We are in the last phase of bear run; tighten your seat belt; we are in for bumpy ride now.

We are probably in the last phase of bear run where corporate earnings get degraded. Corporate getting hit will further cascade this effect to common man working in the companies and once they start winding their hands, this bear market or say slowdown/recession will hit the real street. Although one can see the impact of financial or say structural crisis on the real street but complete impact will be felt only when corporate get hit. Soon we will see (around mid 2009) prices of real estate coming down to more realistic level or you can say the level seen in year 2004-05 in India.

When we are talking about corporate getting hit, what we can see is there are some countries as a whole is asking for bailout….Hmm. One must not get panicked due to such news, because whether it is a corporate or a country or an individual; every one needs to ensure that they are financially sound. If you start spending more than what you earn, you have to go for credit or loan. As long as you are able to pay EMI or interest on the loans well no one will ask you anything. The day you fail to pay EMI, one tall, strong and dangerous guy will appear and he will drag us to the street, they are called recovery agent; the hard way to collect loan amount:-(

In case of country, they take loans for their basic need, these loans are called trade deficits (export – import); so if you export less and import more you will be in –ve trade deficits, just like the way US is under close to $6-7 trillion of trade deficit. In this case you can assume as if US has taken loan of $6-7 trillion by pledging some assets or paper on which US has to pay interest to lender. Now if US is failing to pay the interest, lender will start recovery, in this case no recovery agent but country has to go for bailout in order to pay interest amount.

In India you can see Jet Airways, sooner or later it will go bankrupt because with close to Rs 1000Cr amount which it need to pay Oil companies, it is not able to pay this amount. Now oil companies will start recovery and Jet will have to take the same route what Air Deccan has taken!!!

Sharan G, Research Analysts.
HBJ Capital, India