Market Musings 2008 10 29 PM

We are all confused about the direction of the market as well as when the volatility of the beast will return to normal levels.

There has been enough liquidity pumped in to the financial/ banking institutions. There has been worldwide coordination for lowering rates and increasing liquidity. The derivatives based instruments can not be traded. So, we have a whole lot of banks and hedge funds with little to show for capital as derivatives like swaps can not be traded. A whole of hedge funds are facing redemptions and have to sell all their liquid securities. Hence a reduction in many favorite sectors like oil and gas, commodities, making us very confused and baffled.

So, what is in store for us? It seems no body really knows what will happen including me. That is for certain. With that in mind, we can speculate, but, from a slippery perch of confidence:

AAA) Market is closer to bottom. In fact, bottom was probably reached on 10/10/2008. The volume that day has been higher than we have had since. Only with longer hindsight, we will know if 10/10/2008 was the day of capitulation.

BBB) Banks will never earn as much money as they did in last few years, due to lack of derivatives going forward. The regulation from government will not allow as much leverage. Hence my conclusion that their prices may not be as high as they were.

CCC) Despite alternate energy projects, oil will continue to remain the fuel of choice for use with low capital needs for cars, power plants and other projects. Its future can not be ignored. The oil may not go to 150 dollars a barrel, but $100 is still possible, as economies around the world improve. Invest in some of the safe dividend stocks.

DDD) Real Estate investments in USA will remain difficult, as baby boomers need less of a house for living. Real estate abroad will be profitable.

EEE) Invest in China, as it will grow to satisfy consumer and capital needs of the western countries like USA, Australia and Europe and Japan. This is a recommendation without any reservations.

FFF) USA will remain the prime country for leadership and innovations and will generate money and wealth out of nowhere. Recent examples are Google, Microsoft, Airplane and Airplane engine manufacturing. Capital in USA is huge for investment and growth. Alternative energy in the form of wind and sun will evolve and become practical. China is strong in Solar Energy area also.

These are just some ideas for further evaluation and discussion. E-mails with new ideas are requested to my e-mail address mohancapital@gmail.com.