Since mid-April 2013, the stock markets are going up. Whilst US Fed Chairman has warned about the bubble formation on 8th May 2013, the markets continue to ignore him.
As we hear during the bubble formation the market pundits and bulls says 'this time it is different'. If we notice, the stocks that participate in the rally are few.
At least in Indian context (to a great extent applicable in the USA) most of the stocks are not participating in the increase in stock prices. Only those stocks listed in index are moving up.
What are the reasons for the rally? Whilst the bubble formation is evident and there are lot of justifications, Financial Thoughts believe that the major reasons include the following:
1. It is evident that the financial and commodity markets in the world are controlled by a few power entities based in the west. The commodities may be produced in Asia or Africa or South America - but the price of major commodities is still fixed mostly by the traders in the West as in 19th century. They have powerful media backing them up - who throw out articles for world consumption. For instance, the newspapers and other media still rely on mostly Reuters or Bloomberg.
2. A few institutions and powerful people in the West decides which financial assets or commodities to rise in the next year and they invent reasons. For instance, they said Gold is good for uncertain times and they promoted gold to new heights - entire world participated in the chorus. However, was it uncertain times? Ask Warren Buffet and similar investors who did not even bought an ounce of gold - now the same people who have promoted the gold has turned bearish all of a sudden & they have shorted it and profiting on its fall. Well - the media around the globe is spinning stories why Gold is a bad investment.
3. After ditching the Gold, the funds has to find some investment opportunity. They turned to Equities. They also fear that if the Fed increases rates, then bond prices will crash - so they are also selling bonds - and they have a problem of where to invest. They are not happy with US treasury rates. So they have decided to create a bubble in equity markets. And this bubble will get over and the media will write stories how fools got into the bubble and got themselves destroyed!!
One of the common patterns observable in these manipulated market is that there is an inevitable jump in the equity index towards the end of the session. Even if the market is flat, during the last 20 minutes some of the index stocks - especially those with higher weightage - to the index will move just to show the public the 'manipulated rally' is still on.
This is very true in Indian situation. The fundamentals haven't changed much and the oil prices are still high - recent current account deficit has increased. Moreover, Indian rupee is depreciating against dollar, which will result in imported inflation.
Although they say WPI is reducing, this is stated to be "'a managed number" by changing the mix within it. Ask Indian consumer who will say that he is experiencing price increase across the board - this is not a surprise. Since India is adding a population equivalent to Australia every year, the demand for all items - especially food - is on the rise. Any rumour of lack of monsoon or lower agriculture production sends the prices high. No wonder food inflation is around 10% - and big surprise that the WPI is still dropping.
Let the investors be warned - don't be hyped by the media or the FII driven rally. All FII hope to sell the stocks and indices at high prices to Indians directly or indirectly (read mutual funds, etc) and make their money and get out.
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