Thought for the day
-
Francis of
Assisi (Italian, 1182-1226)
Word for the day
Magniloquent (adj)
Lofty or grandiose in speech or expression; using a high-flown
style of discourse; bombastic.
(Source: Dictionary.com)
Malice towards none
Do you think the Italian Marines accused of murdering an
Indian will (could) ever be put to justice in India?
Should all our politicians just draw a lesson from the
episode and let it go.
Over to "Lift"
As of this morning the Grexit has been replaced in cold storage
and Iran seems to have got a deal. The global herd of professional traders shall
be aggressively looking for the new goose to chase. The most likely candidate
is the 'Lift" by the US Fed.
"Lift" is prominent in the discussions since the
completion of tapering in October last year. The lines are drawn and people are
well positioned on both the side. Trades could occur with ease and abundance.
It is widely accepted that this is an exceptional measure with a
definite life span. Consequently, the debate over ending zero rate regime in US
is mostly focused on the timing rather than rationale of it. In my view, the
sooner it occurs, better it would be for US as well as global economy.
I find the Fed's contention of the decision to "Lift"
being data dependent farcical. It is well accepted that the "normalized"
level of economic growth, employment and prices in the current circumstances
cannot be benchmarked to historical statistics.
In particular for US, it might take a decade, or even two, to
normalize the employment conditions. The people, who lost employment in the
aftermath of blow up of financial crisis in 2008, may not be skilled or young
enough to take up jobs in new avenues. Besides, lower returns on pension funds
might have forced lot of people out of retirement to take up jobs not requiring
tech skills. The lower end of the job spectrum may thus be overcrowded and likely
remain so for quite some time - keeping effective unemployment and wage levels
low.
This trend will have a direct bearing on the economic growth in
terms of lower private consumption. However, going by the current trend, the
government's fiscal conditions may improve materially in next 5yrs and
government spending may pick up thereafter.
Lower energy prices are increasingly becoming tricky for US. The
opinion is divided as to the cost and benefit of lower energy prices on overall
US economy, considering the huge investment made in shale business over past
one decade and given that it accounts for a major part of incremental
employment.
The incremental strength of USD, consequent to "Lift"
and persistent weakness in EUR and JPY, could be yet another cause of concern
for US exporters.
I am not taking any side in this "Lift" trade. I believe
that like Greece, there are no black swans hiding behind this cloud also. So no
major surprises. I am personally expecting an accelerated "lift' initially
(may be to 1.5%) followed by a rather longer pause.
I do not see it causing much disruptions in the global markets,
except for a last bout of USD carry trade unwinding causing some volatility in
high yield markets. Indian bonds could be at the receiving end this time.
The financials will give a last opportunity to buy cheap. Highly
indebted infra players would continue to remain in "no-go" zone.
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