"Our insignificance is
often the cause of our safety."
-
Aesop (Greek, 620-560BC))
Word for the day
Peacock (v)
To make a vainglorious
display; strut like a peacock.
(Source: Dictionary.com)
Malice towards
none
Congress lost a lot of
regional Satraps between 1991-2014 due to death, dissent or dominance.
Do we see the same path for
BJP in 2014-2024?
The perfect storm
Many global wealth reports written over past six months may have
already become irrelevant. The staggering statistics of wealth creation in
China that overwhelmed the global financial community stand completely
destroyed.
Stand destroyed simultaneously is the facade of "all is
well" in the global financial system that was meticulously built by the
powerful central bankers through adoption of "non-conventional"
policy measures post Lehman collapse in the summer of 2008.
As of this morning, the global financial markets are standing at
crossroad.
It is highly probable that European community finds a way to live
with Greece for some more year, Chinese authorities are able to stem the panic
that has set in deep into investors psyche, and Iran deal is finalized to
enhance the chances of peace in middle east and stability in global energy
prices.
However, no one would like to rule out the probability of market
getting caught in perfect storm caused, inter alia, by the following.
(a) Political turmoil
that would erupt in Europe if the Greece has to be finally ejected out of the
Union. The socialist forces within Europe may see this as existential threat
and endeavor hard to strengthen their grip on administration as well as
businesses.
(b) Financial turmoil
that a Grexit would cause in Euro area bonds (especially Spain, Italy and
French bonds). The bonds of these large economies with unsustainably high
indebtedness have seen stupendous rally in past few years. A risk-off scuffle
could make these market illiquid, in spite of "whatever it takes"
resolve of ECB.
(c) Economic turmoil
that a hard landing in Chinese economy would cause in global commodities and
financial markets. Complete collapse in commodity demand, higher inventory
carrying cost and lower import demand from China would disrupt a large number
of economies.
(d) Emerging market
turmoil caused by a unduly stronger USD, sharply lower global trade led by
collapsing demand and poor liquidity. Weaker currencies may rake specter of
hyper inflation in many import dependent economies.
It would be totally naive to suggest that India will remain
insulated from all this turmoil.
1. Our already struggling
export sector will face serious demand contraction if Chinese and European
demand contracts.
2. Our commodity producer will
find it difficult to survive in an environment where industrial demand is
contracting (due to poor export demand) and imports are becoming materially
cheaper.
3. The manufacturing
sector may benefit to some extent from lower commodity prices. But most of the
benefits would be offset by lower demand and underutilization of capacities.
I am happy to let go the trade in large commodity consumers like
tyres and paints.
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