Wise: Borrow to Spend | Fool: Save to Lend

Interesting article written by an Indian Economist Japanese save a lot. They do not spend much. Also, Japan exports far more than it imports. Has an annual trade surplus of over 100 billions. Yet Japanese economy is considered weak, even collapsing. Americans spend, save little. Also US imports more than it exports. Has an annual trade deficit of over $400 billion. Yet, the American economy is considered strong and trusted to get stronger. But where from do Americans get money to spend? They borrow from Japan , China and even India . Virtually others save for the US to spend. Global savings are mostly invested in US, in dollars. India itself keeps its foreign currency assets of over $50 billions in US securities. China has sunk over $160 billion in US securities. Japan 's stakes in US securities is in trillions. Result: The US has taken over $5 trillion from the world. So, as the world saves for the US - Its The Americans who spend freely. Today, to keep the US consumption going, that is for the US economy to work, other countries have to remit $180 billion every quarter, which is $2 billion a day, to the US ! A Chinese economist asked a neat question. Who has invested more, US in China , or China in US? The US has invested in China less than half of what China has invested in US. The same is the case with India . We have invested in US over $50 billion. But the US has invested less than $20 billion in India . Why the world is after US? The secret lies in the American spending, that they hardly save. In fact they use their credit cards to spend their future income. That the US spends is what makes it attractive to export to the US . So US imports more than what it exports year after year. The result: The world is dependent on US consumption for its growth. By its deepening culture of consumption, the US has habituated the world to feed on US consumption. But as the US needs money to finance its consumption, the world provides the money. It's like a shopkeeper providing the money to a customer so that the customer keeps buying from the shop. If the customer will not buy, the shop won't have business, unless the shopkeeper funds him. The US is like the lucky customer. And the world is like the helpless shopkeeper financier. Who is America 's biggest shopkeeper financier? Japan of course. Yet it's Japan which is regarded as weak. Modern economists complain that Japanese do not spend, so they do not grow. To force the Japanese to spend, the Japanese government exerted itself, reduced the savings rates, even charged the savers. Even then the Japanese did not spend (habits don't change, even with taxes, do they?). Their traditional postal savings alone is over $1.2 trillions, about three times the Indian GDP. Thus, savings, far from being the strength of Japan , has become its pain. Hence, what is the lesson? That is, a nation cannot grow unless the people spend, not save. Not just spend, but borrow and spend. Dr. Jagdish Bhagwati, the famous Indian-born economist in the US , told Manmohan Singh that Indians wastefully save. Ask them to spend, on imported cars and, seriously, even on cosmetics! This will put India on a growth curve. This is one of the reason for MNC's coming down to India , seeing the consumer spending. 'Saving is sin, and spending is virtue.' But before you follow this Neo Economics, get some fools to save so that you can borrow from them and spend !!!

World's Largest Republic of Scams

Republic Of Scams

Total Scam Money (approx) Since 1992:  

Rs. 73000000000000 Cr. 
(73 Lakh Crore)

Hard to digest ?
Just check the below given details

1992 -Harshad Mehta securities scam Rs 5,000 cr

1994 -Sugar import scam Rs 650 cr

1995 -Preferential allotment scam Rs 5,000 cr
Yugoslav Dinar scam Rs 400 cr
Meghalaya Forest scam Rs 300 cr

1996: -Fertiliser import scam Rs 1,300 cr
Urea scam Rs 133 cr
Bihar fodder scam Rs 950 cr

1997 -Sukh Ram telecom scam Rs 1,500 cr
SNC Lavalin power project scam Rs 374 cr
Bihar land scandal Rs 400 cr
C.R. Bhansali stock scam Rs 1,200 cr

1998 -Teak plantation swindle Rs 8,000 cr

2001 -UTI scam Rs 4,800 cr
Dinesh Dalmia stock scam Rs 595 cr
Ketan Parekh securities scam Rs 1,250 cr

2002 -Sanjay Agarwal Home Trade scam Rs 600 cr

2003 -Telgi stamp paper scam Rs 172 cr

2005 -IPO-Demat scam Rs 146 cr
Bihar flood relief scam Rs 17 cr
Scorpene submarine scam Rs 18,978 cr

2006 -Punjab's City Centre project scam Rs 1,500 cr,
Taj Corridor scam Rs 175 cr

2008 -Pune billionaire Hassan Ali Khan tax default Rs 50,000 cr
The Satyam scam Rs 10,000 cr
Army ration pilferage scam Rs 5,000 cr
The 2-G spectrum swindle Rs 60,000 cr
State Bank of Saurashtra scam Rs 95 cr
Illegal monies in Swiss banks, as estimated in 2008 Rs 71,00,000 cr

2009: -The Jharkhand medical equipment scam Rs 130 cr
Rice export scam Rs 2,500 cr
Orissa mine scam Rs 7,000 cr
Madhu Koda mining scam Rs 4,000 cr"

SC refuses to quash PIL against Mayawati in Taj corridor scam
Orissa mine scam could be worth more than Rs 14k cr

CORRUPTION, MONEY LAUNDERING SCAM, Koda discharged from hospital, arrest imminent

'A Cover-Up Operation':
"It's a scam involving close to Rs 60,000 crores"
Spectrum scam: How govt lost Rs 60,000 crore

 

India's biggest scams 1, Ramalinga Raju, Rs. 50.4 billion
India's biggest scams 2, Harshad Mehta, Rs. 40 billion
India's biggest scams 3, Ketan Parekh, Rs. 10 billion
India's biggest scams 4, C R Bhansali, Rs. 12 billion
India's biggest scams 5, Cobbler scam
India's biggest scams 6, IPO Scam
India's biggest scams 7, Dinesh Dalmia, Rs. 5.95 billion
India's biggest scams 8, Abdul Karim Telgi, Rs. 1.71 billion
India's biggest scams 9, Virendra Rastogi, Rs. 430 million
India's biggest scams 10, The UTI Scam, Rs. 320 million
India's biggest scams 11, Uday Goyal, Rs. 2.1 billion
India's biggest scams 12, Sanjay Agarwal, Rs. 6 billion
India's biggest scams 13, Dinesh Singhania, Rs. 1.2 billion

1. Jeep Purchase (1948) :- Free India's corruption graph begins. V. K. Krishna Menon, then the Indian high commissioner to Britain, bypassed protocol to sign a deal worth Rs 80 lakh with a foreign firm for the purchase of army jeeps. The case was closed in 1955 and soon after Menon joined the Nehru cabinet.

2. Cycle Imports (1951) :- S.A. Venkataraman, then the secretary, ministry of commerce and industry, was jailed for accepting a bribe in lieu of granting a cycle import quota to a company.

3. BHU Funds (1956) :- In one of the first instances of corruption in educational institutions, Benaras Hindu University officials were accused of misappropriation of funds worth Rs 50 lakh.

4. MUNDHRA SCANDAL (1957):- It was the media that first hinted there might be a scam involving the sale of shares to LIC, Feroz Gandhi sources the confidential correspondence between the then Finance Minister T.T. Krishnamachari and his principal finance secretary, and raised a question in Parliament on the sale of 'fraudulent' shares to LIC by a Calcutta-based Marwari businessman named Haridas Mundhra. The then Prime Minister, Jawaharlal Nehru, set up a one-man commission headed by Justice M.C.Chagla to investigate the matter when it becomes evident that there was a prima facie case. Chagla concluded that Mundhra had sold fictitious shares to LIC, thereby defrauding the insurance behemoth to the tune of Rs. 1.25 crore. Mundhra was sentenced to 22 years in prison. The scam also forced the resignation of T.T.Krishnamachari.

5. Teja Loans (1960):- Shipping magnate Jayant Dharma Teja took loans worth Rs 22 crore to establish the Jayanti Shipping Company. In 1960, the authorities discovered that he was actually siphoning off money to his own account, after which Teja fled the country.

6. Kairon Scam (1963):- Pratap Singh Kairon became the first Indian chief minister to be accused of abusing his power for his own benefit and that of his sons and relatives. He quit a year later.

7. Patnaik's Own Goal (1965) :- Orissa Chief Minister Biju Patnaik was forced to resign after it was discovered that he had favoured his privately-held company Kalinga Tubes in awarding a government contract.

8. Maruti Scandal (1974) :- Well before the company was set up, former Prime Minister Indira Gandhi's name came up in the first Maruti scandal, where her son Sanjay Gandhi was favoured with a license to make passenger cars.

9. Solanki Exposé (1992) :- At the World Economic Forum, Madhavsinh Solanki, then the external affairs minister, slipped a letter to his Swiss counterpart asking their government to stop the probe into the Bofors kickbacks. Solanki resigned when India Today broke the story.

10. Kuo Oil Deal (1976):- The Indian Oil Corporation signed an Rs 2.2-crore oil contract with a non-existent firm in Hong Kong and a kickback was given. The petroleum and chemicals minister was directed to make the purchase.

11. Antulay Trust (1981) :- With the exposure of this scandal concerning A.R. Antulay, then the chief minister of Maharashtra, The Indian Express was reborn. Antulay had garnered Rs 30 crore from businesses dependent on state resources like cement and kept the money in a private trust.

12. HDW Commissions (1987) :- HDW, the German submarine maker, was blacklisted after allegations that commissions worth Rs 20 crore had been paid. In 2005, the case was finally closed, in HDW's favour.

13. Bofors Pay-Off (1987) :- A Swedish firm was accused of paying Rs 64 crore to Indian bigwigs, including Rajiv Gandhi, then the prime minister, to secure the purchase of the Bofors gun.

14. St Kitts Forgery (1989) :- An attempt was made to sully V.P. Singh's Mr Clean image by forging documents to allege that he was a beneficiary of his son Ajeya Singh's account in the First Trust Corp. at St Kitts, with a deposit of $21 million.

15. Airbus Scandal (1990) :- Indian Airlines's (IA) signing of the Rs 2,000-crore deal with Airbus instead of Boeing caused a furore following the crash of an A-320. New planes were grounded, causing IA a weekly loss of Rs 2.5 crore.

16. Securities Scam (1992) :- Harshad Mehta manipulated banks to siphon off money and invested the funds in the stock market, leading to a crash. The loss: Rs 5,000 crore.

17. Indian Bank Rip-off (1992) :- Aided by M. Gopalakrishnan, then the chairman of the Indian Bank, borrowers-mostly small corporates and exporters from the south-were lent a total of over Rs 1,300 crore, which they never paid back.

18. Sugar Import (1994) :- As food minister, Kalpnath Rai presided over the import of sugar at a price higher than that of the market, causing a loss of Rs 650 crore to the exchequer. He resigned following the allegations.

19. MS SHOES SCAM (1994) :- Anyone who war old enough in 1994 to read will remember the advertisements- tens of them intriguingly headlined: 'Who is Pawan Sachdeva?' For the record, it was the peak of the public issued-led advertising boom and the ads were created by the Delhi branch of Rediffusion. Sachdeva, the promoter of MS Shoes, allegedly used company funds to buy shares (of his own company) and rig prices, prior to a public issue. He is alleged to have colluded with officials in the Securities Exchange Board of India (SEBI) and SBI Caps, which lead-managed the issue, to dupe the public into investing in his Rs. 699-crore public-***-rights issue. Sachdeva was later acquitted

20. JMM Bribes (1995) :- Jharkhand Mukti Morcha leader Shailendra Mahato testified that he and three party members received bribes of Rs 30 lakh to bail out the P.V. Narasimha Rao government in the 1993 no-confidence motion.

21. In a Pickle (1996) :- Pickle baron Lakhubhai Pathak raised a stink when he accused former Prime Minister P.V. Narasimha Rao and godman Chandraswami of accepting a bribe of Rs 10 lakh from him for securing a paper pulp contract.

22. Telecom Scam (1996) :- Former minister of state for communication Sukh Ram was accused of causing a loss of Rs 1.6 crore to the exchequer by favouring a Hyderabad- based private firm in the purchase of telecom equipment. He, along with two others, was convicted in 2002.

23. Fodder Scam (1996) :- The accountant general's concerns about the withdrawal of excess funds by Bihar's animal husbandry department unveiled a Rs 950-crore scam involving Lalu Prasad Yadav, then the state chief minister. He resigned a year later.

24. Urea Deal (1996) :- C.S. Ramakrishnan, MD, National Fertiliser, and a group of businessmen close to the P.V. Narasimha Rao regime fleeced the government and took Rs 133 crore from the import of two lakh tonne of urea, which was never delivered.

25. Hawala Diaries (1996) :- The scandal surfaced following CBI raids on hawala operators in Delhi in 1991. But it was S.K. Jain's diaries that had heads rolling.

26. CRB SCAM (1997) :- Another scam forged by greed and discovered through accident. Chain Roop Bhansali, a smart-talking entrepreneur, created a pyramid financial empire based on high-cost financing. At its peak, his Rs. 1,000-crore financial conglomerate had in its ranks a mutual fund, a financial services company into fixed deposits, and a merchant bank. That Bhansali knew how to work the system became evident when he also managed to secure a provisional banking license. Then his luck ran out. An executive in the State Bank of India Inadvertently discovered that some interest warrants issued by Bhansali were not backed by cash. The bubble finally burst in May 1997, but by that time investors had lost over Rs. 1,000 crore. This was among the first retail scams in India and it was played out, in smaller avatars, across the country-especially in the South where financial services companies promised returns in excess of 20 per cent and decamped with the principal. Bhansali was arrested for a few weeks and released later on bail.

27. MEHTA'S SECOND COMING (1998) :- The Big Bull returned to the bourses. This time, he allegedly colluded with the promoters of BPL, Videocon International, and Sterile Industries to rig the share prices of these companies. The inevitable collapse happened sooner than planned, Harshad Mehta orchestrated a cover-up operation that included a high=jinks effort by officials of Bombay Stock Exchange to (illegally ) open the trading system in the middle of the night to set things right, but the damage had been done. SEBI finally passed its ruling on the scam in 2001, banning the three companies concerned from tapping the market-BPL, for two years. Mehta was debarred for life form dealing in Securities Appellate Tribunal (SAT) in October 2001

28. VANISHING COMPANIES SCAM (1998) :- A passing remark heard by then Finance Minister Palaniappan Chidambaram resulted in a furore over what was badly-kept secret on Dalal street. Chidambaram was told that hundreds of companies had disappeared after raising moneys form the public. An informal scrutiny revealed that perhaps over 600 companies were missing. Chidambaram ordered a probe by SEBI. The SEBI probe conducted in May 1998 revealed that while many companies are not traded on the bourses at least 80 companies that had rises Rs.330.78 crore were simply missing. Later that year, the Department of Company Affairs (DCA) was asked to probe and penalize these companies. DCA still investigating. Investigations continue to this day.

29. PLANTATION COMPANIES SCAM (1999) :- It was as innovative a swindle as any effected in the world. Savvy entrepreneurs convinced gullible investors that given the right irrigation and fertilizer inputs, teak, strawberries, and anything else that could be grown, would grow anywhere in the country. The promoters could afford to collect money from investors and not worry about retribution (or returns, for that matter). For, plantation companies fell under the purview of neither SEBI nor Reserve Bank of India. Indeed, they didn't even come under the scope of the Department decided to change things in 1999, enough investors had been gulled: 653 companies, between them, had raised Rs. 2,563 crore from investors. To date, not many investors have got their principals back, just another affirmation of the old saying about money not growing on trees.

30. Match Fixing (2000) :- Mohammed Azharuddin, till then India's cricket captain, was accused of match-fixing. He and Ajay Sharma were banned from playing, while Ajay Jadeja and Manoj Prabhakar were suspended for five years.

31. KETAN PAREKH SCAM (2001) :- Ketan Parekh's modus operandi wasn't very different from Harshad Mehta's. If Mehta used banker's receipts, then Parekh used pay orders to ramp up the prices of his favourite scrips (the K-10). Apart from money form the banking system Parekh also rerouted money from corporated like HFCL (Rs. 425 crore), and Zee (Rs. 340 crore) to good effect. He was caught when pay-orders issued by Madhavpura Mercantile Cooperative Bank bounced. Although the total amount involved in the scam was just Rs. 137 crore, the impact was far greater.

Apparently, when a bear cartel sensed Parekh was in trouble, it stepped in and leveraged a dip in the NASDAQ to bear down stock prices. The resultant slump in the markets happened soon after Finance Minister Yashwant Sinha presented what he considered his best budget ever. Under pressure from the government, SEBI investigated the scam and heads began to roll. Among them: the entire management team of BSE, including its president Anand Rathi, CSFB, First Global, and, in an indirect connection, P.S.Subramanyam, the Chairman of UTL Evidently, for the 18 months that PSS was Chairman of UTI, the Trust had mirrored the actions of the bull cartel. The result? When the market tanked, so did the NAV of its holy cow, the US-64.

32. Tehelka Sting (2001) :- Tehelka, an online news portal, used spycams to catch army officers and politicians accepting bribes, in their sting operation called Operation Westend. Investigative journalism turned another corner in the country.

33. Stockmarket Scam (2001) :- The mayhem that wiped off over Rs 1,15,000 crore in the markets in March 2001 was masterminded by the Pentafour bull Ketan Parekh. He was arrested in December 2002 and banned from acccessing the capital market for 14 years.

34. Home Trade Scam (2002) :- Under the pretext of gilt trading, Rs 600 crore was swindled from over 25 cooperative banks in Maharashtra and Gujarat by a Navi Mumbai-based brokerage firm Home Trade. Sanjay Agarwal, CEO of the firm, was arrested in May 2002.

35. Stamp Paper Scam (2003) :- The sheer magnitude of the racket was shocking-it caused a loss of Rs 30,000 crore to the exchequer. Disclosures of the mastermind behind it, Abdul Karim Telgi, implicated top police officers and bureaucrats.

36. Oil-for-Food Scandal (2005) :- K. Natwar Singh was unceremoniously dropped from the Cabinet when his name surfaced in the Volcker Report on the Iraq oil-for-food scam.

What India Could Do With Rs 73 Lakh Crore?

Build: 2.4 crore primary healthcare centres. That's at least 3 for every village, at a cost of Rs 30 lakh each.

Build: 24.1 lakh Kendriya Vidyalayas at a cost of Rs 3.02 crore each, with two sections from Class VI to XII.

Construct: 14.6 crore low-cost houses assuming a cost of Rs 5 lakh a unit.
Set up: 2,703 coal-based power plants of 600 MW each. Each costs Rs 2,700 crore.

Supply: 12 lakh CFL bulbs. That's enough light for each of India's 6 lakh villages

Construct: 14.6 lakh km of two-lane highways. That's a road around India's perimeter 97 times over.

Clean up: 50 major rivers for the next 121 years, at Rs 1,200 crore a river every year.

Launch: 90 NREGA-style schemes, each worth roughly Rs 81,111 crore.
Announce: 121 more loan waiver schemes. All of them worth Rs 60,000 crore.

Give: Rs 56,000 to every Indian. Even better, give Rs 1.82 lakh to 40 crore Indians living BPL.

Hand out: 60.8 crore Tata Nanos to 60.8 crore people. Or four times as many laptops.

Grow the GDP: The scam money is 27% more than our GDP of Rs 53 lakh crore."

Greed, graft, politics, bribery, dirty money. Just another day in the life of a nation still rated among the most corrupt in the world. Scan the scams that have grabbed headlines, destroyed reputations and left many people poorer.

Is this a trend reversal? Outlook of market for next 6 months.

Maintain 40-50% of your portfolio in CASH.

Give a man a fire and he's warm for the day. But set fire to him and he's warm for the rest of his life. –Terry Pratchett

I may not understand the above quote, but I'm assuming that once you set fire to someone, that's the end of their life, so yes, that would imply that setting a fire to someone will keep them warm for the rest of their life. I'm going to keep you warm by lighting you on fire! I'm going to tell you what's going to happen in the markets next week, next month and next year! Nothing to panic, just prepare for the turbulent time ahead.

This article is  written so that you can caution yourself and go slow in doing investment during next 6 months.The band-aid approach taken by the world only sets the stage for more booms and busts ahead. And given the magnitude of intervention, the booms could be even more dangerous than the original excesses that set off this economic crisis. Based on the economic confidence model and the looking at the latest developments across world especially banking/currency crisis, FED's QE2, strong dollar/rising interest rate, Ireland/China issues etc and taking clues from the QE done in Japan in 2001-03, I would like to CAUTION you for next 6 months which can turn out to be a high volatile period in the market.

Next phase of the banking crisis in USA

USA government released new data showing that the FDIC's list of "problem banks" now includes 903 institutions. That's ten times the number of bad banks on the FDIC's list just two years ago. The banks on the list have $419.6 billion in assets, or SIXTEEN times the amount of two years ago.

Consider what happened on September 25, 2008, for example. That's the day Washington Mutual filed for bankruptcy with total assets of $328 billion.

But just 30 days earlier, according to the FDIC's press release, the aggregate assets held by the 117 banks on its "problem list" were only $78 billion.

In other words …

Washington Mutual alone had over FOUR times the sum of ALL the assets of ALL the banks on the FDIC's list of problem banks!

Now you can think, how much FDIC is hiding & how much they are reveling?

QE2 - It's actually hurting the markets

With the financial markets facing uncertainty about the balance sheets of banks and governments in Ireland, Spain, and Portugal, continued weakness in stocks, commodities, and precious metals remains a possibility. From a risk management standpoint, it is important for us to understand the possible downside risks in the short-to-intermediate-term. QE2 program (FED decision to buy another $600 billion in Treasury bonds) is just not helping. It's actually hurting the markets. The goal of the policy is to create higher stock and housing prices by pushing the dollar and interest rates down.

Bernanke is going to come under fire from all sides: domestic, international, political, financial. Everyone wants the FED to remain the rock of Gibraltar, because the world is holding trillions of dollars' worth of Treasury debt. If the dollar falls, those who hold T-bills and T-bond will be exposed as suckers – lapdogs of the Federal Reserve. No one wants to be seen as anyone's lapdog, especially when he really is.

During a visit to India on Nov 10th, Obama argued that QE-2 is in the world's best interests. "I will say that the Fed's mandate, my mandate, is to grow our economy. And that's not just good for the United States, that's good for the world as a whole. And the worst thing that could happen to the world economy, not just ours, is if we end up being stuck with no growth or very limited growth," Obama argued.

Simply running the printing presses in order to pay-off your debts is no way for a great nation to behave. The US-government is essentially bankrupt, and can no longer service its debt, by running a balanced budget. Instead, the only thing standing in the way of an outright default by the US-government on its debts, - is the Fed's electronic printing press. Still, China and Japan were net buyers of $43-billion of US T-Notes in September, - and so, the shell game goes on awhile longer.

A stronger dollar and rising interest rates are not good for stocks. Now we have both!

The S&P 500 chart shows a potential double-top forming. It looks like the next bear market may have started a few days ago. I disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.

The Fed's purchase program has also met broad opposition from other central banks and I share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.

Economy changes but history repeats : Nikkei fell down by 34% due to QE from BOJ in 2001

As you can see in the chart, the Nikkei shot up 22 percent following the BOJ's quantitative easing announcement in March 2001. But the party was a short one …

After 22% upside from March to Apr 2001 (3 months), from May 1, 2001 through September 17, 2001 (5 months), the Japanese market lost all of those gains — and more — tumbling 34.1 percent.

It's really ironic …

When the twin bubbles in Japan burst — a stock market bubble followed by a housing bubble — the Japanese authorities answered in exactly the same way their U.S. counterparts are doing now.

They implemented the same fiscal and monetary policies grounded in the same faulty arguments — and failed miserably. Even more ironic is the fact that the U.S. was Japan's sternest critic.

Here we go: Same problems, same short-term fixes — yet Bernanke is hoping for different outcomes. But given all that ails the economy, I think Helicopter Ben is in for a very unpleasant surprise.

ECM shows Caution from Jan 2011

As per the economic confidence model (EMC) designed in 1997, a stock market moves approx 3-6 months ahead of real economy, hence what will be the tone of economy 3-6 months hence will be reflected now in stock market.

Now, look at the chart above....you can see highest peak in 2007.15, it means around 2007 Feb/Mar we had best time for economy and probably Jan'07 was best for stock market. When I say best time, it can be best time for US or UK or Asian Countries. For Indian markets too year 2007 was best for investment followed by fall in 2008.

It Doesn't Matter Until it Matters

Let's check this model, if it is really working or not?

• 2008.225 - This says economic confidence will be down in Mar/Apr'08, so subtract 3-4 months from this will tell

clearly that in Jan'08 stock market will be down which you know was true.

• 2009.30 - Economic confidence will again goes high in Mar-Apr'09, so you can expect stock market going higher around Jan-Mar'09 which actually happened in the month of Mar-Apr'09. From Mar'09 till May/June'11 - As per the chart Mar-Apr'09 is just the start of bull run which will lead to Sensex above 21K and Nifty above 6K. Recently we were close to the peaks indicated based on chart pattern.

• 2011.45 - Worst period comes here...sentiments will be lowest in mid 2011, subtract 3-4 months, so stock market is expected to crash by March 2011 beginning itself (It is highly possible that Jan-March 2011 can be a high caution months).You must book most of your profits sometime in the beginning of 2011 itself to avoid wealth destruction. I would like to CAUTION you from Jan-July 2011. Keep 40-50% cash in hand & rest 50-60% invested.

Just to sum it up…

Jan-Oct'08 - Stock Market will get bottomed out, which we have already seen.

Mar'09-Jan'11 - Stock Market will again moves to Peak, may be higher than earlier peak. These two years will be very good for equity market. We have already seen this period and now in Nov'10 we can see weakness in the market getting developed.

Jan'11 onward - Finally 2011 will be year similar to high volatile period in equity market where I advice caution approach. One can expect a correction up to 20-25% in 2011 from peak.

Study on next market move till 2016.

Source: Princeton Economics. Martin Armstrong discovered the 8.6 year PI Economic Confidence Model that has predicted many Economic Confidence crisis.

The 8.6 year PI Economic Confidence cycle is expected to bottom in June 2011 and 2020. Notice how well it predicted the bottom in 2002 and the top in 2007 on a year basis. The graphic shows that the model is predicting a top in 2010 before heading down into a long-term low in June 2011. This is economic confidence model and as you all know stock market is 3-6 months ahead of the real economy so one can expect market to top by March-Apr 2011 or in worst case even in Jan-Mar 2011.

Expect Sensex @ 35-45K by 2013

After correction in 2011 which is most likely to be a deep correction of 20-25%, we can see a massive rally where in Sensex can be seen at 35,000-45,000 levels by 2013.

You might have missed buying in 2008 rock bottom, but do not miss bottom fishing during 2011 correction. Keep 40-50% cash in hand to take advantage of this opportunity.

You MUST maintain a cash levels of 40-50% to take advantage of the upcoming correction in the market which is likely to start soon or may have started already. 

Europe's debt crisis is contagious

Ireland –

Irrespective of how big Ireland is and of what importance it is to EU, let me just give you a clue of what has happened in Ireland and what the scenario is currently with a simple statistic. They have an index of whose name I am unable to recollect but is similar to what we call the Bankex or the index of the banks. And this particular index of Ireland is currently 2% of what its highs were 3 years ago. Just this number can explain in what condition the banks are in Ireland and the financial system in the country.

The top banks in Ireland, which as you hear elsewhere is loaded with bad debts and is seeing outflow in deposits in double digit percentages for the last several months. The sustainability of these top banks in Ireland and the financial system in the country is under serious threat in which case you should have easily identified that there is going to be a bailout package.

While we had expressed that Ireland receiving the bailout package can fix the European issues for now, there are already talks on Serial bailouts in Europe. However, it should be noted that even during Greece bailout, talks of contagion were on for a while, before it was swept under the carpets. So, is this time going to be different?

China's attempts to tackle inflation

The markets currently have virtually zero confidence that the bailout in Ireland will solve the European crisis. Contagion is spreading through the euro region as Ireland hammers out an aid package with the EU and the International Monetary Fund to save its banking system. 

China –

I am not really sure which of these factors Ireland or China spooked the markets or if they really did. China's problem is entirely different from what we saw in the last heading. The Chinese authorities have flooded the financial system with money like anything in the last 2 years. They have also been relatively late in tightening the liquidity in the System.

In such a scenario, the country being aggressive in financial tightening is obvious. This is also something that we should expect happening going forward. While the Chinese authorities increased the reserve ratio for the banks in two quick successions recently, the next move could be increasing the rates. And these moves will impact the global sentiments since China is and has been the Savior, trying to pull the world out of the slowdown at least to an extent.

But, unlike the European problems, liquidity tightening in China may not have any real effect on the markets going forward.You do it once and for the first time – markets do fall, you do it again – the fall is probably negligible and you do it again – it is expected and becomes the norm.

Issues like fighting between North and South Korea, Europe's debt crisis and China's attempts to tackle inflation are already impacting stocks markets. With nerves already frayed thanks to the Irish bail-out saga.

After 2G Scam, now Housing loan scandal

While many people continue to see the European problems to have impacted our Indian markets, I have always been suspicious of a local factor. In spite of the so called European woes, it should be noted that none of the major 3 indices from Europe fell down by more than 2.5%, while the Indian markets are down by close to 8% in about 2 weeks. So, this gives way to a question – Is there anything uncomforting within? I have always had this view that if a correction were to come that's probably going to be before the markets make a new high.

One of the latest news which might future take the market down is - CBI busted a housing loan scandal racket and arrested CEO of LIC Housing, General Managers of Bank of India and Central Bank of India (New Delhi) and CGM of Punjab National Bank. Several other bank officials have also been arrested on bribery charges. LIC Housing Finance being involved in a multi-crore scam surfaced sending realty and banking stocks spiraling down. The CBI, which was said to be questioning a slew of people involved in the scam, included officials from LIC Housing, Central Bank of India and a real estate developer, whose identity was not disclosed.

Such developments are really very bad for the market, sentiments will go for down & we are in for another 3-4% correction in very short term. The visible downside for the markets are between 18,400 to 18,800 and there is a very high possibility that the markets will consolidate between 18,800 to 21,000 for a while. In such a scenario, I would like to advise you to HOLD on to your positions. I am not recommending to sell any of my Multibagger Stocks in a loss. You can maintain 50% cash position by booking profit from profitable counters.Which stocks to buy when the market falls will be informed based on the extend of fall & value of stock at that point of time.

No irrational exuberance seen in the market

In the last two weeks the broader indices have witnessed a correction of 7-8% bringing down SENSEX from it's highs of 21,000 to 19,460 odd levels and this has already made many capital market participants jittery. The 2008 crash is still quite fresh in their mind and keeps surfacing every now and then. This time the nervousness is more especially on account of the fact that SENSEX attained a level of 21,000 for a very brief period and since then it's been falling. However, I would like to make things a bit clear by commenting on the valuations for now (2010) and then (2008) and would also like to make investors aware that instances like 2008 crash or dotcom bubble burst as in 2000 take place on account of irrational exuberance which is not the case at present.

The Sensex P/E stands at 22 times as of date for historical 12 month's earnings for FY 10, while for forward FY 11 earnings SENSEX P/E stands at around 19.This means we are around 18% higher than the long term average P/E of 16 times (data from brokerage reports), while if we look at the historical P/E values during the last few bull runs, especially 2008 then during the Dot-Com bubble we were at an astronomical 33 times earnings and during the Great American Subprime Bubble (2008 crash) we were at 28 times multiple. So, all this points to the fact that we are still better placed in terms of valuations and thus one should derive some ease and comfort from the same.

Another 3-4% correction on the cards

Now talking about the recent correction, it was more on account of Profit booking from the institutions who were already sitting on good gains on their long position. The FII's were the net buyers during the last two months starting September 2010 which resulted in 15% appreciation in the market, however over the last two weeks the flows have turned negative ignited by the resurfacing of Ireland debt woes and China's monetary tightening.

I believe that there is another 3-4% correction on the cards (19,000 for SENSEX and 9,700 for Small Cap Index) especially since the Central Bank of China on late Friday announced that it is contemplating increasing the key policy rates by another 50 basis points (1 basis point = 0.01%) in order to tame inflation.

I don't see the above move as negative and also consider the recent correction healthy for the market's in the longer run, however at this moment I am not suggesting a buy and would like to wait for the market to stabilize over the next 1-2 week. It is better to maintain cash position in order to take advantage from market fall if any.

Excess supply zone for Nifty is 6100-6055

The Indian market is currently reeling under pressure under the multiple factors which are evident on the global as well as domestic economic horizon. The emerging markets including India experienced a rush of capital before the announcement of quantitative easing. The markets back home succumbed under the pressure of the recent developments on the global economic horizon. The role of the institutional market participants is ironical in order to understand the current turbulent selling momentum in the benchmarks. The market makers were net buyers in equities from nearly 40 trading sessions who have now turned their course of action. The current downward slip on the charts could be attributed to the profit booking by the institutional clients on their long positions.

Also the political uncertainty which has emerged over the Indian diasporas will have momentary impact over the benchmark which currently seems to be a bit overdone. In the immediate term, the 6100-6055 levels would prove to be a point of excess supply for the markets both technically as well as psychologically. The resurfacing of the European debt crisis with Ireland as the latest entrant over this economically plagued continent is questioning the sustainability of the on-going global recovery.

Markets are yet to factor in the recent indication by the People's Bank of China which has increased the key policy rates by 50 basis points to strengthen liquidity management and moderately regular supply of credit, on account of the inflationary pressure hovering over the domestic economy. This move is expected to dampen the outlook for equity markets in the region in the immediate time frame.

Technical Charts [6 months]

Strong Support @5785/5635

The technical picture on the charts seems to be near an inflection point in the present market conditions. The short term moving average (15-EMA, 6099) is presently trading near its Medium term counterpart (30-EMA, 6080), which in case of a possible crossover would be an important technical development on the charts pointing towards the downward side in the intermediate time fame.

Also, the ADX trend indicator (>30) suggests that the present correction on the charts is a trending move, which is going to continue for the time being. The Demand Index (DI) is trading in the negative domain indicating presence of selling momentum on the bourses. Keeping in view the periodic nature of these indicators, the first line of defense for the indices would be near the 5785 levels. However in case of a prolonged correction, the markets would be getting support near the psychologically important 5635, if in case the global economic recovery looses its sheen.

In very short term, markets could bounce back on account of short covering which should not be mistaken with strength in the benchmarks and should be utilized to clamp down the exposure in equities for immediate term time frame.

On a medium to longer term time frame, equities are still the best bet to generate handsome returns on the invested capital, if supported by a "Top Down" and followed by selective buying.

Note:- Please view the charts/images by downloading them to understand them clearly. This article is written with limited knowledge that I have. One should do there own homework to understand and interpret the scenario's better. Information obtained is deemed to be reliable but do not guarantee its accuracy and completeness. Readers using the information contained herein are solely responsible for their action.