Posted by: Shiv Muttoo | April 4, 2009

Promise of a New Day?

Flashback to the brilliant blockbuster from a quarter of a century back, Ghostbusters (1984), which had a group of psychotic professors in jumpsuits, totting fancy atomic guns bent upon ridding the world of all paranormal activity. End of movie, all ghosts, ghouls, gargoyles, et al in question were sent packing and all was well with the world (at least with New York, the centre of the universe).

The camera zooms to the present. A group of 20 seemingly important men and women bent upon whacking the stuffing out of the global economic crisis, the new age paranormal showspoiler. Armed with their economic stimulus bazooka, they will infuse the ultimate elixir to rid the global economy of all its wrongs. And all will be well with the world. Or will it?

While the going was good, everyone joined the party and policymakers conveniently looked the other way. But now it sure is broke and needs a quick fix.

And the remedy is a $ 1 trillion POTA (pulled out of thin air) package. The world will see more federally-backed, gilt-edged IOUs (currency notes) chasing a limited supply of hard resources. The fact that most of the G-20 recession fighters are deep in deficit does not seem to deter anyone. After all, balancing accounts may be out of our reach but the currency printing equipment sits right in our backyard. Who cares if this is inflationary, deflated demand from a recession-hit world will surely keep prices down. At least till such time that the current set is in their current jobs.

I understand that America’s $ 14 trillion economy owes $ 60 trillion. If this is even remotely close to the truth, there’s no hope in hell of a payback happening. It’s not only the U.S., most of the developed world and EU is caught in the same whirlpool. Many of these countries are far more leveraged than the U.S. and therefore at greater risk of capitulation. A significant currency deflation is the only chance to get a foot in the door and somehow squeeze through it. I suspect that next we’ll see a race to deflate currencies by the world’s leading nations. Savers will see the value of their corpuses shrinking as inflated prices and deflated currencies eat into them.

And where’s India in this melee? Being part of the G-20, and ably guided by a wise and wonderful prime minister (Barack Obama, no less, says so!), India is a key Ghostbuster, soon to lay the world economy’s gremlins to rest. What are we armed with? Quarterly current account deficit of almost $ 15 billion in the third quarter and rising. Balance of Payments deficit of $ 18 billion last quarter for the first time in many years, driven by a reversal in the trend of strong global inflows. Repatriating deposits parked in international tax havens (India has a leading share of over 10% in this $ 10 trillion market) could be the source of some succor in these cash-deprived times. But whenever there is an opportunity to push this forward, our Government has tended to look the other way. No prizes for guessing why!

So, as Alan Parsons asked, where do we go from here? The Great Shenanigans Show (the general elections) is about to unravel. Divide and Rule, as a concept, did not really fade away with the British. It’s very alive much alive, being practiced everyday by our political masters, and will soon kick us into submission. A Government even more populist than the current one (is that possible, you may ask?) is about to descend upon us. Law abiding citizens of this country, however few and far between, are in for a further round of screw tightening. Not even the Ghostbusters can do much good in this situation.

So just take a short on equities, take refuge in the primary source, and hope for the best.



  1. great stuff, shiv!
    Clarity of thought and quality of writing: here’s to the birth of a new columnist! after this, one might ask, why, oh, why should anyone do IR when one can could give such lucid gyaan to the world?

    can’t wait to see read next one, sir!


  2. Good stuff. I liked the POTA. I also liked the last statement, even GOD or GHOST cannot save. Is the begining of the end of KALYUG

  3. And you call my ramblings “Brilliant”! Thought for a while I was reading something out of the Economist. Way to go Shiv – Will follow your alternative career with much interest and for some reflected glory.

  4. Grrreat stuff. Happy writing. Look forward to see more.

  5. A fairly straight-forward analysis that says it as it is. I agree, the macro signs are clearly indicative of anything but a sunny outlook. Indeed, a recent Moody’s report said that defaults by corporate bond issuers in America have gone up to levels not seen since the depression era. The Jan-Mar.2009 quarter was the seventh consecutive quarter of earnings degrowth for corporate America.

    The situation in India is relatively better. But the level of total deficit, and hints by Pranab Mukherjee that he does not see that as a priority problem, implies that fundamentally we too have much to worry about.

    And yet, if one were to describe the equity markets (US or Indian) today, given the way they have risen over the past couple of months, “gloomy” would probably not be the first word that would come to mind. Since January, markets in the US as well as in India have climbed, as if all’s perfectly well. That obviously is not the case.

    Why then this chasm between capital market behaviour and macro fundamentals?

    One explanation perhaps is that equity markets do not fall in a straight line. Even during a bad phase, one may see several peaks and troughs with the overall trend remaining southward-bound.

    “Take a short on equities and hope for the best” therefore sounds like sound advice. At least until fundamentals convince me otherwise.

    • My call of shorting equities fell on its face. I thought going to the source (buying gold, oil etc) made sense as these are finite resources but obviously currency isn’t 🙂 Actually, I still have a smallish short position on the Nifty so I have walked the talk – and tripped 😦

  6. Shiv, its never too late – a flourishing literary career awaits you. Look forward to more.

    In the present scheme of things, its quite likely we will have some more POTAs from the many Ghostbusters we have across the globe.

    And yes, while the highly leveraged developed economies seem almost ‘beyond redemption’ we seem to be chasing them in earnest. A $ 15 billion current account deficit does not seem to phase any of our learned friends in the political and financial community. Further waivers of loans and assistance to supposedly ‘deprived and backward’ classes seem to be a surety – this believed to be one of the key contributors to the mandate.

    Short on equities may seem the logical way to go but hearing some ‘experts’ voice their highly positive prognosis and the regret that so many have shown in not having gained anything from the recent run up and are still flush with cash, may see them chasing stocks to unbelievable levels with no care for valuations.

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