It makes sense to buy the Australian dollar...

The Australian dollar is gaining market confidence . The innate strength of Australia as a resource based economy helps, and there will be structural shifts which are already sending out positive signals for the economy. 

Australia's quality emphatic  migration policies results in  an increase in  labor endowment. This will cause an outward shift in the qualitative and skill intensive labour supply . The Aussie production curve could  shift  positively in favour of   labour intensity as a factor of production.  An example may be in deepening skill intensity Australian education quality is high.  Some of Asia's best universities are in Australia. In an Asian age, Australia serves the as a destination for the Asian elite. Given that the Japanese economy is in throes of another bout of technical recession, the Aussie is a good alternative.

The Chinese are quite fond of Australia and will keep on diversifying their portfolio into Australia with each rise. 

This blog makes no recommendations for investments. All views expressed here are without any risk or responsibility. 

India's regulators watch helpless as NPA accumulate

 "For PSBs with impaired assets (gross non-performing assets or NPAs plus restructured loans), NPAs rose from Rs 6,01,076 crore at the end of the quarter ending September 30, 2014, to Rs 7,00,622 crore in the corresponding quarter this year, which was nearly 12.56 per cent of the total advances.  "

http://www.business-standard.com/article/finance/six-psbs-including-boi-uco-bank-in-focus-for-recovery-plans-115112401108_1.html

Yen a safe haven

As the Turks are drawn into a fight that may have no winners and what may eventually prove to be a tactical foolhardiness;
As Putin's new economic order of killing off  black marketing in oil and save Russian interests may just about see a price rise in oil;
As European allies seem caught up in internal strifes  from immigrants to Greece to fear of internal betrayals;
As oil seems to flare up with a possible supply constraints with an escalation in conflagration in the middle east;
As Switzerland still has European neighbours and an opaque banking system to overcome;
Yen looks a better bet. Gold may rise temporarily but cannot hold out against Dollar which will be brought back by a buoyant US  economy and also the ultimate return to safety; it is only yen that looks good. Then comes the dollar. 

Views expressed are without any risk or responsibility. This blog recommends no investment. 

Markets factor in an insecure state... eine erfahrung...

"Fear creates its own ghosts which are more fearsome than fear itself." (Anonymous)

Europe today, large parts of Africa and some parts of Asia seem now to live in fear. The Americas and Australias seem worried and anxious.Geopolitical situations seem to  trigger concerns.  Does that explain markets.  

Market players who see and seek  prosperity in peace are a bit perturbed. However, when financial city states are subject to civilizational decay, markets find new spots and levels. Trade cannot stop. Markets work 24 x 7. Beirut declined  due to internal strife but Lebanese businessmen have spread globally to prosper. Dubai grew in place. Idi Amin harassed Indian businessmen in Uganda but they proved quite successful in London. South Africa grew. Deutsche Bank was split up by the allies but it was stitched together by German business interests. So institutions and market people overcome temporary setbacks.

Big cities like Beirut and Brussels live fear. Fear is an experience ('eine erfahrung' as the Germans say) ; market players experience fear. Individuals may be scared but markets cannot be seen to be running away. So markets feel the immediate jolt and then proceed on. There is  too much is at stake. There is just too much at stake. 

Market players look only to profit aggrandizement. They are not constrained by any nationalism. Pfizer is buying Allergan for $160 billion reportedly to move away from American taxes in to a more profitable retreat in Ireland. Corporates have no borders if there are profits. 

Views expressed are without any risk or responsibility. This blog recommends no investment. 

The inefficiency that is India: a tyranny of the non caring affluent and the educated.

India's fiscal deficit has to go up. 
That is,if the huge lumpen increases in central government employee emoluments recommended by  the recent  7th pay  commission report will be accepted or even enhanced. It will have to be as Indian  trade unions are typically good at restrictive practices and bargaining by resisting the recent 7th pay  commission report although it  recommends huge increments of nearly 20 % to central employees.  The civil servants - managerial and lower rung wage earners- will unite and  will utilize the need for aggregate demand to stimulate the economy as an argument. 

If centre gives,  can states  be far behind?. If centre gives, can banks be far behind?. These sectors are already reeling under stress of overdrawal and non performing assets. 

The Pay commission should have been performance oriented pay. Instead, it looks like there is an increment to the white collared who have  contributed to the  country being ranked 130 among 189 countries in rank of ease of doing business.  !

Comparable countries are :

Mexico            38 

Russia              51

China               84

Bangla Desh    117
(source. World Bank) 

While there is  so much inefficiency and slack to to get rid off, if India wants to progress,  India's bureaucracy, bankers and trade unions self obsessed educated elite are bogged  down with  who writes fat cheques and retirement benefits for themselves.

This self cheque writing is as 400 million of Indians- one-third of the world’s poor–still live in poverty. This is even as  average requirements of calories, proteins and fats based on norms of the Indian Council of Medical Research    energy requirement works out to 2,155 kilocalorie person  per day in rural areas and 2,090 kcal per person per day in urban areas.  The average monthly per capita consumption expenditure on food in these is Rs 554 in rural areas and Rs.  656 in urban areas.Who cares for the hungry marginal farmer  ! For the poor ?  (say $ 8.5 and $ 10 approximately)
217 million of the world’s malnourished children are in India.

This is when India’s un-organised or informal sector workers other than farmers  constitute over 70% of the workforce. Nearly 70 % of informal sector workers do not have a written employment contract, or receive any social security benefits. Who cares for the poor migrant labourer? Indians are fatalists!

The trade unions will protest, the Government will relent; fiscal deficit will expand and the taxpayer will fund inefficiency!

($ 1= approximately Rs.66.4)

Why Paris attacks should not affect markets adversely on Monday:

There appears to be no reason to panic. There may not  even be a reason to fly to safety. In an economy which appears to be sluggish and staring at deflation, military and state armed forces' preparations are good news. The enormity of the terrorist attack and the rapidity and wide area of terrorist operations  re-emphasize the need for greater intelligence sharing and ultra-modernization of the European  armed forces. With the need to be a step ahead of terrorist, the space to fill in  implies potential  large scale governmental spending on radical and immediate rearming and also on research in the area of self preservation.  France has already declared an emergency. So there cannot be fiscal constraints in  defending the nation. Ground efforts at coordinated military action will intensify. All these movements mean fiscal spending. 

Any big time spending is an impetus to a slow European economy. So there is a possibility of an investment enhancement across Europe. Oil prices must also  see a rise owing to possible disruption in supplies in case of an escalation.  Globally, such individual attacks on markets  have only limited impact on market. Markets get back faster than expected. 

Coordinated intelligence gathering and preparations for armed offensives are good in so far as there is a fiscal stimulus and an enhanced aggregate demand.  

In any dip, it is a good time to buy. US assets may see an inflow and a possible appreciation of the Dollar in the initial trades. Commodities may see some respite from a downward trend. 

The views  expressed here are without any risk or responsibility.

This blog recommends no investment. 

OECD Economic Outlook - November 2015

Real GDP growth (%)Summary of OECD projections for G20 c

Year	World	India	China	Usa	Euro area
2014	2.3	7.3	7.3	2.4	0.9
2015	2.9	7,2	6.8	2.4	1.5
2016	3.3	7.3	6.5	2.5	1.8
2017	3.6	7.4	6.2	2.4	1.9

 OECD Views

• Harbinger of further slowing of global GDP growth
•  China’s role at centre via commodity prices and global value chains
•  Real investment continues to disappoint
• Financial exposures in emerging markets could create stress
• Resume momentum for structural reforms, especially financial sector and network services in Europe 
•  Take advantage of low interest rates to increase public infrastructure investment, including to tackle climate change  

This blog recommends no investment 

India's real estate bubble to affect banks?

The  real estate market, as and when it falls, will  affect through channels of contagion to banks and financial institutions. Poor asset quality and excessive leverage in the sector will affect banks. The latter are already reeling under stressed assets and crystallized NPA. A real estate crisis  will prolong bank efforts at  repairing balance sheets. Systemic risk is thus high. 

The high levels of prices seen in the property market and the leverage associated with the real estate sector  is a matter of concern , if not worry to regulators. There is unsold stock. As the Government endeavours to restore its credibility, it will have to aggressively move to unearth money laundering channels. Housing sector in India is a parking slot for unaccounted incomes. Now that GOI has to move with stringent measures, (to restore its  image with the voters) against money launderers, fund flow in to the real estate sector will dry up. Informal channels have already started drying up. Demand will fall,  margins will fall and the real estate sector has the potential for overstretched borrowings.

It is against this background that the Reserve Bank has highlighted the need for prudence. In August, 2015,   the RBI Governor called for price mechanisms need to adjust -  "It would be a "great help" if realty developers sitting on unsold stock bring down prices…Once the prices stabilise, more people will be keen to buy houses."

Elsewhere the data reveals how bank interests are tied up to this sector"  the total amount of home loans given by banks grew by 15.6 percent to Rs 6,53,400 crore, over the last one year. In comparison, the overall lending by banks grew by just 7.3 percent. Home loans had grown by 17.1 percent to Rs 5,65,000 crore (in 2014) . The overall lending by banks had grown by 12.8%. Even though the overall lending growth of banks has crashed from 12.8 percent to 7.3 percent, home loans continue to grow... banks have given out Rs 88,400 crore of home loans in the last one year. This formed around 21 percent of all the lending carried out by banks. For a period of one year ending June 2014 and June 2013, home loans formed around 12.7 percent and 12.2 percent of the total loans given by banks." (http://www.firstpost.com/business/property-prices-must-fall-rajan-reads-out-the-riot-act-to-real-estate-wallahs-2401010.html) 

Both residential and  commercial property, have potential risks brewing. National Housing Bank studies indicated that as early as in 2014 , prices had started declining in 6 cities over the previous quarter with maximum fall observed in Chandigarh (4.4%) followed by Meerut (3.6%), Delhi (3.0%), Surat (2.4%), Dehradun (2.1%), and Lucknow (0.5%).

NHB also quotes an academic  study which reveals the significance of the sector to the economy:

• Housing sector is fourth largest employment generating sector.
• The residential construction (housing sector) accounts for 1.24% of the total output of the economy (total construction sector is 11.39%)
• 1.00% of GDP (total construction sector is 8.2%)
• 6.86% of the employment (total construction sector is 11.52%)
• 99.41 per cent of the jobs in housing sector are informal jobs.
• Its labour to output ratio i.e. number of persons employed to produce a lakh units of output, is 2.34 and is the highest among all the sectors.

So mortgage lending  needs keen watch. Banks' serviceability assessments may now be  based on over-optimistic judgments about the reliability of borrowers' incomes, or inadequate estimates of borrowers' living expenses, or it may well be that lenders  are not circumspect the possible effect of future interest rate movements.  

Flat buyers beware! Prices may have to fall in India if it has fallen in China!!!

Views expressed without any risk or responsibility. This blog recommends no investment. 

India: Reverting to a new Hindu rate of growth?

India a Divided polity  and a fragmented society. Sub optimal India held back by lack of consensus

1. Politics and society may well hold Indian growth back. The provincial  election results seem to  put the clock back on India's yearning for reforms. An emboldened opposition will  now be more aggressive, which could well imply obstructing reforms. The upper house numbers will just not add up to lend support to crucial legislative  reforms. It will be an era of concessions and compromises. Restrictive practices are bound to be nurtured by re-energized trade unions. The political setback to the Government will fuel disquiet. India's bank unions have disregarded  high levels of NPA and lower productivity in many of the state run banks and are calling for a nation wide strike against reforms. . Disinvestment plans will be rolled back. India will revert to  being inside the production possibility curve. Populist measures will return in a country which has a 3.9 % fiscal deficit. Already low on investor confidence as evidenced by large volume withdrawals by FIIs, the uncertainty will shake up Mumbai stock exchange with local investors naturally seeking to exit. Domestic financial institutions may be prompted to support  rather than natural demand and supply arriving at a new equilibrium. The burden is then passed on to the taxpayer.  

Is India reverting to a sub optimal improvised (doubled?) Hindu rate of growth? (This term was coined by  an Indian Professor, Raj Krisha who spoke of the 1950-80 average of 3.5 % growth) . India seems incapable of a double digit growth.  China is already at least nearly a decade ahead and India just cannot seem to catch up. Less talk and more consensus driven work may well be a good advice for less government and more effective governance.

===

2. San Francisco Federal Reserve Bank President John Williams  thinks it makes sense to gradually remove the policy of accommodation that helped get the  economy. One more move on the chessboard towards an interest rate hike. That should put emerging markets under pressure. Fed seems to move one step in the direction of hike.

Views expressed are without any risk or responsibility. This blog recommends no investment.

The hypocrisy of the financial world

• The Financial Secrecy Index ranks jurisdictions according to their secrecy and the scale of their offshore financial activities. The current  index was released on November 2, 2015.
• It estimates $21 to $32 trillion  of private financial wealth is located, untaxed or lightly taxed, in secrecy jurisdictions around the world. Secrecy jurisdictions - a term used as an alternative to  term tax havens - use secrecy to attract illicit and illegitimate or abusive financial flows. 
• Illicit cross-border financial flows are  estimated at $ 1 - 1.6 trillion  per year:. Since the 1970s African countries alone have lost over $ 1 trillion in capital flight, while combined external debts are less than $200 billion. So Africa is a major net creditor to the world - but its assets are in the hands of a wealthy élites, protected by offshore secrecy; while the debts are shouldered by broad African populations. 

1	Switzerland
2	Hong Kong
3	USA
4	Singapore
5	Cayman Islands
6	Luxembourg
7	Lebanon
8	Germany
9	Bahrain
10	United Arab Emirates (Dubai)
11	Macao
12	Japan
13	Panama
14	Marshall Islands
15	United Kingdom
16	Jersey
17	Guernsey
18	Malaysia (Labuan)
19	Turkey
20	China

Read: http://www.financialsecrecyindex.com/index.php/introduction/fsi-2015-results