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Halls of the Blind

I can see what you see not Vision milky, then eyes rot. When you turn, they will be gone, Whispering their hidden song. Then you see what cannot be Shadows move where light should be. Out of darkness, out of mind, Cast down into the Halls of the Blind. 

- Diablo


I usually avoid referring to stuff from the 90s as the opening act. It risks giving away my vintage…
But the above words from one of the most successful role-playing games from the 90s – Diablo – (who remembers it?) is apt for this edition.
Auditor Problems.
It’s an opportune moment to dive into the Corporate Halls of the Blind.
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Indian markets have been beset by a sudden wave of auditor resignations from listed companies in recent times. Stock prices of the affected companies have taken a beating. Runaway auditors have caused market participants to speculate over the next defection, as alpha monkeys smell quick gains. Auditor issues have surfaced after a period of widespread price correction. Wounded consciences that were assuaged by …
Recent posts

"Our scars have the power to remind us that the past was real."

Bonhomie.
So much of it wafts through the market air currently. Hannibal Lecter’s quote from Red Dragon in the subject line wells up in one’s head. (Though some would counsel against letting Dr. Lecter crawl into one’s brains.)

The past decade has seen a major change in the way market participants think about positioning. Like a responsible parent helping toddlers to get on their feet, central banks globally have held the market’s hands through periods of disquiet. We have learnt to walk, indeed. Conditioning has nudged us to presume the parent’s omnipresence during future periods of turmoil. Assorted naysayers, bear mongers have been shaken out. Converts and survivors from The Resistance have taken to trend following, along the path of least resistance. Up. Momentum plays on liquidity – the ETF brigade – have added to the crowd. The zigging and zagging of prices – Volatility – has progressively entered hibernation, as a result.

QUIETER...and QUIETER


Volatility tends to bear an inverse re…

Napoleon’s Lucky Generals: "I know he's a good general, but is he lucky?"

With most market participants making money this year, the timeless quote by Napoleon in the subject line rears its head, once again. Regular non-readers know the wonderment I have on the impact of luck on investment outcomes.
The markets have been on a tear (sure you didn’t notice), and my mailbox/chat is seeing two polarized stances. On one side is the Bullish Apology. Where market participants pre-emptively share justifications for continued strong markets everywhere. This group exhibits hyper optimism, using recent history as the periscope through which to peer at and gauge the future. 
The second, and potentially, the more interesting group, is the Bubble Babble crowd. This group looks askance at the rallies, and deems things a bubble. This year has given this group a great polarizer. Bitcoin. A tiny bit know much about it. Most know a bit about it; yet there is a growing supply of those sharing their two coins, calling Bitcoin a bubble.
Both groups share certain characteristics. The…

Where Are The Fundamentals?

The following charts are useful in appreciating the previous bull market in India.

Improving interest coverage ratios and uptick in growth in the first half of the previous decade created a favourable environment for assuming a long equities posture. The acceleration in equities post 2005 coincided with a down tick in debt service capacity. This is in tune with behavioural characteristic of investor attention reacting belatedly to fundamentals. Cut to the present, coverage ratio is at 12-year lows and yet the equity index is at levels similar to 2007, when coverage ratios and economic growth were vastly better. 

Improving balance sheet health also reflected in a down tick in interest expenses relative to revenue until 2006. Post 2006, this metric has evolved on a deteriorating trend, and bank gross NPAs have grown at an accelerated pace. Both are at 12-year highs. The broad economic slowdown is partly to blame; however, blame ought to be apportioned to bull markets as well, as falling d…

'Can We Have Some (More) Obama Please?'

The US election is history. The dust has settled and life reverts to the dreariness of the usual. It is an appropriate time to pause awhile and look at some intriguing outcomes of the election.
Voting is perceived as an activity centred around individual voter self-interest. Well-balanced, informed voter base is an assumption that is considered unworthy of a re-examination. While the self-interest angle is quite palpable, the gamut of reasons put forth by voters on picking a certain candidate are often mired in vagueness. 
The following is an edited excerpt of an recent email exchange with a friend. HaLin wasn't eligible for voting, but under the garb of a market participant, had much practical interest in the outcome. This post is a summary of events as they happened.
Does individual rational behaviour lead to collective rational outcome?It is time to dive in to the world of individual definitions, nomenclature and qualitative perceptions.
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Mind Of The Market II: All-Is-Well Syndrome, A Habit Of Misplaced Hope

In a chaotic world, a barrage of mirages can, sometimes, be confused for reality. In an environment of sustained negative developments and events, it seems somewhat paradoxical for misplaced hope to find an audience.
The second part in the Mind Of The Market series (Part I, here) will focus on recent elections in Greece and France, and the culture of all-is-well and misplaced hope that pervades market participant positioning. Paradoxically even as mainstream media resonates with negative undertones, participant actions paint another story.

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Greeks came, voted a second time, and all seemed well. Again. For a disaster seemed averted. Greeks avoided Tspirageddon and offered the reins to a pro-bailout coalition led by New Democracy and PASOK, to steer them through the new phase in a never-ending saga.

The flight of deposits that had begun from Greek coffers into banks in stronger EU countries (run-rate approx. EUR 800 mm per day) seemed like a costly hedge to those that p…

Mind Of The Market - I : Pavlovian Conditioning, Paradoxes & The Psychology Of Herding

In what should evolve into a multi-part series, Mind of the Market will endeavour to peer under the hood of the largest laboratory of human psychology in the world; the financial markets. Where frigid numbers and emotive participants spar enthusiastically in an elaborate and often bewildering drama-in-motion. Where apparitions and reality merge so finely as to be mostly indistinguishable. Where paradoxes and circular relationships reign supreme, frequently, and fervently, questioning the very essence of rationality and cause-and-effect.
Part I addresses the dynamics of Pavlovian Conditioning and market participant response to stimuli in investment decision-making. Intriguing paradoxes and the behaviour of asset prices - a cause (and consequence) of market participant response - is considered concomitantly. Finally, the psychology of herding closes Part I.
Pavlovian Conditioning and Asset Price Behaviour When Ivan Pavlov discovered his lasting contribution to humanity - Classical Condi…