Sunday, August 17, 2008

Stephen Roach on The Bubble

Stephen Roach, earlier the chief economist with Morgan Stanley, now head of its Asia operations says:
No economy can live beyond its means in perpetuity. Yet....the US thought it was different.
..... [My Note: In India, we have heard "This time is different" many times during the last one year of bull market excesses. Careful when you hear it again]
With equity markets now in bear-market territory in most parts of the world, it is tempting to conclude that the worst is over. I am suspicious of that prognosis.....
..... [My Note: The bear market in India has more way to go. It could be a range or maybe a test of lows. We do not know that.]
I could envision the dollar actually stabilizing or possibly even rallying into year end 2008 before resuming its decline in 2009 due to America’s still outsized current account deficit.
.....[My Note: For Indian IT stocks there may be pain starting in 2009 if the Dollar starts weakening then. Markets will often discount such events before they occur.]
– a marked deceleration in global growth leading to a related improvement in the supply-demand imbalance in commodities.
.....[My Note: Good news since crude may come down, Bad news since world economies may be in recession. Not sure what the net effect will be.]
Indian GDP growth could fall below the 7% threshold in 2009
.....[My Notes: The RBI is correct in fighting inflation even at the cost of lower growth. While Growth in India has benefited mainly the super rich, Inflation hurts the poor and the middle class.]
Undisciplined risk taking has been a central element of this crisis.
.....[My Notes: At the risk of repeating again, proprietary trading by investment banks has been at the root of the financial crisis. For this simple reason, avoid brokers which have such activities. The best brokers do not do any proprietary F&O . Go with them. Why take unneccesary risk ?]
Financial and economic crises often define some of history’s greatest turning points. They can be the ultimate in painful learning experiences.
You can read the entire report Here


krunal said...

The dollar is 1 of the most flawed currency in recent times jus b'coz it's such a huge reserve of the the 'world's capital' does immune it from the very basics of economics i.e. demand & supply. The U.S. having a current a/c defecit of near bout 9 trillon dollars & there is no political will in the U.S. (other then Ron Paul) to even start thinking bout this major issue.
The Days of the dollar are numbered jus coz they export 60% of thier currency to the world (if i'm not mistaken that's roughly wot the world currently holds as thier reserve currency) they get to export 60% of thier infaltion to us!! (however pathetic it may sound it's true as all the commodities in the world are traded with this flawed currency) but there is a line which everyone tends to ignore or even overlook i.e. the world can dump it as it'll keep losing value which will lead to a spiral which wud be then clean out this extremly excesses filled system.
Watch this movie which will be released in a few days

buy gold!!

Vikas Sharma said...

Good post, Mr. Sukhani. Of course, this time was no different too. But what happened to all the talk by various analysts of Indian GDP growing at 9% and above (which is now zeroing in on 7% but even that is quite a good figure considering the growth rate in the rest of the world), the talk of US recession not having too much of effect on India and the markets being in a secular bull run? Is the secular bull run still intact or all that has turned into bullshit now?

If possible, do discuss the long term scenario of the Indian markets, may be 2 years from now, 5 years from now and 15 years from now in one of your future posts. Your effort would be greatly appreciated.