"You can learn
more about human nature by reading the Bible than by living in New York."
—William Lyon Phelps (American, 1865-1943)
Word
for the day
Myrmidon (n)
A person who executes without question or scruple a master's commands.
Malice
towards none
Trump says he has engaged
the best dealmakers in the country to run the government.
Good dealmakers are always
on look out for opportunities. They
never shut the door on anyone or anything.
First random
thought this morning
Budget 2017: It would be a great idea to leave lot of cash in peoples'
hands. Lower direct tax, direct transfer of subsidies, cash incentive for
buying first house, incentive for monetizing 200gms of gold, no fee on credit
card usage, interest free 10yr loan for higher education of one girl child, etc
are some suggestions.
Refrain from hiking service tax pending GST implementation.
The dark fortnight is little longer this time
I have written it couple of times before. The historical
correlation between inflation, interest rates, currency exchange rates, terms
of trade, demand and supply of credit, risk & cost of credit, fiscal
policy, trade competitiveness, economic growth, commodity prices, etc. have
weakened considerably, in past one decade. Economic forecasting, and investing
& trading on that basis has become all the more difficult.
During this period, some European countries audaciously threatened
to default on their debt obligations; defied many conditions of the bailout
agreement and brought the global financial system on the verge of collapse; on
more than one occasion. Even after 5-7yrs of bailout, these economies are
nowhere close to be able to move out of ICU walking on their own feet. The
sovereign bonds of some of these countries lost 50-80% of their value in the
aftermath of 2008-09 global financial crisis (GFC). Some of these countries
have been able to sell 30yr bonds at miniscule yield.
An unprecedented amount of money has been printed in the developed
world, since first round of quantitative easing (QE) in 2009. In conventional
sense, with this deluge of money, we should already seen couple of episodes of
hyperinflation. But, what we have seen so far is episodes of disinflation. OPEC
is producing much below its potential. Chinese factories have been shut down.
Australian and Latin American mines are either shut down or producing below
potential. On global basis, the unemployment is higher - not what Keynes would
portend.
We witnessed a colossal amount of debt trading at negative yield.
But it has apparently not catalyzed any amount of economic growth. Leave aside
lot of opportunistic buybacks by many global corporations (to make their RoEs
look great and consequent rallies in stock markets), the cheap credit has not
led to any real investment. Only bond & stock prices have rallied. The
world is still awash with huge unutilized capacities.
The threat of tiny economy like Greece exiting EU; or even smaller
Iceland defaulting on a few billion dollar worth of debt, shattered global
markets wiping off hundreds of billion dollars from asset prices. But when a
larger and relevant economy like UK has decided to exit EU, the markets are
mostly sanguine (after reacting nervously for couple of days).
Conventional and non-conventional monetary policy tools used by
the large global central bankers are becoming increasingly redundant.
Consequently, many leading currencies are presently valued far from their
economic value . For example, even with persistent deflationary pressures,
negative bond yields, and almost no economic growth - BoJ has to struggle a lot
to weaken JPY. Despite enjoying trade surplus with most of its trading partners,
China is able to devalue its currency.
I strongly believe that the present breaking of economic
correlations is transitory in nature and order will be restored in due course.
However, it is difficult to see that happening in next 4-5yrs.
Remember the famous dialogue of Hindi film Aandhi - Is baar Amavasya thodi
lambi ho gayee (The dark fortnight is little longer this time)
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