I have not posted for a few weeks. And the markets have not gone anywhere in that time. There has been a great amount of news flow, mostly negative, from all over the world. The great disaster in Japan, revolts in Egypt, Libya and Bahrain. With the fear that it may spread to other authoritarian regimes in the Middle Eats, the price of crude has gone up. Investors are a fearful lot these days.
I am really concerned about the situation in Japan. I have a personal liking for Japan and its people as it was the first foreign country I had visited in my life. The great damage that the Tsunami and the earthquake has done is immeasurable in monetary terms. Also, I am afraid of a nuclear fallout in case the explosion in the nuclear reactors there cannot be controlled. The implications are too horrific to contemplate.
I was asked about the impact of the Japanese catastrophe on Indian equities by a friend. Here is my worst-case-scenario:
Japan is not able to contain the nuclear reactors from exploding. They would need huge financial reserves to rebuild the country and decide to sell the $800-$850 billion holding of US Treasuries. With that kind of selling, there is unlikely to be any major buyer around the corner. With no buyers, the US bond prices fall like nine pins and others join in the selling to prevent significant losses to their treasuries. If large holders of US bonds like China (which holds more than one trillion dollars) start selling it would spell doom for the US dollar. If the dollar collapses, the economic recovery process in going to be stillborn.
The revolts in the middle-east also have a important consequence on global oil supplies. If there is political turmoil in Saudi Arabia, then the cat will really be amongst the pigeons.
The tsunami of corruption issues hitting the UPA government is bringing to the frontpages issues that people knew were true anyway. It is not something that is new to the people. These, at most, will cause temporary changes to political behavior but I doubt if it will have any lasting impact. I remain skeptical on this issue.
By nature I am an optimist. So, I hope that all these will not come to pass. With that in mind, I am continuing to buy my identified stocks. The only difference is I have reduced the quantum of buying and increased the time between each buy.
I still believe that the best years for India are yet to come. So, keep the faith.
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