Look at these stocks, they have fallen more than 90%, just think about those who has invested their life time savings betting big on these stocks.
ASIAN ELECTR
PRAJAY ENGS,
IOL NETCOM,
ORBIT CORP,
UNITECH,
SUBEX AZURE LTD,
ARIHANT FOUN,
PURAVANKARA.
Once upon a time Unitech, a great wealth creator has fallen and this company will soon collapse due to interest default, come on yaar, this company doesn't have cash to pay the interest forget about how they will be building or completing dream homes of many people. Those who has taken 30-40 lakhs loans from bank with huge EMI will be in severe pain soon, with job market down & dead, insecurity of salary looming large at the same time these builders might take long long time to hand over the home. Real estate prices will fall and a house which one has bought @ say 40 lakhs will be available at Rs30 Lakhs, it is simple loan payers are going to default and bank will suffer most, which bank any idea? It is ICICI Bank which has given max housing loans most of the time without looking at any credit worth of loan taker. Now you got the other reason why ICICI Bank has already fallen so much, market factors these events before it really happens.
This kind of movement in share price can make anyone nervous, even the seasoned investors. With stock across the board declining by anywhere between 30% and 60% to even 90%, the mood seems very somber.
This is in fact the scariest stock market we've seen in many years. While the last big crash - the dot-com bust – was more severe, today’s market seems far more frightening.
…and that means it is a wonderful opportunity to make a lot of money…of course, by investing for the long term.
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Investing in stocks isn’t dead…....
Here is what Warren Buffett had to ask investors in his 1997 letters to shareholders -
"If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices?”
These questions, of course, answer themselves.
But now for the final exam: "If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?”
Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the 'hamburgers' they will soon be buying. This reaction makes no sense.
Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices. And the prices are sinking…as of now.
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Markets are in sheer panic and becoming literally dysfunctional and unhinged. It seems policy makers may soon be forced to close financial markets as the panic selling accelerates.
We have now reached a point where fundamentals and long term valuation considerations do not matter any more for financial markets. There is a free fall as most investors are rapidly deleveraging and we are on the verge of a capitulation collapse.
What matters now is only flows - rather than stocks and fundamentals - and flows are unidirectional as everyone is selling and no one is buying as trying to buy equities is like catching a falling knife. There are no buyers in these dysfunctional markets, only sellers and panic is the ugly state of this destabilizing game.
While panic and destabilizing market dynamics is the driver of financial markets even economic fundamentals are awful as investors are finally realizing that a severe US and Euro zone and G7 and emerging markets and global recession is coming and will be deep and protracted.
Equity prices may have to fall another 30% based on fundamentals alone before they bottom out. Why so? In a severe two year US and global recession S&P 500 firms’ earnings per share (EPS) could realistically fall to $50 or $60. If P/E ratios fall to 12 this implies the S&P 500 index falling to a 600 to 720 range. If P/E ratios fall - as likely in a recession - to 10 then the S&P 500 index could fall as low as 500 to 600.
So even based on fundamental factors alone there is another 30% or more downside risk to US equities; and now, on top of such fundamentals, there is also an ugly and nasty panic-driven market dynamics at work.
We have reached the scary point where the dysfunctional behavior of financial markets has destructive effects on the financial system and - much worse - on the real economies. So it is time to think about more radical policy actions and government interventions. Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more as the crisis forces investors to dump assets.
``Systemic risk has become bigger and bigger''. Developing nations' borrowing costs jumped to the highest in six years today as Belarus joined Hungary, Ukraine and Pakistan in seeking a bailout from the IMF to help weather frozen money markets and a slump in commodities. Argentina risks defaulting for the second time this decade.
There are about a dozen emerging markets that are now in severe financial trouble. ``Even a small country can have a systemic effect on the global economy,'' he added. ``There is not going to be enough IMF money to support them.''
This is the worst financial crisis in the U.S., Europe and now emerging markets that we've seen in a long time. Things will get much worse before they get better. I fear the worst is ahead of us.
- Sharan G, Economist, HBJ Capital, India
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