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.

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