Puru Saxena (http://www.purusaxena.com/) quoted in fullermoney.com, says:
Lets face it, the era of easy money and cheap oil has come to an end. And if my assessment is correct, this transformation will have a significant impact on the global economy.
..... In the current circumstances, I suspect it will be extremely difficult for the central banks to further expand credit growth, thereby inflating their way out of trouble.
.....it may only be a matter of time before foreign holders of US Treasuries start liquidating their holdings. When that occurs, long-term interest-rates in the US would rise rapidly and the Federal Reserve would have no other option but to raise its Fed Funds rate.
My Notes: if the US consumers spend less (because they borrow less) the belt tightening will affect most economies including India & China.
A New carry Trade
The yen carry trade was very popular in which funds & traders borrowed in yen at half percent interest, then used the funds to trade or speculate in currencies, commodities, whatever. A new carry trade is now in the making. This is the crude to equities carry trade. Oil rich economies are earning money they never dreamt about. Earlier, a barrel of crude fetched $30. So, one barrel of crude could buy $30 worth of equities in world markets. Now,the same barrel fetches $100, getting equities worth $100. So, for owners of oil reserves, equity is cheaper than ever. Not just equity, but also property.
From http://ftalphaville.ft.com/ : So great is the power of high-priced crude, the world’s oil reserves ($135tn) could buy the S&P 500 Index 11 times over... Oil producers are being offered a “once-in-a-lifetime opportunity” to build up weightings in global equities at a time when nobody else wants to buy.
My Notes: We should consider buying oil shares on dips, as a hedge - ONGC, Cairn, Essar Oil, Reliance.
Marc Faber (Dr Doom) reveals his personal holdings.
From http://ftalphaville.ft.com/ :
From a personal perspective, says Faber, of his total assets, about 5 per cent is in equities, 8 per cent in gold, 8 per cent in real estate and related investments and the rest is split between US and euro fixed-interest securities.
Faber suggests accumulating gold from here on down to possibly $600/oz. While not necessarily forecasting such a drop (from the current level of about $820/oz), he notes the metal could.
So in typically cheery mode, Faber says, “let us assume the financial system blows up”. Large deposits could become worthless overnight. But if you own shares of companies — even though they may decline in value — you will still own these shares since they are a certificate of ownership and not liabilities of someone else.
So, no matter how negative a stance one might have toward equities, at this point the ownership of some solid companies might be more desirable than being a creditor in a financial system that may not be able to pay at some point in the future.
My Notes: Gold, Blue chip equities (not for trading but long term ownership), Property, bank Fixed Deposits (PSU Banks), funds for trading, - this is how an individual's asset allocation could work out.
Nobel Laureates Predict Credit Crisis to Keep Hurting Growth - (http://www.bloomberg.com/)
Myron Scholes and Daniel McFadden predicted the yearlong credit squeeze will inflict more pain on the world economy and financial markets.
"The crisis is not over and I'm not exactly sure when it's going to end,''
My Notes: As Investors and traders, we can simply follow the market to make some money, but more so to protect our capital. In this time, capital preservation is more important than aggressive trading.