IT'S BEN (ON) THE 18TH
by Sunil K. Kajaria
September 13, 2007
The complete globalization of financial markets is an amazing (and somewhat scary) phenomenon. Even on India�s premier business news channel CNBC-TV18, all the bobbing heads (or experts, depending on your point of view) can talk about is the upcoming Fed Reserve Meeting on the 18th of September.
To a tee, they predict that the domestic stock-market will calm down once the event is over, and the volatility of recent days will largely disappear. Equally consistent across analysts is the view that the Fed will lower rates by 25 bps and that markets have largely discounted this outcome. Incredibly, no one is bothered by the disconnect between the two statements as something already discounted is unlikely to have any impact on markets � in fact, markets are likely to turn even more volatile as the underlying trends reassert themselves once the event is out of the way.
Just what are some of the underlying trends � The continued decline in the U.S. Dollar and an increase in the price of oil and precious metals are the obvious ones which have been playing out over the last few years. Also obvious has been the rush of funds into Emerging Markets as well as high yielding currencies.
The pace of these trends might well accelerate sharply as the Fed cuts on 18th September and continues to reduce rates a couple of times more before the end of the year. It seems almost reasonable to expect multi-decade highs for crude, gold and a host of other commodities by the end of the year.
What is perhaps less obvious is that the rush of funds into the Emerging Markets looks set to turn into a deluge. The whole concept of �Flight to Safety� has been turned on its head as the US Dollar and the Dow are what you now have to run away from when things get hairy.
Look for bubbles to pop up in markets like India, China and the rest of the EMs. Also look forward to celebrating the globalization process in bubble-making as well � from domestic ones like Nasdaq in 2000 and Housing to full-grown international ones like the Shanghai & the Sensex!
© 2007 Sunil
Sunil K. Kajaria
Mg. Director, Regency Trust Ltd.