Thursday, April 9, 2009

The faster it rises – the harder it will fall

The current bull run is a great example of irrational exuberance.

More the exuberance, the more are the risk overlooked.

Markets have not factored in some really bad news :-

  • US GDP for Q4 likely to come in at negative 6.5 %
  • US Banks insolvent - TARP /TALF/ MTM adjustment is in right direction - but will not prevent nationalization or pseudo nationalization and breakup of banks. MTM adjustment will provide an artificial lifeline for a few quarters.
  • Worst than expected macroeconomic news from US and rest of the world.
  • India Q4 GDP likely to come in at 5 % types, possibly sub 5%
  • India corporate results will come in worst than expected.

The current bull run is very likely being driven by a section of large investors, who will eventually make some quick money at the cost of retail investors.

However for the long term investor (8 years plus kind of holding period) this is as good a time as any other.

In any case I do believe that the period from March to Aug ‘08 is a bottom formation period. What I find a little difficult to believe is that this particular run is a beginning of a bull run. I expect retest of the Oct 08 lows.