26th June 2013 The Easy Money bubble ... the mother of all bubbles!

The month of May typically is one wherein the temperatures are at their peak, at least in India. But then there is an old Market saying, Sell in May and Go Away. Those of us who viewed the market action in this context would have been better off than those who did not. Since May first week, the financial markets have seen one of the most relentless, yet predictable, fall. Consider this: 1. Since May first week, the Rupee crashed from 55/- to a dollar to a low of 60.50/- to a dollar a fall of a huge 10%!! 2. Since May first week, the Sensex crashed from 20000 to a low of 18600 a fall of a huge 7%!! 3. GOLD in the same period fell from $1450 to a low of $1225 a fall of a huge 15%!! 4. SILVER crashed from $23.50 to a low of $18.50 among the highest fall of a huge 21%!! What does the above market behaviour tell us? Why and when did this start? The answer lies in the US decision to scale down or roll back the quantitative easing of the last five years! The markets got a clue and the big players started scaling down their positions while keeping the investors in the dark (as always). But more disturbing s the corollary to this; if these crashes are due to a probable roll back of easy money, it follows that the last five years bull markets in these and other markets were clearly artificial!. This point I have been stressing in my earlier write-ups too. It was indeed the bubble created by easy liquidity which is now in the process of getting busted! The major fear, and rightly so, is the exit or partial exit of the FIIs out of the emerging markets. If they can bring billions of dollars and inflate the prices, one cannot stop them from exiting lock stock and barrel! No one - but yours truly- was worried when the FIIs pumped in billions of dollars in the past few months and now suddenly everyone is crying foul on their exit! As traders and investors we all need to re-align our portfolio keeping in mind that what occurred in May and June may not be the end, but probably the beginning of a further fall. The economic fundamentals too are not providing any solace and they seem to get worse by each passing month. We are all currently in search of the few green shoots which can provide us the indication of the near-correct time to enter the markets for a long term. CA Rajiv D Khatlawala