Tuesday, July 1, 2008

Is it Exploding or Crashing ?????

Well, I would say both !!!!!!

If you are living in today's world, you should be as worried as I am or more. Living in US or India, it should be taking a toll on you. What started as one of the cyclical downturn in US, is now far more than that. As any industry booms, its destined to bust. The same happened with real estate industry in US. After dot com bust, all the money that people had to be invested somewhere. All american citizens or immigrants started investing all their money in real estate. It boomed and it busted.

What happened differently this time ? Its a sequence of events which is most disturbing.

After the sub-prime crisis, the US investment bankers are the worst hit. They are ones who run the show on wall street. Despite of all efforts by the government, the market is not recovering. The reason being the other event of abnormal surge in crude oil prices across the globe. Part of which is credited to the consortium of middle east not ready to increase the production.

What's the solution ? Can we expect something from other side of the globe - India and China. India is having the highest inflation of 13% and growing. Steel, cement and grain prices are touching the ceiling. Crude is taking its toll too. The big indian oil companies are reducing their refining capacity as they losing so much money per barrel. If the trend continues most of these companies might go bankrupt in next two years. Who bears the brunt of all these ? Government, markets and each one of us. The Indian stock market has already sinking to its two-third levels in past few months. China has the same story to tell.

Who and what will pull these markets? First guess - Investment Bankers. Most of them are going through worst of the crisis ever. Everyone knows the Bear-Sterns and Lehman story. Rest of the funds and banks are not too far away. Second guess - Growth Potential of India and China. This one looks very promising but over past few years, the biggest consumer of Chinese products and Indian services has United States which in itself is going through a bad patch.

An interesting instance of this vicious circle came to notice couple of days back. Lehman Bros' stocks are down to one-fourth of 52 week high. The company is fighting tooth and nail to save the entity. They raised the funds of $6B from middle east. Next comes the news, Lehman turns to Indian economy for growth. They plan to invest $1.5B of those funds in Unitech, a construction company in India. On the other side, with exploding inflation, Indian stock market is crashing. Indians are losing money on both sides - the stock market as well as rising commodity prices. Very soon, Indian real estate will also follow a downcycle because of these factors. By now, you would have guessed what happens to the money that Lehman invested.

The question that comes to my mind is that: There is something wrong ???

How come commodity prices are just shooting up so much all at the same time. This can't be real. Nothing changed so much in the world drastically in past four months. There is something artificial which is driving commodity prices.

How much can artificial rigged commodities affect the economies. To take a peek, lets consider living in a world six months down the line. The crude prices crossed the $250 mark last night. With rising fuel costs, people have almost stopped flying. Two US airlines went out of operation and others are bleeding. Sky rocketing steel and cement prices have made houses so much expensive, people can't afford to buy them. The real estate prices continue to fall collapsing many big construction companies. People are seeking alternative to gasoline. Commuting has drastically reduced with so many people working from home. Automobile companies are trying to keep up with new cars running on electricity. Tech companies are cutting their staff as their clients are not making money and are not ready to spend money on the IT infrasture. Banks are cutting jobs to keep themselves in shape. I went to my office this morning. Guess what. My services are no more wanted :(

Isn't that quite a scene of mayhem across the globe. Is that what they call global recession.

Can you see it coming ??? Well, looks a little bit blurred from here. Isn't it ???