Author: Ritesh Jain

1.Capacity utilisation crosses 75%. Probably the most important piece of data for Indian economy  ……….why?
Till now govt spending and household consumption has kept the economy growing but both C ( consumption) and G (governement spending) cannot give a long term boost to the economy. It has to come from Private Capex (I) and
once capacity utilisation reaches around 80% I expect Private sector to start putting new capacities and the baton of lifting GDP growth can be passed on to the Private sector which is more sustainable

2.Financial engineering (stock buybacks) have been adding support to the share price of Apple but as Andy Kessler at WSJ writes “Smartphones are now like radial tyres. Everyone has one and they don’t wear out. Phone franchises are fickle. Ask Motorola and Nokia, if you can find them.One near- term sign of distress, Marketing tech products with splashy colours, as steve jobs did with tangerine IMacs is almost over.Apple hopes to make it up in services, but google leads in Maps, Netflix in video, and UBER in transportation. Apple is falling behind in most other growth segments. The company’s destructive seed is its desperate need for a new product category. it won’s be watches”

3.Japan Bond market finally revolted against its central bank resolve and forgot that there is a lid on bond yields.

Japan 10 year bond yield yesterday rose 100% in one day…….. yes it went from 0.06% to 0.12% .
Now with JGB yield rising (It’s frightening how US yields have been pinned down by foreign buying) ,US yields have also picked up. If 3.25% goes in 30yr yields watch out for spill over to other markets including EM bonds.

4.Fidelity went to zero fees on their ETF . I mean WOW. I guess they would be making money from SLB ( securities lending and Borrowing). It is a matter of time we will see plethora of low cost ETF in India .

1.Google trends throws one more interesting trend. The search for “Insurance” reach five year low which is a matter of concern more so when penetration levels are still quite low.

2.For the past year, Kyla Jackson has been one of the only teenagers in the world who gets a ride to high school from a robot.When she’s ready to start her day, Kyla summons a self-driving car using the Waymo app on her phone. Five minutes later a Chrysler Pacifica run by the autonomous vehicle arm of Google’s parent company, Alphabet Inc, stops at her home in Chandler, Arizona.
Alphabet is experimenting with prices and finalizing its business model before unleashing its autonomous fleet in Phoenix this year.

3.After five straight months of positive inflows, China saw net capital outflows in June. Further weakness in the RMB could trigger another episode of capital flight. Chinese authorities might become more proactive this time before Capital outflows start to accelerate. Last time when Capital fled China it created a bubble in Real estate from vancouver to Sydney .

India is also seeing its own version of Capital outflows with wealthy Indians leaving India with their money.

1.In an inflationary environment … do NOT expect bonds to act as a hedge to lower equities ( very evident today). As the correlation between prices moves positive modern portfolio theory i.e. long “a diversified pool of assets” will get crushed, especially Risk Parity (Julian Brigden)

2.Dimnishing Returns-Consequences of Excess Debt
One of the most important concepts in the world to understand e.g why debt globally is expanding at 3,4,5X the rate of GDP growth.We might be in awe of china growth but see the sharp fall in GDP created per dollar of Debt.

I wish I had this data for India to compare, although I am pretty sure that our debt productivity is higher than all other economies shown in this chart (because of higher inflation).

3. It seems everybody is long dollar at same time and I think if dollar stalls here, we might see some short term relief rally in Emerging Markets

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4. Great chart from IIF , they have named it “Trade Tantrum”

SBI has again raised deposit rates, not waiting for RBI signal.. albeit marginally,not only for shorter duration upto 90 days but also for longer maturities. They are not only realigning their rates to market but also making a judgement call of taking long term money 50 bp higher than last time.SBI was the biggest beneficiary post demonetisation and had got huge float money.So they never needed high cost time deposits hence they had cut deposit rates deeply so as to disincentivise any deposits flowing to them. In fact the entire banking system was flooded with more than 15lacs crore of almost free money lying in deposits and hence cut the rates deeply to make time deposits unattractive. This, in my view was the biggest reason that disheartened fixed deposit investors went all in to Mutual funds and insurance products.
But I am digressing from the topic. So cutting the long story short couple of things have happened in last one year.
1. The float money which SBI all along thought will become more permanent in nature has all been withdrawn and
2. Credit demand is becoming more durable in nature and higher bond yields are here to stay.
leading to double whammy for banking system and especially SBI.
They are not having enough deposits to fund credit demand …..period.
So they have gone ahead and raised the rates and not waited for RBI rate verdict tommorow.
Infact RBI can only influence overnight rates, not the deposit rates which banking system should be offering to their depositers and that is why what SBI did today is more important then RBI policy decision.
If banking system starts receiving enough deposits (I doubt) at these deposit rates to satisfy credit demand and reduce the gap between deposit growth rate and credit growth rate then this is the top in interest rates, so watch out for that gap more than what RBI is going to do tommorow

https://www.livemint.com/Industry/bZXX8b7b3K0loAGhKPWs1K/SBI-increases-interest-rate-on-FDs-Latest-rates-here.html

1.It’s time for schools to teach Python, not Java, as their main intro to computer science. Along with being easier to learn and *actually* able to run anywhere on anything (like Basic back in the day), it’s the dominant language of AI and computer vision. My daughter took her first lesson in Python and she really liked it

2.The sector behaviour is extremely ‘weird’ from the last time we were at new highs.
Peak to Peak Analysis:
1. Defensives roaring all the Way
2. High Beta struggling,
3. Rest others are just about very patchy performances. ( Kunal Bothra)

3.Chinese economic data has weakened significantly and in last one week the authorities have blinked and we are back to the escalation of Chinese stimulus / easing .Why should  it matter? Because chinese credit creation is responsible for almost 50% of global credit creation in last 1o years and in my view this will lead to Potential commodities/cyclical melt up and value stocks outperforming growth equities

4. US Nominal GDP (real GDP at 4.1%) came at 7.4%. Rising velocity of money is normally associated with rising economic activity,rising inflation and higher bond yields.So who is putting bets on curve steepening?