Some food for thought
"We are put on this earth to have a good time. This makes
other people feel good. And the cycle continues."
—Wolfman Jack (American Entertainer, 1938-1995)
Word for the day
Shirty (adj)
Bad-tempered; irritable; cranky
First thought this morning
Delhi Police has sought the approval of Delhi Government to file
a charge sheet against some students of prestigious JNU. The allegation is that
three years ago these students organized a protest within the university campus
and shouted anti India and pro terrorist slogans, which as per the Police,
tantamount to an act of sedition. On Tuesday, Delhi Police apparently
selectively leaked a forensically certified video recording of the event to
media, showing the students shouting slogans against the country, Indian Army,
CRPF, and favoring a terrorist.
Media, politicians and their sympathizers have expectedly taken
a partisan view on the issue.
Holding multiple studio trials, BJP and its sympathizers
pronounced these people guilty of sedition and demanded strictest possible
punishment for them.
Communists are backing the students strongly, palpably less for
their commitment to democratic values and freedom of expression, and more out
of their hatred for PM Modi and Sangh parivar.
Congressmen are taking a trademark ambivalent stand. Closer to
elections they certainly do not want to take a firm stand against the move,
simply for the fear that BJP may highlight numerous past instances when
Congress Party misused Section 124A (Sedition) to silence its opponents.
Supporting these students openly would be nothing less than stepping on a
landmine given the charged sentiments.
Most other parties have either avoided taking a stand or have
taken a safer "let the law take its own course" or "democracy is
threatened" stand.
Asked by many readers to take a stand, I do not mind taking one.
In my view, there are at least three dimensions to the issue.
Moral: From moral standpoint, aspiring to disintegrate
the Nation is totally unwarranted and unacceptable, notwithstanding the
severity of provocation. This should be condemned in no ambivalent words, and I
do so.
Legal: In strict legal sense, I would like to go with the
opinion of Justice (Retd) Markandey Katju. So far there is no evidence
presented to show that the protests held in JNU and slogans shouted there could
possibly have actually motivated an act against the State. Mere shouting slogan
may not be enough to prove a charge u/s 124A of IPC.
Governance: From governance standpoint, I find the
response of the state inappropriate. The State which is always willing to talk
and exonerate Naxalites in Central India and militants in North East and
J&K - the people who have actually taken up arms against the state, killed
hundreds of security personnel, officials, innocent civilians - apparently did
not make any attempt to meet these young students and ask what has agitated
them so much that they decided to shout such slogans.
I find the Home Minister, the HRD Minister and JNU
administration lacking in discharge of their governance responsibilities.
To sum up, in my view, the students may be guilty of moral
turpitude; the ministers may be guilty of violating constitutional oath of
commitment to act "without fear or favor, without ill will or
affection"; and police may be guilty of acting under influence of their
political masters.
Sanitizing portfolio for higher cost of funds
There is near consensus that in next 12months the global growth
may be the weakest since the financial crisis a decade ago.
The monetary policy tightening by Fed and impact of trade
related conflicts may be leading the slowdown in US. Euro Zone and UK are
apparently deteriorating due to poor business and consumer sentiments caused by
political developments. China slowdown is mix of slowing exports, financial
stress, and sustainability measures. China shall take most of the emerging Asia
down along with it. India may slow down as fiscal profligacy in run up to
general elections constricts the government spending post elections. The poor
commodity demand consequent to slower growth may check growth in most of Latin
America, Australia and Africa.
The consensus is also emerging that weaker economic activity
shall keep the inflationary expectations under check, forcing the central
bankers to review their commitment to tightening the monetary policy. The
popular discourse has mostly shifted from "hikes" to
"cuts". ECB and BoJ, which were widely expected to join the US Fed in
normalization of monetary policy by withdrawing stimulus and ending the zero
rate policies, are now expected to stay put.
Under the circumstances, investors shall be well advised to note,
inter alia, the following points, and adjust their investment strategy
accordingly:
(a) Debt has jumped
even higher over the past ten years with various forms of quantitative easing
across the globe. Non-financial debt has grown to over 200% of GDP and, with
rates rising, could become more and more costly to repay, putting a strain on
country health.
(b) Stock valuations
are their highest since dot com bubble. The US S&P500 CAPE ratio – the P/E
ratio based on inflation adjusted earnings over the past ten years that it
smoothens out the earnings over time, removing some quarterly noise and
including an inflation component relevant to gold valuation, is elevated. The
only time this ratio was higher was during the dot-com bubble and all other
periods of elevated levels have preceded sharp market sell-offs.
India valuation premium to global peers as well as long term
averages is also tracking much higher levels.
(c) It is reasonable
to expect the cost of funds to rise and stay higher in midterm. Complete
tapering of QE by Fed, ECB and perhaps BoJ will results in lower demand for
bonds. The fiscal discipline seen in the wake of global financial crisis is
waning and fiscal deficits are rising, especially in US. Past 10year have seen
minimal capacity building. Many large corporate have used cheaper debt and
earnings to buy back their stock, to augment the stock price. Consequently, the
cash to debt ratio has got distorted, with no improvement in productivity or
earnings potential. Rising fiscal pressures may keep currencies under pressure.
(d) If US is going to
have higher rates for longer, a host of EMs will have their BoP become
unmanageable. Trade deficit countries like India have been rather complacent
about CAD, since the non trade flows were regular and easy to come by. If we
have to make real hard efforts to get portfolio investment and FDI, the policy
paradigm will have to shift dramatically.
(e) In the meantime,
many corporate who have borrowed in USD and acted smart to save the hedging
cost, may learn what the Asian crisis was all about, all over again!
I shall look to sanitize my portfolio for—
- Material USD debt without total hedge
- High PE ratio, mostly due to TINA factor
- Higher sensitivity to tax rates
- Higher sensitivity to currency fluctuations
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