Author: Ritesh Jain

Bank credit growth collapses

The Bank credit increased 4.8 percent year-on-year in the two weeks to February 17th 2017. Loan Growth in India averaged 12.48 percent from 2012 until 2017, reaching an all time high of 18.70 percent in April of 2012 and a record low of 4.80 percent in February of 2017.

 

It is possible some of bank credit growth for higher rated corporates got substituted via commercial papers, subscribed by mutual funds hence not a part of bank credit growth rate.Still, it is not a sign of healthy economy and certainly not of an economy which is gowing at 7% . Rbi might have shifted its monetary stance to neutral but weak credit growth means bond yield might remain at current levels for some more time.

Snap is more valuable than these household names

Snap’s IPO valuation of $24 billion is quite a tall order for a company that has never turned a profit and warned investors that it never might. The company is now valued at 59 times its total revenue for 2016. Even for a fast-growing tech company that is a lot. Facebook in comparison has a price-to-sales ratio of around 14.

As Statista chart illustrates, Snap is now valued considerably higher than many American household names. That includes companies such as Ralph Lauren and Harley-Davidson that have been around for decades and probably will be for decades to come.

 

why Warren Buffett is so reluctant to call stocks a “BUBBLE”

On a macro basis, quantification doesn’t have to be complicated at all. Below is a chart, starting almost 80 years ago and really quite fundamental in what it says. The chart shows the market value of all publicly traded securities as a percentage of the country’s business–that is, as a percentage of GNP. The ratio has certain limitations in telling you what you need to know. Still, it is probably the best singble measure of where valuations stand at any given moment. And as you can see, nearly two years ago the ratio rose to an unprecedented level. That should have been a very strong warning signal.
Today, this measure is very nearly as high as it was at the peak of the dotcom mania. So you would think that this would naturally serve, in the words of Mr. Buffett, as yet another “very strong warning signal.”

 

Equity is the last man standing?

Lets start with Art

Art Market Bubble Bursting – Gauguin Priced At $85 Million Collapses 74%. Russian billionaire Dmitry Rybolovlev paid €54 million or $85 million for a landscape by Paul Gauguin (featured below) in a private transaction in June 2008. Yesterday, he incurred a whopping 74% loss on his store of value “investment” as reported by Bloomberg.

This painting was worth $85 million in 2008.

Bond Curve Flattening

Curve Watchers Anonymous is taking a hard look at the yield curve in light of the now odds-on market view of a March rate hike.

Before looking at the data below, where do you think rates are relative to January 2014? Up, down, or sideways?

Duration         1-Jan-14              1-Mar-17                  Direction
30 Year            3.96                     3.06                          -0.90
10 Year             3.04                    2.46                           -0.58
5 Year               1.75                     1.99                             0.24
2 Year               0.38                    1.29                             0.91
1 Year                0.13                    0.92                            0.79
30 Days            0.07                    0.63                            0.56

The 2-30 spread flattened by a whopping 181 basis points in just over two years.

The 2-10 spread flattened by 149 basis points.

Not to worry, despite poor economic reports, Fed governors have stated: “This is a surprisingly strong economy.”

And this is from CNBC “Wednesday’s strong showing for the stock market came as the Investors Intelligence survey of newsletter writers showed extreme bullishness again. The percentage of equity bulls came in at 63.1%, up from 61.2% in the prior week and the highest level since 1987. The survey is used as a contrarian indicator because excessive bullishness has been seen at or near market tops in the past”.

As Martin Armstrong writes, it is all about capital flow
“This European crisis is pushing up the Dow and capital flows from smart money is starting to vacate Europe headed into the Dow for that is where “big money” always hides. Of course, domestically, they are attributing this as always to just local issues now praising Trump’s speech as optimistic”

So Art bubble deflating, yield curve flattening, Equity investors overtly bullish and big capital hiding in dow.

Equity is the last man standing ….. lets see how long it lasts

 

Private consumption expenditure behind stellar GDP numbers?

The Central Statistical Office surprised the nation on Tuesday evening when it released advanced estimates of Gross Domestic Product growth for the October-December quarter. Despite widespread economic disruption caused by the Union government’s demonetisation move on November 8, the GDP figures have registered a robust growth of 7% in the third quarter. This defies predictions by most economists that weak consumption would drag the rate down well below that figure.

GDP when measured by expenditure method is obtained by adding private consumption expenditure, government consumption expenditure, investments and net exports (imports minus exports). The private consumption expenditure forms a bulk of the GDP measured through this method and this is what has grown by 10% in Oct dec period .

This when 86% of all valid currency notes were demonetised on November 8 and Indians were under tremendous pressure from arbitrary limits on bank and ATM withdrawals. How did people consume so much when there was an acute scarcity of cash?

I forgot they went on this spending binge by taking loans ,after all it is not necessary that people spend their hard earned money on consumption they can also take loans…… right?

Oops even growth in retail loans collapsed during oct-dec perios

So my guess is there is preponement of future purchases out of cash remaining with household. if it is true then it is clearly a case of upfronting the GDP

Indian Sales Fall as Demonetisation Effects Hit Small and Medium Size Businesses

The Sales Managers Index provide the earliest monthly data on the speed and direction of Indian economic activity.

The Indian Sales Managers Index (SMI) http://worldeconomics.com/SMI/India-SalesManagersIndex.efp for February, shows the after effects of the December demonetisation policy which was intended to crack down on corruption and “black money”. The February Headline SMI has fallen to an index level of 60.2 in unadjusted terms, the lowest level in over 3 years

Headline sales manager Index

Managers are reporting a big drop in monthly sales for both the consumer and industrial sectors, with small to medium size businesses that predominantly deal with cash transactions, being hardest hit.

Sales growth Index

Prices are rising for both services and manufacturing sector

Price charged Index

February SMI data suggests an erratic situation for Indian businesses as they meet market challenges with considerably lower levels of confidence, slower monthly sales and higher prices caused by the currency situation.

HSBC Balancesheet…..Always shrinking

HSBC is yet another bank that shows very well what is wrong with the global economy, because what is wrong is entirely about more than just the post-crisis era. We talk about a “dollar” shortage and there clearly is one, but the saga of HSBC demonstrates that this chronic shortage is just a symptom of the wider problem. The history of the bank’s balance sheet is one that is immediately recognizable in so many other forms:

The problem with HSBC today as author writes is a shortage of Eurodollar. In an indebted world and fractional banking system there is no scope for shrinkage of balancesheet.

Will India be left behind in new Industrial revolution?

Robot Invasion Map

This map-like infographic from Bloomberg shows the ratio of industrial robots to human workers by country and region.

Larger boxes mean more robots per human factory worker. By this measure, four Asian countries stand out for their highly automated industries: Singapore, South Korea, Japan, and Taiwan. Within Europe, Germany leads. The US has proportionally more robots than Canada, and the machines barely have a toehold in South America. The main point here is who’s missing: China has barely begun to automate. This can’t persist if Beijing wants to retain its export volumes. Chinese companies are now in a headlong rush to install industrial automation technologies, and the trend will likely accelerate .

what about India?

 

More Layoffs Likely As India’s Manufacturing Sales Shrink

Despite the government’s efforts to attract investment under its Make-in-India campaign, sales of manufactured goods fell 3.7% during 2015-16–the first decline in seven years–sparking fears of layoffs and debt default in the months to come.

Spurred by a global slowdown and lack of demand, sales of manufactured goods were falling even before demonetisation, affecting sectors ranging from textiles to leather to steel.

As a result, in the six months to September 2016, engineering major Larsen & Toubro laid off some 14,000 employees. Companies such as Microsoft, IBM and Nokia were also reported to have cut back on their workforce in 2016–albeit on a smaller scale–blaming sluggish demand for downsizing.

Modern day Bankruptsy of a developed country

“Greece is a developed country by most meaningful metrics. However, its well-documented financial struggles in the last decade have caused doubt in some quarters: Things became so bad in 2013 that index provider MCSI downgraded Greece from a developed economy to an emerging market economy.”

After the birth of currency Euro, it rose from 80 cents to 1.60 to a dollar. However, this tended to produce deflation, not inflation as imported prices fell putting pressure on domestic manufacturers and tourism became expensive thereby reducing earnings from tourism etc. and reducing sales. Deflation also increases the value of govt debt. To service the debt that doubled, they also then began to raise taxes more aggressively and this then was much like strip-mining the economy.
Germany benefited from the Euro because they were manufacturing products and selling them into Europe and did not have to worry about currency fluctuations.  The movement of creating a euro was to eliminate currency risk so the German manufacturers could sell their products throughout Europe.
Greece’s top three main industries are tourism, shipping, and industrial products. By joining the Euro, Greece lost the attraction of a cheap holiday for tourists and shipping prices rose. Greece is nowhere near attaining those manufacturing characteristics, and is often one of the smallest in this regard compared to Germany, Japan, and China. However, the Greek-owned fleet of ships remains where it has been for a very long time, at the TOP of the global ranking of shipowning nations. Joining the Eurozone has hurt Greek shipping increasing its cost and opening the door to competition. China is moving upwards rapidly in shipping, and potentially could overtake both Greece and Japan (the second largest) to become number one shipowner within a decade. Greece has not benefited from joining the Eurozone and this has been the greatest myth which has hurt the Greek people tremendously.
European tourism began to move outside the Eurozone for vacations because it was cheaper. Greece has an economy with a public sector accounting for about 40% of GDP and with per capita GDP about two-thirds that of the leading Eurozone economies, this has contributed greatly to its debt crisis. Tourism provides 18% of GDP, so joining the Euro was a complete disaster for tourism and when the government is 40% of GDP and produces nothing to export, the debt crisis simply escalates. A country which relinquishes its right to print its own currency can default. As Martin Armstrong writes “The likelihood of Greece have to exit the Eurozone is growing tremendously by the day”.

who thought a day will come when a developed economy will default on its debt?