Analyzing the past; Anticipating the future

PAST:

1 1.       India Shining: Since 2002 till at least 2010 we were under the impression that India is shining, growing at 8-10 % and that we are special. Is that the reality?

Yes India was shining but not because it was a Diamond.

It was reflecting the light, of Global Liquidity.

The easy money policies of the developed economies of the world(US, EU, Japan)  lead to a flood of liquidity ( carry trade) into the emerging markets (BRICS) leading to rise / bubble in Commodities and Emerging Equities.

2 2.  My skills made me make a killing in the Stock market.

More than skills it was being in the right place at the right time that helped stock investors see mind boggling returns. More than skills you have to thank your luck (and Alan Greenspan, Ben Bernanke, QEs and LTROs) and the tide of liquidity that raised the equity boat to new highs.

Future:

1   1.  The carry trade has to reverse. The flow of Liquidity has to reverse. Indian Rupee, emerging equity and global commodities will turn weak. To quote Warren Buffet  ‘Its only when the tide turns that you come to know  who was swimming naked’. The process of withdrawal of money is on. The wild fluctuations in the markets, the sharp rise and gradual falls, like paroxysmal tachycardia, signify that smart money is getting withdrawn ( and novices are sucked in)

     2.       2008 was US Crisis, 2010 was EU crisis, 2012 will be BRICS crisis

     3.     Sensex will go minimum to 12 to13,000 ( Read blog dated: Sensex bottom target : UPA gap dated 13/09/2011)

4.       Below 5% GDP growth, in India there will be large scale social unrests and new Godhra’s  ( Read blog GDP growth and Sociopolitical revolution dated 12/09/2011)

5.       Pre world war we lived in a Multipolar world and age of Industrialization, Post World war we had a Bipolar world and Cold war, Post the fall of the Berlin wall we had a Unipolar world dominated by America, Telecom revolution and Globalization. Following the collapse of Lehman Bros (Signifying the evils of products of engineering of the Financial kind, the derivatives , the weapons of financial mass destruction according to Warren Buffet) we enter the post America age. What will be its nature is difficult to predict now.

Will India not shine then?

It will definitely not shine by reflecting others light.

It can shine if it turns into a diamond by undertaking the difficult path of structural reforms (read blog dated: 21/09/2011; Liberalization 2.0)

India has a world class Diamond cutting and polishing industry.

Will it cut corruption, avoid crony capitalism and polish structural reforms is a difficult call to take.

I was doctorparagshah.blogspot.com

I turned to doctorcassandra.blogspot.com

I hope I do not turn to doctor gloom and doom

End of commodity super-cycle

We all know that demand for commodities is cyclical. For about 200 hundred years, commodities have followed a broad pattern. They tend to rise for about a decade followed by two decades of decline. If this pattern is any indication, it is most likely that the commodity super-cycle has come to its end. The commodity super-cycle of the last decade was heralded by the massive investment-driven growth of China. The dragon nation's colossal appetite had blown commodity prices off the roof. But the world economy has gone through a sea of change over the last few years. The developed economies are gripped with problems of high sovereign debt and slowing economic growth. In recent months, China is also showing clear sign s of cooling. Its commodity-intensive growth phase is nearing its end.

Does this mean that we're gearing towards two decades of commodity decline? This is impossible to predict. But the decline seems certain nonetheless. Commodity-rich economies such as Russia, Australia and Brazil may not be able to enjoy the kind of windfall gains they did at the height of the commodity boom. But lower commodity prices would certainly benefit an economy like India, which has been enduring high inflation for quite some time.

Rupee's poll-time swings mysterious

Local currency has dipped before major elections and recovered just ahead of results for decades

R N Bhaskar | Mumbai

When the rupee began ceding ground to the dollar in the last week of last August, setting alarm bells ringing for exporters and economists, a money market dealer was overheard saying, "It (the local currency) will be weak till February, after which it will begin to recover." The nonchalance elicited titters, but the dealer remained unfazed, smug even. For many elections now, he had watched the currency wobble and felt this time would be no different. True to form, the rupee continued to tumble. At one point, the Reserve Bank of India even indicated it will not intervene to arrest the slide. The local currency kept falling and even breached 53 per dollar in January - an all-time low. Soon, election dates got announced and the rupee price began stabilizing, just the way the dealer had said it would. The rupee closed Friday at 49 per dollar. Marketmen now believe it will continue to strengthen. While this may or may not be the case, it is worth looking at the way the rupee has behaved in the lead-up to major elections. The trend over the past three decades has been of a marked rise in volatility ahead of the election, barring only 2004. In fact, much of the volatility has become evident after 1980, when Indira Gandhi had already announced her bank nationalization and was about to announce her by-now-repugnant loan mela. But why do currency movements become more volatile just before elections? One theory is that a lot of foreign exchange comes into India - politicians are believed to bring in this money to meet poll expenses. But then, this should help the rupee strengthen, not get weaker. So, could someone be ordering a tweaking of the rupee-dollar rate? A second theory is that foreign direct investment flow begins to taper before the elections, perhaps because of economic uncertainty. That such a brief disruption of inflows could have caused the rupee's weakness is, however, hard to believe. Also, this theory does not explain why the rupee strengthens just before the results are declared. Normally, it should have strengthened after the results. A third theory believes the weakening of the rupee is on account of foreign institutional investors (FIIs) taking away their money. Some say much of the FII money could belong to Indian entities, which have clandestinely hoarded money overseas -- CBI's estimate, in fact, is that it could be over $500 billion. Was it because they too were becoming jittery? That isn't clear. But this theory also does not explain why the rupee strengthens even before the election results are announced. Obviously, the RBI needs to study the phenomenon more closely than it has up till now.