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Boiling oil, falling stocks & more

Jun 9, 2008

Living in interesting times?
Things are not really fine out there for the global economy. With inflation rate jumping to their all time highs in several years, oil price spikes threatening to take sheen off the profitability of corporates, and the brutal impact actually seen in some industries (airlines, for example), we are living in difficult (and interesting) times.As for the Indian economy, before the recent oil price hike could have been factored in, the inflation level has already touched its high in four years. As reported late on Friday last week, India's inflation (as measured by the wholesale price index) jumped to 8.24%, the fastest rise since August 2004. This adds further pressure on the central bank - the Reserve Bank of India - to hike interest rates, especially with economists expecting inflation to rise to a 13-year high of 9.5% over the next few months. That will be a severe blow for Indian banks' credit growth prospects with the same already slowing down on the back of high interest rates and a general slowdown in economic activity.

  • Crude oil: Reality or bubble?

    Oil continues to boil
    Bloomberg has reported that crude oil prices had their biggest gains ever last Friday when the cost of a barrel jumped nearly US$ 11 to a new record above US$ 138. The spike followed a senior Israeli politician's indication of an attack on Iran. Following this, the US dollar fell sharply against the Euro, thus leading to the jump in crude prices. As a matter of fact, Iran is the second-largest oil producer within the OPEC (Organisation of the petroleum Exporting Countries) cartel and any interruptions in its exports could push prices higher levels.

    Following this, stocks in the US fell sharply with the Dow and the NASDAQ coming off by 3.1% apiece. Meanwhile, leaders from the US, Japan, China, India and South Korea (which together account for half the world's energy consumption), have expressed concerns over the rising crude prices and the detrimental impact this can have on world inflation and economic growth. As a matter of fact, crude prices have more than doubled over the past year, which has led to increased talks of a wider use of alternative fuels such as clean coal, nuclear power, and renewable energy sources (like wind, solar and biomass). Way to go green!

  • Food vs. Fuel: The argument continues

    Bubble-bubble everywhere! What to do?
    Here is what Mr. Ajit Dayal (co-founder of Equitymaster.com) has to say on stock market investing in the current market turmoil - "No one has a clue when the foreign investors will come in. Or what will make them jump back into India. Just like no one has any idea why they pumped in USD 6 billion into the Indian stock markets in September/October 2007. Or sold USD 3 billion in January 2008. And no one has any idea when India will no longer be the worst performing market in someone's global stock portfolio. You should not worry about it. Don't brood on it. Keep on buying into shares you like or mutual funds you like. Don't borrow money to invest. Don't try to hit 'sixers' - or you will be bowled out. Just go for the steady batting. A regular rhythm of strokes, taking every ball as it comes."

  • Stocks: Hidden treasures of tragedies?

    He further states, "India is on sale. And it may be for some more time, who knows. But we were on sale in March 2003 when the BSE-30 Index was at 3,000 levels then. And in June 2006 when the BSE-30 Index was at 9,000 levels. So even at these 'low' levels of 16,500 on the BSE-30 Index there was a lot of profit to be had if you had invested - and continued to invest - in the stock market."

    Do we need to say any more?

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