Long Short Report

Rohit at Indiacharts writes one more fascinating view in this Months Long Short Report…”It has been a year long period of global divergences that has people thinking about decoupling all over again. However what may have transpired is a slow topping process of global equities that started from Europe and then took on Asia and the Emerging Markets, and only now India and Finally the US. Compared to 2008 the US from being the first shoe to drop is now the last shoe to drop. Within that India by holding its own in terms of Nifty has a lot of people hanging on to the bull market narrative. Add to that the big declines in stocks that can make you comfortable about the idea that stocks have fallen far enough and might be near a bottom. A fair argument. But the Long Short report published this chart of the Relative Strength of Midcaps to Large Caps for the last two years to identify this as the top end of the range for the sector. Now that the trend has turned down for the Midcaps the typical cycle is a two year period of underperformance”

So picking stocks is not going to be easy and the globally synchronised movements that we have seen recently across world equities should now become a permanent phenomenon as volatility reverts to the mean. All said and done we are in for interesting times. In the backdrop we have a bond market bubble that is starting to unfold in a series of interest rate hikes.
What does all this mean for trends in equities interest rates precious metals and the dollar medium term and long term? I carve that out with the road map for Nifty in great detail with 20 odd charts ahead of Dipawali as we ”Prepare for the Fireworks” (subscription required for this report)that should follow.

My two cent

The US fiscal deficit is blowing up at the wrong point of time where funding needs are getting bigger. FED is left with no choice but to raise the rates to attract global savings/capital to fund US fiscal deficit. Think for a moment, if US 10 year treasury yield spike to 4% what happens to Emerging market (including India)debt and equity ? The capital will just sell everything and rush back to the reserve currency i.e US.The only difference of opinion I have with Rohit is on the direction of US dollar( DXY) which I believe is headed to 110-120 mainly simply because of attractiveness of US rates led by weakness in euro and EM currencies.