In this issue:
» The week that was
» "Not OK, Tata", exclaims Ratan Tata
» So, are you buying stocks now?
» and more...
What a week this has been for global financial system and stock markets! It started with a thud, as the US Parliament rejected the original version of the US government's financial bailout deal. This sent the US stock markets in a tizzy, as the benchmark Dow Jones Industrial index declined by a massive 777 points (7%) on Monday, its biggest single day decline ever.
The entire week that followed saw the US policymakers dilly-dallying on the bailout plan's future and hoping for passage of a Plan-B. The effect was seen in the tremendous volatility that marked trading in stocks across the world. While Brazil and the US were amongst the worst performing global markets, India was fourth worst amongst the key Asian indices.
Well, the bailout deal in its new avatar has been cleared by the US House of Representatives (the lower house of US Parliament, like India's Lok Sabha). This clearance though comes after a couple of weeks of contentious debate on the impact of the plan on taxpayers. CNN's financial website mentions that 'the law, which allows the Treasury Secretary to purchase as much as US$ 700 bn in troubled assets in a bid to kick-start lending, ushers in one of the most far-reaching interventions in the economy since the Great Depression."
Crude oil declined by 12% during the week to under US$ 94 a barrel. Gold prices slid by 5% to US$ 834 an ounce. Gold's decline is interesting as the yellow metal had touched a high of US$ 920 on Monday following the rejection of the US financial bailout plan. Hopes of a passage to the revised plan however impacted the metal's fortunes, leading to sharp declines on Wednesday and Thursday.
Well, amidst depressing thoughts all around, there was something to cheer for the fans of Warren Buffett as the legend's first authorised biography - The Snowball: Warren Buffett and the Business of Life - hit the stands on Monday. And like with most of his other endeavors, especially of the investing types, the timing could not have been more impeccable here as well. With the US financial industry roiled in one of the worst crises in decades and with reputation of quite a few firms in complete tatters, the book about a man whose investment techniques are widely believed to be the gold standard has indeed come as a breath of fresh air.
------- FREE Newsletter -------
Straight from the Hip - A Weekly E-Letter
"This weekly stock market column written by me has run for over 18 years on various platforms. I invite you to subscribe today for a fresh and thought-provoking perspective." - J Mulraj
Available exclusively to readers of Equitymaster. Read Now!
...must have been Ratan Tata's farewell remarks to the people of Singur, the jinxed location of his company Tata Motors' much awaited common man's car - 'Nano'. The Tatas have reportedly broken the uncertainty over their proposed pullout from Singur just a couple of days before the Durga Puja festival season starts in West Bengal...and they have decided to move on to a new destination that is yet to be decided.
||The week's biggest news - "Not OK, Tata"
Tata Motors has invested US$ 320 m in the project till date and the exact amount of losses from a shifting the factory are yet to be ascertained. The stock was among the leading losers from the NSE-Nifty index, shedding around 12% over the week.
In its opposition of activist movements like this, Tata Motors already has company. The Tata group's another flagship company Tata Steel is facing similar problems in Orissa where the opposition is coming not from the politicians but from Naxalites. Movements like these have the capacity to derail India's manufacturing dreams. And if one were to go by a Bloomberg report, such disputes and delays have already stalled several projects across India.
We believe that events like these are a big threat to India's economic power, even more damaging to Indian companies, investors, and the state than pollution, crumbling infrastructure, or political gridlock. We need to find a way out of this. The Tatas may have found a way to move to relatively 'friendly' states like Maharashtra, Gujarat or Karnataka. But these are just ad-hoc measures. We need concrete and long term solutions.
Considering the shivers that the markets are giving to investors (and speculators alike) day after day, the answer to this question for many might be a resounding 'NO'. And why not?
||Best of this week's 5 Min. WrapUp - So, are you buying stocks now?
Consider this...the much-loved and over-cheered (till about six months back) BSE-Sensex is down almost 41% since hitting its peak in January 2008.
The BSE-Midcap and BSE-Smallcap indices have dropped even more - 54% and 62% respectively - from their all time highs.
The fact that the current problem doesn't seem to be going away anytime soon makes today's situation even more frightening than the last big crash we had in 2000-2001 - the dot-com bust. The current problem is a creation of years of monetary and financial mismanagement. And it will take some while for the issues to be resolved.
There simply seems to be no end in sight and no safe place to hide. And that is exactly why we believe that you should be buying stocks. We are not sure which way the markets will move in the short run. In fact, given that the issues will still take time to resolve, do not be surprised if stocks continue to slide from their current levels.
However, we believe that shares of companies with solid businesses and visionary managements at helm have been punished as bad as shares of companies with doubtful credentials. The former bunch is trading at discounted prices because of the Mr. Market's pessimistic mood.
As such, if you decide to buy these quality stocks today, we believe you will be more than pleased in a few years.
"You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets." - Peter Lynch
||Weekend investing mantra