Some food for thought
"The whole secret of existence is to have no fear. Never
fear what will become of you. Depend on no one. Only the moment you reject all
help are you freed."
—Swami Vivekanand (Indian Philosopher, 1863-1902)
Word for the day
Insipience (n)
Lack of wisdom; foolishness.
First thought this morning
As per various reports, the city of Chennai is totally parched.
Residents are struggling to get adequate water even for drinking. Corporate,
hotels, restaurants, etc. are rationing the water for their employees and
customers.
Muzaffarpur in Bihar is suffering from one of the worst outbreak
of acute viral
encephalitis. More than 130 kids have already lost their lives in past few
weeks to this deadly brain fever; and many more are struggling to survive.
Various reports suggest that condition of available medical facilities is
pathetic. Reports have also drawn attention to the fact that at least 98 of
Muzaffarpur district's 103 primary healthcare centres (PHCs) could not meet
even minimum requirements even to begin evaluation. The remaining five got zero
rating on evaluation (see
here).
A few months earlier, reports suggested that more than 40,000
students skipped UP Board exams in two days because strict checking made
copying difficult. (see
here)
Does government still want an elaborate consultative process to
set its priorities right?
Chart of the day
Intuition may be better guide in navigating troubled waters
Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall,
All the king's horses and all the King's men,
Couldn't put Humpty together again.
All the king's horses and all the King's men,
Couldn't put Humpty together again.
In 2008, one of the worst the financial crises in world's
economic history, threatened to push the global economy into a state of
depression. Sensing the enormity of the crisis, central bankers and governments
from across the world put their heads together, and in a rare show of
solidarity with each other, agreed on non conventional methods to save the
global economy from the imminent threats. The multilateral agencies like IMF
also joined hands with the global leadership in committing "whatever it
takes" to save the global economy from slithering into a deep abyss. What
followed was an enormous deluge of liquidity available to businesses at near
zero rate of interest.
To their credit, they were extremely successful in unfreezing
the global financial markets, alleviating all the fears of sovereign defaults
in countries like Greece, Italy, Portugal, Spain, Iceland etc. The global economy
has avoided recession for a decade; and all apprehensions of hyperinflation due
to unprecedented quantitative easing (euphemism for money printing) have also
been proved unfounded.
Nonetheless, the rate of global economic expansion has stagnated
between 2.5 to 3%; and remained highly skewed in favor of US and emerging
markets (mostly in Asia Pac region). Commodity dominated Latin America, Africa,
and Eastern Europe did not participated much in the recovery.
Moreover, the stability appears to be fragile. Global growth is
projected to decelerate to 2.6% in 2019. Leading emerging economies like
Chinese and Indian are already witnessing material deceleration in growth.
Japan and EU did never managed to attain higher growth. US economic growth is
also challenged and Federal Reserve has already spoken about possible rate cut
in near future. ECB and BoJ chairmen have also indicated beginning of a fresh
easing cycle.
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This will in fact be the lowest cyclical peak for the US Fed rates.
The peripheral Europe that was at the center of the last global
financial crisis also seems to be just limping along, without any major
improvement in economic conditions. The debt levels in most of the economies
have already surpassed the peak of 2008.
Another critical point to note is that unlike 2008-09, the world is no longer a harmonious place. To the contrary, we are witnessing serious
challenges to the very idea of globalization. Frequent trade conflicts between
largest trading partners US, EU and China; uncertainties over Brexit; US
economic sanctions on Iran, Turkey, Russia and other countries; Indo-US trade
and skilled worker VISA spat; etc indicate that a harmonious global action like
2008-09 is unlikely should economic conditions deteriorate further and
financial markets face the heat.
To assimilate the implications of the evolving economic scenario
for my investment portfolio, I have been reading views of many reputable
experts. Unfortunately, most of them are relying upon the historical data to
forecast the future trends. Very few of them are accounting for the non
linearity in the economic activity level. For example, someone highlights that
"in the past 8 Fed easing cycles, the funds rate on average had to be
sliced 165 bps before the stock market embarked on any sustainable rally."
But he is not highlighting that in all of the 8 cycles Fed rates peaked above
5%. So expecting a 165 cut from 2.25-2.5% level for it to have impact on equity
markets may not be appropriate under present conditions.
I guess, I would go by my intuitive analysis rather than
depending on some discreet random third party thoughts.
Let me gather my thoughts on this and share with readers in next
few days.
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