The heat is on

The title i have chosen for this blog, helps me put into perspective the latest developments in global markets as the turbulence witnessed in global financial markets over the past 6 months or so has moved onto hitherto uncharted territory. The indicators say it all, needless to say things look frightening. LIBOR, the rate at which banks transact in the interbank market at an all time high. The CBOE Volatility VIX Index at an all time high, Emerging markets smashed.A country tottering on the brink on bankruptcy.... its easy to shake one's head in disbelief. Things dont look good at all.


The freeze in the credit markets has evoked an unprecedented response from central banks and led the big three i.e the Federal Reserve, the Bank of England and the European Central banks to co-ordinated rate cuts. Other central banks followed suit in an attempt to shore up global liquidity. Another noteworthy development was governments pumping money into banks with a view to shore up battered institutions. The infusion of $ 125 bn into 9 banks by the US, an injection of 250 bn pounds into banks by the UK government and an injection of 6 bn CHF into UBS by the Swiss government stand out.


Nowhere is the pain more apparent than in the Emerging markets...Brazil, Russia, China and India. Instances of trading being frozen on stock markets which were the exception earlier have now become the norm. Its not unusual if investors start wondering.....when and how will this end?


A key factor which would begin the recovery is a thawing of the credit markets....banks begin to lend to each other without hoarding cash. Clearly its very easy to get overtly pessimistic and paint a doomsday scenario....well some might say doomsday has been witnessed many times over!!!


The massive turmoil playing out in the markets is bound to create a lot of uncertainty and anxiety in the minds of investors. So, is it the time to buy yet? In this case, views of two noted investors stand out. The Oracle of Omaha, Warren Buffett's investment philosophy is " Be fearful when others are greedy, be greedy when others are fearful. Presently, it isnt an understatement to say fear is all pervasise. Jim Rogers believes the best time to buy is when nobody wants to buy. These two thoughts are pearls of wisdom from Investors who have enviable track records over the past few decades.


So is it a good time to buy? For people with the investment horizons of Buffett and Rogers,presently markets are at mouth watering valuations. For the common investor its a different ball game altogether, though i clearly believe the markets are now in a territory where investments can be made on a staggered basis. Though i am doubtful if investors have sufficient cash for deployment as an opportune time comes knocking. Research and valuations have been chucked out of the window, as even the biggest of investors are keen to hit the sell button on everything they own. The possibility of a really sharp rally in equities sometime in 2009 cant be ruled out, especially in a scenario where gloom and pessimism dominates. I wait for the sunshine and hope the clouds of despair dissipate soon!