Do it yourself

The global markets are shaken by the trade war initiated by the US by announcing arbitrary unilateral tariffs on all of its trade partners. Some large trade partners of the US, like China and EU, have reportedly threatened to join the war with full vigor, making the global market extremely jittery. The prices of most risky assets and commodities have corrected sharply due to fear of widespread economic repercussions resulting in a global recession or even a depression like condition. The benchmark indices in most developed countries have corrected 8% to 18% in the past one month. Commodities, especially metals and energy, have also seen 7%-15% cut. In my view, it may be a little early to assess the short-term impact of the latest events. Things are evolving fast and chances are that better sense would prevail and leaderships of the US and its trade partners would be able to prevent the current stalemate from becoming a game of ego between them; and arrive at a mutually agreed solut...

A friend recently remarked, “I don’t want to be young for the first time in my life”. He was alluding to the challenges Gen Z (born between 1997-2012) and Generation Alpha (born after 2012) children are likely to face in the coming years. I fully agree with him. The silver on my scalp gives me comfort that a relatively well lived life may end as comfortably for me, and many people my age. But young people in their 20s have no such comfort. The people in their late twenties have already stood witness to three massive economic/market crises (dotcom burst, subprime burst and Covid-19 pandemic) that (i) were not caused by a war or natural disaster; (ii) did not cause human suffering which was anywhere closer to the crises witnessed during 19 th  and 20 th  centuries; and (iii) were brought under control through monetary and fiscal stimuli within a short period of time. In the past twenty-five years, the governments across the world have increasingly become more socialist. While se...

About 17 years ago, a global financial crisis (GFC) engulfed the global markets. The impact of the crisis on financial markets was mitigated in a couple of years by collective efforts of the governments and central bankers. However, the social, geo political and economic impacts of the crisis largely remain unmitigated even today. The "Reset" button pressed by the crisis resulted in widening of socio-economic divide across the world. The geopolitical tensions have intensified materially with rise in nationalism, protectionism and parochialism. This has not adversely impacted global trade. The rising unemployment in Europe and most commodity dependent economies in Asia, Africa and Latin America, declining growth in China, substantial cut in developmental aid to least developed nations due to fiscal pressures, has caused widespread rise in human suffering. The COVID-19 pandemic further accelerated the "Reset" process, paving the way for the emergence of a new glob...

It was summer of 2013. The mood on the street was gloomy. The stock markets had not given any return for almost three years. USDINR had crashed 28% (from 53 to 68) in a matter of four months. GDP was on course to drop to 5.5% after growing at a rate of over 8% CAGR for almost a decade. Current account deficit had worsened to more than 6% of nominal GDP (the worst in decades). The Fx reserves of the country were down to US$277bn, sufficient to meet just 5 months of net imports. The confidence in the incumbent government had completely depleted. The people were on the street protesting against ‘corruption’ and ‘policy paralysis’. The global economy had still not recovered from the shock of the global financial crisis (GFC). The thought of unwinding of monetary and fiscal stimulus provided in the wake of being unwound was unnerving most emerging markets ((Taper Tantrums), including India. India, which was touted as TINA (There is no alternative) by the global investors just five years bac...

The legendary Warren Buffet has been on an equity portfolio selling spree in recent weeks. His fund, Berkshire Hathaway, has reportedly raised over US$275bn in cash; which is over 20% of total assets under management. His selling in the stocks of Apple Inc and Bank of America have been reported the most. Apparently, either his team is not comfortable with the present market conditions (valuation, growth, macro, geopolitics etc.) or believes that they can get much better buying opportunities in near to short term, or both. They may be looking for better buying opportunities in terms of better stocks or better price points in the same stocks. It may be pertinent to note that it is not Berkshire Hathaway alone. A number of reputable investors have taken note of the conspicuous warning signs flashing on billboards for the past few months in particular. Yen carry-trade Hike in the policy rates by the Bank of Japan (BoJ) and strengthening of Japan is perhaps the most talked about event...

  There is strong evidence emerging that Indian corporates have learned their lessons from the global financial crisis very well. In the post Covid global risk rally, they have avoided most of the mistakes they made during the exuberant years of 2003-2008, and have emerged stronger. In pre-GFC buoyancy companies like Tata Steel (Corus), Tata Tea (Tetley), Tata Motors (JLR), Indian Hotels (Orient Express), Havells (Phillips), Sun Pharma (Taro), Suzlon (Hensen), Hindalco (Novelis), Reliance Telecom (Flag), etc. got lured by cheap debt and bought global businesses (in some cases bigger than their India operations), paying top dollars. Most of these acquisitions inflicted severe pain to the parent entities in the ensuing years. This time, despite near zero rates and abundant liquidity, they have been very careful in acquiring businesses abroad. IT services companies have some niche small sized acquisitions to augment their resource pool. These acquisitions have been mostly earnings...

I vividly remember it was the winter of 2007. The global markets were in a state of total disarray. The subprime crisis was unfolding in the developed world. In the US, the financial system was on the verge of collapse. Several banks, insurers, and other financial institutions were reporting massive write-downs on their subprime Collateralized Borrowing and Lending Obligations (CBLO). The cost of protecting debt (Credit Default Swaps) was rising sharply. The US administration and Federal Reserve were mostly in denial, at least in their public posturing; even though the Fed had started to cut the benchmark fund rates from September 2007. Signs of a sovereign debt crisis had started emerging in peripheral Europe. In countries like Portugal, Iceland, Greece, and Spain (popularly called PIGS) treasury default swaps had spiked to indicate imminent default. The financial markets in the developed world had started correcting sharply. Both equity and bond prices had fallen. The emerging ...

“Policy paralysis” of the preceding Dr Manmohan Singh led UPA government was one of the main planks of PM Modi’s election campaign in 2013-2014. The business community, middle classes, and poor, all were convinced that the UPA government suffers from a severe degree of inertia in policymaking and is therefore responsible for the poor growth of the Indian economy. It was alleged that large-scale and blatant corruption, nepotism (lack of meritocracy), and weak leadership are the primary reasons for the “policy paralysis” and poor execution. The campaign against the incumbent government was so effective that it swayed the big industrialists and SMEs which directly benefited from the government’s developmental efforts; the poor who benefited tremendously from the transformative social initiatives; and the middle classes who were protected from any potential collateral damage from the global financial crisis and events in its aftermath, against the government. In their disappointment wi...

Last week media headlines prominently mentioned that Michael Burry, the famous fund manager who earned his clients billions by positioning short on the US securities during the subprime crisis of 2007-08, has recently bought put options on S&P500 and Nasdaq100 worth totaling US$1.6bn in nominal value. Obviously, the headlines left many traders worried about the markets, particularly, their long positions. The S&P500 index corrected over 2% last week and has now lost over 3.60% in the past month. Besides, the US, markets like Hong Kong (-6%), South Korea (-4.5%), the UK (-5.2%), and Japan (-2.6%) have also corrected in the past month. Indian markets have done relatively better, losing about 2.2% in the past month. In my view, it’s not Michael Burry’s positioning that is the reason for the market fall; it is the concerns over the stability of the financial system and markets that may have prompted Burry to take a short position. Pertinent to revisit 2007 Before we take no...

The global financial crisis in 2008 and the unprecedented quantitative easing that followed it triggered a debate over sustainability of the USD as global reserve currency. The simultaneous fiscal crisis in peripheral Europe, especially in Greece, also created doubts over the sustainability of the European Union with a common currency. The debate subsided materially over the next one decade, as the US Federal Reserve (Fed) and Government initiated a corrective action to taper the monetary stimulus and balance the fiscal account. The situation in Europe also improved as the troubled economies of Greece, Italy, Portugal, Iceland, Spain etc. stabilized due to the combined efforts of the European central Bank (ECB), IMF and respective national governments. The European economy even endured the BREXIT rather calmly. The onset of Pandemic in early 2020 however undid most of the corrective actions undertaken by the central banks, multilateral agencies and governments. The US Government and Fe...