- Back after a long hiatus.....
The world has changed in the last quarter itself. Oil is back to sub $100 again, gold is back to 12 month's low, the commodity cycle is ending.
Equity as an asset class, has underperformed during this period. Dow is close to bear market territory.
The big boys of finance - Lehman Brothers, Freddie and Fannie have failed. It just goes to prove that no institution, how big and powerful it may be, is invincible.
So greed is the cause of all failures in the world of finance.
One point I want to make is that in US, "Losses are public and gains are private". I think this is a sheer desperate way to protect the 'interested' influential people in Wall Street.
There is gloom and prediction of doom all around...
So where do we go from here?
My take is - if the world is to survive this credit crisis, which I am sure it will, Equity will again deliver. It may take time over the next 1-2 quarters. We will again have some storyline, just like films, and like the Pied Piper, all the mortal folks will flock back to equity.
Let's wait and watch....
Like-minded people please respond and share your viewpoints too!!!
Thursday, September 11, 2008
Greed and Fear
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8 comments:
The financial situation looks bleak ....but your optimistic words appear like a silver lining... looking forward to more inputs in the days to come....
Dear Mr. Dev,
Little I know about market economy, hence, it may not be proper for me to make any comment. But I do remember , in one of the writings you mentioned that oil price is going to come down to 100 dollars and it has happened now. All kudos to you for making such an impeccable prediction. Your foresight and speculation on the matter turns out to be absolutely flawless. I request you to enlighten people like us with your immense knowledge on the subject.
Thanks..
Hirak
Hi dada
Hope Equity storyline as predicted becomes a reality soon. I know little about market economy & my understanding is limited to only steel trends and its impact on economy. So will look forward to more inputs ……….
eshwari
Hi Eshwari,
Thanks. I think steel and equity are also inter-related. they go in the same direction!!
So do let know your views.
The equity market is fluctuating wildly so is the steel prices. Lower prices and a 3 month moratorium have lessened steel barons' wealth in the stock market by over 25 % since May.
The current situation could now lead to further decline in prices. The over $100 a ton fall in international prices due to improved availability has exerted pressure on domestic prices and with the recent weakening of rupee, import prices are above local prices. On the other hand, there is no respite in prices of raw materials like iron ore and coking coal. The likes of RINL, JSW, Ispat, which do not have a secure raw material supply, will witness further dip in net profit in the second quarter.
I anticipate no relief till the end of this year. I guess same will be the case with market. My interpretation is not backed with financial understanding of the stock market, so will be looking forward to more inputs …..
eshwari
Hi Eshwari,
Yes, the commodity cycle is peaking. But one point is that in India steel prices I guess were not tied up with global prices,due to govt control.
China demand is supposed to come down too, post Olympics. So steel prices will remain weak. But now with market fully in speculative hands, fundamentals are only for academic interest anyways!!
Indian steel prices are also depended on global prices. Primary producers hold only 40% of market share rest is shared by secondary producers and their input is 80% steel scrap, out of which 50% is imported scrap. Also primary producers are depended on imported raw materials for coal, coke & limestone. So any fluctuation in international prices affects domestic market as well.
Steel prices are not controlled by government, but they do control prices of major primary steel players. The self imposed price moratorium of primary producers to tame inflation, only led to 30% less price than market rate till first quarter. During this period all the private players made huge profits including SAIL. Only VSP couldn’t capitalize during that period.
And now with current financial crises in downtrend US economy coupled with global downtrend, steel demand will reamin sluggish for longer period.
In the world of steel, every player remains familiar with the cyclical nature of the growth. But, none really expected this to have happened so fast. The steel super cycle seems to have been ended abruptly.
"My take is - if the world is to survive this credit crisis, which I am sure it will, Equity will again deliver. It may take time over the next 1-2 quarters" - Don't you think 1-2 quarters is an optimistic figure, when many of the economists are comparing this to the 'Great Depression'.
Do you think the bail out package offered by the Central banks help in bringing back the economy?
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