State of the Markets, Sept18,08

Markets are tanking worldwide and investors are definitely having a roller coaster ride. In fact  the big financials with a 100+ years of history are Cliff diving and taking the Dow and the World markets down along with them!

Greenspan says US in ‘once-in-a-century’ financial crisis

Wall Street Journal: Investment Banks, By the Numbers

Is this the end of the good times for a foreseeable period and the beginning of a large recession comparable to the great recession of the 40s? Or are we already through the roughest phase of bankruptcy, consolidations mergers and bailouts like Freddy, Fannie and AIG thanks to the backroom push by Market Street. So has the Shit hit the roof ?

Read : S&P 500: 25% Off Sale

One thing that i have noticed is that the biggies of the US financial stocks fell like nine pins especially AIG which took hardly any time to get bailed out once Lehman fell.

Also read Money Market Funds Enter a World of Risk

The Reserve Primary Fund, a giant money market fund, said its customers would lose money. Instead of each share being worth a dollar for every dollar invested, it said its customers’ shares were worth only 97 cents. In Wall Street parlance, it “broke the buck,” a rare occurrence.

Gold prices posted the biggest one-day gain ever in dollar terms on credit market turmoil

Will the most recent coordinated action by Central bankers and banning naked shorts be enough ? Or will there be a slow and torturous fall from here?

Brad Setser, CFR: The flight from risky US assets

Read A V RAJAWADE (Im becoming a fan)

A V Rajwade: A sense of deja vu

A V Rajwade: Painting the world red

A V Rajwade: Masters of the universe

State of the local markets

India is witnessing a massive sellout and pullout by FIIs , thanks to the falling rupee and the worsening worldwide economic scenario and  those that haven’t pulled out have already hedged their positions either in the futures markets here or in Hong Kong and Singapore. The overall figures are negative since May 08. The buying by the DIIs like LIC and Mutual funds is not stemming the fall as the sentiment has turned negative. The Indian growth story does not seem that Intact anymore.

Read A V Rajwade: India’s growth story

There is an inherent desperation as funds have dried up and NFOs are being extended, one that is holding the NSE above 4000 for the last three days, as MFs may be fearing massive liquidation by small local investors, some of whom might have taken a 50% + hit on their MF Portfolios.

While internationally it is the private entities that with their excesses have lead to a complete loss of faith in the system leading to a liquidity crises, that the FED is trying to address,  the Indian scenario is a lot more different and the problems here are mainly due to excesses of the Govt, thanks to the mounting subsidy burden, uncontrolled spending and record fiscal deficit coupled with an FII unwinding.

Of late the markets are extremely choppy thanks to panic among market men who prefer not to hold any position overnight due to the negative sentiment and the events in the US, coupled with the falling rupee and Adv tax payments that have also sucked out liquidity from the system.

FM and the RBI governers worlds about curbing inflation mean little, thanks in part to Inflation still holding above 12% and the worsening the state of the fisc due to high oil prices and ever increasing subsidies and the fall of oil prices from $140+ to $90+ has done little to curb the import bill or inflation as the Rupee is has fallen from a Rs 39 to the dollar to a Rs46 necessitating RBI intervention.

Read : RBI measures shore up rupee, but fail to cheer stock market

But can Rbi intervene in Hong Kong ?

Read DNA: Rupee hit by an invisible force

….the one-year forward rate in the domestic market is 46.70/$1 (46.05 is the rupee rate plus a 65 paise forward premium), but in Hong Kong, the same forward is quoting at 47.68/$1 —- a clear arbitrage of 98 paise. The RBI can’t do anything to stop the trades since they are executed outside its jurisdiction, on foreign shores.

“It’s illegal so we can’t even talk about it. But it’s a peculiar situation because the rupee is not fully convertible here, but countries where these trades are settled have fully convertible currencies. Also, the RBI can’t just go ahead and legalise these trades because it would mean that they are jumping the regulation just because there are some players using this route,”

. . . volumes have at least increased eight times from $100 million in 2003 to more than $800 million a day now.

Anyways as i see it there is still some fall left and the Stock Markets will be volatile and  range bound and one may think about entering the markets through ETFs and Index funds  say if the markets fall another 5 to 10% from hereon in the near future.

Inputs from Galatime,  II blog and others.

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