THE MOTHER OF ALL EVIL IS SPECULATION

THE MOTHER OF ALL EVIL IS SPECULATION


G.P.BAROOWAH

Gordon Gekko in the film Wall Street Pronounced “Greed is Good”. This one liner lit fires in the heart of young investors ever since 1987. Many people become millionaire and some lost money. Gekko is back after serving eighth years in prisons for insider trading. His new one liner is “The mother of all -Evil is speculation.”

We are borrowing this famous line to forewarn young population of North East of impending turmoil of world economy which may lash the Europe first and later USA too within a month to two years to come. We believe forewarning means forearming. Our advice to young people is not to indulge in speculation while planning investment strategy now for future. Despite offering of stimulus package of one trillion Euro, Greece may not be able to survive the economic turmoil. It is now apparent that Portugal, Spain and Italy my also get effected badly. The fiscal condition of England is not too happy and new prime Minister of Great Britain has not only proposed salary cut for Ministers but also planning to reduce jobs in Governmental sectors. This may trigger sudden Impact on the fragile economy of the Europe. The monetary system may collapse. What would be the condition of Euro currency and Pound Sterling.? Both the currencies are going to take a beating. Already Euro currency has come down considerably. It is expected to go down further that would create monetary pandemonium in the world. “The European Economic and Monetary Union (EMU) and the euro are about to celebrate their 10th anniversary. The euro was introduced without serious problems and has since done well” said Martin Feldstein, George F. Baker Professor of Economics at Harvard University . He felt
that the current economic crisis may provide a severe test of the euro's ability to survive in more troubled times. While the crisis could strengthen the institutions provided by the EMU, it could also create multiple risks, of which member countries need to be aware if they want to avoid them.


How would India be affected? Indian economy would be also affected. Initially FII May withdraw money from Indian share market to support their own currencies. The export based industry of India is going to take a beating. In near term Share market is going to go down but is expected to stablise in longer term. How the investors of northeast should behave to survive the turmoil?

According to our considered opinion the investors of Northeast should hold the money with them. Keep it in Bank or in liquid sector of Mutual fund. Even money can be parked in Government guarranteed bond or in Gilt fund for the time being. In these instruments investor may get 4% to 12% return over the year. They can start investing once market stablises at the lower end of the index. Now sensex is 17200 and Nifty is in 5100. Incase Europe take a spin our sensex and Nifty may reach 15,000 and 4800 point or can be much lower. At this point of time Senior citizen may stop investing in Mutual funds, Share market and in Equities. They can invest in Debt based fund especially in Government guaranteed debt funds where return would be improving in such a situation.

Global investors, who bought Indian shares worth $6 billion this year due to cheap funds in their home nations and prospects for growth here, are showing signs of taking some gains off the table following more than doubling of stock values. Foreign funds net sold Rs 381.42 crore of shares during last week, provisional data showed.

Global investors are panicking as experts such as former Federal Reserve chairman Paul Volcker and Deutsche Bank chief executive Josef Ackermann doubt the strength of financial markets in Europe. Let us not behave like an Ostrich, hiding the head in the sands.

Greece may not be able to repay its debt in full; Ackermann was quoted as saying by Bloomberg News. Volcker has said the euro may break up and Chinese Premier Wen Jiabo said the foundations for a worldwide recovery are not “solid” as the sovereign debt crisis deepens. “The Stability and Growth Pact, which limits euro-zone members' fiscal deficits, is another reason why a country might want to leave the EMU. In a serious downturn, a country may wish to pursue a traditional Keynesian policy through large-scale, deficit-financed fiscal stimulus”< Harvard professor of Economic stated. What could be done by Indian investors?

Investors flocked to gold, the traditional store of value, pushing it up to a new record of Rs 18,339 for 10 gm. The coincidence of the auspicious Akshaya Tritiya during last weekend, perhaps added to its strength.

Emerging market equity funds had a second straight week of redemptions, according to EPFR data. China equity funds posted their second straight week of outflows and Latin America equity funds saw outflows rise to the highest in 85 weeks. Despite all these turmoil India is expected to survive better than most countries. It is not because Indian economy is very vibrant. It is because Indian mass can survive with bare minimum needs for a prolonged time. India’s 40% population are below poverty level .These population ion remain unaffected even when share market goes down to even below 12000 Sensex point. In 2008 when growth of Indian economy was under cloud none died of hunger and no revolution broke out like other Asian countries it is because traditionally Indian know how to survive a worst situation. This is because of the fact 80% population are dependent on agriculture. The failure of monsoon creates much bigger turmoil rather than crash of Share Market… The biggest support system is internal market of the country. . The needs of timing millions are very meager. It gets satisfied if two square meal are available. So how should Indian Middle class should behave if recession strikes the society again?

Our suggestion is that no senior citizen should enter share market now. Young generation should hold money and get ready to invest when market stabilizes at lower end of the spectrum. All investment should be made now in Debt instruments and investment in equity should only start as the market goes down considerably. No investment should be made for his neighbour had made money from equity investment last year, or neighborhood brokers have shown him the Golden Goose of equity investment.

------------------------------------------------------------------------------------------------------