Indians should take note of big changes taking place in the world economy. After the collapse of the USSR, capitalism of the American Variety became the popular method of economic policy. Now, the strongest advocate of capitalism, the USA, has done the unthinkable - Nationalization.
By taking over the two housing finance companies, America has made Nationalization, acceptable once again. But, blogs say that this move to socialism is really to protect the rich - since it protects the large investment banks which created the sub-prime crisis.
Kenneth Rogoff , a senior economist, writes in the Gaurdian : (Full article here)
There is also a fairness issue. The financial sector has produced extraordinary profits, .... Why, then, should ordinary taxpayers foot the bill to bail out the financial industry?
Nouriel Roubini, now world famous for correctly predicting the sub prime crisis, writes here:
This is the biggest and most socialist government intervention in economic affairs since the formation of the Soviet Union and Communist China......
(Bush, Paulson, Bernanke) allowed the biggest debt bubble ever to fester without any control, have caused the biggest financial crisis since the Great Depression and are now forced to perform the biggest government intervention and nationalizations in the recent history of humanity, all for the benefit of the rich and the well connected.
My view: Lessons for Indians:
India has followed a model of extreme capitalism in the last four years. The poor and the middle class watched as the rich grew richer. This model is likely to end in early 2009, and a more equitable society will emerge. Investors should focus on PSU shares, as this segment will carry the least risk of uncertainty. Avoid brokerages, privately owned financials, real estate.
For Investors: There is likely to be more pain in the stock market. Rallies should be considered as bear market up moves, unless proved otherwise.
The FII's - in big, deep problems of their own, should not be expected to invest in India, in large amounts, in the near future.