**[investwise]** Is There A Bubble In Bubbles? If So, Where Does That Stop?

 

FII selling continues unabated in India-averaging Rs 500 cr to Rs 1500 cr per day for the last fortnight atleast. There is a veritable deluge of doom sayers everywhere, including dedicated India centric bulls. So why does sentiment change on the flip of a coin?   Agreed the memories of 2008 cannot be forgiven, neither can extreme volatility in fx markets. But we cannot also forget is, that the whole World-including Japan and India-the Government debt is essentially what has built nations. Now unless, debt as an instrument will cease to exist I see no reason for any nation to default just because they cannot fix their Fiscal Deficits. The reason being that no nation can fix it's fiscal deficit, not today. Not even a 100 years from now.   The only answer to debt defaults or perceived default is a simple answer-rescheduling or restructuring. This is the only answer except paying off in Gold-which no Government owns and may have no use for it anyway or by printing even more money bringing in inflation and an end to any semblance of ever getting the fiscal in order.   But all said and done this mayhem can settle-if the debtor and the creditor sit across the table and cobble out an agreement. Otherwise we would continue to have these fanciful swings that suit intra-day speculators and effectively ensure an end to long term investing.   Nouriel Roubini and James Chanos, the economist and the hedge fund manager, have been blowing bubbles all year like a 6-year-old on a summer afternoon. They've been aiming them at anyone who would listen. The easiest way to make headlines with your business opinion is to call an investment class a bubble. If we're ever going to learn anything from the business media again, it's got to stop.   This is in large part because the business media still feel guilty about missing the housing bubble--even though article after article was written about the a historical rise in home values and what a slowdown could mean to the economy.   Holman Jenkins of The Wall Street Journal recently listed a string of articles in his paper alone beginning as early as 2001. Few people knew enough to listen, but that doesn't mean we weren't warned.   Now the business media race to declare every appreciating asset class you can name a bubble, so we won't get fooled again, even if we weren't fooled the first time. In the past six months, writers for national business media have declared the following 18 asset classes bubbles: real estate in China, Dubai, the U.S., Canada and London, the Chinese economy, Greek bonds, emerging markets, the whole international currency carry trade system, gold, corporate bonds, treasury bonds, municipal bonds, the environment, private equity, church construction, container shipping and garlic, plus--even though it's not exactly an asset class--ethics.   Business Finance, a trade magazine for financial executives, carried a blog in February warning of a surge in honesty brought on by the recession and predicting a rebound for corner-cutting once there gets to be more money on the table.   Calling the garlic market a bubble was particularly galling because the story, on Fortune magazine's website on March 24, acknowledged that the price was rising only because the top producer, China, cut back its supply.   If we're going to call any effect of supply and demand an asset bubble, then what does the term even mean?   Similarly, identifying a bubble in public debt is not the same as identifying one in equities or commodities. Investors bet that the tax man and inflation will ultimately bail out governments that would be forced in liquidation if they were private. Based on history, that's a reasonable expectation. Even investors in economic meltdowns like Greece and Dubai are likely to be made whole by someone.   "Bubble" should be used only when the price of an asset accelerates regardless of any underlying change in supply, when purchases are driven by leverage and in the presence of high volatility. That is, when there are flippers.   Editors should confine their stories on these strange creatures to actual scoops, when they can be the first to identify economic data that point to an implosion. They shouldn't use bubble accusations just to fill space on slow news days or to land a one-on-one with a hot economist.   Hammering the same China-is-doomed theme daily doesn't make us any better informed, and there's an opportunity cost in the news you don't cover when you're going for something so obvious.   Restraint would make each genuine discovery a meaningful warning. Right now we have a glut of warnings, with reporters so spooked by the last crisis that they may risk missing the real warning signs of the next one. Just as the military always worries about "fighting the last war," business reporters should worry about reporting the last financial crisis. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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