Time to book your profits.

Chairman of the Federal Reserve, Ben Bernanke has delivered a shot of LSD to markets around the world by announcing that there will be no tapering of the bond buying program. Markets had factored in a small cut in the purchase of treasuries by around $10 billion per month. Anything more than that or any cut in mortgage backed securities would have seen severe falls in stock markets around the world. The Indian stock market is up 650 points and the rupee has risen to below 62 to the dollar. Already there are predictions that the rupee will strengthen to 58 to the dollar and the government can breathe a sigh of relief. We hope not. Giving his reasons for postponing the tapering Mr Bernanke said that the recovery in the US economy was not yet strong enough especially in housing constructions and fall in unemployment. He said that the Fed wants to see a broad based recovery before starting the reduction of buying bonds. What he did not say is that the US economy could be in for a shock next month when Republicans, especially in the House where they have a majority, intend to bring the government to a standstill by not raising the debt ceiling. If the government is unable to borrow it will not be able to pay salaries and will not be able to pay its debts. That may even lead to a credit downgrade. In states controlled by the Republicans they have created right wing ghettos by naked gerrymandering, so as to guarantee election victories. Trouble is that the extremely right wing Tea Party has become very powerful in these constituencies so that moderate Republicans are in danger of losing their primaries if they are seen to compromise. These people want any increase in the debt ceiling linked to a repeal of the healthcare act, they have named Obamacare. Democrats will not compromise on the act so a deadlock seems inevitable. If that happens markets will fall and the rupee will slump. There are other dangers. The Congress has embarked on a dollar borrowing binge to somehow shore up the rupee. It had an agreement with Iran to purchase Iranian crude by paying in rupees instead of dollars but the new government in Iran is refusing to continue with that arrangement. While paying Iranians in rupees the RBI has forbidden NRIs to take even one rupee out of India. If you have shares this maybe the last opportunity to book your profits. Come October you may mistakenly think that Diwali has come early.