Thought for the day
“Condemn none: if you can stretch out a helping hand, do
so. If you cannot, fold your hands, bless your brothers, and let them go their
own way.”
-
Swami Vivekanand (Indian, 1863-1902)
Word for the day
Wamble (v)
To move unsteadily
(Source: Dictionary.com)
Teaser for the day
Delhi government gets 50000 complaints of corruption in
three days. What does it mean?
(a)
Aam Aadmi is making fun of AAP.
(b)
Delhi is the worst place to live on this planet.
(c)
Both of above
Do not mistake moss for green shoots
US employment data is one single piece of information global financial
markets have watching keenly since US Federal Reserve pegged the monetary
stimulus to the job creation.
The latest data suggests fall in rate of unemployment below 7%
(6.7% actually) after a long time. A benchmark Fed has highlighted more than once
as a key signal of economy normalization and therefore catalyst for winding
down the unprecedented accommodative monetary policy.
However, what the headline data does not highlight is that it is
not the lower numerator (no. of unemployed persons) that has caused lower
unemployment rate, but the lower denominator (total workforce). The denominator
dropped from 155.3 million last reading to 154.9 million present reading,
implying that the labor participation rate just dropped to a fresh 35 year low,
hitting levels not seen since 1978, at 62.8% down from 63.0%. (read
more at Zero Hedge)
This means now more Americans are unfit for employment (skill
shortage or mismatch), less Americans are willing to work (more dependency) and
new job creation is happening in sectors that require higher skills (mostly
technology).
I do not know whether India should worry or rejoice about this.
Lower unemployment rate means faster winding down of QE and potential 2015 rate
hike. Historically a reversal in US rate cycle has been bad for Indian economy
and market. Remember, this shall happen when the world’s biggest economies seek
to refinance $7.43 trillion of sovereign debt in 2014. Higher rate and lower
liquidity shall raise borrowing costs while nations struggle to bring down
elevated budget deficits. As per some reports the amount of bills, notes and
bonds coming due for G-7 plus Brazil, Russia, India and China is little changed
from 2013 after dropping from $7.6 trillion in 2012, according to data compiled
by Bloomberg. At $3.1 trillion, representing a 6 percent increase, the U.S.
faces the largest tab.
While budget deficits in developed nations have fallen to 4.1
percent of their economies from a peak of 7.8 percent in 2009, they remain
about double the average in the decade before the credit crisis began. The cost
for governments to borrow may rise further after average yields last year rose
the most since 2006, as the global economy shows signs of improving and the
Federal Reserve pares its unprecedented bond buying. (read
more at Bamboo Innovator here)
The good part is that more skilled professional from India may
find jobs in US and other developed countries. The equity market excitement
about IT sector might be stemming from this window of opportunity. What market
perhaps is not factoring is that relative valuations are about to enter bubble
zone and standalone valuations are much further away from fair. Next year US
begins the process of next elections and Devyani Khobrgade episode suggests
that at least Democrat voices are not going to be kind to India.
The employment, deficit and growth conditions back home are not
showing that we are anywhere closer to the bottom of the cycle. Though some are
willing to accept slippery moss for green shoots.
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