I am completely clueless about the markets right now. However, am not sure which is better – being completely clueless about the market, or being totally wrong about it. I guess in most scenarios, the former follows the latter.
All over the world, the markets are rallying, and the bears can no longer the dismiss it as just another bear-market rally. Somewhere down the line, the bears became too bearish about their predictions, and people lost it in their gloomier and gloomier forecasts. I’m not saying that the current rally is indeed THE RALLY, and we are out of recession. Personally, I have a feeling that the worst is yet to come, though am too scared to put the view into positions.
In my personal opinion, what caused this rally is the fact that globally the central banks infused massive dollops of cash into the system. The printing press all over the world went into the over-time mode, and printed millions of green and blue backs. The cash was supposed to be used to plug the holes into the balance sheets of the banks (and other corporations essential for free money supply into the economy). However, all the cash went into investment assets, and led to the massive short squeeze. People jumped to buy everything available - junkier-the-bond, longer to queue of potential buyers. Risk became history, and all the high beta names sky-rocketed. This is where we find ourselves as of now.
There are two possible paths which the markets could take from here. If the central banks indeed didn’t screw-up big-time, then we may well have seen the bottom, and are unlikely to go there again. The markets would then become a buy-on-dips market, and we would see the mother of all rallies in the emerging nations. Considering the massive amounts of cash sitting with the domestic as well as global asset managers, the BRIC and other developing nations could well go past their past highs. And the buzzword succeeding ‘recession’ would be ‘de-coupling’ for the next few years.
The second scenario, which I think has slightly a lower probability at the moment (but higher payoff if it materializes), is that the central banks erred in their bailouts and packages. And instead of reaching the ones who needed it the most, it ended up just creating a mild bubble in the asset classes. When the tides goes down again, the quarterly results would come back to haunt everyone, and the governments world-wide would by then have run out of ammunitions. Given the high deficits being run by all the governments, we are close to using the full quota of bailout funds. And for some reason, this bubble dies, then we would be in a free-fall again.
Lets see how things pan-out in the coming weeks. I think the picture would become clearer by the end of July as most of the corporates would announce their Q1 results. I’m expecting another quarter of record profits by the US banks, and if it happens, we could see the markets going into the stage 2 of this rally.
All over the world, the markets are rallying, and the bears can no longer the dismiss it as just another bear-market rally. Somewhere down the line, the bears became too bearish about their predictions, and people lost it in their gloomier and gloomier forecasts. I’m not saying that the current rally is indeed THE RALLY, and we are out of recession. Personally, I have a feeling that the worst is yet to come, though am too scared to put the view into positions.
In my personal opinion, what caused this rally is the fact that globally the central banks infused massive dollops of cash into the system. The printing press all over the world went into the over-time mode, and printed millions of green and blue backs. The cash was supposed to be used to plug the holes into the balance sheets of the banks (and other corporations essential for free money supply into the economy). However, all the cash went into investment assets, and led to the massive short squeeze. People jumped to buy everything available - junkier-the-bond, longer to queue of potential buyers. Risk became history, and all the high beta names sky-rocketed. This is where we find ourselves as of now.
There are two possible paths which the markets could take from here. If the central banks indeed didn’t screw-up big-time, then we may well have seen the bottom, and are unlikely to go there again. The markets would then become a buy-on-dips market, and we would see the mother of all rallies in the emerging nations. Considering the massive amounts of cash sitting with the domestic as well as global asset managers, the BRIC and other developing nations could well go past their past highs. And the buzzword succeeding ‘recession’ would be ‘de-coupling’ for the next few years.
The second scenario, which I think has slightly a lower probability at the moment (but higher payoff if it materializes), is that the central banks erred in their bailouts and packages. And instead of reaching the ones who needed it the most, it ended up just creating a mild bubble in the asset classes. When the tides goes down again, the quarterly results would come back to haunt everyone, and the governments world-wide would by then have run out of ammunitions. Given the high deficits being run by all the governments, we are close to using the full quota of bailout funds. And for some reason, this bubble dies, then we would be in a free-fall again.
Lets see how things pan-out in the coming weeks. I think the picture would become clearer by the end of July as most of the corporates would announce their Q1 results. I’m expecting another quarter of record profits by the US banks, and if it happens, we could see the markets going into the stage 2 of this rally.
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