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Tuesday, September 3, 2013

Soros` Shadow on Indian Rupee

Watching the mayhem in Currency markets reminds me of the 1990s and a certain George Soros and his Quantum Fund that caused a bloodbath in the Thai baht and made him 'persona non grata' with Mahathir Mohammad's Malaysia.
That led to the meltdown of the so called 'Tiger Economies',a million job losses and reduction of millions more into poverty in Thailand,Indonesia,Malaysia and some other parts of South Asia.
The similarities to the current Indian situation are uncanny-a huge Current Account Deficit(CAD),trade deficit,low GDP and lack of assesment at high administrative levels of the knockout effects possible from this combination.The only dissimilarity was that the Thai baht was pegged to currency levels against the $ and the Thais did not wish to devalue their currency.
The response was similar to what the RBI did last month.Raise interest rates to curb money supply.
 
Now,sophisticated traders will analyze prices and move them to their efficient level.Taking a negative view,traders lack the muscle to enforce price efficiency and knowing the limits of their power prefer to ride trends rather than fight them.
India is lucky that major hedge Funds are not allowed the freedom to use leverage to take positions and push weak currencies beyond the point where central Banks cannot hold them back.If the true or real value of the Rupee vs $ is 60-61,why was the RBI trying to fight the depreciation?
Thankfully there dont seem to be any bubbles although hindsight is the best way to spot bubbles in the economy!Major sticky point is the corporate debt scenario and an example from today's news is the default of Yash Birla group which has CDs of 100 cr open.
"The market can stay irrational longer than you can stay solvent"-John Maynard Keynes
Although I am not a Keynesian fan yet these lines strike a chord as I see too many traders try to go against the trend rather than go with it and lose their entire capital in the process.If top hedge Funds like Tiger and Quantum,which in their heyday had a combined capital of approximately $ 20 Billion could sustain loses and not be able to buck the trend then you as an individual hardly stand a chance unless you get seriously lucky.
I do not wish to repeat my earlier post on trading the VIX.The other way is to remain hedged in this market-could be equity vs futures,options,pair trading or across Nifty and USDINR and Gold.
Simplistic one way trading is a recipe for a loss.With 2-3% swings in the Market intraday this is a difficult time to predict the trend for tomorrow!
The nifty will go down after trading in bands i.e. 5500-5700 band broken,next 5200-5300 level.5000 is the critical level to watch.Value is there already in Metals,Mining and the push for Ultra Large Power projects although their debt to equity ratio is totally skewed out of kilter.
Downgrades in earnings,limited strike on Syria,corruption in China and finicky growth numbers from Europe will keep the markets volatile.