In our report dated 13th March 2009, we stated that we were becoming increasingly bullish on global markets and felt we were close to bottoming out. The recent global market rally, the FED and Geithner's plans to boost credit markets has led us to question whether the March lows for markets were in fact the bottom or not. We think not and stick to our view that there is one final leg down to global markets before we hit rock bottom.
Whilst Giethner's new "Public-Private Investment Program" is a good step it really falls short on the big issue and that is price discovery. Will banks really take a big hit to their balance sheets on disposal of toxic assets…we think not. Every treasury official across the developed world has been telling us that there is plenty of liquidity and therefore the issue has to be that banks do not want to expose their balance sheets to further scrutiny. Moreover the thorny issue of compensation will crop up if banks manage to sell their toxic assets and then repay TARP monies. So we firmly believe that this new plan will fall short of resolving the credit markets problems and remember we are still in the midst of a severe recession, so expect investors minds to start focusing on (i) US unemployment rate is set to rise over 10% in very short order and (ii) house prices to drop by another 5-10% in the US and Europe, creating a summer of unrest around the world.
For India we continue to believe it will remain off Investors radar for most of 2009 and with the likelihood that the Dollar/Commodity trade may be nearing its end for the time being, we expect Emerging Markets and India to fall sharply from here too.
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