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.

Unexciting denouncment of Rexit drama

Happy Janamashtami to all our readers.

The next post of the Morning Trekk will be on Monday, 29 August 2016

 

Thought for the day

"There is nothing as sweet as a comeback, when you are down and out, about to lose, and out of time."

—Anne Lamott (American, 1954)

Word for the day

Mountebank (n)

Any charlatan or quack.

Malice towards none

Shri Mohan Bhagwat is neither helping Hindus, nor Hindutava, nor Hindustan!

First random thought this morning

Flood in Bihar and Assam is an annual occurrence since past many decades. It has been regularly impacting the normal lives of millions of poor and helpless people, besides causing extensive economic damage.

There are ministries and departments for flood control. Relief packages are announced every year by the central and respective state administrations.

But we have not heard about any Plan to solve the problem on a sustainable basis. This makes the whole planning process look like a farce; and concern of politicians for poor questionable.

Unexciting denouncment of Rexit drama

The denouncement of the Rexit drama is rather unexciting. Those who were anticipating a twist in the tail are obviously disappointed.

The industry & markets have ostensibly hailed the announcement of Dr. Urjit Patel's as the new RBI governor in place of the outgoing governor Dr. Raghuram Rajan, as a measure to maintain continuity in the policy environment.

In my view, the whole episode exposes the inherent incongruence of the investment and business strategies; and is unfortunate to that extent. For example, consider the following:

(a)   The Reserve Bank of India is an 81year old institution. It has withstood all tests of the time and emerged stronger. This one of the few public institutions which have impeccable and unblemished track record of performance.

       Though governor may be working as a guiding force, denying the role of the technical teams working at RBI in policy making may be ignorant and unfortunate.

       Assumption that an individual could be more important than the institution itself is preposterous. Moreover, it violates the whole thesis of India being an attractive investment and business destination. The episode forces me to raise serious doubts over the:

(i)    seriousness of the celebrated global investors, who created ruckus over retirement of the incumbent governor;

(ii)   competence of the Indian media in economic matters, which took the lead from casual statements of celebrities and created an environment of fear and suspicion amongst the common public, especially the investors in financial markets;

(iii)  intentions of the political leaders from the opposition parties, who intervention in the matter was opportunistic, totally out of turn, unnecessary and apparently not in the national interest;

(b)   Assigning the bird adjectives to a RBI governor is unfortunate and contemptuous. This incorrectly suggests that the governors servants of their prejudices and/or are incompetent to judge the change in the circumstances underlying the policy formulation.

       Is it so difficult to accept that the macro fundamentals and economic realities have changed materially since 2013 when Dr. Rajan assumed the charge of RBI governor's office. Dr. Patel needs to take decision under current circumstances

(c)    Those clamoring for Dr Rajan, are not exactly celebrating the entry of Dr. Patel - who stands for everything Dr Rajan did and is considered more hands on to the Indian economy and businesses. Why? Do they fear that Dr. Patel, having worked closely for Indian businesses and global investors, knows much more about their "ways and means" as compared to Dr. Rajan whose experience was mostly academic.

All is not Well!

Thought for the day

"My coming to faith did not start with a leap but rather a series of staggers from what seemed like one safe place to another."

—Anne Lamott (American, 1954)

Word for the day

Whigmaleerie (n)

A whimsical or fanciful ornament or contrivance; gimmick.

Malice towards none

Now you know why AAP is running its publicity campaign on public money - It has no money left of its own!

First random thought this morning

A Reuters headlines yesterday screamed "Naming of new RBI chief shows Modi government regains composure after Rajan shock". It was promptly carried out by the local media and discussed at various forum including social media.

I wondered - "when did the government lost if composure over the issue of extending the term of extant governor. It was the studio experts, some celebrated markets experts and opposition leaders who lost their composures and added sinister motives to the government decision.

All is not Well!

Target Corporation Inc of USA, one of the largest customers of Welspun India terminated its business relationship with the Vendor alleging that Welspun substituted Egyptian cotton with a cheaper variant of cotton while supplying it bedsheets.

Reportedly, Wal-Mart Stores Inc, Welspun's third-biggest customer, is also reviewing the company's cotton certification records, and if found irregular, it may also consider cancelling the contracts with the company.

Welspun in a conference call on Monday stated that it was investigating the product specification issue and would hire a Big Four accountancy firm to review its supply processes. The company was evasive in answering the specific queries and completely failed in assuring the investors.

Already two days have elapsed since the issue had first arisen. However, we have not heard anything from the government authorities on this.

One may argue that it is purely a business matter and government may not have any role in this. But I strongly disagree. I believe that these kind of matters have serious implications for the economy and markets and therefore require serious and prompt government intervention.

At this point in time we do not know if the allegations against the company are true. Nonetheless, it is pertinent to consider the following points in this regard:

(a)   The company is one of the leading exporters of the bad and bath linen from the country. It claims to be exporting to over 50 countries. If the allegations against the company are proven correct, it may seriously damage the image of other Indian exporters also.

(b)   As of end FY16 the company has a net debt of over Rs2500cr and an annual interest outgo of over Rs200cr. A contagion effect of Target Corp's action may lead to more order cancellations, thus jeopardizing the debt servicing capabilities of the company. We have seen similar instances in case of some diamond merchants. To this extent it could be a systemic problem.

(c)    The stock price of the company has seen an erosion of ~38%, inflicting serious losses to its investors.

(d)   We are already witnessing a serious quality assurance crisis in the pharmaceutical industry due to callousness of a few players. We may not want this contagion to spread to other industries also.

My simple point is that if our government is serious about its Make in India mission, it needs to build a strong quality assurance and audit mechanism to ensure that all manufacturing in and exports from the country adhere to the top global standards.

We just cannot become a major manufacturing and export hub with our Jugaad mindset - both inside and outside the government