Some food for thought
"I'm not afraid of
storms, for I'm learning how to sail my ship."
—Louisa May Alcott (American
Novelist, 1832-1888)
Word for the day
Keek (v)
To peep; look furtively.
First thought this morning
Noted industrialist Anand
Mahindra triggered an interesting debate on Twitter with his suggestion as to
who should first be landing on Mars.
"A human landing on Mars
is now not far away. I only hope the first wave of explorers will be poets
& not real estate developers", Mr. Mahindra tweeted earnestly.
Taking the thought further,
the enterprising Elon Musk added, "Engineers, artists & creators of
all kinds. There is so much to build."
Agreeing to Mr. Musk's
thoughts, Mr. Mahindra insisted, "Indeed. But let’s make sure the poets
are in the first ark. Or there’ll be no one to make sense of why we’re
there..."
Curious what normal people would say about this, I decided to check
with few people, including NRIs in US, Canada, Singapore and Dubai.
No prizes for guessing their response. All of them unanimously
want Indian politicians to migrate to Mars. A few from US want Trump's to join
them too.
I do not know how to react to this. Is this level of skepticism
good for any society? Why are not people looking forward to successful and
positive people for inspiration? Why the negativity in the political arena is
so overwhelming?
I also wonder, do we have any case for not banishing media
(Social, Print, Electronic) from our day to day life and get back to books!
But while we are still hooked to media, happy to note Rakhi
Sawant is apparently marrying next month in Los Angeles, and King Khan has
agreed to bless the couple in person!
Chart of the day
Stay cautious, regardless
Interest rates are perhaps the most commonly used monetary
policy tool globally. The central banks world over lay maximum emphasis on
policy rates to achieve the objectives of their respective monetary policies.
The financial markets and fiscal & development policy makers accordingly
keenly watch the movement of policy rates.
Every public statement of central bank officials is minutely
analyzed to discover the hints of changes, if any, in the central bank's policy
stance. Significant trading best are placed based on the interpretation of
these statements. However, there is no empirical evidence to establish the
profitability or otherwise from instant market reactions to the purported
"hints" dropped by central bank officials or any policy maker for
that matter.
I am also trying to find any meaningful study that has been
carried out to establish the relative superiority (or efficacy) of policy rates
over other monetary policy tools used by the central bankers in achieving their
policy goals.
In the latest occurrence of this phenomenon, the global markets
have gone ballistic after a speech of the US Fed chairman Jerome Powell was
widely interpreted to mean that the US central bank may pause hiking rates, as
the policy objectives of price and growth stability has been achieved.
Indian markets is almost 5% higher since last RBI policy
announcement, in which the Monetary Policy Committee decided not to hike the
rates, and hinted that growth and prices may be cooling. In fact, steep fall in
energy prices and less than projected inflation, has motivated lot of long
positions in financials and rate sensitive stocks, assuming that RBI may stay
put or even cut on 6 December 2018 meeting.
Not an economist myself, and certainly not a monetarist, I
however wonder, how anticipation of growth peaking and showing definite signs
of slowing could be a matter of celebration for equity investors. Particularly,
when it is widely accepted that—
(a) The current
valuations of sectors and stocks leading the market charge (both in India and
USA) is mostly on the higher side, almost flirting with bubble territory.
The argument that since the growth trajectory henceforth is
going to be much flatter therefore higher price earnings multiples (PE Ratio)
may be accepted as norm is not palatable to me because, this tenet is being
applied selectively. Half the market that is trading below historical average
valuations are being conveniently excluded from the benefit of this gratitude.
(b) The current
growth cycle has been mostly by credit driven consumption. Little new
capacities have been added despite near zero interest rates for a very long
period. The potential growth curve may have moved materially lower and growth
is peaking at a level that will leave little incentive for anyone to add
capacities in midterm.
Moreover, the elevated level of household credit and fiscal
profligacy, even by the troubled economies like Greece, suggests that the
central bank commentary may change like Mumbai weather - from a "sustained
hike" to "need for accommodation (QE)" in no time.
In the meantime, there is a strange contest opening in India.
Rhyming with "my shirt is whiter than thou", politicians in India are
sparring over historical growth trends. If they believe that voters will look
at GDP growth charts before going to polling station, they might be seriously
mistaken. Moreover, the comment of former finance minister indicates that the
life of NITI Ayog may be limited to the tenure of incumbent PM in office. This
adds further to the unpredictability and uncertainties, Indian economy is
currency facing.
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