Earthquakes and market corrections happen in minutes not months unlike the recovery. Most of us are familiar with breaking news about a major quake (in earth or in a financial market) in some corner of the world. A quake swiftly finishes it work, while the news about it, starting with its magnitude and epicenter continues to pour in for weeks and months. Promises of support by heads of governments across the world follow the initial reports of the estimated damage. The final part of it is often covered in news reports or editorial columns with stories about people who lost everything. After going through all such news, we often conclude that these people were at the wrong place at the wrong time. The above lines seem true for the financial market quake of October 2008 as well as the 8.8 magnitude earthquake of February 2010. Most of us know that plate tectonics is the root cause of earthquakes while greed and fear cause quakes in the financial market.
A new quake occurred in Europe with its epicenter in Greece, the fault lines run through Spain, Portugal, Italy or PIGS in short for all the four countries. Independent financial analysts including the fiscal hawks at Arthayantra (AY) have predicted this quake months in advance. However greedy/foolish people rush into the danger zones and end up as statistics about the damage. More financial quakes are imminent during the next 6 to 18 months in many western countries that tried to cover up the previous quake (in October 2008) with massive government spending. The quakes would happen as investors lose faith in the text found on almost all the fiat notes (in the world) that have the words, ‘ I promise to pay the bearer of this note’ albeit in different languages.
Goldman Sachs and other investment banks are the scapegoats of choice in Greece and many more places across the world. These investment bankers were invited by Greeks to masquerade their sovereign debt to make them eligible for the European monetary union (EMU). Goldman Sachs and many hedge fund managers are being despised as the hyenas of the financial jungle. Hyenas are essential to cull out the Greeklings (weaklings) of the world as a part of natural selection.
Geologists opine that seismic events like earthquakes have the shaped surface of earth and shall continue to do so. Some financial analysts including those at AY believe that financial market quakes will continue to happen until the process of globalization is complete. This would mean one wage across the global village. Communists tried to achieve pay parity across all professions often by force but the free market would definitely bring pay parity across the globe. Just like a meter and a liter mean the same across the world, a fixed amount of work would get the same pay irrespective of the worker’s location. The Internet is showing a way of erasing disparities in wages based on geography.
Austerity is easier said than done. Most of us know that getting out of debt is as difficult as getting out of bed on a wintery Monday morning. The quakes in the markets would force governments across the world out of their warm and cozy beds of popularity to adopt some spine chilling austerity measures. Farewell to welfare would certainly be a long and painful process for the denizens of welfare states and street protests would not be limited to Athens.
Public discontent is the dog that failed to bark in 2009 but it is catching up in 2010, as predicted by ArthaYantra. A coalition government in a country such as UK, known as a two party democracy is a sign of it and this could mean trouble in the USA too. Legislators approving austerity bills (even under duress) could be forced out of power by their voters. This could mean major tectonic shifts in the geopolitical landscape of the world in this decade.
The Indian investor could expect some major investment opportunities knocking on their doors in the next 6 to 18 months. As we all know, opportunity knocks only once and let us be ready to invest. Short-term debt instruments could be a safe haven until then. Dinakarananda and the Arthayantra team wish you all a happy Akshaya Tritiya and happy investing.