Bulls vs. Bears

There is extensive debate going on all over the globe, “Are we entering into Bear market?” Lot of things are happening worldwide. We saw global markets in long appreciation mode. We saw emerging markets (EM) appreciating by circa 300% in last 5-6 years. We saw abundant flow of liquidity in the market as interest rates worldwide were carrier low. We saw commodities like metals appreciate by more than 100%. Real estate prices appreciated by about 100%, on average. These symptoms indicate to a BULL market – one of the strongest is past few decades.

Now the things are changing. Interest rates are going up worldwide, led by US Federal Bank. There has been fall in developed markets like ‘DOW Jones’ & ‘NASDAQ’ (USA), FTSE (UK), DAXX (Germany), CAC (France). Followed by about 25% fall in emerging markets (EM). Commodities, especially metals prices have fallen by about 10%. There has been huge fall in US real estate prices; it is expected to be followed by emerging markets. These are inevitable events in this phase of globalisation as emerging markets follow the developed ones. Now back to the main question, “Are we in BEAR market?”

Let’s first see the real meanings of the words BULL & BEAR. Bulls are ones who want the prices to go higher, so that they can sell whatever they had bought at considerably low prices, leaving them with chunk of profit. Whereas Bears are the ones who want the prices to come down, more so to a reasonable level where they won’t be expensive. Now are we in bear market? Not yet! The reason is that we still have not seen rationality in commodity and real estate prices. Common person still finds them expensive, where it started from being cheap. So prices are expected to come down. But not necessarily this is bear market.

Bears like to keep the prices reasonable. What we are seeing in market is huge fluctuation from cheap to expensive and back. This clearly indicates to lack of bears in the market. To explain the current phenomenon, it has to be a correction – a severe one – mainly because we are still floundering for right prices as share markets seem cheap at current level and commodities and real estate still seem expensive. So we can say with lot of conviction that we are still in the Bull market. But there is risk in being in bull market as these fluctuations will persist and it is really hard to determine value of a buy. Another risk is that if we do not see regular short corrections in Bull market for a long time, there will only be one correction and a huge one – just like one we are in, right now. It’s events like these that prove requirement of Bears in market. Without them we’ll never know the value of the things we buy and sell.

So sure way to success is to support Bulls but respect Bears and not ostracise them.

Asian Economy

In reference to the current events unfolding, as we witness all Asian markets plummeting by overwhelming percentage, liquidity in the market tightening and most of the Asian banks raising the interest rates, we need to re-evaluate the future of Asian growth.

Most of the financial experts agree on the fact that we have not peaked out in Asian growth and that we are still in Bull Run, punctuated with strong and sharp corrections. But there are some factors looming over our heads that will keep spooking the market from time to time. First being the fuel price soaring, second being the ‘Godzilla’ of American economy in a disturbed mode. We can associate both this factors to readjustment of American economy. USA has to find alternative energy sources; they just cannot keep guzzling the oil. That is the biggest factor affecting the inflation and with cascading effect, the interest rate. This will keep CPI numbers going down and push them into stagflation and possible economic slowdown.

This cannot but affect the global market, especially Asian markets. The prime reason behind this is that Asian economy is driven by American consumers and American dollars ($). This American phenomenon will not affect to European markets as much, simply because of their lack of dependence on American dollars ($). This can be credited to their innovation for unifying European economy under the umbrella of Euro (€). So this is about time that the Asian countries leave their differences behind for the greater good and bring the dream into reality: fabricate SAFTA and umbrella Asian currency. Asia just has to go forward with it, as it is the quintessential factor of stabilisation and sustainable development. To counter the American ‘Godzilla’ Asian ‘King Kong’ has to be forged. As size is everything. And at this time, when the global balance is shifting to Asia, unity is the only way forward.

Another reason why Asia needs umbrella currency is that Asia has the biggest population, with India and China on its map. The umbrella currency would only boost the consumerism in Asia. With this consumer base Asian growth should not be dependent on American consumers. Asia can have its cake and eat it, too! But not without forfeiting unwarranted vanity. Asia has to think a lot and act even more and without further ado.

- UMESH SANT