Author: Ritesh Jain

Volatility to hit back with vengeance?

The chart below is oil volatility index. Low volatility is a precondition for breakout of volatility

One more chart showing narrow range

so how is the market positioned?

Highest long speculative position in oil in quite some time.

Highest short speculative position in US treasuries.Everybody is positioned for “REFLATION” trade and short treasuries

And everybody is short equity volatility (VIX) and hence Long Equities. From Trump is bad for equity markets to full on Trumpflation with rub on effect on our equities markets… how sentiment changes

So to summarise Market participants are unanimously long crude oil, long equities, short US treasuries and bonds in general,short VIX ( absolutely no fear)

when Everybody is on one side it require a little nudge and  the boat just tilts ……..that is the law of nature.

 

 

A world without US thanks to shale .. Peter Zeihan

The end of American dependence upon extra-continental energy sources does more than sever the largest of the remaining ties that bind America’s fate to the wider world, it sets into motion a veritable cavalcade of trends: the reindustrialization of the United States,the accelerated breakdown of the global order, and a series of wideranging
military conflicts that will shape the next two decades.– Peter Zeihan,“The Absent Superpower

Peter credits energy and resource innovations with reshaping the global geopolitical environment. He predicts by 2019, US oil production costs could drop to $25 per barrel, making US shale producers potentially the lowest cost oil producers on the planet. America’s move into energy independence he says, will reshape global dynamics for at least the next three decades.

Lithium …..the fuel of green revolution

The world is shifting greener and while people have always wanted electric cars and inexpensive solar battery, battery technology just wasn’t good enough to store energy till now.

The lithium ION battery solves this problem for two major reasons relating to lithium

  1. Lithium has extremely high electrochemical potential- making it much more efficient to use in everything from electronics to energy storage
  2. Lithium is the lightest metal on the periodic table. Batteries need to as light as possible, especially in electric cars.

In few years lithium will be able to light our homes for full day. Sadly this would be one more thing that we will have to import as India is not into lithium production due to topography.

Kraft bids for Unilever …… is it cheap money?

Kraft Heinz is smaller than Unilever, with a market value of $106 billion as of Thursday, it is 50.9-percent owned by Buffett’s Berkshire Hathaway Inc and 3G Capital, which also controls Anheuser-Busch InBev.

3G, known for driving profits through aggressive cost cutting, has orchestrated a string of big deals rocking the food and drink industry, including Anheuser-Busch InBev’s takeover of SABMiller and the combination of Kraft and Heinz (The Kraft Heinz Company is an American worldwide food company formed by the merger of Kraft Foods Group and Heinz in 2015. The merger was backed by 3G Capital and Berkshire Hathaway, which invested US$10 billion in the deal, making Kraft Heinz worth about US$46 billion).

A deal would offer opportunities to combine marketing, manufacturing and distribution in addition to cutting costs, but some industry analysts said Kraft might not want Unilever’s household and personal goods brands and could spin them off.

“This is cheap money meeting industrial logic,” said Steve Clayton, manager of the HL Select UK Shares fund at Hargreaves Lansdown, which owns Unilever shares.

In absence of growth (both Kraft and unilever are struggling on sales front)  the only way to satisfy shareholder and executive value (read greed) is through M&A if money is cheap. Although Unilever has spurned the offer, still if this merger were to go through the merged entity will have a virtual monopoly in household brand and dont forget it will also come with laying off lot of people.

 

 

How the black economy is (really) making poverty worse in India

Prof Arun Kumar of JNU is authority on Black money and has written a book “The Black Economy in India” where he writes… India’s white economy is inextricably linked with its black economy. Where in 1991 the black economy constituted about 35 per cent of the national economy, it had increased to 62 per cent by 2013. Both legal (industry, services, real estate, the share market) and illegal (hawala, smuggling, narcotic drugs) activities, as well as instances of corruption contributed to this situation. But the cash, or ‘black money’, circulating in the country is merely around 3 per cent of the total domestic black economy. In this scenario, how effective is the Central government’s move to demonetize 500 and 1000 rupee notes in November 2016? Arun Kumar critically examines the causes and consequences of black income generation and the possible methods for curbing it. Backed by empirical data, his incisive analysis lays bare the pernicious effects of black income on the macroeconomy and the resultant inefficiency in society. It also focuses on the nexus of businessmen, politicians and the executive in perpetuating the black economy .

RBI takes away the punchbowl and Egyptian Vacation

What good is a central banker which keeps interest rate high enough that kills market volaility,the lifeblood of traders , deprive media of sound bytes, hurt asset owners (basically rich guys)  and favors long term effect on real economy over short term gratification through stock market gains.

Meet Reserve Bank of India, now these are early days and I was the sceptical one after Dr Rajan left but watch the behaviour of Indian Rupee as compared to other Emerging market currencies against dollar in last couple of months when almost every EM currency has come under pressure except Indian Rupee

The CPI released this week surprised on the lower side  as Consumer prices in India increased 3.17 percent year-on-year in January of 2017, easing from a 3.41 percent rise in December and below market expectations of 3.22 percent. It is the lowest inflation rate since the series begun due to a sharp slowdown in food prices

But Indian wholesale prices (WPI) rose 5.25 percent year-on-year in January of 2017, following a 3.39 percent gain in December while markets expected a 3.89 percent rise. It was the tenth straight month of increase and the highest since July 2014, driven by a faster increase in cost of manufactured product and a surge in cost of petrol while prices of food fell less than in the prior month. On a monthly basis, wholesale prices went up 1.0 percent, compared to a 0.2 percent fall in December. WPI inflation came as a surprise to the market and vindicated RBI stance of keeping interest rate unchanged ( as per reuters poll 46 economist expected rate cut in this policy) and shifting bias to neutral from accomodative.

Rising WPI is a cause of concern because pricing pressure first comes out at wholesale level and then at retail level. so, we can safely say WPI is a leading indicator and CPI is a lagging indicator.

This is last oe year chart of CRB Index (CRB Index is calculated using arithmetic average of commodity futures prices with monthly rebalancing. The index consists of 19 commodities: Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, RBOB Gasoline, Silver, Soybeans, Sugar and Wheat)

CRB index is up 20% in last one year but we dont see this kind of movement in domestic prices simply because in absence of demand ,companies were absorbing this cost by increasing the productivity .Demonetisation hit perishable commodities so bad that in absence of hard cash with traders , farmers had to sell their produce at throw away prices leading to collapse in food inflation. I think companies will not be able to absorb anymore raw materials price hikes as it will start impacting the margins and will start increasing the output prices . With return of hard cash ,agri inflation will catch up  http://worldoutofwhack.com/2017/02/06/global-food-prices-on-a-sprint-up-16-in-last-one-year-diverge-from-indian-prices/ to global prices.

The single biggest beneficiary of RBI policy is Indian Rupee and if you are miffed that your home EMI is not going to come down further , dont blame the central bank, it is in the hand of your own bank (better banking cartel) or better enjoy a vacation with Egyptian Mummies. One Egyptian pound (currency of Egypt ) today equals 4 Indian rupee whereas just a year back 1 egyptian pound equalled 9 INR. So INR has appreciated more than 50% against Egyptian pound and consequently your egyptian vacation should be 50% cheaper.

 

This is what happens (Egypt)when inflation is left unchecked , central bank is BEHIND THE CURVE and listens to economist and political masters.

How are you preparing your Kids for a life with 60% unemployment

Stephen Hawking says that “we are at the most dangerous moment in the development of humanity” and that the “rise of artificial intelligence is likely to extend job destruction deep into the middle classes, with only the most caring, creative or supervisory roles remaining.”

Sam Hinkie, the smartest man in sports and a Stanford grad, asks, “How are you preparing your kids for a life with 60% unemployment?”

Uber is going to get rid of its drivers as soon as it can. Its job isn’t to hire lots of people – its job is to move customers around as efficiently as possible.

some data on India .The 12th Five Year Plan (2012-2017) document pointed out: “One hundred and eighty-three million additional income seekers are expected to join the workforce over the next 15 years.” This essentially means that a little over 12 million individuals will keep joining the workforce every year, in the years to come. This works out to around one million a month in an enviroment where employment generation has already come to a standstill.SO MUCH FOR DEMOGRAPHIC DIVIDEND.

India corporate board most independent …………really?

The chart looks good.

A look across 7,000 companies by A stotz investment research  in nine Asian markets finds that India has the highest board independence of 48% compared to the Asian average at 39%, followed by Singapore at 46% and Malaysia at 43%. More independent board should lead to better shareholder protection right?

Most promoter held companies in India have board members who are either related or known to promoters and that makes them hardly an INDEPENDENT