|»5 Minute Wrap Up by Equitymaster|
On This Day - 26 MAY 2009
Will the rally last?
In this issue:
In the subsequent decade, Japanese stocks participated in some significant rallies including three jumps of about 50%, all of which coincided with a temporary economic upturn. One of the big reasons for these short rallies was nothing but the now all so familiar 'government spending packages'. That's similar to the present situation where the effects of the US stimulus plans are expected to be the strongest in the third and fourth quarters of 2009.
----------- Time is running out -----------
The government is likely to sell stakes in around 40 public sector companies in order to address the fiscal deficit situation, which stands at 6% of the GDP. It is estimated that the government could raise more than Rs 500 bn from the process. The ministry is likely to be headed by a minister of a cabinet rank and Montek Singh Ahluwalia is said to be the front runner for the post.
Although the exact details will emerge in due course, it is heartening to note that there remains a common thread of reforms even when the government moves to a rival political formation. To that extent, we must celebrate the Indian democracy, which is the best bet political system for unleashing the human potential in our country.
Having said that, how important is gold in the current scenario where there is neither inflation nor serious deflation? While many are not probably purchasing gold with the same frenzy that was witnessed post the collapse of Lehman, its importance in no way has been diminished and this is amply demonstrated by two of the biggest holders of foreign reserves namely Russia and China buying gold. Whatever the case in the near term, if inflation does rear its ugly head in the longer term gold might just have the last laugh.
"I will not be surprised to see world trade stabilise, world industrial production stabilise and start to grow two months from now," Krugman said at a conference in Abu Dhabi yesterday. "In some sense we may be past the worst but there is a big difference between stabilising and actually making up the lost ground," he said. And how can the world economy actually recover? Krugman says it can happen when major corporations around the world invest more for future growth, when a major technological innovation to match the IT revolution of the 1990s emerges, or when the government moves on climate change.
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