction in Fed rate.
But I don’t think it’s a good move. Already they have reduced nearly 300-350 basis points. Presently Fed rate is 2%. By reducing the Fed rate he wants to boost the sentiments of the investors and Wall Street participants. But in this kind of situation it may act as negative news to the markets. First their financial institutions are bleeding like anything due to lack of strict regulations. Companies which are as old as 100 -200 years are going bankrupt due to excessive leveraging nearly 30-40 times of their assets. Yesterday Washington Mutual Inc. a holding company for the savings and loan that became the biggest U.S. bank to fail filed for bankruptcy protection along with its unit WMI Investment Corp.
Due to all this, whole world stock markets are crashed from their peak level for example Chinese market crashed nearly 45%, India almost 40% and so on. Now my point is they can’t reduce interest too low which may lead to possibility of liquidity trap.
Okay let me give brief idea about what is liquidity trap!!!
In economics, a liquidity trap occurs when the nominal interest rate is close to zero, and the monetary authority is unable to stimulate the economy with traditional monetary policy tools. In this kind of situation, people do not expect high returns on physical or financial investments, so they start hoarding their assets rather than making long-term investments. This makes the recession even more severe, and can contribute to deflation also.
In normal times, the monetary authorities can stimulate the economy by lowering interest rates or increasing the monetary base. Either action should increase borrowing and lending, consumption, and fixed investment. When the relevant interest rate is already at or near zero, the monetary authority cannot lower it to stimulate the economy.
Keynes is usually considered as the inventor of the liquidity-trap theory. In his view, financial participants fear the possibility of suffering capital losses on non-money assets and thus hold money instead. For example, the fear of default on loans can inhibit lenders from lending except to extremely credit-worthy customers. These fears are most likely after a financial crisis such as that associated with the Stock Market Crash of 1929. Further, if nominal interest rates are extremely low, there is no place for them to go but up. That implies that bond prices will likely fall in the near future, causing capital losses. Bond rates down means no (or less) long term investments. If investment start reducing then development will be hampered which leads to less demand leading to less production and overall leading to deflation
Today, in Financial Express, Editor also expressed the same thing. Here is what Financial Express says…
ECONOMIC recession is usually defined in textbooks as two consecutive quarters of declining output. On Monday, the NBER (National Bureau of Economic Research) has said that the US has actually been in recession since the end of 2007. What is worse is the consistent decline in economic performance despite a slew of proactive policy measures—fiscal and monetary—initiated by the US government.
There is now a serious danger of the US being in a liquidity trap, where interest rates and monetary policy lose all potency. Interest rates have been slashed to as low as 1% and there isn’t long to go before they hit zero. Still, borrowing and lending are in a stall. People are simply hoarding up on cash in a low-confidence environment. Japan suffered for almost a whole decade because of a liquidity trap. The US and the rest of the world can ill-afford such a prolonged slowdown in the world’s largest economy. In the absence of monetary policy—we are yet to see Ben Bernanke offload helicopters of money to ward off a liquidity trap—fiscal policy gains additional importance. Unfortunately, the US presidential transition has come at a bad time from an economic point of view. The new President and his team don’t take office until January 20, 2009, still a month-and-a-half away. The current government doesn’t have the authority to plan and implement a large fiscal stimulus. Under the circumstances, things could deteriorate rapidly in the interim if a fiscal package is not announced. In the meanwhile, there is no consensus on the future of Detroit’s carmakers either. Given the extraordinary circumstances, American politicians from across the aisle in Congress and across two presidencies must get their act together faster. The global economy may pay a heavy price for US inaction.
On 27/09/2008 I expressed the same thing in blog. Here is what I said at that time…
Day before yesterday I said that now RBI should start thinking about interest reduction. What do you think about US guys? What FED should do? Whether to keep it same as of present 2% or increase or decrease? Since while browsing through Bloomberg, I read that FED Chief Mr. Bernanke is hinting about reduction in Fed rate.
But I don’t think it’s a good move. Already they have reduced nearly 300-350 basis points. Presently Fed rate is 2%. By reducing the Fed rate he wants to boost the sentiments of the investors and Wall Street participants. But in this kind of situation it may act as negative news to the markets. First their financial institutions are bleeding like anything due to lack of strict regulations. Companies which are as old as 100 -200 years are going bankrupt due to excessive leveraging nearly 30-40 times of their assets. Yesterday Washington Mutual Inc. a holding company for the savings and loan that became the biggest U.S. bank to fail filed for bankruptcy protection along with its unit WMI Investment Corp.
Due to all this, whole world stock markets are crashed from their peak level for example Chinese market crashed nearly 45%, India almost 40% and so on. Now my point is they can’t reduce interest too low which may lead to possibility of liquidity trap.
Okay let me give brief idea about what is liquidity trap!!!
In economics, a liquidity trap occurs when the nominal interest rate is close to zero, and the monetary authority is unable to stimulate the economy with traditional monetary policy tools. In this kind of situation, people do not expect high returns on physical or financial investments, so they start hoarding their assets rather than making long-term investments. This makes the recession even more severe, and can contribute to deflation also.
In normal times, the monetary authorities can stimulate the economy by lowering interest rates or increasing the monetary base. Either action should increase borrowing and lending, consumption, and fixed investment. When the relevant interest rate is already at or near zero, the monetary authority cannot lower it to stimulate the economy.
Keynes is usually considered as the inventor of the liquidity-trap theory. In his view, financial participants fear the possibility of suffering capital losses on non-money assets and thus hold money instead. For example, the fear of default on loans can inhibit lenders from lending except to extremely credit-worthy customers. These fears are most likely after a financial crisis such as that associated with the Stock Market Crash of 1929. Further, if nominal interest rates are extremely low, there is no place for them to go but up. That implies that bond prices will likely fall in the near future, causing capital losses. Bond rates down means no (or less) long term investments. If investment start reducing then development will be hampered which leads to less demand leading to less production and overall leading to deflation
Saturday, September 27, 2008
Liquidity Trap
First my belated birthday wishes to our Prime Minister Mr. Manmohan Singh. Yesterday he celebrated his 76th birthday. And today in our college three of my friends are celebrating their birthdays namely my room partner-Amit Chauhan, Secretary- Anurag and Brarji. Wishing all the very best of luck in their future, let’s start our usual business…
Day before yesterday I said that now RBI should start thinking about interest reduction. What do you think about US guys? What FED should do? Whether to keep it same as of present 2% or increase or decrease? Since while browsing through Bloomberg, I read that FED Chief Mr. Bernanke is hinting about reduction in Fed rate.
But I don’t think it’s a good move. Already they have reduced nearly 300-350 basis points. Presently Fed rate is 2%. By reducing the Fed rate he wants to boost the sentiments of the investors and Wall Street participants. But in this kind of situation it may act as negative news to the markets. First their financial institutions are bleeding like anything due to lack of strict regulations. Companies which are as old as 100 -200 years are going bankrupt due to excessive leveraging nearly 30-40 times of their assets. Yesterday Washington Mutual Inc. a holding company for the savings and loan that became the biggest U.S. bank to fail filed for bankruptcy protection along with its unit WMI Investment Corp.
Due to this, whole world stock market are crashed from their peak level for example Chinese market crashed nearly 45%, India almost 40% and so on. Now my point is they can’t reduce interest too low which may lead to possibility of liquidity trap.
Okay let me give brief idea about what is liquidity trap!!!
In economics, a liquidity trap occurs when the nominal interest rate is close to zero, and the monetary authority is unable to stimulate the economy with traditional monetary policy tools. In this kind of situation, people do not expect high returns on physical or financial investments, so they start hoarding their assets rather than making long-term investments. This makes the recession even more severe, and can contribute to deflation also.
In normal times, the monetary authorities can stimulate the economy by lowering interest rates or increasing the monetary base. Either action should increase borrowing and lending, consumption, and fixed investment. When the relevant interest rate is already at or near zero, the monetary authority cannot lower it to stimulate the economy.
Keynes is usually considered as the inventor of the liquidity-trap theory. In his view, financial participants fear the possibility of suffering capital losses on non-money assets and thus hold money instead. For example, the fear of default on loans can inhibit lenders from lending except to extremely credit-worthy customers. These fears are most likely after a financial crisis such as that associated with the Stock Market Crash of 1929. Further, if nominal interest rates are extremely low, there is no place for them to go but up. That implies that bond prices will likely fall in the near future, causing capital losses. Bond rates down means no (or less) long term investments. If investment start reducing then development will be hampered which leads to less demand leading to less production and overall leading to deflation
For your information guys, in Great Depression time, U.S. stock market fell from 1929 peak levels to 90% by 1931-32.
So present condition is almost same as that of Great Depression of 1929. Some other time I will post about the great depression and other crashes which rocked us.
So instead altering Fed rates, Fed need to think of how to get out of this present condition as early as possible and try to make the lending, leveraging & securitization regulations stricter.
Reference…
Bloomberg.com
Wikipedia.com
Day before yesterday I said that now RBI should start thinking about interest reduction. What do you think about US guys? What FED should do? Whether to keep it same as of present 2% or increase or decrease? Since while browsing through Bloomberg, I read that FED Chief Mr. Bernanke is hinting about reduction in Fed rate.
But I don’t think it’s a good move. Already they have reduced nearly 300-350 basis points. Presently Fed rate is 2%. By reducing the Fed rate he wants to boost the sentiments of the investors and Wall Street participants. But in this kind of situation it may act as negative news to the markets. First their financial institutions are bleeding like anything due to lack of strict regulations. Companies which are as old as 100 -200 years are going bankrupt due to excessive leveraging nearly 30-40 times of their assets. Yesterday Washington Mutual Inc. a holding company for the savings and loan that became the biggest U.S. bank to fail filed for bankruptcy protection along with its unit WMI Investment Corp.
Due to this, whole world stock market are crashed from their peak level for example Chinese market crashed nearly 45%, India almost 40% and so on. Now my point is they can’t reduce interest too low which may lead to possibility of liquidity trap.
Okay let me give brief idea about what is liquidity trap!!!
In economics, a liquidity trap occurs when the nominal interest rate is close to zero, and the monetary authority is unable to stimulate the economy with traditional monetary policy tools. In this kind of situation, people do not expect high returns on physical or financial investments, so they start hoarding their assets rather than making long-term investments. This makes the recession even more severe, and can contribute to deflation also.
In normal times, the monetary authorities can stimulate the economy by lowering interest rates or increasing the monetary base. Either action should increase borrowing and lending, consumption, and fixed investment. When the relevant interest rate is already at or near zero, the monetary authority cannot lower it to stimulate the economy.
Keynes is usually considered as the inventor of the liquidity-trap theory. In his view, financial participants fear the possibility of suffering capital losses on non-money assets and thus hold money instead. For example, the fear of default on loans can inhibit lenders from lending except to extremely credit-worthy customers. These fears are most likely after a financial crisis such as that associated with the Stock Market Crash of 1929. Further, if nominal interest rates are extremely low, there is no place for them to go but up. That implies that bond prices will likely fall in the near future, causing capital losses. Bond rates down means no (or less) long term investments. If investment start reducing then development will be hampered which leads to less demand leading to less production and overall leading to deflation
For your information guys, in Great Depression time, U.S. stock market fell from 1929 peak levels to 90% by 1931-32.
So present condition is almost same as that of Great Depression of 1929. Some other time I will post about the great depression and other crashes which rocked us.
So instead altering Fed rates, Fed need to think of how to get out of this present condition as early as possible and try to make the lending, leveraging & securitization regulations stricter.
Reference…
Bloomberg.com
Wikipedia.com
Wednesday, August 6, 2008
Mr. Udit Mehra's Comments
Hey, Naveen
I agree with your view on the market sentiment of India with that of the U.S., however, I think the market will go up for around a day or two and then we might again see a downward trend, but what will happen after the losses are recovered, will there be a buying spree again? Will the fed holding the benchmark interest rate have a positive effect? The crude and the gold are currently positively correlated, gold have fallen by -25.80, due to low demand of gold and gold companies producing less of gold, what's your view on that? Now let me finish up asking more of questions as I think I have troubled you a lot by asking a lot many.
Hope to get answers for some of the questions...-) and I think all of us who are reading these interesting insights provided to us by Naveen should contribute from their side also to make this a good discussion to clear our apprehensions about the markets.
Thanks and Regards,
Udit Mehra
My Opinion to Mr. Mehra's Comments
Thanks for initiating a discussion. Actually I want response from readers so that I also start thinking more...
One request to Mr. Mehra please post your comments on my blog directly instead of mailing to me. Because my other readers also come to know it, if you post in blog...
Now coming to comments, ya you are right our market will be up for one or two days depending upon the yesterday's Fed's decision. But I think there is vicious link in between this. See as you also know Fed is in very critical condition, it cant increase Federal rates since already the problem of recession, lob losses, credit crunch is hunting the US. And at the same time they cant reduce it also because of inflation queuing up. I think for short term period its a positive news for manufacturing, banking and service sector shares in the financial markets. And as I mentioned in my previous post we are in range bound market. I think market is bottomed up, so there is going to be two steps up and one step down because of profit booking. And now in our market majority buying is by Domestic players like LIC and MFs. So I think once FIIs and retail investor start then only there will be stability we can see.
About Gold. I remember my Dad's words, he use to say that, Gold has always been a Hedging measure against inflation. So as you said, Gold, Inflation and now Crude oil prices are positively correlated. Since Crude is coming down, I think inflation is stabilizing around 12-13% there is going to less demand in Gold. If the crude reaches double digit figure as many analysts are mentioning and by 2009 start inflation will start coming down(Because of Base year effect) the gold rate will come further.
But all this will be matter of another 4-6 months... Lets wait and watch...
And enjoy reading and keep on commenting.................
I agree with your view on the market sentiment of India with that of the U.S., however, I think the market will go up for around a day or two and then we might again see a downward trend, but what will happen after the losses are recovered, will there be a buying spree again? Will the fed holding the benchmark interest rate have a positive effect? The crude and the gold are currently positively correlated, gold have fallen by -25.80, due to low demand of gold and gold companies producing less of gold, what's your view on that? Now let me finish up asking more of questions as I think I have troubled you a lot by asking a lot many.
Hope to get answers for some of the questions...-) and I think all of us who are reading these interesting insights provided to us by Naveen should contribute from their side also to make this a good discussion to clear our apprehensions about the markets.
Thanks and Regards,
Udit Mehra
My Opinion to Mr. Mehra's Comments
Thanks for initiating a discussion. Actually I want response from readers so that I also start thinking more...
One request to Mr. Mehra please post your comments on my blog directly instead of mailing to me. Because my other readers also come to know it, if you post in blog...
Now coming to comments, ya you are right our market will be up for one or two days depending upon the yesterday's Fed's decision. But I think there is vicious link in between this. See as you also know Fed is in very critical condition, it cant increase Federal rates since already the problem of recession, lob losses, credit crunch is hunting the US. And at the same time they cant reduce it also because of inflation queuing up. I think for short term period its a positive news for manufacturing, banking and service sector shares in the financial markets. And as I mentioned in my previous post we are in range bound market. I think market is bottomed up, so there is going to be two steps up and one step down because of profit booking. And now in our market majority buying is by Domestic players like LIC and MFs. So I think once FIIs and retail investor start then only there will be stability we can see.
About Gold. I remember my Dad's words, he use to say that, Gold has always been a Hedging measure against inflation. So as you said, Gold, Inflation and now Crude oil prices are positively correlated. Since Crude is coming down, I think inflation is stabilizing around 12-13% there is going to less demand in Gold. If the crude reaches double digit figure as many analysts are mentioning and by 2009 start inflation will start coming down(Because of Base year effect) the gold rate will come further.
But all this will be matter of another 4-6 months... Lets wait and watch...
And enjoy reading and keep on commenting.................
About Today’s Market
According to me today market is going to open with positive note. Because US market, Dow Jones ended up with 330+ (3%) and Nasdaq ended up with 60+ (2.8%). Initially US markets were up because of fall in the crude oil price and service sector report. After that, rally took from Fed’s unchanged interest rates (Presently 2%). Sensex, according my charts has immediate support @ 14550 and major resistance @ 15800. And one more thing, market will be range bound since in this kind market, at every rise there is going profit booking to recover the old losses. So start investing wisely and step by step and decide when to exit before investing. Never make losses, be patient………..
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