Charts That Matter

Arguably the most important chart in macro – FX reserves stopped rising for 1st time in 70 yrs. Post 3Q2016 this meant US Trilemma in force – (Luke Gromen)

Fed can have 2 of 3 of higher USD, rates, & stocks on sustained basis

Ned Bank Global $-Liquidity metrics have accelerated to the downside – we are “red” light territory. USD stronger, Equities/Comm/EM lower. We are in uncharted territory as global fin conditions tighten.( Mehul Daya)

The Last domino to fall ….U.S. junk bonds are showing a bit more nervousness than they have in earlier bouts of equity weakness. Since October 2, they’ve lost 1.5%. Yields on the debt have climbed to the highest in two years.(Lisa)

India’s Sales Managers Index report shows some moderation in business activity growth.

India Sales Managers Index suggest slowing growth

World Economics writes…Indian Economy Continues to Grow Rapidly in October with Headline Sales Managers’ Index at 59.0 but Multiplying Slowdown Signals Suggest Caution Regarding Future Months
Sales and Market Indexes continue to show growth, but rate of growth falling fast
Jobs Growth Index has fallen from its recent (2 years ago) high of 73.1 to close to 50.0
Despite still high business confidence,they expects a significant fall in GDP growth rate in the coming months

High frequency indicators such as auto sales, two wheeler sales, tractor sales also show sales are slowing. Passenger  Vehicles sales fell 5.6% in sep YOY, followed with 12% degrowth in tractor sales YOY in sept .

Both are indicators of health of urban and rural economy. While rural can be explained on low farm income, urban slowdown can be best explained on general economic uncertainty and lack of  Job creation .

 

 

Conversation with A Technical Analyst

I posted Technical views on market by Neppolian http://worldoutofwhack.com/2018/10/06/technical-analysis-of-indian-markets/  few days back .

We had an interesting discussion today when he asked my view on why market action is so anaemic even in a face of 10 dollar fall in crude, shouldn’t we have got a bigger bounce?

My two cents…… I said look around you, the last fall, few days back coincided with a news story on India shadow banking system and Lehman Moment https://www.wsj.com/articles/a-big-problem-in-the-shadows-for-indias-financial-system-1538479585   in WSJ, raising concerns on already damaged credibility of our financial system. Incidences like what is happening currently at the  CBI  is eroding trust .Foreign investors think that rule of law is not getting followed and they don’t like it. Even if India has these policies why do you advertise them. Turkey , Argentina , South Africa are already spooking foreign investors and now India is also doing that… they will not invest incrementally till they see formation of new govt and its policies.

He agreed with me but also showed concern for Indian mutual fund industry because lot of money is riding on it and returns are falling short of expectation

My two cents….. Most Indian MF are not asset managers , they are asset gatherers and investors come lower in the priority of these MF . They need to concentrate more on Fund management than thinking of ways of just going after AUM. I guess they know it but just don’t care. My own worry is that the portfolios have become quite illiquid , have taken sub optimal risk and any forced redemption could wipe out market cap of these companies and he agreed with me .

He said that he sees a pattern in a large cap stock which has a very strong support 10% lower than current levels and from their it can rally 50-80%

My two cents……. I said that means this particular stock will become the largest weight in the benchmark ,other large cap will fall a lot more in coming years and concentration of market cap will become more acute. Unfortunately most MF don’t like that stock and their NAV will fall more than the Benchmark in coming fall.

He said that destruction phase in Midcap and small cap has played out…..In the second phase these sectors will see many constituents getting delisted or become extinct.

Now the turn of wealth destruction will be played out through large cap names….

He concluded that Base case for NIFTY is 10700-11000 and then a steadier correction to 8500 types… wherein large cap will suffer too. I agree

 

 

you can also write to him directly at

neppolian@jadellp.com

 

 

 

 

Popularity of India Stocks Over Past Decade Adds to Outflow Risk

This is an interesting article and as one sell side brokerage pointed out to me the risk is very high in high FII ownership stocks like Tata Motors, HDFC and HDFC bank
https://www.bloombergquint.com/global-economics/popularity-of-india-stocks-over-past-decade-adds-to-outflow-risk#gs.dTLbEFA

U.S. SHALE OIL INDUSTRY: Catastrophic Failure Ahead

SRSROCCO writes…U.S. shale oil industry continues to spend more money than they make from operations. While energy companies may have enjoyed lower costs when the industry was gutted by super-low oil prices in 2015 and 2016, it seems as if inflation has made its way back into the shale patch. Rising energy prices translate to higher costs for the shale energy industry. Rinse and repeat.
Unfortunately, when the stock markets finally crack, so will energy and commodity prices. Falling oil prices will cause severe damage to the Shale Industry as it struggles to stay afloat by selling assets, issuing stock and increasing debt to continue producing unprofitable oil.
I believe the U.S. Shale Oil Industry will suffer catastrophic failure from the impact of deflationary oil prices along with peaking production. While U.S. Shale Oil production has increased exponentially over the past decade, it will likely come down even faster.

https://srsroccoreport.com/u-s-shale-oil-industry-catastrophic-failure-ahead/

 

Top Law firm withdraws report of clearing a bank CEO

Now this article is not about Chanda Kochhar. This article is about a rotten system , a system of rich and famous and a system of you scratch my back and I scratch your back. An ordinary Indian is busy making his ends meet and he will also not having an understanding of these issues but unless regulatory bodies take note of these kind of events India is headed for banana republic.

Afterall who sheds tear when year after year Tax payer money is funneled into public sector banks so that they can continue to fund promoters with dubious background.

https://www.bloombergquint.com/business/top-law-firm-cyril-amarchand-mangaldas-withdraws-report-that-cleared-kochhar#gs.Ap3A690