It's not over yet !!! Worse may be yet to come..

New home sales in US have dropped around 32% to around 300000, the lowest since 1963. This comes on the back of expiry of the federal homebuyer credit.

Quite likely many buyers preponed their purchases before the expiry of the tax credit but 32% fall was much steeper than expected.

http://www.snl.com/interactivex/article.aspx?CDID=A-11371151-13622


Again the US government may well extend the tax credit leading to some improvement in the home sales, but then that is not the point here. Extension of tax credit will just shift the burden to an already excessive fiscal deficit and unless it triggers a real improvement in the economic indicators that is just putting money from your left pocket to your right and hoping that things will improve.

It is just indicative that despite the "worst is behind us" consensus in the markets the fundamentals of the economy have still not improved enough. There are other potential "waiting to happen crisis" like the EURO debt contagion spreading to other countries and this will surely serve as a deterrent for Bernanke against letting the US Fiscal deficit get larger by way of tax credits and bailouts. I think that the federal reserve has already exhausted its ability to prop up the economy by artificially lower interest rates and tax credits.

So we may well be staring at another recessionary period.. this time there will be no bailouts. Surprisingly FIIs seem to think that Indian markets are immune to the global economy and pumping in money into the bourses. That "logic" is only driven by the presumption that India is still growing so if there is any money to be made it's here.

However as a result many scrips are now trading way above their fundamentals. While fear looms large on the world scene our markets are going up in greed. This is a time to book your profits and keep out till a clear direction emerges on the Euro or US scenes. Atleast diversification of the portfolio from US/Euro dependent companies like IT to companies that are growth enablers in India(Infra) will be a prudent thing to do.