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Fools rush in and how to benefit from this rush

India's primary stock index BSE sensex on Monday saw a historic surge of 17% before markets were closed for the day. Reason was that the ruling party won the election more convincingly than predicted by exit polls. In case you missed it, I'll repeat again 17% for the index not a single stock. Back here every day BAC makes a plus or minus 10% move on a volume of at least half million shares for the past one month. At current price level of BAC that means around $5 Billion of trade in just BAC alone every single day for past one month. This is what happens when US government leads the whole world in creating bubbles every where. And sooner or later individual investors and pension funds pay the price. I can't help but just pity those fund managers and individuals who would show willingness to buy into BSE sensex's huge rally and a similar rally of some banking shares here. Technical analysis is good if you have a very short term horizon on your mind and make a living from quick moves. But in today's world most portfolio managers do exactly that. They have absolute disregard for their clients' wealth and consider it as a play station that has been given to them to make some quick commisions and then let those investors see their paper money evaporate when finally fundamental corrections kick-in. I think I don't need to provide a bigger proof than this that I haven't met a single technical trader until now who comes even remotely close to Warren Buffet in total wealth. Now I'm not getting into the argument of technical vs. fundamental analysis but individual's and pensions fund holders should be warned to take a note of their time horizon. These phony moves can hurt them immensely.

Take an example of Goldman Sachs and its analysts. Wasn't Goldman the company which was shorting all those worthless mortgage bonds while it was telling its clients to buy them without any hesitation. In fact I would never trust Goldman's advice on any trade and would be willing to take on an opposite trade if it fits according to my own analysis. Goldman was also foretelling that crude oil would end 2008 at $200 level. It was not even at 1/4 of that level at the end of 2008. But that's how Goldman as a company profits. Relying on the short memory of investors and on the proof that there are enough fools in the world with deep pockets to fall for its traps. Today it added BAC to its conviction buy list: what that actually means is that either Goldman is internally shorting BAC or it got into BAC when it was $14 recently and now wants to exit from that position.

Now 5 years later BAC might be trading at $40 or might not exists in its current form. I don't have the crystal ball to tell. But at least the mirror shows that (as noted in Wall Streer journal's today's article about BAC and Countrywide), that Countrywide unit has been in an inoperable condition since 2007. And BAC would not command a huge earning power after dilution of its shares (when it raises $20 Billion dollar capital) that would justify the share price of more than $10 in few coming years until it buys back some of its floating shares. But time horizon for that will definitely be more than 5 years assuming a "going-concern" basis here.

Coming back to BSE sensex, I would say that be warned that it's the same government with more % seats so there will be less check and balances on its functioning. And in a country which ranks near the top in corruption, bureaucracy and poor governance, less checks and balances are a bad thing and not a good thing. It's true that now companies will have to bribe few politicians and officials to get their work done and take advantage of the common people. But as the current financial... shows, such cycles don't run for long and in the end both common people as well as companies get hurt. I would wait for the rally to come full course in next 1-2 days (if it continues from yesterday) and then take good short positions in some indian shares.

Disclosure: Contemplating taking short positions in some indian stocks. No position in BAC and GS.