“Please God, one more bubble…one last time!!!!”

It is said that after the dot com bust, there were bumper stickers in Silicon Valley praying for one more bubble (presumably to enable people to exit their technology stocks). Their prayers were answered but not in the way they wanted. Instead of getting one more dot com boom, there was a real estate boom and a commodities boom in the US and in other places. We are in times where I am sure a lot of prayers are being made for another bubble.

Strangely the prayers again seem to be in a position to get answered. Central banks all over the world are back to doing the things that they know best. Cutting rates and pumping liquidity. We will now have an additional currency for carry trade. Besides the Japanese Yen, we will have the US Dollar and possibly the Pound and Euro as well.

A lot of people are doubting the ability of lending institutions and other financial intermediaries to move the money around. Most banks seem to be wanting to hoard the cash injected by central banks rather than lend it. However keep things like this long enough and we have another bubble in the making. How long will corporations and households tolerate zero returns on their money?

Pumping cash into the banking system and driving interest rates close to zero is a sure fire recipe to create bubbles. The question is where will the next bubble be created. It is easier to rule out places and mention where the bubble will not be created.

Recent public memory will eliminate creation of bubbles in dot coms, commodities, real estate, sub-prime mortgages and derivatives. Emerging market equities have given significant losses to investors this year. Further countries like Brazil and Russia are vulnerable to fall in commodity prices. A lot of countries depend upon exports to the US and other developed markets and hence may fall out of favour. Thus there may not be an overall emerging markets bubble.

For logic and reasoning please stop here. 

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For flights of fancy and a dose of wishful thinking please carry on…… after all bubbles do not need logic.

Will corporations and households move to China and India in search of higher interest rates and growth in corporate sales and earnings? It may be difficult to sell a China / India story to ‘Joe the plumber’ in the US in the beginning. However “sophisticated” investors could start with carry trade and try to earn interest carry.    

Will not NRIs for example be tempted to move money to India in SBI, HDFC Bank or even ICICI Bank to earn say 5% – 10% (depending on the tenure, currency etc.) rather than getting zero interest from their accounts with Citi or Bank of America? Will not all MNCs try to delist their shares from India given the state of the valuations here. Companies like Mphasis, Monsanto, Novartis, Oracle etc. will surely find the valuations of these companies mouth watering. Having delisted their companies at a premium to the prevailing market price, they could turn to acquiring other companies in India. Entrenched company promoters and management could start increasing their stakes to ward off potential acquirers thus giving a positive overall ‘momentum’ to the market. This would be supported by earnings growth of companies relying on domestic consumption which would not be affected by the woes of US and Europe. Is it here that ‘Joe the plumber’ would join in to participate in the next bubble………..?

Enough dreaming, WAKE UP TO THE REALITY, markets are down 57% from the peak. Try and do something useful. Bye for now.