There is a saying that "History or past memory is the biggest killer of human being". During March after bailout of Bear Stearns, global market bounced back by 15-20% and all of a sudden everything seems to be settled down as if all the problems were solved. FED kept lowering the rates as an when Wall Street demanded.
But, this time is different, it would be better to come out of those memories and think from different perspective….and if we look at the current situation, it seems almost all the banks in US or UK are at the verge of collapse. No one knows, who is the next to fall, Bear, Freddie, Lehman, AIG, Merrill, Goldman, Morgan, Citi, UBS…keep writing!!!
Intensity of this problem is going to be much higher; you'll soon hear the Wall Street pundits arguing that this is the "climactic capitulation" that will end the decline. Don't fall for it!
The Dow is still not far from its all-time peaks, with a lot further to fall. The recession is still in its early stages. Expect outright contractions in GDP in the coming quarters, and despite a lot of talk and some action, don't count on the government to turn it around any time soon. America's oversized debt pyramid has just begun to wind down. It could take several years to clean up the mess.
What We See Coming Next ...
The financial failures you've seen so far are just the tip of the iceberg ...
- Lehman Brothers is merely the first to fail. Expect more in the weeks ahead, possibly starting with those that have the smallest capital cushion.
- Bank of America is making a horrendous mistake. It's already bogged down with its earlier purchase of Countrywide Financial, a classic pig in the poke. Now, on top of that bad move, it's taking on all the debts and risks of Merrill Lynch.
- "Who would have imagined that AIG would have gotten into this position?" AIG, the biggest insurance firm in the country, is desperately trying to shore up its balance sheet after suffering $18.5 billion in losses over the past three quarters. AIG gets €60 billion bailout from US Federal Reserve
- Look out for bigger financial troubles in the banking industry, including not only the names that are in the news, like Washington Mutual and Wachovia, but also at Citicorp, HSBC ... and yes ... Bank of America.
- The two independent Wall Street investment banks left standing -- Goldman Sachs Group Inc. and Morgan Stanley -- remain under scrutiny, as does Washington Mutual Inc., the country's largest thrift bank.
The market and the economy WILL recover eventually, but only after the nation's bad debts are liquidated, a process that will be extremely painful and traumatic.
Indian Market Update:-The S&P CNX Nifty today declined by 66.65 points to close at 4,008.25 on the National Stock Exchange (NSE) following all-round selling pressure from investors.
Indian stocks failed to sustain early gains chalked up on back of firm global markets on Wednesday, as players aggressively cut positions on concern the US credit-market losses will widen and lead to a liquidity crisis globally. The fears were aggravated after trading in Russian markets was stopped for a second day after emergency funding measures by the government failed to halt the stock rout.
“Drying liquidity is the major concern for markets. Unless foreign players pump in money it's very difficult to hold the markets higher. Given the global scenario, Indian equities are likely to remain under pressure”. ICICI Bank fell the most on rumors its top management had sold the company’s shares.
Nifty September futures witnessed unwinding of long positions, with their premium to the spot market almost vanishing from 16 points yesterday.
Even after US Federal Reserve announced a bail out package for the beleaguered US insurer American International Group (AIG), selling continued in India market. What does it means, it is very clear that at every good news or at every high FII are going to sell. So, what shall be our strategies now....
HBJ Capital View for the Market in Near Term....
>>>>>"It is becoming very difficult to predict the market direction & magnitude on daily basis because after sudden fall market is consolidating, it is getting driven by various news coming out of Wall Streets either it is good or bad, BUT after doing in depth analysis of current scenarios, we would suggest only SELL!!!"
>>>>>Whenever you see market moving up by 1-2% in a day, just SHORT the market at the peak. Buy PUT Option but don't forget to close it after descent profit within a day or two. Don't go for Call Option or LONG Position. Market has already proved us wrong for having a LONG. Let's understand the market dynamic and just SHORT the market.
-HBJ Capital Team
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