"Weakness on both sides
is, as we know, the motto of all quarrels."
—Voltaire (French 1694-1778)
Word for the day
Tittle (n)
A very small part or
quantity; a particle, jot, or whit, e.g., He said he didn't care a tittle.
Malice towards none
Next 15 months will test the
resolve of PM Modi. Any sign of weakness on any front, may be punished
severally.
The feeling "anyone but
Modi" is already sprouting in the dark forests. It needs to be nipped in
the bud before it assumes ominous proportions and spreads to fertile lands.
First random thought this morning
The use of a wrong photo by Pakistan diplomat in UNGA has drawn
attention of many. Most have ridiculed the endeavor as a botched attempt to malign
India at global platform. It may be worth recalling that in the recent past
there have been umpteen instances of similar goof ups by various political
parties in India, including BJP and Congress.
The real point to my mind is that Google has become overwhelmingly
powerful in defining our consciousness, awareness, knowledge, concerns,
opinions and many a times actions also. And the irony is that no one can
complain because it all comes "Free" and without any obligation to
use or trust.
Like we debate good and bad nuclear assets, good and bad
terrorism, a few years later, we may need to debate good and bad Google also.
What could cause a bear market?
In a recent article (see
here) Noble Laureate Robert J. Shiller emphasized that " The US stock market
today looks a lot like it did at the peak before all 13 previous price
collapses. That doesn't mean that a bear market is imminent, but it does amount
to a stark warning against complacency."
Incidentally, he is not alone in his tribe. A number of other
experts have sounded notes of caution in relation to the current stock rallies
across the world.
The experts have listed a number of reasons that could cause a
bear market in the equities in coming months. Some of the most popular triggers
for correction could be listed as follows:
(a) Geopolitical concerns,
especially tension in Korean peninsula, have been frequently causing rise in
volatility in the market.
Though, the evidence of a geopolitical conflict causing a global
bear market in equities in post WWII era are inadequate. Equity prices have in
fact reacted positively to some major conflicts like Arab-Israel war
(1948-1949), Vietnam war (1955-1975), Iran-Iraq conflict (1980-1988), Iraq War
I (1990-1991), Iraq War (2003-2005) etc.
(b) Debt crisis in China is
arguably one of the most favorite cause of global equity collapse.
This is a tangible concern, given the deeply intertwined trade and
financial interests of Chinese businesses and financial institutions in the
global economy. A disorderly correction in Chinese financial system may cause
widespread disruption in the global trade and financial system. Though at this
point in time there is little evidence to rely upon that Chinese authorities
could lose control over its financial institutions or currency and let the
global financial system collapse.
(c) Contraction of
liquidity as Central Banks wind down monetary stimulus given in the wake of
global financial crisis (2008 onwards), could cause cost of capital to rise and
USD to strengthen causing a global correction in asset prices, including
equities, bonds, commodities etc.
This presupposes that the Central Bankers which have vowed
"whatever it takes" to protect stability of global financial system,
would be blind to the collapse that any reversal of stimulus may cause. The
argument that Central Banks have exhausted all the arrows in their quiver and
hence would be helpless in the event of a collapse, completely ignores that the
arrows being shot since 2009 have been manufactured in the war ground itself.
(d) Though their tribe has
shrinked substantially, but few still believe that Brexit will cause large scale
disruptions in the global economy and lead to serious correction in asset
prices.
(e) The strongest argument
for the bear market in equity prices is the high and seemingly unsustainable
valuations. Though, the textbook measures for equity valuations are yet to be
revised to factor in the "New Normal" in real growth, yields and
inflation, the current valuations may be a matter of legitimate concern.....to
continue tomorrow.
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