Some food for thought
"I want a real revolution, a real change in society:
society, a great organic mass of well-regulated forces used for the
bringing-about a happy life for all."
—William Morris (English Designer, 1834-1896)
Word for the day
Isolato (n)
A person who is physically or spiritually isolated from their
times or society.
First thought this morning
The incumbent government has persistently sought to change the
narrative of nationalism and patriotism in past five years. It wants citizens
to blindly follow the path directed by it and believe whatever is narrated to them.
Any resistance is met by serious allegations of sedition and anti nationalism.
As a responsible citizen, I do have full faith in my government
and administration. I sincerely believe that the persons in power are people of
integrity and good intentions. But that does not mean that I am willing to
renounce my democratic right and obligation to ask questions and verify the bona
fide of the conduct of the government and administration. Otherwise why
would we need institutions like CAG, CVC and Lokpal.
I do believe that the Institution of Armed Forces is critical to
sustainability of any democratic society. This Institution must be strong,
capable and command complete faith of the citizen. This Institution should be
beyond any suspicion at all times. It would be possible only when this
Institution is fully accountable to people.
It is unfair to equate the soldiers who are just one part of the
Institution of Armed Forces, with the institution itself. These brave
individuals must be respected and honored for choosing an occupation that
requires total commitment & dedication to the security of nation; and
involves extreme risks. We the people owe a lot to the soldiers who make
extreme sacrifice in line of their duty, and cannot do enough to repay the debt
we owe to their families.
But valor of these soldiers cannot and should not absolve the
Institution of Armed Forces from its accountability. The Institution must
answer all questions that relate to the security & safety of its own
personnel as well as security & safety of the nation and its people.
I refuse to accept this allegation that questioning the
Institution of Armed forces is anti national or seditious. I have no sympathy
with the opposition leaders who might be driven by their vested interests in
questioning the government intent behind the airstrikes on Balakot.
Nonetheless, I would like to know, for example:
(a) Whether the
airstrikes were an act of revenge of Pulwama attack or was it aimed at
preventing any recurrence of attacks on security forces in Pulwama, Pathankot,
Uri, Gurdaspur etc.
(b) Has any enquiry
been set up to investigate the security lapses leading to Pulwama attack? Shall
we see action taken against people whose negligence caused loss of 44 precious
lives?
(c) It is claimed
the Prime Minister himself commanded the entire operation. Did Cabinet
Committee on Security empower the Prime Minister to bypass the defense minister
and command the Armed Forces himself? Was the supreme commander of Armed
Forces, the President of India was duly informed before the strikes?
(d) What measures
were taken to ensure the safety and security of people who would have been
immediately affected if the Pakistan had decided to escalate the situation?
I also refuse to acknowledge that any political party, social or
private organization has any right to term anyone anti national or seditious.
It is for the law enforcement agencies and courts to decide that.
Outlook and Strategy review
The weather conditions in markets have suddenly changed. Some
dark clouds have emerged from horizon to overcast what appeared like end of
long winter and beginning of a glorious spring.
The first yield curve inversion in US (implying that 91days
treasury bill yield is more than the 10yr treasury bond) since 2007 has raised
the specter of recession again.
Last week, US Federal Reserve (Fed) in its latest monetary
policy statement highlighted that "Economic activity has slowed from its
solid growth rate in the fourth quarter" and "Recent indicators
suggest slower growth of household spending and business fixed
investment". Fed has accordingly paused the rate hikes and is not expected
to make any changes in federal fund rates in the current year. Fed has also
decided to end the monetary tightening program by September of 2019.
Early this month, The European Central Bank also revised
downward its forecast for growth and inflation. It now expects headline
inflation rate to slow down reaching 1.2% yoy for 2019 and the GDP growth rate
to reach 1.1% yoy. Accordingly, ECB is also expected to hold its 0% rate
through 2019 at least.
Bank of Japan has also expressed its intention to maintain
"powerful easing monetary policy" for the time being, in view of the
growth challenges.
Concerned by the growth slowdown, the People’s Bank of China
said in January that it would supply lower-cost liquidity for as long as three
years to banks willing to lend more to smaller companies, as policy makers roll
out targeted measures aimed at shoring up the flagging economy.
The Reserve Bank of India (RBI) also cut its policy rates by
25bps in February, and changed its monetary policy stance to
"neutral" from "calibrated tightening". RBI lowered its
growth projections and inflation forecasts. A number of rating agencies have
also lowered India's growth forecast for FY20.
In past couple of sessions markets have weakened, but certainly
there is nothing to suggest that the markets are priced for a recession.
In Indian context particularly, two material events need to be
priced in, i.e.,
(a) At least three
agencies have forecasted that there are 60-75% chances of El Nino reviving this
summer impacting the Indian monsoon. If this does happen, it shall further
impact negatively the already subdued consumer demand.
(b) The model code of
conduct remaining in effect for 2months, shall impact public spending and
liquidity conditions. 4QFY19 and 1QFY20 results corporate may reflect this.
Given the growth challenges and trajectory of global monetary
policy, I find it pertinent to visit my market outlook for next 9-12 months and
examine whether any adjustment in investment strategy is warranted.
I feel the following two scenario plausible:
1. US & China
slowing considerably, with FAANG and Financials bubble bursting and cryptos going
from bad to worse, bringing curtains on the post GFC experiment with
extraordinary monetary policies. We may then go back to the classical path or
experiment with a new path.
In market parlance, the existing bubble will bust as a new one
begins to inflate.
2. The post GFC
extraordinary monetary policies getting accepted as a "normal";
global rates moving back to near zero and QE returning in full force.
In market parlance, more gas will be pumped in the existing
bursting bubble.
Both these scenarios would mean a violent and devastating
endgame before a new dawn. The timelines may though be uncertain and
unexpectedly protracted.
These scenarios assume that China will no longer will the demand
driver for natural resources, as it had been in past two decades or so; and
also there is no visibility of a new demand driver like China. The new
investment cycle is most likely to focus on development of "Human
Resources" and "Technology" (Artificial Intelligence et al)
rather than other "Natural Resources". So far China and US are the
two major investors in this arena.
India so far is lagging far behind in both ideation and
execution.
....to continue tomorrow
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