Stocks in their own world

they are in a world, inebriated with liquidity, I suppose:

Headlines from – a snapshot as of 1322 hours on November 29th.

Market Movers

Treasuries Advance as Fiscal Cliff Pushes Demand to 8-Year High (Bloomberg, 11/28/2012 03:51 PM)

Oil Falls to Lowest Level in Almost Two Weeks on Budget (Bloomberg, 11/28/2012 03:50 PM)

Gold Tumbles Most in Three Weeks on Fiscal-Cliff Concerns (Bloomberg, 11/28/2012 03:51 PM)

U.S. Stocks Rise as Boehner, Obama Fuel Optimism on Talks (Bloomberg, 11/28/2012 03:49 PM)

Evidently, Bloomberg has a ‘stand-alone’ and ‘rational’ explanation for each asset class reaction to economic news but that gives rise to funny and internally inconsistent conclusions.

In this case, Bloomberg headers reveal the truth: that stock markets are characterised by acute myopia.

Three cheers to England

First cheer for England’s cricket victory. I admire England for fighting well at Ahmedabad and for winning at Mumbai. There was no shame in their loss in Ahmedabad. They showed character and that is something that India did not in summer 2011 in England and in Australia in winter 2011. In Mumbai, England had the last laugh on a spinning track. India’s cricketing defeats will be good for the way the game is administered and played in the country now. In that sense, I am pleased that England won. That is the first cheer.

The second cheer is for the appointment of Mark Carney as the governor of the Bank of England. FT has a good story on how the Chancellor courted Mr. Carney from Canada. I had downloaded many of his speeches (Carney’s) but have not read them. On balance, Bank of Canada has done a good job of monetary policy and banking regulation, under his leadership, before and after the global crisis.

One must praise the British Chancellor for being willing to look outside his tiny island.

India is a country of managerial talents. Many Indian managers head global companies or hold senior positions. Hence, India does not have to do a ‘Osborne’. The Indian equivalent is whether political parties court talent from the Opposition. Of course, the key assumption is that they want to do a good job of governing the country and, therefore, they wish to find the right talent to do a good job of it. For plundering, you would rather not court the Opposition! Spoils are not for sharing.

In the comments section of the FT article on how the Chancellor courted the governor of the Bank of Canada, one person has noted, with appreciation, the appointment of  the Spaniard Antonia Horta-Osorio from Bank Santander at Lloyds Bank. Here is an interesting article featuring his remarks on the UK banking system. I am pleased with what he had to say.

Boosting the market

Banks that are partially owned by the government and state-controlled funds should buy local stocks at lows, the Central News Agency cited Finance Minister Chang Sheng-ford as saying yesterday

This is from a Bloomberg news-item on Taiwan’s plans to boost the stock market. I am not sure I understand this.

Financial asset prices are meant to reflect the health (or the lack, thereof) of the underlying economy. Governments can provide an enabling environment for economic growth. That cannot be a target too for a government. Forget about the stock market, then.

But in today’s world, all means have become ends in themselves.

Governments can provide a stable law and order situation, reasonable and reasonably progressive taxation, provision of public goods at reasonable prices, social safety net for those who really need it for a specified period, minimally intrusive and fair legal system and framework for commerce to take place and for facilitating exchange between members of the public. One can go on with more items of similar nature but beyond that, should they try to do more? Would that work? Would it not have costs, if governments tried to target economic and stock prices directly?

To disease and death via diesel

Yesterday we blogged on Sunita Narain’s article on the return of the smog to Delhi thanks to explosion in vehicles running on diesel. MINT’s quick edit talks of a dieselized economy. It also correctly notes that the Government of India is scared of alienating urban voters. In other words, urban voters are hellbent on driving themselves to disease and death via diesel and the government does not want to stop them from doing so because it needs their votes. Air, water and noise pollution combined with mosquitoes – Indian roads and air space are meant to remind one of one’s ever-present mortality risk.

LIC insures fiscal deficit

The Hindustan Copper stake sale , the first disinvestment this financial year, managed to sail through today, mainly on support from Life Insurance Corporation ( LIC ) and public sector banks . The offer for sale (OFS) saw subdued response from large foreign institutional investors and private domestic investors like mutual funds. [More here]

Government owned banks and government-owned insurance company pick up the government stake in a government sector undertaking and that reduces the fiscal deficit! This is not the first time it has happened.

‘Business Standard’ has compiled them since 2009 (after this government was ‘voted back’ to office). Then, there was the specific case of ONGC ‘disinvestment’ in March 2012. Again, LIC picked up the shares on offer.

Two editorials – somewhat different but mostly related – one on the LIC investment in companies raised to 30% of paid-up capital of the companies being invested in and the other on the LIC ‘bailing out‘ the sale of government stake in Hindustan Copper. The Insurance regulator (IRDA) was not happy with the government raising LIC stake limit in companies to 30% at all.

Portents – good and bad

Sunita Narain is not exaggerating when she calls the Delhi smog a life and death issue.

The government’s proposal to liberalise norms for foreign borrowings is ill-conceived and dangerous. Even before the Government has done so, Indian corporate borrowers have developed a taste for cheaper foreign currency borrowings. This is nothing but ‘carry-trade’. ‘Carry-trade’ has fat tails. Speculators know that and regret when it is too late. The tale of stresses in redemption of foreign currency convertible bonds (FCCB) has evidently not sunk home. This is medium-term risk.

Ashok Gulati and co-author pen a positive story on what international trade in agricultural goods can do for Indian farmers. They make a good case for importing virtual water and not exporting it. That means importing and not exporting rice. Indian farmers will produce less water-guzzling crops and more of other less water-intensive cash crops if they are given the right price signals. Food for thought there. Rational pricing of scarce resources such as water and power is long overdue and every day of delay has calamitous consequences for India.

As some one said, India has gotten the pricing of food, fuel and fertilizer horribly wrong with disastrous consequences for India’s economic and ecological balance. Successive governments have scored three straight Fs on these three Fs.


India drains well

In the last two visits to India (Oct. 30 – Nov. 3) and (Nov. 14 – ongoing, up to Nov. 23rd), the difficulty or the impossibility of living in India’s mega cities hit me, more than before. One was exhausted in five days. 3 cities, 4 beds and five cities is not admittedly easy but it need not have been exhausting. The traffic, the pollution and the upper respiratory nose-block that inevitably follows made it so. The squalor and public health concerns are reflective of a dysfunctional society.

In Tamil Nadu, except Chennai, all other districts have no power supply for more than twelve hours. The rains have become scarce. The weather is cooler already. These are the kind of temperatures one would see in December and in January. If rains fail, it would make a bad situation worse for Tamil Nadu.

In Tamil Nadu, there are now warnings at major road junctions from the Chief Minister on how not to breed mosquitoes. If people cared more about their surroundings and social obligations, if governments cleared garbage and allowed drains to drain and if real estate builders did not occupy water bodies and if effluent treatment happened,…. mosquitoes would not be rampant. Besides power and unmatched education sector (with skill requirements), a public health disaster is looming large in India.

Casual and cavalier attitude to governance is evident in the government’s failure to garner estimates resources from the 2G auction. See comments here and here. The absence of shame and guilt rankles more than the absence of probity and integrity. Which is worse?

T. N. Ninan reads a dire warning on India’s continued economic overheating.

India’s sewage and drains may be clogged. But, India has succeeded enormously well in draining its people of their energies in every possible way. The air is so full of negativity that it is no surprise that viruses and harmful bacterias are thriving.

India is badly in need of a prodigious infusion of positive and virtuous energy.