Category Archives: India

Getting Too Comfy For Our Boots, Are We?

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What a party we are having in the debt-market, aren’t we?

Exceptional payouts, day after day, week after week, month after month, it’s almost going to be year after year.

Are you getting too comfortable? Lazy, perhaps?

Meaning to say, that when you can get a 10 % return after tax without having to move your behind for it, it is a very welcome scenario, right?

People, scenarios change.

It isn’t always going to be like it is at the moment.

Are you flexible enough to change with the scenario?

Or will you be lost in the current moment, so lost, that you will not recognize the signs of change?

What would be these signs? (Man, this is like spoon-feeding….grrrrrr&#*!).

Inflation begins to fall.

The country’s central bank announces back to back interest rate cuts.

Too lazy to read the paper? Or watch the news? Ok, if nothing else, your online liquid mutual fund statement should tip you off.

How?

The payout, dammit, it will have decreased.

Also, something else starts performing.

What?

Equity.

Smart investors don’t like the debt payout anymore. They start moving their smart money into value equity picks.

Slowly, media stops reporting about a gloomy economy. The buzz gets around. Reforms are on the way.

Foreign direct investment picks up. The media latches on to it. It starts speaking about inflows as if the world begins and ends with inflows.

Now, the cauldron is hot and is getting hotter.

Debt payouts are getting lesser and lesser. Equity is already trending upwards, and has entered the meat of the move.

If the trend contnues, a medium to long-term bull market can result.

There you have it, the chronology played out till just before the start of a bull market of sorts.

Be alert. Recognize the signs early. Be mentally in a position to move out of the debt market, if the prevailing scenario changes.

Otherwise…

… you miss a first run in equity. Boo-hoo. When stocks cool at a peak, and start falling, you make multiple wrong entries into them.

You get hammered by equity, having caught it on the down-swing.

You missed the correct entry time-point in equity because the debt-market made you too comfortable. You were late to act. When you acted, finally, you caught a correction, and took a hammering.

One or two more hammerings like that, and you’ll be off equity for the rest of your life.

And that, my dear friend, would be a pity.

Why?

Because, in mankind’s history, it is stocks that have given the best long-term returns. Not gold, not debt, not bonds, but stocks.

You need to approach them properly, and timing is key.

Power of Compounding II – The Curious Case of Switzerland

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What comes to mind when one thinks of Switzerland?

– Blood Money – world’s haven for,

– “Neutralness” – has never fought a war in modern times,

– Beauty – it is God’s own country, with its mountains, meadows, valleys, lakes, trails…,

– Discipline – blessed with the works, punctuality, law and order, you name it,

– Technological supremacy – for example their watch-technology, or their advances in heavy mechanical engineering,

– Culinary supremacy – as in their chocolates, or for that matter their herbal know-how, superior quality of their milk, and of course, their cheese,

– Love for their country – the Swiss really look after their country, are loyal to it, and would probably die for it willingly.

Only the first factor has a negative sound.

Well, they do provide a safe-haven. I mean, look at all the other factors. People feel that their money’s safe in a swiss bank. You can’t blame a country for being a safe country.

Most of the world is not safe today. So, most of the world’s money flows to locations that are considered safe. A good percentage of the world’s money is blood money, but that’s how it is. When foreign funds flow into a country, a country doesn’t ask questions. Do we in India ask questions? No. For all we know, it is Mafia money flowing into our country, inflating our markets. Nobody cares as long as it is coming in.

When foreign funds flow into a country excessively, as is the case with Switzerland, such a country can dictate the interest-rate it pays out for such funds. For many, many decades, Swiss banks have been in demand because of the safe-haven quality of their country, and the interest-rate doled out is a pittance, something like 0.5 % or perhaps 1% per annum, something in that range. I could be making a mistake of an odd 1 % here or there, but, you see, people don’t store their money in Switzerland so that it accumulates to an even bigger amount. They store it there so that the principal stays safe. Switzerland doesn’t participate in wars. Thus, wealth is not destroyed. In fact, during wars elsewhere, fund-flow towards safe-havens heightens.

And that’s the game. Almost unlimited inflow, pittance of a payout, loan the money further on 6%, 7%, 8%, huge differential, year upon year, decade upon decade, humungous compounding, enough to spark-off, inculcate and fully support massive all-round development – couple this with all the other factors given above about Switzerland, and you have a hugely positive n-th loop. A hugely positive n-th loop is the exact opposite of a hugely negative vicious cycle. Switzerland sets the framework for the all-round blossoming of life, and the inflow provides lubrication and fuels development. After a while, they don’t depend upon the inflow anymore. In fact, the Swiss were probably self-sufficent even before the inflow began. That’s how they were able to provide a stable system. The inflow is just a bonus. Due to the power of its compounding, all the other diamond qualities of CH sparkle even more brightly.

Living in India, with its legacy of corrupt leaders who have siphoned off most of our wealth towards safe-havens, how should one react?

It is not the fault of the safe-haven. We need to evolve and make our own citizens feel comfortable with keeping their funds here. Our system needs to provide that safety.

Only then will the funds stay here. If our funds are not staying in our own country, it is our own fault.

“Don’t Turn Around – Der Kommissar’s in Town”

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There’s activity within our slow-poke government.

Yup, we just got a new finance minister. PC’s back. Or, as the newspaper said, PC reboots.

He’s probably reinforcing backdated taxation.

He’s hinted at interest-rate cuts.

He’s after more service-tax candidates.

He’s transferred lots of portfolios.

He’s trying to dish out motivational quotes, so that the economy revives.

“Alles klar, Herr Kommissar?”

The last time PC was in town, there was volatlity in the markets. First they went up and up and up, and then they went down and down and down. Mr. Chidambaram is a by-word for volatility.

How does he do it?

Frankly, I don’t care.

If I’m getting volatility, I’m taking it.

Not that India as a market lacks any volatility without PC.

We Indians are emotionally volatile people. When we are happy, we are sooooooo happy. When we are down and out, man, we are totally gone. No surprise that our markets reflect our topsy-turvy and dramatic emotional nature. Yes, the trader in India is blessed with a volatile trading scenario by default.

So, PC or no PC, volatile trades make themselves available to us in the Indian markets regularly. What PC does is, he gives the system’s volatility a turbo-boost. Our market’s “beta” goes up wth PC, and it goes up fast, quite fast.

Man, how does he do it?

You know, I still don’t care, but if I did, I think this would be the correct answer.

Der Kommissar seems to do it in two steps. First he creates carrots, lots of carrots. These are dangled before India Inc. Things start hotting up. Foreign investment wakes up – demand – buying pressure – our markets go up. Then, when the balloon is inflated, der Kommissar will appear on television and will let out comments (implementation of stick, like the backdated taxation thing) which the market takes exception to. Or, he might give some interview in the media which India Inc. interprets negatively. Well, down we come crashing. Frankly, I still couldn’t care less. Upwards or down, there’s a trade to be found.

Just a few days in his seat, and pivot points are leading to bounce-backs, supports are holding, resistances cracking (it’s the carrots), and technicals are very, very initially changing from “range-bound” to “trending”.

Fine, let’s just trade the Kommissar while he’s in town.

I’ve quoted Falco above and I’m quoting him again : “Alles klar, Herr Kommissar!”

What Does it Take to Decouple?

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Is Decoupling a myth?

Why hasn’t any country been able to decouple from collective world economics for longish periods?

What does it take to decouple?

For starters, good governance. Over long periods.

Resources. One needs to have independent resources, as in energy resources. For example, India does not have ample independent oil resources. Going nuclear could make it a stronger candidate for decoupling, but does the country have responsible governance to handle nuclear energy safely? As of now, no.

A conducive business environment is the order of the day. Business needs to thrive. It can only do so, if laws are approved, that are favourable for business. The private sector needs to be allowed to grow wherever possible. Red-tapism and babudom are enemies of decoupling.

To thrive, business needs proper infrastructure. Bottlenecks arise when those responsible for getting this infrastructure in place simutaneously siphon away funds, thereby decreasing the quality of the infrastructure proportionately. Bottlenecks are enemies of decoupling.

Internal demand drives a decoupled economy. The demographic social structure of such an economy allows demand for manufactured goods to blossom.

What kind of a population dynamics caters to this sort of demand creation? One with a healthy demographic pyramid, with the broad pyramid base boasting a large, young consumer base.

This young consumer base is also supposed to be the decoupled economy’s demographic dividend.

Demographic dividends don’t just start existing just like that. They need to be reaped after sowing the proper seeds. An economy needs to first provide proper education and healthcare infrastructure, so that its citizens enjoy a beneficial environment to grow up in, which is when they can go on to become productive citizens.

Savings of productive citizens provide cushion to the decoupled economy. No savings, no cushion. The first Tsunami then destroys the decoupling.

Domestic payment cycles need to be healthy, and not chokingly long.

Imports are a necessary element of trade. Importers should thrive too, but not to the extent of recoupling a decoupled economy.

Then there are moral values. These keep a decoupled economy on track, after everything else is in the correct trajectory. Productive citizens need to do the right thing. Long-term, holistic thinking. No corner-cutting.

Sounds utopic, right?

Well, at least one is allowed to dream!

What Are We, Really? (Part 3)

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Heinous crimes … happen in India.

For example the recent Gurgaon r#pe case.

What are we, really?

We were supposed to be reaping a demographic dividend. What happened?

A society that mistreats its women-folk is a sick society.

At its core, the ideology of India is spiritual. And, the driving force of our spiritualism is “Shakti”. The “Shiva” portion is more like a rock of stability. The activity bit is left to Shakti, to rise, purify, and reach Shiva. Shakti is about action. She is the driving spiritual force of India.

So, when from deep inside, our driving force is feminine in nature, and when on the outside, we find ourselves in a male-dominated society, this is a huge paradox that we are forced to deal with.

China has dealt with a similar paradox – with force. Chinese governments, over the ages, have suppressed China’s mandarin-spiritual nature so heavily, that today, it is buried deep, deep down, and is not able to surface. Thus, their paradox is not able to feed off itself, since one pole is out of action. It’s not a solution, but that’s what they’ve done.

In India, spiritualism and basic life go hand in hand. Shakti is beyond suppression. Simultaneously, male domination makes itself felt, in pockets. At every moment, we are faced with our paradox. We need to deal with it, properly, peacefully.

Though the average Indian is dramatic in nature, let’s just get realistic for a while. Which portion of a society is responsible for its continued existence? As in, who bears children?

Bob Marley got his lyrics wrong in one song. “No woman…no KIDS” is what the scene is. No kids … no continued existence … end of your civilization.

A society can only be deemed healthy and fit for continued existence, if it provides a safe and harmonious environment to its women and children. Period.

How are women in India dealing with the paradox?

There is rebellion. Some are able to express themselves. They rebel openly, in their speech, their way of life, dressing-sense, etc. etc. Many others are not able to rebel openly, because of suppression. They rebel in their minds. At the first opportunity, their rebellion will break out.

How is the average dominating male reacting?

There is resentment. Jealousy. Anger. Frustration. Etc. etc. Evolved males are not showing these symptoms. They are dealing with the rebellion peacefully. Unevolved, unemployed, raw / young males are showing the above negative symptoms. They are not able to deal with this new expression of freedom. Their domination is threatened, and their hormones play havoc, which is when they commit heinous crimes, for example r#pe. Unforgivable. Yet, committed.

That’s where we are, people. A two-tier society in every respect. Spiritually (evolved-unevolved divide), structurally (male-female divide), and economically (rich-poor divide). We are still finding ourselves. Please don’t treat us as a mature society.

Specifically, please don’t invest your money here with the idea of steady growth. There will be growth, but it will be hap-hazard, as and when we keep finding ourselves. Many set-backs. Then proper trajectory again. Then road-bumps. And so on, and so forth, till we find ourselves once and for all.

Your money here is set for a volatile ride, till India’s out-of-whack pockets begin to heal.

This is Getting Murky

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Have you actually seen China’s account books?

Has anyone, for that matter?

How does the US pay for its imports from China?

With treasury-note IOUs?

Are Chinese GDP numbers doctored?

If yes, for how many years have the Chinese cooked their books?

How many more bailouts is Greece going to require?

Isn’t the amount of financial maneuvering increasing from bailout to bailout?

It feels as if real debt is being made to “go away” synthetically.

Things are getting murky in the financial world.

When that happens, the stage is set for tricky synthetic products to be offered.

It’s time to go on high alert.

You see, for the longest time, banks in the “developed” world have not been clocking actual business growth. However, their balance sheets are growing on the basis of trading profits. In almost all cases, the “float” is not increasing significantly from clients’ savings, or from new business. Instead it is increasing from good trading.

However, trading can go wrong for a bank. All that is required is one rogue trader. Blow-ups keep happening. For banks, good trading is at best a bonus. It is not something solid and everlasting to fall back on for eternity.

Well, that’s what most or all “developed” international banks are doing. They are relying on their international trading operations to see them through these times. (((Compare this to an emerging market like India, where an HDFC Bank generates 30%+ QoQ growth, for the last 8 quarters and counting, on the basis of actual business profits from new accounts, savings and fresh real money that increases the float))).

While the scenario lasts, what kind of synthetic products can one expect from the plastic composers of financial products?

And we are going to get something plasticky soon, since “developed” international banks have gotten into the groove of trading, and since trading is their ultimate bread and butter now.

So what’s it gonna be?

The conceivers of plastic in the ’80s still had a conscience. For example, Michael Milken’s “Junk Bonds” still had actual underlying companies to the investment. That the companies were ailing, and could probably go bust, was a different issue. In lieu of that, junk bonds were giving returns that beat the cr#p out of inflation twice over, and then some. Though investors knew that these underlying companies were ailing, greed closed their eyes, as crowds lapped up the product. We know how the story ended.

In the ’90s, anything with the flavour of IT ran like an Usain Bolt. The conceivers of plastic products here were tech enterpreneurs, coupled with bankers that pushed through their IPOs. One had a lot of shady dotcoms with zero or minus balance-sheets clocking huge IPOs, apart from being driven up to dizzy heights by greedy public, from where their fall began.

By the ’00s, whatever 2 pennies of conscience that remained were now out the window. Products like CDOs did the rounds. These had no actual underlying entity, like a bond or a debenture. They were totally synthetic, mathematical products, assembled by bundling together toxic debt. The investment bankers that conceived these products knew that the debt was toxic, and were cleverly holding the other end of the line, i.e. they sold these products to their clients as AAA, and then shorted these very products, knowing that they were bound to go down in value because of their toxic contents.

We are well into the ’10s.

What’s it gonna be?

I think it’s probably going to be a “Structure”.

There is going to be an underlying. The world is wary about “no underlyings”.

The catch is going to come from the quality of the underlying, as in when it’s ailing badly and the world thinks otherwise (in the ’80s, the junk value of the underlying was no secret. Here, it probably will be).

Where is the product going to be unleashed?

Emerging markets. That’s where money has moved to. Also, investors there are not as savvy, since they’ve not been properly hit.

Why is the time ripe?

Interest rates are kinda peaking. Investors have gotten used to sitting back and raking in 10%+ returns, doing nothing. When interest rates start to move down, that would be the stage for the unleashing of the product in question.

Lazy, spoilt investors would probably lap up such products offering something like 13%+ returns, with “certified” AAA underlying entities to the investment.

So watch out. Don’t be lazy or greedy. As and when interest rates start to move down, move your money into appropriate products that are not shady and that have safe underlyings. From knowledge, not from hearsay.

Be very selective about who you let in to give investment advice. Even someone you trust could be pushed by his or her employer institution to aggressively sell you something synthetic with a shady underlying.

Be very, very careful. Do your due diligence.

Don’t get into the wrong product, specifically one with a lock-in.