"Genius may have its limitations, but stupidity is not thus
handicapped."
—Elbert Hubbard (American,
1859-1915)
Word for the day
Etymology (n)
A chronological account of
the birth and development of a particular word or element of a word.
Malice towards none
Why this pretense that
President, Governor and Vice President are nonpartisan?
First random thought this morning
I met a midsized chemical
company's management last week. The people were generally very bullish on the prospects
of their business in near to midterm.
When asked about "what
could be the key risk to their business outlook"; the instant reply was
'Modi not winning election in 2019".
When I asked them what
specifically the incumbent government has done to promote their business and
that could change if Modi is not re-elected in 2019, I got no reply.
Who needs more investment?
Relative to equities,
commodities are trading cheapest in many decades. This divergence is there despite
the fact that a large proportion of traders are betting on a global reflation
trade since past six months at least.
The primary premise underlying the so called reflation is that the money
sloshing around the world will begin to find its way in the capacity building
and inflation will eventually rise. The rise in inflation shall lead to lower
bond prices and higher equity and commodity prices. This also implies that the
commodity producing currencies shall gain and the commodity consumers should
lose. The economic cycle thus turn from buyers' dominance to sellers'
dominance; and from borrowers' dominance to lenders' dominance.
In past six months—
·
Equity prices have risen considerably in most
markets. Emerging markets equities, where growth is visibly higher, have done
better than developed market equities which are still struggling with growth.
·
Emerging currencies have done better than
developed currencies.
·
Bonds in emerging markets have also outperformed
the developed markets.
But there is nothing to suggest that growth is accelerating to a
level where inflationary pressures will kick in.
This raises doubt on the very premise of the reflation trade.
Especially when the central bankers across developed market are talking about
raising rates and shrinking balance sheets.
The capacity utilization across geographies and sectors is much
below optimum. And fiscally most governments are still challenged. The specter
of sub-prime loans and froth in asset prices has also started to raise its head
again.
Under these circumstances a trade based on presumption of higher
investment looks slightly questionable. ....to continue
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