The Imperial track record

My good friend Prasanna Viswanathan had sent me this long-form article in ‘Financial Times’.

Key portions from the article:

Concerns about the validity of models are not a new feature of public health crises. From their first live deployment in 2001 they have been contentious. Used in 2001 to inform national rules about prophylactic culling in areas deemed at risk of foot-and-mouth, the models infuriated farmers in districts who believed their livestock was healthy. Michael Thrusfield, an expert in animal diseases, later claimed that Prof Ferguson’s modelling was “not fit for purpose” and led to the unnecessary deaths of animals. While many authorities are more sympathetic to Prof Ferguson, the counterfactual is hard to prove

There was a similar dispute after the 2009 swine flu outbreak when advice based on Imperial’s model was made public by ministers. This described a “reasonable worst-case scenario” in which there could be 65,000 deaths. In practise, there were only 457.

A later official report from Deirdre Hine, a Welsh physician and former chair of the Commission for Health Improvement, cleared everyone of overreacting, despite the consequent expenditure of £1.2bn on flu remedies that were not needed….

…. Some scientists point out that the model was originally built for a different disease — influenza. According to Mike Cates, a Cambridge university mathematics professor, “everyone’s conscious of the fact that it has been rapidly converted from a different purpose and wasn’t originally designed for this type of virus and this type of transmission”. He is now leading a project sponsored by the Royal Society — the UK’s senior scientific academy — to create more diverse modelling groups….

….. An ad-hoc group, Sage, is assembled to meet specific crises. When it comes to infectious diseases, the group sifts data funnelled to it from three subcommittees. One, known as Nervtag, looks at the threat from emerging outbreaks. There is another specialising in modelling called SPI-M, and a behavioural group, or SPI-B.  There is overlap between these bodies. For instance, Prof Ferguson sits on Nervtag, SPI-M and Sage itself.

The debit side of credit-rating agencies

My friend Gulzar Natarajan shared with me a link from the European think-tank Bruegel. It is very useful. It gives us on-budget spending, deferrals and off-budget guarantees (contingent liabilities) announced by various developed countries. You can find the table here.

Set against them, India’s on-budget additional spending does not appear so frugal. In fact, it is quite comparable.

Assuming that Bruegel has got its numbers correct, then, clearly Fitchratings had not gotten its numbers right. Fitchratings downgraded UK sovereign rating to AA- after the UK Chancellor made a flurry of announcements on supporting the economy. UK’s credit rating history can be found here. Fitch downgraded them on 28th March 2020. They had acted with alacrity, indeed.

Parenthetically, I must mention that FT got its message wrong. Fitch did not say that UK government debt would rise to 9% of GDP this year. Fitch noted that UK government’s net borrowing for this year would be 9.1% of GDP, up from 2.1% of GDP in 2019. That does not add up with Bruegel’s numbers. According to FT, Fitch expects UK real GDP to contract 3.9% this year.

In 2008-09, when governments bailed out the financial fat cats, credit rating agencies downgraded sovereign ratings much later. For example, Fitch put UK on negative watch with a AAA rating only in 2012 and downgraded it to AA+ in April 2013.

Will be curious to know why and what did they learn from that episode that made them act so promptly now.

According to UK Government data, the UK government deficit was 9.3% in CY 2010 and the downgrade happened in 2013. Now, if Bruegel is right, additional on-budget spending of 1.4% of GDP would not push a deficit of 2.1% of GDP (as Fitch estimates) for 2019 to 9.1% of GDP. That would require a huge contraction of GDP.

China is the only country perhaps for which the International Monetary Fund prepares its own estimate of government debt and deficit which is much higher than the official estimate. FT reports that China banks’ bad debts would balloon due to the Covid-19 crisis. Yet, Fitchratings had last upgraded China from A to A+ in 2007 and had not touched it since! S&P and Moody’s had downgraded China to be on par with Fitch only in 2017! Oh, well.

Moody’s, on its part, had downgraded South Africa to junk status.

It is hard to make sense of the credit rating agencies’ actions, frankly.

STCMA – 24th September 2019

From Srini Thiruvadanthai’s twitter handle, I wen to Jawad Mian’s twitter handle and came across this nice piece about Jim Grant. I identify with him in my investment advice. I do not get it right but my goal has to make people think. I do not succeed more often than I do, with the latter!

Obama productions’ documentary (‘The American factory’) about a Chinese-owned factory in America tells a lot about who practises ‘cowboy capitalism’. It is the Chinese communist party.

On the subject of documentaries, bookmark this page and check out some of the best documentaries produced by ‘Frontline’ (PBS).

It is funny that everyone is reading Martin Wolf’s piece on rentier capitalism. A piece that can comment on rentier capitalism and finance without acknowledging the role played by American and other western central banks’ policies is both incomplete and flawed.

JP Morgan’s Jamie Dimon might be talking of stakeholder capitalism now. But, his traders’ behaviour is inconsistent with his new-found enlightenment.

Bob Rodriguez’ interview titled, ‘The Fed is clueless’ makes for good reading although, as my friend Srini Thiruvadanthai notes, the Fed did partially redeem itself with a ‘hawkish’ rate cut last week. However, the interview is not just about the Federal Reserve however, but about the monetary policy paradigm that has prevailed in the last decade and is still ruling the roost. He is reading ‘A history of interest rates’.

My friend Anirudha Dutta shared this NYT opinion piece by Roger Cohen. Quite how NYT editors ‘allowed’ this piece to slip through their scissors and appear in print is beyond me as it praises Modi and reposes faith in him! What blasphemy!

A shallow article on the rise in American Personal Savings Rate. Surprised that WSJ chose to publish it.


Did not realise that my last blog post was on Jan. 6, 2019. I had come out of a procedure called ‘Stapled Haemorrhoidectomy’ on Jan. 3. It was a simple procedure performed under General Anaesthesia (GA) but I was discharged in less than two hours. Until the 6th of January, probably, I was still under the influence of GA and hence did not feel the pain that much. Between the 7th and the 11th, life was tough. Very tough. Since then, it has become just tough.

I wish I was given adequate information on what to expect after the surgery, as part of the recovery process. In that sense, I failed too. I should have demanded (and/or scoured the Internet) information on the worst-case scenario – in terms of time required for recovery, intensity of pain and all the symptoms and reactions that the body would experience. I did not do so. That is my failure.

Not that having the information would have eliminated them occurring. Far from it. I might have scheduled the surgery at a different time. Second, mental preparation is everything.

So, eleven days after the surgery, life remains tough and painful but I have to ease myself back into it.

Breaking the hiatus: RBI, Michael Pence

I had joined the IFMR Business School as its Dean, as of October 4.  It is located at Sri City in Andhra Pradesh. I arrived at Sri City campus on October 1 and the last week has been a blur. But, blogging is a refuge. I think I had mentioned it once before.

You can watch the interview I gave to ET NOW Television on RBI monetary policy decision on Friday. I was part of a panel. I did not fault their rate decision on Friday. It was a fine call. They took their chances. The stock market appeared not to like it. But, it has fallen the day before too. In any case, it was so rich in valuation that it deserved to fall. Establishing causation for such short-term action when the market was anyway overvalued is problematic. Did the market expect RBI to cut rates or raise rates?

But, I felt that they should have offered more substantive comments on the IL&FS, if not on Friday, but on another occasion.

Before the interview, I managed to go through the monetary policy report and the press statement in the long car ride from Chennai city to Navalur in Kancheepuram District (OMR).

Michael Pence’s speech on China requires careful reading. I had not done so yet. It is an  important and calculated escalation.

We can do without headlines of this nature. The Federal Reserve Chairman does not exist to serve the stock market investors.


Leadership and credibility

My comment on Andrew Hill’s article on leadership credibility:

Mr. Andrew Hill is right that President Trump will not be able to, ever, gain credibility with his critics. But, what I do not know is whether it is his failing or theirs.

With Trumps’s personal conduct, the charges against him are a mixture of truths, innuendoes, sly suggestions, evidence-free and unproven allegations. So, his personal credibility is low with those who believe in these allegations. Some are indifferent because there is, so far, smoke without fire and for his supporters, they do not matter.

The question of double-standards on the part of the critics bothers many neutrals and that dilutes the credibility of his critics, substantially.

As for his role as the President, many – including his critics grudgingly admit – have now conceded that he lives up to the agenda or campaign promises. He has done so more than any other recent President has done – Republican or Democrat. That should actually enhance his credibility, whether we agree with that agenda or not.

Coconut oil

Came across this article in ‘The Guardian’ on Coconut oil. A professor at Harvard calls it ‘pure poison’.

A friend of mine who is a Cardiac specialist and surgeon wrote back:

“We have been using coconut oil for many centuries without any mishap. Whole of Kerala is using it and so many Pacific islanders do use coconut. Think the west is trying to undermine us! Our forefathers were clever indeed!”

Another friend sent me a link to this effective speech by Dr. B.M. Hegde on coconut oil. Dr. Hegde, in that six-minute speech, mentions an Institute that he has co-founded. You can find it through this link.

Another friend wrote in to say that he would trust B. M. Hedge over anyone else anyday.

One more friend – who always gives me a complex whenever I talk to him – shared the following information and insight with me:

I have read a lot of stuff on food and the only 2 things I have concluded are 1) a Mediterranean type diet is good, and 2) concurring with Michael Pollan’s pithy advice ‘Eat food. Not too much. Mostly plants’

I think Pollan is the Atul Gawande of food writing. I love his description of edible food like substances (high fructose corn syrup and other products of food science) which he contrasts with real food.

He added:

‘In defense of food: an eater’s manifesto’ is the one with the pithy advice; his preceding book ‘The Omnivore’s dilemma’ was good and his most prescriptive book is ‘Food rules’ which followed ‘In defense of food’.

I think coconut oil has already benefited me a lot, as you can see from the information I was able to gather from friends.