Coronavirus - Where the world will head?

It is not the world that has not seen pandemics in the past. There are many variations of SARS including the current COVID19 in the recent past also. There is a history of Spanish flu that went contagious all over the world and is the one to which the parallel is being drawn with the current Covid19 pandemic. Spanish flu has a devastating effect all over the world. It infected about 500 million people in the world, one-fourth of the population of the world. A rough estimate is that around 50 million died. The flu came at the fag end of world war one and was carried all over the world by soldiers going back to their respective countries. This time it's no different as Wuhan is a big economic hub in China and the virus is taken back by all the visitors. The difference is in Spanish flu people returned back by ships. In the current scenario, people travel by plane. A journey that might take a month would just take a couple of hours. The spread has been very fast and we still probably seeing the tip of the iceberg. An estimate says that it will eventually affect 80% of the world population. Even a 5% death rate would be 250 million people. The human race is not in a very good place now.

Capitalism will die..Soon

Capitalism like all "ism" came with a promise and did serve the society well. It unleashed the human potential in numerous ways and led to many discoveries and innovations. The biggest of them being the large commercial behemoths which in turn became the vehicle of not only discoveries and innovations but making many things affordable and reachable to a large section of society. It also led to many innovations in medical space and which in turn has reflected in a much longer lifespan for humans.

Rajan exit - Will it impact?

Many possible exit in the economic world has been doing news. Whether Britain will exit Euro, Greek will be exited out of Euo. The other exit which has been making a lot of news in India is Rajan exit. Whether Raghuram Rajan will exit? I don't remember any time in past where a post like RBI Governor has made so much of news. Most of the people don't even appreciate what RBI does? For them the only important thing is if their EMI interest rates will go down or go up. For good or bad reasons, this government has made many other posts so much talked. Now India knows about FTII, Censor Board and recently NIFT.

What is development?

In 1971, Indira Gandhi gave "Garibi Hatoa (Remove poverty)" as the election war cry. The slogan has been used since then by various political leaders, in a bid to hit the bull's eye.  The cliche recently has been replace by "Vikas (Development)".  Atleast, in a sarcastic sense, we have gone from a more negative connotation of removing something to doing something. What a positive change. And then there is more positivity added by saying "Vikas, tej gati se Vikas aur charo taraf Vikas" (Development, Faster development, All round development). 

Printed money and commercialization

Commercialization of everything has become the norm rather than the exception of the day. From eternity, people have been manipulating the society and had used their power for their vested interests. It's just that the quantum and volume of everything has become very high. We want to pack everything in those 24 hours and want people to sleep less and less. If people just start sleeping little more, the crime rate will go down automatically.

Why India is not able to tame Inflation

Inflation has been the most important phenomena for Indian economy for last 3 years. It has run like a wild fire and remains uncontrollable. In spite of tightening cycles of RBI, the inflation does not seems to be under control.

Before we venture into why India is not able to tame, we need to understand the nature of inflation especially from the perspective of demand side and supply side inflation. Both essentially drive the supply demand curve but impact the curve in a different way. A demand side inflation is basically because of high demand of commodity whose supply is still at the same level. However the supply
side inflation is because of the issue of supply side constrains itself at the first place.

We saw demand side inflation till 2008-09, till around Lehman collapse. The housing sector was a

Marketing : The concept that is shaping the new world

World is becoming more and more consumption driven. In fact, all the barometers of economic prosperity is getting tied to how much, we as an economy can consume. Yes on the face of it we benchmark the health of economy with GDP, but the high GDP is backed by high consumptions. I am not going to get into the debate of whether the consumption driven approach is right or wrong either at economic level or at ethical level, but let's focus on why human as a race is becoming more and more consumption centric.

Rewind the history of humans and let's go to prehistoric age. Humans had barely left the trees and had settled in caves. The caves gave them comfort and security. It was a need to adopt that change. Without that change humans would have disappeared, as it could not run fast and was not strong enough to fight with the likes of Elephants and Tigers. The change was needed for the survival and the same change led to start adopting weapons. 

Inflation is going to stay for a long time in India

India is struggling with inflationary pressures for some time now. All attempt to contain the inflation by central bank and government has not yielded the desired result, apart from momentary successes. The successes also can be attributed to the supply of commodities at various time because of good harvest of crops, then anything else. Apart from that, the inflation has remained not to be tamed.

I believe inflation is going to stay for a long time in India to come. And we do not have to look

When the recession will end

This is the biggest question doing round at the moment that when the economy will recover. There are all kind of estimates doing round that it will recover in next two hours to next two to three years. Even there are wide opinions on the kind of recovery that will happen. Some are expecting V shape recovery. Other think it will more U shaped. In fact all the letters of the alphabet has a model in its shape and logic put behind those shapes. The only take, I like to take from these discussions is that economy will eventually recover. I am a die hard optimist.

Now let's come to the more important question of how the recession is going to over. I think it's impossible to predict the timing of end of recession. One big problem is itself that there is no clean definitions of recession so we will never know when recession will over. Also another important thing is that recession is very individual in nature. Recession for me may not be a recession for you. But still we can broadly say that when the media stops talking about recession, the recession will over.

There are many theories going around that recession will be over by growth in emerging market, which I think with all humbleness that is not going to happen. The growth of emerging markets on other way round has a lot depended on the growth in the developed countries. The emerging markets are providing resources to the need of developed countries. So if there is no need, there will be no need of resources provided by the emerging market. There has been a lot of discussion that the internal consumption in emerging markets especially Indian and China will help in bringing the demand. A closer look in the Indian economy will show that everything is hunky dory. The government is running a huge deficit and still has to deal with political compulsions. Also the internal demand might sustain local industries but they will no where bring the demand to take the world out of recession. People still bye Tata's cheap car. Forget that they are going to go in herds and start buying Mercedes or Audi. Also one of the major drivers of the growth were IT professionals, whose sky rocketing salaries has resulted in a bull run for everything in the market. With reduced IT budgets and a big workforce without work, will result in restricted wages and may not see the kind of demand that is anticipated. Government of china can be an exception and they have declared massive spending programs. But China is still opaque in terms of many thing so to rely on it would be foolhardy till more reliable signal appear on the radar. Also China is a big export dependent economy so whatever spending government might declare, will be good enough to create the demand as a replacement for exports. So it looks like the economy will never come out of recession.

The economy will eventually recover but it will be long drawn process. The time will depend on many factors all around the world. So it will be difficult to point out what big five things will drive the economy out of recession. Before we understand how the economy will recover let's first understand the demand supply mismatch, in which lies the key to recession and key to recovery. Why recession happened at first place? It will starts with something which fancies the whole market. In 2000 it was Internet and in 2008 it is housing market. Let's call that thing zing. A momentum starts building about owning that zing and it results in a herd mentality. Due to pent up demand, the supply starts getting exhausted which results in spike in prices. As the price starts moving up, more and more people want to join the race so that they can also be part of the zing. The first set of people are those who actually need that thing but later on in the crowd the bigger proportion is of the people who are more speculative (call them investors) in nature. Looking the huge demand supply mismatch, on one hand the price keeps on increasing and on the other hand people start creating infrastructures to create more and more supply. So both the things start going parallel, the price driven by demand increases and the future potential of supply increases. Than one day the huge quantity of supply starts coming into the market. Remember that in this process the speculators have increased in a big proportion and most of them are holding the zing at the moment. (In 2008, it was houses). With huge supply, everyone now scrambles to sell it. From a Seller suddenly it turns into a buyer market. And prices started crashing and many times they crash without real deal happening. Companies realize that they cannot sell their product so they start shutting down. Other companies around them start shutting down and it leads to a complete cascading effect. Lehman phenomena is the result of recession and not the cause of recession itself.

Now to come out of recession that supply demand mismatch has to go away. With time, more of speculators will start going out of the market selling it to the people who actually need it. This will start to bring down the supply. Also most of the new supply stops by this time as again the speculators on the side of supply business start winding their operations. This again brings the demand and supply to match and the demand starts its normal growth path. This will again start opening up the demand and than for the supplier to increase their capacity. The increase in capacity will look for more people to be employed who will pent up the demand of other things and economy starts functioning normally till the next zing thing is found. So brace for that to happen and it's actually already happening. If you see more people have started visiting the Cake shop or Coffee shop at the corner than the recovery is happening. And it's better not to worry about when it will happen but rather to worry about what you should do. Remember recession is very individual in nature, so look for opportunities.

The unstable economic system

In the old days, we used to have barter system. It was a slow system but quite stable in its nature. People cannot leverage much, as the possibility to move the commodities at a faster rate was not possible. The commodities were first class citizens in the world of exchange and not buried deep down under a chain of instruments and promissory notes. The economy cannot run berserk in either direction, because the commodities cannot run fast or sometimes cannot run at all. The capacity to divide the commodity maynot be even possible in many cases.

However it has its own disadvantages as their were chances that the underlying commodity can loose its value completely. For example the housing prices crashing in the current recession. But the impact of that would be limited to a very narrow section of economic system and would actually rightfully punish people who have leveraged themselves without understanding their capabilities. On the contrast, the present housing crisis has a repel effect on the whole system. In theory, only the end parties will get effected, but then it's a chain. The strength of a chain is its weakest link.

We have compounded our problems further in the currency system by borrowing our futures in every aspect of life. I can understand buying a house on loan but I could never understand buying a fancy shoes on it and when one chooses to pay it in instalments with an interest on it.Worse than that at any point a piece of currency gets involved in size of trades, worth more than its intrinsic capacity. I would buy a shoes without paying anything but let's assume the same worth of currency in my hand gets associated against that transaction. Now that cash in hand gets deployed on something else, maybe eating in an expensive restaurant. 

Even If I do not spend that cash, it's very common to take more credit against that cash in my hand and and not taking care that we are spending the same money. Worse than that, I might be expecting that money will come in my hand in future from my salary or other payments. What happens when I loose my job and that money never comes to me? This is a serious danger we are running in our society and happens every day. People have accepted credit taking as part of their life and unfortunately the government and big business houses promote it as it brings the sense of financial prosperity. Taking credit for asset building makes sense but taking credit for consumption!!!

Taking loan for a vacation???

The infinite amount of everything

Fed is printing money and printing like anything. I wonder where all those paper money go and disappear. In spite of so much of money, most of the people, in the world still do not carry a feel good factor. The society is creating extreme riches and extreme pverty. It's true that with free market economy and democracy in place, it's easier for a man to cross those boundaries either way. With good judgement and right strokes of luck, one can become rich, extremely rich. Some poor judgements or not understanding the risks correctly, can make someone pauper also quickly.

We are approaching infinities in both direction. We want to run F1 every time. We are living in a world where we are judged by quarterly performances and monthly sales target. The governments are worried about giving performance for last year of their tenure so that they can reelected. This has set a huge amount of short sightedness in the system.

The economy is inflated already with huge amount of virtual money and we keep inflating it with new set of currencies and bringing more means to make the money virtual. A point is coming, where all the money in your pocket will be a number in your account. I am not sure what is the value of money going to be then. How government are going to decide that they want to put or remove more money from circulation. It will be so easy to splurge when money creation is going to be so easy. In old days, the kingdoms were limited to their expenditure in terms of the physical asset they can lay their hand on. But now governments have printing presses, which can do anything.

Is recession over?

How short sighted the human kind as a culture has become. Couple of months back most of the people were not seeing any end to the bottom. Most of the people in the street were not ready to believe on the undying spirit of the man on the road and his ability to bounce back. The people on Wall street and Dalal street with lenses coloured with complex mathematical and computational tool were sending one after another the message of doom.

The economy showed sign of recovery before any one could forecast, it will. The wall street and Dalal street became impatient and now they do not want to see the end of the road in the other direction. Everyone wants recovery as if there is no other day to progress. The habit of leaving from quarter to quarter in wall street has brought so much short sightedness into the main street that no one wants to think beyond the day in hand.

Whether the recession is over or not is more of an academic question. The more important question is can we put a framework which provides a sustainable growth for every one without bringing the risk of earthquakes and tsunami's. Faster growth is not bad but is desirable but with all the safety nets in place.

Where are the green shoots of economy

The markets in tandem were low when Lehman broke in October. Worst than that was the credit crisis that freezed everything in the world. The simple reason of the freeze was the complete lack of trust among parties. No one knew who will be the next Lehman? If Lehman with its size can fail than no one in the town(read world) is sacrosanct.

Market reflected that phenomena with huge crashes around the world. All talks of India and China story including emerging market was swept under the carpet. Looked like that was the end of the world. The erosion in the wealth was massive and still is.

Than suddenly everyone started talking about green shoots in the economy.Some of the indicators started turning up. And in tandem market started moving up. So are we on the inflection point where the economy has started recovering. The data started mellowing in terms of its intensity and a common term often heard is that the economy has bottomed out.

This will always be a difficult question to answer. The economy does not changes on per hour or per day basis, the way stock market reflects it. One bad data and it takes everyone down. One little less bad data and everyone starts moving up. Also the data is good and bad is relative as it is compared with the expectations reached by surveying the so called market experts. The same market experts who never can predict even a day or for that matter an hour ahead. And we expect them to predict the manufacturing activity or inflation numbers. I feel it's better to generate those expectations by running a random number generator program in my computer. This will be much cheaper also.

So let's focus on if the green shoots are really there? I think rather than asking this question that when the economy will start turning up so that you can start investing , I would pose a different question? Will economy ever will turn up? What do you think? Do not worry about time line now. It might be 2 hours (as stock market predicts it) or it might be 2 months,2 years or 2 decades. We all agree that the economy will recover eventually, unless a meteorite hits our planet and we go in never recover mode.(Some optimist can even argue that we will again come to housing boom albeit couple of million years later.)

So once we have decided and etched in our mind that economy will eventually recover than what to do next? Think when the economy will recover what the opportunities will be presented. What preparations you need to do to be better, smarter and stronger in that? If we get with this idea that economy will recover and don't worry about time, it will be much easier to make investing decisions. Yes you still have to be prudent in selecting your eggs but chances are you will be eventually better off because economy will eventually be better off.

Do you still care for green shoots?

There is a corollary also. When the economy is doing good than eventually it's going to turn down as many recession cycles has proven and will prove. Again think that what you need to do so that you survive in a smarter and better way when the economy will turn the other way.

Economic recession - Different perspective

When recession will over is the biggest question doing round. Everyone has their own thoughts and ideas on it. From financial kids in wall street to the soothsayer on the corner of the street, has its own idea about it. This is a collection of some thoughts floating in the world. Let's see how they fare up against time.

Astrologers

It's usually difficult to read the astrological predictions because they are written by using long winding words. It looks like, it does not matter what will happen, they can interpret it as per their predictions.

• http://www.soothsayers-india.com/Vedic-astrology-and-Global-Recession.html - There will be another stock market crisis between September 09 - October 09. Trade becomes steady only after March 2010
• http://blog.beliefnet.com/astrologicalmusings/2009/03/when-will-the-global-recession.html#more- Summer of 2010.
• http://www.luckinlove.com/recession.htm Recession will last till XMas 2008 to March 2009 and maximum Fall 2009.
• http://www.indiadivine.org/audarya/world-review/451699-recession-astrological-angelic-analysis.html - Recession will be there for whole of 2009. Some respite from September 2009, but good times only after middle of 2010.

Economist and Wall Street folks

Economist and true Market folks usually tend to not to comment about the dates and times. They become more humble with time as they knew that market has proven them umpteen times wrong. Never fight with the market. They have views, which are linked to the occurrence or non occurrence of certain events.

• http://www.ameinfo.com/75420.html - George Soros predicted the recession in 2007, back in 2006.
• http://blogs.moneycentral.msn.com/topstocks/archive/2009/06/24/warren-buffett-s-gloomy-economic-predictions.aspxWarren Buffet still not sure, how long the pain is going to be there.

Government perspective

Governments are like ostrich. They will react when the flood water reaches to bedroom. Another interesting paradox is that the market does not likes Government intervening when the economy is in bull phase. The same market wants Government to act, when the economy goes in recession. The Government is usually optimistic in all situations, as it is a good impression on the voters that they are in control. Also in their speeches, one finds a lot of back patting of each other for the good work they are doing. When government issues a statement, it's better to look into the rationale on the basis of which they are pushing the conclusion. The rationale's has merits and the conclusion might be totally out of the way.

• http://www.azcentral.com/business/articles/2009/06/24/20090624biz-InterestRates0624.html Ben Barnake thinks recession will over by 2009 primarily because of economic stimulus. Geithner thinks in similar lines.http://www.nypost.com/seven/06012009/news/nationalnews/geithnereconomy_doing_ok_172003.htm
• http://www.bloomberg.com/apps/news?pid=20601087&sid=afWrPB8FcAZw World Bank thinks recession will be deeper in 2009. The world economy will contract 2.9 % and growth will be 2 % next year. Their earlier estimate was 1.7% decline and 2.3 % growth respectively. Interestingly, the sister organization IMF thinks differently. They think 1.3 % contraction in 2009 and 2.4% growth next year. Also it may revise it upwards. May be we average out or ignore both.
• http://www.spiegel.de/international/europe/0,1518,629939,00.html - ECB thinks recession will last till mid 2010.

What I do

So where you and me, the common man on the street stands. I think it's better to not to heed to anyone's advice. The bottom line is no one knows what will actually happen. Everyone is doing some sort of predictions. And remember, prediction is a business for the categories of people above. They earn their living by it. So it's better that you worry about yourself. If Warren Buffet loosed couple of billion dollars, it will be a change of figure in his bank account. But if many of the people on wall street loose even couple of thousand, it will bring a material difference to what you eat in your breakfast and lunch and may be no dinner.

However if you are really interested in following recession than I think, one should look into following data points:

• Level of employment: Look for indicators of employment. A worsening employment market will tend to make recession longer because it is directly controls the demand environment.
• Level of industrial activity: Look for industrial production index and activities in housing market.

Also the above two indicators have correlation between them. The government can stimulate the economy by pushing up any of these indicators. Personally, I think it's better to push up the industrial activity as this brings more durable growth. Pushing employment by putting more people on government jobs leads to long term inefficiencies. Also in and economy, people may not spend as much as needed to push up the industrial activity.