Thursday, June 20, 2013


This will be a short note as this is what’s there on top of my mind.

So markets are selling off because the fed chairman believes the US economy is recovering and hence by next year would not require the injection of liquidity. But the markets are sulking – and are throwing fresh tantrums like a kindergarten kid would if a toy has been taken away.

So what exactly do these financial markets players want? They just want easy money at near zero interest rates, so that they can play with these dollars in various markets with a knowledge that if they lose this money, the big daddy will give more – and if they make gains out of that, they will sound and look intelligent and take away fat bonuses, while a normal labourer/cobbler/driver fights inflation and works his normal 14-hour shift daily to earn his family a meal.

Make no mistake, the financial markets all around the world are in a mess. Gone are the days where fund managers would require hours and days and months of hard work to arrive at individual stocks that will generate alpha – Right now everyone from an FII to an insurance company to a mutual fund is a trader who can’t look beyond the next 3 months (with some exceptions of course).

The whole world had been watching for how the US bond yields had been moving. The US bond market is the savviest market of all asset classes. This market was for long telling us that Bernanke’s dollar printing has run its course. The market should have prepared for this event. What the bond markets had also been telling us is that we need real economy growth and not just dollar supply for markets to rally.

Now what about India? The Indian authorities are in absolute denial mode. It’s worse than an ostrich who drags its head into sand hoping the hunter hasn’t seen it (which by the way is a myth, ostriches don't do that). Last week, they approved hiking FII limit in Government securities (In a week when FIIs sold over $3 bn Indian Govt bonds) and yesterday they announced conducting an auction for G Secs. I mean, I really want to know what kind of drugs are some of them consuming.

Now while twitterati and BBM groups have been swamped with jokes on how India is back into the 1990s, yesterday a very respected economist raised a big red flag saying India is actually back into the 70s low growth, low employment rut.

The growth is sub 5%, currency is almost 60, we are producing millions of engineers and MBAs every year with no real jobs and there is very low likelihood of the economy bottoming out. Worse still, going by the recent cabinet expansion, it doesn’t look like economy is anywhere on top of Govt’s agenda.

There is a saying that dawn is closest when its darkest, unfortunately there is no way of knowing, how much darker can the night get in India right now.