Monday, January 28, 2008

Fed cut and we sell ?

First, read this article if you havent already ....

Then, wait and see what happens after the Fed meeting. If it cuts, it probably means there is a decent recession on the way. If not, it means it was sucking up to the markets, but the credit crisis may not be so serious.

Lets assume it cuts rates.
I dont buy the argument that the Indian economy is insulated and we will grow at 8% and therefore stay locked onto your good picks and they will grow over time, blah blah. If there is a year or more of pain in US, you can bet that FIIs arent going to buy risky stocks in emerging markets. If major banks worldwide are going to be writing off bad debts like it was going out of style, where is the money to fund our infrastructure projects going to come from ? If that lending contracts, all the rosy projections for power, capital goods and EPC companies will go out the window. "PE compression" will be the buzzword of 2008. So I'm going to sell atleast 25% of my portfolio on the resulting global market rally IF the Fed cuts.

I would look at other indicators to take a call on whether economic activity is turning positive.
See the Baltic freight indices.... they are a great signal of global economic growth. They have been falling since Q3 2007. And no sign of a bottom yet. Once they bottom, I would enter stocks again. We should have probably looked at this in Nov/Dec and sold at the time. The things one has to track these days to make a few bucks :-)

Some might call this trying to time the market. I would call it exiting when you suspect an oncoming train about to hit you.

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