How long will it be before the clouds clear?

This is a question upper most in every investor's mind as the global financial markets witness a tumultous ride. The problems which began with the US housing market seemingly have spread to other asset classes and countries. Plunging equity markets, commodities hitting the roof, weakening currencies and high inflation have all impacted investor sentiment adversely.Though risk aversion witnessed in the early part of the year has subsided, the overwhelming emotion which still rules markets is fear. The aggressive approach adopted by the Federal Reserve to prevent the US economy from slowing drastically has seen the Dollar plunging to lifetime lows against other currencies most notably the Euro. Clearly the problem of economic growth wasnt restricted to the US alone, it has become a global phenomenon.


The Emerging markets were hit the hardest as they were the biggest beneficiaries of fund inflows. India and China are two prime examples, the equity markets in both countries have seen sharp corrections after having seen a tremendous rally over the past couple of years. The Latin American economies have withstood the bearish sentiment primarily owing to the rally in commodities. Countries like Brazil, Argentina, Mexico, Peru, Chile are exporters of several commodities. The Brazilian index has hit new lifetime highs, most currencies in the region are strengthening overall the sentiment seems extremely gung ho. However a pause in the commodities rally has the potential of seeing growth in the Latam economies slowing down significantly. The Euro zone also seems to be grappling with galloping inflation at present, recent releases of economic data have pointed to signs of a slowdown in several member countries of the EU.A sustained spell of economic weakness could be around the corner.

Some developments worth a mention include
-The world's biggest banks writing down $ 400 billion-Three of the largest central banks namely the Federal Reserve, the European Central Bank and the Bank of England injecting huge amounts of cash into the banking system
-The Federal Reserve opening its discount window to Investment banks to ensure availability of funds,an unprecedented first.

Given all these signs, the situation does indeed look alarming. Doomsday theorists have been having a field day, but there's light at the end of every tunnel. Its the journey to the end of the tunnel which can be really painful and needs loads of patience. Investors should look at the present picture in the bigger scheme of things and remember several markets are witnessing "corrections" after exponential spells of growth. Investors who thought the markets were an easy place to make money have been taught a very costly lesson. The problems being witnessed in the global markets are likely to continue in the near term, particularly if problems with mononline insurers intensify. A bailout of two of the largest bond insurers by a consortium of banks pointed to problems in the insurance industry. Clearly the problems have not disappeared and could resurface.

Unfortunately the dark clouds over the financial markets are unlikely to dissipate in the near term, if getting the direction right in markets is difficult, timing the markets is almost impossible. Volatility is likely to remain high, staying on the sidelines and waiting for clearer skies would be the best bet in such times. As the old saying goes, a bird in the hand is worth two in the bush!!