Life in the fast lane is often stressful and to de-stress, people try oodles of things. Taking short breaks at regular intervals might be the healthiest way, whereas using opioids could be one of the most dangerous ways. Doctors often warn against the overdose of pain-killers and the U.S. Food and Drug Administration (FDA) released a guide on the Safe Use of Pain Medicine. While it gives you a comprehensive perspective on pain medication, it also gives you a strong, straight-forward message. It says, "Pain medications are safe and effective when used as directed. However, misuse of these products can be extremely harmful and even deadly." Unfortunately many people focus on the first line and miss reading the last one.

This is not only the case with pain medication. It has more to do with the nature of human tendencies. Now, for example, the monetary stimulus announced by many developed and few developing economies. In economics, there are theories that support monetary stimulus under tough conditions. There has been enough evidence to support that economic activities can be invigorated with monetary stimulus. But at present, it seems the world is too tilted towards stimulus. A pain-reliever may 'kill' the pain but it can't eradicate the root cause. Similarly, monetary stimulus can't solve deeper problems on most occasions. Still, every time stimulus is announced, global capital markets rise anticipating sunny days.

Developed economies such as U.S., Eurozone, Japan, and lately even China seem to have pledged to pull out all the stops. They are ready to do "whatever it takes" to get their economy back on track. This effort is showing severe side-effects now. Consequently, money that comes into the system through stimulus is actually finding its way in speculative trades, rather than it flowing into the real economy. As a result, stock markets soar, commodities become dearer, and other asset classes see huge inflows. The markets are being abused now and they need higher boosts of stimulus every time.

Why markets may continue to rally?

Lately, China cut policy rates by 25 basis points. One basis point is a hundredth of a per cent. The People's Bank of China (PBoC) has intervened for the sixth time since November last year. Whether it is desperation or aggression to stave off economic lull, only time can tell. Meanwhile, the European Central Bank (ECB) may also be warming up for action. Speaking at a council meeting in Malta, ECB President said, "We are ready to act if needed.?.?.?and we are open to the full menu of monetary policy." ECB has identified the problems Eurozone faces today. The next meeting of ECB is scheduled to be held on December 03, 2015; about a forthnight ahead of the Federal Reserve (Fed) meeting in mid-December. This make it unlikely that Fed will decide on interest rate in the forthcoming meeting scheduled on October 27-28.

Markets across the globe are already excited. Loose monetary policies in Eurozone and in China may push the USD up, making it difficult for the U.S. exporters to maintain their competitiveness. For the time being, although U.S. may be unconcerned about this aspect, such moves from large economies affect the global trade.

Approach you should adapt now...

Indian markets too benefited from news of further monetary easing into China's economy, and the possibility of it easing in Eurozone. As mentioned earlier, markets have become addicted to stimulus these days. Considering this, how long markets will hold up that remains uncertain?

Short term markets are often triggered by this news, but in the long term they work on pure fundamentals.

You should ignore the noise and try to come to terms with the reality. Indian markets are not cheap. If the global rally takes them along, they might become even more expensive. Corporations aren't showing any signs of great recovery in their earnings. The results for the quarter ended on September 30, 2015 were announced and so far they have been sluggish. Big bang reforms only exist in 'manifestos' as of now and little has changed at the grass-root level.

Under such economic conditions, upbeat global sentiments can't prop up Indian markets for long. Fundamentals will have to justify valuations.

What should you do?

• Close your eyes to the market movement
• Open your eyes to the market valuations
• Say 'no' to speculative trades
• Say 'yes' to long term investments
• When investing in equity-oriented mutual funds; prefer Systematic Investment Plans (SIPs) to benefit from market fluctuations
  
  

Any investment that suits your risk appetite and falls in line with your financial goals may turn out to be good investment for you. In case you are still unsure where to invest, take advantage of the unbiased research services provided by PersonalFN.

With every shot of monetary stimulus, the markets derive pleasure, but someday, they will have to acknowledge the ground-level reality that monetary stimulus is becoming increasingly ineffective.

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