Thursday, July 7, 2016

After all, being fearful is not a bad idea

"It's amazing to me to see how bands evolve and how they take all their influences and come up with their own sound."
—Debbie Harry (American, 1945-)
Word for the day
Transmogrify (v)
To change in appearance or form, especially strangely or grotesquely; transform.
Malice towards none
What's reason for Jayant Sinha's transfer from Finance to Civil Aviation:
(a) over-exposure to media;
(b) his father's criticizing PM;
(c)  poor performance;
(d) needed at Civil Aviation as new policy gets implemented;
(e)  All of the above;
(f)   None of the above
First random thought this morning
Anil Madhav Dave is appointed new Environment Minister of the country. Unlike Mr. Javdekar, Mr. Dave brings baggage to the ministry. He has been a green activist, closely associated with river conservation. Like Mr. Javdekar he is also an RSS parachrak, but unlike his predecessor, Mr. Dave proudly proclaim his allegiance publically.
I guess, industry might experience some conflicts in the Green Ministry in coming months.

After all, being fearful is not a bad idea

Wonder why would someone buy a 30year bond with negative yield to maturity (YTM), implying that after 30years he expects to receive less money in nominal terms than he is investing today. As per various estimates globally over US$30trn worth of global bonds are trading at negative YTM on nominal basis. Besides an overwhelmingly large portion of ~US$225trn global debt is trading at close to 1% YTM (meaning negative real returns).
There could be several reasons for someone to invest in a negative YTM security. For example, if one—
(a)   Expects inflation to stay negative for a long period of time, thus enhancing the value of money; or
(b)   Does not have enough space at home to keep currency or his/her home is not safe for keeping his money; or
(c)    Does not have faith in present days currencies and believes that the redemption will occur in a different & stronger currency; or
(d)   Does not expect any debasement of currency in which the bonds are denominated; or
(d)   Believes that a bigger fool is waiting outside his door, ready to buy the bonds at even higher price than what he is paying. (This is my favorite reason!)
Whatever the reason, one thing is certain that this is an anomalous situation that cannot sustain for long; although as someone said - "irrationalities may last longer than expected".
As a tiny investor concerned mostly with the investments in INR assets, I have little reason to be afraid.
·         I still get one of the best available nominal yields globally on my debt portfolio.
·         Thanks to the inflation hawk as RBI governor, my real yield is also positive.
·         My home currency (INR) is stable, and has in fact appreciated against a host of currencies.
·         My home economy is being widely touted as an oasis in the growth starved world.
·         I have reason to believe that my government may default on its obligations. (In fact India is one of the handful of countries which have not seen any sovereign defaults in the recorded history. All major countries, including USA, UK, Russia, etc. have experienced sovereign defaults at some point in time history.)
But the fact is that most of us, including myself, are scared. Most of this fear is emanating from the uncertainty and helplessness, since the conditions are unprecedented and the history books are not providing any pertinent guidance......to continue

No comments:

Post a Comment