Financial market straws in the wind

The turmoil in the repo market in the USA last week is well explained here. The answer: more QE!

The significance of the postponement of Wework IPO and the resignation of its CEO Neumann is explained here. ‘Blitzscaling’ would not have been possible without the QE policies of central banks. Malinvestments flourished as money lost its value.

IPO market is waking up. When will the broader stock market see the light?

Andrew Smithers’ valuation model – Q ratio – shows US stocks overpriced (ht: John Authers). Do not fail to read his comment on the volatility in published profits vs. profits as per NIPA and what it means for US corporate leverage. Read John Authers too on this in his ‘Points of return’ column in Bloomberg.

Two op.-eds from Germany (DB Research) on negative interest rates and on the calls for fiscal stimulus from Germany are worth reading here and here.

Insider selling of stocks in the US reach two-decade high. Data excludes sales of stock linked to corporate executives exercising stock options. It also strips out sales carried out for tax purposes, which are typically carried out automatically over the year. [Link]

Theatre of the absurd

The title of this post refers to the Climate Change Summit held recently in New York coinciding with the annual session of the UN General Assembly. As a former Minister (Amanda Vanstone) in the Howard (Australian) government wrote, it is even politically incorrect to write against the manufactured outrage. It was theatre. See her piece here.

Of course, agreeing with her comment on the meaning of the protest speech by Greta Thunberg does not mean that one has to agree with her on the relative contributions of nations to carbon emissions.

A timely publication by Deutsche Bank Research puts the global challenge in perspective:

Possibly, the key elements of the climate action package are a fairly accurate reflection of the German public’s attitude towards climate protection. It is illusory to believe that a rapid “grand transformation”, the maximum demand of some climate activists, would be supported by a democratic majority in Germany.

Although 61% of Germans voice concern about climate change, according to a recent survey conducted by the Allensbach Institute, “only” 33% are willing to pay higher energy prices for climate protection. And just 21% are in favour of a CO tax. The respondents either prefer further incentives to stimulate behavioural change over financial burdens, or they are pinning their hopes on technological progress towards climate-friendlier products. Moreover, a majority of Germans (rightly) believe that Germany and Europe by themselves can do little to mitigate climate change. [Emphasis mine]

Source: Germanyʹs climate action package – Foul compromise or a reflection of society? Deutsche Bank Research, 25th September 2019 (

That is right. Everybody thinks that everyone else should pay for mitigating climate change. Also, a vast majority of those who claim to be immensely worried by the havoc that climate change is wreaking and could wreak are unable to make meaningful changes to their lifestyles. That is what Deutsche Bank research says.

This paragraph is even better:

These survey results fit in well with actual human conduct: Private transport continues to rise more or less steadily, the average house size per capita is edging up, demand for electronic consumer goods is increasing across all generations, and consumers are only gradually becoming aware of how much food is actually being wasted. Moreover, fossil fuels still account for 79% of primary energy demand in Germany. The upshot is that the average citizen is not (yet) prepared to drastically reduce every-day consumption, even though more and more Germans claim to have cut down on their consumption in some areas for climate protection reasons.

The climate doomsday train left the station long ago. A chart in ‘The Economist’ published in 2012 showed how much humans have compressed economic activity into a very short time-span. If one is unable to understand the full import of the chart, then, there is no way to understand the time for redemption is long gone. I cannot reproduce the chart here lest I am accused of copyright violation. Here is the URL.

Over 23% of all the goods and services made since 1 AD were produced from 2001 to 2010, according to an updated version of Angus Maddison’s figures.

That is more output than the first nineteen centuries combined.

The 20th century alone produced 55% of all output since Christ (since 1 AD). If we remember that the first half was marked by two world wars, an economic depression and hyperinflation, then bulk of that 55% must have been produced in the second half of the 20th century. Therefore, humanity has produced output in the sixty years to 2010 many times more than the rest of the 1950 years combined.

No wonder that climate, environment and whales are protesting and wish to be restored. It is too late, methinks. Here is one proof:

Forest and land fires burning in Indonesia have released 360 million tonnes of carbon dioxide since August, said Singapore’s Minister for the Environment and Water Resources Masagos Zulkifli on Thursday (Sep 26) [Link]

Be sure of what you want. You may get it.

Based on the current repo rate of 5.4 per cent, the impact on SBI’s profitability is compressed to 10 basis points (bps). Home loans offered by the bank now start at 8.1 per cent. However, we are in a declining repo trajectory.

Therefore, if the central bank announces another rate cut anywhere between 25 and 40 bps — in October or later — profitability or net interest margin (NIM) may take a huge knock. At 3 per cent in the June quarter, numbers have just about started firming up and looking better.”

Source: “Linking loans to external benchmark may delay SBI’s profit revival – Profitability may take further hit on policy rate cut of 25-40 bps [Link]

The Chinese proverb I have used in the header is a very profound one.

The Yin and the Yang of ‘Make in India’

My friend Gulzar Natarajan shared this story with me. It is about India wanting to move from merely assembling mobile phones to phased manufacturing. It is an important and significant development. This is not hyperbole:

The formal notification of the phased manufacturing programme is a historic event in the Prime Minister’s path breaking Make in India and Digital India programs. With the consequent PMP – II which is in the works, in 3 years it is proposed that value addition will increase to 39 – 50 per cent,” said Pankaj Mohindroo, president of the Indian Cellular Association that represents all handset makers like Samsung, Apple, Micromax and others. [Link]

Contrast that news with this story. It smells from a distance. Train 18 which was named ‘Vande Bharat Express’ and launched by the Prime Minister will not be produced this fiscal and they will produce 40 more rakes up to 2022. The Railway Minister met manufacturers in July and assured them of ‘level playing field’. What level playing field? Who are these manufacturers? and why should they be offered a level playing field?

We need all engines firing and humming together. One engine cannot pull in another direction. If so, ‘Make in India’ and employment generation successes will be sporadic.

Economic growth amidst sinking cities

A story in Mint on my way to the Mangalore airport from Bekal last Sunday caught my attention. Kerala has borne the brunt of extreme rains last year and this. More importantly, human non-response or even callousness has compounded it. It is one thing not to be prepared for climate change and its fury. It is another thing to put ourselves in a disadvantageous position. See this:

In sharp contrast, in another corner of the state, public protest is preventing the state from tearing down four urban apartment complexes near Ernakulam city, as ordered by the Supreme Court on 6 September. The court found that the flats are built in a no-construction zone, close to ecologically fragile backwaters. It set a deadline of 20 September, but the occupants of these flats, including movie star Soubin Shahir, are fighting the order and garnering public sympathy and support across the political divide. [Link]

On the same day or next, I picked up the story of Bangkok and Jakarta sinking and the plans of the Indonesian President to shift his country’s capital out of Jakarta.

The developing world does not have the luxury of not minding the climate as it minds economic growth and prosperity. As they try to live like the West did – without worrying about the environmental consequences- they are coming up against the fast deteriorating climate caused by the actions of their developed country ‘seniors’. Not fair, one might say.

It is also used as a clever weapon to keep the prosperity gap between the two – Developed and Developing – wide. Stories such as this and this (ht: Arjun, my former student) leave me with mixed feelings. They are too tough on developing countries and it involves a growth penalty on them. This is another one of the ladders being kicked away by the developed world.

Well, climate change (extreme weather, rather) and its consequent impact on the environment are realities.

Developing countries have three tasks: (1) they have to do what needs to be done to save their cities and lives. (2) They have to find the money for it. (3) They have to keep up the moral pressure on the developed world to finance them. But, will it pay off? I doubt. Those guys in the West have lived profligately and do not have money to pay for their own unemployed and the elderly. It is a tough road and, to me, looks like a dead end, at least for now.

See here for a news-report on India’s demand for climate finance pledges made by the developed world to be met. The story also has the link to a discussion paper that India had released prior to the Climate Change summit held this week on Monday.

Exceptions apart, for the most part, the world will bicker over who will finance the battle against climate change induced calamity while it continues to cause havoc. On top of it, humans will continue to focus on short-term prosperity goals and not long-term sustainability.

A template on how to merge

Tamal Bandyopadhyay not only writes interestingly but he also writes about good stuff being done. This piece is an example. He had written on how the Bank of Baroda went about merging Dena Bank and Vijaya Bank into itself. A good read.

It comes across as a good template for other PSU CEOs to follow. May be worthwhile to ask P.S. Jayakumar and the CEOs of the other two banks to hold workshops (half-a-day seminars?) for the entities being merged now (announced in late-August by the Finance Minister) on what they did and how they did it.

The need for a huddle

In this piece, R. Jagannathan wrote the following:

But incremental reforms did take place, with the Apprentices Act being modified and labour flexibility being introduced through the extension of fixed-term labour contracts to sectors beyond textiles and leather. So even here there has been a forward movement.

This has been the reality with fixed-term contracts:

In its previous tenure, the National Democratic Alliance (NDA) government tried to provide flexibility to industry by introducing fixed-term employment for all types of establishments through a notification in 2017.

Under the rules, companies within the ambit of the central government were allowed to hire workers on a fixed tenure if they provided all social security benefits given to permanent workers in the same establishment.

However, since labour is a subject on the Concurrent List of the Constitution, state governments were required to issue notifications for those to come into effect. To date, no state government has done it, though the BJP ruled in 22 states when the central norms came into effect. [Link]

Jaggi must write about the need for the PM to get into a huddle with his CMs and agree on a 7-10 programme of key reforms for which states are responsible.