Inflation is roaring its head in emerging economies and some developed economies. Everyone is fully convinced at the moment that we will have inflation...and this will be end game.
Worried about inflation, policy makers will start tightening. However, there is always lag between easing (QE) and its effect. Inflation may become more visible by second quarter of 2011 and that is when policy makers will make mistake of tightening.
As a result of these actions of policy makers in response to perceived threat of inflation, We will definitely have deflation by around 2013 end. Policy makers will try to reverse but will fail. Nature will take its own course.
DOW will touch 32000 by year 2032.
-Shrihas Pandharkar
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DYOR.
Tuesday, 8 February 2011
Creditor's problem
If bank lends small money and debtor defaults then it is a problem for debtor. If bank lends huge money and debtor defaults then it is banks problem and bank can go under.
Let me first start with Euro zone. Germany is most financially sound economy in euro zone. Naturally, when it comes to supporting other euro zone members, countries will look at Germany. In this case, Germany becomes creditor and other nations become debtors. All of us know magnitude of problem in Euro zone. Therefore, if Germany offers credit using its own money and if debtors default then Germany will also be taken down. Naturally, Germany would like member states to not default (in short, Germany would like its member states to become better economies by controlling expenditures, increasing exports etc.). But is that possible if member states do not want to control expensditures? The answer is “NO”.
Same thing can be said about China, which is the biggest creditor nation. USA is debtor nation in this case. Let me take example of this moment. At this moment, almost all Americans are enjoying better lifestyle compared to Chinese. Americans are using borrowed money to fund their lifestyle, which is better than Chinese. However, note that China is in transition period where present-day generation takes pain for future generations. After some decades, reverse will be true when Americans will work hard and Chinese will have better lifestyle than Americans even when Americans work hard and that will be called transition period.
-Shrihas Pandharkar
© Copyright. No reproduction, please.
DYOR.
Let me first start with Euro zone. Germany is most financially sound economy in euro zone. Naturally, when it comes to supporting other euro zone members, countries will look at Germany. In this case, Germany becomes creditor and other nations become debtors. All of us know magnitude of problem in Euro zone. Therefore, if Germany offers credit using its own money and if debtors default then Germany will also be taken down. Naturally, Germany would like member states to not default (in short, Germany would like its member states to become better economies by controlling expenditures, increasing exports etc.). But is that possible if member states do not want to control expensditures? The answer is “NO”.
Same thing can be said about China, which is the biggest creditor nation. USA is debtor nation in this case. Let me take example of this moment. At this moment, almost all Americans are enjoying better lifestyle compared to Chinese. Americans are using borrowed money to fund their lifestyle, which is better than Chinese. However, note that China is in transition period where present-day generation takes pain for future generations. After some decades, reverse will be true when Americans will work hard and Chinese will have better lifestyle than Americans even when Americans work hard and that will be called transition period.
-Shrihas Pandharkar
© Copyright. No reproduction, please.
DYOR.
Saturday, 5 February 2011
Can single country stand up?
Everyone in this world is blaming USA for food inflation. Basic of inflation is demand-supply gap.
Now let me break down arguments in small parts.
Some decades before, most of the people from emerging economies had lower living standard than today. Governments of these countries opened up economies and foreign investors came rushing in. These investors poured billions of dollars. These incoming dollars raised living standard of people.
People from all such economies should note that their own currency has no standing. It is because dollars are coming in; that they are seeing this wealth effect. If all these dollars are withdrawn, then these economies will be back to square one. Therefore, they should not blame incoming dollars for food inflation.
Neither of these economies are self sustainable. All these people should ask themselves a a question, what will happen if all dollars are withdrawn? Some of the big economies from emerging area import oil worth 50 billion dollars annually. These countries will not be able to pay for oil if they do not export goods or services.
These countries will do well to ignore inflation for short period and instead plan to become self-sufficient.
-Shrihas Pandharkar
© Copyright. No reproduction, please.
DYOR.
Now let me break down arguments in small parts.
Some decades before, most of the people from emerging economies had lower living standard than today. Governments of these countries opened up economies and foreign investors came rushing in. These investors poured billions of dollars. These incoming dollars raised living standard of people.
People from all such economies should note that their own currency has no standing. It is because dollars are coming in; that they are seeing this wealth effect. If all these dollars are withdrawn, then these economies will be back to square one. Therefore, they should not blame incoming dollars for food inflation.
Neither of these economies are self sustainable. All these people should ask themselves a a question, what will happen if all dollars are withdrawn? Some of the big economies from emerging area import oil worth 50 billion dollars annually. These countries will not be able to pay for oil if they do not export goods or services.
These countries will do well to ignore inflation for short period and instead plan to become self-sufficient.
-Shrihas Pandharkar
© Copyright. No reproduction, please.
DYOR.
Thursday, 27 January 2011
Brilliant
That was brilliant.....
News just on bloomberg in next paragraph,
"Bernanke Says Fed Failed to See Broader Risks From Housing....At one Federal Open Market Committee meeting in mid-2005, Fed governors and regional presidents heard staff briefings suggesting that the U.S. mortgage system “might bend but would likely not break” from a large home-price drop, and that the market may rest on “solid fundamentals,” Bernanke said in a Dec. 21, 2010, letter to the Financial Crisis Inquiry Commission, providing his views and revealing new details on FOMC meetings from 2005 to 2008. Given these and other analyses, it was hard for many FOMC participants, in the summer of 2005, to ascribe substantial conviction to the proposition that overvaluation in the housing market posed the major systemic risks that we now know it did...."
In another senate hearing, Mr.Bernanke was asked a question about gold price rise, he said "I do not understand gold price movements"...
Above two paragraphs are self explainatory.
-Shrihas Pandharkar
News just on bloomberg in next paragraph,
"Bernanke Says Fed Failed to See Broader Risks From Housing....At one Federal Open Market Committee meeting in mid-2005, Fed governors and regional presidents heard staff briefings suggesting that the U.S. mortgage system “might bend but would likely not break” from a large home-price drop, and that the market may rest on “solid fundamentals,” Bernanke said in a Dec. 21, 2010, letter to the Financial Crisis Inquiry Commission, providing his views and revealing new details on FOMC meetings from 2005 to 2008. Given these and other analyses, it was hard for many FOMC participants, in the summer of 2005, to ascribe substantial conviction to the proposition that overvaluation in the housing market posed the major systemic risks that we now know it did...."
In another senate hearing, Mr.Bernanke was asked a question about gold price rise, he said "I do not understand gold price movements"...
Above two paragraphs are self explainatory.
-Shrihas Pandharkar
Tuesday, 25 January 2011
Fake?
UK economy contracted by 0.5% in last quarter of 2010 as per intial estimate. Some newpapers claimed it is due to snow.
Economists failed to understand difference in approach by UK government and US government. UK government started implementing austerity plan some time in June-July2010. Results are there for you to see, IMO. Long-term results are expected to be good for UK economy in general. But, who cares for long-term?
Everyone in this world is suffering from short-sightedness except for some who are in minority. There is no long-term here, everything is shor-term.
One of the hedge funds in SE Asia plans to return money by this month-end even after giving spectacular returns in 2008 (note, I am talking of year 2008). The reason; it could not match performance with crowd in 2010 (because it was basically volatility play).
The day USA winds down STIMULUS, US economy will collapse in another quarter as results from UK shows.
-Shrihas Pandharkar
© Copyright. No reproduction, please.
DYOR.
Economists failed to understand difference in approach by UK government and US government. UK government started implementing austerity plan some time in June-July2010. Results are there for you to see, IMO. Long-term results are expected to be good for UK economy in general. But, who cares for long-term?
Everyone in this world is suffering from short-sightedness except for some who are in minority. There is no long-term here, everything is shor-term.
One of the hedge funds in SE Asia plans to return money by this month-end even after giving spectacular returns in 2008 (note, I am talking of year 2008). The reason; it could not match performance with crowd in 2010 (because it was basically volatility play).
The day USA winds down STIMULUS, US economy will collapse in another quarter as results from UK shows.
-Shrihas Pandharkar
© Copyright. No reproduction, please.
DYOR.
Monday, 17 January 2011
Biggest Enemy
Last few weeks, I was brainstorming to predict how things can go wrong with the USA. After few days, I realised that I should have searched my own home instead of searching outside somewhere.
Let me elaborate. Biggest enemy of powerful person is he/she himself/herself. It is also true for any entity.
Let us say, FED is engineering rally in stocks by following ZIRP policy. If benefits reach common man then rally will definitely explode on upside. Many people are convinced that this is FED induced rally. However, if benefits do not percolate down to common man then can anyone guess what will happen? Americans will vent their anger against everyone including FED.
I think I also have to watch out social mood in the USA apart from stocks.
-Shrihas Pandharkar
© Copyright. No reproduction, please.
DYOR.
Let me elaborate. Biggest enemy of powerful person is he/she himself/herself. It is also true for any entity.
Let us say, FED is engineering rally in stocks by following ZIRP policy. If benefits reach common man then rally will definitely explode on upside. Many people are convinced that this is FED induced rally. However, if benefits do not percolate down to common man then can anyone guess what will happen? Americans will vent their anger against everyone including FED.
I think I also have to watch out social mood in the USA apart from stocks.
-Shrihas Pandharkar
© Copyright. No reproduction, please.
DYOR.
Sunday, 2 January 2011
I will have retired
Some of the reasons of 2008 collapse according to the policy makers are short-term-benefits and greed.
Let me first take a quick look at short-term-benefits. Policymakers stood up and blamed bankers for short-term-benefits. They said such behaviour needs to be curbed because it pays bonus based on short-term return that trader generates and not long-term profits. Same policy makers are now supporting STIMULUS. STIMULUS will generate short-term benefits and not long-term.
Back in 2004, policy makers patted themselves for profits that banks generated. In another five years (in 2008), same policy makers started blaming bankers.
It just needs some country to stand up and bring resolution in IMF to price oil in some other currency. Once that happens, Americans will suffer for generations from ill effects of stimulus. The USA may use all its military/intelligence power to prolong that from happening. However, it has to happen one day. But, by that time, FED chief will have retired. Policy makers will then blame myopia of FED RESERVE...and life will go on....
-Shrihas Pandharkar
© Copyright. No reproduction, please.
DYOR.
Let me first take a quick look at short-term-benefits. Policymakers stood up and blamed bankers for short-term-benefits. They said such behaviour needs to be curbed because it pays bonus based on short-term return that trader generates and not long-term profits. Same policy makers are now supporting STIMULUS. STIMULUS will generate short-term benefits and not long-term.
Back in 2004, policy makers patted themselves for profits that banks generated. In another five years (in 2008), same policy makers started blaming bankers.
It just needs some country to stand up and bring resolution in IMF to price oil in some other currency. Once that happens, Americans will suffer for generations from ill effects of stimulus. The USA may use all its military/intelligence power to prolong that from happening. However, it has to happen one day. But, by that time, FED chief will have retired. Policy makers will then blame myopia of FED RESERVE...and life will go on....
-Shrihas Pandharkar
© Copyright. No reproduction, please.
DYOR.
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