Inflation ! a contributor to boom and bust cycles.

• Inflation !
  Inflation in India at 11% is at 13 year high. But this is normal with crude prices at $135 / barrel. And the global economy having had very excellent 4 years of growth from 2003 to 2007. But now the party seems to be coming to an end. ( read my earlier blog- Cinderella story!). As all previous bubbles in history, there is fundamental genuine demand to increase demand first and consequently lead to increase in prices – unprecedented boom in China , India & other emerging economies in this case leading to exponential increase in crude prices. The huge application potential of information technology leading to I.T. bubble of 2000. But then the upward movement seems to become an act of faith & is expected to go on forever. This is makes people greedy- someone somewhere has made huge money out of this boom and now everybody wants to do so. A crowd is built up, all willing to invest in the ever rising asset at overvalued prices, leading to irrational (very high) prices. But as has been rightly said if something can not go on forever then it won’t. What goes up must come down. All this huge global growth has been possible because of the low interest regime in all global economies till a few months back. Vice versa of this too has to apply. That is what is causing the present slowdown in global economy- the global increase in interest rates. A chain is as strong as its weakest link. And in business the weakest link is debt. And it is this weakest link that is breaking. And this is leading to the collapse of real estate market in U.S.A. & consequent collapse of financial sector. And now crude oil is definitely in bubble territory. People investing in crude oil futures in particular and commodities in particular better be wary.
  
  Emotions in human nature in general & equity markets in particular.
  Emotions 23 times stronger than logic.
  
  EMOTIONS-Fear, greed, hope, despair.
  
  Fear 3 times stronger than greed. That is why in equity markets, we see bigger down swings than up swings. In recent past Indian stock indices have stopped trading because of having hit a lower circuit filter. But this has not so far happened on the upmove of the indices.

Joke of the day: what makes a man think of candlelight dinner. A power

failure.