Nov 14
#fullpost{display:inline;}Inflation for the week ended November 1, 2008 was 8.98%, sharply lower than the previous week’s 10.72% reading. Expect further sharp declines in the coming weeks and months…creating substantial room for policy makers to cut rates and provide further liquidity infusions.
Currently: Policy rates Reserve Ratios
Bank Rate 6.0% C.R.R. 5.5%
Rep Rate 7.5% S.L.R. 24.0%
Reverse Repo Rate 6.0%
So we have room of 4% on SLR, 2.5% on CRR and I would expect a reduction of at least 250 basis points more in Policy rates.
As the financial crisis plays out globally, expect inflation expectations in India to vanish from the landscape…the above liquidity infusions combined with targeted stimulus packages and financial sector reforms will be instituted by the government. There is almost no choice in the matter and a debate will not be required.
With respect to markets, I am now 5% equities and 95% cash…and on the internal Hamlet debate of to buy or Not to buy…I found the following quote amusing:
So who would sell into such a market? The Investor Team’s resident academic, Anant Sundaram, puts such sellers into two categories: the clueless and the choice-less. Sundaram, a professor of business administration at Dartmouth, says the former need to take a Prozac, but the latter have more ramifications for the economy. Only those with a gun to their heads, in the form of margin calls or investors screaming for their money back, would sell now, he says, and they must be either hedge funds, statistical arbitrage mavens or private equity players.
Nov 14
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The BRIC countries had a total of USD 260 billion in forex reserves at the time of the Russian debt crisis in 2000…today India by itself has more than that total. Total Reserves at the end of September totaled nearly $3 trillion…a substantial kitty with which to fight crisis and emergency situations.
Unless the global financial system comes to an end, and we all go into our separate corners to play for the foreseeable future, there will be a recovery. It may be V-shaped or U-shaped but there will be a recovery. I have lived through incredible debacles; this is not the first time that Citibank has gone bust…the LDC crisis did that in the 80’s.
The entire equity base of the Canadian banks was wiped out at that time…of course, deals were made with government to provision over years while providing tax relief for the entire loss immediately. A steep positively sloping yield curve, wider than normal spreads between deposits and loans for a few years and all was healthy and sound…and it was all blown away by the commercial real estate implosion of the late 80’s early 90’s. Anyone remember Canary Wharf and Olympia&York.
The fact is we are now coming to the most taxing phase of this global financial disaster…the ‘there is no solution’, ‘things can only get worse’, ‘everybody take your toys and go home’, utter investor despondency and depression phase.
I bought Citi at $9 in 1982…and after splits..it means I bought for $1.10….and of course with LDC having blown everything away..the end was nigh. So, the next few months will be a paradise for picking up good companies with good prospects…and you will have lots of time to analyze and decide. It is time to get to work…do your analysis…it is hard work but it will pay-off.
The longer the doomsayers prognosticate the better…because, when they stop…the rush will be on…and I hate line-ups.
Remember, equity markets are a marathon…not a 100 meter dash.
