- Wealth PMS (50L+)
There’s so much to post, and not enough time. Recognizing the power of data, it seems the government is trying to hide it, by removing detailed information of IIP. Of course, I think nearly everything that comes out of MOSPI called IIP is garbage, and less garbage is always good. Still, this could become a trend and everybody wants to hide data by quoting secrecy – not healthy. Hiding data is like shooting the messenger. But in this age, when "confidence" is more important than reality, it seems better to hide or delay data instead of getting your report card splashed on the web.
Mr. PC has supposedly stated that we can pay more for mineral water but not for wheat and rice. Which supposedly was taken to mean that the middle class causes inflation. But obviously it is not related to the fact that congress party created NREGA which gives people money for doing nothing (some exceptions) and those people, surprisingly, spend that money. Or through hiking minimum support prices upto 40% this year, even higher than market prices, so that farmers get more money and surprise, they spend it too. Or that the government wants to buy even more agricultural goods, even though most of the current lot rots in their warehouses. If you want to improve the lot of farmers, allow FDI in retail, dismantle APMC and allow agricultural land to be freely sold across the country. This scheme of the government paying more for their produce is short sighted.
Oh and we do pay more for wheat and rice, quite willingly. But then we realize that you don’t give a damn.
Shankkar Aiyar has an excellent rebuttal for the PC piece, which is more of a macro piece. I might agree with the gist, though the specifics need explanation. Gross Domestic Savings include that of the government and corporates; household savings as a percentage of GDP has roughly remained the same. A negative REAL rate – inflation higher than interest rates – is bad, but the funding of a central government bond doesn’t have to be related. Currently the 1 year T-Bill went at 7.97% even though the overnight repo rate (that RBI controls) is 8%. Government bond yield drops might just be because banks are too scared to lend to anyone else. Eventually the middle class does pay, as does any saver, for a negative REAL rate, and what it helps is creditors. We’re killing the old to not give credit to the new.
John Kay has an excellent explanation for the LIBOR fiasco – The Parable of the Ox. It’s a brilliant read that summarizes the problem – anything that is a sum of people’s "guesses" is ludicrous, when you can actually measure the real thing. LIBOR is an "offer" rate, collated across banks. Instead, it should be an "actually traded only" rate. (And I admit, LIBATOR is a far more cool acronym. Sounds like the next superhero) Like in Forex, in India, banks provide bids which are collated to form the RBI Reference rate. Instead, it should just be the weighted average of the trades in a day (or in the last three hours) or such. This "guess" business – like bids that are known not to culminate in a transaction – is prone to gaming, especially during a crisis situation.
And to end this post, NSE has decided to remove 51 stocks from F&O because of a SEBI circular. Some of these are punter names like Educomp, Balrampur Chini and S Kumars. These stocks have fallen substantially since the announcement. I don’t think removing stocks from F&O is a good idea, since there is no cost to holding them in F&O. According to me you should have derivatives in every stock – otherwise, how does one short? And if you don’t have shorts, you don’t get buyers when the stock falls down (shorts will be buyers to cover and book profit). But this "no-short" phenomenon is popular worldwide, even though it doesn’t work, so everyone’s just following the herd.