Do it yourself

  No need to lose sleep over NASDAQ When the independently priced cryptocurrencies were melting in the past few months, a stablecoin Tether (USDT) has been relatively much more stable. The value of USDT did show some volatility, but it was marginal in comparison to some other stablecoins like Terra and independently priced cryptocurrencies. Being a technology challenged crypto illiterate person, I must outline my understanding of a stablecoin to make the context clear. In my understanding, a stablecoin is a crypto token which is backed by some financial or real asset, whose value is pegged to a fiat currency like USD. In simple terms, it is a tradable electronic entry priced in a fiat currency (like ADR of an Indian company tradable in US) which has an underlying asset like bonds. Theoretically, the price of a stablecoin shall move in tandem with price of the underlying; but in practice the movement in pric...

In the latest episode of global inflation, ‘climate change’ is one of the key players. It has significantly impacted the supply and demand equilibrium of many commodities and services in a variety of ways. For example— (a)   Notable changes in weather patterns have adversely impacted the crop production and livestock supply globally, resulting in sustained rise in food prices. (b)   The global commitment to fight climate change has resulted in a significant rise in investment in clean energy and clean technology; mostly at the expense of investment in conventional energy. Most countries are aiming to achieve ‘zero emission’ in the next 3 to 4 decades. In the transition period, obviously the supplies of conventional energy shall remain constrained for the lack of adequate investment, tilting the scale in favor of higher prices. Sharp surge in coal and crude oil prices (even adjusted for logistic challenges due to Covid) is indicative of this. (c)  ...

  “ No brainer ” or “ mo’ brainer ” What should an investor make out of a situation - when the RBI governor makes a public statement, two weeks before a scheduled monetary policy committee (MPC) meeting, asserting that it’s “no brainer” to expect that the committee will hike rates in the meeting? Especially when this assertion comes a day after the government has taken some very effective fiscal measures to control inflation and less than 3 weeks after the RBI had announced an unscheduled rate hike. To me, at first it sounded like a confident Central Banker in full control of the situation. He exuded confidence that (i) the external situation of India is strong and the RBI shall be able to manage the current account deficit (CAD) comfortably; (ii) the central government might not have to revise the fiscal deficit target projected in FY23BE since revenue collections are strong; (iii) there are clear signs of growth reviving as reflected in rise in imports despite higher prices and s...

After US electing a “leftist” Biden to occupy the White House; Germany elected social democrat Olaf Scholz to the office of Chancellor, France reelected left of center Emmanuel Macron (first reelection of a president since 2002); Italy reelected Christian leftist Sergio Mattarella; and now Australia has elected a leftist Anthony Albanese as the prime minister. The ruling right of the center New Democracy party in Greece has been consistently losing support in opinion polls for the elections scheduled to be held in October later this year. A number of Latin American countries like Chile, Mexico, Argentina, Bolivia, Peru, and Honduras have elected leftist leaders to lead their respective countries. The opinion polls are indicating that Columbia and Brazil are also most likely to elect leftist leaders in the elections to be held in May and October respectively. In Asia, the Chinese communist regime under President Xi Jinping has strengthened its position. Moreover, to counter the egalitar...

The investors are finding themselves standing at a crossroad again. For seasoned investors this is nothing new, but for a large proportion of investors who have started their investment journey in the past 5 years, this is something new. At this juncture everyone has to choose a path for onward journey. The options are rather simple – (i)    Continue the journey in the north direction - Stay with the extant strategy and hold on to your investments. (ii)   Take a right turn towards the East - Review and restructure your portfolio of investments in light of the new evidence. (iii)  Take a left turn towards the west – Change the strategy and rebalance the portfolio in favor of Safety and Liquidity from Return previously. (iv)   Turn around and move back in the south direction - Liquidate the whole or a substantial part of your portfolio and wait for an opportune time to begin the journey afresh. The empirical evidence suggests that the vi...

The weather in India these days is as diverse as the country itself. There are severe floods (usually not seen in pre monsoon period) in North East; cyclonic storms in East and South East, torrential rains in South; drought in North and scorching heat in North and West. Power supplies are challenges; wheat has ripened early; sugar cane is drier; seasonal vegetable crops have been damaged. On the top, Indian Railways has cancelled many trains to expedite the coal supplies to the languishing power plants. This is hindering the movement of farm labour, as the sowing season begins. This is making things even tougher for the majority poor and lower middle classes, who are already struggling with stagflationary conditions. Somewhat similar is the situation on the global scene also. Abnormal weather conditions are persisting in the Americas and Europe. Shutdown in some key China provinces and protracted Russia-Ukraine war are keeping the global supply chain's recovery from pandemic di...

Recently, some RBI officials reportedly told the parliamentary standing committee on Finance that RBI fears increased “dollarization” of the Indian economy due to popularization of cryptocurrencies. The representatives of the central bank reportedly testified before the committee that “… almost all cryptocurrencies are dollar-denominated and issued by foreign private entities, which may eventually dollarize a segment of the Indian economy. The cryptocurrencies could be a medium of exchange and replace the rupee in financial transactions, both in domestic and cross-border transactions, affecting the monetary system and undermining the RBI’s capacity to regulate capital flow.” In this context it is pertinent to note that— (a)   As per the latest available World Bank data, foreign trade accounts for ~38% of India's GDP. A substantial part (~86%) of this trade is invoiced and settled in USD; whereas only 5% of India’s imports are from and 15% of India’s exports to US. (b) ...

 The macro economic data released last week produced further evidence of the Indian economy struggling with stagflationary conditions; notwithstanding the denial by various authorities. Inflation impact widening and deepening The consumer price inflation date for the month of April 2022 was a negative surprise. The consumer prices escalated at a rate of 7.8% (yoy) during the month. The higher inflation was, to a large extent, a consequence of imported inflation which added almost 2% to the headline inflation number. Though, the inflation due to rise in domestic prices at 6.4% was also no comfort. Higher commodity prices (especially energy) have clearly started to show second and third round impact as the inflation is now becoming wider and deeper. The core inflation and services inflation were also higher on a yoy basis, as producers and service providers have started to aggressively pass on the higher costs. With worsening current account (and depreciating INR); continuing s...

The conventional wisdom guides that roads are meant for moving forward and trampolines are meant to get momentary high without going anywhere. Usually, the chances of reaching the planned destination are highest if the traveller takes a straight road. The chances are the least if they ride a trampoline. Walking on ropes may sometimes give you limited success. Investors who jump up and down with every bit of news are only likely to lose their vital energy and time without moving an inch forward. Reacting instantaneously to every monthly or quarterly data, every policy proposal, corporate announcement, market rumor are some examples of circuitous roads or short cuts that usually lead us nowhere. The developments in global financial markets in the past couple of years highlight that presently very few persons are interested in taking the straight road. Taking the straight road means investing in businesses that are likely to do well (sustainable revenue growth and profitability)...

I have been married for more than two decades now. In all these years I have deliberately maintained a safe distance between my personal and professional life. My wife Anandi, a post graduate in Hindustani Classical music and an amateur poetess has never shown any interest in the matters relating to finance. She finds it too “dry and mundane”. Last few days though have been a little different. To my surprise, Anandi herself started a discussion on stock market. At once, I could not fathom why she would be suddenly interested in what she always believed to be the mired world of finance and investments. But soon I realized the catalyst of this change- it was her cousin brother Anuj, who has apparently lost heavily in the recent collapse in the stock market. We had a long discussion last evening. I am sharing the following excerpts from our discussion with readers. I believe many may find it relatable and useful. “ Anandi (in an unusually hoarse voice): What are these small and midc...

If we have to list the reasons for the loss of growth momentum in our economy in the past decade or so, the following three would be amongst the top reasons: 1.   Credit euphoria preceding the global financial crisis and the subsequent meltdown The credit euphoria preceding the global financial crisis and the subsequent meltdown severely damaged India’s financial system. The banking system was crippled with enormous amount of bad assets; many key infrastructure projects were either abandoned or suffered inordinate delays; employment generation capabilities were impaired; private savings began to decline structurally; and overall investments also slowed down. It has taken almost a decade for the Indian banking system to clean its books and return to the path of growth, stability and profitability. Private savings and investments though still have a lot to catch up. 2.   Disruption through policy changes without adequate mitigation strategy At least two major...

There is an old legend. From time to time, numerous versions of this legend have been narrated by wise people to highlight the adverse effects of not admitting the mistakes early enough; indecision; and failure to assess the gravity of an adverse situation. One version of the legend goes like this— Once a thief was caught stealing a sack of onions from a farmer’s house, and was produced before the magistrate. On asking, the thief first pleaded “not guilty”. After a trial the magistrate found him guilty of stealing and allowed him to choose his punishment from the following three options – (i) Pay five gold coins to the farmer; (ii) eat hundred onions from the sack he tried to steal; or (iii) get whiplashed hundred times. The thief chose to eat the hundred onions, without giving it a thought, assuming it to be the easiest one. However, after eating just twenty five onions, he was in tears. His stomach started to burn and refused to take anymore. He begged the magistrate to change hi...

The Monetary Policy Committee of the Reserve Bank of India, in an unscheduled meeting on 04 March 2022, decided to hike the policy repo rate by an unconventional 40bps to 4.4%. Besides, the RBI also decided to increase the standing deposit facility (SDF) and marginal standing facility (MSF) rate by 40bps to 4.15% and 4.65% respectively. The cash reserve ratio (CRR) for the banks has also been increased by 50bps to 4.5%. This action of the RBI is not entirely surprising, given that the consumer inflation (CPI) rate in the country has been consistently running close to or over the RBI’s tolerance band for the past many months. The decision of the RBI came a few hours after an unscheduled 25bps hike by the Royal Bank of Australia (RBA) and a few hours before the much anticipated 50bps hike by the Federal Reserve of the USA (the Fed). With this over 55 central bankers have hiked their respective policy rates in the past 10 weeks. This includes about one half of the members of G-20. Inter...

For the past two years, I have been highlighting to the readers of this blog that almost two third of the Indian population is experiencing conditions that qualify to be termed stagflationary. Their incomes have been stagnant or declining in many cases, while their cost of living has risen materially. The expenses on the critical services like education, healthcare, telecom, transportation and essential goods like food, energy, housing etc. have increased materially in the past 2 years. Besides, the proportion of aspirational (non-essential) spending in the overall consumption basket has also been increasing consistently. On the other hand, the household incomes have not kept pace with the rise in the cost of living. Wages for unskilled and semi-skilled labor have hardly changed. The employment opportunities for them have also diminished. The women participation in the labor force has reduced, pressuring the average household income. The wages for the highly skilled workers have seen...