Haphazard Linkages

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 o f reasons put forth by voters on picking a certain candidate are often mired in v agueness .  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 individ ual rational behaviour lead to collective rational ou t come? I t is time to dive in to the world of individual definitions , nomenclature and qualitative perceptions. ----------...

Of the many interesting events occupying market participants' attention in India in recent times, few have been more riveting than the rapid slide of the INR, which has depreciated > 20% against the US$, since the end of July 2011.  The pace of depreciation appears to have caught policy makers and market participants by surprise. Hedge funds focused on India, who did a reasonably good job of arresting capital erosion until July, saw their returns plunging into the red, thanks largely to the INR's free fall. An economy on the fringes of diverging negatively from historical growth rates and a political climate dominated by corruption issues and policy flip-flopping aren't doing much to assuage negative sentiment either.  If one traces India's macroeconomic developments over the past few years, the INR's fall-off-the-cliff show would be seen as a delayed reaction to realities. What is surprising is the lateness of the reaction, not the event itself. ...

So S&P downgraded the US one notch to AA+ with a ‘negative’ outlook. Given the downgrade, escalation in the debt limit and promised spending cuts spread over the next decade; one would be forgiven for thinking Treasuries would have sold off with money flowing into safe-haven favourites ( CHF , JPY , Gold..). Treasuries rallied reacting to this news, showing that in times of duress, psychology trumps everything else as investors pile into an asset class for its perceived safety value. Never mind if the expected return is not commensurate with the risk assumed. Actually, few think in terms of 'return' when it is apocalypse time. Treasury rally in the face of a downgrade also indicates that few probably believe in the rating agencies' opinions. With the Swiss bank slashing rates to curb the CHF's rise and the BoJ intervening to prevent a rise in the JPY , the world resembles the stage in the 1930s when everyone scampered to be the first to hit the currency bottom in ...

With many banks continuing to dance with death, there’s one bank that is smiling. The Pig’s. The long period of declining savings rate – or an increase in consumer spending – was one of the reasons fuelling the boom that popped not-so-long ago. As over-indebted consumers look forward to an extended period of deleveraging, the US government hopes that with interest rates hovering close to 0%, consumers will be incentivized to borrow and jumpstart the Great Consumption story! Simultaneously, lending norms are gradually being tightened, stoking fears of rising defaults in the near term. The poor Fed can only encourage , but not compel , banks to lend. As consumers mend their profligate spending ways of the past, it looks difficult in the current environment to see either banks lining up to lend or consumers lining up to borrow. Then there’s Bernanke-speak about keeping interest rates low for an ‘extended period’. With nominal rates close to 0% and inflation hovering around 2%,...

Continuing in the spirit of Haphazard Linkages, I look at the consequences that a false sense of ‘progress’ has on an economy. Things may look ‘good’, but is it a true and justified reflection of the resources at a country’s disposal? Can things be made better? An economist aims for efficiency. A state where one individual cannot be made better off, without making another worse off in some way. On the 60 th anniversary of India ’s independence, patriotism and a sense of well-being abounds everywhere. People are mostly unanimous in their verdict that India had arrived and bask in glory…The Times of India headline, “60 and getting Sexier” couldn’t have captured it better. Every news channel and celebrity waxed eloquent about how much progress India had made during this time. Waxed eloquent about India ’s stupendous GDP growth…about India Shining. Did this appraisal reflect reality? Or was it just another day where patriotism oozed out of wherever anybody cared to look?...