Oct 3, 2007|
It's the expectation, stupid!
The cat's out of the bag, yet again! And the capitalist mice that have fed on 'sub-prime' fare are running helter skelter. Time again for the 'pied piper' to lead these mice to safety? Well, turning to the real world, Citigroup, the largest financial institution in the world has warned of a huge subprime hit on its books, while forecasting a 60% drop in its third quarter earnings.
This is on the back of a US$ 3 bn write-off that the institution shall take for securities backed by subprime mortgages and loans ties to corporate buyouts. As if this were not enough, two more heavyweights, UBS (Switzerland) and Credit Suisse (US) have indicated of subprime led hits to their third quarter profits. Ironically, that did not send shivers down investors' spines as seen from the record performance of the US, European and Asian markets following these news releases. The game is all about expectations, you see! Investors had been expecting bad news from these financial conglomerates following the subprime crisis. And since these companies did reveal bad news, there was nothing that investors could have felt bad about as they were anyway 'expecting' the same.
So, is the worst behind us? Or even if it is ahead of us, rest assured that the US Federal Reserve (the pied piper) would take care of that - by reducing interest rates further! Investors in the US have already built in low expectations from corporate America as it delivers its third quarter result announcements. As per CNN's financial website, "Earnings for the third quarter are expected to have risen just 3.1% from a year ago. That figure could end up dropping even lower in the next few days as analysts adjust their forecasts to account for Monday's news (Citigroup et al)."
As far as Indian stockmarkets are concerned, expectations have already built up for the September quarter results, which are broadly expected to be 'good' considering that there have been no real hiccups in economic growth numbers in the recent past and that the advance tax numbers have been pretty decent.
What do you do?
Mr. Bernanke might be thanking himself for the way he has sort of steered the global financial markets out of a probable recession by cutting the cost of short-term money. However, the fact that the markets are now 'expecting' him to follow the September cut with another one at the end of October seems to have made matters worse for the Fed Chairman. It is these 'expectations' that have led the rally in global stock markets over the past two weeks (see adjacent chart), with the Indian markets emerging as the outperformer.
The 'expectations' game will continue to lead the way stocks behave in the short to medium term. What you, as an investor, can do is take this market volatility as a way to build a long-term portfolio of solid companies with credible managements. Try not following a herd mentality into buying anything that others are 'relying' on. Rather make your choice by way of doing your own groundwork, follow the same with conviction and discipline, and leave aside greed and fear. There is probably no other way of generating wealth from stock market investing.
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 16, 2017
All across the country, the old gods become devils. New, gluten-free gods take their places...
Aug 16, 2017
And what it has in common with beating the stock market too.
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Aug 14, 2017
Last week's correction is making a number of Super Investor stocks look a lot more attractive...
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 4, 2017
The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407