I knew it was time to sell when my shoeshine boy gave me a stock tip -Joseph P. Kennedy

Joseph Kennedy, a millionaire, and a famous politician who was astute and avoided the great depression in 1929. He sold off his entire portfolio just before the markets crashed in the U.S. Incidentally; a shoeshine boy had tipped him off about the hot stocks. He then realised that everybody was optimistic about the market and chasing returns. This called for action, and he was acted well in time to sell.

Can we expect the reverse now

In today’s context, the exact opposite may hold true. These days everybody is bearish on the markets, fearing the Federal Reserve Bank, FED lift off. Anticipatory Fed action has already intimidated market players. Equity markets across the globe have witnessed a fall whenever the Fed has hinted at a rate hike. Economists, policy markets have been expecting Federal Reserve (Fed) in the U.S. to raise interest rates for long. Now even non-finance people have also started discussing the impact of the Fed action on markets.

The general expectation is when the Fed hike rates, the impact could be ...

• US$ would rise


• Other currencies may fall and emerging market currencies would be under more pressure


• Commodity prices may plummet


• Emerging markets may see unprecedented sell offs


• Global capital may flow from emerging markets back to developed markets

Status quo of RBI brings forth two things

Consider this

All well. Each of the aforesaid possibilities is real but all of them are known to the investors. Therefore, there is a chance that, we might see a complete contrast of what we have been expecting so far. Over last one year, Indian Rupee has lost close to 8.0% against US$ despite of reasonable fundamentals. While gold has come down around 12% in the international market over last one year. The glut of oil has decimated prices. Equity markets have been on the edge with a negative bias. Don’t you think the action has already been factored out?

More evidence

Even Indian authorities, especially the RBI have started becoming less concerned with the anticipatory impact of Fed actions. Speaking at a press conference, Dr. Raghuram Rajan made quick but substantive comments of late. Answering a question about anticipatory Fed action he said, “My sense is, as I have said before, after an initial bout of volatility we probably should see Indian markets stabilise and come through. So, it’s not the central factor in our deliberations going forward.”

You should consider these possibilities as well;

• Everybody is betting on higher US$ value. Now there is a possibility that the huge unwinding might happen after Fed hikes rates.


• Emerging market currencies have crashed; they might become attractive at some point


• Gold has completely lost lustre for last 2-3 years. You never know it might start bottoming out, sooner rather than later;


• Emerging Market Economies (EMEs) continuing to face headwinds from domestic structural constraints, shrinking trade volumes, and depressed commodity prices


• Stock markets in emerging nations haven’t been doing great. Contrarians might have started eyeing them already.

You must now be feeling that, situation is too tricky than what you initially thought. European Central Bank (ECB) refrained from following dovish monetary policy stance last week. This provided some strength to Euro against US$. This could well be the precursor of Fed’s action.

We are at the crossroads and markets may go either ways. But that is precisely why PersonalFN always tells you to stay away from any market speculations. Accumulating wealth is not that complex that you feel. You have to follow 5 simple steps

1. 1Know your risk appetite
2. Determine your investment horizon
3. Identify asset classes you are comfortable investing in
4. Follow your asset allocation meticulously
5. Reshuffle portfolio only when needed; only to realign portfolio in the initial split

PersonalFN is of the view that, you should avoid speculating. After all, who expected markets to bounce back in March 2009? Everybody was discussing a possibility of a double dip recession. Similarly, had you advised someone to get out of the markets in December 2007; you would have been a laughing stock.

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