Thought for the day
” Any idiot can face a crisis - it's
day to day living that wears you out.”
-
Anton Chekhov (Russian, 1860-1904)
Word for the day
Celerity (n)
Rapidity of motion or action; quickness; swiftness
(Source:
Dictionary.com)
Teaser for the day
The next global liquidity shot is now due.
German yields at all time low. Peripheral Europe Stuttering
again. Japan and China not going anywhere. Commodity world jittery. US bomber
jets ready to raid Iraq.
If you enjoy roller-coaster ride, get set to go. If you do
not - take a good seat in the arena and cheer the braves.
Tighten your belts
The commentary on global financial markets has conspicuously
turned cautious to negative in past couple of weeks. Many seasoned investors
and analysts have warned about an imminent correction in prices.
Recently, Marc Faber was widely quoted as saying "By
printing money, [The Fed] has delayed the cleaning process," as
mal-invested capital (and self-referential buybacks) have sustained (and even
encouraged) the worst quality companies. As corporate defaults pick up (and The
Fed's free money dries up), perhaps that cleaning process will be allowed into
the free-market producing 'the big sell-off'."
A large part of this caution could be emanating from the
confounding behavior of bond markets in past few months. The consensus in the
bond market over the last several years has been that yields will inevitably
rise. However, the realty has been quite opposite.
The 10-year Treasury note fell as low as 2.35 percent, its nadir
since June 20, 2013. As per a Bloomberg report "Yields have been falling
with embarrassing consistency in 2014 despite forecasts to the contrary from
most Wall Street analysts at the beginning of the year."
The global economy remains sluggish; central banks continue to
push down interest rates in hopes of stimulating their countries’ economies;
and, perhaps most important, geopolitical tensions have been rising. President
Obama’s decision to resume bombing in Iraq, the violence in Gaza and the threat
of a wider war in Ukraine are the start of a long and worrisome list.
In response, investors worldwide have been curbing the risk in
their portfolios and moving money into safer holdings. United States Treasuries
remain high on the list of global safe havens. Demand for Treasuries has driven
prices higher and pushed down yields.
The yields on a range of other bonds have been extraordinarily
low, too. For example, the yield on 10-year German sovereign debt has fallen to
1.05 percent. And Japanese interest rates have gone even lower, with the yield
on 10-year sovereign debt hovering at 0.495 percent.
What does it all imply for our economy and markets?
I feel it is a good and a bad news. Good in the sense that it
provides a much needed respite window to the new government. May be 4-8
quarters.
With yields staying at lower level, the global investors are
more likely to continue chasing higher yielding making it easier for Indian
companies to raise capital at favorable terms. This also keep global inflation
in check and USD relatively cheaper.
However, the uncertainty and fear of yet another still fresh in
memory 2008 like collapse keeps the investors in edge, prompting frequent panic
reactions. The volatility may therefore rise materially, inhibiting any
material improvement in domestic investor's participation in the market.
Insofar as recent geopolitical events are concerned, I find no
chance of it escalating into any full-fledged war. I therefore do not see any
need to change my investment strategy as yet.
No comments:
Post a Comment