Some food for thought
You have reached the pinnacle of success as soon as you become
uninterested in money, compliments, or publicity.
—Thomas Wolfe (American novelist, 1900-1938)
Word for the day
Notionate (adj)
Strong-willed or stubborn.
First random thought this morning
In past 3 decades the global geopolitics has been dominated by
the fear of weapons of mass destruction (WMD) falling in rogue hands. Wars in Iraq,
Libya, Syria, persistent tensions with North Korea and Iran and indecision over
Pakistan have all been influenced by this fear.
Every instance of escalation in this fear has impacted the
global markets significantly, especially the volatility in energy prices and
trade disruptions.
While the attention of the global leadership has been focused on
this potential, perceived or in some cases illusionary threat, a whole new
class of WMD has been developed (mostly by US) and used extensively all over
the world.
This class of WMD popularly known as Social Media (SM) has very
potent weapons like WhatsApp, Facebook, Instagram, Tumbler, Twitter etc. In
past one decade in particular, these weapons have acquired significantly more
potency than the conventional WMD.
These weapons have been effectively deployed to destabilize
governments, provoke civil unrest, ruin families and relationships, destroy
productivity, espionage, etc.
While a section of US society is contesting the Second
Amendment and the verdict in District of
Columbia vs. Heller (2008), no one seems to be contesting the easy affording
of this new class of WMD to most people in the world.
In India, TRAI has fixed minimum age of obtaining a mobile
connection as 18yr. Age conditions (minimum 13yrs of age) are in place for
using popular social media apps like Whatsapp and Facebook also. Regardless, a
number of TV commercials show school going minor children owning and using
mobile phones. These days, it is also a common practice amongst school teachers
to form a WhatsApp group of their students, even if the students are of less
than 13yrs of age and hence not legally permitted to use mobile phone and
social media apps.
Are we missing the Gorilla in the room?
Chart of the Day
Don't waste your last bullet
Many readers have asked about my views on what the Monetary
Policy Committee (MPC) of RBI should be doing today. I must admit that I am the
most wrong person to ask this question, for two simple reasons — (i) I am
neither a banker nor economist; and (ii) I accord very low priority to RBI
monetary policy stance in my investment strategy.
Nonetheless, I believe that MPC should steadfastly honest to its
mandate of price stability and do whatever it takes to honor its duty of
maintaining a stable price environment in the country. It should leave the job
of protecting the economic growth and INR entirely to the government. Because,
if it does try to transgress into this territory, it will lose both the ends,
and add significantly to the chaos and panic.
I also believe that an aggressive hike of 50bps would not help
the cause of INR much. Because, at this point in time the exchange rate of INR
has become a complex function of many domestic and global factors. For example,
(i) Confidence of foreign investors and businesses; (ii) persistently poor GST
collection clouding Fiscal roadmap; (iii) surging energy prices; (iv)
potentially disorderly unwinding of USD carry trade prompted by surge in US
yield; (v) better opportunities emerging elsewhere for foreign investors; (vi)
rising risk of full scale trade disruptions due to escalating US-China
conflicts; (vii) concerns over political instability emerging post 2019
elections; etc.
A benign 25bps hike would be a total waste. It will be like
shooting the last bullet left in your gun at your feet, when the enemy is
staring directly in to your eyes.
In this context, it is pertinent to look at the following chart.
This indicates two important things:
(1) The market may
have already priced in a 50bps hike in repo rate. So do not expect any major
reaction in bond or currency market, if this happens today.
(2) The 10yr yield
and Repo Rate spread is above 150bps. In past 14yrs we have seen this happening
only in the crisis years of 2009 and 2013. Both years needed a significant
effort from the government to bring the situation under control. Monetary
policy may not be enough this time too.
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