In the good old days, analysts came on CNBC and said "this bull market will last forever, this time it is different". I was always afraid of this bullish explanation - "it is different." It never was different - greed was in control everytime there were bull market excesses.
Now, ten weeks into the relentless selling that is going on, I sometimes think - "this bear market is different".
There are no rallies, no pullbacks, just selling. The Nikkei falls 11% because Sony disappoints. India falls 14% because the Nikkei falls. Europe falls because Asia falls, S&P futures are locked in a limit on Globex, then surprise ! - the Dow and S&P lose just 4% each, while the rest of the world loses 8% to 14%.
On Friday, so called 'Black Friday' - I thought, the Nifty is at 2500, very close to a strong support base between 1800 and 2500. On CNBC, I said at 3:15 PM, - "those with spare money not required for next five years may like to invest 5 percent in the market"
First, a word of explanation. I practise very conservative asset allocation. From July 2007 onwards, my allocation for equities was cut slowly till it became 30% of total portfolio. Therefore, I do feel financial pain, but the pain is probably manageable.
Now about this bear market. A 400 point decline (Nifty not Sensex) appears to be 'irrational pessimism.' That was my first reaction.
After a restless night, I am not so sure.
What is 'Deleveraging' ? How will the world wide credit crisis affect us ? How much impact will a world wide recession have on India ? What happens if 'hot money' continues to flee ?
Finally, let us face it, the middle class investor is devastated. Rs 100/- has become Rs 20/-. The first time investor has lost all her capital, therefore, will not re-enter this market for the next five years.
Then, there are fundamental changes in world economic and social order. Nationalisation is again in favor. Croney capitalism (crooked capitalists in alliance with the powerful!) has caused worldwide havoc. How much damage has been done ? Will a repair job swing the other way - too much control ?
Now for the good part. If you note, almost all the issues I have outlined relate to financial engineering. This bull market was created by financials, and, the bear market will see the end of financial services as we know them. That's fine. Maybe, the economic order is resilent, manufacturing and services are fine, and will grow once the system is purged of these horrible financial wizards.
So, what is the answer ?
Er.. what was the question ?
The Question could be: when will this bear market be over ? The answer should be: The Nifty is now at levels where it will find significant chart support. There is a lot of support between 1800 and 2500. This means that we may be see the end of this leg of the bear market between 1800 and 2500. This process may take its own time, but there will be many opportunities for investors in the near future.
NF will now test 2300. All this happened too fast in too short a time. It's something like speed Chess where you have 15 or 25 minutes on your clock to finish a game. The 20 period average now stands at 4053 and it looks like we are not gonna see that level again for some time in the near future. The Anaconda has sucked all life out of the markets and has swallowed it whole. :(
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Titan weak below 937 and 900 can touch 695-572
Results already out, nothing can save it, except a move above 1020
What madness. Sensex closes around 8600, Nifty at 2550. We haven't seen these levels for a long long time now, have we? We are now down 40% in a month. Anyone remember the Nifty close at last expiry (less than a month back)?
4100.
Absolute mayhem. This is a typical destructive bear market, but it's not supposed to happen so fast, no?
A friend called me yesterday. He's a real guru - the kind that speaks with actions, not words - and he said one thing that made it all come together. Every cycle today is shorter, he said. Information flow, and the ability to act on that information is so easy today that bull markets are compressed into a very small time period. So are bear markets. Who'd have thunk the Indian markets would be down over 60% since Jan 08, within 9 months? Yet, who'd have thunk the markets could go UP 35% in six months (July 07 to Jan 08)?
Shorter cycles means the person who survives is the guy who doesn't get any of the news. One more thing my friend said was that people read a lot into history and translate times forget the shorter cycles. The 10 year bear market of the 70s may translate only to a 3 year bear cycle today. And stock markets may simply get more vibrant - ups and downs apart.
Less than 3% of Indian savings are in the stock markets. But a lot of our economy depends on stocks. You get retail chains who can raise funds from private investors saying they want to go public eventually. You get jobs because someone somewhere is a darling of the equity markets, and those funds need somewhere to go. You and I get a better life, an easier existence, relatively easy credit, multiple opportunities - all because the capital markets are vibrant.
If the markets need to continue to be attractive - and they are not, today - we need a solution that's longer lasting. Full rupee convertibility (what better time to start!). Open bond and gilt markets (hello? why isn't this there?). Listed debt and credit markets - yes, even I will want a piece of the supposedly distressed credit card or personal loan market. I have been hoping this happens, but it's way too slow. Someone light a fire, please. Wait. Someone just did.
Finally, this is a time to be prepared. Economic recessions cause political catastrophes. And I would heartily recommend that you take your life, find out what's the worst thing that can happen - loss of your job, your bank going bust, your housing loan being called back, etc. And figure out what you will do if this happens. Just a check list, so then if anything does not happen it is a bonus.
And what of the stock market? Markets are irrational (Someone please bring the random walk theory person here and beat him with hawaii chappals) and will forever remain so. Are they irrationally down? Or are these values that still make sense? The Nifty P/E is now around 11. That's a historic low, but don't let that confuse you...think about whether these companies will grow their EPS well going forward. Oh and by the way, current results are excellent. More funny-mentals. Trend of course, is down and going more down. The trend is your friend until it bends
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