Wednesday, November 30, 2016

I FEAR EUROPEAN UNION MORE THAN TRUMP

 I don’t fear Trump Policies I fear Europe breaking up.Next year Europe will be doldrums and many states will exit the EU. Thanks to the existing ruling politicians who approved the policy of  refugees being given  shelter to the syrian refugees. They created the birth of social imbalances within the society and after with repeated Blasts in many member states its well clear that Anti Muslim climate will be utilized for the upcoming elections. We witnessed  Brexit and over the next decade many exits will be prominent.  In 2017 we will witness many elections and many referendum. In March, the Netherlands will hold parliamentary elections in which the anti-Islam Freedom Party is set for a tight race against the incumbent center-right government. 

Later, France’s National Front also has a chance at  victory in the presidential election. In Germany, which will have a federal election early in the second half of 2017, the Alternative for Germany (AfD), a new anti-immigration and anti-Islam party, is likely to win its ­ seats in the national parliament. Netherlands, the Freedom are going to be big impact creator for the upcoming elections.

The leading hard-right parties in Germany, France, Austria and the Netherlands are explicitly anti-Islam. Immigration policies are bound to affect global economy as terrorism and refugees have created havoc problem which is impossible for any states and any politicians to measure. Trump anti-Muslim and immigration based winning streak has created a huge confidence among the EU and other Global politicians to fight and win in the coming elections.

The problem of refugees has created massive problem for the GDP growth of the EU member states. In Turkey  the scale is staggering. 2.75 million Syrians are registered in Turkey, around 3.5 per cent of the population.  They are now going to depot each day around 3000 refugees to EU. There is no end of the war which was expected and now the sudden spike in refugees increases the social cost too for the struggling austerity based economies.

A quick number glance over the growth  of refugees will clear the doubts. In 2015, over 1.3 million people requested asylum in EU, representing more than double  the number of applicants in 2014. During the first quarter of 2016, the number of persons seeking asylum from non-EU countries in the EU reached 287.100. Since 2012, donor governments and aid organisations have spent around $15 billion on looking after ever increasing numbers of Syrian refugees.  About 10 per cent of that has been contributed by the UK. Overall, Britain is by far the biggest European donor to Syrian refugees in the Middle East. I hope now you got more clarity why Brexit is good for them. Europe costs at least ten times as much as in countries neighboring Syria.  Whereas a budget of $3,000 per refugee in Jordan would provide not just basic food and water but also education and opportunity, this will cost over $30,000 per refugee in Germany or Austria. Individual nations have also compelled  divert funds  outside of their aid programs to assuage the cost of hosting refugees,

Social imbalances ,I have covered this many times and now again I repeat that EU as an whole is getting into deeper problems. Prostitution is creating new historic highs and with girls and boys are being trafficked into the sex trade. In camps and shelters across the region, increasing numbers of girls are being forced into early marriages – some as young as 12 years old.

Immigration and unemployment have been recognized as a strong relation and very soon over the next decade many countries will become stringent in terms of immigration. They might lack skilled manpower but over the next decade they will fill in the gaps. Developing economies will face hurdles of immigration  and its high time to think about the same from now. Currency war will open up and saving the euro will be big challenge.


Budgets of the EU are swelling and they are in deep problem. This is the reason why I am fearful of EU rather than Trump.

Sunday, November 27, 2016

US ECONOMY TO SLOWDOWN IN 2017

China is going strong and For Mr. Trump its being found that that he does not have enough strength to affect any bilateral trade pacts with China. Chinese economy is value providers to the National Income of US and a strong growth provider of US GDP. On the other hand being economist I find that Trump policies might create more opportunity in an indirect way for the Chinese economy. Trump policies of cancellation of trade pacts and other restrictive policies will only slowdown the GDP growth of US economy in 2017. Even if corporate tax rates are cut down and people are thrown out of the country it all going to affect US economic growth and GDP slowdown. US doesn’t not have quality manpower and most important that if US cuts down tax rate below 35% for foreign money lying outside of US by US corporate would create little affects. Real estate business and manufacturing business have different buyers and demand creators. Mr. Trump is confused what its seems since no one will shift its business of manufacturing from Asia to US. Remember that cheap cost of production cannot be replaced with tax sops.  A government is created for 5 years but a business for 50 years. US companies have changed their production base so as to control the economies and enjoy taxation and cost benefits followed with a wide consumer market.  If US economy cuts down trade pacts and gets into restrictive trade polices then it will cost only US economy.  It’s not a real estate business.
But before we get into that story I find some important opportunities for the Chinese economy on which they are working well.The same story is applicable for all those countries based on whom US economy gets it GDP growth.

London was not the Financial capital of the world but now its seems over the next decade it will be the financial capital developed by the Asian and Emerging countries.  Brexit will be boon for the Chinese investors as their statistics reveals the same. We all know that Brexit will lead to significant cut down in Banking job and opportunities. Four of the country’s biggest banks this month agreed to finance the first stage of a £1.7 billion ($2.1 billion) transformation of an old East End dock into a hub for Asian businesses. This is nothing new. From 2010 we have witnessed that china have been aggressively partnering with various countries of EU for JV of business development, port and infrastructure development. China is one of the biggest buyers of European properties and sliding property prices after Brexit has lead to an amplified opportunity for the Chinese investors. Chinese money is also flowing into      

Residential real estate. Shanghai-based Greenland Holdings is developing Spire London, set to be Europe’s tallest residential building upon completion in 2020. This means that these construction works are also going to add demand and growth for the GDP of London.

Analyst are concerned about falling rental in the city and over supply would create fall in demand well as an economist I find it that decline in price is an opportunity for the Chinese buyers to buy the same since they are looking for long term gains from the London  as well as with other EU countries.  Over the current situation the topping of Italy’s  Referendum and if there is an exit followed with France in the long term more opportunities of trade will come up for china which is being also taken into the long term planning  of Chinese investments.

If we look at China’s investments in US we find that as of August 2016, the U.S. has already drawn $13 billion in real estate investment commitments from China. Over the last decade Between January 2005 and June 2016 the US received over $125 billion in large Chinese investments, excluding bonds. Between 2010 and 2015, Chinese buyers spent at least $93 billion on residential real estate, $17.1 billion on commercial real estate, including office towers and hotels, and nearly $208 billion of mortgage-backed securities.

Its well clear that people like Trump might come up with restrictive polices but when other countries are your neighbors living next door, the risk of stringent policies creates huge problem for the economy.  Just imagine if tomorrow China exits all its assets from US then what will be the condition of different asset class of US. China have been clever to develop these strategies since real estate have been a core part of infrastructure for the US and European markets. Any sell off will create huge panic and slowdown in construction activity since China is the demand driver and also the growth creator for these economies. Trump policies against china will create massive slowdown for the US economy and its investments since exit of china will plunge the economy and please remember that US people don’t have funds to invest in property now hence from where US will get its contribution of construction growth into US GDP growth. At the same time Chinese students, tourist is visiting more in US and Europe now. Hence they need cuisine and places of china in these foreign countries. Hence Chinese investments in restaurants, hotels are increasing. The number of international students at U.S. colleges and universities has hit a record high. Its being estimated that these international students add 35 billion annually to the American economy. Together with the U.S. Department of State, the IIE releases a report every year on the number of international students in the U.S. The 2016 Open Doors report says about 1,044,000 international students attended American colleges and universities last year. The annual rate of increase is 7.1% among foreign students coming to the United States. International students come from more than 200 countries and, according to the NAFSA report, contributed about US$32.8 billion into the US economy in 2015-16 and supported more than 400,000 jobs. 

The mathematics is simple-chine investors bring cash converted into Dollar or Pound. They spend the money at Chinese hotels and restaurants and the same is being routed back into their own country. Any unforeseen circumstances in geo-polices will not affect china in terms of its foreign holdings.


Recently we have heard that Trump will be developing Walls across different states. Well in my point of view the more walls are being created the more opportunity China and other countries will get tin developing new trade pacts and policies of investments. Hence Trump will create many separate states where foreign nationals will come up to explore the hidden treasures of these states.

Wednesday, November 9, 2016

DETOXIFICATION OF INDIAN ECONOMY WILL COST TOO


Well Modi played his card and now the equity valuation gap with price will narrow down and more realistic price movements will come into play. By scrapping 500 and 1000 notes currency the black money of the business has evaporated suddenly. As an economist I find that Indian economy will find some short term jitters but on a larger scale valuations will come under much clarity.Circulation of black money by converting it through fake invoices and other tax evasion process has finally vaporized.  Finally India finds its income inequality bridged up. The huge gap will now narrow down as the currency is no longer in use and stacked cash in houses are of no use to get them converted into white. Modi have converted profits into real numbers for day to day living. Its being found that detoxification of Indian economy have been executed. Even the black money a routed through Mauritius comes an end as RBI will not convert the currency as the holding of black money is in cash format.

Real estate launches and pre-launches will dry out has hardly a 500 or 1000 currency notes are of any use. Further buyers will stay away from market as they will expect price correction which is bound to happen as  huge black money is no longer in circulation. Bank developers will find soon two ways1) either to cut down prices significantly and get more inventory of ready to move in sold and 2) File for Bankruptcy and get into NPA. Ready to move in properties will find significant growth in sales once prices comes down buy those who are going to get delivered in next  3 to 5 years have gone for a wild toss.

Lets come to another picture where ancillaries industries linked with Real estate like cement, steel and other materials will also feel the heat. One side consumption will come down and on the other hand these companies will also not have any money to run their organization. In simple terms the profits which you show in books are now the real numbers. No more chance of any malpractices currently as the cash component is no longer of any use. This vicious cycle will affect all industries which will get into real picture was the upcoming quarter results and annual numbers comes into play. The income disparity across the society has been suddenly being made into a middle class segment. Indian infrastructure will also face similar hurdles of capital flow as you all know that while construction of an simple road how many politicians and corporate middle men take their cut and how the poor quality of road construction happens. Now all these foul plays have no place and now companies will have to work on real numbers as they cant convert their black money into white through false invoices etc. Real prices of real estate will now be registered in legal documents and stamp papers and no more cash holdings.

The biggest boon is the income inequality which has been reduced significantly as black money was the key factor behind the same. Valuations of living life will be now at par with everyone. Banks NPA will go up and also corporate earnings will be hit as the back money conversion is over. Its  a Master  Stroke by Modi. But their will be pains as some correction will be witnessed in the near future as the money through hawala and other sources come to an end. Even the black money in Swiss bank and also the fund routed through Mauritius comes an  end as RBI will not convert the currency. Further Indian elections and opposition of the current government and state government elections also comes under clear play as bribery segment of this festival is no longer usable as currency notes are 500 and 1000. Money which are stashed in bank locker are also of no use.

Monday, November 7, 2016

DEVELOPING ECO-SYSTEM ALONG WITH INNOVATION


Disruptions of industries through innovation have become now an old business model practiced by entrepreneurs. Today each day is an innovation day and what we find is that death of million innovations as the eco-system for the same is not developed. Well this might put the reader’s brains in thought mode but the point is often innovations fights and dies due to lack of eco system. Now let be brief you about what you mean by eco-system in innovation.  For example HD tv too a huge time to come up despite the system was ready to show HD quality. But the eco-system of HD quality production was absent which the made the innovation longer and difficult to absorb.  So if HD screen as well as HD quality of production both same together then the speed of getting returns from the innovation should have been faster.   So failure of innovation as it’s unable to generate cash flow is due to improper development of the eco-system.    Often in organization we find failures to adopt into new policies and strategies are due to lack of development of the eco-system. Another example will make it clearer. You don’t have much Hybrid car charging points but you have plenty of electric cars. This has made the success story of Hybrid cars slower. So the product innovation has come but due to lack of eco-system the industry struggles to get the success from the innovation.  
The next generation innovation needs to keep in mind that developing the eco-system is a part of the innovation and if that part is not taken care then be ready to lose your innovation within the billion dreams. Old industry becomes a hurdle for the maturity and growth of the industry. Every innovation should have 3 questions tagged to it:
·         Execution Risk Involved
·         Co-innovation risk
·         Adaption chain risk
Execution risk is always their but one needs to identify the market and its ancillaries connected with the innovation and the changes it would bring within the same. Innovation when taken without consideration of eco-system can turn out to be a highly risk matter. One needs to identify that the present problems in the eco-system and then removing the same using the innovation. Judging the level of innovation the existing system can bring is highly required to be measured. If your innovation is  a threatening incumbent then you need to measure the hurdles the present eco-system will present to it and in that case you need to strengthen you performance levels to take the innovation to the next level.
Improving the innovation is good but focus should be given improving the eco-system since without that full potential success of the innovation will not reach its desired goal. Innovation soften fight in the market and the fight is not with old technology or system or product, its always with the eco-system which will support the success of the innovation. Its well clear that innovation often dies to lack of proper eco-system. This is also being termed as that innovation is ahead of time. Well nothing is ahead of time the only mistake which is being done is too much focus on the product innovation and less on the system where its going to be applied. The tricky part of innovation to get success is fit right into the shoes of old technology so as the benefits of the innovation start generating its value. This is one of the easiest way of saving a unwanted death of innovation. Now debate will come where everyone will say that innovation replaces old ones then how can it be dependent on the old one. Well eco-system development needs to capture this area so that delay in getting values form the innovation is not extended.
Recently I find that innovation and new industries are being introduced by the entrepreneurs where a prolonged time frame is involved in getting those revolutions.  I find large and mid size organization should form a group of innovation and R&D where cost of the industry is saved and profitability is being achieved to multiple times. Many Indian companies have entered into developed economies through strategic partnership or through complete buyout and then have created new products for the industries. This have been a one way process of creating new values for changing the traditional course of the industry but there is a short coming to the same. Time factor plays a big role. Now say for example based on the current economic condition across the globe if a set of foreign and emerging economies company comes together and creates value proposition for the industry revolution.  No waste of time , no wait for opportunity encashment and driving value from such conglomerates.
Even many old industries can come together an create improvisation either in value chain process or product encashment where the eco-system is being changed which will also derive growth for these individual companies.  We are discussing about eco-system development which will give shape to the innovation of every company in all angles. If the success of HDTV was the demand if time then companies should have come together with production houses and its ancillaries to produce their qualities matching the innovation product.
This is not sharing of confidential data but enhancing the future of product innovation eco-system for the long term success of the future innovation. Most of the innovations are dependent on eco-system development and this area has been ignored. This is the key reason behind death of much successful innovation. One cannot time the market of innovation but we can build conducive environment to develop the success rate of innovation. This theory of innovation is applicable not only in product but also in process in an organization. Often new plans and policies fail as we did not focus on the eco-system of implementing the same.


Tuesday, November 1, 2016

CEO'S THOUGHT IN 2017

Global economy is no doubts is very much in doldrums and it high time for the CEO’s to think over and plan for 2017 in terms of market penetration, exploring new opportunities ,introduction of new products and developing sales and business strategy. But wait I find the current thought of lines are getting changed as most of the focus of the CEO’s are towards geo-political tensions and war fares, declining export market, imposition of business and trade practices and upcoming elections and their outcomes just like Brexit. Cost management is less of a thought and more focus is towards driving the business growth in the snail pace of growth. Cutting down cost and reducing fixed overhead days are over. Technology and virtual business operation have already eliminated the same, we are here to find what problems lies ahead.

Penetration into new markets is always a dream opportunity but the ongoing war tension and threat of blast and reduced the appetite for the same. The basic securities of employees are at stake which also intensifies the labour law related liabilities arising out of the same. Data protection is another big threat and tension for the CEO’s and management across the globe. Business losses arising from the same is hardly bearable.  Companies have failed brilliantly in terms of management of risk and data protection.  Intricate products data leakage have resulted barriers for further new business opportunities.   Political elections have always being an threat for business as new industries gets created and old industries comes to an dead end. But current political threat creates massive changeover of business as well as of cash flow generation across the industry. The current and also the long term business planning are under intense threat which also triggers the thought line of changing place of operation but huge inflow into existing business is a great burden in terms of pulling out.

Banks have become stringent and inflow of capital for business growth is now under intense pressure as banks are simply refusing. Procurement of capital has become expensive and particularly cumbersome for the SME segment. Terrorist attacks have become a nightmare for smooth functioning of an organization. Employees are scared and insurance burden is just paddling the wheel cumulative growth. Brexit and Syrian refugee have both been a prominent problem for the companies has social imbalances gets into the system.
Climate change and rules regarding the same have become more expensive proposition for business planning as huge investments needs to be executed over  a period of time to reduce carbon emission. This is a quite herculean task based upon the current economic problems and financial crisis. Whether the business revenues climb or not one has to invest in reducing carbon emission.  This is a going to be a big problem as many companies might have to cut down on various areas of growth investments into the just abiding the rules and regulations of climate change.

CEO’s are finding tough time to find growth driven markets as everyone is conscious about savings rather than spending. This has lead to an extensive data mining and data related product designing but what I find is that beyond product designing its more towards how consumers will behave when they economy is in cautious mode. Yes this is key factor which is hard to derive, but the key to growth and survival. Upcoming days for the markets are tough and it reduces the strengthen and courage of making any bold action in these times of global economic slowdown.

TIME BOMB OF GLOBAL SLOWDOWN ....2017

The global markets are already under intense pressure due to geo political reason and further due to the upcoming sea of problem which will hit the global markets. I find more slow down to come up for exporting countries and less demand from Middle East and European countries. Well these two countries make a good % of export for any economy. Middle problem is due to the low crude prices but now the heat of the low crude prices will hit the global exports. Middle East particularly Saudi Arabia is aggressively going ahead for cut down in its spending. Government ministers have been entitled for a 20% pay cut where as for junior employee’s bonuses and slashing paid holidays.  Further New foreign national hiring’s being capped so as to increase hiring of local people.   Taxation policies are also being implemented by the government which will further reduce the consumption thrust and more prune towards savings. The problem will amplify more as Saudi nationals are more educated in terms of Oil rather than on any other subject which will help them to balance their economy on an immediate basis. This is one of the biggest threat for transition economy and the latest example being China. So, most of the government facilities are being cut down which means more of savings and less of consumption and less demand for export. Please note that 70% of the of the Saudi Nationals are currently employed by Government and hence this austerity measures reduces significantly consumption appetite.
 
Europe is already under the threat of Brexit and also the upcoming elections in 2017 across many member states. Most of the problem is that referendum is being called to exit EU which is a big threat for the global trade and investments. German presidential election, , French presidential election, 2,French legislative election, ,German parliamentary election, ,the Netherlands general election, ,Norwegian parliamentary election,  are the few of the elections will keep enough pressure on the global economy. Any country getting out from the EU will be big blow to the global economy. Further I fear and confident that Big Banks of EU might grow for toss which will add fuel to the global economic growth and will trigger safe assets flights. Already the bad loan numbers are increasing and banks are more stringent to lend and hence hardly any circulation of capital will happen which is highly required for economic growth to happen.

Now US elections are also on the wings and Mr. Trumph winning will create enough panic and problem for the global economy, trade and flow of investments based on the statements of the candidate.  Another factor which will keep the global markets under pressure is the lack of any positive news as earnings seasons are going to over in the few days and more pressure will be on the upcoming new policies being announced by the US government after the new President comes into picture. If Trumph wins global markets will be under pressure but I fear that more pains will come from algorithm trading points where complex trading methods have been adopted which remains under quite darkness. Currently everyone is focusing on US Fed rate hike well I am more concerned about upcoming trade and investment policies which will affect many economies.

Financial analyst have also created a mess up where as commodity prices reduced profitability increased despite of negligible growth in sales/ revenue. Now as prices are climbing but sales are declining the realty of growth is hardly visible. There is big gap which have been created through improved EBIDTA margins and PAT Margins but now the same is going to be narrowed. The real picture for slow and weak export will come up as sales growth will hardly happen.  


Social benefits will be reduced significantly over the coming decade across the globe as government are bankrupt and bear inflation based living is also a problem for the government. Governments have created a problem through leveraged and toxic deals which has pushed the burden of living at retirement on the old aged people. This will spook more problems within the societies.

Tuesday, September 27, 2016

BUY BACK OF SHARES...CREATING INCOME INEQUALITY FOR COMMON INVESTORS.

 When global uncertainty strikes and stock markets head for correction we find financial tools being deployed to keep the market alive.  These practices only results short term gains and long term income inequality problems for the society. This article will throw some light over the concerned matter of how various tools of finance are exploiting the common investor’s resources and how in the long term income inequality will be created. Buy Back of shares has become new game where despite of weak corporate earnings and grim outlook of growth of economy and company the share prices soar to new highs. This is mainly married to the concept that at any cost stock market and its related investor’s needs to be fooled at all point of time. Well it’s quite harsh but the fact is that when we find that on an quarterly basis the Buy back of the S&P 500 have soared to $175 billion in 2016 Q1 from $75 billion in 2012 on a quarterly basis. In the 12-month period ending March 2016, S&P 500 companies spent a record $589.4 billion on share repurchases according to S&P Dow Jones Indices, beating the previous year-over-year record of $589.1 billion set in 2007.  That number and the funds are huge. Zero interest rates have only benefitted the cash rich of society and not creating enough employment opportunities. I find its quite impossible to stop as we are more in an integrated financial markets where safe assets like PPF and hybrid bonds have invested all in stock markets. ETF and other products have also injected their funds into the same segment. Hence buy back is impossible as if any government imposition or restriction practices come ahead it will create problem for the markets as a whole to grow.

It’s a disguise game being played where despite of weak financials and company, economy the stock markets grows. We all know that if the stock markets grow despite of weak economic growth the world will accept the growth at any cost. If you don’t believe the strength of impact of buy back then please note that stock repurchases worth almost $2 trillion have helped buoy the bull market since March 2009. Fund managers are clever too; they came up with Buyback based funds where inflows and returns were beyond phenomenal.   European companies also followed the same path. Hence a question which comes in mind when the bubble will go for burst. It will never and even if it goes it will impact the common investors and not the cash rich fellows of the society. These practices have created income inequality and created long problems for the social life of the society as behavioral culture changes.  Income inequality is going to rise in the long term as more complicated the financial products and its investments are going to grow.. An argument might come that buyback helps to rewards shareholders but that’s story in the short term. Common investors goes by growth and returns and hence when growth is achieved by Buy back its often ignores the real story of the company. This is the place of birth of income inequality.

Paying divined to the investors are better since these companies and practices don’t hide any de-growth stories and are very clear in their operation. They don’t play with common investors and one can read very clearly the growth stories of the company. Buy back on the other hand is way to hide poor growth numbers and outlook of a company.  When the next recession will hit its quite hard to find any new theory of crisis management at today’s time.


Now getting into the shoes Indian corporate have also started rolling out of Buy Back of shares. Well the logic behind such buy back is that share holders are being taxed in case of hefty dividend payouts as dividend payout is very much under taxation slab. Well a good path to reward shareholders and also fool the government.

Tuesday, September 6, 2016

G-20 AND GLOBAL RISK IS TOO HIGH

Risk levels are increasing and there are many scary faces of the same. The global economy and debt instruments both are on the risky zone. In the recent G-20 summit China has been cornered for anti dumping and excess production capacity. It has adopted the path of cutting down on Carbon emission and other matter but it have been slow in adoption. Now with fresh calls being taken on china it’s quite well that more shutting down of its factories and reduction in anti dumping will lead to a significant slow down for the economy. This will be another feather in the cap of Slow Economic Growth. Indian equity markets went to 29000 and might scale higher. But the global growth is just on a downward spiral as policy actions and applications are having a wide disparity which is causing a panic and forcing negative interest rates type of policy decisions which are practically of no use. People across the globe are in saving mode and more concerned for the next generation in terms of college and education. Hence negative growth to bring consumption demand is a fool’s economic theory and it will never work when the whole world is interconnected. G-20 has been repeatedly asking to identify and spend money on building infrastructures and economic overhauls which leads to productivity growth. But nope the world failed and went for some directional less strategies of getting growth by exploiting savings.

Over the next 20 years I find that trade restrictions will grow and WTO will hardly exists as each country in today’s technological driven atmosphere is sell sufficient and can produce what it could not in the last 50 years. Hence more trade restrictions and more closed economic policies will be adopted. Between October and May, WTO members applied 154 new trade-restrictive measures, amounting to 22 new measures a month. Global growth will come to slowdown or will grow is useless to discuss in terms of trade restrictions. Every country will focus on its people and their consumption pattern to get growth.
Negative interest rates are going to create more havoc situation for the global banks profit abilities as they are slowly getting into deep trouble. Banks on the other hand have become skeptical about its loan disbursement.  Now billion of lectures and books on entrepreneurship have all got disappeared as banks are skeptical in terms of loans disbursements which have killed the next generation business development and entrepreneurship.

Now let’s come to the broader picture that how global economic growth ball is rolling on the streets. Europe is entering into a stupendous doldrums of no direction. Global investors are scared and business and trade has collapsed. Even the business confidence has touched zero. U.S is busy with the battle to go for rate hike or not. Their economic numbers are now clearly unreliable which I have been saying for a long time.  Now coming to Asia, china will be going for some more bad days as every country is imposing restriction on its production and hence there is no alternative rather than cut down on production. Now a questions come is their will be another recession. Sorry even if recession comes no one will whisper as there is hardly any stimulus left to be given. Well helicopter money or whatever name you call will be different ball game but according to economic theory hardly any strategy left to get growth. Exploiting savings will not play and people have lost job due to shifting of jobs at low per capita income countries. Hence a restriction on trade is bound to happen.

My concern is with the debt instruments which have been sold without proper information to the buyer across the globe. From Government to corporate all have raised debt instruments and the number is in trillions. Now with a global slowdown and cut down on productions will lead to a significant risk on these bonds as many of them will not be able to payback. Further negative yield bonds numbers have grown up stupendously and I find huge risk of the safe asset to collapse.  Mutual Funds and other investments are already in risky zone as they hold a significant part of the bond market. Hence a big blow is being awaited. Valuation of equities has over stretched in many parts of the globe which is also wide disparity in terms economic growth which is a risky proposition currently.

Stay safe stay in cash. 

Wednesday, August 10, 2016

FAILED POLICIES OF GOVERNMENT...NO GROWTH WILL COME

The global economy is in the phase of savings rather than consumption. The recent change of 322 years of history and other Asian countries getting into the same car of negative interest rates are not going to get growth within the economy. After 2008 we have kept the legacy of 2008 crisis following as a ghost and the lesson have become repetitive now. Consumption will not happen as the behavior of the consumers has changed after the lesson taught by US on borrow and live theory. The government across the globe is framing wrong policies and mostly short term driven policies to get the economy into shape. Buying bonds and getting papers is now a tough proposition. In these cases often inter country bonds are being taken into account. This is an opportunity for the capitalist and not for the global economy to grow. Banks have died long back due to the same politicians framing today’s policies. The only change is the face rather than anything other. Decisions taken in past are wrong and decision taken now are also wrong. Growth cannot happen by forcing people to consume so that manufacturing start picking up which leads to job creation and growth of bank loans and rotation of capital. Today the global economy faces the problem of rotation or flow of capital within the economy. Consumers are cautious and they are now being forced to become more skeptical and fearful to park their funds in banks owing to the fear of Greece policy action on restriction of withdrawal from ATM.

Government is thinking that negative interest will ask investors to invest in plummeting stocks. Well this also spooks redemption trigger and not investments. Technology over the years has changed the knowledge level of the people across the globe. Hence we cannot fool people. Zero interest to spook manufacturing and job creation has been used for Buy Back of Shares. Funny that one family is unemployed and managing somehow to earn and have half day meal and in the same country government policies are multiplying the investments through Buy Back of shares. The whole global economy is in a deadlock situation. China cannot get growth unless its export grows. Euro zone cannot afford Chinese exports as its own manufacturing comes to an end. Commodity and Crude investors and employees have all become skeptical and more prune towards savings rather for consumptions. This is also the reason why capital goods and heavy goods industry is suffering. Countries like Venezuela have  made compulsory compulsion to  get into farming rather than for industry. This is an exact example of how economic policies can kill its citizens. Some 95 percent of Venezuela’s export revenues come from oil. Now as oil prices comes down no money to buy goods. Balanced economic growth is the key for a long term sustainable economic growth. 


The future of growth will come from those countries who will try to shift from one particular dominated source of income for its economy to an diversified segment of income. Well this does not indicate only to Crude producing countries alone. It takes into consideration all those countries that are dependent on one particular sector to get its growth. Investment opportunities will come up from their and also we need to prepare for slow and single digit growth from ROCE. This is a key area which drives all policies across the globe. Kill your greed otherwise it will slowly kill an economy. Innovation in growth source is going to be key driver for the coming years. Government must understand that short term polices will give results accordingly. We need to clean up our systems so that we can give fresh air for our coming generation to breathe. Government wants growth, well growth comes when one has faith in the policy frame work. Over the past several years growth numbers and economic numbers are often found to be cooked. So how trust will be built?. 

Tuesday, August 2, 2016

RISK REWARD RATIO INCREASES...STAY IN CASH

The global equity markets are swelling up their levels and technical are revealing very clearly that markets across the globe are entering into over brought zone. The markets across the globe have entered into a uncharted territory where global indices are mostly in the high levels and the risk reward is hardly measurable. Fundamentals are also away from the numbers of the indices which has created a wide gap. Moving ahead looking at the profitability numbers of the companies across the global index it’s quite surprising that markets are driven by liquidity and that liquidity doesn’t have any fundamental back up. Lets make the search little narrow where we find out Global 500—Fortune’s Total revenue shrank from $31.2 trillion in fiscal 2014 to $27.6 trillion in 2015, or a fall of 11.5%. Profits dropped by 11.2%, to $1.48 trillion. So profits are not getting printed. By back of shares has manipulated the market and fooled the economic growth.  U.S. companies have spent a stunning $2.1 trillion on share buybacks over the past five years.  So Buy backs are playing their games.  

 There are many reasons to worry as profits will decline more as China economy is going through slowdown phase, Brexit might have little affects now but later on banking industries profits wall take a major hit. Sharp depreciation of the dollar has made corporate profit to suffer for US companies. Japan is struggling with its stimulus package followed with problems to low crude prices affecting the other major countries. In between the US economic growth is also very low as compared to the expectation to boost the climate of investments.  US corporate investments have also declined due to the sharp depreciation of dollar and also low demand of energy segment creates immense threat for long term investments in the economy.

The absence of real reason for the global indexes to climb is the matter of trillion dollar thought.  Everyone is looking towards the stimulus package to drive the stock markets up but that’s going to be a short term story and this is the place where the investor will get into the trap. It’s already a trap and investors are being provoked that new highs of the global indices are on the anvil. But from where this growth will come is being hardly taken into account. Getting into cash is the most prudent decision as risk reward ratio has increased and its being more being ignored.

 Equities are getting into risky zone and Bond buyers appetite across the globe is growing stupendously. Foreign buyers are poised to push their record 40 percent share of the U.S. corporate-bond market even higher as they seek to escape negative yields in other part of the market. 24 countries, including Russia and India, that could drive future demand for U.S. corporate debt, based on the proportion of corporate holdings compared with U.S. Treasuries. If those countries switch 10 percent of their Treasury holdings to corporate credit, the move would spur more than $380 billion of corporate-bond buying. Hence the bond market is growing and negative yields and zero interest rates of Euro-zone will push up the demand for the US bond market.

Wednesday, July 6, 2016

Its time for cash its time for safer assets.

Investors are moving into cautious zone and this is quite evident from the current economic growth and problems of the Euro-zone and global currency volatility. Investors are moving away from risky assets and this time they are more cautious since they have already burnt their fingers several times from 2008 onwards.  Fund Managers are very cautious about their clients and hence their bets are shifting from equities to safe asset class. Liquid holdings have also increased at the same time due to the same risk levels. Its time for cash its time for safer assets.

Equities are becoming less of value of investments currently owing to the global markets. Also at the same time it indicates that inflows into equities are getting low the probability of getting the same back is also very weak. Now lest gets into how much inflows are getting into ETF. Yes ETF is the safest investment avenue currently.
  • SPDR Gold Trust saw biggest inflows in the tune of $1.41 billion, which can be seen as a sign of risk aversion.
  • iShares iBoxx $ High Yield Corporate Bond ETF received inflows of $1.18 billion. This in contrast to the above is a sign of risk affinity.
  • Vanguard S&P 500 index fund received $695.2 million, showing a relatively small preference for equities.
  • VelocityShares Daily Inverse VIX Short-Term ETN saw inflows of $397.3 million, which is a sign of risk affinity.
  • iShares Edge MSCI Min Vol USA ETF received inflows of $372.6 million and it’s a sign of greater risk preference.
Hence its well clear indication that equity inflows are getting down which means redemption pressure at different ends and switch over investments from equities to other asset class is growing up which indicates that Fund managers are busy in protecting the best interest of their clients. It’s beyond hedge and more outflows from equities are going to begin.
Apart from this there are also certain risk which will keep the markets under volatile ride. The European Central Bank and the European Banking Authority will announce the results of its stress test on banks on July 29. The depth of the pain is very clear when we get into the numbers. The market cap of Italy's five largest banks is about 60 bln euros. The un-provisioned nonperforming loans was nearly 120 bn euros at the end of March. Monte Paschi has an estimated 47.2 bln gross NPLs. Reports indicate the ECB wants 14 bln euro reduction in those bad loans over three years. Italian banks are on the highest risk levels.

Further the  150 bln euro liquidity guarantee that the EU allowed Italy last week is only a stopgap measure. The reality is many of the subordinated bank bonds have been bought by retail investors, many of whom of course are taxpayers too. How their taxpayers money will be thrown into the open fire of liquidating them. Real Estate prices are also coming down in EU which will spook another crunch for liquidity in the coming days for the EU Banks. The crisis has erupted from popular commercial property funds, which tens of thousands of savers invest their Isa and pension cash, are at the centre of a market crisis. The collapsing prices of the EU real estate are risk for the fund and for the investments and redemption pressure would take big toll. The problem is with pension funds which have been invested in property related funds.

Hence safe assets like gold and cash are the best to stay. 

PROBLEM IS EU....NOT BRITAIN


Speculation that Brexit will not create any impact on the global economy was a completely wrong. Market swelled up as short positions got winded up that pushed the markets up. The problem of Brexit will be hard to measure as there is hardly any way to get into the depth. The biggest problem is with EU and not with Britain which is being shadowed. Many countries will be asked to use their own currency and will be given forgiven for their debt pile provided they live with EU. This is going to be big thing if EU gets more threat from its member states to leave the EU. That’s why I Think EU is in more problems for the long term.

In between all the markets across the globe have reached to a level where investors will be reluctant to invest and further there is wide gap between technicals, price and fundamentals. History repeats and hence markets are cautious now. Overall, just 53 percent of the stocks in the S&P 500 are in uptrend vs. 74 percent in early June and nearly 80 percent back in April (when the Dow was trading 250 points lower). More than that I find markets are entering into a real worry as many Euro countries will be getting into serious problems with GDP growth and rising Debt levels. Further story of more stimulus and QE which have been expected was blindly taken as Brexit leads to fewer buyers of Bond and QE. Britain knows that it will get help from many nations in terms of economic recovery and hence QE is not required. Interest rates and pound needs to be made attractive promoting export. Further Brexit leads to end of EU stringent rules and regulation for trade and Investments. Hence QE is not the topic of the time. Political uncertainty cannot be recouped by QE. I am more concerned about the political games being played by the EU leaders despite of Brexit lessons.

 U.S and India and many countries will be coming up with their Quarterly results which will be keenly watched and in US it’s expected that this time also quarterly results will remain weak as compared to the previous quarters. Furthermore focus will be towards how the companies will give their outlook on the financials and earnings after Brexit. Same will be with Euro-zone companies when they will give their outlook on the earnings after Brexit.

Now lest come to another broader outlook is from the Bond market where individual countries have taken mixed stakes of decision on the same. Spain plans to issue bonds due in 2021, 2024, 2025 and 2030. Austria will sell 1.1 billion euros of bonds on Tuesday, Germany holds a 2-year bond sale on Wednesday and France will sell 9 to 10 billion of fixed-rate, long-term bonds on Thursday.  Further it’s not a problem to get worried about Britain. Its tension for Euro-zone leaders since next year in 2017 electoral openings in Austria, Italy and France will happen. Hence its now the biggest responsibility to for the Euro-zone to favor these countries who are highly indebted countries of the euro-zone.  So the question of QE will for EU will be limited.  They will focus towards other policy reforms where they could save these countries from exiting EU. The problem is within EU leaders and its evident from this that when Matteo Renzi, the prime minister, of Italy decided to inject €40bn into the country’s heroically undercapitalized banking system, he was stopped by  EU leaders led by Angela Merkel. 


Every one for the time being will be focusing on all the skeletons of Britain through its macro economic data. Well all these skeleton were drawn when the EU was there and not on an overnight basis. I find EU is in more problem and they will rattle the market across the globe. Biggest challenge for EU is that they will relax many rules as independent Britain will soon get strong growth support and investments opportunities after the EU rules got abolished. Hence EU will have to fight for keeping its remaining countries intact under the EU. 

Wednesday, June 29, 2016

7TH PAY SHOULD BE TAKEN WITH CAUTIOUS

 The 7th Pay commission has been given and it’s a jubilant time for 48lacs government service holders. Well how jubilant they are I could find from my facial expression of two of my friend one Mr. Shantanu Chakarvarty working in an ICWAI  and her wife working in another government jobs. he is not the only one ,there are many of my friends and relatives  who are working in Govt segment.  They are all happy. Well I am not so fortunate to work in a government job.  A huge amount of money will come up in the hands of the people and this will spook consumption and other growth activities supporting Indian GDP to grow. MY point of this note is that we should be cautious about the expectation we are making form these same. 7th pay commission will not be able to save FII’s outflow for the stock market.

A fool’s paradise for the long term. If you remember that in 2008 the same strategy was adopted by UPA govt for 6th pay commission.  Almost all the Government employees received 40% of the pay arrears in 2008 and balance 60% arrears (as promised by Government) has also been credited in Government employees account in 2009. Then after that inflation started increasing and it made middle class segment top suffer. Yes a population of India where only 48 lacs govt and 55 lac pensioners are not the only people living in the society. Inflation scaled up high during that time up and our RBI governor during that time Mr. D Subbarao has to taken many steps after 2 years which was increasing the interest rates as inflation was above 13%. Consumption happened and also the legacy of slow down. It was the mistake of the policy frame decision without taking consideration of the global economy. Inflation which has been a problem for the government has come much below and now the Indian industry should get ready for inflation to get back and down the line next 2 years interest rates will increase again. The situation remains same as the global economy is in problem we need to be cautious in taking any hit on the balance sheet as well as on the fiscal condition.  The economic impact have been worst during that time as the global economy went for tailspin despite of knowing from 2005-06 that US housing and mortgage market is an threat and bubble.
Now just imagine after 2008 bubble if the 6th pay commission should have come then it should not have created problem for the Indian corporate as interest rates should have been low as inflation was down and also should have remained down as people were skeptical to spend. If that time 6th pay commission should have come then inflation shock should have been absorbed and also interest rate hikes should not have been required.

Now those who are thinking that consumption will pick up well investor are more cautious and more aware of the global development. Private sector growth in terms of salary is not so attractive. Companies are more cautious towards hiring and also towards recruitment. Hence consumption spike will not be so aggressive as compared to the estimated numbers. Moving ahead more people will opt for savings which also leads to investments in Gold or either into Fixed Deposits. Global volatility news and problems are known by everyone. Thanks to internet and Smartphone for keeping the educated population of India on alert. Hence investment into equities and that’s also on 8200 levels is matter of debate. We Indian financial advisors of equities never want to lose our clients hence a conservative approach is being adopted and played into the system.  One global bank going for meltdown might create panic hence conservative is the smell in the air.


The real problem happens in the ground level where middle class segment will suffer as price revision towards higher levels is already being decided which will increase the risk for the common citizens. Agri growth is slow at the time being and hence price will increase now with this stimulus coming up will lead to more increase in price. One industry which will get benefited is banking industry as many loans might be closed at an early stage which will keep the investors loan free and hence more opportunity in the long term to buy something.   Export market plays pivotal role. Hence domestic consumption will not be able to replace the export dollar driven earnings of the economy. Yeah the markets are betting high that all of this money will get into the consumption and demand increase and later on when too much expectation in terms of revenue will not match up with the realty reactions will turn opposite. The point is to play safe and within reasonable segment as the global economic condition is not very stable. 

7TH PAY SHOULD BE TAKEN WITH CAUTIOUS

 The 7th Pay commission has been given and it’s a jubilant time for 48lacs government service holders. Well how jubilant they are I could find from my facial expression of two of my friend one Mr. Shantanu Chakarvarty working in an instituite and her wife working in another government jobs. Many of my friends are in government jobs too as well as private.  Well I am not so fortunate to work in a government job.  A huge amount of money will come up in the hands of the people and this will spook consumption and other growth activities supporting Indian GDP to grow. 7th pay commission will not be able to save FII’s outflow for the stock market.

A fool’s paradise for the long term. If you remember that in 2008 the same strategy was adopted by UPA govt for 6th pay commission.  Almost all the Government employees received 40% of the pay arrears in 2008 and balance 60% arrears (as promised by Government) has also been credited in Government employees account in 2009. Then after that inflation started increasing and it made middle class segment top suffer. Yes a population of India where only 48 lacs govt and 55 lac pensioners are not the only people living in the society. Inflation scaled up high during that time up and our RBI governor during that time Mr. D Subbarao has to taken many steps after 2 years which was increasing the interest rates as inflation was above 13%. Consumption happened and also the legacy of slow down. It was the mistake of the policy frame decision without taking consideration of the global economy. Inflation which has been a problem for the government has come much below and now the Indian industry should get ready for inflation to get back and down the line next 2 years interest rates will increase again. The situation remains same as the global economy is in problem we need to be cautious in taking any hit on the balance sheet as well as on the fiscal condition.  The economic impact have been worst during that time as the global economy went for tailspin despite of knowing from 2005-06 that US housing and mortgage market is an threat and bubble.
Now just imagine after 2008 bubble if the 6th pay commission should have come then it should not have created problem for the Indian corporate as interest rates should have been low as inflation was down and also should have remained down as people were skeptical to spend. If that time 6th pay commission should have come then inflation shock should have been absorbed and also interest rate hikes should not have been required.

Now those who are thinking that consumption will pick up well investor are more cautious and more aware of the global development. Private sector growth in terms of salary is not so attractive. Companies are more cautious towards hiring and also towards recruitment. Hence consumption spike will not be so aggressive as compared to the estimated numbers. Moving ahead more people will opt for savings which also leads to investments in Gold or either into Fixed Deposits. Global volatility news and problems are known by everyone. Thanks to internet and Smartphone for keeping the educated population of India on alert. Hence investment into equities and that’s also on 8200 levels is matter of debate. We Indian financial advisors of equities never want to lose our clients hence a conservative approach is being adopted and played into the system.  One global bank going for meltdown might create panic hence conservative is the smell in the air.


The real problem happens in the ground level where middle class segment will suffer as price revision towards higher levels is already being decided which will increase the risk for the common citizens. Agri growth is slow at the time being and hence price will increase now with this stimulus coming up will lead to more increase in price. One industry which will get benefited is banking industry as many loans might be closed at an early stage which will keep the investors loan free and hence more opportunity in the long term to buy something.   Export market plays pivotal role. Hence domestic consumption will not be able to replace the export dollar driven earnings of the economy. Yeah the markets are betting high that all of this money will get into the consumption and demand increase and later on when too much expectation in terms of revenue will not match up with the realty reactions will turn opposite. The point is to play safe and within reasonable segment as the global economic condition is not very stable. 

Sunday, June 26, 2016

BRITAIN SHOWS THE PATH & NOW ITS OTHERS TURN IN THE COMING YEARS.

In continuation to my previous article being an economist I find its duty to present true and fair view of the state of affairs of the Britain exit. I will discuss broadly the depth of deficit and the how the hole of the deficit created during these years which pushed Britain to press the exit Button.  Do also remember that British Lions are all set to fight. The game of politics and economy  begins just like as Saudi Government threatened the US government that it will withdraw its investments if it name come up in 9/11 matter.   Well this time British lions are fighting among themselves and they are pretty strategized. World market will be going for many volatility phase and the British lions are well prepared to threaten on the Britain exit.

The latest threat which is being spoken is that how the voters could be squeezed and punished and how another round of referendum if possible could be introduced and even how the exit negotiation can be hardened. The big US banks — JPMorgan Chase, Goldman Sachs, Bank of America, Citigroup and Morgan Stanley — have large operations employing tens of thousands of people in the UK. They are now preparing to shift some of this work to cities such as Dublin, Paris and Frankfurt. Barclays, Royal Bank of Scotland and Lloyds Banking Group, may also need to strengthen their European presence outside of the UK. So either you migrate or change or job.



 Britain exit will be a powerful lesson for the rest of the Euro zone countries and all the top leaders who took everything for granted taking the sovereignty after joining the EEC.  This situation is not due to the recessionary bubbles but more of the leaders who compelled over the last couple of years the Euro-zone member states to force fully accept many terms and mostly austerity measures.  Over the last 4 decades many things have been taken away with least focus on the member states. If we look into the history we find that Britain is only a fraction of the democracy it was in 1973. Prime Minister Edward Heath at that time took Britain, Ireland and Denmark to join in 1973, Greece joined in 1981, Spain and Portugal in 1986, Austria, Finland and Sweden in 1995. All these states are now struggling with austerity, high unemployment, followed with cut down on pension and other social securities. Those who are crying that it bad for the Britain to exit Europe, well fools should be identified to make the statements since clever people know the pains of austerity and social cuts. The country is facing a $42.3bn deficit by 2019-20 despite of stringent austerity measures.  The Government's tax revenues are rarely enough to fulfill its generous spending promises, so every year Britain runs a large budget deficit.

On average, the bonds that make up our national debt need to be repaid within 15 years. Interest on the national debt will cost over £42 billion this year. Majority of gilts are held by British institutions, it's worth noting that the amounts held overseas have risen sharply since 2003. Currently just over 35% of our national debt is owed to foreign governments and investors.  The below chart shows the data related to the national public debt has increased to 80% of UK GDP.


Many of my friends will say that Britain used to enjoy many things like protection for workers’ rights, such as guaranteed paid annual leave, paid maternity leave, security for the workforce when companies change ownership and the fair treatment of part-time workers. Well these benefits are of no use if there are no job which is practically ruling in Britain. If we look towards the decision making segment we find that most of the decisions bureaucrats in Brussels decide all key environmental, fishing and agricultural matters rather than the house of representative elected. The depth of economic slow growth of Europe is that only Antarctica has grown, more slowly than the EU economy over recent years. If we quickly look into the past we find that public sector cuts, the treatment of the disabled and the vulnerable through welfare cuts, and the privatization of the NHS lead massive problem for the state.  

Problem for the Euro leaders is that next time when they will sit together for any austerity measures they will play in good faith and will not kill a young generation where average youth unemployment is 50%. Every government has become slave to the top rich clients of every country. Today Britain has exited tomorrow Spain and other Euro countries will bear the torch. Policies and all investments have been decided where the rich will enjoy and all the hardships are being enjoyed by the middle class. The depth of the austerity measures was worst since the World War 2. It raises taxes, cuts numerous social benefits to millions, sheds up to half a million public-sector jobs, cuts budgets for government departments, and transfers the onus to create new jobs onto the private sector. Those who are saying that its worst for the Britain my question to them is remaining within should have been better to go for further more austerity.

Bureaucrats, fund managers and ULTRA HNI clients are least bothered and less affected by austerity measures. Remember these are the people who are raising more of the concern that exit of Britain is worst. If DAX, FTSE goes up and creates more new highs then economy is better according to them irrespective if the growth comes from Buy back of shares rather deploying the capital into job creation. The elder generation and young generation sit idle at home and due to no job stays at home do not affect Bureaucrats, fund managers and ULTRA HNI clients. Being an economist we have social responsibility which we should strictly adhere.

Exit of Britain will give immense freedom and inflow of new thoughts within the economy. New growth based polices and strategies of job creation will be adopted. The more interesting part is going to be how leaders like Angela Merkel are going to play their cards with the other Euro states. 

Saturday, June 25, 2016

WHERE BRITAIN SHOE PINTCHES THE GLOBAL MARKET


The exit of Britain has happened and now another round of financial time bombs are triggered and awaited to get blasted. Everyone is busy figuring out the consequences of the same and its effects on the global liquidity. Well we are doing the meeting for that point which has less significance and we are skipping the important aspects of the financial tremors which will be faced worldwide. The biggest mother of all these problems will be valuations due to change of currencies and policies.
Lets come to the point .Inter linked bonds, trades investments, hedge fund investments, private equity investments all are now at stake. Bonds are the biggest risk since you have bonds for at least 3 years 5 years and 10 years which will get affected. This will create panic selling across the globe since various QE have been executed through bonds and mostly are foreign countries holding the same. Hedge Funds and Private equity investments will need to work out on valuations since currencies will be changed and this will create another round panic and also buying opportunity for China. They have reserves and they will try to penetrate and by out the same treaties.  Bonds which are set for expiry in 2018 and 2019 will be under pressure. Further the recent bonds expiry will create panic as buyers will be reluctant and most of bonds might be renewed but with different terms and conditions. No alternative for the holder of the bond, but to accept for less in case the changes are not in same lines like the before Britain exited
Mutual fund redemptions will also happen followed with another biggest threat coming from alternative investments asset products which will break the backbone of the Britain related investments.  Pension funds and other retirement safe heaven products come under threat as volatility and change of policies and valuations will play their game.
Hybrid bonds are the biggest problem and also banks and Ultra HNI clients holds the same. My concern is for the seller of the bond in these times that will look for opportunity to liquidate.   It might take 2 years to exit Euro-zone but fears of lossess have already entered into the minds and also high currency volatility creates favorable opportunity for exiting foreign portfolios particularly in those countries where returns from stocks have been flatten or not much impressive. Municipality and state bonds and infrastructure bonds all comes under problem due to change of currency and change of valuations norms.
Let’s come to the global stock market segment.  If I suffer loss in one country I will sell other countries investments. Wait I will not only sell but make double profits since huge outflow of dollar will lead to currency depreciation of the local country which results to more profit and also I will short sell the market of that country and will make another round of profit. Hence I make 3 times return from the same investments in that country and makeover my losses. Friends it’s a globalised market and you can’t intervene to stop outflow of capital unless a country like china impose redemption of stocks in 2015.  If I am global investor I will play my cards in this fashion only. Well most of the globalised fund managers will save their clients from this strategy only so as to keep the clients portfolio intact.
Now Gold price will rise further as it’s a safe asset for investments in these times and also many central banks will buy gold to save from the financial tremors as they also don’t know which part of their investments will come out as bubble.
2nd referendum is being planned. This will make great fun for the world market and also of the British Lions poor democracy system ruling in the country. Further it make quite difficult for the European countries now to keep intact as many countries will go for extreme level of negotiation in the future. Greece has been a lesson for the Euro-zone and now Britain exit leads to building of confidence within the other struggling euro-zone countries.

That’s why I said central banks meeting for injecting liquidity are of no use. Middle class and investors will face huge losses as the trigger of exit is already in place.  My concern is of financial tremors and also another phase of growth of income inequality due to loss of investments.   Its useless to discuss which country is favorable destination for investments since all I need as an investor to save my portfolio and maximize my return from these uncertain times. 

Sunday, May 29, 2016

CHINA SLOWDOWN TO COMPOUND AND CONSUMPTION WILL SLOW DOWN

Chinese economy has taken a major step in consolidation of its industries across the all segments. This is very positive step for the global economy as china’s excess capacity was dumping goods across the globe. Many reports and filings have been done on the table of WTO by many countries against china for its dumping of goods. China even leads major slow down of production due to its cheap import of goods. Finally china took the decision of consolidation. But this consolidation will lead to significant slowdown in the Chinese macro economy which will be reflected not only on Chinese economy but also on the global economy in the coming days. China will face and will make the world also face some very tough days as consumption and gross fixed assets formation and demand comes down. If another recession comes china will not find avenues for growth as there is hardly any space to deploy stimulus or QE. Its time for relook on the business strategy in China and the type of investments and returns one should expect from the same. Further the shadow banking might get exposed which will create a down fall for the global economy. In between their are many economists who will argue that China has enough treasuries to withstand slowdown. Well in that case get ready for redemption and markets will fall like pack of cards.

One of the biggest blows will go to consumption sector which have been the key for the companies who opened their shops in china as well for the country itself too. As consolidation of industries happens employees and labours will get unemployed. This is the key place where consumption will decline and when around 3 million or more than that numbers of employees will be unemployed then this will spook significant drop in consumption. Many US subsidiaries are there in china who will find drop in sales and revenues in the coming quarters. Further people will be more inclined for savings rather than for investments or consumption as job market uncertainties will rule them.  Many economist will argue that they will change their job lines but its not so easy as their an involvement of an significant level of skill for change over. Secondly when the Chinese economy is struggling with stock market collapse and slow down I find these unemployed people will add more fear among the society and will give a strong lesson to the others which will compound the slowdown of the consumption pattern.
The government has announced that it will come up with packages to support the slowdown but the fact is that will not spook consumption within the economy as people will be uncertain about new job opportunities and how long the current crisis of consolidation will rule.  Chinese economy will face more hardships in the coming days as its massive pool of labour is going to rest.  Now with consolidation of industries new manufacturing and ancillary machines, spare parts, and new investments into fixed assets will decline. As new fixed assets formation declines there will be a significant slowdown in those industries which will affect on wages growth in the near time.  This will further accelerate the consumption slow down and will widen the income inequalities. People will be more inclined to save rather than going for investments. It’s a wild fire which is silently going to catch the global economy. Debt levels has also piled off in the corporate china which will take a toll on the economy once the slow down grows.  China’s total debt rose to a record 237 per cent of gross domestic product in the first quarter. Real estate investment accounted for more than 14% of GDP in 2015, and this slowing growth has put downward pressure on the entire economy. Beijing has turned to massive lending to boost economic growth, bringing total net debt to Rmb163tn ($25tn) at the end of March, including both domestic and foreign borrowing.  Now those who are betting that china have enough surplus of foreign treasuries to support its fall then be prepared to witness massive sell of the markets once that situations come alive.
Its being found that over the last 2 decades china has created a mess of over capacity it’s now getting ready for paying the price. I find that income inequalities will widen up in china from this consolidation phase and this will kill the growth of the china as its being expected in 2016 and 2017.  We will witness slowdown in the Chinese economy and this will spook overseas investments by china rather focusing on domestic investments in china. Obviously when consolidation is the key buzzing word investments within the economy will decline and will look for opportunity in the other countries. I feel pity for the Chinese people as they have been guided wrongly by creating excess capacity in all industries which is not required over the next decade as the world is also busy in creating excess capacity.

Sunday, May 15, 2016

US IS HEADING FOR RECESSION NUMBERS SPEAKS DIFFERENT STORY

The US economy is not completely out of the ICU and its seems that very soon another recession will follow as the level of taking steroids of survival have exceeded. The point of discussion is that US economy has never learnt to get growth without borrowing. We ignored the alerts before also and now we are repeating the same. 2006 US Housing market was booming and during the same time signs of mortgage bubble was evident but media and diplomats ignored and we all paid the price in 2008.  History is repeating and this time also we are deaf. Employment growth has happened but how its quite difficult to figure out. One way is to find out the pattern of the data related to food stamps and other Medicaid facilities. Media sources are back again to create immense growth optimism but I beg to differ with the same as I can find recession is in the wings and that’s too post election of US.  Crude and Commodity have killed major industries and the ancillary industries too. Reserve capital is getting depleted and the country is getting in high levels of insolvency.  The U.S. essentially owes its lenders a staggering $13.9 trillion, or “$42,998.12 for every man, woman, and child.

 The debt levels are not coming down and corporate profits have taken a toll followed with share holders buy back strategy of share price hike has also come down. The press and financial projections have been quite strong fake as the real numbers post something very awkward for these projectors.  Reuters’ headline proclaimed that , “U.S. retail sales rise strongly, boost economic outlook”: where as the  Retail sales of $450.89 billion in April were down 2% from $460.1 billion in March.  It has become a fold paradise where everyone is looking for growth of the macro drivers but they are forgetting that these tricks have been played a decade earlier also.

 Predication and analysis of the economic growth are more important rather than just finding green shoots of growth. For example it’s a decade now that US housing market was in the Golden era of growth and during the same time every economist informed that US housing mortgage bubble will burst which was ignored by the politicians and by the world economy. We never dreamt of Lehman brothers getting sold. We witnessed that too. Now for example since July 2010 motor vehicle sales reported in the monthly retail sales data have risen at a $354 billion annualized rate. Now this is growth shoot for the economy but quickly looking into auto loans outstanding which have increased from $699 billion to $1.052 trillion.

The debt levels of the US economy in all segments are just simply growing. Recession will come back again as these mortgages will come for haunting for repayments and that’s where the income levels are low. From Credit cards, to mortgage loans, student loans all of them have only surged. The below chart depicts the story of the debt.



 Wage growth have been slower and job creation will take a halt as most of the share holders wealth creation have been buy back of shares which has stopped now. Just over 2 million supervised manufacturing workers, or about a third of the total, need food stamps, Medicaid, tax credits for the poor or other forms of publicly subsided assistance. Over here also government has tried to deploy the tax payers money. From 2009 to 2013, federal and state governments subsidized the low manufacturing wages paid by the private sector to the tune of $10.2 million per year. Here's a list of the top 10 states based on the share of their manufacturing employees that need food stamps because their wages don't fully cover the cost of household nutrition. Food stamps and Medicaid/CHIP dependence are particularly important to track because they are direct subsidies for immediate living and healthcare needs for adults and children while the refundable tax credit is disbursed annually, based on money taken from paychecks throughout the year. 

In between if you measure the average of retirement we find a country like India situation where people beyond 70. In US workers aged 50 and older are planning to retire a little later in life, at a median age of 67, according to the survey of the Transamerica Center for Retirement Studies' survey. Age of working has extended since shift in Social Security benefits to a later retirement age, and with the demise of traditional pensions (meaning the average American has to do more personal saving for retirement, something we as a country are well behind in), it makes sense that people would be waiting longer to retire. This is the key reason why the macro growth numbers should not be taken positively and cross verification and trend analysis with logics needs to be implemented. One this is clear that US did not learn to spend without borrowing. Consumption will pick up & citizens are clear that bailout will soon follow to save them.

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