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. 7^th 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 6^th 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 6^th 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. 

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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. 7^th 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 6^th 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 6^th 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. 

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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. 

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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.

2^nd 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. 

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