Are u a BULL..........OR..................BEAR...............?

CROSS FIRE

Are We In For Another Mayhem?

For those who have even a remote involvement with the Indian market,May is a month to watch out for. In May 2004,political instability,following the fall of the BJP government,accounted for the drastic fall, while in 2006,it was a dip in commodity prices that led to the bear phase.There were no scams to lay the blame on.The reasons were genuine,but the falls were hard. Although the reasons were vastly different,the enormity was the same.On both the occasions,trading came to a halt as the benchmark indices hit lower circuits. Going into the May of 2008,the markets are still smarting from the dip since January.The slide has been consistent,though there were rays of hope in between.The reasons that brought about corrections in 2004 and 2006 — political instability and a fall in commodity prices — are looking as dicey as ever. Shakti Shankar Patra presents both sides of the argument — on behalf of the bulls as well as the bears — on whether the ‘May mayhem’will rear its ugly head yet again or not.

The Bull Will Always Rule :

However ridiculous it may sound, the fact is that stocks are actually invented to go up. They are like evolution and the human mind: in the long run, they get better. And though, once in a while, some crackpots manage to short the market, it is more a case of chance. Bearishness is actually a kind of mental disorder suffered by pessimists, who hate to see prosperity all around. See what happened to one of the most celebrated bears of the last century, Jesse Livermore. A victim of clinical depression, Livermore had made huge fortunes by shorting the market during the crashes of 1907 and 1929. But being a perennial bear, it didn’t take long for all these fortunes to blow away. By the time Livermore blew out his brains, his net worth was just a fraction of what they were in the early 1930s.

There is no doubt that India is a long-term secular bull market. After hitting 3,000 in 2003, the Sensex has moved just one way. There had been corrections, but whenever the market touched a bottom, it was higher than the previous bottom. Likewise, when it rose to a high, it had been higher than the previous high. This sequence of higher-bottoms and better highs is intact even now. So, unless we touch a low that is lower than the previous low, — ie, we don’t go below 13780 on the Sensex — the bull run, for all measures, is on track. For an economy growing at close to 9%, a P/E of around 22 doesn’t look overexpensive, either. So, don’t miss the bus once again.

Bull. You Ain’t Seen Nothin’ Yet

In a country where the average age of the population is just 24, history probably dates back only as far as 2003. So, a majority of the suckers (read retail investors) have absolutely no clue as to what a bear market is and we are sure that by the time they realise, it would be all too late. Moreover, if you thought ‘a buy and hold’ strategy pays great rewards in the long run and, therefore, hold through this bear market, then maybe, just maybe, you haven’t heard that in the long run, we are all dead — some bear markets actually stretch for decades. Ask anyone who bought Japanese stocks in 1990, he will tell you that even after 20 years, the portfolio is down 70%. And if you adjust it for inflation, then you know what is left, right?

Before you start talking about valuations, let’s tell you that in terms of the market capitalisationto-GDP ratio, India is close to where the Japan was at the peak of its bubble in 1990. And with inflation close to 8%, a general election lurking and earnings growth on its way down, you need to be absolutely naive to believe that the bull run is back on track. The current rally of 10-15% is nothing more than a bear market rally induced by a panicking Fed, which is printing dollars and inflating asset prices.

So, before it’s too late, sell out your holdings and short with all might, because in May, this market is going to show the full movie of the trailer that you saw in January.
ILLUSTRATION: RAJESH KARANDA

Taken from Economics Times.

Comments:

Jesse Livermore was a great player and he started with a scratch and learned his way.He use to work at share broker office where he got interested why stocks goes up and down and when it goes up and down......Great character to read.....we can learn from his mistakes.

I would also like to add here that I do not concur with the second view of the auther.Seems he is not sure what he is writing.He is banking on that every two years there is a Mayhem in May and even I have already started getting feelers that May will be very very bad.But I have a contra view.He writes against becoming a perennial Bear is so dangerous and still at the end he says May mayhem lingers large on our market.I am totally flattered by his second view.

But I purposefully pasted this article from ET as I wanted to let you know about one perennial Bear , Jesse Livermore.If one can ,then one should try to read him...surf the internet through google and try to read about Jesse Livermore.

As I have said May/June end we can see even 19,000 and by Diwali we can cross new high........