Monday, May 18, 2009

Market Meltup in Mumbai

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Last night, half way around the world in Mumbai, the hyperinflation early warning system sounded the alarm. The major Indian stock index, the Sensex, exploded up over 17% in a short period of the time. The market had to be closed because circuit breakers were triggered by the stock buying panic that sent the market into a meltup. What set off the bull frenzy? The ruling Congress party retained power in the recent elections - a relatively ordinary event. The stockplosion on the subcontinent should make every investor realize that India is a market awash with massive liquidity, otherwise a big market move like this would not be possible. India moreover is by no means unique, it's just early. The excess liquidity there is part of a global phenomenon that could create an inflation tsunami that raises or wipes out asset values throughout the world.

Despite what the mainstream media tells you, liquidity is what moves markets. The economy can be in the tank and staying there, but if there is a lot of liquidity in the system, stock prices can and do go up. The New York Investing meetup has constantly demonstrated at our meetings that the Fed is pumping liquidity into the U.S. banking system that is 10 to 50 times greater than anything during the last half century. Many economic 'experts' (mostly the same people who didn't see the credit crisis coming) are optimistic that somehow all of this huge money creation is magically not going to result in a massive inflation surge that is like nothing the world has ever seen. The events in Mumbai last night are telling us otherwise.

Hard assets are the investments of choice during inflationary times. Gold, silver, oil, and food are the four pillars of investing during these periods. The price of stocks go up as well because the price of everything goes up, although they are rarely the best performing asset class. You want to get into inflation sensitive investments early and you want to wait once you do. Based on last nights events, it is quite possible that the wait won't be that long.

The New York Investing meetup is having a class on Inflation Investing Tuesday May 19th. For more information, please see the website:

NEXT: Market Puts on Inflation Trade Becuase of Mumbai Mamba

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.


Anonymous said...

Hi Daryl, I am a keen follower of your blog and attend the NY Investing seminar to get a different perspective of the market than what i read in the media. I agree with you on some and don't on someother. It's economics and not exact science. So there are multiple explanations to the same phenomana. Anyway, the reason i am writing this is to point out the mistake in the following statement.
"The ruling Congress party retained power in the recent elections - a relatively ordinary event."
This was an unexpected result. They didn't anticipate such a clear victory. For the last 5 years, the Congress needed support from the communist parties to run the govt. The current prime minister is more for open trade and economy. The communist parties were against opening up the economy. So the economy suffered for the last 2 years. So lot of funds had shorted the futures. With the unexpected happening, they all tried to cover. And that's what the result was. So you analysis is a bit off. Yes, there is a lot of liquidity but that's India. People store their money under the matress or buy gold. But happend in the market has nothing to do with liquidity.

Anonymous said...

Just to add to what i posted earlier..