"Everybody, my friend,
everybody lives for something better to come."
—Maxim Gorky (Russian,
1868-1936)
Word for the day
Gambol (v)
A skipping or leaping about
in frolic.
(Source: Dictionary.com)
Malice towards none
Who is a Hindu? Who is a Muslim? Who is a Sikh? Who is a Christian? Who is
an Indian? Who is a patriot? and What is tolerance?
And what is this whole debate about?
First random thought this morning
Someone suggested the other day
that education in English is insufficient to teach humanitarian and
patriotic values. English education can only train us enough to be able to earn
our daily bread.
I find this not only insulting
to a great language, which unites the people of the whole world, but also to
all those patriots, reformers and humanitarians who happen to be educated in
English - Ambedkar, Gandhi, Bose, Vidyasagar, Aurobindo, Tata, Naoriji, Naidu,
to name just a few.
I find it akin to saying -
earning in US$ is unpatriotic and inhuman.
Will 2015 have a happy ending?
Next week the members of the US Federal Reserve Open Market
Committee members meet to deliberate, inter alia, whether it's good time to
begin hiking key policy rate to further normalize the monetary policy.
It is pertinent to note that the process of normalization had
begun in October 2014 when US federal Reserve started tapering the monthly
purchase of mortgage backed bonds under third round of quantitative easing
program that was initiated in the wake of global financial crisis post collapse
of Lehman Bros. in 2008.
There is near consensus that near zero rates are unsustainable
& undesirable and it is therefore inevitable that rates will begin to go
up. To that extent the hike in the Fed fund rate (akin to repo rate in India)
is much anticipated.
What is being debated is (a) whether December 16th is appropriate
time to begin raising rates, considering the present global economic
conditions, or the decision could be delayed further; and (b) what should be
the trajectory of hiking the rate?
The market has been reacting to each data point and statement that
indicates to imminent hike or otherwise since past six months. Given that the
hike is much anticipated and almost inevitable, this volatility and indecision
amongst market participants is intriguing. It highlights to me that the market
is unable to comprehend the ripple effect a Fed rate hike will cause. I
therefore do not agree with the viewpoint that a US Fed rate hike is mostly
factored in the current asset prices.
If the hike does materializes on 16th December a stronger USD,
higher bond yields, weaker commodity prices, and sell off in EM equities could
be a knee jerk reaction. However, it will be quite some time before the full
impact of such move is assimilated.
A US Fed rate hike will not merely symbolize a willingness to
restore normalcy in the US monetary policy. The decision may also signal
beginning of a new era in global economic order - where widespread trade
imbalances created over past two decades would correct and huge reserves
accumulated by surplus countries would dissipate.
The real worry is that a large majority of market participants -
brokers, analysts, investors, economists, entrepreneurs, business managers et.
al. - have not experienced any such transition. All those who are used to near
zero rate, easy liquidity, Chinese demand, huge commodities capex and
consumption demand from billions plus EM citizens climbing out of poverty may
find it hard to adjust. The business managers whose business models have
evolved around near zero rates would need to make material adjustments. Some of
them will eventually adjust, but many of them will not be able to do so.
However, if Yellen & co. decide to defer the hike decision in
favor of a peaceful Christmas vacation, we may see a happy ending to 2015.
No comments:
Post a Comment