It is almost two months since this blog has been updated. The reason is that I was on vacation and had several other issues to be tackled including a possible shift in career. However, financial thoughts never left me because the last two months were really crazy. Major financial events were:
1. Fear of USA defaulting on its debt as the President and Congress quarreled on debt ceiling. Once again, after the disputed election of George Bush, it proven again that USA is not far from becoming a 'banana' republic.
2. Downgrade of USA by S&P and its consequences. Whilst the person who showed the courage to downgrade USA (which I believe is apt given their debt burden) has lost his position (of course USA does not use coercion!) the world financial markets went for a topspin. I made the opportunity to make some long term investments in affordable quantities of some good companies. Warren Buffet makes jokes of folks pursuing diversification as an investment strategy and states that diversification is required by ignorant investors. Well I have to admit that I am one of those ignorant ones and given the kind of corporate governance these days, I have no courage to make concentrated investments. In fact, I revisited my investment portfolio and reduced the certain investments, which I felt suffered from concentration risk.
3. Fear of Greece default and its consequences on French and German banks. British, as has been consistent with their historical record, is adept in keeping distance from the continents problems until dragged on to it, is proudly claiming that their banks are immune from the catastrophe that will hit the banks in the continent. However, this confidence may be misplaced as the 'liquidity winter and freeze' that will hit the European Banking & Financial Sector should Greece default (= 2xLehman?). It will blow cold chills winds into the British Isles as well, which will force them to act. Although not in financial front, this happened during Napoleonic times, First World War and Second World War. (During my recent visit to UK, the woes of economic crisis were visible almost everywhere, which recently culminated in riots. It is a wonder how this Small Island commands respectable position in the world. It seems that the nations prayer "God Save the Queen/King' is being answered through generations)
During my vacation, as I focused the thoughts on the financial safety of my investments, the near future outlook offers no comfort. Threats of double dip in US, weak Eurozone, possible collapse of Euro, slowing Indian & Chinese growth, are major challenges. All started with the fall of US real estate market in 2007, which is caused by Ben Bernanke’s "Himalayan Blunder" of fast interest rate hikes. Allan Greenspan open the doors of Real Estate boom with low interest rates and Ben crashed it with higher rates. A handful, mainly hedge funds, FIs, HNWIs,etc made tons of money (but many and the most of the retail investors lost) when the real estate crashed. Whilst banks and institutions who lost money were supported by Govt (bail outs) whose senior management continue to enjoys bonuses, the middle class is now being pushed in poor class.. see the latest news of increasing poverty in the US.
I believe there is two schools of thoughts caused this crisis – a clash of Financial Titans ( Thoughts). Allan believed in credit, somewhere I read that he has stated that a person can be born in credit and die on credit if the welfare state looks after his needs like hospital, education, old age, etc. He believed in credit and it is stated that this reflects in the book he authored after retirement from Fed Governor position.
Ben on the other hand is a traditionalist and doesn't like too much credit and hence tried to de-leverage the US economy too soon too fast, resulting in a spectacular crash and made mess of everything. After Lehman crash, confused Ben hurriedly slash the interest rates to all time lows. (May some one ask Ben, why he hiked the interest rates in 2007 in the first place, if only he had to slash it lowest levels in just one year? No wonder there are many who believe US and World would be better if Ben is replaced!!). Remember Ben and his team could even know how the interest rates could impact the economy and wide social fabric- economic mismanagement is evident by all US admin and they are making predictions!!
Some economists say it will take a decade to clear the things up. If so, the stock market may remain sluggish. Hence, I have also decided to give equal emphasis to equity derivatives to make some gains out of it, possibly through some option condors.
1. Fear of USA defaulting on its debt as the President and Congress quarreled on debt ceiling. Once again, after the disputed election of George Bush, it proven again that USA is not far from becoming a 'banana' republic.
2. Downgrade of USA by S&P and its consequences. Whilst the person who showed the courage to downgrade USA (which I believe is apt given their debt burden) has lost his position (of course USA does not use coercion!) the world financial markets went for a topspin. I made the opportunity to make some long term investments in affordable quantities of some good companies. Warren Buffet makes jokes of folks pursuing diversification as an investment strategy and states that diversification is required by ignorant investors. Well I have to admit that I am one of those ignorant ones and given the kind of corporate governance these days, I have no courage to make concentrated investments. In fact, I revisited my investment portfolio and reduced the certain investments, which I felt suffered from concentration risk.
3. Fear of Greece default and its consequences on French and German banks. British, as has been consistent with their historical record, is adept in keeping distance from the continents problems until dragged on to it, is proudly claiming that their banks are immune from the catastrophe that will hit the banks in the continent. However, this confidence may be misplaced as the 'liquidity winter and freeze' that will hit the European Banking & Financial Sector should Greece default (= 2xLehman?). It will blow cold chills winds into the British Isles as well, which will force them to act. Although not in financial front, this happened during Napoleonic times, First World War and Second World War. (During my recent visit to UK, the woes of economic crisis were visible almost everywhere, which recently culminated in riots. It is a wonder how this Small Island commands respectable position in the world. It seems that the nations prayer "God Save the Queen/King' is being answered through generations)
During my vacation, as I focused the thoughts on the financial safety of my investments, the near future outlook offers no comfort. Threats of double dip in US, weak Eurozone, possible collapse of Euro, slowing Indian & Chinese growth, are major challenges. All started with the fall of US real estate market in 2007, which is caused by Ben Bernanke’s "Himalayan Blunder" of fast interest rate hikes. Allan Greenspan open the doors of Real Estate boom with low interest rates and Ben crashed it with higher rates. A handful, mainly hedge funds, FIs, HNWIs,etc made tons of money (but many and the most of the retail investors lost) when the real estate crashed. Whilst banks and institutions who lost money were supported by Govt (bail outs) whose senior management continue to enjoys bonuses, the middle class is now being pushed in poor class.. see the latest news of increasing poverty in the US.
I believe there is two schools of thoughts caused this crisis – a clash of Financial Titans ( Thoughts). Allan believed in credit, somewhere I read that he has stated that a person can be born in credit and die on credit if the welfare state looks after his needs like hospital, education, old age, etc. He believed in credit and it is stated that this reflects in the book he authored after retirement from Fed Governor position.
Ben on the other hand is a traditionalist and doesn't like too much credit and hence tried to de-leverage the US economy too soon too fast, resulting in a spectacular crash and made mess of everything. After Lehman crash, confused Ben hurriedly slash the interest rates to all time lows. (May some one ask Ben, why he hiked the interest rates in 2007 in the first place, if only he had to slash it lowest levels in just one year? No wonder there are many who believe US and World would be better if Ben is replaced!!). Remember Ben and his team could even know how the interest rates could impact the economy and wide social fabric- economic mismanagement is evident by all US admin and they are making predictions!!
Some economists say it will take a decade to clear the things up. If so, the stock market may remain sluggish. Hence, I have also decided to give equal emphasis to equity derivatives to make some gains out of it, possibly through some option condors.
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