Game theory

A new game called ECONOMY was launched last year in the market. The game had an atrocious price tag on it. Top heads of companies, fund managers and some influential people bought this game (only they could afford it to be honest). Game developer Mr. anonymous (name changed on his request) said that he had high hopes from the game but sales were dismal owing to bad economic conditions.

Now, as a layman, I meet these executives, heads, and fund managers on various channels. They are all very smart people and believe that they have mastered the game (ECONOMY). When I hear them speak I get convinced that they are the masters of it. They may not have all the information on the ground but they have the position, and that’s what matters.

My father always said that stock recommendations or even IB is like a bollywood movie. You have to create a story and on top spice it up with whatever you can. I would apply this wisdom to economy. With so many channels around and 24 hours of software requirement (shows) you need people who can talk. Most of them are good story tellers. Just the way you try and predict the climax of a movie  they predict the ECONOMY.

But the major concern is everything is based on what is happening today. A fundamental analyst on these channels gets a minute and the poor fellow talks at such a fast pace that you feel someone is holding a gun on his head. If you can make out anything from what he says it would be something from the following: “ …cement sector is slowing down”, “…pharma is a safe bet but affected by the slowdown”, “…auto sector won’t make a comeback for next 18 months” etc.

But on the other hand these self styled GURUs called Technical analysts (who btw get a significant footage) would say that if THIS level is breached next target is THAT. Or if THIS support is broken then the next one is THAT. Put a stop loss at THIS and THAT etc. But fortunately or unfortunately market is not concerned with a technical expert and it listens to the fundamental analyst. If we do the same we would also gain something from it.

Just to be on the safer side I asked Mr Anonymous, the game developer, what was in the box? He said due to slowdown he could afford only the box and there was nothing else in this game called ECONOMY. But since these top people paid hefty amounts to buy it they kept mum on this to justify the move. So there was nothing in the ECONOMY back then and there is nothing in it even now. But those who have mastered the game now think otherwise.

I asked Mr anonymous what is he planning to do now in the market. He replied, “We're not ready to start buying yet. We'll keep our powder dry until we think prices are as low as they'll go”. I could not agree more.

Shock wave

In last one month stock markets have moved up significantly and all of you who read my blog regularly are asking the same question WHATS GOING ON??? 

I was also shocked for some time with this movement but very soon I recovered from it as I realised that its peculiar of markets to surprise you every now and then.

So what has really changed in last one month? I decided to take a walk....I met heads of some top banks in my region. Following are the key points from these discussions:

Lending is either down or almost NIL in some sectors. 

Term loans are no more a fashion statement for banks. 

WC facilities are offered but here again the AUTO sector is a big NO. 

And on top of this they all agreed that they are expecting the numbers down by at least 20% in some major sectors and it could be even worst in sectors like Real(?) estate. 

Before I conclude anything on this, let me draw your attention to the fact that in 2009 we almost had ZERO ipos hitting the market. Buy-back offers are in fact doing the rounds in the market.

To sum up, either there is no money in the system (LOANS OR IPO) or when there is money its not put to the best use (as companies are using it for BUYBACK). Thus the perception in banks, companies or market in general is not so positive.

So everyone is shocked by this move. I am sure that there are many who lost the money in this uptrend and very few must have made some money. So for me i am ready to bet that with result season just round the corner and elections not so far, at least in India, we should have a major correction from the current level.

I firmly believe that its ECONOMY that drives the market and not the other way round. Therefore i regret to say that if you are seeing the markets in Driver's seat, it time you apply the emergency breaks.

For more: esiddharth.blogspot.com

(PS please consult your advisor for financial decisions. )