Some food for thought
"The will is not free - it is a phenomenon bound by cause
and effect - but there is something behind the will which is free."
—Swami Vivekanand (Indian Philosopher, 1863-1902)
Word for the day
Internecine (adj)
Mutually destructive.
First thought this morning
"Government Policy and political ideas have nothing to do
with facts! Of course not! They don't want them. Facts complicate things."
—Sir Humphery Appleby in epic TV
series Yes Minister
I am not sure why the quoted dialogue came was the first thing
that came to my mind when I learned about the resignation of RBI Deputy
Governor Viral Acharya. There appeared no connection, direct or indirect,
whatsoever. After struggling for couple of hours, I decided to save the thought
for rumination at a later point in time.
For now I can only say that the experiment with market
economists like Rajan, Patel and Acharya et. al. must end. Indian economy does
not need them. We need pragmatic development economists who are well versed
with the socio-economic fabric of the country and are capable of building
balanced policy framework in which the markets and economy grow together. The
attempt to make markets lead the economy has failed miserably in past 15years.
Similarly, policies that put the socio-economic pyramid upside down did also
not worked for preceding five decades or so.
Chart of the day
Notes
from my Diary
Last week, I started a discussion on how to assimilate implications of the evolving economic scenario for investment portfolios (see
here).
I find it more suitable to be guided by my own intuition rather
than depending on some discreet random third party thoughts, simply for the
reason that most experts are refusing to analyze current situation in emerging context for future. May be I am reading all the wrong financial
literature, but to me the narrative seems overburdened with historical
perspective.
In my view, every major economic (and therefore market)
event in past 150yrs has an independent historical context; though when
lodged in an economic essay of few pages these events may look similar and repetitive.
Industrial revolution, WWI, WWII, Cultural Revolution in China,
demise of Bretton Wood, Demise of USSR & Reunification of Germany, US
engagement in Gulf war, advent of ecommerce, and China's entry in WTO and OBOR,
are some of the key events that have shaped the present day global economy.
In hindsight, one can establish a strong cause and effect
relationship between all these events and easily explain the sine waves on Dow
Jones graph.
For example, the following 100 year chart of Dow Jones Industrial
Average (DJIA) index of US stock market, highlights that between Industrial
revolution and advent of ecommerce, US stocks moved in a wide range, virtually
going nowhere in seven decades, that witnessed two great wars, worst economic
depression, total collapse of British Empire and colonial imperialism, many
episodes of deflation and hyper inflation, trade wars, evolution and demise of
USSR, bifurcation and unification of Germany, formulation and breakdown of
Bretton Wood.
Between two wars DJIA lost 86% of its value in 3yr period from
1929-1932, and returned more than 400% in next five years 1932-1937. Similarly,
post WWII DJIA returned over 400% in 17yr period during 1948-1965, only to lose
70% of its value in subsequent 17yr period 1965-1982 as Bretton Woods
collapsed, oil spiked, US-Japan trade war unleashed.
This statistics only highlights that during 1970s if a 45yr old investor had
relied on the trend during 1929-1937 market bust and boom cycle and staked all his savings on an imminent recovery, he would have probably died without recovering his losses, as DJIA
did not breached 1965 peak before 1995, and the composition of market had
changed dramatically by then from commodities, infra building and manufacturing
to services and technology.
I am therefore not too inclined to look at history to seek
guidance for the future market trends. In that I have learned from history that She is no guide to future, till the future itself becomes history.
In my view as an investor I shall keenly watch the following
trends over next few years and keep adjusting my portfolios according to the
changes in these trends.
(a) Over past two
decades the transactions in world have largely become dematerialized. Physical
movement of commodities, money, securities and workers has got reduced
materially.
Dematerialized commodities, currencies and securities have
led to material dissipation in information arbitrage. However at the same time
it has also caused many episodes of superfast spread of misinformation leading
to totally avoidable worldwide market panic and mispricing of assets.
A tiny investor like me can obviously not take advantage of
global panic attacks. This require large amount of resources and tools to
assess the correct situation before many others do. What I can however do is to
not get panicked by these episodes.
Shipping and global transportation of workers could be a sunset
industry in next few decades, in my view. Hyperinflation that many have been
waiting since beginning of QE in 2008-09 may also remain elusive for many
years.
(b) The demographic
changes that have occurred over past 5-6 decades shall result in strategic,
financial and economic re-balancing of global power structure. In post cold war
era, the world has been mostly unipolar with US and its allies dominating.
However, as the larger emerging economies are growing much faster than the
western developed world, and have demographics in their favor, we shall see
many more power centers, especially China & India, emerging.
I see the current Sino-US & India-US trade and VISA
disputes, OBOR project, popularity of crypto currencies and reemergence of gold
as popular reserve storage for central banks, etc. as reflections of this trend
only.
Unlike in pre WWII era, the war in this dematerialized world
would be fought on trading terminals, central bank treasuries, and conference
rooms.
More than $17trn of sovereign debt trading at negative yield
also reflects the strong aversion of developed world investors to tread the
untested waters in search of yield for now.
Crypto not being a regulated market yet, I am contend buying
Gold. Short USD trade could though be treacherous, just because its sound so obvious.
(c) Developments in
the fields of Artificial Intelligence and Bio Technology will disrupt many more
business models. Many corporate might grow larger and stronger than
governments. This shall resuscitate the class struggle and return of communism
in some form. We have already seen rise of socialism in many European countries in
past couple of decades (see
here).
To me this means that there are more than fair amount of chance
that India stays a lower middle income economy for many more decades, just like
Brazil.
I shall therefore mostly ignore the "abysmal per capita
consumption" argument for most things in Indian context. Rising
inequalities will though keep me glued to discretionary consumption space.
Readers may want to have a glance at following relevant articles
also
