Tuesday, September 27, 2016


 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


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. 

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