Do it yourself

One of my close friends bought a plot of land in the outskirts of the city of Dehradun in Uttarakhand, a decade ago. The reason, he outlined, for this investment was that Dehradun is a good place to retire. It is peaceful & clean and has a much lower cost of living. Considering the rising level of pollution (air, noise and water) in larger cities, people would want to move to such places in future. The property prices would therefore appreciate considerably. After a decade, the price of his plot is up by some 300%. He is happy that he made a very good investment decision. When I pointed out to him that Dehradun is no longer the peaceful, clean and cheap city it used to be ten years ago. Therefore, his investment premise has mostly failed. Besides, the land prices in many areas of the NCR have risen equal to or more than Dehradun in the past one decade. The point to ponder over is if you earn a good return on your investment in spite of your assumptions behind making such inve...

Economists, monetary policy experts and market commentators have been talking about the dilemma the Bank of Japan (BoJ) is facing for the past few months. As the BoJ simultaneously fights both the inflationary and deflationary pressures in the Japanese, it finds striking a balance between JPY exchange rate and Japan Government treasury bonds (JGT) yields a big challenge. The Japanese economy has been facing a deflationary trend for more than three decades. After the global financial crisis, the trend accentuated further. In 2016, the Japanese authorities decided to trigger inflation by keeping policy rates below zero. Massive “free money” was pumped in the economy to boost economic activity by achieving a sustained inflation rate of 2%. Consequent to the ultraloose monetary policy, the debt in Japan has swelled to 250% of GDP. It was not a major problem till the major trading partners like the US were also keeping the interest rates close to zero and following an expansionary monetary...

  The Monetary Policy Committee (MPC) is currently holding its bi-monthly meeting. This particular MPC meeting is perhaps one of the least discussed by the market participants. There is not much anticipation about the outcome that will be known tomorrow morning. The consensus overwhelmingly believes that RBI will maintain the status quo on rates and monetary policy stance. A quick reference to a note prepared by the research team of the State Bank of India would be apt to highlight the extent of the lack of excitement amongst market participants over this MPC meet. The SBI team devoted three full pages to verify a humorous US study that correlates the height of Fed chairman to the rate hikes and discovered that incidentally it is true in the case of India also. Though the market is divided in its expectation about the course of action the Federal Open Market Committee (FOMC) of the Federal Reserve of the US would take in their meeting scheduled on 13-14 June 2023; few expect a 25bp...

From various recurring events that generate significant anticipation and anxiety amongst market participants, the speech of the US Federal Reserve chairman at Jackson Hole annual symposium is the most popular one. This year the speech is scheduled to be delivered on 26 th August. Since, the markets are again filled with anticipation and anxiety. I find it pertinent to highlight a few things about the event and its likely consequences. Jackson Hole is Davos in Wyoming Later this week the Fed Chairman Jerome Powell is scheduled to make a speech in a symposium held in Jackson Hole valley (Wyoming, USA). This annual symposium, sponsored by the Federal Reserve of Kansas City, has been held since 1978; and in Jackson Hole since 1981. The symposium is usually held in the month of August, just ahead of the pre scheduled US Federal Reserve Open Market Committee (FOMC) meeting in September. Many prominent central bankers, finance ministers, reputable academicians and market participants ta...

 Hikes another 75bps The Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed) hiked the federal fund rate by 75bps yesterday to the range of 2.25% - 2.50%. This is the second 75bps hike in two months. In the post meeting press interaction the Fed chairman Jerome Powell outrightly rejected the speculations that the US economy is in recession. The FOMC members are of the opinion that the strong labor market allows the US economy to tolerate rapid monetary tightening. For the first time since February 2020, the FOMC statement did not mention Covid or coronavirus. …leaves the door open for further data dependent hikes Reiterating the commitment to achieve the 2% inflation target, Powell also indicated that while another unusually large increase could be appropriate at our next meeting, the FOMC would set policy on a meeting-by-meeting basis rather than offer explicit guidance on the size of their next rate move, as he has done recently; thus, leaving the future ...

The Federal Open Market Committee (FOMC) of the US Federal Reserve decided to hike the benchmark bank rate by 75bps to 1.5% - 1.75% on Wednesday. The Committee also reiterated that the Fed will continue to shrink its balance sheet by US$47.5bn till August 2022 and from September the unwinding will be stepped up by US$95bn/month. The FOMC noted that there is no sign of broader slowdown in the economy, while lowering its GDP growth forecast for 2022 to 1.7% from 2.8% earlier. The FOMC statement reiterated the strong commitment to achieve the 2% inflation target. The Fed Officials projected raising it to 3.4% by year-end, implying another 175 basis points of tightening this year. The projection shows a rate cut in 2024. In the post meeting press meet, Chairman Powell commented that “Either a 50 basis point or a 75 basis-point increase seems most likely at our next meeting. We will, however, make our decisions meeting by meeting.” The Chairman added that ““It does appear that the US econom...

Long Covid, is a term commonly used to describe the lingering adverse health effects of the Covid infection. Another dimension of Long Covid is the lingering socio-economic impacts of the pandemic. While only a small percentage of persons who suffered from the Covid infection are showing medical signs of the Long Covid; the socio-economic milieu of almost every country in the world is suffering from Long Covid. The pandemic has definitely widened and deepened the socio-economic economic divide across jurisdiction. A significant proportion of the population that was pulled out of the abysmal poverty in the past two decades has slipped back below the poverty line. Accelerated digitalization of social services like education and health has deprived many underprivileged children. To mitigate the sufferings caused by the pandemic, most governments provided monetary and fiscal stimulus to the poor and small businesses. The stimulus checks (and ration and medicine kits) created artificial...

This world is like a prism. You see different pictures, colours and hues depending upon from which angle and under what light you are viewing the world. Therefore, while all views and colours are equally valid, your "truth" is always what you see from the point you are standing at a given point in time and under the current light. In the past few months, inflation has become one of the driving narratives of monetary policy world over. From Brazil to Britain, and Australia to the Eurozone, the central bankers have expressed concerns over rising prices. Over 30 central banks have actually raised policy rates in the past 12months to control inflation. The US Fed is also widely expected to embark on a path to accelerated rate hike from next month onward. Insofar as the monetary policy impact on inflation is concerned, in my view, in the latest episode, inflation (rate of increase in the prices) is not the only problem. It is the current price level that is hurting people seve...

The weather in the market has changed rather dramatically over the past two weeks. As we changed the calendars about four weeks ago, it was a partially clouded sky, but no one was forecasting a hailstorm, the markets are witnessing for the past 6 trading sessions. Seven odd percent fall in the benchmark Nifty is certainly not indicative of the damage that has been caused to equity investment portfolios, as the theater has been mostly outside the Nifty. The sharp correction in equity prices is nothing unusual. In fact it has been a regular feature of the markets ever since the advent of public trading of corporate. However, in modern times this volatility assumes a wider socio-economic significance because the markets have become increasingly democratic. The access to the market is no longer confined to an elite section of the society. Investors in listed equities now come from all walks of life – young college students to old pensioners and top metros to the poorest districts of the ...

In its latest meeting the US Federal Reserve Open Market Committee (FOMC) reiterated its position stated in the last meeting. The Committee maintained status quo on the Fed rate (Repo Rate) and its asset (bond) buying program (US$120bn/month). The limit for single counterparty under reverse repo has been raised to US$160bn from the present US$80bn, allowing the banks to park more money with the Federal Reserve. The Committee reiterated its stance of last meeting, stating that “If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted”; implying that the FOMC decision on QE continues to be data driven, and the present reading of data guides a gradual unwinding of the monetary stimulus introduced to mitigate the impact of Covid-19 pandemic. “While no decisions were made, participants generally viewed that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of...

In past few weeks we have seen some very interesting debates over the prospects of inflation forcing central bankers to change the course of ultra-loose monetary policy and thus derailing the global recovery. There have been strong arguments on both the sides. However, the debate seems to be still inconclusive. There are many reasons for strong disagreements. For one, the debate suffers from historical prejudices and does not completely factors in the fast changing demographic and technological factors. It may also not be fully accounting for the fast evolving sustainability concerns and consequent changes in the global trade and commerce. Nonetheless, I still find it pertinent to take note of divergent views on the expected trajectory of inflation. Recently, two reputable experts Martin Wolf (Financial Times) and David Rosenberg (Rosenberg Research) published their views on inflation expectations. Both the experts are widely recognized for their biases, and these mutually divergent ...

US Federal Reserve Chairman Jerome Powell tried to set many speculations aside in his statement post the recent meeting of the Federal Open Market Committee (FOMC), Powell made the following three things very clear: 1.     US Fed policy Bank Rates, and therefore general rate environment, shall stay low till at least 2023. 2.     There is no threat of material rise in inflation in near term, and 2% inflation target shall remain valid till 2023. Even a temporary violation of 2% inflation target before 2023 shall not impact the decision to keep rates near zero till 2023. This is in sharp contrast to the forecasts made by many global strategists, economists and fund managers, who believe that inflation could become a serious problem in 2021-22. In fact Powell expressed his concerns about the disinflationary pressures persisting. 3.     The job market is expected to improve and below trend unemployment rate of 4% shall be achieved by 202...