Nifty: Down but not out

Thought for the day

We give advice, but we cannot give the wisdom to profit by it.

—Francois de La Rochefoucauld (French, 1613-1680)

Word for the day

Overweening (adj)

Exaggerated, Excessive

Malice towards none

The latest Arunachal development reflect best on who:

(a) Supreme Court

(b) Congress

(c) BJP

(d) None of the above

(e) All of the above

 

First random thought this morning

UP Chief Minister has reportedly offered his sulking Uncle whatever ministries, departments and power he likes. This demonstrate that the most populace state in the country has been reduced to a feudal fiefdom of a family, in a total mockery of democratic process and subversion of constitutional proprietary. Surprising the civil society, especially those who shout their throats hoarse on prime time TV shows every evening, are totally apathetic!

Nifty: Down but not out

Despite a sharp gap down opening on Monday, most benchmark indices held well and recovered almost half their losses. Nifty closed the last week with a wow loss of close to 1%. The initial surge in VIX also moderated materially in later part of the week.

The level of institutional activity was poor and volumes were below average. Market breadth does not indicate any panic or moderation in greed of the investors.

Technically, on weekly charts, NIFTY ended the week on the lower edge of the rising and contracting channel that started from end of February 2016. The channel continues to narrow further. However, any breakout (or break down) still appears some time away.

On weekly closing basis, now 8710 appears to be a strong support, however on daily basis 8606-8630 is a strong support zone. A close above 8867 this week shall neutralize the effect of last week's correction and the uptrend shall resume.

Bank Nifty appears to be losing momentum. Watch closely for a weekly close outside 19560-20340 range to decide the next course of action. Near term banks are avoidable for trading.

 

Case of misplaced priorities

Thought for the day

" It is utterly false and cruelly arbitrary to put all the play and learning into childhood, all the work into middle age, and all the regrets into old age."

—Margaret Mead (American, 1901-1978)

Word for the day

Pulverulent (adj)

Covered with dust or powder.

Malice towards none

Every politicians is busy telling us our problems!

No one is suggesting solutions(:

 

First random thought this morning

Visited a government hospital in Delhi yesterday. The condition of poor patient there was really appalling. The medical staff was highly stressed and exasperated. Non-medical staff was mostly unhelpful and exploitive.

This reminded me what I wrote last year at this time. Most of Delhi government & civic administrators, and many of Central leaders residing in Delhi (including PM himself) claim to come from modest socio-economic background. If true they must understand and feel the plight of these poor patients and work proactively to help them. But this does not seem to be the case.

Case of misplaced priorities

The recently released report on Sixth Economic Census (2013) in India is quite revealing in more than one sense. For, it shatters many myths and official claims and depicts the true state of affairs. The report also highlights some of the famous schemes of the incumbent government might be misdirected.

As per the report, there are 58.5mn business establishments (excluding public administration, crop production & plantation, defense and compulsory social service activities) operating in the country. Of these ~96% establishment were privately owned while just ~4% were government owned. These establishments employ 131.29mn people (52% in rural areas and 48% in urban areas).

·         About 60% these establishments are in rural areas while about 40% operate in urban area.

·         About 78% establishment are engaged in non-agriculture activities, while ~22% are engaged in agricultural activities (excluding crop production and plantation).

·         During the 8yr period between 2005-2013, the business establishments have grown by ~42% from ~41mn to ~58mn. In this period agriculture establishment grew ~116% while non-agriculture establishment grew ~29%.

·         Out of total ~58mn establishments about ~72% were Own Account establishment (meaning with no hired worker). These Self Owned Establishments (SOEs) grew 56% during 2005-2013. About 63mn people (48% of total employed people) are employed in these SOEs.

·         About 96% establishment have less than 5 workers. Another 3% have 6-9 people employed.

·         The government or public sector employs only 7% people. 79% people work in proprietary establishments. Organized private and cooperative sector employs 14% people.

·         About 36% of business establishment were operated from the home of the Self Owner, while another ~18% are operated from outside the home without any fixed structure.

·         Livestock accounted for ~87% of the agriculture activity.

·         Retail trade (~35%) and Manufacturing (~23%) were dominant non-agricultural activities.

·         About 74% business establishments are owned by Hindus and ~14% by Muslims.

·         Out of 1.87mn handicraft/handloom establishments, employing 4.2mn people, 79% were family affairs without any hired worker.

...to continue next week.

Show me a miracle!

Thought for the day

"Man's role is uncertain, undefined, and perhaps unnecessary."

—Margaret Mead (American, 1901-1978)

Word for the day

Lucida (n)

The brightest star in a constellation.

Malice towards none

In a democracy, why an elected representative helping a citizen should be a NEWS?

Ain't that a total failure of our democracy?

Would someone mind informing this to the paean singers and cheer leaders at Raisina Hills and Ashok Road!

First random thought this morning

BJP has reportedly decided to go with PM Modi as its mascot in UP elections.

It's a pity. This state gave the party more than one fourth of its MPs in 2014 elections, and still the party does not have a local face to show to the people.

Show me a miracle!

Last week Mother Teresa was declared a saint. The church said that she fulfilled the condition of doing two miracles to attain sainthood. Regardless of the controversy around the miracles of the Mother as claimed by her order Missionaries of Charity, she is now a Saint forever.

The intense debate that has been going on in the world about according the status of science to Economics is no less than the process of canonization of a catholic saint.

The proponents claim the economics to be the youngest discipline of science, but a science nonetheless. Whereas, the opponents seek the evidence (read miracle), that has been elusive so far.

I am writing this because, the events of past one decade make me firmly believe that at best Economics is witchery used by politicians to impress upon their respective constituencies the need and urgency to afford them the power to run the state. The students and practitioners of Economics take side of the politician they like best.

The abject failure of so called "non-conventional" monetary policies used in past one decade in stimulating economic growth, challenges the claims of the ability to predict the likely behavior of consumers and markets on the basis of past data and trends. In hindsight it looks a farce. It's like a person riding on tiger's back claiming a victory over the tiger.

The conduct of central bankers, economists and governments, in past one decade in particular, makes it palpably evident that the concept like objectivity, data dependency, predictability, etc. have nothing to do with the economics.

US Federal Reserve is a classic case in this point.

The fact is that the market driven rate (LIBOR, etc.) have diverged too much from the policy rate. This may have created unusual arbitrage opportunities distorting the normal operations of the global financial market. This is an anomalous situation and needs to be corrected at earliest. The FOMC of the Federal Reserve is seeking a political correct reason and timing to bridge this chasm.

The effort to make this simple decision look like a major economic event driven by arduous study and analysis of data and evidence seem ludicrous. In the process, not only the US Federal Reserve but central bankers as an institution, are losing credibility.

Instead of bringing a higher degree of predictability to the markets, the conduct of central bankers may be causing just the opposite. The traders are naturally roiled. Many investors may also not like the avoidable volatility in the economic environment.

Insofar as I am concerned, I am not planning to stay awake till midnight on 22 September, to hear what Yellen has to say. Status quo or 25bps hike makes no change to my investment thesis. For, I am convinced that the global cost of capital needs to rise to rational levels to stimulate the virtuous cycle of economic growth.

Nifty: Choppy season ahead

Thought for the day

"We have nowhere else to go... this is all we have."

—Margaret Mead (American, 1901-1978)

Word for the day

Corybantic (adj)

Frenzied; agitated; unrestrained.

Malice towards none

Was including river water in List II (State List) under Article 246 of the Constitution a big mistake?

First random thought this morning

For the first time I travelled to Mumbai from Delhi was in 1992. Civil aviation sector was just opened to the private competition. The price I paid was Rs3493 one way. The one week advance fare on the same sector today is less than Rs2500. Air India is competing with Indian Rail!

Inflation has certainly missed few corners of the economy.

Nifty: Choppy season ahead

Despite a nervous end to the last week, Nifty managed to record its third highest weekly close and second highest weekly average traded value, ever.

ECB staying put and increasing chances of Fed acting to hike rates by 25bps at next week FOMC, should be a good news in a normal market as it signifies normalizing economic conditions. However, considering that global bond markets have been unusually complacent and aggressively leveraged - the rush to take shelter could end up in stampede (not a base case).

The mood in Indian equity markets this morning is certainly somber. Motivated by persistently lower implied volatility, traders running higher than usual positions are naturally jittery. The off loading that commenced on Friday, might continue this week.

In strict technical sense, benchmark indices are not showing any signs of collapse as yet. Any correction therefore is an opportunity to buy.

Regardless, technically speaking, Nifty is poised to move past 9000 mark sometime in next 7 weeks. Only meaning full resistance now exists around 8990 level. A strong support has developed in 8606-8630 range.

On bank Nifty, a good support has developed in 19340-19400 range. However, the strong support remains at 18600 level.

 

 

 

Nifty: All set for mount 9k

Thought for the day

"The cause of homelessness is lack of housing."

—Jonathan Kozol (American, 1936)

Word for the day

Abeyance (n)

Temporary inactivity, cessation, or suspension

Malice towards none

Does AAP need to be taken seriously in Goa and Punjab elections; or it is merely a Delhi phenomenon?

First random thought this morning

Metaphorically speaking, presently the global economy is just like Dead Sea. Nobody sinks in this, but chances of any life surviving in this are remote. Floating with your eyes and mouth shut is the only option.

These days it is becoming marketed aggressively as a popular exotic health tourism destination.

Nifty: All set for mount 9k

Nifty moved higher last week, trampling many resistances on it way. However, given that the rally was purely liquidity driven with not much support from data side, the up move lacked conviction.

Volumes were not commensurate with the level of activity. Implied volatility crashed to further lows. Market breadth was absolutely flat.

Regardless, technically speaking, Nifty is poised to move past 9000 mark sometime in next 8 weeks. Only meaning full resistance now exists around 8990 level. A strong support has developed in 8606-8630 range.

On bank Nifty, the resistance at 20k has weakened materially last week. The next 1000 point move could be fast and furious. A good support has developed in 19340-19400 range. However, the strong support remains at 18600 level.

 

 

Hope prevails!

Thought for the day

"A budget tells us what we can't afford, but it doesn't keep us from buying it."

—William Feather (American, 1889-1981)

Word for the day

Auriferous (adj)

Yielding or containing gold.

Malice towards none

The perfect storm:

- The government would want Telcos to participate aggressively in the forthcoming spectrum auction.

- Banks would be reluctant to lend aggressively to Telcos given the intensifying tariff war and poor revenue growth visibility.

- Telcos may not like to bid aggressively, but to survive competition they would need abundance of spectrum and tower infrastructure.

First random thought this morning

All national parties ally with the smaller parties with parochial agenda for electoral gains. But after winning the elections they find these smaller parties' agenda regressive and want them to abandon it.

This is not gonna happen, Sir!

You are condemned to live with it and suffer.

Hope prevails!

The market was unusually indifferent to the below expectation GDP data on Wednesday evening. No intense discussions in the TV studios; no press conference or media release from PMO or the finance ministry; no significant criticism from the opposition parties; and almost no reaction of benchmark stock, currency market or bond market. This is a classical case of bull market.

The participants are either ignoring poor data points or deliberately deriving positive inferences from it (rate cut etc.), knowing well that in a world flirting with the specter of recession and deflation, high growth will be hard to come by; regardless of what the government and its planners may wish or claim.

I have been insisting that ~7% sustainable economic growth (5.5% as per the old methodology) would be a truly great achievement under the current circumstances, provided we can make it inclusive.

Aiming for 8% and higher growth by focusing on the top 20% population would solve no problem at all, in my view.

From the data released on Wednesday, it is clear that so far there is no respite to the rural populace which has been suffering from severe drought for past two years. The standing crops are good. But these may not results in immediate improvement in the rural income.

For one, the debt at household level has swelled in past two years. A loan waiver by banks may be a partial relief as still a dominant part of the debt could be outside the formal banking channel.

Secondly, like the last onion crop, many other vegetable crops may not fetch remunerative prices to the farmers. Oil seeds, pulses may also see lower realization.

A lot of hopes are being pinned on the seventh pay commission and OROP payouts. As the payments are being made in the supposedly inauspicious month, the spending may occur only in October, i.e., 3QFY17. My informal inquiries from the trade channels are suggesting that except for automobile, most other consumer durables (and staples also) are witnessing inventory rundown. Acute shortage of cash in the trade channel, poor capacity addition and widespread floods in many parts of the country could be the possible reasons.

The Christmas shipments of exporters are almost done. What I could gather from a few exporters is that the season is not great on any parameters.

The leverage for the government to keep spending is much lower now. With fiscal targets almost breached, and budgeted spectrum revenue under cloud, the growth in government revenue expenditure may not sustain. So it would prudent to keep the expectations for 2QFY17 growth numbers also at moderate level.

On positive side, the grand plans are beginning to take off. 3Q could see positive momentum on the investment side.

I would not be surprised if an accounting jugglery or shifting the goal post is used to show data in good light. After all we are competitors to China!

Alice in the wonderland

Thought for the day

"No man is a failure who is enjoying life."

—William Feather (American, 1889-1981)

Word for the day

Mirabila (pl noun)

Marvels; Miracles.

Malice towards none

Is India giving away too much space to US or just allowing US its due space, correcting historical anomalies?

First random thought this morning

Yesterday a leading national newspaper prominently carried the news of Nupur Talwar, mother of Aryushi Talwar, getting three week parole for attending to her ailing mother.

This in my view aptly reflects the degeneration of mainstream media.

Alice in the wonderland

In my endeavor to set a crude matrix that will provide some sort of signal to get into the bunkers before the lightening does strike, I have been reading the works of many experts who are acclaimed for having seen the 2008-09 global financial crisis well in advance.

On the basis of my impression from their works, I may classify them in five broad categories:

(a)   Fearsome: These are large investors and seasoned money managers who have serious stakes in the financial markets. They are fearful about the inevitable collapse, but have chosen to stay invested. Naturally they are invested in so called safe havens, driving the value of USD, CHF, US and German treasuries, etc. to bubble levels. The more they are afraid, the more air they are pumping into the bubble.

(b)   Fear mongers: These are mostly unscrupulous bankers, economists and analysts who are consistently creating an environment of fear amongst various market participants and stakeholders to maximize their gains. Based on their forecasts, many a times unsubstantiated, they are able to pursue decision makers into a transaction that is mostly unnecessary.

(c)    Fearless: These are mostly money managers and small to midsized traders who are always there to take advantage of greed & fear inequilibrium in the market. These mostly move around the globe in herds, acting in tandem. Their entry and exit in an asset class, market or geography causes massive rise in volatility.

(d)   I said so variety: These are mostly academicians who propagate multiple, often vague, inadequate, inconsistent and/or self contradicting, economic theories in the market so as to claim the status of an Oracle at a later date. I any event, but mostly collapse, they proudly claim "I said so". Well funded by public money, mostly, they are at no loss situation, in any eventuality.

(e)    Data dependent: These are mostly official statements of various central bankers, global financial institutions, and governments. These are expressed in extremely measured words and are said to be data dependent. Though watched carefully for each word and punctuation mark in some cases (e.g., US Fed), in recent time these have lost their credibility. Mostly the fearless type use these statements to further their cause in the market.

From my careful readings of various statements, reports and writings of a number of experts from the said five categories, I have concluded that most of them are as clueless about the timings and immediate trigger for the Endgame, as me or any of my readers.

That is obviously not a matter of comfort for me; but it is motivation enough to break away from the popular wisdom and develop own matrix and signals. Right or wrong - only time could tell.....to continue

No black swans here

Thought for the day

"Every social injustice is not only cruel, but it is economic waste."

—William Feather (American, 1889-1981)

Word for the day

Venial (adj)

Excusable; trifling; minor: a venial error; a venial offense.

Malice towards none

Does a brilliant performer in any field really need a medal or award for recognition?

First random thought this morning

Being traumatized by frequent call drops at my home, I reluctantly decided to take few steps back and apply for a MTNL fixed line basic telephone. And it was just a beginning of massive surprise.

I applied by filling a simple online form (no documents and no fees). Within 24hrs two executives of MTNL were at my doorsteps, very humbly requesting for an address proof, ID, photograph and Rs. 500 as fee. They insisted that I just sign the form they had brought and they will fill it up themselves from my address and ID documents. Within 48hrs my telephone was ringing and I was free from the agony of frequent call drops!

No black swans here

The US federal Reserve Chairperson Janet Yellen very bravely asserted in her latest speech that “case for an increase in the federal funds rate has strengthened in recent months”.

The skeptics are taking it for an academic hypothesis; ruling out any action in the near future.

The market participants are divided in their opinion. In my view, this division will likely keep market in its current state of indecision till 21-22nd September when FOMC meets next decides on the Fed policy rates. It is entirely possible that we see some sell off in couple of days prior to the decision day.

In my extremely parochial understanding of the global economics, regardless of a token hike here and there, I find it hard to see any case for any material hike in interest rates even in 2017.

In fact, the case appears to be that even a token hike might have to be supported by adequate monetary easing to support the feeble economic momentum that we see in the USA.

Therefore, I am not at all worried about a 25bps rate hike (not my base case) on 22nd September. What I am worried about is the ponzi in the bond market, that has already assumed alarming proportions and burgeoning by the minute.

To quote a recent post of David Stockman:

"...the global bond market has become a giant volcano of uncollectible capital gains. For example, long-term German bunds issued four years ago are now trading at 200% of par.

Yet even if the financial system of the world somehow survives the current mayhem, the German government will never pay back more than 100 cents on the dollar.

What that means is there will eventually be a multi-trillion dollar bond implosion as speculators and bond fund managers alike scramble to cash-in their capital gains at the first sign that the global bond markets are breaking and heading back to par or below. And it is not just the “winners” who will be stampeding for the exists." (for full post see here)

In my view, everyone knows the endgame. It's going to be a disaster of mega proportion for the savers, pensioners, investors, global financial markets, governments and anybody else one could name. Therefore, this event, whenever it occurs will not qualify to be a black swan event.

The winner would be the one, who could see the first signs of the beginning of the end. I am yet to read or hear any intelligent ideas on this topic; though billions of reams of papers and terabytes of virtual data has been consumed on the related guesswork.

Now when everyone is doing it, why can't I. So let me try it in next few days.