Prayer in March, Hope in April, Conviction by May

Its been a long time.....post the initial burst, didn't feel much enthused to keep writing, what with the rather sullen mood through March & early April.
But yo, am back ...much like the markets.

so whats happenning? suddenly the world seems a brighter place & all the prophecies of doom have disappeared! Now we hear the bulls starting to speak & shortly we may see them roar as well.....

Here's my take on this turnaround - a primary driver has been the massive, coordinated stimulus by Central Bankers globally releasing a flood of liquidity into the system over the last 6-9 months. Most of this was waiting in the wings for a rightful investment. The mood in early March was grim with grey clouds hovering. It all started with an innocous memo from a very unlikely Indian, post US market hours on the 9th of March - Vikram Pandit, the beleagured CEO of Citigroup wrote a memo of how his company was profitable through the 1st 2 months. Before people could twitch at the news, other banks said 'me too', making people take notice - there was some hope after all!

(If you don't believe me, see this link below or search for "Vikram Pandit memo to employees" on google & see the results.
http://www.businessweek.com/bwdaily/dnflash/content/mar2009/db20090310_761018.htm?chan=top+news_top+news+index+-+temp_top+story
and go back to see the low for most of the equity markets world wide -9th March 2009 closing)

Shortly some good data from China further scattered the doomsday clouds. Its somewhere at this point that I think the surfiet of liquidity started to flow into assets.....since April, slowly but surely its been washing away the clouds, making people pray for sunlight. That prayer has since turned into a hope in May and it seems now the hope is turning into a conviction! People seem surer of the recovery around the corner.

What next ? Next 3-4 weeks could be very important. If the conviction strengthens and markets rally even further, then I think we will have a problem. It will lend credence to my theory of easy money driving value & will create sort of a mini-bubble. The crash then could be even harder.
If the conviction drops & markets trade range bound, it would give time for real economy to catch up with markets. Then it would be possible that strong central bank actions have averted the economic collapse & slowly, with initial unsteady steps but getting surer, the economies would limp back to some normalcy and hopefully start walking & jogging by 2010.

I hope for the 2nd; but something tells me it could be the first. There could more shock & awe in store! Get a little bit more impersonal about the markets & enjoy the rollercoster play between human greed & fear from a ringside view. It could be lots o fun.....

Before i sign off, just one thought. Rather than continuing to invest into equities, its probably better to invest into inflation. More about that next time.

cheers,