Do it yourself

The Bank of Canada (BoC) has added some more fuel to the debate over the efficacy of monetary tightening in maintaining inflation-growth equilibrium under the current economic conditions. BoC hiked its key policy rate by 50bps to 3.75% on Wednesday, instead of the expected 75bps. BoC explained its   decision to slow the pace of policy tightening in light of growing worries about a deeper global economic downturn. In the post policy statements, BoC said, “Future rate increases will be influenced by our assessments of how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding”. Many observers are reading the change in stance of BoC as a template that may be followed by other central bankers also, especially the US Fed. It is pertinent to recall that two members of the Monetary Policy Committee (MPC) of RBI had also expressed similar views in the last meeting of the Committee. Obviously this d...

  Assessing portfolio for war readiness Yesterday, I hinted that I shall be staying mostly in defensive mode (bunkers) till the sirens of crisis and uncertainty are blowing over the global economy and markets. I may reiterate that this crisis will create once in life lifetime opportunities for investors; but these opportunities are for the adventurists with strong risk appetite to avail. I would rather identify the opportunity; and happily miss the first 100-200% of gains out of the potential 1000-2000%. Last week I mentioned ( see here ) “the investment environment continues to be very uncertain and complex. The geopolitical uncertainties, fiscal policy fatigue and monetary policy dilemma makes short term forecasts very complex. These factors further support the idea of keeping the investment strategy simple and giving preference to capital preservation over higher returns.” In order to orient my tiny investment portfolio to capital preservation mode, For example, the following ar...

As I mentioned yesterday ( see here ), the current conditions are very different from the conditions in the 1980s when the US Federal Reserve under the chairmanship of Paul Volcker, managed to kill inflation with a deeper recession, but without pushing the world into an economic depression. But this does not imply that we have nothing to learn from history. A key learning from the past 150 years of economic history is that every major economic cycle has been a function of a different set of factors like war; decolonization; politics triumphing over economics; major demographic shifts; major technological evolution (industrial or technical revolution); etc. The policy responses to various economic cycles have depended upon the mix of factor that were responsible for the cycle. Industrial revolution, destruction due to world wars and then reconstruction effort; emergence of Communism (command economies) and cold war; decolonization of European colonies; population boom (baby boomers)...

The present narrative in the global market is definitely not comforting. In the developed western economies, in particular, even the investors who took the classical moderate approach to asset allocation, e.g.,“100-age” (percent allocation to risk asset 100-investors’ age and the balance to fixed income) or “60:40” (60% risk assets and 40% fixed income for working people and vice versa for retirees) have witnessed material losses as both risk assets (equities, crypto, etc.) and fixed income (Bonds, REITS, etc.) have witnessed sharp correction. Reportedly, 60:40 Portfolio of US stocks and Bonds is down 21.6% in YTD2022, the worst performance since 1931. In India also, most balanced funds (funds that invest in a mix of equity and bonds) have yielded marginally positive or negative return YTD2022. From whatever is happening around the world; and whatever is being prophesied about the future, at least the following five things are reasonably clear to me– (i)    The econo...

  Strategy review 1HFY23 Market performance For the Indian markets, the first half of the current financial year (1HFY23) has been noteworthy in many respects. While the benchmark indices have remained boringly range bound (not unexpectedly  see here ), the shift in sector preferences has been material. Also as expected volatility has remained low to moderate and market breadth has narrowed down. Some key highlights of the market performance in 1HFY23 could be listed as below: Equity Markets ·           Benchmark Nifty lost 2.1%, sharply outperforming the peers from emerging as well as developed markets. For example, S&P500 (US) lost ~20% in this period; while STOXX600 (Euro Area) was down over 15%. ·           The foreign flows were majorly negative in 5 out of 6 months. Overall foreign portfolio investors sold ~US$20bn worth of Indian equities. Most of this selling was absorbed by d...

  One of the most important and fundamental principles of economics is that “in a ‘free market’ current price of anything having an economic value is a function of demand and supply of such things at that particular point in time.” Of course there could be multiple factors that may impact the demand and supply of a thing; but usually nothing impacts the “price” directly other than the factors demand and supply. In a ‘controlled and/or manipulated market’ the prices of things are fixed by the controlling authorities (or forces); regardless of the demand and supply for such things. In such markets, usually demand and supply of things are controlled and/or manipulated; or demand and supply duly get adjusted to the fixed/manipulated prices. If we apply this core principle of economics to the world around us, we may discover that a significantly large part of global markets is presently either controlled or manipulated. The free market may only be prevalent in textbooks, policy document...

Last week I travelled through three divisions of Western Uttar Pradesh and Garhwal division of Uttaranchal. The idea was to assess the current socio-economic conditions, especially in light of a deficient monsoon, inflation and accelerated public investment in infrastructure building. I may share some of the key take away as follows: Crop plentiful The crop, mainly sugarcane, appeared plentiful. The landscape was mostly lush green. However, many farmers suggested that they lost the investment in early sowing; and have again sown cash crops (vegetable etc.) after the late rains. These crops are also yielding much less as excess late rains have flooded the fields, particularly the smaller fields. Most of them are cautious about the rabi crop as the sowing for advance crop of potato is already delayed by 2-3weeks. However, if the current spell of rains ends in another week as forecasted, the rabi crop could be plentiful. Winter setting in early would also help rabi crops. Vehicle an...

Ppt slides about accomplished PIOs It is very common to receive the lists (or graphics) depicting very successful persons of Indian origin (PIOs) on our social media timelines; email inboxes and even front pages of newspapers. Some of these lists contain names of people who are not necessarily of Indian origin, but whose names resemble Indian names like Tulsi. In some cases we do not even mind turning matriarchal, if the successful person has only a mother of Indian origin, e.g., Kamala Harris. Recently, two such persons are prominently in the news – Rishi Sunak, who lost the race to the 10 Downing Street last month, and Suella Braveman, the newly appointed Home Secretary in Liz Truss cabinet. Both British politicians happen to be born to parents of Indian origin who migrated from India many decades ago. Both were born and brought up in the UK; own a passport issued in the name of the British Monarch; have never publicly shown any allegiance to India. Suella Braveman recently lamen...

This summer Americans drove less than the summer of 2020 when many office goers were working from home and the economy was partially shut down. The situation is no better in Europe. Higher fuel and food cost is driving the cost of living higher in most of the world, significantly disturbing the household budgets.   Many emerging and underdeveloped markets were struggling with higher inflation even before the pandemic. But pandemic and adverse weather conditions in the past two and half years have made the situation worse. Whereas many emerging markets, especially in Africa and Latin America, have been struggling with higher inflation and rise in the cost of living for a couple of decades, it is a relatively new phenomenon for the post 1980s developed western economies. The present generation in these economies had gotten used to cheap and easily available money and marginal food and fuel inflation in the past two decades. For them this sudden and sharp rise in basic cost of l...